US embassy cable - 03ROME3701

C O N F I D E N T I A L  ROME 003701 
 
SIPDIS 
 
 
COMMERCE FOR BIS WILLIAM DENK AND ITA DAVID DEFALCO 
 
E.O. 12958: DECL: 08/14/2013 
TAGS: ETTC, PREL, MASS, MCAP, TW, IT, EXPORT CONTROLS 
SUBJECT: U.S. COMPANY PUSHING FOR RELEASE OF TAIWAN SUB 
EXPORT LICENSE 
 
REF: A. SECSTATE 75137 01 (NOTAL) 
     B. BENJAMIN-EBITZ E-MAIL 7/21/03 
 
Classified By: Charge d'Affaires Emil Skodon for Reasons 
1.5 (b) and (c) 
 
Please see action request in para 8. 
 
1. (C) Summary.  Kollmorgen, a U.S. producer of 
electro-optical submarine systems, has requested Embassy 
assistance in obtaining a sensitive export license for the 
firm's Italian subsidiary.  The Italian company, Calzoni, 
which makes lifting devices for Kollmorgen's EO system, has 
requested the Italian MFA approve a license that would allow 
it to compete for eventual work in the U.S. Navy's Taiwan 
submarine program.  Embassy engaged the MFA and the Ministry 
for Productive Activities in early June, but has since 
learned that the program is stalled.  We are reluctant to 
press further for a license approval without guidance from 
Washington.  End Summary. 
 
2.  (SBU) At the request of the U.S. company, Kollmorgen 
Electro-Optical, Embassy has over the past few months engaged 
in efforts to help the firm's wholly-owned Italian subsidiary 
secure an export license for the provision of non-lethal 
operating equipment to the U.S. Navy's Taiwan submarine 
program (TSP).  The subsidiary, Calzoni, specializes in 
so-called Universal Modular Masts (UMMs), which serve as 
lifting devices for Kollmorgen's electro-optical submarine 
systems.  According to information from ODC Rome, the U.S. 
Navy considers the integrated system to be the best 
performing and most durable in the world.  We took up the 
advocacy project based on an understanding that the Taiwan 
sub program was moving forward, and that a request for 
proposal (RFP) for the design phase was forthcoming soon. 
 
3.  (C) Kollmorgen initially approached ODC with a request 
for assistance in January, and followed with a joint 
Kollmorgen/Calzoni briefing to Embassy officials in March. 
Their urgency was predicated on a predicted RFP issuance 
timeline of spring/summer 2003.  At the March briefing and in 
follow-up conversations in May, Kollmorgen/Calzoni 
representatives informed ODC and Embassy Econ officers that 
the license approval process was "stuck" at the MFA Office 
for Arms Export Controls.  According to the representatives, 
Office Director Ferdinando Zezza told them during 
consultations that the matter, because of its sensitivity, 
would only be resolved through "political intervention". 
(Note: We understood this to mean that a positive outcome 
would require FM Frattini's direct support, presumably 
because of Italy's concerns about alienating China were a 
license approved.  End Note)  Following internal 
deliberations, we decided that an initial approach through 
diplomatic channels was warranted. 
 
4. (C) POLMINCOUNS on June 4 raised the licensing issue with 
Deputy PolDir Claudio Bisogniero.  He explained that 
Kollmorgen had told the Embassy that it might have to sever 
its relationship with Calzoni in the event the UMM export 
license was denied.  Kollmorgen, POLMINCOUNS said, valued its 
relationship with Calzoni, but was committed to competing for 
the TSP and would develop an indigenous capacity to produce 
the masts if necessary.  Bisogniero said he needed to look 
into the matter before providing a response.  ECONMINCOUNS, 
also in early June, conveyed the interest of 
Kollmorgen-Calzoni in obtaining the license to the Diplomatic 
Advisor to the Ministry of Productive Activities (MPA), who 
took the matter on board.  Neither Italian interlocutor has 
since raised the issue with the Embassy. 
 
5. (C) Subsequent to our diplomatic engagement, ref B e-mail 
exchange clarified for the Embassy that the Navy's Taiwan 
submarine program is not ready to move into the design and 
construction phase.  We understand that the program may be at 
least two years away from getting off the ground (Note: 
Embassy also understands that options which do not involve 
the building of new subs are also being considered in 
Washington.  End Note)  Embassy conveyed our awareness of 
this new information to Kollmorgen, now indicating our 
reluctance to re-address the licensing issue with the MFA and 
the MPA. 
 
 
6. (C) Kollmorgen representatives informed us that its parent 
company, the Washington-D.C.-based Danaher Corporation, 
nevertheless believes it may have to sever the relationship 
with Calzoni if a license is not granted in the immediate 
future.  Kollmorgen officials have explained to us that 
Danaher wants to be in a strategic position to compete for 
all future U.S. (and foreign) sub programs with one 
integrated electro-optical system.  If the Italian Government 
does not grant an export license to Calzoni in the near term, 
Kollmorgen officials assert that Danaher will move to develop 
an independent--if costly--capacity to produce the UMMs, 
making the relationship with the Italian company superfluous. 
 Comment: It is not clear to us why Danaher would want to 
sacrifice a tried and true relationship with a quality 
Italian firm to ensure that it can compete for a program that 
has yet to gel.  But this is what we have been told.  End 
Commment. 
 
7. (C) Based on available information regarding the status of 
the TSP, and lacking further guidance from Washington, we are 
reluctant to push the MFA harder on a license approval.  This 
issue strikes us as one that the Italian firm Calzoni should 
continue to work through its contacts with the Italian 
Government.  Calzoni, apparently, has the most to lose if a 
license is not granted, and Italy can weigh for itself the 
potential job losses against any political downside. 
 
8. (C) Action Request: Please advise if Embassy should 
re-engage with the Italian Government to seek a license 
approval for Calzoni.  If there is a positive decision to 
have us move forward, Embassy would appreciate talking points 
to use with Italian officials that include a policy overlay 
to the economic interest the corporate entities have in 
seeing the license released.  End Action Request. 
 
Skodon 
 
 
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 2003ROME03701 - Classification: CONFIDENTIAL