VZCZCXYZ0000
RR RUEHWEB

DE RUEHTL #0888/01 2700540
ZNR UUUUU ZZH
R 270540Z SEP 06
FM AMEMBASSY TALLINN
TO SECSTATE WASHDC 9068

UNCLAS TALLINN 000888 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/NB KAYE LEE 
 
E.O. 12958: N/A 
TAGS: OTRA PREL EN
SUBJECT: SCENESETTER FOR EUR DAS PEKALA'S VISIT TO 
TALLINN, OCTOBER 3-4 
 
 
¶1. (U) Welcome back to Tallinn.  Your visit will bring 
you back to one of our most supportive allies in Europe. 
Your arrival comes on the heels of Toomas Hendrik Ilves' 
election as Estonia's next President and the beginning 
of the parliament's fall session.  The Government has 
approved a bill extending the Iraq Mission Mandate 
through December 2007.  The bill will be submitted to 
the Parliament for approval once the UN has extended the 
mandate for the Multinational Forces in Iraq.  All six 
of Estonia's main political parties are gearing up for 
next spring's parliamentary elections.  This charged 
political atmosphere will make the Iraq Mission Mandate 
renewal debate in Parliament a more contentious process 
than last year.  However, as a whole, Estonia's support 
for U.S. positions through its promotion of democracy 
within the region (primarily Georgia, Moldova, Ukraine, 
and the Balkans) and participation in international 
peacekeeping operations remains strong.  Estonia is very 
focused on President Bush's trip; the timing of your 
visit will provide an excellent opportunity to focus 
senior level attention on our priority issues. 
 
¶2. (SBU) Your schedule includes meetings with several 
senior level policy-makers who engage on a wide range of 
topics: MFA Foreign Minister Urmas Paet, MOD Permanent 
Undersecretary Lauri Almann, prominent and active MPs, 
including Foreign Affairs Committee Chairman Enn Eesmaa, 
Center Party Chairman Ain Seppik, Mart Laar, and others 
to be confirmed.  In addition, you will meet with key 
experts on investment climate issues including Viljar 
Jaamu, Chairman of the Board of Enterprise Estonia, 
Andrus Viirg, Advisor on foreign investments in 
Enterprise Estonia, Aare JQrvan, Economic Advisor to the 
Prime Minister, and Maria Varton, Deputy Undersecretary, 
Ministry of Economic Affairs and Communication. 
 
¶3. During your visit, we recommend that you: 
 
-- Thank interlocutors for Estonia's presence in Iraq 
and Afghanistan and its support of U.S. objectives in 
NATO; express hope that Estonia will extend its mandate 
in Iraq another year. 
 
-- Praise Estonia's support for new democracies in the 
region (principally Ukraine, Georgia, Moldova, Armenia, 
Bosnia, and Kosovo) and encourage intensification of 
these efforts. 
 
-- Solicit views and insight on key regional challenges 
vis--vis Russia. 
 
-- Press Estonia to be active in voicing its support for 
strong transatlantic ties within EU and international 
fora.  Estonia has the tendency of wanting to play the 
'good European' by being silent on EU matters. 
 
-- Press Estonia to be more active in promoting its 
contributions in the GWOT and spreading democracy.  The 
GOE displays a typical Nordic reticence to draw 
attention to itself and, therefore, loses positive PD 
opportunities. 
 
-- Encourage Estonia to actively facilitate and 
encourage U.S. investment and cooperative commercial 
opportunities in Estonia. 
 
-- Advocate on behalf of Raytheon in support of their 
bid for a Ministry of Defense $52 million tender for a 
short range ground based air defense system. 
 
Your Estonian interlocutors will likely want to discuss 
the President's visit in November and their 
participation in the UK-led PRT in southern Afghanistan. 
It is likely that they will repeat their case for visa- 
free travel to the United States in the context of their 
contributions in the GWOT.  (See paras 4 and 11) 
 
Estonia: A Staunch U.S. and NATO Ally 
------------------------------------ 
 
¶4. (SBU) Estonia actively participates in the UK-led 
Provincial Reconstruction Team (PRT) in Helmand Province 
in southern Afghanistan, the epicenter of its opium 
production and one of the most dangerous regions due to 
resurgent Taliban activity.  The GOE has committed 
itself to a two year mission mandate in Helmand and has 
made Afghanistan its number one foreign policy priority. 
This year, Estonia is increasing the number of troops it 
has in Afghanistan from 80 to 120 and has posted a 
diplomat in Helmand to assess and coordinate its 
 
development assistance project.  To date, Estonia has 
suffered 9 casualties in Afghanistan since 2004.  In 
Iraq, 37 Estonian soldiers serve shoulder-to-shoulder 
with U.S. troops outside of Baghdad.  To date, the 
Estonians have suffered 18 casualties, including 2 
killed, in Iraq since 2003, and they are involved in 
some of the toughest counter-insurgency missions. 
General Casey has consistently praised the Estonian 
soldiers for their skill, professionalism, and valuable 
contribution. 
 
¶5. (SBU) Estonia has consistently supported U.S. 
positions within NATO and has voiced opposition to a 
European Security Defense Policy (ESDP) rivaling or 
duplicating NATO's role.  Estonia's has made significant 
strides in transforming its military into an effective 
and experienced contributor to NATO and other 
international military operations.  The MOD and Estonian 
Defense Forces (EDF) have acquired NATO-interoperable 
equipment and completely revised the joint command and 
general staff with NATO standard doctrine.  Unlike many 
NATO allies who are cutting back on defense spending, 
the GOE is on track to meet its NATO commitment of 
devoting 2 percent of its GDP to defense (currently at 
1.83 percent).  Finally, Estonia has developed niche 
capabilities (i.e., small rapid reaction infantry unit 
and explosive ordinance disposal team) and actively 
utilizes them in NATO operations. 
 
A Regional Democratic Multiplier 
-------------------------------- 
 
¶6. (SBU) The GOE remains a staunch advocate for 
democracy and freedom in the region.  Estonia's 
successful transition from communism to a thriving 
market democracy and its 2004 accession to the EU and 
NATO provide invaluable perspective and credibility on 
how to reform governmental institutions and the economy. 
In May 2006, the GOE approved a Development Cooperation 
Strategy which named Ukraine, Georgia, Moldova and 
Afghanistan as the priority partner countries through 
¶2010.  According to MFA, Estonia has budgeted USD 10 
million per year to this strategy.  The GOE provides 
regular technical assistance to the Ukraine, Georgia, 
and Moldova to assist them in their objectives to join 
both NATO and the EU.  The GOE provides training through 
its Public Service Academy and School of Diplomacy for 
Ukrainian, Georgian, and Moldovan diplomats, civil 
servants, law enforcement, and customs agents.  The GOE 
has recently expanded its assistance to include the 
Balkans, Armenia, and Azerbaijan. 
 
U.S. Investment Issues 
---------------------- 
 
¶7. (SBU) The United States is the fifth largest foreign 
investor in Estonia.  Sweden and Finland are the largest 
investors, contributing about 54% and 20% respectively 
of Estonia's total foreign direct investment (FDI). 
After that it is a close race, albeit at much lower 
levels, between Norway (2.7%), the Netherlands (2.6%) 
and the U.S. (2.4%). 
 
¶8. Estonia's small market makes it less appealing to 
U.S. companies than some of the larger new EU members. 
A shrinking labor force due to declining birth rates and 
emigration and rapid economic growth have combined to 
creat a tight labor market.  This is exacerbated by the 
GOE's restrictive labor/immigration policy, which 
essentially prevents employers from bringing in 
significant numbers of workers from neighboring 
countries like Ukraine.  Additionally, inflation and 
rising wage rates also impact Estonia's competitiveness 
in attracting FDI.  Despite these issues, Estonia has a 
lot to offer U.S. investors including: strong 
information technology, communications and electronics 
sectors; a technologically advanced banking sector; no 
corporate income tax on re-invested profits; a highly 
educated workforce; and consistently high rankings for 
transparency and economic freedom by such groups as the 
Wall Street Journal.  The GOE is working hard to 
position Estonia as the 'next Ireland' and best point of 
access to the EU market. 
 
¶9. (SBU) The GOE is finally closing in on a deal for the 
re-purchase of Baltic Rail Services' (BRS) 66% stake in 
the Estonian Railway (ER).  BRS stresses that the 
transaction is not a done deal yet, and could still fall 
apart if GOE rhetoric and terms are not amicable.  If 
so, they feel any last chance for a deal will be lost, 
 
as BRS investors may then see greater potential benefit 
in waiting out the results of the pending arbitration. 
 
¶10. (SBU) On the macro side, the Ministry of Finance 
released a forecast in August projecting real GDP growth 
of 9.6% this year, falling to 7.4% by 2010, and 
inflation falling to 3.9% next year, after a small rise 
in 2006.  The report anticipates the 2006 unemployment 
rate falling to 6.8%, a rise in investment activity 
mainly from the EU, and growth in the manufacturing 
sector. 
 
Visa-Waiver 
----------- 
 
¶11. (SBU) Securing Estonia's inclusion in the Visa 
Waiver Program remains a priority for both the GOE and 
the public.  Senior GOE officials regularly raise the 
issue with official U.S. visitors.  We are cooperating 
closely with the GOE on a public diplomacy campaign to 
demystify the visa application process and reduce the 
number of illegal Estonian workers and overstays in the 
United States.  We are also taking steps to simplify the 
application process and reduce the number of times 
applicants have to appear at the Embassy.  These efforts 
have helped to improve the atmosphere significantly. 
The refusal rate for Estonians has declined steadily 
since 2003, dropping below 6% this calendar year (6.2% 
for FY2006).  A recent validation study indicated that 
in 2005 the overstay rate for B visas was between 2.1 
and 2.7 percent. 
 
Raytheon:  Advocacy Issue 
------------------------- 
 
¶12.  (SBU) In order to meet mandated NATO entry 
conditions, the Estonian Defense Forces developed a 
requirement for a very short range tripod mounted ground 
based air defense system to protect both fixed and 
static facilities of operational and strategic 
importance.  The total Ministry of Defense (MOD) system 
requirement is for 24 firing units, 96 missiles, 2 (3-D) 
radars and 3 fire direction centers.  In December 2005, 
the MOD released a tender to two competitors:  the 
USG/Raytheon Team and the mainly French MBDA Company 
team.  The total budget is $52 million, making it the 
largest military tender in Estonia's history.  The 
USG/Raytheon team, labeled the 'Nordic Team', is 
comprised of the USG (missiles, trainers), Raytheon 
(prime contractor with launchers), the Norwegian company 
Kongsberg (command and control) and their Swedish 
contractor Ericsson (radars).  The MBDA team submitted 
two bids, both offering their Mistral missile system. 
The MOD will make recommendations to the Government, 
which will make the final decision. We anticipate a 
formal announcement by the MOD sometime in October. 
 
¶14.  (SBU) The Embassy has actively cultivated a solid 
relationship with the MOD and adapted to their needs. 
To date, the Nordic Team proposal appears to enjoy a 
favorable position through the technical and financial 
phases of the evaluation.  We are confident that if the 
decision is based on performance and price, the Nordic 
team will win outright.  However, politics is the 'X- 
factor' where the French hope to make gains.  Reviewing 
MBDA's strategy in previous competitions, it is 
anticipated that they will use every political resource 
at their disposal, including extensive French government 
involvement, in order to gain the necessary influence to 
win a favorable selection.  A French MOD official met 
with several GOE officials and parliamentarians in 
September. 
 
WOS