US embassy cable - 04THEHAGUE101

UNCLAS SECTION 01 OF 02 THE HAGUE 000101 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AC/CB, NP/CBM, VC/CCB, L/ACV, IO/S 
SECDEF FOR OSD/ISP 
JOINT STAFF FOR DD PMA-A FOR WTC 
COMMERCE FOR BIS (GOLDMAN) 
NSC FOR CHUPA 
WINPAC FOR LIEPMAN 
 
E.O. 12958: N/A 
TAGS: PARM, PREL, CWC 
SUBJECT: CHEMICAL WEAPONS CONVENTION (CWC): EXPANSION OF 
WORKING CAPITAL FUND 
 
REF: A. (A) 03 THE HAGUE 2979 
     B. (B) 03 THE HAGUE 2944 
     C. (C) CWDEL-AC/CB E-MAILS 
 
 This is CWC-5-04. 
 
1.  (U) Summary and Request for Guidance:  January 27 
consultations at the OPCW will focus on a proposal to expand 
the Working Capital Fund (WCF) and extend the period for 
replenishment of the fund.  Delegation believes the 
initiative can be the basis for resolution of the cash flow 
aspect of the difficulties regarding Article IV and V 
payments.  We request authorization to support the proposal 
"in principle," while making clear that final U.S. support 
requires extensive work on a number of important details 
regarding the proposed changes to the WCF.  End Summary and 
Request for Guidance. 
 
2.  (U) On January 27, informal consultations will be held at 
the OPCW on the issue of Article IV and V payments.  The 
focus will be on the recommendations of the Advisory Body on 
Administrative and Financial Matters (ABAF) to resolve this 
issue.  This proposal, strongly supported by the Technical 
Secretariat (TS), calls for expanding the Working Capital 
 
SIPDIS 
Fund (WCF) to finance Article IV and V inspections, extending 
the repayment period for the WCF, and using future payments 
by possessor states to replenish the WCF.  The initial 
increase in the WCF would be drawn from previous years' cash 
surpluses (REFs). 
 
3.  (U)  The Geneva Group (representing the principal 
financial contributors to the OPCW) met on December 16 to 
plan the group's agenda for 2004 and review financial and 
administrative issues facing the Organization.  The 
participants agreed that finding a structural solution for 
Article IV and V payments was the group's top priority. 
Johan Verboom (Netherlands), facilitator for the Article IV/V 
funding issue, acknowledged that the ABAF recommendation does 
not finally resolve the Article IV/V issue, since it does not 
address the problem of "fictitious income" (anticipated 
payments from possessor states that are not received because 
inspection activities are below projections). 
 
4.  (U)  However, emphasized Verboom, the ABAF proposal would 
solve the cash flow problem, which was a "very important" 
element of the Article IV/V issue.  Verboom personally 
favored the proposal for the further practical reasons that 
it did not require the creation of a new funding mechanism 
within the Organization and because the ABAF recommendation 
already enjoyed a near consensus among States Parties and 
within the TS.  He hoped this "very good" solution would not 
be jeopardized in hopes of securing a "perfect solution, 
which does not exist." 
 
5.  (U) Geneva Group co-Chairman Peter Beerwerth (Germany) 
addressed the point that the USG and other States Parties, as 
a matter of policy, favored returning surplus funds to member 
states.  He pointed out that the Conference of States Parties 
had already agreed that the cash surplus from previous years 
(most of this the result of late Article IV/V payments by 
possessor states) should be used to "ensure the 
implementation of the approved 2004 program of work... in the 
event of disruptions in Articles IV and V income..." 
Beerwerth added that under the ABAF proposal, repayments by 
possessor states for Article IV/V inspections would not enter 
the WCF as a "surplus," but would, instead, be used for their 
intended purpose -- funding Article IV and V inspections.  It 
was not a question of whether or not surplus funds would be 
returned to States Parties. 
 
6.  (U) Verboom summarized three aspects of the Article IV/V 
problem: 
 
- when fewer inspections took place than anticipated, 
inspectors' salaries are not covered by possessor states; 
 
- when more than expected inspections took place, 
unanticipated costs are incurred; 
 
- repayment by possessor states lags actual inspection 
activity by months or years. 
 
A larger WCF, with a longer repayment period, he said, would 
help address the important cash flow component of the issues 
noted above.  Particularly in view of the key procedural 
advantage of using an already established fund, and the 
momentum that had developed behind the ABAF proposal, Verboom 
said he "hoped all will agree" to consultations on the basis 
of this proposal. 
 
7.  (SBU) Del strongly believes the ABAF proposal can be the 
basis for a resolution of the cash flow problem involved with 
Article IV and V.  While it will not eliminate all of the 
Article IV/V difficulties, it can remove a key problem and 
improve the ability of the OPCW to pursue prudent financial 
planning.  All delegations are aware of the fact that the 
ABAF proposal is an exception to the general rule of 
returning cash surpluses to member states, and of the general 
requirements in the UN system for funds to cushion against 
unforeseen costs or events.  However, the overwhelming 
sentiment is that the vagaries of the Article IV/V problem 
clearly warrant an exceptional measure for the OPCW. 
 
8.  (SBU)  We recognize that there remains a substantial 
amount of work that needs to be done on the details regarding 
the ABAF proposal.  However, we strongly believe the proposal 
is worthy of support, and therefore request authorization to 
agree "in principle" to the ABAF recommendation at the 
January 27 consultations.  While making that statement, we 
would emphasize that final U.S. support is conditioned on 
resolution of the details of the changes to WCF operations, 
including, but not limited to, the following issues: 
 
-- the specific amount of WCF expansion; 
-- the period of repayment of funds drawn from the WCF; 
-- conditions on use of funds taken from the WCF; 
-- controls over the spending of the funds in the WCF; 
-- the period of time member states will have to pay invoices. 
 
9.  (U)  Javits sends. 
 
SOBEL