US embassy cable - 03ROME4241

UNCLAS  ROME 004241 
 
SIPDIS 
 
 
SENSITIVE 
 
STATE FOR EB/TPP/BTA/ANA 
COMMERCE FOR DAS JOE PETRINI 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, IT, CH, EUN 
SUBJECT: ITALIAN VIEWS ON OECD STEEL SUBSIDIES DISCUSSIONS 
 
REF: SECSTATE 242377 
 
Sensitive But Unclassified -- Not for Internet Distribution 
 
1. (U) This is an action request. See para. 7. 
 
2. (SBU) During its EU Presidency the GOI is hoping for 
progress towards an agreement on steel subsidies among major 
steel-producing countries, as currently being worked by the 
High Level Group (HLG) under the auspices of the OECD. 
However, Ministry of Productive Activities official Giuseppe 
Lorenzini, who is chairing the EU's Article 133 subgroup on 
steel issues during the Italian EU presidency, told econoff 
September 15 that Italy was disappointed at the reported lack 
of progress made on both Articles 3 and 4 of the draft Steel 
Subsidies Agreement during the informal meeting of the OECD 
Steel Disciplines Study Group in Moscow in early September. 
The results of the Moscow meeting, and the October 6-8 
meeting of the next formal OECD meeting on steel subsidies, 
is on the agenda of the Sept. 18 EU Article 133 steel 
subgroup meeting. 
 
3. (SBU) Though Italy did not attend the Moscow meeting, 
Lorenzini said the GOI is especially concerned about demands 
by China raised in Moscow that have the potential to derail 
the steel subsidies discussions.  Lorenzini gave us a copy of 
the Sept. 5 letter from the OECD's Wolfgang Huber to HLG 
participants that relayed China's "serious doubts" regarding 
the current efforts to craft an agreement on steel subsidies. 
The letter provides China's requests to the other HLG 
participants in order to maintain its continued participation 
in the talks: recognition of China's "market economy status" 
in terms of the Chinese steel industry; a guarantee that no 
transitional product-specific safeguard mechanisms will be 
taken against Chinese steel products; recognition under an 
eventual agreement that China is a developing country; and 
that the eventual agreement not be brought into the WTO 
framework. 
 
4.(SBU) The GOI believes that acceding to all of China's 
demands will be difficult.  Lorenzini noted that even in the 
unlikely event that the other HLG participants were to accede 
to China's request, other countries participating in the 
talks might then seek similar conditions as well, further 
undermining any agreement.  The GOI is concerned that China's 
requests go too far, but it is also worried that a Chinese 
pullout from the discussions would seriously weaken the 
effectiveness of any potential agreement.  Lorenzini told us 
he raised Italian concerns with a diplomat from the PRC 
Embassy in Rome. Though apparently not very familiar with the 
issue, the Chinese diplomat gave Lorenzini the impression 
that China remains skeptical of the entire approach on steel 
subsidies being pursued through the OECD talks. 
 
5. (SBU) Lorenzini said that Italy would not agree to a weak 
accord that fails to recognize the progress made in countries 
like Italy, which he noted had worked hard to create a more 
modern and competitive steel sector.  He cautioned against an 
agreement providing too many concessions to developing 
country participants. The Italian steel industry is 
particularly concerned that the current level of steel 
exports from China could turn into a flood if a slowdown in 
China's economic growth were to inhibit the growth of 
domestic steel demand. 
 
6.(SBU) Given the number of smaller-scale steel producers in 
Italy, the GOI is particularly attuned to the eventual 
wording of Article 3 regarding excepted subsidies, according 
to Lorenzini.  Italy will pay close attention to defining the 
circumstances under which such subsidies could be applied. 
 
7. (SBU) Action Request: Lorenzini said the GOI is keenly 
 
interested in current USG views on the state of play on the 
steel subsidies talks, particularly in advance of the October 
HLG meeting. The GOI would welcome U.S. views on the four 
conditions sought by China to maintain its participation in 
the talks, and the extent to which a pullout by China would 
impede the effectiveness of an eventual subsidies agreement. 
SEMBLER 
 
 
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 2003ROME04241 - Classification: UNCLASSIFIED