“Business secretary Peter Mandelson is slimed by an environmental protestor outside the Royal Society on Carlton House Terrace, Pall Mall after allegations of ‘favours for friends’ over the Heathrow third runway decision” [Courtesy of "Plane Stupid", via Wikimedia]
According to the following Cablegate cables, "a recent meeting between Business Secretary Lord Mandelson and Qaddafi's son Saif al-Islam" took place just 2 years ago (first cable below, dated 24 Aug 2009). For those who lack some context, Peter Mandelson tends to meet Hollywood billionaires and then pass unwanted laws that make those billionaires richer and everyone else furious, especially but not exclusively in the UK. Our technology rights have been eroded almost single-handedly by this man, who summoned harmful digital/technical policies in the UK during his reign. These policies are exceptionally hard to retract now, so we are stuck with an atrocious legacy of Internet spying and potentially disconnection.
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O 241405Z AUG 09 FM AMEMBASSY LONDON TO SECSTATE WASHDC IMMEDIATE 3245 INFO EUROPEAN POLITICAL COLLECTIVE IMMEDIATE ARAB LEAGUE COLLECTIVE IMMEDIATE AMEMBASSY TRIPOLI IMMEDIATE DEPT OF JUSTICE WASHDC IMMEDIATE NSC WASHDC IMMEDIATE FBI WASHINGTON DC IMMEDIATE CIA WASHINGTON DC IMMEDIATE
C O N F I D E N T I A L LONDON 001946
NOFORN
DEPARTMENT FOR EUR/WE AND NEA/MAG
E.O. 12958: DECL: 08/24/2019 TAGS: PREFââ¬â°[Refugees], PTERââ¬â°[Terrorists and Terrorism], UKââ¬â°[United Kingdom], LYââ¬â°[Libya] SUBJECT: SCOTTISH PARLIAMENT HOLDS EMERGENCY SESSION AS DEBATE OVER MEGRAHI DECISION REACHES FEVER PITCH
REF: A. LONDON 1925 AND PREVIOUS B. STATE 80743
Classified By: Ambassador Louis B. Susman, reasons 1.4 (b/d).
ۦ1. (C/NF) Summary. The Scottish Government severely underestimated the both USG and UK public reaction to its decision to grant compassionate release to convicted Pan Am 103 bomber Abdel Basset al-Megrahi on August 20. Scottish First Minister Alex Salmond has privately indicated that he was "shocked" by FBI Director Mueller's public letter. The media continue to report U.S. anger over the decision, and concern Scotland will be targeted economically, through reduced U.S. tourism and whiskey boycotts. The media speculate that the UK Government had a hand in the deal to maintain good diplomatic relations with Libya and secure oil and gas deals, which the UK Government has denied as "completely wrong" and "offensive." Today (August 24), the Scottish Parliament meets to hear Scottish Justice Minister Kenny MacAskill's explanation of his decision. The media speculates that Scottish opposition parties, all of which are on record condemning the decision, may move against the Scottish National Party's (SNP) minority government in a vote of no confidence, though the two-thirds majority required to secure such a move would be very difficult to obtain. Prime Minister Gordon Brown has not yet made a statement on Megrahi's release, with other Cabinet members maintaining that it was a decision for the devolved Scottish Government. Given growing discontent and speculation about a UK Government hand in the deal, Brown may have to make a statement soon. Meanwhile, local Scottish opposition politicians are using the issue to call into question the SNP government's credibility and competence. End summary.
Reaction to USG Statements --------------------------
ۦ2. (C/NF) The UK media have widely reported on FBI Director Mueller's letter to MacAskill and Chairman of the Joint Chief of Staff Admiral Mullen's comments on the Scottish Government's decision to grant compassionate release to convicted Pan Am 103 bomber Abdel Basset al-Megrahi. Washington-based Scottish Government Representative Robin Naysmith told CG Edinburgh Sunday, August 24 that Scottish First Minister Salmond was "shocked" by Mueller's comments, which were "over the top" given that President Obama had already commented on the decision. Naysmith underscored that Scotland received "nothing" for releasing Megrahi (as has been widely suggested in the UK and U.S. media), while the UK Government has gotten everything - a chance to stick it to Salmond's Scottish National Party (SNP) and good relations with Libya. (NOTE: We expect Naysmith to be engaging heavily in Washington on these issues. END NOTE.)
ۦ3. (C/NF) The media have also reported growing concerns that American anger over the decision will translate into a boycott of Scottish whiskey and reduced American tourism in Scotland, an approximately USD 416 million business annually. In a previous meeting with CG Edinburgh on Friday, August 21, Salmond reiterated that he and his government "had played straight" with both the USG and UK Government, but implied that the UK Government had not. During the meeting, which occurred before the Mueller and Mullen statements, he said he wanted to move beyond the Megrahi issue and deepen Scotland's relationship with the USG. He said the Libyan Government had offered the Scottish Government "a parade of treats," all of which were turned down. (NOTE: Roughly fifty percent of Scottish exports go to the U.S., and over 450 U.S. businesses employ over 100,000 Scots in Scotland. END NOTE.)
ۦ4. (SBU) Scottish Government statements, including those from Salmond, have acknowledged the "strongly-held views of the American families," but underscored that those views are not shared by all of the victims' families (referring primarily to the British families). Salmond defended the decision, saying it was "right in terms of (the Scottish) legal system" and "what (they) are duty-bound to do." Salmond is also reported in the media to have said that the USG had made clear that, while it opposed Megrahi's release, it regarded freeing him on compassionate grounds "far preferable" to a transfer under the Prisoner Transfer Agreement (PTA). (NOTE: While indicating the USG's preference for compassionate release over a PTA transfer, as described in reftel B, Salmond's statement does not mention the USG's strong opposition to any release, particularly one that would allow Megrahi to travel outside of Scotland. END NOTE.)
Scottish Parliament Holds Emergency Session -------------------------------------------
ۦ5. (SBU) The Scottish Parliament holds an emergency session Monday at 1430 local time (August 24), calling on Scottish Justice Minister Kenny MacAskill to explain his decision. All three opposition parties in Scotland (Labour, Conservatives, and the Liberal Democrats) have condemned the minority Scottish National Party (SNP) government's decision to release Megrahi. The media openly speculate that a vote of no confidence will occur if MacAskill does not resign, but it would be difficult for opposition parties to garner the two-thirds majority required (87 of the 129 seats), if the SNP is able to maintain control of its 47 Members of Scottish Parliament (MSPs).
ۦ6. (SBU) Scottish opposition political figures, like Scottish Labour leader Iain Gray and former Scottish First Minister Jack McConnell, have condemned the decision to release Megrahi, calling it a "grave error of judgment." Scottish Liberal Democrat leader Tavis Scott said, "The SNP's credibility at home and abroad is in tatters. Scotland's must not be allowed to follow with it."
Compassionate Release for Oil and Gas? --------------------------------------
ۦ7. (SBU) The UK media widely speculates that the UK Government had a hand in the decision to release Megrahi in order to maintain good diplomatic relations with the Libyans and to secure oil and gas deals, citing the now infamous 2004 "deal in the desert" between former PM Blair and Libyan leader Qaddafi, recent meetings and correspondence between PM Brown and "Muammar," a recent meeting between Business Secretary Lord Mandelson and Qaddafi's son Saif al-Islam, and other high-level trade delegations. Qaddafi's personal thanks to Brown, the Queen, and the British Government after embracing Megrahi in a televised statement have fanned the flames and increased calls for Brown to explain the UK's involvement in the decision-making process. Mandelson insisted to the media that it is "completely wrong" and "offensive" to suggest that Megrahi's release was linked to trade deals. A Foreign Office contact reiterated to Poloff August 24 that such speculation is "completely absurd." He acknowledged that the Libyans had raised Megrahi at every turn in their burgeoning diplomatic relationship, but said that Megrahi's release was "never directly or implicitly" linked to any deal.
UK Government Reaction ----------------------
ۦ8. (C/NF) Prime Minister Gordon Brown, who is currently on holiday in Scotland, has refrained from comment. Acting PM Chancellor Alistair Darling has said, "you either devolve the responsibility for criminal justice or you don't," a position that Foreign Secretary Miliband supported in interviews on Friday, August 21. Miliband affirmed that "the sight of a a mass-murderer getting a hero's welcome in Tripoli is deeply upsetting, deeply distressing." Conservative leader David Cameron has sent Brown a public message condemning the decision and calling on Brown to "make clear his own views" on the decision.
UK-Libya --------
ۦ9. (C/NF) Foreign Office North Africa team leader Rob Dixon told Poloff August 24 that the UK has been telling the Libyan Government, through Saif al-Islam and the Foreign Ministry, that the Libyan Government's handling of its September 1 national day festivities will determine the future of the UK-Libya bilateral relationship. Dixon explained that the UK has explicitly told the Libyans that Megrahi should not be featured in any high-profile way. He said that the UK has also told the Libyans that Qaddafi's personal thanks to PM Brown and the Queen were "unhelpful" and the UK Government's "unhappiness" had been communicated "in clear terms." Dixon said the Foreign Office will take stock after the September 1 festivities.
UK-Scotland -----------
ۦ10. (C/NF) Dixon termed "absurd" MacAskill's comment (in his original August 20 statement about Megrahi's release) that the UK Government's refusal to make representations was "highly regrettable." Referring to MacAskill's welcoming of a public inquiry into the case, Dixon said such an undertaking would be "nearly impossible" given the way devolution works. Dixon implied that the comments were designed to blame the UK Government for putting the Scots in a position to have to make a decision. Dixon told Poloff on August 24 that the Foreign Office had had no contact with the Scottish Government since the decision was announced.
Comment -------
ۦ11. (C/NF) It is clear that the Scottish Government underestimated the blow-back it would receive in response to Megrahi's release and is now trying to paint itself as the victim. It seems likely, especially given the increasing speculation that the UK Government had a hand in the decision, that Prime Minister Brown will have to address the issue publicly. Meanwhile, local Scottish opposition politicians are trying to undercut the SNP minority government's credibility as much as possible.
ۦ12. (U) Tripoli minimize considered.
Visit London's Classified Website: http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom
SUSMAN
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UNCLAS SECTION 01 OF 03 TOKYO 003873
SIPDIS
STATE FOR EAP/CM, EAP/J AND EB/IPE, E -FELSING USTR for China Office, Japan Office, IPR Office, Commerce for National Coordinator for IPR Enforcement - Cisrael LOC for Marla Poor USPTO for LBoland
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: KIPRââ¬â°[Intellectual Property Rights], ETRDââ¬â°[Foreign Trade], WTROââ¬â°[World Trade Organization], CHââ¬â°[China (Mainland)], JP SUBJECT: Japanese Government, Industry reluctant to back WTO case against China on IPR
REF: TOKYO 2326, TOKYO 1270
TOKYO 00003873 001.2 OF 003
ۦ1. (SBU) Summary Japanese officials, particularly in the Trade Ministry, responded coolly to USTR's request that Japan join the United States in an IPR case against China in the next few months, saying that the GOJ was still studying the issue and could not respond until the fall at the earliest -- probably after the new government is in place. Foreign Ministry officials advised USTR that nothing can be done until Trade Minister Nikai leaves, and that the USG needs to raise its request at the political level.
ۦ2. (SBU) Lack of support for a WTO case among Japanese business is adding to GOJ hesitation. Japanese industry groups told USTR that most of their members did not support the proposed WTO case because they prefer a more "cooperative" approach towards China for now -- in other words, they fear a backlash from the Chinese government. Japanese copyright companies are more concerned about market access than the black market in China for now. End Summary.
Background ----------
ۦ3. (SBU) USTR's Chief Negotiator for IPR Enforcement, Stanford McCoy met with officials of the Ministry of Foreign Affairs (MOFA), the Ministry of Economy, Trade and Industry (METI), the Intellectual Property Strategy Headquarters (IPSH), and with private sector representatives at the Japan External Trade Organization (JETRO) and the Japan Intellectual Property Association (JIPA) in Tokyo on June 13 and June 14. USTR had held an earlier set of meetings in Tokyo with GOJ officials in late February 2006. The proposed WTO case would focus on the fact that thresholds for criminal penalties in Chinese law are set too high to capture much of the IPR-infringing commercial activity in China. For McCoy's discussions with the same officials on a proposed Anti-Counterfeiting Trade Agreement see Tokyo 2567.
METI stalls -----------
ۦ4. (SBU) Opening a joint METI-MOFA meeting, Shigehiro Tanaka, Director of METI's WTO Affairs office, stressed that Japan needed more time to study the issue and gather information from industry, and could not decide whether to join as a co-complainant before the fall. They will "decide on basis of what is the most effective way to proceed." Tanaka added that if the United States initiates WTO consulations in July, Japan was likely to be a supportive third party. He said that he did not want to leave the U.S. with false expectations and that the GOJ was proceeding with an open mind.
ۦ5. (SBU) In response to McCoy's question asking whether the political level had already looked at the issue, Tanaka responded that the Minister was aware of the situation and that METI needed to prepare a thorough analysis which would not be ready until the fall. Tadaatsu Mohri, Principal Deputy Director of MOFA's International Trade Division, added that MOFA was in the process of preparing a briefing for FM Aso which would cover both the IPR and auto parts cases.
ۦ6. (SBU) Tanaka noted that Trade Minister Nikai had raised the thresholds issue in a letter to Chinese Commerce Minister Bo, pointing out that as currently written the thresholds for criminal penalties appeared to be inconsistent with WTO rules.
ۦ7. (SBU) Tanaka explained that METI sees some progress in its dealings with the Chinese government. In recent talks with Chinese Supreme People's Court and the Procuratorate, the GOJ raised the issue of thresholds and the Chinese acknowledged that the issue is a problem of IPR enforcement. However, the Chinese officials claimed that the issue is not just a matter of law, but more a social problem which needed to be dealt with through public education. Harsh laws would not work, they said, citing a story about the failure of an ancient Chinese emperor which was repeated by other Chinese officials, also. Tanaka pointed out that now the National People's Congress also wants to insert itself into the discussion
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and has declared that the Chinese government must consult it when determining the interpretation of its laws.
ۦ8. (SBU) Tanaka asked about the EU's position on the case and McCoy replied that the EU is studying the issue, and that the final decision will probably be a political decision taken by EU Trade chief Peter Mandelson.
MOFA more supportive, more candid ---------------------------------
ۦ9. (SBU) Before the joint meeting with METI, MOFA's Mohri forewarned that METI was insisting that nothing could happen with respect to Japan's participation as a co-complainant until fall, but offered no explanation to MOFA on why. MOFA concluded that METI would not be able to make any decision on the proposed WTO case until Trade Minister Nikai leaves when the new Japanese government is chosen in September. (Comment: Nikai is considered the Japanese cabinet minister with the best relationship with China and someone who wants to keep the warm Japan-China business relationship on an even keel despite frosty relations in some other areas. End Comment.)
ۦ10. (SBU) Mohri also cautioned that selling a WTO case on IPR was going to be even tougher within the GOJ than the WTO auto parts case because private industry was not on board and was more concerned about a Chinese backlash than the issues in the case. (Note: Japan declined to join the U.S. and EU in an auto parts case against China, but signed on as a Third Party. End Note.)
ۦ11. (SBU) Both METI and MOFA officials underscored that there is stronger support among Japanese industry for GOJ action on trademarks and counterfeits, and much less on copyright piracy than among U.S. industry. Moreover, Japanese industry is less concerned about criminal thresholds and prefers to focus on administrative penalties, according to Tanaka. McCoy pointed out that the threshold problem affects both copyright and trademark industries and that USTR had hoped that by working together Japan could bolster a joint U.S.-Japan case with information on both copyright and trademark infringement in China.
Main obstace is lack of industry support ----------------------------------------
ۦ12. (SBU) At a follow-up meeting, METI and MOFA attorneys agreed that the lack of industry support was the main obstacle to Japan joining the United States in a WTO case. Major Japanese companies like Toyota and Panasonic deal with whole manufactured products, not parts, and are not particularly interested in the issue. Smaller companies don't really understand how the legal issues affect them, they explained.
ۦ13. (SBU) METI attorneys also pointed out that the Japanese copyright industry was just starting out in China and worried about getting Chinese government permissions and did not want to rock the boat. As a result, the GOJ would have to convince the copyright industry to support a WTO case. Further complicating the situation is the fact that METI does not cover the copyright industries; the Agency for Cultural Affairs does. Thus, METI has no Copyright industry constituency coming to them with complaints.
IPR Industry Group does not back WTO case ------------------------------------------
ۦ14. (SBU) Japan Intellectual Property Association (JIPA) representatives stated clearly that they did not support a WTO case against China. Taisuke Kato, Toshiba's General Manager for Intellectual Property, told the U.S. delegation that JIPA is working with Chinese officials to improve their enforcement capacity. e.g. training Chinese Customs officers to recognize fakes. JIPA, which is working closely with METI and JETRO on IPR problems in China, feels that Japan has asked China to take certain measures and now must wait to see how the Chinese respond. For them, it is not the right time to take a case against China at WTO, he asserted.
ۦ15. (SBU) Kato also launched into a mini-lecture, stating that "Each
TOKYO 00003873 003.2 OF 003
side, each country has to take action in its own way." "The Japanese style is that is it better to discuss and exchange information with China," he explained. Kato said that they "understand that the United States thinks it needs to do something as soon as possible, but that Japan sees it differently." "Japan is asking China to live up to its WTO obligations" and that "China has said they will try to improve." Therefore JIPA and the Japanese government are JIPA waiting to see what the Chinese response will be over the next one to two years, according to Kato.
No support from JETRO either ----------------------------
ۦ16. (SBU) JETRO's Director-General for Economic Research Shiro Mori stated forthrightly that the GOJ and industry do not want to add more friction to an already difficult political relationship with China or harm Japan's business interests. Japanese companies worry most about Chinese government interference and retaliation and don't want to risk damaging their relationship with the Chinese government, Mori acknowledged. This is especially true for new entrants to the Chinese market. As a result, Japan is reluctant to take actions that might seem confrontational and prefers to look for ways to cooperate and assist China to improve IPR enforcement, Mori explained. He admitted that some Japanese companies do want GOJ to take a harder line, but many others oppose that.
ۦ17. (SBU) For Japan's copyright industry, the Chinese market is still insignificant, Mori added. Their first priority is gaining market access. Mori said that he had not yet heard any complaints about the thresholds issue from Japanese industry. JETRO has only recently started to promote Japanese content into the Chinese market and is not yet far enough along to be concerned about the black market.
ۦ18. (SBU) Comment: GOJ officials do not want to say no outright to the U.S., but seem to want to buy time before making a decision on a WTO case against China. It is possible that the dynamics could change with a change in government in the fall, with a Trade Minister less personally invested in relations with China. High-level U.S. engagement would increase the pressure and could make a difference. However, given the GOJ's current policy of engagement with the Chinese government on IPR issues and the lack of support from Japanese industry, it appears that the GOJ would have a hard time gathering the support internally and among Japanese industry for joining the United States anytime soon.
ۦ19. (U) This cable has been cleared by Standford McCoy, USTR Chief Negotiator for IPR Enforcement. SCHIEFFER
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UNCLAS SECTION 01 OF 02 BERLIN 002397
SIPDIS
SIPDIS
USTR FOR POSNER (OGC), WINTER (CHINA) AND MCCOY (IPR) AND STATE FOR EAP/CM CRANE, EB/TPP/BTA SAEGER AND EB/TPP/IPE FELSING, USDOC FOR ISRAEL
E.O. 12958: N/A TAGS: KIPRââ¬â°[Intellectual Property Rights], ECONââ¬â°[Economic Conditions], ETRDââ¬â°[Foreign Trade], AORCââ¬â°[International Organizations and Conferences], WTROââ¬â°[World Trade Organization], GMââ¬â°[Germany] SUBJECT: DEMARCHE ON WTO DISPUTE ON CHINA IPR: GERMANY PREFERS DIALOGUE FIRST
REF: SECSTATE 126703
ۦ1. Embassy delivered reftel talking points to Knut Bruenjes, Deputy Director General for Trade Policy, at the Ministry of Economics and Technology, August 11, 2006. Bruenjes said German officials are aware of the seriousness of the IPR violations involving trademarks and copyrights occurring in China, but would prefer to pursue a dialogue with China before seeking consultations at the WTO. He said Germany supported EU Trade Commissioner Mandelson's timeline for dialogue with China on IPR issues until roughly the end of 2006. He said Germany would urge the Commission to prepare for the likelihood it would have to seek recourse in the WTO after Mandelson's timeline expires. Bruenjes agreed to put this issue on the EU's 133 Trade Committee's agenda in the next few weeks.
ۦ2. In response to our inquiry about concrete complaints from German firms, Bruenjes said he would poll Germany's large companies and industrial associations about specific IPR violations. He noted that companies like Puma and Adidas, as well as the Federation of German Industry (BDI) and German International Chamber of Commerce (DIHK), could well have a record of such incidents. Bruenjes thought such concrete examples would help provide substance for an eventual phone conversation on the issue between Commerce Secretary Gutierrez and Minister Glos. He underlined the importance of long-term U.S.-German cooperation on IPR in China, pointing to our current common approach on automotive parts in the WTO. Bruenjes agreed with our suggestion the DIHK-sponsored, "2006 Hamburg Summit - China Meets Europe" in Hamburg on September 13-15, would provide an occasion for high-ranking German government officials to address China's IPR enforcement policies with their Chinese counterparts (Note: Chinese Prime Minister Wen Jiabao is expected to attend the Summit on September 13-14, before traveling by train to Berlin on September 14, where he will meet with Chancellor Merkel. End Note).
--------------------------------------------- ------- Business Associations: Prefer EU's Go Slow Approach --------------------------------------------- -------
ۦ3. Representatives from the German International Chamber of Commerce DIHK) and the Federation of German Industry (BDI) echoed the cautious approach of the German government on bringing the IPR complaint before the WTO, citing the fear of losing contracts and business opportunities in China. According to Doris Moeller, Head of DIHK's Intellectual Property Office and Board Member of the German Economic Action Committee Against Product and Trademark Piracy (APM), DIHK has received numerous complaints from German businesses operating in China regarding IP and technology transfer violations. She noted, however, there are few companies willing to raise their complaints in a forum like the WTO for fear of losing potential business in China. Moeller said DIHK supported the EU's dialogue proposal and would prefer to see if it brings any results before taking action at the WTO.
ۦ4. Although industry and government currently prefer a cautious approach, Moeller noted that DIHK is taking significant steps to systematize and document IP violations occurring in China. Within the next two months, DIHK plans to release a questionnaire to all its members, as well as post it on its webpage, asking for information from companies on specific IP violations they have experienced. To date, information has apparently been anecdotal. The point of this exercise is to provide the German government with concrete examples of copyright, trademark, and technology transfer violations that have occurred in China. Moeller promised to share the results with us, as companies responded to the survey.
ۦ5. Christina Rentzmann, Country Director for China at BDI, underlined the cautious approach of German business when addressing IP violations in China. Due to the many contracts German companies have with the Chinese government, German businesses are reluctant to speak out publicly on IP violations. According to Rentzmann, German firms and their business associations are not ready to embrace a more aggressive approach to halting IP violations in China, i.e. WTO consultations, and would rather allow the programs in place, e.g. exchanges, training of judges and lawyers, to continue. Given business' passive attitude, Rentzmann was
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skeptical about the amount of information companies would be willing to provide DIHK on IP violations. She also noted that German businesses and the government tended to differentiate between technology/know-how transfer violations and IP violations involving copyrights and trademarks in general, and focused their efforts more on preventing the former. That said, she agreed these issues are closely tied together and strengthening enforcement and regulations to prevent IP trademark violations in China would also help stop illegal technology transfers. KOENIG
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C O N F I D E N T I A L SECTION 01 OF 04 LONDON 002499
NOFORN SIPDIS
DEPARTMENT FOR EUR/WE, NEA, SCA, PM, T, S/SRAP
E.O. 12958: DECL: 09/22/2019 TAGS: PRELââ¬â°[External Political Relations], PGOVââ¬â°[Internal Governmental Affairs], KPALââ¬â°[Palestinian Affairs], ETRDââ¬â°[Foreign Trade], KNNPââ¬â°[Nuclear Non-Proliferation], PARMââ¬â°[Arms Controls and Disarmament], SENVââ¬â°[Environmental Affairs], MARRââ¬â°[Military and Defense Arrangements], MNUCââ¬â°[Military Nuclear Applications], ECONââ¬â°[Economic Conditions], PHUMââ¬â°[Human Rights], RSââ¬â°[Russia; Wrangel Islands], ISââ¬â°[Israel], IRââ¬â°[Iran], GGââ¬â°[Georgia], AFââ¬â°[Afghanistan], UKââ¬â°[United Kingdom] SUBJECT: MILIBAND'S RUSSIA TRIP AIMS TO MOVE BILATERAL RELATIONSHIP FORWARD
REF: LONDON DAILY 11/3/09
Classified By: Deputy Chief of Mission Richard LeBaron, reasons 1.4 (b,d).
ۦ1. (C/NF) Summary. The Foreign Office's Russia Directorate briefed November 4 that the visit by Foreign Secretary David Miliband to Russia November 1-3 aimed to move forward a bilateral political relationship that has been beset by irritants and disagreements for three years. Discussions focused on multilateral issues over which there was broad agreement: Afghanistan, disarmament, the Middle East, and Iran, and issues where there was still bilateral disagreement: extradition, European security/NATO, human rights, Georgia, and climate change. Joint statements and discussions recommitted the two countries to common positions in support of peace, stability, and prosperity in Afghanistan, support for the electoral process, and a condemnation of the Taliban; a lasting two-state peace settlement of the Middle East conflict; and recognition of the vital global security role of nuclear non-proliferation and disarmament. Russian Foreign Minister Lavrov expressed predictable concern over Europe's evolving security architecture and NATO enlargement while appreciating NATO SecGen Rasmussen's "transparency" on the NATO Strategic Concept Review. Miliband and Lavrov "agreed to disagree" on the interpretations of the reasoning behind Russian military interventions into Georgia in August 2008. Miliband expressed hope that Russia would show more visible evidence of progress on human rights and rule of law, and heard only a "standard Russian reply" to requests for movement on the UK's extradition request of Andrei Lugovoi (wanted in connection with the murder of Kremlin critic Alexander Litvinenko in London in 2006). Miliband pushed Lavrov for an increased commitment of Russian emission reductions in advance of Copenhagen, and heard optimistic predictions of three percent economic growth in Russia in 2010 by First Deputy Prime Minister Igor Shuvalov. Shuvalov expressed willingness to maintain momentum on Russia's WTO accession negotiations but complained he had "gotten no response" when he raised the issue in Washington this autumn. In a separate November 3 readout with the DCM, the newly-installed FCO Political Director Geoffrey Adams said that HMG was very satisfied with the visit. Reading from a UK Embassy Moscow report, he noted Lavrov had "gone out of his way" to be hospitable, hosting a small informal dinner with Miliband the evening before the official schedule began. The media response to the visit was low-key and generally positive, he added. End summary.
Visit's Goals and Objectives ----------------------------
ۦ2. (C/NF) Michael Davenport, Director of the Foreign and Commonwealth Office's Russia, South Caucasus, and Central Asia Directorate briefed members of London's diplomatic corps November 4 on Foreign Secretary David Miliband's November 1-3 trip to Russia. The objective of Miliband's visit was to "take forward" the top-level bilateral political dialogue which Prime Minister Brown started with President Medvedev at the G8 last year, and which were furthered by Business Secretary Lord Mandelson, Secretary of State for Energy and Climate Change Ed Miliband, and the Duke of York on various visits to Russia. Miliband and Russian Foreign Secretary Lavrov agreed on three joint statements on Afghanistan, non-proliferation, and the Middle East Peace Process. The visit also demonstrated that Russia and the UK were able to cooperate on multilateral and bilateral priorities while engaging on what Davenport termed "hard-headed" issues such as the extradition of Andrei Lugovoi. Texts of the joint statements can be found at http://ukinrussia.fco.gov.uk /en/working-with-russia/visits/david-miliband .
Iran ----
ۦ3. (C/NF) FS Miliband noted the need for the international community to begin considering next steps to increase pressure on Iran with sanctions should there be no progress on Iran's response to concerns over its nuclear ambitions. Lavrov expressed concern that unilateral sanctions often had
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a seriously negative impact on Russian companies, to which Miliband responded that this was more reason to consider coordinated, multilateral sanctions if required. Davenport said that Miliband came away from the discussion with the impression that Russia was pressing Iran to be responsive to the international community but that Lavrov believed that it was premature to discuss sanctions in detail.
Afghanistan -----------
ۦ4. (C/NF) Davenport indicated that Lavrov supported NATO's role in Afghanistan and that Russia wanted NATO to stay engaged there. The Russians were optimistic over NATO's role in the process of reintegration but more skeptical on the potential for reconciliation there. Lavrov agreed on the importance of President Karzai as a genuinely national leader. A joint statement issued after the discussions recommitted the UK and Russia to the security, stability, and prosperity of Afghanistan; condemned Taliban efforts to destabilize the electoral process; underscored interest in prompt completion of the electoral process; and reaffirmed support for Afghanistan in confronting the threat posed by the illicit narcotics trade.
Disarmament and Missile Defense -------------------------------
ۦ5. (C/NF) FM Lavrov was optimistic that the successor treaty to START would be ready by December 5 and indicated to Miliband that he was looking forward to working with the U.S. on next steps. Lavrov expressed Russia's desire to see the disarmament discussion widened to include conventional weapons and to include countries beyond the P-5, particularly those vulnerable to becoming more "weaponized." On missile defense, Lavrov told Miliband he welcomed the U.S. decision and that he looked forward to working with us on next steps.
European Security / NATO ------------------------
ۦ6. (C/NF) Discussions on European security architecture, Davenport said, were in the context of the NATO-Russia dialogue on Afghanistan. Lavrov said he saw the debate (on the future of European security) as a litmus test of Western willingness to meet European security responsibilities. He welcomed NATO SecGen Rasmussen's willingness to be frank and transparent with Russia over NATO's Strategic Concept Review and looked forward to Rasmussen's upcoming trip to Russia to further engage on the issue of security. Lavrov raised with Miliband the view that Russia hoped to see the future of European security arrangements enshrined in a treaty with Russia, "either through the OSCE or the Corfu process." Miliband demurred, indicating that the discussions should be open and frank while cautioning that a treaty would not be the "end-all-be-all" solution; things must move forward incrementally, he said. On NATO enlargement specifically, Lavrov replayed traditional Russian arguments about the West "not keeping its word" in the 1990s not to expand the alliance and pointed to this grievance in support of a new treaty to govern Europe's new security architecture Lavrov promised that Russia would come to the next NATO-Russia Council meeting with more concrete proposals on Russian views for Europe's new security architecture, but Davenport expressed the view that HMG had "heard this before." President Medvedev and Prime Minister Brown were expected to meet in Berlin next week where the issue would likely be discussed further.
MEPP ----
ۦ7. (SBU) The Middle East Peace Process was the subject of a joint statement by Lavrov and Miliband -- recommitting Russia and the UK to a "comprehensive, just, and lasting peace settlement" of the conflict; and Davenport said there was agreement that the Palestinians needed a "credible route to a credible state."
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Georgia -------
ۦ8. (C/NF) Miliband and Lavrov agreed to disagree on different interpretations of what occurred in Georgia in August 2008. Miliband reasserted the view that sovereign states had the right to determine their security arrangements and alliances, and Davenport assessed that Russia was prepared to "play its part" in Geneva. Russian Deputy Foreign Minister Karasin was expected in London on December 19, during which these discussions would continue.
Human Rights / Rule of Law --------------------------
ۦ9. (C/NF) Miliband welcomed President Medvedev's commitments on human rights and the rule of law, but expressed to Lavrov that HMG hoped to see more evidence of these commitments being put into practice. Miliband noted that the issues impact the investment climate and hoped more could be done with a public face. Davenport noted that the EU-Russia dialogue on human rights was underway this week and the UK-Russia bilateral human rights dialogue would also continue, with an invitation extended to Russia to participate in dialogue talks in London in early 2010. Davenport, in response to a question, confirmed that HMG had no current plans to re-open the British Council office in St. Petersburg, but that the Russian MFA was supportive of the Council's work in country.
Extradition in Litvinenko Case ------------------------------
ۦ10. (C/NF) Turning to the key bilateral irritant, Miliband raised the extradition case of Andrei Lugovoi, wanted in connection with the 2006 murder in London of Alexander Litvinenko. Miliband said that it was unacceptable that no satisfactory cooperation from Russia on the UK's concerns and questions had been forthcoming. Lavrov, Davenport said, offered the "standard Russian reply."
Copenhagen - Climate Change ---------------------------
ۦ11. (C/NF) Miliband urged Lavrov to look again at Russia's negotiating position in advance of Copenhagen, noting that planned Russian reductions of 10-15 percent in carbon emissions by 2020 from a 1990 base year were insufficient, given the already huge reductions that occurred because of Russia,s economic decline in the 1990s. The Foreign Secretary urged Lavrov and First Deputy Prime Minister Shuvalov that increasing Russia's reduction pledge would send the right message to other countries.
Economics / WTO ---------------
ۦ12. (C/NF) Shuvalov was upbeat about Russia's economy, Davenport reported, and said that he predicted three percent growth in 2010. Shuvalov also indicated that Russia wanted to press ahead on with Russia's WTO accession negotiations, but had "gotten no response from Washington" when he was there this autumn.
Visit Atmospherics ------------------
ۦ13. (C/NF) In a separate November 3 meeting with the DCM, the new FCO Political Director, Geoffrey Adams, shared a readout from the UK Ambassador in Moscow, who noted that Lavrov had "gone out of his way to be hospitable" and had hosted an informal dinner on November 1 where the discussion was wide-ranging and relaxed. Davenport echoed that the atmospherics of the visit were "pretty good," despite criticism in the UK media of the Foreign Secretary having
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been "snubbed" on Litvinenko. Formal discussions were "business-like and productive" with promises of follow-up, though Adams expressed some disappointment that a planned meeting with Russian President Medvedev and Miliband had not materialized. Adams, when questioned by DCM said there was no clear solution in sight regarding the Litvinenko case. The FCO assesses that the visit was a step forward in the UK's bilateral dialogue with Russia, and while there remained important areas of disagreement, the channels would stay open and the discussion of these issues would continue.
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C O N F I D E N T I A L SECTION 01 OF 03 LONDON 003042
SIPDIS NOFORN
E.O. 12958: DECL: 12/03/2018 TAGS: PGOVââ¬â°[Internal Governmental Affairs], ECONââ¬â°[Economic Conditions], PRELââ¬â°[External Political Relations], PINRââ¬â°[Intelligence], UKââ¬â°[United Kingdom] SUBJECT: (U) QUEEN OPENS PARLIAMENT WITH A THIN LABOUR LEGISLATIVE AGENDA, BUT POLITICAL AND MEDIA FOCUS REMAINS ON MP RAID UPROAR
Classified By: PolMinCouns Greg Berry, reasons 1.4 (b/d).
ۦ1. (C/NF) Summary. The Queen laid out Gordon Brown's legislative plans for the coming year in the annual Queen's Speech at the December 3 State Opening of Parliament, but most of the political and media attention was not on PM Brown's legislative agenda (much of which had been released already) but on the future of the Speaker of the House of Commons Michael Martin. Martin was forced to read a statement to his colleagues, immediately following the Queen's departure from Westminster, in which he explained why police were allowed to conduct a November 27 raid of Conservative MP Damian Green's parliamentary offices as part of a Scotland Yard investigation into the unauthorized disclosure of confidential government documents that had embarrassed the government. Despite the Queen's announcement that 13 new bills would be introduced to help stabilize the rapidly declining UK economy, including a plan to allow homeowners to defer mortgage payments for up to two years if they lose their jobs or become severely ill, MPs from all parties were focused on the search of Green's office and what they called an infringement of the ancient parliamentary privilege of confidentiality; the future of Speaker Martin dominated much of the media reporting following the speech. Tory leader David Cameron criticized PM Gordon Brown's legislative agenda for focusing on short-term political gain rather than the long-term national interest. There were no foreign policy announcements in the speech, although Cameron in his statement after the speech noted President-elect Obama's intention for a "troop surge" in Afghanistan and surmised the Prime Minister will come under pressure to provide more troops. Cameron pressed Brown to obtain further troop commitments from NATO members before agreeing to increase Britain's troop presence. Labour's emphasis on populist, short-term economic measures, at the expense of what political critics of Labour claim is broader economic and social needs, suggests to many observers that Brown is considering calling a general election earlier than May 2010. End summary.
A Slimmed Down Legislative Program... -------------------------------------
ۦ2. (SBU) Prime Minister Gordon Brown had already revealed much of the content of the Queen's Speech in an unprecedented release of a draft of the speech last summer. The speech, however, had required almost wholesale re-working in the last several weeks to address the global economic downturn and as the UK prepares for recession. The government pared down its agenda significantly to focus tightly on the economy, and the previously announced 18 draft bills were replaced by a mere 12 draft pieces of new legislation in what is the slimmest legislative program since Labour took power in 1997. Some controversial legislation has been put on hold, such as the Communications Data Bill, which would have allowed a national database of phone calls and e-mails to be established, and the Constitutional Renewal Bill, which Brown trumpeted as increasing powers for MPs, specifically giving them the final say over the country's decision to go to war. Also postponed was a "UK Bill of Rights," a proposal Brown had given much attention to upon becoming Prime Minister last year. These measures will now, however, only be introduced "when time allows." The Political Parties and Elections Bill, which aims to introduce greater transparency in political party donations, will be carried over into this year's legislative agenda from last year. There were no foreign policy announcements in the speech, although Opposition Leader David Cameron noted President-elect Obama's intention for a "troop surge" in Afghanistan and surmised that the Prime Minister would likely come under pressure to provide more troops. Cameron pressed the Prime Minister to obtain further troop commitments from other NATO members before agreeing to increase Britain's troop presence.
...With a Focus On the Economy ------------------------------
ۦ3. (SBU) The Queen told Parliament that "fighting the economic downturn" was the government's "overriding priority" for the year ahead. A Banking Bill, which has already been introduced by the government and was carried over into this session, will seek to improve financial stability through measures to minimize existing liabilities in the banking sector by allowing the Treasury and the Financial Services Authority to intervene earlier if banks find themselves in difficulty, as well as strengthening protection for depositors if banks do fail. The headline proposal in the Speech was the government's proposal to allow homeowners who fall behind on mortgage payments due to a loss of job, sickness, or a large fall in income to be able to request a
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two year hiatus on their mortgage payments, with the deferred payments guaranteed by the government. Details of the program have yet to be worked out, but Britain's eight largest mortgage lenders representing 70% of the mortgage market have agreed to support the new program, according to Downing Street. Under the program, deferred payments will be added to the principal with the borrower paying this off when his/her financial circumstances improve, maintaining an affordable monthly payment by extending the term of the mortgage. Deferred amounts not repaid would be reimbursed to the lenders by the government. The program, entitled the Homeowners Support Mortgage Scheme, requires no primary legislation and officials estimate government guarantees may amount to about 1 billion of which perhaps 100 million would be paid out. The program will also have the effect of eliminating many non-performing loans from the lenders, portfolios, thereby freeing up reserves to support new lending. The announcement received positive media coverage and was welcomed by opposition parties.
And Other "Populist" Measures -----------------------------
ۦ4. (SBU) Many of the measures on the government's legislative agenda have a populist tone and reflected what several political observers suggested was "positioning" by the Brown government to hold a general election in 2009, rather than wait till May 2010, the deadline for an election. A welfare reform bill will aim to crack down on those cheating the benefits system and get more single parents back to work once their children pass the age of one. Migrants wanting to settle in the country will face more legal obstacles if they have committed crimes or failed to integrate into UK society under the proposed "Borders, Immigration and Citizenship Bill." Police accountability will be stepped up with the creation of directly elected representatives to police authorities; and lap dancing establishments will face tighter controls under the Policing and Crime Bill. All these issues are hot-button for Middle Britain and give Labour some deliverables to campaign on, especially if the economy remains in the doldrums at the time of any election.
The Spotlight Turns to the Speaker ----------------------------------
ۦ5. (C/NF) On a day normally preoccupied with high ceremony followed by intense debate over HMG's legislative agenda, the media and political spotlight was, however, quickly turned toward Speaker of the House of Commons Michael Martin, who has faced a flurry of sharp and increasing criticism for his decision to allow police to conduct a November 27 raid of Tory Shadow Minister for Immigration Damian Green's parliamentary offices. Martin attempted to deflate criticism from Opposition MPs and calls for his resignation by reading a statement, immediately following the Queen's departure from Westminster, on his role in the incident and by allowing Members to debate the Green affair. In his statement Martin blamed House of Commons Sergeant at Arms Jill Pay for allowing the search, which was part of an investigation into Green's disclosure of confidential information that had embarrassed the government. Martin claimed he did not know that the police did not possess a warrant for the search, but did admit that the police had told him a week earlier that they were considering a search of Green's parliamentary offices. Members of Parliament from all parties expressed outrage at what they called an infringement of their ancient parliamentary privilege of confidentiality and an attack on their independence; Opposition MPs called for the Speaker's resignation. One shadow Tory secretary told Poloff that Martin was notoriously thin-skinned and unpredictable, and that Opposition MPs have begun questioning his independence from the Government (Embassy comment. Unlike his U.S. counterpart, the Commons Speaker's role is non-partisan -- he/she routinely does not vote on legislative matter as a reflection of this tradition -- and the job is seen as requiring strong independence from the Government in order to reflect the interests of the Commons as a whole. End comment.) Home Secretary Jacqui Smith is reportedly preparing a statement on the Home Office's role in the raid, which may keep the issue in the press for the next day or two, and Speaker Martin is clearly not out of the woods yet, but Labor MPs remain loyal. Several political pundits have said they doubt the Speaker will be forced to resign.
What About Green? -----------------
ۦ6. (SBU) Parliamentary outrage over the raid on Green's office has taken attention off the reason the raid occurred. Police arrested MP Green as part of an investigation into
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leaks of sensitive information from a junior Home Office civil servant, Christopher Galley, who had been feeding information to Green. Green released information to the press and in the process had embarrassed the government. One of the leaks highlighted that more than 5,000 illegal immigrants were working as security guards, with one employed in Parliament. Police say they arrested Green, who was later released after questioning, on suspicion of "conspiring to commit misconduct in a public office" as well as "aiding and abetting, counseling or procuring misconduct in a public office." Such a raid and arrest of a member of parliament was unprecedented and MPs are arguing that leaking information embarrassing to the government, as long as it was not damaging to national security, is a vital way of holding the executive to account. In comments after the Commons debate on the raid and the Speaker's actions, Tory leader David Cameron expressed "shock" that police were allowed into the Commons without a warrant, and said he was "disappointed" that Gordon Brown was reportedly not certain whether a warrant was even necessary for the search to occur. Cameron reasserted his support for Green and underscored the role of Her Majesty's Loyal Opposition to hold government to account, dismissing government and police claims that the unauthorized disclosure of Home Office information had contained anything of a national security nature.
Comment -------
ۦ7. (C/NF) In part because of the Martin affair, and because there were few surprises in the Queen's Speech, there has been little media or political debate over Labor's rather light legislative agenda. Some insiders have suggested to us that Labor has slimmed down its plans and focused on populist, short-term economic measures in the hope of keeping options open to call a general election earlier than the June 2010 deadline. One Tory MP tells us that this would be possible only if Brown saw polling figures tip Labor's way definitively in the spring of next year. If there were to be an early election, Brown wants to avoid previewing the move publicly to avoid embarrassment should it not then occur and would share the decision only with insiders such as (Secretary of State for Business) Lord Mandelson and (Secretary of State for Children, Schools and Families) Ed Balls. For now, both are mum about any such plans when asked by the UK media.
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TUTTLE
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C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 002617
SIPDIS
E.O. 12958: DECL: 09/10/2029 TAGS: PRELââ¬â°[External Political Relations], PGOVââ¬â°[Internal Governmental Affairs], PHUMââ¬â°[Human Rights], KIRFââ¬â°[International Religious Freedom], ECONââ¬â°[Economic Conditions], CHââ¬â°[China (Mainland)], FRââ¬â°[France; Corsica], JAââ¬â°[Japan; Okinawa; Ryukyu Islands], GMââ¬â°[Germany], UKââ¬â°[United Kingdom] SUBJECT: BEIJING-BASED G-5 CHIEFS OF MISSION ON JAPANESE ELECTION, CLIMATE CHANGE AND FRANKFURT BOOK FAIR.
Classified By: Political Minister Counselor Aubrey Carlson. Reasons 1.4 (b/d).
Summary -------
ۦ1. (C) At the regular meeting of G-5 Ambassadors in Beijing on September 11, Japanese Ambassador Miyamoto stated that while the recent elections in Japan were "significant," he does not expect major changes in Japan's foreign policy. British Ambassador William Ehrman said the United Kingdom was "dismayed" by Premier Wen Jiabao's recent statement on China's unwillingness to comply with carbon emission reduction caps. German Ambassador Michael Schaefer reported that PRC Vice President Xi Jinping will visit Germany in mid-October. French Ambassador Ladsous reported that in a recent Sino-French informal "strategic dialogue," PRC Foreign Minister Yang Jiechi indicated that China was reluctant to see action on UN Security Council reform at the current UNGA. End Summary.
Participants ------------
ۦ2. (C) French Ambassador Herve Ladsous hosted the DCM, Japanese Ambassador Yuji Miyamoto, German Ambassador Dr. Michael Schaefer and UK Ambassador Sir William Ehrman September 11 for the regular gathering of Beijing-based G-5 Chiefs of Mission.
Japanese Elections ------------------
ۦ3. (C) Ambassador Miyamoto commented that the recent election results in Japan were the "first real change in government" since the 1993 elections. Ambassador Miyamoto described incoming Foreign Minister Katsuya Okada, a regular visitor with personal ties to China, as a "man of principle" and a "fundamentalist." He indicated that the full impact of the election results on relations among the United States, China and Japan was unclear, but he did not expect drastic foreign policy changes with the new government. Okada was expected to visit China September 27 to meet with PRC Foreign Minister Yang Jiechi.
VFM Wu Dawei's visit to Japan -----------------------------
ۦ4. (C) Ambassador Miyamoto reported that PRC Vice Foreign Minister Wu Dawei traveled September 7 - 10 to Japan as China's leading "Japan expert" to oversee initial discussions with the new government on bilateral relations. He added that the substance of the "strategic, mutually beneficial relationship" between the two countries might be "altered." According to Ambassador Miyamoto, VFM Wu did not discuss DPRK security issues with his interlocutors during his trip.
Sino-UK relations -----------------
ۦ5. (C) British Ambassador William Ehrman noted the recent visits to Beijing of Foreign Secretary David Miliband and First Secretary of State Lord Mandelson. He further reported that there were "no surprises" during Foreign Office Minister Ivan Lewis' recent visit to Tibet and that State Councilor Dai Bingguo was expected to visit the UK in late October. Commenting on bilateral market access as well as cooperation between insurance and banking industries in the UK and China, Ambassador Ehrman reported that PRC Vice Premier Wang Qishan recently approved a merger deal between the Bank of China and Standard Life Insurance.
Copenhagen and Climate Change -----------------------------
ۦ6. (C) Touching on climate change issues and the December 2009 UN Conference on Climate Change in Copenhagen, Ambassador Ehrman commented that China did not support specific numerical caps on carbon emissions, calling them "unrealistic". The UK was dismayed by PRC Premier Wen Jiabao's recent statements that foreign countries "should not expect" China to abide by proposed treaty limits on emissions by 2020. Ambassador Ehrman questioned China's commitment to dialogue and discussion in Copenhagen, given that the PRC appeared to have already taken a firm policy stance. French
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Ambassador Ladsous disagreed, suggesting that China should make known its environmental position public before the conference.
Sino-German relations ---------------------
ۦ7. (C) Ambassador Schaefer reported that around 1,500 visitors from China, including the author Dai Jing, would participate in the October 14-18 Frankfurt Book Fair, the world's largest. The German government was not concerned about problems arising from the possible attendance at the fair by the Dalai Lama, who apparently was a close friend of Frankfurt's provincial governor and transited through the city frequently. Vice President Xi Jinping was expected to arrive in Germany on October 13.
Sino)French relations ---------------------
ۦ8. (C) Ambassador Ladsous reported that France and China had just completed their "informal" strategic and economic dialogues. French President Sarkozy's Diplomatic Adviser Jean-David Levitte had led the French side, and in discussions with PRC Foreign Minister Yang Jiechi, Yang had indicated that China did not support reaching final decisions on UN Security Council reform during the upcoming UN General Assembly (UNGA) and wished to wait until "next time" for a decision. He further noted that PRC President Hu Jintao and President Sarkozy had scheduled bilateral discussions on the margins of UNGA, and that President Hu was expected to visit Paris in 2010, with a return visit by President Sarkozy after the Shanghai World Expo.
ۦ9. (C) Ambassador Ladsous raised the issue of nuclear power plant security in China. France's Prime Minister Francois Fillon was expected to visit a nuclear power plant in Guangzhou when he visited China. Ambassador Ladsous reported upcoming visits by two senior French financial ministers and French Environment Minister Jean-Louis Borloo, who planned to visit China toward the end of October. HUNTSMAN
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C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 002062
SIPDIS
E.O. 12958: DECL: 07/20/2029 TAGS: PRELââ¬â°[External Political Relations], PGOVââ¬â°[Internal Governmental Affairs], PHUMââ¬â°[Human Rights], KIRFââ¬â°[International Religious Freedom], ECONââ¬â°[Economic Conditions], CHââ¬â°[China (Mainland)], FRââ¬â°[France; Corsica], JAââ¬â°[Japan; Okinawa; Ryukyu Islands], GMââ¬â°[Germany], UKââ¬â°[United Kingdom] SUBJECT: BEIJING-BASED G-5 CHIEFS OF MISSION ON XINJIANG, RIO TINTO, SINO-FRENCH, UK, AND JAPAN RELATIONS, TAIWAN PARTICIPATION IN BOOK FAIR
Classified By: Acting Deputy Chief of Mission William Weinstein. Reasons 1.4 (b/d).
Summary -------- ۦ1. (C) At the regular meeting of G-5 Ambassadors in Beijing July 17, French Ambassador Ladsous reported that during French National Day, he spoke with a Chinese Vice Minister who said Xinjiang was "just like Tibet" and implied France "best keep quiet." On Rio Tinto, Ladsous reported that he heard the Chinese had conducted large-scale efforts to gain information on the negotiations, so their hands "were not clean." British Ambassador Sir William Ehrman reported that Rio Tinto was a British company with HQ in London and that Rio Tinto had decided to pursue the incident on a consular basis, leaving Australia in the lead. On Sino-French relations, French Ambassador Ladsous reported that President Sarkozy met with State Councilor Dai Bingguo at the G-8 summit in Italy and suggested a possible visit by Hu Jintao to Paris next year. Japanese Ambassador Yuji Miyamoto reported that the Chief of Staff of the Maritime Self-Defense Force Admiral Keiji Akahoshi would visit China on August 13, at which time Japan hoped to establish a naval hotline. German Ambassador Dr. Michael Schaefer reported that a dispute had emerged over Taiwan's participation in the October 14-18 Frankfurt Book Fair under the name "Taiwan" and, until China and Taiwan resolved the issue, China's participation in the book fair was uncertain. End Summary.
Participants ------------ ۦ2. (C) Japanese Ambassador Yuji Miyamoto hosted German Ambassador Dr. Michael Schaefer, UK Ambassador Sir William Ehrman, French Ambassador Herve Ladsous and Acting DCM July 17 for the regular gathering of Beijing-based G-5 Chiefs of Mission.
Xinjiang --------- ۦ3. (C) French Ambassador Ladsous reported that during French National Day he spoke with a Chinese Vice Minister who said Xinjiang was "just like Tibet" and implied France "best keep quiet." German Ambassador Dr. Michael Schaefer confirmed that protestors had thrown Molotov cocktails at the Chinese consulate in Munich, causing minor damage to the building but burning the Chinese flag. China had made representations urging Germany to take all necessary measures to ensure the safety and dignity of Chinese diplomats and bring the perpetrators to justice. Schaefer said China alleged that a Uighur tour group in Germany had been attacked by a Chinese tour group, but Germany was un-able to verify this information.
Rio Tinto --------- ۦ4. (C) French Ambassador Ladsous reported that he heard the Chinese had conducted large-scale efforts to gain information on the negotiations, so their hands "were not clean." He said that he would consult with the Australian Embassy, because they were concerned about the naturalized Chinese staff in police custody. British Ambassador Sir William Ehrman reported that Rio Tinto was a British company with Headquarters in London. In a meeting with the company's CEO in London, Ehrman said that Rio Tinto told him they had decided to pursue the incident on a consular basis, with Australia taking the lead.
Sino-French relations ---------------------- ۦ5. (C) Ambassador Ladsous reported that President Sarkozy met with State Councilor Dai Bingguo at the G-8 summit in Italy and suggested a possible visit by Hu Jintao to Paris next year. The French Minister for Budget Eric Woerth was recently in China and signed the first agreement on cooperation for anti- money laundering efforts. The French Ambassador also reported several upcoming visits including: the President's Chief Diplomatic Adviser Jean-David Levitte who planned to meet with State Councilor Dai Bingguo on September 2, French Economy, Industry and Employment Minister Christine Lagarde who planned to visit China before the G-20 in Pittsburgh and French Environment Minister Jean-Louis Borloo who planned to visit China in the fall. Ladsous also reported that French Secretary for Human Rights Rama Yade was
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scheduled to meet with the Dalai Lama when he next visits France.
Sino-UK relations ----------------- ۦ6. (C) British Ambassador Sir William Ehrman reported that Foreign Secretary David Miliband, Secretary for Energy and Climate Change Ed Miliband, and First Secretary of State Lord Mandelson all planned to visit China in the first week of August. Chief of the Air Staff Sir Glenn Torpy planned to visit China in October, while Trade Minister Lord Davies, Special Representative for Climate Change John Ashton, Permanent Secretary of HM Treasury Sir Nicholas Macpherson, and Head of the Diplomatic Service Sir Peter Ricke all planned to visit China in the fall.
Sino-Japanese relations ----------------------- ۦ7. (C) Japanese Ambassador Yuji Miyamoto announced that the scheduled trilateral meeting between the leaders of Japan, South Korea, and China was cancelled due to elections in Japan. He also reported that the Chief of Staff of the Maritime Self-Defense Force Admiral Keiji Akahoshi would visit China on August 13, at which time Japan hoped to sign an agreement to establish a naval hotline. The Japanese Ambassador also announced that he will take the first official trip by a Japanese Ambassador to Tibet in August.
Taiwan Participation in Frankfurt Book Fair Under Dispute --------------------------------------------- ------------ ۦ8. (C) German Ambassador Dr. Michael Schaefer reported that a dispute had emerged over Taiwan's participation in the October 14-18 Frankfurt Book Fair, the world's largest such fair, under the name "Taiwan." Currently the organizers had places such as Catalonia and Taiwan listed as stand alone entries. Until China and Taiwan resolved the issue, China's participation in the book fair including a visit by Vice President Xi Jinping was uncertain. GOLDBERG ho harm
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E.O. 12958: DECL: 01/29/2019 TAGS: ECONââ¬â°[Economic Conditions], PGOVââ¬â°[Internal Governmental Affairs], PINRââ¬â°[Intelligence], UKââ¬â°[United Kingdom] SUBJECT: (C/NF)SHRITI VADERA - BROWN'S OUTSPOKEN CONFIDANT AND ADVISOR
REF: A. 07 LONDON 4389 B. 07 LONDON 1525 C. 08 LONDON 260
Classified By: Econ Minister Counselor Mark Tokola for Reasons 1.4 (b) and (d)
ۦ1. (C/NF) Summary: Shriti Vadera, junior minister at the Department for Business, Enterprise and Regulatory Reform (BERR), catapulted into the spotlight on January 14 with a roundly-criticized comment that she saw potential "green shoots" of economic recovery. The comments sparked a series of press profiles focusing on her close relationship with PM Brown, her private sector background, and her reported abrasiveness with the civil service. Vadera bears watching as she has long been a close advisor of Gordon Brown, and is particularly active in developing responses to the economic crisis, as seen by her presence at the small meeting Brown held with Federal Reserve Chairman Bernanke on January 13. End Summary.
Green Shoots ------------
ۦ2. (SBU) Vadera's comments on January 14 drew immediate and fierce criticism. Asked specifically when the UK could expect to see some "green shoots" amid the economic downturn, she replied that would not want to predict, but added "I am seeing a few green shoots, but it's a bit too early to say exactly how they'd grow." Conservatives called the remarks "insensitive and out of touch" coming, as they did, on a day when UK firms announced large-scale job losses and share prices slumped by almost 5 percent. In her own defense, Vadera said she had been referring to improvements in the credit market, saying she was aware of a company that managed to raise hundreds of millions of pounds in the capital markets, which would not have been possible even two months ago. The gaffe forced the PM to issue a statement that he is "never complacent" about the economy. Business Secretary Lord Mandelson defended Vadera, saying she is "the least complacent" member of his team, although he added that she failed to grasp the political implications. The "green shoots" phrase became politically toxic when then Chancellor Norman Lamont used it in 1991, more than a year before the UK came out of its last recession.
Outspoken ---------
ۦ3. (SBU) The press took the opportunity of Vadera's gaffe to profile her. BBC's Radio 4 Today program described her as Gordon Brown's "most trusted economic advisor" and someone everyone should know, saying she is known in the "Westminster Village" as "Gordon Brown's representative on Earth." As part of the interview, former business minister Digby Jones described her as an, "intensely loyal person who (Brown) can totally rely on." Peter Jones, millionaire businessman, said she "listens, takes advice, but more importantly, delivers." Other press reports said she can be abrasive, but gets the job done. She was also described as extremely good at her job, and relentlessly hard working.
ۦ4. (C/NF) We understand she speaks to the Prime Minister almost daily by phone, often de-briefing him on her meetings, advising on political strategy, and offering economic advice. In meetings with USG officials while at the Department for International Development (DFID), (e.g. Ref A) Vadera was not shy about offering to have "Gordon" make a call if it was necessary to make something happen. Although more in the shadows since moving to BERR, Vadera clearly remains one of Brown's closest advisors. She joined the Prime Minister, Chancellor Darling, and G8 Sherpa Jon Cunliffe in the January 13 meeting with Federal Reserve Chairman Bernanke; she interrupted the PM on several occasions to make a point about the economic crisis.
ۦ5. (C/NF) Others profiles were less sympathetic. Press stories picked up what civil servants have reportedly coined as Vadera's nicknames "Shrieky" and "Darth Vadera," and Vadera herself has been quoted as saying she finds working with the civil service "challenging." The press has noted the high turnover of officials in her private office. One Private Secretary told us Vadera would regularly scream from her desk, "Get me a cup of coffee" with a string of expletives attached, something almost unheard of in the polite British civil service and prompting three scheduling assistants to leave her office in three months. She also reportedly had screaming matches in front of subordinates with Development Secretary Douglas Alexander while she was at DFID. Insiders tell us she was moved from DFID at Alexander's request, though the move was billed as a promotion to the media. It is worth noting that Vadera can also be charismatic and charming, especially with external visitors. She is also very active in trying to bolster her international image, including visits to Washington and questioning USG visitors for information on other key USG decision makers she should meet.
ۦ6. (C/NF) HMG officials universally recognize Vadera's intelligence and ability to implement policy. During her short time in DFID, she completely re-vamped the Country Action Plan (CAP) process, one of the most bureaucratic acts of HMG's most bureaucratic department, and gave DFID's strategic planning a crisp, business-like approach. She also has an insatiable appetite for details, constantly asking officials for longer briefings and more explanation. The model briefing from her DFID Private Office contained over 130 pages. In meetings with USG officials while at DFID, Vadera enjoyed brainstorming with visitors, and her meetings invariably started late and ran long. She often mentioned her private sector roots, and, at least at DFID, she focused on getting the private sector more involved in government work.
Biographic Details ------------------
ۦ7. (C/NF) Brown recruited Vadera in 1999 following her efforts to eradicate debt in her native Uganda as part of the 14 years she spent as an investment banker for UBS Warburg. As an advisor to then Chancellor Brown at HM Treasury from 1999-2007, she helped develop the poverty reduction and debt programs that were the centerpiece of the 2005 G-8 Gleneagles summit. She was also a Trustee of Oxfam between 2000-2005. Most recently, the BBC profile credited Vadera with having a hand in the nationalization of Northern Rock, bank recapitalizations and efforts to guarantee loans to small business -- and described her as Brown's "economic deal-maker."
ۦ8. (C/NF) Shriti Vadera has been a junior minister at the Department for Business, Enterprise and Regulatory Reform (BERR) since January 2008, where she is currently Parliamentary Under-Secretary of State for Competitiveness and Small Business (jointly with Cabinet Office). As one of Brown's insiders (Ref B), she first became a government minister when Brown became Prime Minister -- as Parliamentary Under Secretary of State for the Department for International Development from June 2007 to January 2008. Since she is not an MP, to become a minister she had to be elevated to the House of Lords, with the title of Baroness, a title her staffers have told us to avoid using with her. At DFID, she was responsible for Brown's first key development initiative as Prime Minister, the Millennium Development Goals Call to Action, and in particular, focused on engaging business (Ref C).
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TUTTLE
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UNCLAS SECTION 01 OF 03 LONDON 002427
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EFINââ¬â°[Financial and Monetary Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], UKââ¬â°[United Kingdom] SUBJECT: UK STILL IN RECESSION AND FACING SLOW, VOLATILE RECOVERY
REF: London 2307 and London 2357
LONDON 00002427 001.3 OF 003
ۦ1. (SBU) Summary: The UK economy is still in recession and faces a slow, patchy recovery. According to official data released October 23, output in the third quarter was significantly weaker than expected. Economists at Oxford Economics and Morgan Stanley expect the UK to emerge from recession in the fourth quarter, in line with Chancellor Darling's forecast that growth will return by the end of the year, but have not ruled-out a "double-dip" recession. Weak sterling may improve the prospects of an export-driven recovery. Poor credit availability and mounting public debt pose significant risks to recovery. While the Bank of England's quantitative easing program could affect credit conditions, the Bank faces difficult decisions about when to start unwinding its position. Unemployment is set to stabilize next year, at a peak of approximately 9 percent. Inflation is likely to remain below the Bank of England's two percent target in the medium term. End summary.
UK Faces Bumpy Recovery -----------------------
ۦ2. (SBU) The UK economy is still in recession, with a 0.4 percent contraction of GDP in the third quarter, according to data released by the Office for National Statistics on October 23. Output was significantly weaker than expected, with many analysts previously forecasting mild growth (of approximately 0.2 percent) which would have kick-started the recovery. The UK has now had six consecutive quarters of contracting output, the longest period of contraction since quarterly records began in 1955. It has been one of the global economic stragglers, with an emergence from the recession only expected in the fourth quarter, according to Andrew Goodwin, a consultant for Oxford Economics, a forecasting firm. During a macroeconomic briefing, Goodwin said the UK remains a long way behind most G7 countries, only performing better than Canada in the second quarter. He blamed this on sluggish domestic demand as consumers and businesses deleverage. Andrea Boltho, an Oxford University professor, said "spring is in the air," but the UK will not see a return to business as usual for a long time. He said it would take approximately 12 quarters for UK GDP growth to return to peak levels.
ۦ3. (SBU) Oxford Economics expects growth in the fourth quarter of 0.5 percent, slightly more pessimistic than Morgan Stanley's forecast. Melanie Baker, Morgan Stanley's chief UK economist, told us she expects 0.8 percent growth in the final quarter of 2009. She forecasts strong end of year growth driven by money from HMG's car scrappage scheme and increased consumer spending resulting from the imminent reversal of the value-added tax (VAT) cut (in January 2010 VAT will return to 17.5 percent after a year at 15 percent). She believes, however, 2010 will be a subpar year. Household savings rates are likely to increase, with consumer spending slowing as consumers deleverage. Business investment, likely to be low because of spare capacity, will not be a driver of recovery.
ۦ4. (SBU) The exact shape of the recovery is unknown. Baker said there is great uncertainty around all forecasts because of continued uncertainty around the fiscal outlook. While most analysts expect significant fiscal tightening following the election, the speed of this tightening will depend largely on the governing political party. She said people will remain concerned about the potential for a "double-dip" or "W-shaped" recession through next year. Echoing concern about a W-shaped recession, Goodwin said that while growth could be boosted by inventory rebuilding through the remainder of 2009, final demand may remain weak as banks and households deleverage. This would result in sluggish growth through 2010 and 2011, despite an initial bounce-back in the second half of 2009.
Possible Export-Driven Recovery ------------------------------
ۦ5. (SBU) The UK's economic recovery is expected to be slow and patchy, largely because it is difficult to detect a sustainable driver of growth. Both Goodwin and Baker expect fiscal policy will be limited in its ability to support economic recovery. There is no money left, they say, for further fiscal stimulus, despite media speculation that Chancellor Darling could announce further stimulus in his pre-Budget report. Baker told us consumer spending also will remain subdued, domestic business investment will likely be weak in the near term, and the bulk of government spending has already played through. While loose monetary policy may drive growth in the near term, she said it is not a viable foundation for sustained economic recovery. One possible driver, however, is exports. Baker said exports are likely to be buoyed by sterling's weakness. The weak pound will place the UK in good stead to benefit from eventual growth in the eurozone. Her comments were echoed by Andy Scott, Director of International and UK Operations for the Confederation of British Industry (CBI). During an evidence session with the House
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of Commons Business, Innovation and Skills Committee, Scott said the UK recovery will be supported by a strong export market. As the UK's domestic market "evaporates," companies are increasingly looking at overseas opportunities. Sterling's weakness, he said, will improve their competitiveness.
ۦ6. (SBU) However, there is reason to remain skeptical about the possibility of an export-driven recovery. Adam Marshall, Director of Policy at the British Chambers of Commerce, told the Committee that many companies have been driven to export markets looking for a quick fix. He said that while established companies will benefit from a weak sterling, companies new to exporting will find it more difficult. Costs of establishing in a foreign market, particularly the cost of foreign trade shows, will be heightened by the weak sterling. Oxford University's Boltho was also skeptical about relying on exports for recovery. He said Ireland, the UK's fourth largest export market, is still suffering from problems in its housing market, and is unlikely to be a large importer of UK goods and services.
Credit Conditions Pose Risk to Recovery ---------------------------------------
ۦ7. (SBU) A lack of bank lending poses a serious risk to recovery, according to Boltho. Prior to the crisis, he said, "banks would lend any amount to anyone, now they won't lend anything to anyone - regardless of how meritorious the project." Goodwin agreed credit is still scarce for consumers and businesses. Lending hasn't returned following its "spectacular collapse" in the second half of 2008 and first half of 2009 and lending is becoming more expensive as banks increase their margins. Morgan Stanley's Baker disagreed with their analysis. She told us that banks are showing signs of willingness to increase credit availability and are improving credit terms. She said demand for credit has not returned, particularly in the large corporate sector, where companies have just started raising funds in the capital markets. She acknowledged, though, there is unmet demand for credit among small companies. She said this problem requires a government solution and cannot be solved through further loosening of monetary policy. (Note: HMG has put significant pressure on British banks to lend. It set 2009 lending targets for two partly nationalized banks, the Royal Bank of Scotland (GBP 25 billion) and Lloyds Banking Group (GBP 14 billion) in return for their participation in the asset protection scheme. Chancellor Darling and Business Secretary Lord Mandelson have also made public comments that banks should increase lending or HMG will be forced to take further action.)
ۦ8. (SBU) All three analysts believed the Bank of England's quantitative easing (QE) program is beginning to work and could eventually improve credit conditions. Goodwin said interbank spreads are back to normal levels and gilt yields are low, despite spiraling government borrowing. Money growth (M4), which was negative from October 2008 to May 2009, moved out of negative territory in July, although it is too early to tell whether this growth is durable. Goodwin thought there was a 50 percent chance the Bank of England would extend its QE program in November, alongside the publication of its inflation report. If it does extend the program, however, Goodwin thinks it will only be by GBP 25 - GBP 50 billion.
ۦ9. (SBU) Unwinding the Bank's position will be difficult and timing will be crucial. Goodwin said the Bank, HM Treasury and the Debt Management Office (which auctions UK government bonds) must work together to maintain stability in the gilt market once the Bank begins to dispose of its assets. He warned that the Bank will start selling its gilts at the same time HM Treasury increases its gilt auctions to finance borrowing. Therefore, he argued, gilt yields are likely to rise in the next six to twelve months. He said the Bank needs to be careful about the timing of the gilt sales, particularly needing to avoid choking off recovery by tightening monetary policy too soon.
Public Finances: Debt to Reach Almost 100 Percent of GDP --------------------------- ----------------------------
ۦ10. (SBU) Alongside poor credit conditions, weak public finances are cited as a risk to UK economic recovery. Public debt rose to 59 percent of GDP in September, as HMG borrowed GBP 77.3 billion in the first half of the fiscal year - the highest borrowing level for the period since 1946. Goodwin expected UK debt to reach almost 100 percent of GDP by 2010. He said social security payments are rising while income tax revenue is falling, so the fiscal deficit will continue to climb, particularly in the next six to twelve months. He said the massive fiscal deficit needs to be addressed. He expected an extended period of austerity - with potentially ten years of tax increases. His comments reflect wider concern regarding the UK's public purse. In its 2009 Sustainability Report, the European Commission said the UK is at high risk of running an
LONDON 00002427 003.3 OF 003
unsustainable deficit. It said the UK will suffer a "sustainability gap" of 12.4 percent - meaning tax increases or spending cuts of approximately GBP 200 billion a year will be necessary. The National Institute for Economic and Social Research warned about the sustainability of UK debt, saying fiscal consolidation will be expensive, but the faster it happens, the lower the rise in debt.
Unemployment Up, Inflation Down -------------------------------
ۦ11. (SBU) Public finances will be significantly impacted by further rises in unemployment until next year. Baker told us unemployment will stabilize next year, with a peak of around 9 percent (from a current rate of 7.9 percent). It will then begin to decline, but it is unlikely that there will be any rapid improvement. Goodwin also expects unemployment to peak towards the end of 2010. Opinion is divided on what will happen to CPI inflation in the short term, but there is consensus that it will remain below the Bank of England's two percent target in the medium term. Goodwin expected a prolonged period of below target inflation through 2012. Baker thought inflation would bounce back at the beginning of next year, above target, and then fall below target in 2011. She expected domestic inflationary pressure to remain subdued.
ۦ12. (SBU) Comment: Despite encouraging signs the UK is emerging from recession, there are still questions about the strength and sustainability of any recovery. Mounting public debt will remain an enormous drag on the economy and could undermine any recovery in the fourth quarter. Both the Labour and Conservative Parties will need to form credible, comprehensive plans to address mounting public debt in the run up to the next general election (see reftels). However, these plans will be contingent on the UK emerging from the downturn and embarking on a path of steady, sustainable growth. Implementing any fiscal tightening before the recovery is assured could risk choking off growth and pushing the economy back into recession.
SUSMAN
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UNCLAS SECTION 01 OF 02 LONDON 002307
SIPDIS
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EFINââ¬â°[Financial and Monetary Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], UKââ¬â°[United Kingdom] SUBJECT: LABOUR PARTY OUTLINES ECONOMIC STRATEGY IN RUN-UP TO NEXT GENERAL ELECTION
LONDON 00002307 001.3 OF 002
ۦ1. (U) Summary: The Labour Party's last conference before the general election saw ministers attempt to draw a dividing line between Labour and Conservative economic policy. Chancellor Darling acknowledged spending cuts and tax rises would be necessary to return public finances to a sustainable path. The Labour Party will halve the deficit within four years by raising taxes on the highest earners and cutting lower-priority public budgets. On financial services, the Labour Party will introduce legislation to curb bank bonuses and ensure the financial sector does not return to "business as usual." To stress the importance of climate change and green technology in Labour's new economic model, the Prime Minister committed to attend the Copenhagen climate conference. Business Secretary Lord Mandelson demonstrated Labour's commitment to the UK's manufacturing sector by extending the car scrappage scheme and pledging support to Vauxhall workers. Finally, Gordon Brown announced the Labour Party will introduce legislation committing HMG to raise its spending on aid to 0.7 percent of national income. End summary.
"Difficult Decisions" Remain on Spending Cuts and Tax Rises ---------------------------- ------------------------------
ۦ2. (U) The UK economy is showing signs of recovery, but the recovery remains fragile and uncertain, declared Business Secretary Lord Mandelson in his remarks at the Labour Conference. His comments were echoed by Chancellor Darling who stood by his March Budget forecast that the UK economy will emerge from recession by the beginning of 2010. Darling said as the economy recovers, it will become increasingly important to set UK public finances on a sustainable path.
ۦ3. (U) Once economic recovery is ensured, difficult decisions will have to be made to reduce the budget. The PM declared Labour's intent to halve the budget deficit over four years, through cutting waste, costs, and lower-priority budget items. It will remove tax relief on pension contributions for higher earners, raise the top rate of tax to 50 percent for the highest incomes, introduce realistic public sector pay settlements, raise National Insurance by 0.5 percent in 2011 and continue to crack down on offshore tax havens. The Chancellor said he will introduce a new Fiscal Responsibility Act requiring the government to reduce the budget deficit year-on-year, to ensure the national debt remains sustainable in the medium term.
ۦ4. (U) In often strong terms, the Prime Minister outlined a clear dividing line between Labour and Conservative policy on reducing the deficit. He said the Conservatives had gotten the crisis wrong; they had made the wrong choices, the wrong recommendations, and would do the same again. He said the Conservative approach is to cut front line public services, while Labour would maintain and improve these services and increase taxes on the wealthiest. Chancellor Darling launched a personal attack on Shadow Chancellor George Osborne over the public finances debate, saying there has been little that is "grown-up" about his performance so far. He said voters face a clear choice between a Labour government committed to public services and a "return to the Tory dark ages" -with Conservative MPs relishing the chance to swing the axe at the services millions rely on.
Financial Services - No Return to Business as Usual ----------------------- ---------------------------
ۦ5. (U) Chancellor Darling said he will introduce legislation in the next few weeks to end the "reckless [bonus] culture that puts short-term profit over long-term success" and ensure there will be no return to business as usual in the financial sector. During his conference speech, Darling said he will end automatic bank bonuses and immediate pay-outs for senior management and will ensure bonuses are paid out over years, so they can be clawed back if not warranted by long-term performance. Prime Minister Gordon Brown said the new law will intervene on bankers' bonuses whenever they pose a risk to the economy. He said any bank directors who are negligent will be disqualified from holding any directorships in the future.
Climate Change - UK's Economic Future Must Be Green ----------------------- ---------------------------
ۦ6. (U) A key component of the UK's economic recovery will be a focus on green technology and a low carbon economy. Noting that the UK is already a global leader in wind power, green cars, clean coal and carbon capture, the Prime Minister said it will lead again with new designated low carbon zones around the UK. He said a quarter of a million new green British jobs will be created, ensuring the UK's future economy is a green economy. To stress the importance of climate change in Labour's new economic model, the Prime Minister committed to attend the Copenhagen climate conference, a move welcomed by Climate Change Secretary Ed Miliband who, in his remarks, said Copenhagen is in peril and requires leadership. In
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his conference speech, Miliband announced GBP 10 million for a green neighborhoods program and GBP 20 million to support research and development in low carbon industries, including renewables. He said climate change is too big to reject nuclear options, so the Labour government will continue to develop plans for new nuclear power, including reforming planning laws which currently limit the speed of nuclear development. Miliband stressed the importance of carbon capture and storage, saying the industry could create 30,000-60,000 jobs in the UK. In the next Parliamentary session, HMG will propose to raise billions of pounds to invest in clean coal technology.
Lord Mandelson Calls for "Innovation Nation" -------------------------------------------
ۦ7. (U) Recovery in the manufacturing sector remains particularly fragile, noted Business Secretary Lord Mandelson in his remarks. As such, the Labour Party remains committed to supporting the UK's car industry. To great applause, Mandelson announced an extension of the car scrappage scheme, with extra money for an additional 100,000 cars and vans. He said HMG will stand behind Vauxhall workers during the sale of GM Europe to Magna. Mandelson called attention to Labour's vision for Britain's industrial future, not just post-industrial. Britain, he said, must be a nation of both R and D - research and development - and bring its great ideas to the market. Britain must become an "innovation nation," with further investment in research and development and a focus on hi-tech advanced manufacturing. In support of this idea, the Prime Minister said HMG will create a new national investment corporation to provide finance for growing manufacturing and other businesses.
No Cross-Party Consensus on International Development ------------------------- ---------------------------
ۦ8. (U) The Labour government will introduce legislation that commits it to raise spending on development assistance to 0.7 percent of national income. In his conference speech, Gordon Brown said Labour would keep its promises on international development and will enshrine them in UK law. Development Secretary Douglas Alexander said there is no real cross-party consensus on international development, despite Conservative promises to ring-fence the aid budget. He said 96 percent of Conservative Parliamentary candidates in the upcoming election believe the aid budget should not be protected. He compared Labour's trebling of the aid budget since 1997 with the Tories halving the budget during their last period in government.
Conservative Response ---------------------
ۦ9. (U) David Cameron and Shadow Chancellor George Osborne remained notably silent on the policies unveiled, and personal attacks made, at the Labour Party conference. However, Eric Pickles, the Conservative Party Chairman, told the media that Brown's speech had no vision and no argument. He criticized Brown for continuing to "treat people like fools" and failing to acknowledge the mistakes the government has made over the past 12 years. He condemned the speech as little more than a "long shopping list with no price tag" and said it was full of the same old political attacks.
SUSMAN
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UNCLAS SECTION 01 OF 03 BAGHDAD 001045
SENSITIVE SIPDIS
AIDAC
E.O. 12958: N/A TAGS: EAIDââ¬â°[Foreign Economic Assistance], EFINââ¬â°[Financial and Monetary Affairs], ECONââ¬â°[Economic Conditions], ETRDââ¬â°[Foreign Trade], PGOVââ¬â°[Internal Governmental Affairs], IZââ¬â°[Iraq] SUBJECT: WORLD BANK MEETS DONOR COUNTRY REPRESENTATIVES SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY.
ۦ1. (SBU) Summary: On April 7, Daniela Gressani, World Bank Vice President of Middle East and North Africa Region, recently discussed her organization's Iraq strategy and exchanged views on the Bank's role in Iraq with donor country representatives. Donors requested a larger World Bank presence to more effectively monitor its programs and provide analytical and technical advice to the government of Iraq (GOI). The drop in oil prices has created a greater sense of urgency for the GOI to seek foreign investment in Iraq. Gressani later met separately with EMIN Wall and indicated that she faced difficulties recruiting senior World Bank officials with the right skills to come to Baghdad. PM Maliki has sent the World Bank a letter requesting assistance with developing a national energy strategy and in reforming the institutional framework for its oil and gas sector. End Summary.
World Bank VP Visits Iraq -------------------------
ۦ2. (SBU) World Bank Vice President of Middle East and North Africa Region Daniela Gressani discussed her organization's new Iraq strategy with donor country representatives based in Iraq on April ۦ7. Gressani was accompanied by World Bank Executive Director Merza Hasan, Multilateral Investment Guarantee Agency (MIGA) CEO James Bond, International Finance Corporation (IFC) Middle East and North Africa Department Director Michael Essex, and Iraq Country Director Hedi Larbi. The World Bank's goal over the next two years is to assist Iraq in reaching its next phase of development by supporting a strong framework for private sector development, private enterprise and joint-venture establishment.
Donors Urge Stronger World Bank Presence -------------------
ۦ3. (SBU) EMIN said that the World Bank's focus on the private sector and public finance management is the right approach, welcomed the involvement of the International Bank for Reconstruction and Development (IBRD), IFC, and MIGA, and urged a stronger World Bank presence with more staffing in Iraq. All donor representatives concurred with his call for a larger Bank presence. Italian Ambassador Maurizio Melani suggested MIGA and the IFC engage with Iraq to help it develop its infrastructure. He commented that the World Bank's commitment of $500 million loans for investment projects for FY 09-FY11 was too little. World Bank officials responded that they based this decision on the fact that $850 million in the Iraq Trust Fund has not yet been disbursed. This raised the issue of Iraq's absorption capacity. If Iraq were to draw down those funds and the $500 million, the Bank would have a case to increase its lending. Ilkka Uusitalo, EC Mission Head to Iraq, expressed concern over the World Bank's slow start of its Public Finance Management Program.
ۦ4. (SBU) Danish Ambassador Mikael Winther, speaking as the IRFFI Chairman, said donors and the World Bank should engage more with the GOI and help define GOI policies on donor assistance. The World Bank needs a stronger presence to lead the way in discussions with the GOI on coordinating donor assistance. Australian Ambassador Bob Tyson echoed the call for a robust World Bank presence and the need for the GOI to rely more on the private sector rather than public service sector.
ۦ5. (SBU) Richard Hogg, Head of the UK Department for International Development (DFID) Office in Iraq, said that the GOI now seeks concessional financing and will look towards the World Bank for assistance. Moreover, Hogg continued, Iraq not only needs the World Qassistance. Moreover, Hogg continued, Iraq not only needs the World Bank's analytical and intellectual skills, but will look to the World Bank to play a role in donor coordination.
ۦ6. (SBU) Japanese Minister Counselor Kansuke Nagaoka said that despite progress in its political and economic development, Iraq still lacks basic services in many areas. In March 2008, Japan signed its first project, the Umm Qasr Port Rehabilitation Project. Since establishing a monitoring committee with participation of the Prime Minister's office, progress has been swift. He noted that Japan anticipates disbursing $100 million for the project this year. Nagaoka pointed out that the improved security situation has led to an expansion of its presence, including a senior Japan International Cooperation Assistance (JICA) official joining Japan's mission this month and a JICA office opening in Erbil.
No Timeline Given -----------------
ۦ7. (SBU) Gressani responded that the World Bank has over 30 staff, including Iraqi locals, working in Iraq but that most of them work outside Baghdad. She acknowledged that the security situation has improved and that the GOI is focusing on long-term plans. She said that the World Bank will eventually increase staff in Baghdad, but
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provided no timeline and remarked that overall World Bank staff is limited.
World Bank: Current Role in Iraq --------------------------------
ۦ8. (SBU) Hedi Larbi, Country Director for Iraq, said that in addition to focusing on developing capacity building and the private sector, the World Bank will analyze four ministries and come up with an action plan to improve their capacities. This process will take time, but Larbi predicted that it would lead to concrete results. The Bank's Third Interim Strategy Note (ISN) identifies agriculture, electricity, public financial management and bank restructuring as priority sectors on which the World Bank will focus. Larbi mentioned that the World Bank's two agricultural projects are progressing rapidly. The World Bank has already disbursed $10 million on its electricity project, but remains unsure whether to continue in this area. Larbi noted that the World Bank just negotiated the Banking Restructuring Project, which he expected to be signed in two to three weeks. It also expects to negotiate a Public Financial Management Project on April 18 with a signing possible in May.
ۦ9. (SBU) Larbi said that given the limited capacity of the Iraqi government, a monitoring committee for all the donors may be needed to examine the implementation of programs. Jean-Michel Happi, resident World Bank Country Manager, added that the GOI is creating a single National Development Plan and that the first critical element is to align the World Bank's program with the GOI's National Plan. Donor coordination should be led by the GOI, and the World Bank should facilitate donor coordination.
More Investment Needed ----------------------
ۦ10. (SBU) EMIN said that the GOI is interested in attracting foreign investment and that the oil and gas sector and the financial sector have particular promise. He noted prospects for investment from the Middle East, including Iraqi expatriate funds. He cited the potential for investing in independent electricity generation, but this needs further clarification from the GOI. Italian Ambassador Melani suggested investment in areas of agribusiness, food processing, and manufacturing but noted that Iraq's transportation infrastructure still needs rehabilitation. Italy has financed an agriculture and irrigation project via a soft loan of EU 100 million ($133 million). The project is making progress.
ۦ11. (SBU) Australian Ambassador Tyson mentioned that Australia and Iraq recently signed several Memoranda of Understanding (MOUs), including one on investment in Iraq's trade sector. DFID's Hogg added that Lord Mandelson led an investment delegation recently to Iraq, which included construction, architectural, and financial companies. Japan's Nagaoka said that Japanese investors are interested in rehabilitating facilities, such as refineries, that they had constructed in Iraq in the 1970s. He noted that state-owned enterprise reform seems more difficult as investors cannot ensure their profitability after investing in the companies. World Bank Executive Director Hasan said that there is a growing interest in investing in Iraq, but the GOI must better communicate its investment strategy to potential investors.
Export Credit Insurance -----------------------
ۦ12. (SBU) James Bond, CEO of the Multilateral Investment Guarantee Agency (MIGA), said that his agency supports private sector development and provides insurance against political risk. Since Iraq became a member of MIGA last year, MIGA wants to support QIraq became a member of MIGA last year, MIGA wants to support private business in Iraq. Bond said that export credit insurance can be supported by either MIGA or the IFC; MIGA provides assistance for those seeking coverage for more than a year while the IFC provides for less than a year. MIGA also extends assurances for Iraqi joint-venture companies who have partners in the region. IFC's Essex warned that the joint-ventures must be viable and sustainable to qualify for financing. Since the World Bank is sensitive to corruption, the financing cannot go to projects or companies that involve political leaders or "politically exposed persons."
Staffing and National Energy Strategy -------------------------------------
ۦ13. (SBU) In a separate meeting with World Bank officials on April 7, EMIN asked Gressani about the Bank's staffing difficulties. Gressani responded that the World Bank is aware of donors' concerns about staffing and has a new strategy supported by the Board of Directors. Gressani acknowledged that World Bank staff are interested in coming to Iraq, but she faced difficulties finding
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senior people with the right networking capability and maturity skills. She plans to send more senior high-level missions to Iraq, and hopes this will attract more qualified senior staff to take positions in Iraq.
ۦ14. (SBU) Gressani said that the World Bank avoided engaging Iraq on its oil sector in the past because it is expensive, time-consuming and the GOI did not seem interested in the type of market-oriented advice that the Bank would provide; however, things now seemed to have changed. Country Director Larbi added that Prime Minister Maliki sent a letter requesting the World Bank's assistance on developing a national energy strategy. (Comment: World Bank Senior Public Sector Specialist Yahia Said told emboffs on April 15 that in the letter, the GOI asked for World Bank assistance to "reform everything." End Comment.) The GOI asked for assistance in reforming the institutional framework for its oil and gas sector, re-establishing the Iraq National Oil Company, and technical assistance in ending natural gas flaring which would make additional gas available to meet Iraq's power generation needs.
ۦ15. (SBU) MIGA's CEO Bond noted that the oil sector policy is not focused, and that the electrical power sector requires tariff reform before investors will come. So far, the GOI is only focused on the technical side and not on the institutional framework, impeding investor interest. Executive Director Hasan commented that only partnerships with foreign oil companies will give Iraq the technology it needs to extract the oil and repair the damage to its oil reserves. The Bank is not yet sure that GOI officials responsible for this sector have grasped that essential fact.
ۦ16. (SBU) Comment: The GOI's invitation to the World Bank to assist in developing a national energy strategy comes out of the internal debate underway on the GOI's approach to developing the oil and gas sector. We hope the World Bank will move quickly to take advantage of this opening. We also hope it will take steps to respond to the concerns of donors here to play a stronger role in Baghdad. End Comment.
Butenis
VZCZCXRO9108 RR RUEHDA RUEHDE RUEHIHL RUEHKUK DE RUEHBC #0018/01 1041058 ZNR UUUUU ZZH R 141058Z APR 09 FM REO BASRAH TO RUEHC/SECSTATE WASHDC 0850 INFO RUCNRAQ/IRAQ COLLECTIVE RUEHLO/AMEMBASSY LONDON 0064 RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RHEHAAA/NSC WASHINGTON DC RUEHBC/REO BASRAH 0887
UNCLAS SECTION 01 OF 02 BASRAH 000018
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EINVââ¬â°[Foreign Investments], ETRDââ¬â°[Foreign Trade], PGOVââ¬â°[Internal Governmental Affairs], MASSââ¬â°[Military Assistance and Sales], EAIRââ¬â°[Civil Aviation], EWWTââ¬â°[Waterborne Transportation], UKââ¬â°[United Kingdom], IZââ¬â°[Iraq] SUBJECT: BASRAH: UNITED KINGDOM HOSTS INVESTMENT CONFERENCE
REF: A. BASRAH 17 B. BASRAH 16 C. BASRAH 15 D. BASRAH 14
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ۦ1.(U) Summary. UK Secretary for International Trade and Investment Lord Peter Mandelson led a UK delegation of business heavyweights to Basrah on April 7. Over 150 top Basrawi business and political figures attended the conference, which was also attended by local US diplomatic and military officials. UK delegates reported a sense of guarded Basrawi optimism and a realistic view of business opportunities in the region. Conference organizers focused on the relative strength of the province, namely oil, gas, ports, and aviation. While good relationships were established or strengthened, now it is up to Basrah, and the GOI in general, to follow up and provide reasonable security, and a transparent business environment. End summary.
Lord Mandelson brings UK business heavyweights to Basrah --------------------------------------------- ----------- ۦ2. (SBU) Over 150 Iraqi business and political figures attended this April 7 Basrah Investment Conference, which also brought together 23 UK-based companies. Several of them are household names, including Rolls Royce, Shell, BP and HSBC. According to Basrah HMG officials, UK delegates were able to establish or strengthen relationships with key business figures in Basrah, and also give Iraqi participants an idea of which sectors UK investors were particularly interested in. Basrah HMG officials told REO staff that UK delegates left with a sense of renewed optimism and a realistic view of business opportunities in Southern Iraq. Another such conference, scheduled for April 30 in London, is seen as a good follow-on effort.
All-star attendance ------------------- ۦ3. (SBU) Attendees included Basrah Governor Wa'eli, most members of the incoming Provincial Council including the two reported favorites to become the next governor and/or chairman (Da'wa Party Central members Dr. Shiltagh and Dhya'a Jabar), and the Directors Generals of the major investment sectors, including South Oil and South Gas Companies, Iraqi Ports, and Basrah International Airport. Michael Wareing, the British Co-Chair of the Basrah Development Commission (BDC), also participated. Also in attendance were several local high-level Iraqi military officials, who provide security for the province. UK Force Commander Tom Beckett and several Basrah-based UK military officials also attended.
U.S. participation ------------------ ۦ4. (SBU) USG representatives included the US Commander of MND-S, US REO Director, and Basrah PRT Team Leader. At this event, as at other gatherings, several local business and political leaders again expressed their desire to see U.S.-based businesses, along with their expertise and capital, come to the region (ref D).
British and Basrawis pitch security, ports, aviation, oil, gas --------------------------------------------- ------------------ ۦ5. (SBU) Lord Mandelson opened the conference by looking back at the UK's long relationship with Basrah, and looked forward to closer economic cooperation ahead. Michael Wareing, the British Co-Chair of the BDC, spoke of the UK's role in developing business in Basrah. General Mohammed, who commands Iraqi Security Forces in the Province, spoke confidently about perhaps the most important issue for any prospective investor: security. Mohammed noted the dramatic decrease in violence just in the last nine months, while acknowledging that hard work was needed to continue this trend. The speeches were followed by short presentations by the respective Directors General for ports, airport (ref B), oil and gas. Dr. Haider Ali, Chairman of the Basrah Investment Commission (which has been heavily supported by the BDC and UK) spoke about the general investment climate.
Timed to UK military exit and incoming Basrah Provincial Council --------------------------------------------- ------------------- ۦ6. (SBU) Following the 31 March transition from UK to US military control (MND-SE to MND-S), UK officials hoped to demonstrate to Basrawis that while their military was drawing down, the UK's commitment to Basrah continued. In the run-up to the formation of the new Provincial Council (ref C), UK officials said they hoped the conference would promote the importance of international investment to economic growth in Basrah.
Guarded, yet realistic, optimism -------------------------------- ۦ7. (SBU) While HMG hosts and local participants expressed a generally guarded optimism about Basrah's future, such optimism
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at least partly reflects the mood of the city. One year after the Iraqi Army routed local militias in the Charge of the Knights Operation (ref A), there is a palpable feeling of stability. A recent PRT-commissioned poll revealed that over 80% of Basrawi businesses think that the economic environment has improved in the last year and, more significantly, that it will continue to improve over the next two years. Participants openly noted that it will take more than optimism to turn such a conference into desperately needed real investment and job creation.
Comment ------- ۦ8. (SBU) Hosting a forward-leaning investment conference is a long way from real investment, but the conference met the organizers' objective of bringing all the major economic and political players together in Basrah. The conference also demonstrated to local players that there are serious and respected UK multinational companies ready to do business in Basrah. However, now it is up to Basrah, and the GOI in general (particularly the respective line ministries, who must play a central role in approval and oversight of the majority of such investments), to follow up on the hard part, namely, reasonable security, and a transparent business environment. NEGRON
VZCZCXRO2666 PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR DE RUEHLO #0305/01 0351201 ZNR UUUUU ZZH P 041201Z FEB 09 FM AMEMBASSY LONDON TO RUEHC/SECSTATE WASHDC PRIORITY 1276 INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RUEHC/DEPT OF LABOR WASHDC PRIORITY RUEHBL/AMCONSUL BELFAST PRIORITY 1218 RUEHED/AMCONSUL EDINBURGH PRIORITY 1065
UNCLAS SECTION 01 OF 02 LONDON 000305
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], ELABââ¬â°[Labor Sector Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], UKââ¬â°[United Kingdom] SUBJECT: Wildcat Strikes Hit UK Energy Plants In Response To Foreign Workers Dispute
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ۦ1. (SBU) Summary: Workers at the UK's third largest oil refinery went on strike January 28 in protest at the use of foreign labor for a new construction project. A wave of wildcat strikes across the UK followed, with workers demonstrating support for those at French oil company Total's refinery in Lindsey, in northeast UK. Media reports indicate the dispute could become a diplomatic incident, with the Italian government threatening the employment of British workers there. Business Secretary Lord Mandelson defended EU labor laws during an emergency session at the House of Lords February 2 and said Total had given assurances that it did not discriminate against British workers. Mandelson said the dispute was fuelled by the "politics of xenophobia." PM Gordon Brown publicly called the strikes indefensible and counter-productive - a sharp contrast to his 2007 Labour party conference statement calling for "British jobs for British workers" (which has become the unofficial slogan of the strikes), a statement which the opposition Conservative party attacked as "irresponsible." A trade union official told the embassy that Total's lack of transparency fuelled concern and suspicion amongst workers and that Mandelson's comments were unhelpful. End summary.
Foreign Labor Strikes Spread Across UK ------------------ --------------------
ۦ2. (U) Workers at the Lindsey oil refinery in North Lincolnshire, the UK's third largest, walked off the job on January 28 in protest at the use of foreign labor at the site. This strike began following a dispute about Total's decision to award Italian company IREM part of a GBP 200 million contract to build a new hydro desulphurization facility at the Lindsey refinery. (Note: The main contract for the hydro desulphurization unit was awarded to Jacobs, a U.S. company, which sub-contracted some work to IREM. End note.) Five British companies and two other European contractors bid for the work before it was awarded to IREM, which at the time of the tender indicated it would supply its own permanent workforce from Italy and Portugal.
ۦ3. (U) Workers and their union representatives accused Total of discriminating against British workers. Total rejected the accusation saying: "IREM was selected, through a fair and competitive tender process, as the most appropriate company to complete the work." Officials from Unite, the UK's largest union, said workers were angry that labor was used from outside the UK when British workers near the refinery were out of work. They dismissed Total's claim that the foreign labor was in specialist trades and said most of the work could be done by UK workers.
ۦ4. (U) Since January 28, workers at energy plants across the UK have shown support for the action in Lindsey through a series of wildcat strikes. Workers at Ineos Group Holdings' Grangemouth refinery in Scotland, BP's terminal at Kinneil in Scotland, and RWE AG's Didcot power facility in southern England joined a wave of strikes across the country. Most recently, workers at two nuclear sites, Sellafield and Heysham, joined the strike action. Approximately 900 contractors in Sellafield and 300 in Heysham agreed to walk out for 24 hours in sympathy with the Lindsey protest.
Economic, Political Consequences ---------------- ----------------
ۦ5. (U) Despite the walk outs, the UK Department of Energy issued a statement that it was unaware of any current or potential impacts of the strikes on gas, electric or fuel supplies. Lord Mandelson confirmed there was no disruption of production at any of the sites. The Department for Business asked ACAS, the UK's independent arbitration service, to meet the employers and unions to examine the accusations and mediate the dispute. Workers have so far rejected a February 3 deal proposed in ACAS talks that would have given 25 percent of the new jobs to British workers. Negotiations will continue.
ۦ6. (U) Some media commentators note the dispute threatens to escalate into a major diplomatic incident. The Italian government has described the strikes as "indefensible" and the Governor of Sicily warned that the employment of Britons on the Italian island may be threatened. The British Ambassador in Rome was reportedly sent to reassure the Italian government that Italians would not face discrimination in the UK.
Mandelson Warns Against "Politics of Xenophobia" ---------------- -------------- -----------------
ۦ7. (U) Business Secretary Lord Mandelson defended EU labor laws in a statement to the House of Lords, February 2. He said HMG is
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determined to uphold European rules governing the operation of companies and mobility of labor throughout the EU. In the statement, he said Total had given assurances that it had not discriminated against British workers. He highlighted the importance of Europe to the UK, particularly with regards to trade and investment, and noted that there are 300,000 UK companies operating elsewhere in Europe. Separately, Mandelson claimed the dispute was fuelled by "the politics of xenophobia." He said protectionism would be a "sure-fire way of turning recession into depression." Gordon Brown said the strikes were indefensible and counter-productive. However, the dispute has caused a split in the Labour party. Two former Cabinet ministers, Peter Hain and Iain McCartney, led a chorus of Labour MPs who said HMG urgently needed to recognize there was a problem. Peter Hain said something had gone "badly wrong" with the UK's labor laws, which did not seem to have "adequately protected local workers."
Reaction: Tories and Unions ---------------------------
ۦ8. (U) Gordon Brown's "irresponsible" comments at the 2007 Labour party conference calling for "British jobs for British workers" stoked the wildcat strikes, argued Shadow Business Secretary Kenneth Clarke. (Note: Placards held by striking workers displayed the PM's statement. End note.) Clarke said understandable worries over the UK's economic climate have turned into direct action as a result of the PM's statement. He said: "This was populist nonsense at the time he used it and part of some curious 'Britishness' agenda... (he)was more concerned with his job security than anybody else's job security in this country." He said however aggrieved people felt, industrial action at power stations and oil refineries at a time of "national crisis" was not the way forward.
ۦ9. (SBU) A lack of transparency around the IREM contract fuelled concern amongst workers, according to the Trades Union Congress' International Affairs Director Owen Tudor. Tudor told the embassy that Total's initial reluctance to confirm how many Italian, Portuguese and British workers would be employed under the new contract proved unhelpful and increased suspicion. He said Lord Mandelson's xenophobia comments were equally unhelpful and could stir up further disagreement. He noted, however, that when members of the BNP, a far right-wing British political party, turned up at the Lindsey demonstration, they were turned away by workers. While the TUC is not sure how long the dispute will last, officials noted that IREM's work is set for completion in April, so action is unlikely to continue beyond then. He commented that the strikes in Sellafield are "mildly ironic" as work in nuclear stations requires security clearance and the workforce will therefore be 100 percent British.
ۦ10. (SBU) Comment: Growing concern about the length and depth of the UK recession has heightened tension in this foreign labor dispute. Rising unemployment coupled with slowing output has sparked concern about the impact of EU labor laws on British workers. The TUC, which has monitored the effect of the European Commission directive on the right to move and reside freely since 2004, had only seen sporadic outbreaks of concern regarding foreign workers until the Lindsey case. As the recession deepens, industrial action may become more widespread.
TUTTLE
VZCZCXRO3176 PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV DE RUEHLO #2683/01 2980940 ZNR UUUUU ZZH P 240940Z OCT 08 FM AMEMBASSY LONDON TO RUEHC/SECSTATE WASHDC PRIORITY 0191 INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY RUEATRS/DEPT OF TREASURY WASHDC PRIORITY RUEHBL/AMCONSUL BELFAST PRIORITY 1147 RUEHED/AMCONSUL EDINBURGH PRIORITY 1005
UNCLAS SECTION 01 OF 02 LONDON 002683
SENSITIVE SIPDIS
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EFINââ¬â°[Financial and Monetary Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], UKââ¬â°[United Kingdom] SUBJECT: HMG ACKNOWLEDGES UK ECONOMY ENTERING RECESSION
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ۦ1. (SBU) Summary: This week, officials publicly acknowledged that the UK is likely to be entering a recession. For months, prominent public figures refused to mention the 'R' word, in favor of talking up the underlying strength of the UK's economic position. However, Mervyn King, Governor of the Bank of England, broke the silence and explicitly acknowledged that the UK is likely to enter a recession. His comment was soon echoed by PM Brown and supported by independent forecasts. Such a bleak horizon has pushed sterling to a five-year low against the dollar while equity prices continue to fall. Despite a record public deficit, HMG has announced that it will borrow more to invest in projects that will help stimulate the economy. The opposition has accused PM Brown of presiding over a decade of heavy borrowing and lax regulation which has aggravated the impact of the credit crunch. End Summary.
Governor King Uses The 'R' Word As GDP Growth Turns Negative ---------------------------- ----------------------
ۦ2. (SBU) The UK economy is likely to be entering a recession, according to Mervyn King, Governor of the Bank of England, in his gloomiest assessment of the UK outlook since becoming Governor in 2003. His comments were supported by confirmation that GDP growth was negative 0.5 percent in the third quarter. King told business executives that the credit crunch, combined with a fall in real disposable incomes, poses the risk of a prolonged slowdown in domestic demand. Additionally, the trauma of the banking crisis is likely to damage business and consumer confidence. His comments were echoed by the Prime Minister who said Britain's economic downturn is likely to cause a recession. Lord Mandelson, the new Business Secretary, acknowledged that it is now 'unavoidable' that the UK economy will contract and added that many small and medium-sized businesses might go bankrupt.
ۦ3. (SBU) Ernst & Young's ITEM Club agrees with recession predictions. In its quarterly macroeconomic forecast, the Club says it expects UK GDP to shrink by 1 percent next year, followed by a modest recovery in 2010 with GDP growth of 1 percent. If the Club is correct, 2009 will be the first full year of shrinking output since the last recession in 1991, when output fell by 1.4 percent over the year prior. The report also says that the credit crunch will hit the economy hard even if wholesale markets reopen and equity markets stabilize. It suggests that the downward momentum in the housing market will be difficult to arrest and that it is spreading to other sectors. While the recent government rescue package may have pulled the economy back from a depression, the report says the financial system remains in an enfeebled state. (Note: The financial sector accounts for approximately 10 percent of UK GDP and nearly 20 percent of tax receipts. End note.)
ۦ4. (SBU) NIESR, an influential UK think tank, agrees that the country is on the brink of recession. It forecasts that the British economy will suffer more than any other G7 country in 2009, with the economy shrinking by 0.9 percent, consumer spending falling by 3.4 percent, business investment down 3.8 percent and private housing investment 17.1 percent lower. Its forecast assumes that the Bank of England will cut the Bank Rate to 4 percent in early 2009. NIESR thinks that if the government's banking bail-out does not succeed, the recession will be deeper and longer than currently anticipated. The NIESR report also predicts that trend growth is now only 2.2-2.3 percent and said that this will have serious implications for HM Treasury revenue forecasts in the Pre-Budget Report that is expected in November.
Sterling At Five-Year Low On Recession Warnings ------------------------ ----------------------
ۦ5. (SBU) Following Mervyn King's statement, the pound fell to a five-year low against the U.S. dollar. On October 22 sterling fell five cents or 3 percent against the dollar and also declined versus the euro, the lowest level since 2003. This was the steepest one day decline in 16 years. Simon Derrick, Chief Currency Strategist in London at Bank of New York Mellon Corp said "These are...moves that come along once in a decade...King certainly acted as a catalyst, but in fairness, risk aversion had been kicking around long before that."
Public Finances To Support Economy ----------------------------------
ۦ6. (SBU) PM Brown told the House of Commons on October 20 that HMG will increase borrowing to support the economy. Despite public finances reaching a record deficit in the first six months of the financial year (which begins in April), Brown said increased borrowing is a viable option because of the strength of the UK's economic indicators. HMG will support mortgage holders, small firms and employees through "carefully targeted, rigorously worked through investments." HMG will also bring forward construction projects on schools and hospitals, the Chancellor told the Sunday Telegraph.
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ۦ7. (SBU) Spending plans will be formally announced in the Chancellor's Pre-Budget Report. Speculation is rife that the Chancellor will have to announce an amendment to HMG's sustainable investment rule, implemented while Gordon Brown was Chancellor, which limits national debt to 40 percent of GDP. The Chancellor will also have to concede that the Treasury's economic forecast in the March Budget was too optimistic.
ۦ8. (SBU) In public comments, Opposition leader David Cameron accused the PM of aggravating the credit crunch by overseeing a decade of heavy borrowing and lax regulation. He said the government has presided over ten years of irresponsible capitalism and that the 'complete and utter failure' of their economic record is now clear. The Conservatives favor measures giving small businesses the chance to defer value-added tax (VAT) bills for up to six months to offset cash flow problems posed by tight credit conditions. They also advocate cutting the payroll taxes for firms with fewer than five employees by 1 percent.
ۦ9. (SBU) Comment: The UK's slide into recession was not unexpected. The OECD predicted almost two months ago that the UK was the most likely among G7 countries to experience such an economic downturn. Sterling's plummeting value vis-`-vis major economies will exacerbate pressures on exporters, who already have seen their access to credit dry up. While accelerated spending plans will give a shot-in-arm to the economy, no one expects any type of recovery until the latter half of 2010.
LEBARON
