VZCZCXYZ0000
OO RUEHWEB

DE RUEHFR #1116/01 0811331
ZNR UUUUU ZZH
O 221331Z MAR 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5839
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 0337
RUEHEG/AMEMBASSY CAIRO 0962
RUEHBJ/AMEMBASSY BEIJING 1451
RUEHBR/AMEMBASSY BRASILIA 1824
RUEHJA/AMEMBASSY JAKARTA 0624
RUEHKL/AMEMBASSY KUALA LUMPUR 0260
RUEHMO/AMEMBASSY MOSCOW 5784
RUEHSA/AMEMBASSY PRETORIA 1278
RUEHSG/AMEMBASSY SANTIAGO 0458
RUEHTV/AMEMBASSY TEL AVIV 0619

UNCLAS PARIS 001116 
 
SIPDIS 
 
FROM USOECD PARIS 
 
SENSITIVE - NOT FOR INTERNET DISTRIBUTION 
SIPDIS 
 
STATE FOR E, EB, EUR/ERA AND IO/S, NSC FOR MCCORMICK 
 
E.O. 12958:N/A 
TAGS: ECON EFIN ETRD OECD
SUBJECT:  OECD:  MARCH 20 COUNCIL DISCUSSION OF ENLARGEMENT AND 
ENHANCED ENGAGEMENT 
 
REF: PARIS 956 (NOTAL) 
 
¶1.  (SBU) Summary:  The March 20 Council discussion of enlargement 
and enhanced engagement broke no new ground, with OECD Members 
holding to longstanding positions.  Secretary General (SG) Gurria 
focused on the latest version of his informal paper, which continues 
to advocate opening discussions with five countries (Chile, Estonia, 
Israel, Russia and Slovenia) with a view to membership, undertaking 
priority consultations with Brazil, China, India and South Africa on 
furthering their relationships with the OECD and determining whether 
to move toward enhanced engagment or possible membership, 
undertaking consultations with Argentina, Egypt, Indonesia, 
Malaysia, Morocco, Singapore and Thailand to determine the scope and 
modalities of a future relationship, and giving a nod to all 
non-OECD EU member states who are in principle ready for membership 
given their accession process to the EU.  Views differed on the 
status of Russia, the eligibility of all EU members, and the naming 
of countries in a Ministerial decision document.  PermReps also 
reviewed accession procedures, including whether or not to front 
load conditions for membership and the respective roles of the 
Secretary General and the Council.  On financing, divisions remain 
 
SIPDIS 
between those states that advocate each Member covering its 
recurring costs of membership and those who favor capacity to pay in 
determining level of contributions.  The Chair of the Special Group 
on Financing tabled a proposal that tries to balance these two 
positions and could become the basis for compromise.  More work is 
required, however, and while there is a consensus that some form of 
base fee should be imposed, the amount of that base fee as well as 
the timing of its implementation still need to be agreed.  End 
Summary. 
 
EU Wants to Lock in EU-8 
------------------------ 
 
¶2.  (SBU) German Ambassador Hoffman (also speaking as EU President) 
was the first to react to the latest draft paper by the SG.  He said 
that the EU and the Commission were prepared to accept a staged 
accession (based on sequencing) for the EU-8 candidates, each of 
which desired a signal that their membership aspirations would be 
met at some point.  Hoffman also argued (implying, though not naming 
Cyprus) that all EU-8 countries should be allowed to join OECD 
committees as observers in order to demonstrate their interest. 
Elaborating on a point made recently by the Latvian FM with respect 
to Russia (Reftel), Hoffman suggested that the OECD needed to ensure 
that new Members could not blackball other candidates.  He concluded 
that he was not as concerned about the philosphical basis of 
enlargement, but rather the operative elements needed to move the 
process forward; "it is time for political compromise." 
 
¶3.  (SBU) Representatives from the EC and other EU states followed 
with interventions designed to reinforce the points made by the 
German Ambassador.  The key themes were:  all of the EU-8 candidates 
were eligible for membership, it was not acceptable to name only two 
(Estonia and Slovenia); other candidates should not be "blackballed" 
by new members; and a strong signal should be given that the door to 
the OECD should not be closed to anyone.  The SG responded that he 
had recently been in Brussels where he had had a long conversation 
with EC President Barroso.  The SG said he had disabused Barroso of 
the idea of automaticity of joining the OECD for EU members; there 
were other (Noboru) criteria beyond like-mindedness.  He thought 
President Barroso had responded pragmatically, and as a result of 
this conversation there seemed to be a better understanding in 
Brussels of the enlargement process in Paris. 
 
¶4.  (SBU) Discussion on the EU-8 continued with EU members arguing 
for keeping paragraph 9 as part of the SG's paper.  (Current text 
for para 9:  The accession process to the European Union implies 
that Non-OECD Member States of the EU would in principle be eligible 
to join the Organization, but would be considered individually based 
on their merits and the interest of the Organization.  Given their 
track-record of long-standing successful economic and structural 
reforms, as well as their active involvment in OECD work, accession 
discussions could start with Estonia and Slovenia.  End text.) 
Turkey and Canada said that they could not/not support para 9 as 
written, with Australia, New Zealand, Korea and Japan expressing 
concerns about the "eligibility" language and the lack of mention of 
 
the Noboru criteria.  The SG commented that the language in para 9 
would need to be worked.  Ambassador Morella suggested deleting all 
names and empowering the SG to meet with EC and EU officials to work 
out the relationship between the OECD, the EU and candidate 
countries. 
 
Front Loading of Conditions for Accession 
----------------------------------------- 
 
¶5.  (SBU) EU member state reps also took up para 15 (text:  "New 
Members would be expected to support the present enlargement agenda 
as part of their undertakings upon accession").  Suggestions that 
commitments on the part of a new member not to block the accession 
of a future candidate led Australian Ambassador Ingram to point out 
that international law does not permit binding sovereign nations 
from taking future decisions.  This in turn resulted in a long 
discussion on "front loading" conditions for membership, including 
for example the need to join the WTO or resign from the G-77 
(requirements stressed by Switzerland), and the respective roles of 
the Secretary General and the Council during the negotiating 
process.  Danish Ambassador Smidt asked whether conditions should be 
set prior to or after beginning discussions with candidate 
countries.  He offered that the Council needed to discuss conditions 
earlier than later and suggested an informal meeting to review the 
roles of the SG and the Council.  The SG responded that in all 
instances, the Council/Council was supreme.  Legal Department 
Director Bonucci noted that proposed procedures for accession 
(Document C(2007)31) call for an initial discussion between the SG 
and candidates regarding their interest in joining the OECD, 
drafting a road map that would be approved by Council, and then 
presentation of the road map to the candidates.  Bonucci advised 
that it would be better to present front loaded conditions in a 
document separate from the roadmap.  Agreeing that the Council 
should have a greater role in the negotiating process, Italian 
Ambassador Cabras argued that the SG should be given an initial 
mandate, with a second set of instructions resulting from 
discussions with Council following preliminary consultations with 
the candidates. 
 
Russia 
------ 
 
¶6.  (SBU) The discussion of front loading conditions was occasioned 
by concerns about Russia's future membership, including the 
possibility it would blocking future candidates (such at the Baltic 
states).  The French, supported by most others, continued to press 
hard for including Russia in the first tranche of accession 
candidates.  The Finnish Ambassador argued that an enlargement 
without Russia would be a very thin package.  The SG responded that 
Russia has a special place based on its long-standing relationship 
with the OECD, and for that reason, he said, he continued to include 
Russia in the paragraph on membership.  The SG noted that Russian 
reformers were telling him that membership would permit them to push 
continued reform, and again argued that this might be the last 
chance to bring Russia on board.  SG Gurria said that he would 
produce another draft that he hoped would meet Russia's 
expectations. 
 
¶7.  (SBU) The SG asked Ambassador Morella pointedly whether the U.S. 
continued to back enhanced engagement as the/the operative word with 
respect to Russia.  Ambassador Morella replied that affirmatively: 
we should not at this time separate Russia from the other BRICS, 
with whom the OECD should be prepared to offer strong programs of 
enhanced engagement.  That said, we could give a separate nod to 
Russia's unique relationship. 
 
The other BRICS 
--------------- 
 
¶8.  (SBU) Of the EU countries who spoke, it was of note that only 
France (which argued that the future of the OECD depended on 
enlargement with key countries such as Russia and Brazil) and the 
Netherlands (instructions were to move closer to the BRICS and other 
important, even if smaller, global economies) went beyond arguing 
for EU-8 membership.  Australia, Canada, Japan, Korea, Mexico and 
New Zealand joined Ambassador Morella in calling for a focus on the 
 
critical goal of engaging the BRICS to keep the OECD relevant.  SG 
Gurria supported this point, noting that the BRICS are "big and 
important" and their economies are growing at a fast rate.  When 
some questioned Brazil's interest in joining the OECD, for example, 
the SG reported on recent conversations with Brazilian authorities, 
including Ministers and the Brazilian Ambassador to France.  He said 
that Brazil did not want to be seen as demandeur - left standing 
outside for a long period of time.  What was needed was a signal 
from the OECD that "we want you."  With this he thought Brazil would 
be prepared to request membership.  (COMMENT:  The OECD members 
remain divided between most of the Europeans who are pushing 
membership for the EU-8 and Russia and the non-Europeans who take 
the view that the future of the OECD rests outside of Europe.  The 
EU appears set to take a decision in May that will lock in eventual 
membership for the EU-8 and possibly Russia, offer enhanced 
engagement to other BRICS and a few North African, Asian and Latin 
American countries, and keep costs of enlargement and enhanced 
engagement to a minimum.  END COMMENT.) 
 
Financing Issues 
 
¶9. (SBU) Danish Ambassador Smidt, Chair of the Special Group on 
Financing, provided a report on the work of the Group to Council. 
Smidt introduced a Chair's proposal, which he stressed was his and 
did not command consensus of the Group.  He made several key points 
about his proposal (copies e-mailed to EUR/ERA and EEB): 
 
(a) proposed a base fee of 2.4 million Euros (too high for some too 
low for others) based on the facts that the Task Force report on 
financing enlargement estimated 2.4 ME as the minimum cost of 
membership (with an average cost of 3.5 ME) and that the minimum 
share adjustment in the current scale of assessments is 2.4 ME; 
(b) chose fifteen (15) incremental steps in which Members not 
currently covering recurring costs would reach the base fee, 
important for balance and getting political agreement from 
capitals; 
(c) tied the 15 steps to enlargement (a step for each new member) 
which again would help capitals justify what, in many cases, would 
be substantial increases in contributions; 
(d) proposed that mitigation measures for the smallest countries be 
determined prior to agreeing on a financing package - the Chair will 
submit these proposed measures to the Special Group at its next 
meeting; and 
(e) floated the idea of abrogating the per capita abatement (PCA) 
for large, new members, although abrogation could hit hard several 
current members (i.e., Mexico and Turkey); the Chair said he would 
come forward with a proposal to meet some of the concerns that will 
be raised with abrogation. 
 
¶10.  (SBU) As the first to comment, the Greek Ambassador said that 
he was uncomfortable with linking everything to enlargement.  There 
were two parts of the financing story.  First, the OECD needs to 
deal with current budget restraints as evinced in the last several 
budget negotiations -- the Organization needed to take advantage of 
this opportunity to address its financial sustainability.  Second, 
enlargement is really an additional issue in the entire budget 
complex.  Picking up on Ambassador Courakis's points, Ambassador 
Morella offered that the proposal was "too low and too slow."  With 
the cost of individual membership at more than 2.4 ME, who would pay 
the difference?  On the 15 steps, Ambassador Morella suggested a 
time-limited process for reaching the base fee, with 10 steps (five 
biennial budget cycles).  Tying increases to each new member's 
accession would be "lumpy" and unpredictable in terms of budget 
planning.  The UK Deputy, Richard Moon, agreed with Ambassador 
Morella that we "have to mind the gap" and questioned the 15 step 
process.  He was joined by the German and Korean Ambassadors in 
pushing for more ambitious and realistic targets.  Of the other G-7 
and larger contributors, only the French Deputy said that France 
could support the Chair's proposal.  The Japanese Ambassador would 
have preferred a higher base and called for fewer steps.  Spain 
joined in supporting a time bound process of covering costs, not 
tied to enlargement, and while preferring 3.5 ME could accept the 
2.4 ME base fee. 
 
¶11.  (SBU) Not surprisingly, most of the small- and mid-size 
contributors argued that 2.4 ME was too high, not based on capacity 
 
to pay, and was neither fair nor equitable.  Finland's Ambassador, 
an exception, said that Helsinki would have preferred a smaller base 
fee but could accept 2.4 ME as a compromise, and agreed that 15 
steps was too many.  Norway and Switzerland joined Finland in 
questioning the 15-step approach, with the Swiss calling for a 
higher base fee.  Even the Ambassador of New Zealand, one of the 
smaller contributors, said that 2.4 ME could be a basis for 
negotiations.  She questioned, however, why the G-7 countries should 
not increase their contributions.  Ireland continued to push its 
proposal of much smaller increases tied to enlargement, arguing that 
the mandate was to finance enlargement, not to redo the scale of 
contributions.  Portugal, Luxembourg, Austria, Hungary, Slovakia, 
Poland and the Czech Republic joined in supporting the Irish, 
arguing that the Chair's proposal was unfair and not politically 
acceptable. 
 
¶12.  (SBU) Regarding the Chair's proposal to abrogate the per capita 
abatement (designed to assist large, lesser developed countries), 
both Mexico and Turkey argued that level of development should not 
be forgotten.  In the case of Mexico, which is already covering its 
recurring costs, a lesser developed country would in essence be 
subsidizing richer, fully developed Members such as Belgium and 
Luxembourg. 
 
¶13.  (SBU) In response to comments, Ambassador Smidt reiterated that 
he felt 15 steps were needed to convince capitals - large increases 
in contributions would need political justification.  He admitted 
that further work on the proposal was required, especially with 
respect to mitigation, where he planned to offer some suggestions. 
Nonetheless, he hoped that the proposal that he had put on the table 
could be the basis for further discussion, both in the Special Group 
and in the Council. 
 
Enhanced Engagement 
------------------- 
 
¶14.  (SBU) Dutch Ambassador Boer, Chair of the External Relations 
Committee (ERC), gave an abbreviated report (due to the late hour) 
on the ERC's work on enhanced engagement.  He said that outstanding 
issues include the definition/ wording of "enhanced engagement;" to 
whom should enhanced engagement be directed and how would costs be 
funded (the two issues are dependent to an extent on one another); 
and the role for regional programs.  The Chair plans to bring these 
issues, to be further examined by the ERC, to Council at its next 
meeting on April 11.  There were no comments by Ambassadors 
regarding enhanced engagement. 
 
Accession Procedure and OECD Acquis 
----------------------------------- 
 
¶15.  (SBU) Legal Advisor Bonucci provided each delegation with a 
four-volume set of documents which lay out the OECD's acquis. 
Bonucci said these were self-explanatory and then turned to the 
recently drafted paper C(2007)31, "A Proposed Procedure for Future 
Accessions."  This document, explained Bonucci, provides a common 
framework for developing specific "roadmaps" for each candidate.  He 
stressed that this was a practical, not a political procedure. 
Danish Ambassador Smidt commented that past accessions had neglected 
one important process - multilateral review.  While candidates 
negotiated with the Secretariat, there was no provision for Council 
discussion with representatives of the candidate states.  Smidt 
suggested that some form of multilateral review be included in the 
accession procedure and was supported by Greek Ambassador Courakis. 
Bonucci assured the Council that the Secretariat had clear 
negotiating mandates that would protect the members states and their 
political prerogatives.  Dutch Ambassador Boer proposed that an 
informal session of Heads of Delegation be scheduled to address 
questions of procedure (this session is now scheduled for April 5). 
 
MORELLA