EU SCENESETTER FOR CODEL KANJORSKI

UNCLAS SECTION 01 OF 04 BRUSSELS 001193

SENSITIVE
SIPDIS

STATE FOR EUR/ERA - TRANSMIT TO CONGRESSMAN KANJORSKI CHIEF OF STAFF
KAREN FEATHER

NOT FOR INTERNET DISTRIBUTION

E.O. 12958: N/A
TAGS: ECON PREL ETRD ENRG SENV KHGH KJUS KTFN EUN
SUBJECT: EU SCENESETTER FOR CODEL KANJORSKI

For Chairman Kanjorski from Charge Christopher W. Murray


1. (SBU) I would like to welcome you and the members of your
Delegation to Brussels. You are arriving at a time when the change
in U.S. Administration and the press of global events have pushed
U.S.-EU cooperation to new heights across a range of economic and
political issues. The EU and its Member States are our most
valuable partners in meeting international challenges, whether in
Afghanistan, Pakistan or the Middle East, on addressing climate
change, or in responding to the global financial crisis. We can
leverage new European goodwill toward the U.S. to encourage European
coordination with our financial regulatory and supervisory reform
efforts, and avoid problematic regulatory divergences that could
hamper ongoing U.S.-EU economic progress. Your discussions will
focus on financial regulation, but many of the issues discussed
below may come up during the extensive conversations you will have,
including with Commissioners Almunia and McCreevy and the members of
the European Parliament.

OVERVIEW OF U.S.-EU RELATIONS UNDER THE NEW
ADMINISTRATION
--------------


2. The European Union (EU) and its 27 Member States are America's
most valuable international partners on matters vital to our
national security and global economic and political stability. The
Iraq war and rejection of the Kyoto Protocol on climate change
chilled relations with the EU during the first term of the Bush
Administration, but relations began to improve during the second
Bush term. After the Obama Administration came into office, the
President called at the April 2009 U.S.-EU Summit in Prague for a
profound renewal in transatlantic relations. EU leaders responded
enthusiastically, and now actively seek U.S. partnership across the
range of political, economic and law enforcement issues.
Relationships between the Congress and the European Parliament are
likewise strengthening, as the Parliament is likely to gain
significant new powers, if the EU's Lisbon Treaty is adopted.

EU INTERNAL POLITICAL DYNAMICS
--------------


3. (SBU) After 50 years of U.S.-encouraged integration, the EU's 27
member states, including major European powers the UK, France and
Germany, must now work in concert on virtually all economic policy
issues. While individual member states can lead the EU, they are
increasingly constrained from operating independently of it. The EU
works through three main institutions. The European Commission, led
by the Commission President, is composed of Commissioners from each
Member State and over 30 directorates general charged with managing
particular policy areas. The Commission acts as the EU executive
and proposes legislation. The Council, led by a rotating national
Presidency, is composed of Member State heads of State and Ministers
and acts to uphold Member State interests in EU legislation and
policy development. The European Parliament, composed of 754
members directly elected to it from all Member States, has
co-decision authority with Council on the EU budget and on all EU
legislation, and engages in oversight of other EU institutions.


4. (SBU) The EU is in the midst of a year of transition, with a new
Parliament having just begun its five-year term, the Commission
aut to finishd Lisbom; strengthen EU capabilities in foreign policy defense and
security spheres; and increasQ the powers of the European
Parliament, especially with respect to law enforcement. Irelandwill hold a referendum in October on adopting ty. If the
Irish referendum passes, the Czech and Polish Prsidents will face
tremendous pressure to signthe Treaty. The European Commission
will likQly extend its term three months, until January Q010, to
give the Lisbon Treaty time to take effect, so a new Commission
would come in under the new treaty.


5. (SBU) The new European Parliament has seen major changes in
leadership at the top and in key committees. Former Polish Prime
Minister Jerzy Buzek is the first leader of a major EU institution
to come from a new member state, and may put issues of concern to
these countries-such as energy security-higher on the agenda. The
European Parliament continues to be dominated by the European
Peoples Party (EPP, right of center, often Christian Democrats) and
the Progressive Alliance of Socialists and Democrats (left of
center, generally European socialist parties),although smaller

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groups such as the liberals and some parties seen as farther to the
right increased their relative weight. A major change in this
Parliament was the withdrawal of the British Conservatives from the
EPP in favor of a smaller, more conservative (and less pro-EU
integration) political grouping, reducing the voice of British
conservatives on many matters, including financial regulation.
Sharon Bowles, the new chair of the ECON committee, with
jurisdiction over financial supervisory and regulatory legislation,
is a UK liberal with sympathies toward U.S. views on regulatory
proposals. Bowles has four heavyweight vice presidents, however,
over whom she will need to establish her authority. She will also
need to avoid seeming too close to the UK position opposing stronger
financial regulation, lest she risk losing credibility within the
Parliament.

FOREIGN POLICY AGENDA
--------------


6. (SBU) The European Union and its Member States are our most
capable and influential international partners on foreign policy
issues. EU leaders have welcomed the new Administration's many
initiatives and shown a renewed willingness to work with us on
global challenges, despite some differences over how to reach some
shared goals. The U.S.-EU agenda now focuses on bringing stability
not only in Europe (such as in the Balkans and the Caucasus),but
also in regions such as Afghanistan, the Middle East, Iran, and
Africa. The U.S. encourages EU accession for Turkey and appropriate
Balkan countries; although accession talks with Turkey continue to
stagnate. We work together to promote stability in Bosnia and
Herzegovina and assist Kosovo's transition to a politically stable
and economically viable country. The U.S. welcomed the EU's new
Eastern Partnership Initiative as part of our mutual efforts to
promote democracy, stability and prosperity, especially in Ukraine,
Georgia and Belarus. We consult on how to encourage Russia to play
a constructive role in the region.


7. (SBU) The U.S. works increasingly in tandem with the EU as it
plays a greater role in promoting global security. In response to
Vice President Biden's March request, the EU stood up a sizeable
election observer mission in Afghanistan. Despite skeptical public
opinion, the EU's commitment to Afghanistan and Pakistan includes
billions of dollars in aid, a police training program in
Afghanistan, and increasing political and economic engagement with
Pakistan. We count on the EU and several member states to support
efforts at peace in the Middle East, where the EU is the largest
donor of assistance to the Palestinians. The EU has
enthusiastically welcomed Senator Mitchell's efforts to restart
Israel-Palestinian negotiations, and the Administration's firm
stance on settlements. The EU retains the lead in "P-5 plus one"
negotiations with Tehran regarding its uranium enrichment
activities, and European support is essential to the effectiveness
of the UN Security Council Resolutions directed at Iran.
Differences over the effectiveness of sanctions continue to be part
of the debate. The EU launched its first naval mission late last
year to combat piracy off the coast of Somalia and is the largest
contributor to the African peace-keeping force in Darfur and to
international humanitarian operations.

LAW ENFORCEMENT AND COUNTERTERRORISM COOPERATION
-------------- ---


8. (SBU) The U.S. and EU recognize that transnational crime and
terrorism pose a threat to our shared values of democracy, rule of
law, and respect for fundamental rights and freedoms. Our progress
is reflected in our agreements on extradition and mutual legal
assistance, information on flight passengers, customs cooperation,
collaboration in tracking terrorist financing, and EU assistance in
facilitating the closure of the Guantanamo Bay detention facility.
We have also forged a close operational partnership leading to
international agreements and working arrangements with respect to
major EU institutions such as Europol, Eurojust, and Frontex. As
the EU is currently reviewing its policy and should adopt a new
5-year plan addressing these issues by the end of the Swedish
Presidency in December 2009, the USG is working to identify new
opportunities to further enhance our daily engagement across the
spectrum of law enforcement and counter-terrorism challenges:
facilitating mobility in a secure environment, strengthening law
enforcement and judicial cooperation, safeguarding fundamental
rights and civil liberties, and working together internationally to
foster shared principles around the world. Some of these issue,
especially with respect to law-enforcement and data privacy, may
come up, especially in your meetings with Parliamentarians.

BROAD BILATERAL ECONOMIC AGENDA
--------------

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9. (SBU) The United States and EU remain the drivers of the global
economy, despite media focus on the rise of Asia. We have led the
creation of the global rules-based trading system, generate over
half of global GDP and have nearly $3 trillion invested in each
other's economies. Transatlantic trade in goods and services - much
intra-firm - is near one trillion dollars per year. The stock of
U.S. FDI in Ireland alone of $146 billion was more than double the
total U.S. investment stake in Russia, India and China combined ($71
billion) in 2008. The EU has more invested in California alone than
in China. Given these links, the U.S. works with Europe on every
conceivable economic issue, in most cases cooperatively rather than
in conflict. Transatlantic economic cooperation is most active in
the areas of capital markets, trade and combating protectionism, and
energy and climate.


10. (SBU) The global financial crisis tested U.S.-EU cooperation in
several respects. Many in Europe tended to blame the U.S. for the
crisis, and initial U.S. and EU responses were out of sync, due
primarily to differences in legal authorities and political
timelines. The new U.S. Administration initially focused on
stemming our economic threats, including through the $787 billion
stimulus package. The EU, on the other hand, without authority over
fiscal policy, promoted a small stimulus, leaving larger efforts to
individual Member States. The EU emphasized reform of financial
regulation and supervision, because it has competence over
legislation in this area and due to the need to act quickly to pass
measures before the impending transitions in the European Parliament
and Commission. The EU has since implemented a number of measures,
including on insurance regulation (Solvency II),deposit guarantees,
capital requirements and regulation of credit rating agencies. The
EU has proposed legislation on a new supervisory architecture for
the EU financial sector, including the creation of a macroprudential
Systemic Risk Board, and at microprudential level, three supervisory
authorities for banking, securities and insurance. In addition, the
EU has also proposed legislation to regulate alternative investment
fund managers (AIFM),covering both hedge funds and private equity
firms, and have recently proposed additional changes to capital
requirements. All of these proposals still need Parliament and
Council approval, not likely before the end of 2010.


11. (SBU) Recognizing that a better functioning transatlantic market
will promote growth at home as well as globally, U.S. and EU leaders
in April 2007 signed a Framework to Promote Transatlantic Economic
Integration that in turn established a cabinet-level Transatlantic
Economic Council (TEC). The TEC aims to identify specific steps to
promote regulatory cooperation, capital markets integration, open
investment, innovation, intellectual property rights (IPR)
protection, and secure trade on a transatlantic basis, even as we
work to open markets in third countries. The Transatlantic
Legislators', Business and Cotivednda items and push for
met thrtandards,
toy anQef. Further, both officials have publicly stated a
desire to find solutions for other bilateral trade disagreements.
The administration is also working closely with the EU to reach an
agreement on a multilateral trade agreement among the 153 members of
the World Trade Organization (the so-called "Doha Round"). Despite
this positive trade relationship, there are certain persistent trade
disagreements that remain: each of us has brought the other to the
WTO alleging WTO-inconsistent aircraft subsidies, a case that is
on-going; the United States remains concerned over EU restrictions
on imports of various food products, including U.S. biotech products
and poultry, based on specious food-safety grounds; and the EU is
concerned about - and generally raises in meetings with U.S.
officials - provisions of the U.S. stimulus package that require
government purchases of products of U.S. origin (the so-called "Buy
American" provisions). On this latter issue, we have noted to the
EU that the provisions are consistent with U.S. international
obligations.


13. (SBU) Transatlantic cooperation on climate change currently is
focused on the UN negotiations, both how the United States and the

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EU coordinate positions, but also how to bring along major emerging
economies, notably China and India. Relations generally are good,
and though there are differences in approach, we share common goals
to move toward low-carbon economies. The Department of Energy leads
a cooperative effort under the U.S.-EU Science and Technology
Cooperation Agreement to research low-carbon technologies, including
biofuels, carbon capture and storage, and solar power. As the EU
passed its climate and energy legislative package at the end of last
year, designed to fulfill its "20-20-20 in 2020" climate goals (20
percent emissions reduction from 1990, 20 percent use of renewable
energy, and 20 percent improvement in energy efficiency in 2020),
there is strong interest in the Waxman-Markey bill and the current
discussions in the Senate. U.S. Special Envoy for Eurasian Energy
Ambassador Morningstar recently proposed the creation of a U.S.-EU
Energy Council with the intent of bringing high-level attention to
our energy cooperation, notably energy security, energy policy, and
renewable energy.


14. (SBU) We look forward to your visit and the extensive
discussions you will have.

MURRAY