U.S. STIRS UP IAEA BUDGET TALKS, LEAVES THE WAY

C O N F I D E N T I A L UNVIE VIENNA 000201

SIPDIS

FOR D, P, T, ISN, IO; DOE FOR NA-24, NA-25, NA-21; NSC FOR
SCHEINMAN, CONNERY; NRC FOR DOANE, SCHWARTZMAN

E.O. 12958: DECL: 10/30/2018
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: U.S. STIRS UP IAEA BUDGET TALKS, LEAVES THE WAY
OPEN FOR AN INCREASE

REF: A. STATE 41671

B. UNVIE 182

Classified By: Ambassador Gregory L. Schulte for reasons 1.4 b/d


1. (SBU) Summary: (This is a guidance request. Please see
paragraphs 15 - 17.) The U.S. delegation achieved its
primary goal during budget negotiations at the IAEA this week
to leave the door open to a "meaningful, real increase."
While the U.S. was alone in its strong appeal for a budget
increase, neither the EU nor the G-77 managed to contradict
the position as a bloc. An ad hoc and perhaps transitory
coalition of budget hawks, the "Gang of Seven" (Germany,
France, the UK, Mexico, Saudi Arabia, Switzerland, Canada),
called on the Secretariat to "revise the budget on the basis
of zero growth" but were stymied by the Board Chair's
activism, which we encouraged, on behalf of a real increase.
The G-77 also called for a revised budget, but left room for
increases in technical cooperation and safeguards. The G-77
rejected regular budget funding for nuclear security
activities, describing them as "not a Statutory function of
the Agency." The budget negotiations were testy at times and
left the U.S. largely isolated from the Europeans and other
traditional allies. This uncomfortable isolation, however,
at least leaves the U.S. free to pursue negotiations with the
G-77 in favor of a budget increase. In the lead-up to the
June 15-19 Board of Governors meeting, Mission hopes to
soften the stance of the budget hawks while encouraging the
G-77 to recognize that U.S. priorities also serve their own
interests. Continued support from the Washington
inter-agency process and from posts in G-8 and Board capitals
is essential to this effort.


2. (SBU) Mission requests guidance from Washington on 1) a
detailed budget position, including an overall goal for the
increase and range of budget numbers for each U.S. priority;
2) demarche instructions for Board capitals, particularly
France, the UK, Germany, Mexico, Saudi Arabia, Switzerland,
Canada, Japan, Egypt, Brazil, India, Russia and China as well
as for non-Board members Italy (as G8 president) and the
Czech Republic (as EU President),requesting support for a
significant budget increase, including nuclear security
activities; 3) prospects for intensifying U.S. efforts at
upcoming meetings of G-8 nonproliferation directors and other
venues in order to develop a G-8 consensus around a phased
budget increase. Washington reinforcement of Mission's
efforts left the way open for a budget increase, but we now
need to turn the disorganized opposition into a surge of
organized support. End Summary.


3. (SBU) After two days of negotiations in the IAEA's Program
and Budget Committee (PBC) April 27-28, the U.S. delegation
achieved its primary goal of leaving the door open to a
"meaningful, real increase" in the IAEA's 2010-2011 Regular
Budget. Ambassador Schulte's opening statement recalled
elements from President Obama's April 5 speech in Prague,
focusing on the role the IAEA should play in international
inspections, securing vulnerable nuclear material and
providing fuel assurances to countries interested in
developing nuclear power. Ambassador called for a
"meaningful, real increase in the regular budget and asked
that Member States refrain from rejecting outright the
proposed budget increase and instead remain flexible in their
approach to budget negotiations.


4. (SBU) No other delegation supported the U.S. position. On
the other hand, no other bloc - neither the EU nor the G-77 -
put forward an outright contradiction. Only the ad hoc "Gang
of Seven," a coalition stitched together by Germany during
the first day of deliberations, managed to deliver a harsh
statement calling for ZRG and a wholesale revision of the
budget proposal (below). Individual Member States also
called for ZRG, but without the support of their respective
blocs. Vice Chair Taous Feroukhi gave a healthy boost to the
U.S. position by closing the PBC with the comment, "Let us
recognize that the Agency needs the resources to do its work
and fulfill its mission."




The European Union
--------------


5. (C) As expected, the EU statement asked the Secretariat to
"elaborate more restrained alternatives" (reftel). The EU
statement was much softer than the harsh, "zero growth"
language preferred by European budget hawks Germany, France
and the UK. It came with a price tag, however: We were told
the Finns - along with Romania and Austria - resisted
pressure from the larger members and Czech EU president in
what was apparently a bruising process. According to the
Romanian delegate, Finland later skipped the final drafting
session of the PBC report in order to avoid any more EU
battles.

A "Gang of Seven" - but not for long
--------------


6. (C) During the first day of PBC deliberations, rumors
began filtering to the U.S. delegation that certain hard-line
European countries were seeking support for a "joint
statement" calling for a revised budget proposal based on
zero real growth (ZRG). The European hardliners had been
frustrated by their failure to achieve an EU or Geneva Group
consensus based on ZRG. The statement describes the budget
proposal as "not acceptable" and asks for a new budget
proposal that is "realistic, disciplined and in line with the
requirements dictated by the current financial crisis." The
statement concludes by asking the Secretariat to "submit
without delay a new draft budget...geared toward the goal of
zero growth."


7. (C) The Germans were particularly active on the floor of
the PBC, and it was likely their leadership that led to the
joint statement. For its part, France was particularly harsh
in the drafting session of the PBC report, working hard to
minimize language supportive of an increase and portraying
the U.S. as an isolated contrarian. Mexico's national
statement was among the most critical of all Member States.
Mexico's decision to join the Gang of Seven appears to
contradict Mexico's reported agreement at the Under Secretary
level to support a "range of options."


8. (C) Australia supports an even more severe position - Zero
Nominal Growth - but did not join the Gang of Seven given
instructions not to play a leadership role or disrupt
consensus. Saudi Arabia initially associated itself with the
Gang, but later backtracked on the position. A U.S.
intervention with Japan avoided their involvement with the
Gang of Seven. We anticipate Canada is the next most likely
state we can peel off.

The G-77
--------------


9. (C) The G-77 role in the PBC was relatively more subdued
than the OECD. G-77 statements called for increases in their
priority areas while signaling openness to some OECD
priorities, most notably, additional safeguards funding to
include the Safeguards Analytical Laboratory (SAL). There
was also strong resistance to additional regular budget
funding for the Nuclear Security program (reftel). G-77
stubbornness on this point (a U.S. priority) appears to be
gaining momentum and was a main target during the drafting
session of the PBC report. (Comment: A South African
delegate commented that the G-77's hard line on nuclear
security was intended to ensure that future technical
cooperation budgets increase in line with any other
expansion, rather than going through the laborious and
"humiliating" process of negotiating a TC target every two
years. End Comment.)


10. (C) In an intervention into Member State deliberations
rare in its detail and duration, Deputy Director General
David Waller debunked the G-77 assertion that the budget
proposal was "discriminatory" in raising resources for

Nuclear Security. While the Statute did not address nuclear
security by name, he noted the topic appropriately fell under
the Agency's purview as part of safety activities and its
Article II objective "to accelerate and enlarge the
contribution of atomic energy to peace, health and
prosperity." A U.S. proposal to include Waller's comments in
the final PBC report was flatly rejected by Brazil, Egypt and
Iran.

Potential Allies - Finland, Norway, Russia, Japan, India,
China, New Zealand
-------------- --------------


11. (C) Finland was the only country other than the U.S. to
offer direct support for the budget proposal. Finland
indicated a willingness to consider "reasonable and
necessary" increases and take the Secretariat's proposed
budget as the basis for negotiations. Norway is quietly
inclined to support Finland's approach. Russia also avoided
a hard line position and signaled privately its openness to
conservative increases, while explaining privately that they
did not have detailed instructions. Russia prioritized
funding for the Safeguards Analytical Laboratory (a U.S.
priority). Overall, the Russian position was more flexible
toward a possible increase than the vast majority of other
Member States.


12. (C) Japan responded positively to U.S. interventions and
made a last-minute change to its statement that hedged its
request for a revised budget proposal. During the drafting
session of the PBC report, Japan made only technical
comments, staying away from the aggressive push by European
budget hawks to delete pro-budget language. China signaled
privately that it was flexible on the budget, but not keen on
taking a leadership role. India is another potential
behind-the-scenes ally to a budget increase. The New Zealand
Ambassador indicated privately that there was room for
flexibility, but underlined that increases should be phased
and back-loaded in recognition of the current financial
crises.

A Boost from the Board Chairs
--------------


13. (C) Board Chair Taous Feroukhi has become a clear ally in
favor of an increase. When the German Ambassador intervened
in reply to her closing summary, Feroukhi rebutted his
renewed call for an entirely new budget, declaring that it
was preferable to "arrive at a reasonable increase to the
budget" and that she would "leave it to the Vice Chair"
(Romanian Ambassador Feruta). Privately, Feroukhi complained
about the proposed continuation of ZRG, saying, "look where
that has gotten us." Msnoff witnessed Feroukhi upbraiding
the Saudi counselor for having associated with the Gang of
Seven statement, which contradicted the position of the G-77,
of which Saudi Arabia remains a member. (The scolding was
effective; the Saudi later told the U.S. delegation that his
government would no longer stand in the way of a "reasonable"
budget increase, but wanted to know from us how much that
might be.)


14. (C) The Romanian delegation is privately supportive of
the U.S. position and has worked effectively behind the
scenes to disrupt EU consensus against an increase.
Publicly, however, Romania keeps mum in the interest of
appearing neutral in its role as budget negotiator.
Following the PBC, the Romanian Mission consulted with the
U.S. on the best way to move forward with budget
consultations. Romanian delegate Dan Necalaescu expressed
frustration that Member States had yet to detail their
positions (other than ZRG hardliners who by nature of their
position had little constructive to offer). Necalaescu
scolded the U.S. for losing ground by waiting until the PBC
to present a position. Necalaescu then urged UNVIE officers
to make up time by submitting concrete proposals to Romanian
Vice Chair Feruta that could be used as a basis for
negotiation.


Numbers Needed
--------------


15. (C) The U.S. achieved its PBC goal of leaving the way
open to a significant increase in the IAEA budget.
Unfortunately, the Europeans' inability to raise an organized
resistance should not be taken as a sign that they in any way
support it. E3 positions in favor of zero growth are
cemented and unlikely to change without a high-level lobbying
effort. At the same time, the G-77 has reacted to the
obvious deterioration in unity among EU and Geneva Group
members with a certain satisfaction (and even glee). While
it is not entirely clear why Nuclear Security has become a
target of G-77 countries, they aptly perceive that OECD
disarray works to their advantage. Unfortunately, the sense
of having the upper hand may encourage the G-77 to harden its
stance against Nuclear Security and expand its demands for
technical cooperation.


16. (C) Per Chairwoman Feroukhi's response to a Canadian
question during the adoption of the PBC report April 29,
Romanian Ambassador Feruta will soon begin his attempts to
hammer out a consensus on 1) the overall percentage increase,
2) potential for phasing funding increases over multiple
biennia, and 3) specific priority areas to receive
proportionally greater regular budget resources. He is
supported by Board Chair Feroukhi, who clearly wants a
consensus from Member States on a real increase by the time
of the June 15 Board of Governors meeting. The impromptu
Gang of Seven and other budget hawks will be hampered by
their nay-saying approach, which denies them a bargaining
chip with the G-77. The U.S. is therefore in a prime
position to step into the void and lead the debate. The
sooner we are able to present Ambassador Feruta (privately) a
target budget figure and bands of acceptable price tags for
each U.S. priority, the sooner we can get to work bringing
around the G-77. We would also use this target privately
with the IAEA leadership to encourage their further work in
elaborating a compromise budget.

Request for Guidance
--------------


17. (C) Mission requests guidance from Washington on: 1) A
more detailed budget position for use in private
conversations with Board Vice Chair Feruta. The position
should include a set of parameters identifying target funding
levels for each of the Major Programs, in conformity with an
explicit, overall percentage increase; 2) Instructions to
posts in key capitals asking them to relinquish their ZRG
position and support a significant increase in the IAEA
budget. These instructions should go to posts in Germany,
the UK, France, Mexico, Switzerland, Canada, Russia and New
Zealand. Mission also requests instructions to G-77
heavyweights Egypt, Brazil, India, Saudi Arabia, South Africa
and China asking for a supportive stance toward Nuclear
Security as part of a broader increase that will include
proportional increases for technical cooperation; 3) A
lobbying campaign at upcoming meetings of the G-8
nonproliferation directors and other venues in order to
develop G-8 consensus around a significant budget increase.
These efforts would further counteract the European
hard-liners and play off the willingness of Russia to
entertain an increase. Italian Chair of the Nonproliferation
Directors Group (NPDG),Fillipo Formica, is already aware of
the U.S. desire to include the issue as an agenda item for
the next meeting June 5. Mission stands ready to contribute
to talking points on all three topics, and will produce a
Nuclear Security "fact sheet" as an aid to negotiating with
G-77 Members.


18. (U) Note: Several Member States have complained about the
U.S. use of the term "meaningful" budget increase and prefer
the term "significant." (In their eyes, significant is a less
ambiguous term that translates more meaningfully into other
languages.)





SCHULTE