This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 ROME 006149 
 
SIPDIS 
 
E.O. 12958: DECL: 12/26/2012 
TAGS: PGOV PREL MARR MCAP MOPS PGOV PREL MARR MCAP MOPS IT NATO ITNATO
SUBJECT: MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW 
 
                       CONFIDENTIAL 
 
PAGE 02        ROME  06149  01 OF 02  271744Z 
REF: ROME 5430 
 
CLASSIFIED BY: A/POLITICAL MINISTER-COUNSELOR GARY ROBBINS FOR REASONS 
1.5 (B) AND (D) 
 
¶1.  (C) SUMMARY.  ITALY'S 2002 DEFENSE WHITE PAPER (WP) 
PRESENTS THE DEFENSE INDUSTRIAL SECTOR AS A PILLAR OF ITALIAN 
NATIONAL SECURITY.  THE NATIONAL ARMAMENTS DIRECTOR HAS 
OVERALL RESPONSIBILITY FOR DEFENSE PROCUREMENT AND 
NEGOTIATING INTERNATIONAL DEFENSE INDUSTRIAL COOPERATION 
ACCORDS.  STATE-CONTROLLED COMPANIES AND A FEW LARGE PRIVATE 
FIRMS DOMINATE THE DEFENSE SECTOR, ALTHOUGH A HANDFUL OF 
HIGHLY SPECIALIZED NICHE CONTRACTORS ARE COMPETITIVE.  THE 
GOI SHOULD CONTINUE TO FUND PROGRAMS TO HELP INCREASE EXPORTS 
AND MARKET COMPETITIVENESS, AND NEEDS TO SPEND MORE ON BASIC 
R&D, ACCORDING TO THE WP.  THE WP CALLS FOR GREATER 
INTRA-EUROPEAN COORDINATION OF DEFENSE INDUSTRIAL POLICY, BUT 
AT THE SAME TIME AFFIRMS THAT ITALY WILL CONTINUE TO RELY ON 
THE U.S. FOR SOME KEY DEFENSE SYSTEMS.  DEFENSE MINISTER 
MARTINO IS COMMITTED TO RATIONALIZING ITALIAN DEFENSE 
PROCUREMENT AND SPENDING SCARCE FINANCIAL RESOURCES ON 
BOLSTERING ITALY'S BATTLEFIELD CAPABILITIES.  THE 
COUNTERVAILING NEED TO PROTECT ITALY'S INDUSTRIAL BASE AND 
JOBS LIMITS HIS ROOM FOR MANEUVER, HOWEVER.  END SUMMARY. 
 
¶2.  (U)  THIS IS ONE IN A SERIES OF REPORTS ON ITALY'S 2002 
WHITE PAPER (WP) ON DEFENSE.  THE WP SETS OUT THREE PILLARS 
OF ITALIAN NATIONAL SECURITY:  DEFENSE INDUSTRIAL POLICY, 
FOREIGN POLICY, AND MILITARY POLICY.  UNDER THE MINISTER OF 
DEFENSE, THE NATIONAL ARMAMENTS DIRECTOR (NAD), CURRENTLY 
ADMIRAL GIAMPAOLO DI PAOLA, IS RESPONSIBLE FOR DEFENSE 
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PAGE 03        ROME  06149  01 OF 02  271744Z 
PROCUREMENT.  THE PROCUREMENT BUDGET IS FUNDED THROUGH 
MULTIPLE APPROPRIATIONS, INCLUDING THOSE FOR THE MINISTRY OF 
PRODUCTIVE ACTIVITIES (MPA).  IN ADDITION TO ACQUISITIONS, 
WHICH ARE BASED ON PROGRAMS DEFINED BY THE CHOD, DI PAOLA 
DIRECTS RESEARCH AND DEVELOPMENT AND HAS RESPONSIBILITY FOR 
SOME 500 PERSONNEL IN THE NATIONAL ARMAMENTS DIRECTORATE.  AS 
THE ITALIAN NAD, DI PAOLA TAKES THE LEAD IN NEGOTIATING 
BILATERAL AND MULTILATERAL ACCORDS ON DEFENSE INDUSTRIAL 
COOPERATION. 
 
¶3.  (U)  THE MAJOR STATE-CONTROLLED DEFENSE CONTRACTORS ARE 
FINCANTIERI (SHIPBUILDING) AND FINMECCANICA (AEROSPACE, 
HELICOPTERS, ELECTRONICS, ENERGY, AND TRANSPORT), WHICH 
INCLUDES ALENIA DIFESA AND ALENIA AERONAUTICA, AND ALENIA 
SPAZIO.  THE LARGEST PRIVATE FIRMS ARE FIAT AVIO (VEHICLES, 
PROPULSION SYSTEMS, AND ELECTRONICS); ELETTRONICA (ELECTRONIC 
WARFARE, AVIONICS); MACCHI (TRAINING AIRCRAFT); BERETTA 
(SMALL- AND MEDIUM-CALIBER WEAPONS); AND INTERMARINE (NAVAL 
CONSTRUCTION).  THE WP PUTS MARCONI (ELECTRONICS AND 
COMMUNICATION) IN THIS CAMP, BUT FINMECCANICA IS NOW IN THE 
PROCESS OF REABSORBING ITS FORMER SUBSIDIARY.  TOGETHER, 
THESE FIRMS ACCOUNT FOR 80 PERCENT OF ITALY'S NATIONAL 
DEFENSE REQUIREMENTS, PROVIDE APPROXIMATELY 30,000 JOBS, AND 
EXPORT EQUIPMENT AND MATERIEL WORTH SOME 1.6 BILLION EUROS 
ANNUALLY, ACCORDING TO THE WP.  (COMMENT: A HANDFUL OF SMALL- 
AND MEDIUM BUSINESSES HAVE DEVELOPED INTO SPECIALIZED 
PROVIDERS OF ADVANCED TECHNOLOGY DEFENSE EQUIPMENT, SUCH AS 
THE ROME-BASED SOFTWARE SYSTEMS ENGINEERING FIRM, DATAMAT. 
THESE FIRMS HAVE TYPICALLY SERVED AS SUBCONTRACTORS TO 
FINMECCANICA, BUT MORE THAN A DOZEN ARE COMPETING 
INDEPENDENTLY FOR JSF CONTRACTS UNDER THE "BEST VALUE" 
                       CONFIDENTIAL 
 
PAGE 04        ROME  06149  01 OF 02  271744Z 
CONTRACT AWARD SYSTEM.  END COMMENT.) 
 
¶4.  (U)  THE GOVERNMENT SUPPORTS THE DEFENSE INDUSTRIAL 
SECTOR THROUGH A JOINT PUBLIC GOVERNMENT-PRIVATE SECTOR 
COMMITTEE CHAIRED BY THE DEFENSE MINISTER, ACCORDING TO THE 
WP.  WITHIN THE COMMITTEE, OFFICIALS FROM ACROSS THE GOI WORK 
WITH REPRESENTATIVES FROM ACADEMIA AND THE HIGH-TECH SECTOR 
(VIA THE ASSOCIATION FOR AEROSPACE DEFENSE INDUSTRIES) TO SET 
OVERALL DEFENSE INDUSTRIAL POLICY, PROMOTE EXPORTS, AND 
COORDINATE ASSISTANCE TO ITALIAN FIRMS COMPETING FOR 
INTERNATIONAL ARMS CONTRACTS.  THE MPA, WITH ITS SUBSTANTIAL 
BUDGET FOR AIDING ITALIAN INDUSTRY, PLAYS A KEY ROLE ON THE 
COMMITTEE.  THE GOI HAS ALSO AIDED THE DEFENSE INDUSTRIAL 
SECTOR'S ORGANIZATIONAL AND FINANCIAL RESTRUCTURING WITH 
INTERVENTION TO HELP FINANCE DEVELOPMENT, INCREASE 
INTERNATIONAL COMPETITIVENESS AND MARKET ACCESS, AND BETTER 
FOCUS COMPANIES ON END-USERS.  BUILDING A STRONGER MILITARY 
R&D BASE IS ANOTHER GOI PRIORITY, ACCORDING TO THE PAPER. 
HOWEVER, IT ACKNOWLEDGES THAT EVEN THOUGH ANNUAL SPENDING HAS 
INCREASED TO 130 MILLION EUROS, ITALY STILL APPROPRIATES MUCH 
LESS THAN OTHER MAJOR EUROPEAN COUNTRIES. 
 
¶5.  (U)  ACCORDING TO THE WP, ITALY HAS SIGNED 48 BILATERAL 
DEFENSE INDUSTRIAL COOPERATION AGREEMENTS WITH COUNTRIES AS 
DIVERSE AS FRANCE, GERMANY, RUSSIA, CHINA, AND SAUDI ARABIA. 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ1466 
 
PAGE 01        ROME  06149  02 OF 02  271745Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AID-00   AS-01    ACQ-00   CIAE-00  COME-00 
      DOTE-00  SRPP-00  DS-00    EAP-00   EB-00    FAAE-00  VC-00 
      FRB-00   H-01     TEDE-00  INR-00   IO-00    L-00     VCE-00 
      AC-01    NRRC-00  NSAE-00  NSCE-00  OIC-02   OPIC-01  PA-00 
      PM-00    PRS-00   ACE-00   P-00     SCT-00   SP-00    IRM-00 
      STR-00   TRSE-00  USIE-00  EPAE-00  SSD-00   PMB-00   DSCC-00 
      PRM-00   DRL-02   G-00     SSR-00   NFAT-00  SAS-00     /008W 
                  ------------------1D67C7  271745Z /38 
R 271731Z DEC 02 
FM AMEMBASSY ROME 
TO SECSTATE WASHDC 7508 
INFO EUROPEAN POLITICAL COLLECTIVE 
AMCONSUL FLORENCE 
AMCONSUL MILAN 
AMCONSUL NAPLES 
SECDEF WASHDC 
HQ EUCOM VAIHINGEN GE 
JOINT STAFF WASHDC 
DIA WASHINGTON DC 
 
C O N F I D E N T I A L SECTION 02 OF 02 ROME 006149 
 
SIPDIS 
 
E.O. 12958: DECL: 12/26/2012 
TAGS: PGOV PREL MARR MCAP MOPS PGOV PREL MARR MCAP MOPS IT NATO ITNATO
SUBJECT: MOD WHITE PAPER: DEFENSE INDUSTRY OVERVIEW 
 
TWELVE MORE ARE CURRENTLY BEING NEGOTIATED.  THE GOI SUPPORTS 
                       CONFIDENTIAL 
 
PAGE 02        ROME  06149  02 OF 02  271745Z 
COORDINATION OF DEFENSE INDUSTRIAL POLICY AT THE EUROPEAN 
LEVEL -- THROUGH OCCAR, LETTERS OF INTENT, AND THE WEST 
EUROPEAN ARMAMENTS GROUP -- BUT ACKNOWLEDGES THAT IT IS STILL 
INCHOATE. THE WP ARGUES THAT JUST AS IT MAKES LITTLE SENSE TO 
DO NATIONAL DEFENSE PLANNING WITHOUT FOCUSING ON 
INTER-SERVICE OPERABILITY, THE INCREASING OVERLAP BETWEEN 
ITALY'S NEEDS AND THOSE OF ITS EUROPEAN PARTNERS MAKES 
INTRA-EUROPEAN PLANNING ESSENTIAL.  HOWEVER, THE GOI WANTS 
THIS ACCOMPLISHED IN A WAY THAT COMPLEMENTS RATHER THAN 
COMPETES WITH THE NATO PLANNING PROCESS. 
 
¶6.  (U) COMMERCIALLY, ITALIAN FIRMS ARE LOOKING FOR 
OPPORTUNITIES TO PARTNER WITH THEIR EUROPEAN COUNTERPARTS 
ALONG THE LINES OF THE APRIL 2001 AGREEMENT AMONG 
FINMECCANICA, EADS, AND BAE SYSTEMS TO COOPERATE ON MISSILE 
DEVELOPMENT, ACCORDING TO THE WP. (COMMENT: FRUSTRATED WITH 
THEIR INABILITY TO STRIKE EQUITABLE ACCORDS WITH EUROPEAN 
CONTRACTORS, ITALIAN DEFENSE CONTRACTORS ARE INCREASINGLY 
LOOKING TO PARTNER WITH U.S. COMPANIES SUCH AS BOEING AND 
LOCKHEED, WHICH ARE VALUED FOR THE ADVANCED R&D THEY BRING TO 
BEAR ON PROJECTS, THE HIGH QUALITY OF PRODUCTION, AND THE 
BENEFITS OF TECHNOLOGY TRANSFER.  FOR EXAMPLE, BOEING AND 
OTOMELARA/FINMECCANICA RECENTLY AGREED TO BEGIN CO-PRODUCTION 
OF JOINT DIRECT ATTACK MUNITIONS IN MARCH 2003.  END 
COMMENT.)  WHILE THE GOI WILL LOOK TO THESE ALLIANCES FOR 
PROCUREMENT OPPORTUNITIES, THE WP ACKNOWLEDGES THAT ITALY 
WILL CONTINUE TO RELY ON THE U.S. MARKET AS A KEY SOURCE FOR 
DEFENSE EQUIPMENT AND TECHNOLOGY BECAUSE OF THE COMPETITIVE 
ADVANTAGE HELD IN MANY SECTORS BY AMERICAN CONTRACTORS. 
 
¶7.  (C)  COMMENT:  MINDEF MARTINO IS COMMITTED IN PRINCIPLE 
                       CONFIDENTIAL 
 
PAGE 03        ROME  06149  02 OF 02  271745Z 
TO RATIONALIZING ITALIAN DEFENSE PROCUREMENT AND TO SPENDING 
SCARCE FINANCIAL RESOURCES ON BOLSTERING ITALY'S BATTLEFIELD 
CAPABILITIES.  RECENT ACTIONS (A400M WITHDRAWAL), AGREEMENTS 
(JSF LEVEL II PARTNERSHIP), AND PURCHASES (BOEING 767 
TANKERS) SUGGEST THAT ITALY IS INDEED MOVING IN THE RIGHT 
DIRECTION.  HOWEVER, ITALY IS OVERSTRETCHED IN TERMS OF 
PROGRAMS THAT ARE ENTERING THE LATTER STAGES OF PRODUCTION, 
SUCH AS THE EUROFIGHTER COMBAT AIRCRAFT, AND WILL HAVE TO 
MAKE SOME HARD BUDGETARY CHOICES OVER THE NEXT 2-3 YEARS. 
 
¶8.  (C) COMMENT CONTINUED.  PER REFTEL, MARTINO IS TRYING TO 
SHIFT EVEN MORE OF THE PROCUREMENT BUDGET TO THE MPA AND 
OTHER MINISTRIES.  WHILE CURTAILING PARTICIPATION IN SOME 
EUROPEAN COLLABORATIVE PROGRAMS MIGHT MAKE SENSE FROM A 
COST-BENEFIT STANDPOINT, THIS RUNS COUNTER TO THE INTERESTS 
OF ITALY'S STATE-DOMINATED AEROSPACE AND DEFENSE INDUSTRY. 
MOREOVER, WITH FIAT'S AUTOMOBILE SECTOR IN DIRE STRAITS, THE 
GOI WILL BE EVEN MORE AVERSE TO RISKING THE EROSION OF 
ITALY'S INDUSTRIAL BASE AND SACRIFICING JOBS FOR ECONOMIC 
EFFICIENCY.  IT ALSO MAY WELL BE A POLITICAL BRIDGE TOO FAR 
FOR A GOVERNMENT THAT, DESPITE ITS PRO-U.S. BENT, STILL 
CLAIMS SOME COMMITMENT TO BUILDING A COMMON EUROPEAN DEFENSE. 
 SEPTEL WILL FOCUS ON IDENTIFYING MORE PRECISELY THE TRENDS 
WITHIN THE ITALIAN DEFENSE INDUSTRY, COMMERCIAL AND 
GOVERNMENTAL ALLIANCE STRATEGY, AND THE NEXUS BETWEEN 
DOMESTIC POLITICS, BUSINESS IMPERATIVES, AND DEFENSE 
INDUSTRIAL POLICY.  END COMMENT. 
 
SEMBLER 
 
                       CONFIDENTIAL 
 
PAGE 04        ROME  06149  02 OF 02  271745Z 
 
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 2002ROME06149 - Classification: CONFIDENTIAL