09.16.11

Cablegate: Lord Mandelson Meets the Qaddafi Family and Dates the Copyright Lobby

Posted in Cablegate, Europe at 6:50 pm by Dr. Roy Schestowitz

Cablegate

Leila Deen and Lord Mandelson
“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]

Summary: Diplomatic cables mention the acts of Lord Mandelson; we look at those of greater relevance to Techrights

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.

We at Techrights decided to see what happens behind the scenes. We tried to find cables on it. Almost 200 Cablegate cables mention “Mandelson” and several are about the policies above. There is one cable about copyright and “IPR”. In relation to China and WTO rules, ¶7 in the second cable below says: “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 and has declared that the Chinese government must consult it when determining the interpretation of its laws.”

“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.”

There is something else which is interesting here.because once again we see Japanese officials pressuring China to change its laws. There are other cables that show this

Another cable (third one below) states in its first paragraph:.”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.”

When it comes to Mandelson’s Digital Economy Bill and encounter with Geffen, we were empty-handed (maybe the cables do not go back far enough in time, “Digital Economy Bill” yields zero results/matches), but below are some of the more prominent 14 cables that mention Lord Mandelson. Some of these are interesting reading material in general.


INFO  LOG-00   AF-00    AID-00   AMAD-00  INL-00   DODE-00  PERC-00  
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O 241405Z AUG 09
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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: PREF [Refugees], 
PTER [Terrorists and Terrorism], 
UK [United Kingdom], LY [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). 
 
¶1. (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 
-------------------------- 
 
¶2. (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.) 
 
¶3. (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.) 
 
¶4. (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 
------------------------------------------- 
 
¶5. (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). 
 
¶6. (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? 
-------------------------------------- 
 
¶7. (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 
---------------------- 
 
¶8. (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 
-------- 
 
¶9. (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 
----------- 
 
¶10. (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 
------- 
 
¶11. (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. 
 
¶12. (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: KIPR [Intellectual Property Rights], 
ETRD [Foreign Trade], WTRO [World Trade Organization],
CH [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 
 
 
¶1. (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. 
 
¶2. (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 
---------- 
 
¶3. (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 
----------- 
 
¶4. (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. 
 
¶5. (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. 
 
¶6. (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. 
 
¶7. (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 
 
TOKYO 00003873  002.2 OF 003 
 
 
and has declared that the Chinese government must consult it when 
determining the interpretation of its laws. 
 
¶8. (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 
--------------------------------- 
 
¶9. (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.) 
 
¶10. (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.) 
 
¶11. (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 
---------------------------------------- 
 
¶12. (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. 
 
¶13. (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 
------------------------------------------ 
 
¶14. (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. 
 
¶15. (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 
---------------------------- 
 
¶16. (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. 
 
¶17. (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. 
 
¶18. (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. 
 
¶19. (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: KIPR [Intellectual Property Rights],
ECON [Economic Conditions], ETRD [Foreign Trade], 
AORC [International Organizations and Conferences], 
WTRO [World Trade Organization], GM [Germany] 
SUBJECT: DEMARCHE ON WTO DISPUTE ON CHINA IPR: GERMANY 
PREFERS DIALOGUE FIRST 
 
REF: SECSTATE 126703 
 
¶1. 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. 
 
¶2. 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 
--------------------------------------------- ------- 
 
¶3. 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. 
 
¶4. 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. 
 
¶5. 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 
 
BERLIN 00002397  002 OF 002 
 
 
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



VZCZCXRO0105
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FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3897
INFO RUCNAFG/AFGHANISTAN COLLECTIVE PRIORITY
RUCNDSC/DISARMAMENT CONFERENCE COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHBUL/AMEMBASSY KABUL PRIORITY 0859
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2992
RUEHNO/USMISSION USNATO PRIORITY 1298

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: PREL [External Political Relations], 
PGOV [Internal Governmental Affairs], 
KPAL [Palestinian Affairs], ETRD [Foreign Trade], 
KNNP [Nuclear Non-Proliferation],
PARM [Arms Controls and Disarmament], 
SENV [Environmental Affairs], 
MARR [Military and Defense Arrangements], 
MNUC [Military Nuclear Applications], 
ECON [Economic Conditions],
PHUM [Human Rights], RS [Russia; Wrangel Islands],
IS [Israel], IR [Iran], GG [Georgia], AF [Afghanistan],
UK [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). 
 
¶1. (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 
---------------------------- 
 
¶2. (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 
---- 
 
¶3. (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 
 
LONDON 00002499  002 OF 004 
 
 
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 
----------- 
 
¶4. (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 
------------------------------- 
 
¶5. (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 
------------------------ 
 
¶6. (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 
---- 
 
¶7. (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." 
 
LONDON 00002499  003 OF 004 
 
 
 
 
Georgia 
------- 
 
¶8. (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 
-------------------------- 
 
¶9. (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 
------------------------------ 
 
¶10. (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 
--------------------------- 
 
¶11. (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 
--------------- 
 
¶12. (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 
------------------ 
 
¶13. (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 
 
LONDON 00002499  004 OF 004 
 
 
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. 
 
Visit London's Classified Website: 
http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom 
 




VZCZCXRO8631
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DE RUEHLO #3042/01 3391657
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FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 0586
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

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: PGOV [Internal Governmental Affairs],
ECON [Economic Conditions], 
PREL [External Political Relations], 
PINR [Intelligence], UK [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). 
 
¶1. (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... 
------------------------------------- 
 
¶2. (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 
------------------------------ 
 
¶3. (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 
 
LONDON 00003042  002 OF 003 
 
 
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 
----------------------------- 
 
¶4. (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 
---------------------------------- 
 
¶5. (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? 
----------------- 
 
¶6. (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 
 
LONDON 00003042  003 OF 003 
 
 
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 
------- 
 
¶7. (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. 
 
Visit London's Classified Website: 
http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom 
 
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: PREL [External Political Relations], 
PGOV [Internal Governmental Affairs], 
PHUM [Human Rights], 
KIRF [International Religious Freedom], 
ECON [Economic Conditions], CH [China (Mainland)],
FR [France; Corsica], JA [Japan; Okinawa; Ryukyu Islands],
GM [Germany], UK [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 
------- 
 
¶1. (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 
------------ 
 
¶2. (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 
------------------ 
 
¶3. (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 
----------------------------- 
 
¶4. (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 
----------------- 
 
¶5. (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 
----------------------------- 
 
¶6. (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 
 
BEIJING 00002617  002 OF 002 
 
 
Ambassador Ladsous disagreed, suggesting that China should 
make known its environmental position public before the 
conference. 
 
Sino-German relations 
--------------------- 
 
¶7. (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 
--------------------- 
 
¶8. (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. 
 
¶9. (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


VZCZCXRO1390
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2062/01 2010931
ZNY CCCCC ZZH
O 200931Z JUL 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5284
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHLO/AMEMBASSY LONDON PRIORITY 3589
RUEHFR/AMEMBASSY PARIS PRIORITY 4623
RUEHRL/AMEMBASSY BERLIN PRIORITY 1811
RUEHKO/AMEMBASSY TOKYO PRIORITY 2690
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY

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: PREL [External Political Relations], 
PGOV [Internal Governmental Affairs], 
PHUM [Human Rights], 
KIRF [International Religious Freedom], 
ECON [Economic Conditions], 
CH [China (Mainland)], FR [France; Corsica], 
JA [Japan; Okinawa; Ryukyu Islands],
GM [Germany], UK [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 
-------- 
¶1. (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 
------------ 
¶2. (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 
--------- 
¶3. (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 
--------- 
¶4. (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 
---------------------- 
¶5. (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 
 
BEIJING 00002062  002 OF 002 
 
 
scheduled to meet with the Dalai Lama when he next visits 
France. 
 
Sino-UK relations 
----------------- 
¶6. (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 
----------------------- 
¶7. (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 
--------------------------------------------- ------------ 
¶8. (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
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R 291825Z JAN 09
FM AMEMBASSY LONDON
TO SECSTATE WASHDC 1242
INFO AMEMBASSY BERLIN 
AMEMBASSY BEIJING 
AMEMBASSY MOSCOW 
AMEMBASSY OTTAWA 
AMEMBASSY PARIS 
AMEMBASSY ROME 
AMEMBASSY TOKYO 
DEPT OF TREASURY WASHDC
USEU BRUSSELS
USMISSION GENEVA

C O N F I D E N T I A L LONDON 000271 
 
 
NOFORN 
 
FOR INR/B AND EUR/WE 
 
E.O. 12958: DECL: 01/29/2019 
TAGS: ECON [Economic Conditions], 
PGOV [Internal Governmental Affairs],
PINR [Intelligence], UK [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) 
 
¶1. (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 
------------ 
 
¶2. (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 
--------- 
 
¶3. (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. 
 
¶4. (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. 
 
¶5. (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. 
 
¶6. (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 
------------------ 
 
¶7. (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." 
 
¶8. (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). 
 
Visit London's Classified Website: 
http://www.intelink.sgov.gov/wiki/Portal:Unit ed_Kingdom 
 
TUTTLE


VZCZCXRO1043
PP RUEHIK
DE RUEHLO #2427/01 3000947
ZNR UUUUU ZZH
P 270947Z OCT 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 3815
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBL/AMCONSUL BELFAST PRIORITY 1426
RUEHED/AMCONSUL EDINBURGH PRIORITY 1221

UNCLAS SECTION 01 OF 03 LONDON 002427 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON [Economic Conditions], 
EFIN [Financial and Monetary Affairs], 
ETRD [Foreign Trade], 
EINV [Foreign Investments],
UK [United Kingdom] 
SUBJECT: UK STILL IN RECESSION AND FACING SLOW,
VOLATILE RECOVERY 
 
REF: London 2307 and London 2357 
 
LONDON 00002427  001.3 OF 003 
 
 
¶1.  (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 
----------------------- 
 
¶2.  (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. 
 
¶3.  (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. 
 
¶4.  (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 
------------------------------ 
 
¶5.  (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 
 
LONDON 00002427  002.3 OF 003 
 
 
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. 
 
¶6.  (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 
--------------------------------------- 
 
¶7.  (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.) 
 
¶8.  (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. 
 
¶9.  (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 
--------------------------- ---------------------------- 
 
¶10.  (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 
------------------------------- 
 
¶11.  (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. 
 
¶12.  (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: ECON [Economic Conditions],
EFIN [Financial and Monetary Affairs], 
ETRD [Foreign Trade], EINV [Foreign Investments], 
UK [United Kingdom] 
SUBJECT: LABOUR PARTY OUTLINES ECONOMIC STRATEGY IN RUN-UP TO NEXT 
GENERAL ELECTION 
 
LONDON 00002307  001.3 OF 002 
 
 
¶1.  (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 
---------------------------- ------------------------------ 
 
¶2.  (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. 
 
¶3.  (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. 
 
¶4.  (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 
----------------------- --------------------------- 
 
¶5.  (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 
----------------------- --------------------------- 
 
¶6.  (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 
 
LONDON 00002307  002.3 OF 002 
 
 
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" 
------------------------------------------- 
 
¶7.  (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 
------------------------- --------------------------- 
 
¶8.  (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 
--------------------- 
 
¶9.  (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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FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 2718
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BAGHDAD 001045 
 
SENSITIVE 
SIPDIS 
 
AIDAC 
 
E.O. 12958: N/A 
TAGS: EAID [Foreign Economic Assistance], 
EFIN [Financial and Monetary Affairs], 
ECON [Economic Conditions], 
ETRD [Foreign Trade], PGOV [Internal Governmental Affairs], 
IZ [Iraq] 
SUBJECT: WORLD BANK MEETS DONOR COUNTRY REPRESENTATIVES 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY. 
 
¶1. (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 
------------------------- 
 
¶2. (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 
¶7.  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 
------------------- 
 
¶3. (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. 
 
¶4. (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. 
 
¶5. (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. 
 
¶6. (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 
----------------- 
 
¶7. (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 
 
BAGHDAD 00001045  002 OF 003 
 
 
provided no timeline and remarked that overall World Bank staff is 
limited. 
 
World Bank: Current Role in Iraq 
-------------------------------- 
 
¶8. (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. 
 
¶9. (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 
---------------------- 
 
¶10. (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. 
 
¶11. (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 
----------------------- 
 
¶12. (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 
------------------------------------- 
 
¶13.  (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 
 
BAGHDAD 00001045  003 OF 003 
 
 
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. 
 
 
¶14. (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. 
 
¶15. (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. 
 
¶16.  (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


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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: ECON [Economic Conditions], 
EINV [Foreign Investments], 
ETRD [Foreign Trade], PGOV [Internal Governmental Affairs], 
MASS [Military Assistance and Sales], 
EAIR [Civil Aviation], EWWT [Waterborne Transportation], 
UK [United Kingdom], IZ [Iraq] 
SUBJECT: BASRAH: UNITED KINGDOM HOSTS INVESTMENT CONFERENCE 
 
REF: A. BASRAH 17 
     B. BASRAH 16 
     C. BASRAH 15 
     D. BASRAH 14 
 
BASRAH 00000018  001.2 OF 002 
 
 
¶1.(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 
--------------------------------------------- ----------- 
¶2. (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 
------------------- 
¶3. (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 
------------------ 
¶4. (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 
--------------------------------------------- ------------------ 
¶5. (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 
--------------------------------------------- ------------------- 
¶6. (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 
-------------------------------- 
¶7. (SBU) While HMG hosts and local participants expressed a 
generally guarded optimism about Basrah's future, such optimism 
 
BASRAH 00000018  002.2 OF 002 
 
 
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 
------- 
¶8. (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


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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: ECON [Economic Conditions], 
ELAB [Labor Sector Affairs], ETRD [Foreign Trade], 
EINV [Foreign Investments], 
UK [United Kingdom] 
SUBJECT: Wildcat Strikes Hit UK Energy Plants In Response To Foreign 
Workers Dispute 
 
LONDON 00000305  001.2 OF 002 
 
 
¶1.  (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 
------------------ -------------------- 
 
¶2.  (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. 
 
¶3.  (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. 
 
¶4.  (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 
---------------- ---------------- 
 
¶5. (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. 
 
¶6.  (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" 
---------------- -------------- ----------------- 
 
¶7.  (U) Business Secretary Lord Mandelson defended EU labor laws in 
a statement to the House of Lords, February 2.  He said HMG is 
 
LONDON 00000305  002.2 OF 002 
 
 
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 
--------------------------- 
 
¶8.  (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. 
 
¶9.  (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. 
 
¶10.  (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: ECON [Economic Conditions], 
EFIN [Financial and Monetary Affairs], 
ETRD [Foreign Trade], EINV [Foreign Investments], 
UK [United Kingdom] 
SUBJECT: HMG ACKNOWLEDGES UK ECONOMY ENTERING RECESSION 
 
LONDON 00002683  001.2 OF 002 
 
 
¶1.  (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 
---------------------------- ---------------------- 
 
¶2.  (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. 
 
¶3.  (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.) 
 
¶4.  (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 
------------------------ ---------------------- 
 
¶5.  (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 
---------------------------------- 
 
¶6.  (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. 
 
LONDON 00002683  002.2 OF 002 
 
 
 
¶7.  (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. 
 
¶8.  (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. 
 
¶9.  (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

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