US embassy cable - 04ROME2829

S E C R E T  ROME 002829 
 
SIPDIS 
 
 
STATE FOR PM/DTC, NP/ECNP, EUR/WE 
DOD FOR ISP/SPACE POLICY - SCHWENKE 
 
E.O. 12958: DECL: 07/21/2014 
TAGS: ETTC, PREL, EIND, PARM, TSPA, IT, CH, IR, EXPORT CONTROLS 
SUBJECT: U.S.-ITALY DUAL USE EXPORT CONTROL CONSULTATIONS, 
JUNE 23-24, 2004 
 
REF: A. ROME 2489 
     B. 03 ROME 3842 
 
Classified By: Acting Economic Minister Counselor Kathleen Reddy for re 
asons 1.5 (b) and (d) 
 
Summary 
------- 
 
1. (S) On June 23, 2004, U.S. and Italian goverment 
delegations held consultations on a range o export control 
and technology transfer issues, s a follow-up to discussions 
held in July 2003. Bth sides appeared satisfied with the 
quality of he information exchange. Discussion included the 
EU/China arms embargo, sensitive Italian exports t Iran, 
Alenia Spazio contacts with China, and th Italian 
Cosmo-Skymed remote sensing satellite prject. 
 
2. (S) The Italian delegation emphasized taly's demonstrated 
willingness to impede export of concern to Iran; however, 
the limited flexiblity in this regard under Italian law 
continues o persuade Italy that a multilateral approach to 
ontrolling such exports be explored within the Wasenaar 
Arrangement. Both delegations emphasized te importance of 
effective controls on intangibletransfers of technology, 
though the GOI noted th need to strengthen its efforts on 
enforcement an compliance of existing Italian law and 
regulatins.  The U.S. briefed Italy on our policy regardin 
the licensing of synthetic aperture radar data nd imagery, 
while Italy countered with details o its Cosmo Skymed 
satellite program, which is intnded primarily for 
military/civilian government se, but will also provide 
coarser resolution imagery for commercial use. 
 
3. (S) Top executives from Italian firm Alenia Spazio (AS) 
joined the government delegation for a discussion of current 
projects of interest to the company in China, also 
underscoring their frustration at not obtaining more 
sub-contracting work with NASA. On June 24, in visits to four 
Italian firms participating in the Joint Strike Fighter 
program, the U.S. delegation emphasized the importance of 
effective export controls and were briefed on each company's 
operations, including their measures to protect sensitive 
technologies. 
 
Participants 
------------ 
 
4. (U) U.S.: Robert Maggi, Managing Director, Defense Trade 
Controls (PM/DTC); Ann Ganzer, Director, Office of Defense 
Trade Controls Policy (PM/ DTCP); J. Christian Kessler, 
Director, Office of Export Controls and Conventional Arms 
Nonproliferation Policy (NP/NPC/ECNP); Jim Schwenke, 
International Security Policy, OSD; Scott Kilner, 
Minister-Counselor for Economic Affairs, U.S. Embassy Rome; 
John Finkbeiner, Economic Officer, U.S. Embassy Rome; Todd 
Ebitz, Political-Military Officer, U.S. Embassy Rome; 
Theodore Siggins, Assistant Customs Attache, U.S. Embassy 
Rome. 
 
5. (U) Italy: Carlo Tripepi, Nonproliferation Coordinator, 
Directorate General for Economic and Financial Cooperation 
(DGCE), MFA; Diego Ungaro, Director, Office of Defense 
Industry and Sensitive Technology Transfers, MFA; Federica 
Ferrari Bravo, Office of Persian Gulf Affairs, MFA; Gianluca 
Grandi, Office of East Asian Affairs, MFA; Jacobo Martino, 
Office of Science Affairs, MFA; Massimo Goti, Director 
General for Production Development, Ministry of Productive 
Activities (MPA); Aldo Doria, Director, Office of High 
Technology Products, MPA; Alfredo Cuzzoni, Expert on the 
Interministerial Consultative Committee on Dual-Use Export 
Controls, MPA: Giulio De Martino, Expert on the 
Interministerial Consultative Committee on Dual-Use Export 
Controls, MPA; Alfonso Spatola, Consultant, MPA; Giuseppe 
Bernardis, Director, Office of Research and Devlopment, MOD; 
Roberto Leonardi, Director, Cosmo-Skymed Program Office, MOD; 
Carlo Magrassi, Deputy Director, Office of Armament Policy, 
MOD; Renato Genovesi, Office of Information and Security, 
Defense General Staff; Luca Fontana, Office of Information 
and Security, Defense General Staff; Arnaldo Capuzzi, Italian 
Space Agency (ASI); Emilio Delfini, Office for Coordination 
 
 
of Armament Production, Presidency of the Council of 
Ministers. 
 
6. (U) Alenia Spazio: Maurizio Tucci, CEO; Antonino Simeone, 
Deputy General Director; Paolo Piantella, Engineer. 
 
7. (SBU) In opening the consultations, Tripepi and Maggi 
noted longstanding U.S.-Italy cooperation on security issues, 
industrial development, and the proper use and transfer of 
technology. Since the bilateral consultations in July 2003 
(see ref B), GOI and USG officials had met on several 
occasions to continue the dialogue on export controls.  This 
meeting reflected both governments' commitment to cooperate 
on creating strong export controls that nevertheless provided 
our respective companies with the ability to market 
effectively their high technology products.  The 
consultations initiated with U.S. views on recent EU efforts 
that could lift the EU arms embargo on China (discussion 
reported in ref A). 
 
Sensitive Italian Exports to Iran 
--------------------------------- 
 
8. (S) Kessler initiated the discussion on the export of fast 
boats and related items to Iran by noting USG appreciation 
for recent steps the GOI had taken to forestall delivery of a 
boat that had previously been purchased by an Iranian entity. 
Kessler observed that Iran continued to pursue development of 
a fleet of fast patrol boats for use in the Persian Gulf. 
However, Iran was now concentrating on the acquisition abroad 
of individual boat components rather than fully finished 
boats, as had been the case with the boats Iran imported from 
the Italian firm FB Design. The U.S. would continue to raise 
its concerns about exports that improved Iran's naval 
capabilities, with Italy as well as other countries exporting 
any items that might augment those capabilities. 
 
9. (S) Tripepi noted that the legal procedure used to inhibit 
the most recent patrol boat shipment to Iran had been "not 
very elegant," in that Italy essentially had to improvise an 
ad hoc procedure to stop the shipment.  Nevertheless, this 
action demonstrated Italy's cautious approach to trade with 
Iran.  Tripepi added that the GOI interagency Consultative 
Committee on Dual-Use Exports regularly considers a large 
number of licenses for dual-use exports to Iran. The 
committee uses Italian catch-all regulations to impede such 
exports, provided they meet the Italian legal requirement 
that the export in question could contribute to WMD 
development.  Tripepi pointed to the GOI's recent denial of 
an export license for a small shipment of de-greasing 
chemicals destined for the Iranian DIO as evidence of Italy's 
vigilance on this issue. 
 
10. (S) The MPA's Aldo Doria reminded participants that 
Italian law forbids embargo lists aimed at a specific country 
that is not the subject of a multilateral embargo, though EU 
regulations do allow individual member states to make certain 
categories of exports subject to licensing restrictions.  He 
added that the GOI was studying the legal means by which the 
UK had imposed export restrictions on Iran and Iraq in 2002, 
though he surmised that those restrictions could not 
technically have been country-specific in order to remain 
within EU rules. Tripepi said that Italy's limited ability to 
use catch-all provisions, as well as the various 
nationalities of the firms exporting to Iran, continued to 
suggest the need for the Wassenaar Agreement to play a 
stronger role in coordinating an approach to the problem. 
Kessler responded that during its 2003 Plenary, the Wassenaar 
Agreement had agreed to a catch-all provision for dual-use 
items destined for military end-uses/end-users in countries 
subject to embargoes. However, Wassenaar -- like national 
governments -- had found the matter of preventing exports of 
essentially civil items for military applications of concern 
to be a difficult topic, one perhaps best addressed 
case-by-case or on a national basis. 
 
Alenia Spazio and China 
----------------------- 
 
11. (S) Alenia Spazio (AS) CEO Maurizio Tucci and other 
senior AS officials joined the government delegations for an 
 
 
update on the company's involvement with the PRC.  Tucci 
stated that since our bilateral consultations in July 2003, 
AS has not pushed strongly to increase its business ties with 
the Chinese space sector, though the Chinese continued to 
encourage closer ties with the company. AS has allowed 
Chinese scientists to visit its facilities in Italy (Tucci 
emphasized that the company's security controls prevent such 
visitors from seeing sensitive items and equipment), and 
Tucci himself accompanied an EU delegation to China in March. 
These contacts have increased doubts within AS of its ability 
to do meaningful business with the Chinese.  Tucci said the 
Chinese appear to be making great strides in developing space 
technologies.  China now looks to firms like Alenia only for 
the most advanced technology, including technology for 
developing data relay satellites, synthetic aperture radar 
satellites, and other optical-related technologies -- but 
Tucci said AS has told the Chinese that the company is very 
limited in its abilities to cooperate on such technologies. 
The Chinese, however, express little interest in the 
less-advanced technology that AS was willing to supply them, 
Tucci added. 
 
12. (S) In the course of the discussion, Tucci specifically 
mentioned that AS was considering a Chinese proposal that 
would involve the provision of payload equipment hardware for 
China's data relay satellite program, a contract worth 
approximately USD 6 million.  Tucci added that the equipment 
did not/not involve the two areas of DRS work that the USG 
had indicated would cause us concern (regarding optical 
cross-linking capabilities and improvements to China's DFH-3 
satellite bus). 
 
13. (S) The overall thrust of Tucci's message was that AS 
increasingly viewed the Chinese market as a dead end -- China 
doesn't want the less advanced technology that AS is willing 
to supply, and AS refuses to provide China with more advanced 
technology, in part due to U.S. concerns.  Tucci made clear 
that, with the Chinese market looking even more unfavorable 
to the company than last year, and with AS committed to 
working within the parameters of U.S. concerns when it comes 
to business in China, the company now looked more than ever 
for further business opportunities with the U.S.  He 
mentioned a pre-feasibility study being worked with Boeing on 
a crew escape vehicle for the NASA Mars project, but said the 
company was concerned about restrictions on non-U.S. company 
work on this and similar projects of interest to AS.  Maggi 
and Ganzer promised to follow up with NASA regarding AS's 
concerns on the Mars project, and also said they would be 
willing to inquire about other specific contracts the company 
was pursuing.  The MOD's Magrassi said that AS's concerns 
epitomize the difficulties encountered by Italian high-tech 
firms in winning contracts for U.S. projects -- Italian firms 
want to work with the U.S., but need to see results for their 
efforts.  Maggi said the U.S. understood well the GOI's 
concerns, though he noted that non-U.S. companies around the 
world sometimes inaccurately perceive the reasons they may 
lose out on a contract. 
 
Intangible Transfers of Technology (ITT) 
---------------------------------------- 
 
14. (SBU)  Maggi suggested that the Joint Strike Fighter 
(JSF) program provided a good case study for discussing ITT, 
noting that the USG discusses the importance of controlling 
ITT with all companies participating in JSF, U.S. as well as 
non-U.S. companies.  The MOD's Bernardis agreed that JSF was 
an accurate reference point, noting that Alenia Aeronautica 
engineers working at Lockheed Martin facilities in Texas had 
specifically complained to the GOI that their engineers were 
being denied access to certain technologies that had been 
cleared for release to Italy, and said some complained of 
doing only photocopying and other menial tasks not 
commensurate with their skills.   The MFA's Ungaro said the 
GOI believed Lockheed Martin was interpreting export license 
restrictions too narrowly, reportedly at the behest of DOD. 
Maggi acknowledged that U.S. firms sometimes create 
unwarranted obstacles to non-U.S. partners, and asked the GOI 
to provide additional information so that his office could 
further investigate, but cautioned that Alenia Spazio is not 
the GOI, and technologies authorized for release to the 
Government of Italy are not automatically eligible for 
 
 
release to Italian companies. 
 
15. (SBU) Violations of ITT controls are difficult to detect, 
Maggi noted, adding that the USG repeatedly emphasizes these 
controls in its dialogue with U.S. firms, and levies a 
significant number of fines in cases where unlicensed ITT is 
proven.  The USG is devoting increased resources to 
compliance, including the addition of computer experts who 
can more readily detect ITT.  The U.S. is focusing 
increasingly on the marking of electronic data, and is 
hopeful that technology to create permanent marking of data 
will be forthcoming.  Maggi noted that German government 
officials recently had told him that German customs 
enforcement officers perform periodic in-depth auditing of 
German firms to ensure compliance with export controls, and 
asked if the GOI performs similar audits. Tripepi said the 
Italian Guardia di Finanza (customs police) occasionally 
inspects companies, though he said export control officials 
rely more on Italian intelligence officials for such 
information. Fines against companies are levied by regional 
prosecutors in cases brought by the Guardia di Finanza. 
Ungaro addressed U.S. concerns regarding Italy's ability to 
control ITT by noting that the GOI needs to strengthen its 
efforts on outreach, enforcement and compliance -- existing 
Italian laws and regulations already require the licensing of 
all ITT, both dual-use and munitions.  The involvement of 
regional prosecutors and customs police, and the lack of 
inspectors within the MFA (responsible for munitions 
licenses) and MPA (responsible for dual-use licenses), 
complicates compliance efforts in Italy, added Ungaro. 
 
16. (SBU) Maggi noted that the U.S. was interested in 
furthering its dialogue with the GOI regarding both 
countries' ITT controls, to include the completion by the MFA 
and the Department of State as early as possible of the 
matrix on Italian and U.S. export control regulations.  Maggi 
noted the progress on the matrix since last summer, and 
suggested the MFA and State Department hold a DVC to finish 
it, perhaps before the end of the summer.  The Italian side 
agreed to work towards timely completion of the matrix. 
Kessler noted that the protection of ITT is being discussed 
on a multilateral basis within the Wassenaar Agreement 
framework, and that there may be opportunity for Italy and 
the U.S. to work together in advancing that effort. 
 
Cosmo Skymed 
------------ 
 
17. (C) Kessler opened the session on Italy's Cosmo Skymed 
satellite program by noting strong U.S. interest in the 
development of such remote sensing capabilities, and our wish 
to increase information sharing among those countries working 
in this area. Kessler emphasized the fundamental differences 
between synthetic aperture radar (SAR) systems (such as those 
used in Cosmo Skymed) and electro-optical systems, both in 
the way each system functions as well as the nature of the 
data produced. Bilateral discussions on remote sensing with 
France and with Canada had revealed similar perspectives, but 
varying approaches, regarding the licensing for commercial 
use of satellite imagery and data. The U.S. had recently 
begun discussions with Germany, and now hoped to start a 
dialogue with Italy as well.  Kessler provided the GOI with a 
paper outlining U.S. rationale for licensing commercial SAR 
remote sensing space systems. 
 
18. (C) The MOD's Leonardi, supported by ASI's Capuzzi, 
summarized certain aspects of the Cosmo Skymed program, which 
he noted includes the MOD as its priority customer, with GOI 
civilian users also viewed as likely customers (though 
civilian agencies would not have access to the higher 
resolution imagery or that collected for national 
reconnaissance purposes).  Though it recognizes potential 
commercial uses for remote sensing data, the GOI is not 
presently focused on commercialization of Cosmo Skymed.  The 
program is being developed in conjunction with France 
(primarily the French MOD), but is fully financed by the GOI. 
The GOI also is interested in expanding cooperation with 
Argentina. ASI has the lead role for the GOI, working closely 
with MOD.  Leonardi said the first of four satellite launches 
is scheduled for the first half of 2006, with additional 
launches following every eight months. He noted that the 
 
 
project's ability to secure continued GOI funding has been 
difficult, adding that 80 percent of the Cosmo Skymed budget 
is provided through the Italian Research Ministry (which 
oversees the Italian Space Agency  - ASI), while the Italian 
MOD finances the remaining 20 percent. 
 
Company Visits 
-------------- 
 
19. (SBU) Maggi and Ganzer followed the bilateral government 
discussions with a visit on June 24 to four key Italian 
defense firms involved in the Joint Strike Fighter program: 
Marconi, Galileo, Datamat, and Elettronica.  Those visits 
were preceded by a meeting at MOD, where Major General 
Bernardis (who attended the June 23 discussions) and Lt. 
General Carmine Pollice provided background on the four 
companies and their involvement in the JSF program, as well 
as recent Italian parliamentary queries regarding JSF. 
(Pollice also inquired about recent congressional attempts to 
strengthen U.S. Buy America provisions, as well as the 
current status of the pending U.S. tanker aircraft contract.) 
At each stop Maggi explained U.S. policy on trade controls 
and the role of State's Defense Trade Controls office in 
implementing those controls.  Representatives from all four 
firms briefed Maggi on their cutting-edge technologies, as 
well as their measures to protect sensitive information.  All 
asked him to return for more extensive discussions and for 
visits to their production facilities. 
 
Comment 
------- 
 
20. (SBU) Both the U.S. and the Italian delegations welcomed 
the continued open exchange of information on dual-use export 
controls, as initiated in July 2003 and continued since then 
through several meetings involving relevant USG and GOI 
officials.  Italy continues to view this dialogue as a means 
to further increase commercial cooperation between U.S. and 
Italian firms.  The U.S. delegation emphasized that increased 
cooperation was contingent on continued GOI efforts to 
strengthen controls, in particular the enforcement and 
compliance of ITT controls.  Given the large amount of 
information exchanged in the past year, we believe that our 
continued dialogue could take place in smaller settings on a 
more ad hoc basis, including through the use of DVC when 
possible. 
 
21. (S) Regarding discussion of specific issues, Alenia 
Spazio appears to remain cognizant of the parameters of 
future cooperation with China, as agreed in earlier 
U.S.-Italy diplomatic exchanges. The company clearly hopes 
that increased contracts with the U.S. will be the result of 
such cooperation. For business reasons, however, we should 
expect AS to maintain its contacts with Chinese space 
officials.  Recent actions in the Iran boats case demonstrate 
the flexibility that the GOI can find under certain 
circumstances, though our interlocutors continue to emphasize 
the legal constraints that inhibit a more straightforward 
approach to halting worrisome shipments to countries of 
concern. We can expect the GOI to continue to seek a 
multilateral approach to the issue through the Wassenaar 
Agreement. On Cosmo Skymed, the GOI appears to be open to 
greater information sharing, and welcomed the example of the 
U.S.'s considerable efforts to craft an effective security 
policy that also provides the opportunity for considerable 
commercialization of SAR data and imagery. 
 
22. (U) This cable was cleared by Washington participants in 
the delegation. 
 
Visit Rome's Classified Website: 
http://www.state.sgov.gov/p/eur/rome/index.cf m 
 
SEMBLER 
 
 
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 2004ROME02829 - Classification: SECRET