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C O N F I D E N T I A L SECTION 01 OF 03 ISLAMABAD 004086 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 09/20/2017 
TAGS: PGOV PK
SUBJECT: PRIME MINISTER TELLS NEGROPONTE: NO MORE F-16 
PAYMENTS, READY TO RE-OPEN INVESTMENT TREATY TALKS 
 
Classified By: Anne W. Patterson, Reasons 1.4 (b), (d) 
 
¶1. (C) Summary: During a September 14 meeting with Deputy 
Secretary of State John Negroponte, Prime Minister Shaukat 
 
SIPDIS 
Aziz voiced his government's frustration with what Pakistan 
perceives as changes in the terms of sale of U.S. F-16s to 
Pakistan.  Aziz said that unless the U.S. changes some of its 
current provisions, Pakistan will stop payment for breach of 
contract.  Citing the importance of creating jobs in the 
tribal areas, Aziz also pressed for inclusion of categories 
347 and 348 in the Reconstruction Opportunity Zone 
legislation.  Acknowledging that this may not be possible, 
Aziz agreed to do his part to re-energize bilateral 
investment treaty talks as an alternative way to spur U.S. 
investment in Pakistan.  On the political front, Aziz 
emphasized Pakistan's commitment to free and fair elections 
and to using a holistic approach to the mitigate security and 
development problems in the tribal areas.  Aziz also 
requested U.S. assistance in rebuilding Pakistan's "trust 
deficit" with Afghanistan and in helping Pakistan meet its 
growing energy needs.  End Summary. 
 
------------------------------------------- 
F-16s: The U.S. Keeps Moving the Goal Posts 
------------------------------------------- 
 
¶2. (C) On September 14, Prime Minster Shaukat Aziz met with 
Deputy Secretary of State John Negroponte, Assistant 
Secretary for Central and South Asian Affairs Richard 
 
SIPDIS 
Boucher, Coordinator for Counterterrorism Dell Dailey, and 
the Ambassador.  Aziz asked for Negroponte's help in 
enlisting "serious high level attention" to the terms of sale 
of U.S. F-16s to Pakistan.  Pakistan's Air Force feels that 
U.S. requirements for mid-life upgrades outside of Pakistan 
and crypto keys for the aircraft amount to new requirements 
not envisioned in the original contract. "The goal posts have 
moved," Aziz said, and if the U.S. does not reconsider its 
requirements, Pakistan will consider the U.S. to be in breach 
of contract and will discontinue payments.  Aziz added that 
Pakistan's Air Chief Marshal is traveling soon to Washington 
to try to resolve the issue. 
 
¶3. (C) Negroponte replied that he understood the long history 
behind the F-16 sale and that the United States wants to make 
this deal work -- perhaps by working with Pakistan on 
determining which country would be acceptable to complete the 
mid-life upgrades. 
 
--------------------------------------------- ------ 
Negroponte: Investment Treaty More Feasible Than 
Textile Exemptions to Generate Jobs in Tribal Areas 
--------------------------------------------- ------ 
 
¶4. (C) Aziz thanked Negroponte for U.S. support of Pakistan's 
multifaceted approach to mitigating the security and 
development problems in the Federally Administered Tribal 
Areas.  Aziz said that the biggest return on dollars spent in 
the tribal areas will be through the planned U.S. 
Reconstruction Opportunity Zones (ROZs), which will provide 
jobs for youth who would otherwise be vulnerable to the 
influence of extremist rhetoric. 
 
¶5. (C) Aziz welcomed progress toward introducing the 
legislation to Congress, but said that the key to success 
will be in attracting investors once the legislation is in 
place.  Inclusion of category 347/348 textiles (cotton 
trousers) in the ROZ legislation would immediately attract 
ROZ investment, Aziz said.  Negroponte replied that inclusion 
of 347 and 348 would be difficult, but it is still possible 
to attract U.S. investment by finalizing a bilateral 
investment treaty. 
 
¶6. (C) Aziz said that Pakistan still has serious concerns 
whether Pakistan can conclude a bilateral investment treaty 
with the U.S., and that there is little political will to do 
so right now.  However, if the U.S. is interested in 
re-starting talks, Pakistan is willing to do so.  Aziz 
suggested that the first step would be for the U.S. to set a 
date for a video teleconference between U.S. and Pakistani 
officials and, if progress is made, face-to-face negotiations 
 
ISLAMABAD 00004086  002 OF 003 
 
 
could resume. 
 
------------------------------------------ 
Pakistan Committed to Fair Elections and 
Making Tribal Areas More Secure, Developed 
------------------------------------------ 
 
¶7. (C) Aziz said that the government is keen to ensure fair 
elections, since no subsequent government would have the 
moral authority to govern without them.  The cabinet just 
unanimously supported having the current assemblies elect the 
next president, Aziz said, because the Pakistan Muslim League 
believes that if Musharraf is re-elected their party will 
receive a 10-15 percent boost at the polls in the upcoming 
general elections.  Aziz declined to go into detail about 
whether/when President Musharraf intends to remove his 
uniform, but said that he is hopeful that the Supreme Court 
-- which has become "intrusive and aggressive" lately -- will 
not interfere with upcoming elections and will let the ballot 
box decide who should govern next.  Negroponte said that the 
U.S. is watching Pakistan's evolving political landscape with 
great interest, and that we have an interest in Pakistan's 
stability and political evolution. 
 
¶8. (C) Aziz said that Pakistan is committed to eliminating 
terrorism. "We do not want Pakistan to be used as a 
sanctuary," Aziz said.  The government has to strike a 
balance in securing the tribal areas, he said.  People who 
live there respect the power of the gun, but they also need 
to be provided with an alternative way to live so that young, 
unemployed men are not influenced by militants.  The 
cabinet's recent decision to launch a crash project to build 
schools in 10 target areas will be one way of addressing this 
problem, Aziz said.  The schools would provide free books, 
meals and a monthly stipend, and will provide an alternative 
for parents who otherwise would have no choice but to send 
their children to madrassas (religious schools) that may be 
teaching violent extremist rhetoric.  Negroponte acknowledged 
Pakistan's commitment to eliminating terrorism, and said that 
the U.S. has learned a lot from Pakistan over the past 
several years and would like to support Pakistan's holistic 
approach to the problem.  President Bush's biggest 
frustration, Negroponte said, is that funding for the tribal 
areas is not being delivered faster. 
 
--------------------------------------------- -- 
Rebuilding the "Trust Deficit" With Afghanistan 
--------------------------------------------- -- 
 
¶9. (C) Aziz told Negroponte that more could be done on the 
Afghan side of the border to control the Taliban and al 
Qaeda.  Pakistan sees them as a threat because they are 
looting Pakistan's own people. "We are engaging the enemy 
head on," Aziz said, "but the game of hide and seek will 
continue unless Afghan stakeholders emerge to help control 
them."  Afghanistan's skyrocketing drug production is the 
biggest fuel for global terror, he added. 
 
¶10. (C) While his government has good relations with 
Afghanistan's President Karzai, they are frustrated at the 
Afghan government's failure to take action against 
"criminals." (Note: The "criminals" are presumably Brahamdagh 
Bugti and Baloch Marri, two Baloch nationalists whom the GOP 
would like extradited back to Pakistan.  End Note.)  They 
have obtained fake Afghan passports and have traveled to 
Delhi, India and back to Afghanistan, Aziz said.  They are 
now living in close proximity to Karzai's residence, Aziz 
continued, and the Afghan government has yet to take action 
against them.  At this point, there is a clear need to 
rebuild the "trust deficit" with Afghanistan, Aziz said. 
 
--------------------------------------------- -------- 
Pakistan Wants Help In Meeting Growing Energy Demands 
--------------------------------------------- -------- 
 
¶11. (C) Aziz said that demand for energy is growing quickly 
and that Pakistan is struggling to meet those needs.  One 
source is Iran -- and Pakistan has just signed a memorandum 
of understanding to increase its imported electricity from 
Iran from 100 megawatts to 1,000 ("out of acute desparation," 
 
ISLAMABAD 00004086  003 OF 003 
 
 
Aziz said, "because they are unreliable suppliers."). 
Pakistan is also talking to Tajikistan about electicity 
imports and Turkmenistan about gas.  Aziz added that dealing 
with Turkmenistan has been frustrating because the government 
has not been able to give potential investors a clear idea of 
the level of gas reserves in the country and because Gazprom 
has discouraged outside interest in the reserves. 
 
¶12. (C) Aziz asked that the U.S. consider assistance in 
developing Pakistan's civlian nuclear capacity (a 
civilian-run nuclear reactor could even be operated by a 
foreign investor, he said).  Pakistan's coal reserves also 
need to be developed, he said. Negroponte replied that the 
U.S. may be able to provide assistance in the way of clean 
coal or coal gasification technology. 
 
¶13. (U) The Deputy Secretary's staff has cleared this message. 
 
PATTERSON