US embassy cable - 05ROME1623

C O N F I D E N T I A L  ROME 001623 
 
SIPDIS 
 
 
STATE PASS USTR 
STATE PASS USDA FOR FAA/BLEGGI 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
GENEVA FOR USTR 
 
E.O. 12958: DECL: 05/03/2015 
TAGS: ETRD, EAGR, EAIR, PREL, IT, EUN 
SUBJECT: ITALY,S PASSIVE APPROACH TO TRADE POLICY 
 
 
Classified By: Economic Minister-Counselor Scott Kilner for reasons 1.4 
 (b) and (d) 
 
1. (C) Summary. Italy defers to other EU member states, 
especially France and Germany, in setting the direction of EU 
trade policy, despite the size of the Italian economy and the 
importance of trade to the country's prosperity. Italian 
trade officials generally support U.S. views on many issues, 
and have been a voice for moderation on most of the U.S.-EU 
trade disputes in recent years. Nevertheless, the GOI has 
rarely been a strong advocate with other EU member states, 
even on issues of particular interest to Italy, with the 
exception of expanding WTO protection of geographic 
indicators and, more recently, efforts to counter Chinese 
competition to Italy's textile industry.  On perhaps the most 
contentious current bilateral trade dispute, large commercial 
aircraft subsidies, the GOI has taken a characteristically 
low-keyed approach, even though the Italian aerospace firm 
Alenia Aeronautica is a major partner in the Boeing 787 
project. 
 
2.  (C) The passivity of trade officials has given 
Agriculture Minister Alemanno the ability to drive GOI policy 
on agricultural biotechnology, despite the pro-GMO tendencies 
of other ministries. The Chinese threat to Italy,s textile 
and footwear industries recently has invigorated senior GOI 
trade officials as have few other issues in recent years, 
resulting in the European Commission's taking action in favor 
of Italy and other major textile producers despite the 
reservations of some member states.  However, we do not 
believe this recent activism presages a more assertive 
Italian trade policy generally.  For the most part, we 
anticipate continued Italian reluctance to take positions 
that are out-of-step with the Commission and other EU member 
states.  End summary. 
 
3. (C) Despite the Italian economy,s heavy reliance on 
foreign trade, trade officials in Rome tend to react 
passively, if at all, on most issues, even those that 
threaten Italy's national prosperity.  Such meekness is 
somewhat surprising given the relative youthfulness and vigor 
that have characterized the top officials overseeing Italian 
foreign trade policy since Silvio Berlusconi took office in 
2001.  Director General for Commercial Agreements Amedeo Teti 
(essentially the "assistant secretary" responsible for 
international trade) replaced a bureaucrat decades older in 
2002, and has extensive trade experience both in Italy and 
Geneva (he is Italy's principal representative on the 
European Commission's 133 Committee on trade). Our other 
direct contacts in the ministry include both veteran 
bureaucrats with extensive experience and young officials who 
are well versed on current issues. 
 
4.  (C) Vice Minister of Productive Activities (MPA) Adolfo 
Urso, essentially the GOI,s trade minister, is an 
accomplished politician, a leading member of the National 
Alliance (one of the two larger parties in the governing 
coalition), and a protege of Foreign Minister/Deputy Prime 
Minister Gianfranco Fini (who is widely viewed as a possible 
successor to Berlusconi in a future center-right government). 
 Urso came to his position within the most stable government 
Italy had seen in half a century (notwithstanding the 
political turmoil of recent weeks, resulting in a new 
Berlusconi-led center-right government), which could have 
further encouraged him and his staff to take a proactive 
approach on foreign trade issues. Yet in the nearly four 
years they have guided Italy,s trade policy, Urso and his 
staff have shown limited inclination, with a few exceptions, 
to persuade other EU member states to strongly advocate 
positions of particular interest to Italy. 
 
5. (C) Some of the inertia of foreign trade officials may 
stem from the incorporation in 2001 of the Ministry of 
Foreign Trade within the Ministry of Industry (which was 
renamed the Ministry of Productive Activities, or MPA). This 
reorganization was legislated by the outgoing center-left 
government and took effect just as Berlusconi's center-right 
government entered office. The downgraded "vice ministry" 
continues to occupy the same building on the outskirts of 
Rome, many miles from the MPA's central Rome location. Even 
after five years, the building still displays a prominent 
"Ministry of Foreign Trade" sign (in Italian), indicative of 
the two ministries' continued lack of integration. Though the 
Minister of Productive Activities has nominal responsibility 
 
for foreign trade issues, in practice the vice minister 
frequently acts independently (though not in every case, 
which can confuse the lines of authority for Foreign Trade 
bureaucrats). We are watching with interest whether the new 
Minister of Productive Activities, Claudio Scajola, widely 
viewed as more politically connected and demanding than his 
predecessor, will have more success at integrating the two 
ministries. 
 
Pro-U.S. Tendencies, But Limited Support 
---------------------------------------- 
 
6. (C) MPA/Foreign Trade,s passive tendencies can be 
particularly frustrating, given the ministry,s general 
alignment with the United States on many trade issues, 
including some of the most high-profile recent disputes. For 
example, ministry contacts, including Urso, have long told us 
that the U.S.-EU dispute over the U.S. foreign sales 
corporation tax provisions (FSC) is a distraction best 
resolved as quickly as possible. Nevertheless, in the run-up 
to the European Commission decision to impose retaliatory 
tariffs, and more recently when the EC asked the WTO to 
review recent U.S. tax legislation that grandfathers certain 
provisions of the abolished system, the GOI did not take any 
noticeable steps to temper EC actions. 
 
7. (C) Sandro Fanella, who directs the Foreign Trade office 
that oversees both WTO issues and bilateral trade relations 
with the U.S. (and regularly attends the EC 133 Committee 
meetings as Teti's deputy), told us April 13 that the 
Commission,s approval of retaliatory tariffs provided 
political cover, but he predicted the Commission would 
decline to implement them if the WTO rules against the U.S. 
Though Fanella,s long experience would persuade us not to 
bet against him, his wait-and-see attitude typifies the Vice 
Ministry,s passivity on an issue in which we have repeatedly 
asked for greater GOI support. 
 
8. (C) Vice Minister Urso,s pro-U.S. tendencies also 
occasionally veer into surreal, or at least impractical, 
territory. A particularly striking example occurred in May 
2003, when Ecmin raised with Urso the U.S. decision to 
initiate a WTO case against the EU over its moratorium on 
agricultural biotech approvals. Urso responded by advancing 
his own complicated idea -- that the range of U.S.-EU trade 
disputes (steel, FSC, biotech, geographical indicators, and 
even our competing WTO agricultural proposals) should be 
linked to facilitate their simultaneous resolution.  He 
suggested that each issue could be negotiated separately but 
in parallel, with the clear understanding that tradeoffs 
would be necessary. Though we countered that the U.S. 
believed that each issue needed to be resolved separately, on 
its own merits, Urso claimed that he would discuss his idea 
of a "grand bargain" with the Prime Minister and even with 
WTO Director General Supachai and then-European Trade 
Commissioner Lamy.  We suspect, however, that Urso never 
advanced this proposal any further than our meeting.  His 
often unrealistic approach to resolution of trade issues 
certainly makes us wonder how effective an advocate he has 
been for Italian trade interests in Brussels and in Geneva. 
 
9. (C) Until just recently, protection of geographic 
indications (GIs) has been the only trade issue over the last 
few years that Urso and his staff have pushed aggressively 
and consistently. Italy is a driving force behind EU efforts 
to extend WTO protection of GIs beyond wine and spirits. Our 
efforts to convince the GOI that GI protection is an issue 
for the TRIPS Council, and that our system of trademarks is a 
more effective and practical approach, fall on deaf ears. 
During the 2003 WTO Ministerial in Cancun, the Italian 
delegates panicked that the U.S. and the EU were seeking a 
common agreement on several issues that reportedly would have 
sacrificed the EU,s position on enhanced GI protection. 
Italy,s anxiety was so high that senior officials in the 
Prime Minister,s office contacted the White House asking 
that the U.S. back down from our alleged demands that the EU 
give in on GI protection. In the end, the breakdown of the 
ministerial prevented GIs from being addressed. While we 
assume the GOI lobbied strongly with the Commission against 
any concessions on GI protection, it is telling that 
top-level Italian government officials in this instance did 
not believe Italy had sufficient influence with the 
Commission to derail such a concession, and thus felt obliged 
to contact the U.S. directly. 
 
10. (C) The GOI,s actions in Cancun also illustrate more 
broadly Italy,s limited influence on European Commission 
positions regarding the current round of WTO negotiations. 
Other than GI protection, Italian trade officials have 
repeatedly indicated to us that they generally are content to 
allow the Commission to drive positions, which allows other 
EU member states to exert greater influence (such as France 
on agricultural talks, and Germany on non-agricultural market 
access negotiations). Despite statements by our foreign trade 
contacts in early 2003 that Italy planned to exert more 
influence on EU trade interests during the course of its EU 
presidency in the second half of 2003, we never detected any 
significant increase in GOI activism. 
 
Boeing vs. Airbus: Italy,s Unique Position 
------------------------------------------ 
 
11. (C) Italy has much at stake in the high-profile dispute 
over large commercial aircraft (LCA) subsidies. Alenia 
Aeronautica, a subsidiary of Italian defense conglomerate 
Finmeccanica (in which the GOI holds a 32 percent stake), is 
a leading partner in Boeing,s 787 Dreamliner program. 
Alenia's joint venture with the U.S. firm Vought Aircraft 
Industry will produce 60 percent of the plane,s fuselage 
(thus producing a total of about 26 percent of the entire 
plane). Italy is not part of the Airbus consortium, although 
Alenia is a subcontractor to produce about four percent of 
the fuselage for the A380 aircraft, and has participated in 
previous Airbus projects as well.  Alenia Aeronautica CEO 
Giovanni Bertolone told econoff April 15 that the company is 
concerned about the current U.S.-EU stalemate on negotiating 
a new subsidies agreement. He is nonetheless optimistic about 
the success of the 787 project, noting that Boeing has 
received over 200 orders. He said Airbus cannot yet count on 
the A380 breaking even; given its huge investment costs, it 
will need to sell more than twice its confirmed orders so 
far.  Bertolone also expressed doubts about the viability of 
the Airbus A350 program, even with subsidies, since its 
development lags several years behind that of its perceived 
competitor, the 787. 
 
12. (C) Our MPA/Foreign Trade contacts also call for the LCA 
subsidies dispute to be resolved quickly. However, they have 
admitted to us that the GOI is not pressing the European 
Commission to reach an agreement with the U.S.  Our recent 
conversations indicate they do not believe they can 
effectively influence the four Airbus countries (UK, Germany, 
France, and Spain), so they have apparently decided to stay 
mostly quiet. Over lunch with Ecmin on April 13, Foreign 
Trade,s Director General Teti expressed surprise at our 
suggestion that Italy should play a more assertive role 
within the EU towards reaching a solution on LCA subsidies. 
For his part, Alenia,s Bertolone told us that, though Alenia 
would appreciate a more proactive approach from the 
government towards a resolution on subsidies, he was not 
overly concerned (perhaps due to his doubts about the 
viability of the A350). It seems to us likely that Alenia,s 
relative sanguineness on the issue has only reinforced the 
Trade Ministry's inclination toward passivity. 
 
Other Ministries Also Passive - With One Significant Exception 
--------------------------------------------- -------- 
 
13. (C) Other Italian ministries with a stake in trade issues 
do not pick up the slack left by MPA/Foreign Trade, except in 
the area of agriculture.  The MFA has no equivalent to the 
various trade offices in the State Department,s Economic 
Bureau - its General Directorate for Multilateral Economic 
and Financial Cooperation (Italian acronym DGCE) plays an 
inconsequential role most of the time in setting Italian 
trade policy.  One exception involves trade issues discussed 
within the G-8 process, as the DGCE,s Deputy Director 
General is Italy,s Sous Sherpa on G-8 economic issues. The 
MFA,s General Directorate for European Integration 
occasionally intervenes on a trade issue if such an issue is 
scheduled for discussion by the COREPER in Brussels; but even 
in these cases, it looks to MPA/Foreign Trade for policy 
guidance. 
 
14. (C) The Ministry of Agricultural Policy, in contrast, is 
anything but passive when it comes to Minister Gianni 
Alemanno,s pet cause - inhibiting at every turn, through 
whatever means possible, the cultivation and trade in 
 
agricultural biotech products.  Like Urso, Alemanno is 
another up-and-coming politician from the same National 
Alliance party, and correctly perceives opposition to 
agricultural biotech as a politically expedient means to 
build his political capital. In this respect, he is unlike 
Urso, however, who at least until recently has not tended to 
use foreign policy issues under his purview to 
opportunistically burnish his public image. 
 
15. (C) Despite Urso,s professed openness to increased 
cultivation of GMOs in Italy, he has consistently been 
unwilling to confront Alemanno, and is even unwilling to have 
his ministry take pro-GMO decisions in Brussels when the MPA, 
not MinAg, has the lead. In this last respect, Urso is in 
good company, as all GMO-tolerant ministers within the GOI 
downplay their differences with Alemanno (except in private 
with us), due in large part to the Italian public,s 
significant opposition to GMOs. 
 
Chinese Textiles: Urso Energized by a Perceived Threat 
--------------------------------------------- ------- 
 
16. (C) Vice Minister Urso has demonstrated uncharacteristic 
vigor in the last few months regarding the threat to key 
Italian industries from increased Chinese textile and apparel 
imports, following the expiration of the multilateral Textile 
Trade Agreement.  To promote Italian foreign trade, his 
ministry organized a well-received conference in February 
that attracted several thousand participants, including Prime 
Minister Berlusconi, Foreign Minister Fini, numerous other 
senior GOI officials, and many of Italy,s top business 
executives. At the conference, Urso appealed for EU action to 
counter the perceived Chinese threat, an issue also raised by 
both Berlusconi and Fini. Urso,s appeal undoubtedly stemmed, 
at least in part, from political considerations, with the 
Northern League party (one of two smaller partners in the 
Berlusconi coalition government) urgently calling in its 
campaign rhetoric for duties to be applied to Chinese 
imports. Urso appears to be using the issue to broaden his 
appeal (and that of his National Alliance party), in a 
similar fashion to Alemanno,s campaign against GMOs.  Unlike 
Alemanno, however, Urso has the backing of just about every 
party across the political spectrum in calling for the EU to 
impose WTO-consistent safeguards measures on Chinese textile 
imports. 
 
17. (C) During a meeting with then-Commerce Under Secretary 
Grant Aldonas in mid-March, Urso was emphatic about the 
Chinese threat to the Italian textile industry. He suggested 
that Italy and the U.S. cooperate to gauge the nature of the 
threat accurately.  Urso also emphasized that he planned to 
push for immediate EC action during a meeting with European 
Trade Commissioner Mandelson later that week. By some 
accounts Italy has been the most active member state to push 
the Commission to act. Nevertheless, Mandelson,s 
announcement in mid-April of guidelines that would later 
trigger actual EC action on safeguard measures fell well 
short of Urso,s call for immediate relief. 
 
Comment - Why Such Passivity? 
----------------------------- 
 
18. (C) Italy,s generally passive approach to trade issues 
did not begin with Urso,s tenure as Vice Minister and will 
very probably persist after he leaves the ministry. To a 
certain extent, such passivity results from the European 
Commission,s jealously guarded responsibility for the trade 
policies of all EU member states, a reality that limits even 
the most activist Member State officials. However, the 
Commission,s authority clearly does not prevent some other 
countries from exerting substantially more influence on 
Brussels than does Italy.  Aside from this issue of 
competency, we perceive that Urso and the career bureaucrats 
in his ministry reflect a broader, long-standing Italian 
tendency to seek the middle ground within the EU. Italy has 
been a very strong, across-the-board supporter of the 
European Project from the beginning, and has shown this 
support by (mostly) downplaying those national interests that 
may be at odds with the EU as a whole. 
 
19. (C) In the past, the GOI's limited effectiveness in 
Brussels could also be attributed to Italy's frequent changes 
in coalition governments.  Such changes made policy 
continuity difficult, especially in the case of controversial 
 
policies, thereby encouraging Italian bureaucrats to follow 
the EU consensus. Recent experience indicates, however, that 
even a long-lived governing coalition may not automatically 
lead to a more assertive Italian projection of national 
interests, at least in economic issues where the EU has the 
lead.  (On Common Security and Foreign Policy--i.e. second 
pillar--issues, where Commission competence is more limited, 
the Berlusconi government has become more assertive, for 
example in supporting the U.S. on Iraq and successfully 
resisting Franco-German attempts to establish a separate 
defense planning headquarters outside the Berlin-plus 
arrangements.  Italy has not been in the vanguard, however, 
in the other area of EU Member State competency, judicial and 
law enforcement--i.e. third pillar--issues, which includes 
counterterrorism.  Italy's EU Commissioner, Franco Frattini, 
heads this portfolio.) 
 
20.  (C) The main implication for the U.S. of the dynamic 
described in this message is that even when Italy's interests 
are aligned with ours in trade disputes with the EU 
Commission and the larger Member States, we cannot count on 
Italy's meaningful support.  This situation is likely to 
continue until such time as Italian trade officials see 
Italy's long-term national interests better served by 
becoming the thorn in the Commission's side, rather than the 
poodle in its lap.  End comment. 
 
21.  (U) This message was drafted by John Finkbeiner, based 
on his experience over the last three years as Rome's trade 
policy officer. 
 
SEMBLER 
 
 
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 2005ROME01623 - Classification: CONFIDENTIAL