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UNCLAS SECTION 01 OF 10 BRUSSELS 000704 
 
SENSITIVE 
SIPDIS 
 
NSC FOR DAN PRICE 
WHITE HOUSE PASS USTR FOR USTR SCHWAB 
WHITE HOSUE PASS OMB FOR OIRA DIRECTOR DUDLEY 
USDA FOR SECRETARY SCHAFER 
DEPT OF LABOR FOR SECRETARY CHAO 
TREAS FOR DEPUTY SECRETARY KIMMITT 
HHS PASS FDA FOR ADMINISTRATOR VON ESCHENBACH 
SEC FOR COMMISSIONER ATKINS 
STATE FOR U/S JEFFREY, EB A/S SULLIVAN 
USMISSION GENEVA FOR AMB. ALLGEIER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EIND EINV EFIN EAGR ENRG WTO EUN
SUBJECT: YOUR PARTICIPATION IN THE MAY 13 TRANSATLANTIC 
ECONOMIC COUNCIL, FROM SPECIAL ENVOY GRAY 
 
REF: A. A. 07 USEU BRUSSELS 3488 (EU TREATY CHANGES) 
 
     ¶B. B. USEU BRUSSELS 303 (EU TREATY CHANGES) 
     ¶C. C. USEU BRUSSELS 397 (EU TREATY CHANGES) 
     ¶D. D. USEU BRUSSELS 464 (EU TREATY CHANGES) 
     ¶E. E. 07 USEU BRUSSELS 2948 (ENERGY SECTOR 
        LIBERALIZATION PROPOALS) 
     ¶F. F. 07 USEU BRUSSELS (TELECOMS LIBERALIZATION 
        PROPOSAL) 
     ¶G. G. USEU BRUSSELS 0117 (CLIMATE CHANGE PACKAGE) 
 
¶1.  The U.S. Mission to the European Union and I welcome you 
to 
Brussels for the May 13 meeting of the Transatlantic Economic 
Council.  This meeting will help realize President Bush and 
Chancellor Merkel's aspiration for greater transatlantic 
economic 
integration, but much will depend on the approach we bring to 
the 
event and on the Europeans' ability to deliver. 
 
¶2.  A few key points up front before turning to the political 
and 
institutional contexts in which your counterparts will be 
operating 
and the specifics of the meeting: 
 
-- The EU sees transatlantic economic integration as a 
strategic 
need because they are deeply concerned about the "competitive 
threat" from China, India and other emerging economies; 
-- Your counterparts want this TEC meeting to be a success. 
They 
want to build momentum so the TEC process survives changes in 
political leadership during 2009 in both the EU and the U.S. 
-- 
That said, the EU sees its market as an instrument of "soft 
power," 
and uses its "tougher" regulation in consumer and 
environmental 
protection to  create new global standards (sometimes 
consciously at 
our expense); 
-- For this reason, a key focus of the TEC for us is to help 
improve 
the way the EU regulates: minimizing unnecessary regulatory 
divergences between us depends on the EU using a transparent 
regulatory process, science-based risk assessments, 
cost-benefit 
analysis and thorough impact assessments; 
--  The EU sees the same security threat from Russia as we 
do, but 
geographic proximity and recent experiences make economic, 
energy 
and political concerns much more tangible here than in the 
U.S. 
 
We will get the most mileage out of this meeting if the 
discussions, 
in plenary as well as lunch, are "informal" and direct. 
While this 
may expose more differences than a "diplomatic' exchange, 
doing so 
will also help bring us back to our strategic need to 
cooperate.  I 
look forward to working with you on these issues when you are 
here. 
 
Your Counterparts 
----------------- 
 
BRUSSELS 00000704  002 OF 010 
 
 
 
¶3.  We understand that five Commissioners will  participate 
in the 
TEC.  In addition to the bios you have, I offer a few quick 
observations: 
 
Guenther Verheugen (Germany) - Enterprise: As the EU's TEC 
co-chair, 
has real equities in having a successful event.  Also heads 
the 
Commission's Competitiveness Council and is concerned the 
regulatory 
burden on businesses (especially as it affects key German 
industries, such as autos).  That said, Verheugen shares 
responsibility for implementing REACH, one of the most 
egregious 
examples of over-regulation.  Can tend toward reading lengthy 
remarks, but has indicated a desire for free-flowing 
discussion 
during the TEC.  As second tour Commissioner from Socialist 
party, 
Verhuegen is unlikely to be re-appointed to Commission next 
year. 
 
Peter Mandelson (UK) - Trade:  Consummate political tactician, 
credited with engineering election of Tony Blair's "New 
labor" in 
¶1997.  Wants win for WTO negotiations; has advocated stiffer 
line on 
trade relations with China, more in line , with the U.S. 
approach.  As 
UK's Minister for Trade and Industry in late 1990s, actively 
promoted U.S.-style entrepreneurship.  With a history of 
contention 
with UK Prime Minister Brown, questionable whether he will be 
reappointed to Commission next year, but unwise to count him 
out. 
Generally more sympathetic to U.S. position on trade issues 
like 
poultry and biotech than his environment and health 
commissioner 
colleagues. 
 
Charlie McCreevy (Ireland) - Internal Market: Responsible for 
removing barriers to flow of goods, services, capital and 
people 
within EU; as such, watches member state moves that could 
create 
barriers to investment internally - and externally. 
Accountant and 
former Finance Minister interested in integrating EU's 
financial 
markets.  Intent on pushing roadmap for better EU access to 
U.S. 
insurance market. 
 
Meglena Kuneva (Bulgaria) - Consumer Protection:  Ms. Kuneva 
has 
used this small but mighty mini-Directorate since its 
inception in 
January 2007 to play an activist role in completion of the 
internal 
market, setting her sights on e-Commerce, collective redress, 
IPR, 
toy safety, focusing on consumers as the EU engine.   She is a 
European liberal, a free marketer who led Bulgaria's accession 
negotiations as Bulgaria's Minister for European Affairs 
2002-2006. 
As a post graduate at Georgetown 1995, 1999-2000, her first 
 
BRUSSELS 00000704  003 OF 010 
 
 
foreign 
trip as Commissioner was to the U.S., followed by China.  She 
actively seeks intensive engagement with both CPSC and FTC to 
adopt 
their best practices to EU situations.  Kuneva has invited 
the CPSC 
Chair to join her and her Chinese counterpart in Brussels for 
product safety discussions and she is sending senior staff to 
join 
the CPSC Chair's China trip in September. 
 
Laszlo Kovacs (Hungary) - Customs and Taxation: Hungary's 
Foreign 
Minister 1994-98, 2002-2004; Deputy Foreign Minister 1986-89; 
became 
Commissioner 2004.  Responsible for the implementation of the 
Modernized Community Customs Code; which includes security 
amendments such as advance cargo manifest requirements and 
Authorized Economic Operators (AEO); as well as IPR 
enforcement. 
Kovacs has been vocal in EU and US forums in support of mutual 
recognition of AEOs and strong opposition of the 9/11 Act 
requirement of  100% scanning of containerized cargo destined 
to the 
U.S. 
 
Andrej Vizjak, Slovenia's Minister of Economic Affairs, will 
also 
attend to represent the EU Council, that is, the 27 EU member 
state. 
 Slovenia is the first of the ten "new" members (mostly 
central 
European) that joined the EU in 2004 to hold the Presidency; 
it will 
also host President Bush for the U.S.-EU Summit in Ljubljana 
on June 
¶10.  But while the Framework was the initiative of the member 
states 
- Chancellor Merkel, when Germany had the rotating Presidency 
the 
first half of 2007 - the Commission has largely taken over the 
effort and Vizjak, unless encouraged, may tend to be silent. 
 
The EU Political Context:  Uncertainty Remains 
--------------------------------------------- - 
 
¶4.    The 2005 French and Dutch rejection of a new EU 
"Constitutional Treaty" sent the EU (in particular the 
Commission) 
into the doldrums.  Russia's shut-off of natural gas to 
Ukraine in 
2006 helped rebuild momentum for strengthening the EU by 
underlining 
the importance of "solidarity" and highlighting the need for 
new EU 
powers on energy security.  This set the stage for the 2007 
agreement on amendments to the Treaty (brokered largely by 
Merkel) 
that strengthen the EU role in foreign, law enforcement and 
energy 
policy (Refs A-D).  If these amendments come into force early 
next year, 2009 
will be a watershed for Europe.  June brings elections for a 
new 
European Parliament; this will be followed by appointments of 
all 
existing and new leadership positions in the EU structure: 
the new 
position of President of the European Council, a new EU 
 
BRUSSELS 00000704  004 OF 010 
 
 
Commission 
President (quite likely Barroso again), a new team of 
Commissioners 
(appointed by the Commission President and confirmed by the 
Parliament), and a new "High Representative" for foreign and 
security policy, who will serve simultaneously in both the 
Council 
and the Commission.  A stronger EU could look to the TEC as a 
way to 
channel engagement with the United States across a broad 
range of 
economic issues, but only if the TEC is a viable forum for 
transatlantic policy discussion and strategic thinking. 
 
¶5.  Despite these changes, Member States, represented in the 
EU 
Council, are and will remain decisive in EU decision making. 
Although strong Member State leaders often challenge the 
Commission, 
many in Brussels believe that new power configurations in key 
member 
states - Merkel, Sarkozy, Berlusconi, Tusk in Poland and even 
the 
"Euroskeptic" Brown in the UK- help buttress the EU's role in 
the 
world.   The European Parliament will also be a much more 
forceful 
presence  in the near future.  The EP gains significant 
powers in 
the revised treaty, including the right to approve (but not 
amend) 
trade deals and power over law enforcement issues.  It has 
just 
negotiated a deal with the Commission and Member States to 
expand 
its in oversight of implementing regulations, including, for 
example, with respect to biotech approvals.  (The EP will 
have the 
right to review proposed regulations and reject them if the 
proposals exceed the authority in the underlying legislation.) 
 
¶6.  The Barroso Commission, which ends next year, has shot 
its last 
major legislative bolts: proposals for fundamental reforms to 
the 
telecommunications and energy sectors (refs E and F), geared 
toward 
liberalizing industries still dominated by state-owned (or 
formerly 
state-owned) firms, and a climate change package revising the 
EU's 
emissions trading scheme and setting targets for renewable 
use (ref 
G).  Each is proving rough sledding for the Commission. 
Member 
States will reject the Commission's desire for a more 
effective 
EU-wide telecoms regulator who could enforce third party 
access. 
They are also fighting hard against the Commission proposal to 
"unbundle" electricity and gas generation and distribution. 
And the 
allocation of pain under the new emissions trading scheme - 
both to 
energy intensive industries and among Member States - is 
welcomed by 
none, despite the EU's sanctimonious approach to the climate 
change 
negotiations. 
 
BRUSSELS 00000704  005 OF 010 
 
 
 
¶7.  In this milieu, you can expect your counterparts to lean 
toward 
a generally cautious approach to difficult issues - including 
some 
of those in the TEC agenda. 
 
The Bilateral Relationship - Strong, but Diffeences Still 
--------------------------------------------- ------------ 
 
¶8.  The mood in Brusels about the United States has changed 
dramatically over the last five years, when we were seen as 
trying 
to divide the Europeans and advocates for the EU as a 
"counterweight" to the United States abounded.   European 
leaders 
saw the dangers in that divisiveness, however, and warmly 
welcomed 
President Bush's 2005 initiative to strengthen the 
transatlantic 
alliance.  This much more constructive attitude still 
prevails, and 
has been heightened by the concern that the "West" is losing 
influence in a globalizing world with new emerging actors. 
 
¶9.  The EU wants to be seen as a major actor on the world 
stage.  On 
critical foreign policy issues (Balkans, Middle East, 
Afghanistan, 
Iran, Iraq, Russia), EU officials still cooperate closely 
with their 
Washington counterparts, and official EU statements generally 
say 
the right things.  This will surely be the message during the 
June 
10 U.S.-EU Summit in Slovenia, and during the President's trip 
through Europe after that.  But follow-through remains an EU 
weakness and public support for U.S. friendly policies 
remains thin. 
 Fissures are appearing as we address details - including, for 
instance, about the U.S. participation in the EU's mission to 
Kosovo.  And EU willingness to strengthen financial sanctions 
and 
implement U.N. Security Council resolutions against Iran is 
flagging 
except in a handful of Member States. 
 
¶10.  Climate change continues to divide us.  After initial 
foot 
dragging, the Europeans now support the President's "Major 
Economies" process of trying to reach agreement among key 
players on 
a new greenhouse gas emissions pact to replace the Kyoto 
Protocol. 
They want an agreement by Copenhagen at the end of 2009 and 
acknowledge this cannot be done with over 100 countries in 
the room. 
 But they cannot resist grandstanding, even when they are 
unlikely 
to meet their Kyoto commitments, never mind their new pledges 
of 20 
(or even 30) percent below 1990 levels by 2020.  And they 
still 
refuse to work with us to convince China and India to accept 
some 
form of commitment, even though they should realize the 
Senate will 
not ratify anything that doesn't commit these countries, and 
Senate 
 
BRUSSELS 00000704  006 OF 010 
 
 
staff have advised them that failure to make progress with us 
this 
year will seriously jeopardize completion of any agreement by 
Copenhagen in 2009. 
 
The Economic Context and the TEC Process 
---------------------------------------- 
 
¶11.  An EU ambivalence to the United States is bound to come 
through 
during the TEC.  The Europeans know at the strategic level 
that they 
need to work with us, and they strongly support the goal of 
the 2007 
Framework for Advancing Transatlantic Economic Cooperation. 
But 
they still often see the EU in apposition to the United 
States, 
viewing their "stronger" consumer and environmental protection 
regulations as setting a "global" standard and as the core of 
EU 
"soft power."  This combined with the Commission's increasing 
caution and an awareness that our Administration will soon 
change 
can make resolving problems difficult. 
 
¶12.  The May 13 Council, and particularly the principals-only 
lunch, 
is an opportunity to focus on key strategic priorities that 
we share 
and the need for concrete actions by the EU that can make a 
difference in transatlantic integration.  USTR Schwab's 
discussions 
with Trade Commissioner Mandelson before the TEC can help set 
the 
stage for this.  The Europeans, including Mandelson, need a 
successful conclusion to the Doha negotiations.  They know the 
window is closing, and understand they have to work with 
rather than 
against us on this.  The lunch theme of resisting 
protectionism also 
provides an opportunity to discuss seriously steps all 
participants 
can take to encourage momentum toward a deal in key third 
countries. 
 Similarly, positive steps we are taking individually and 
together 
to promote innovation, growth and competitiveness can and 
should 
come up in the protectionism discussion. 
 
¶13.  The lunch will also turn to the critical issue of our 
economic 
relations with Russia.  In Europe, these two issues are 
intertwined: 
the concerns about the bear to the East are very real, 
especially in 
the eight new central European member states, including EU 
Council 
Presidency Slovenia.  The Central Europeans acquire the vast 
majority of their energy from Russia; the 2006 cut-off of gas 
to 
Ukraine spotlighted Russia's willingness to use energy as a 
political tool.  Gazprom has blatantly tried to acquire 
strategic 
assets in these countries.   Russia's interference with 
Estonia's 
and Lithuania's electricity and internet grids last year have 
fueled 
 
BRUSSELS 00000704  007 OF 010 
 
 
these fears, as have its interference with gas supplies in 
Ukraine. 
Deep fear of Russia drove the Commission's proposals last 
year to 
prohibit third country investors from controlling gas and 
electricity transmission networks. 
 
¶14.  Fears regarding expansive engagement by Russian 
state-owned 
companies in European markets also has a significant impact 
on the 
sovereign wealth fund (SWF) debate in the EU.  We successfully 
engaged the EU this year to align their policy priorities 
with our 
regarding SWF.  However, many senior European policymakers 
conflate 
SWF issues with broader concerns regarding state-owned 
enterprises 
such as Gazprom.  We need to encourage the EU to draw sharp 
distinctions between these two types of foreign investors. 
We also 
need to continue encouraging them to limit investment reviews 
to 
situations that raise true national security concerns, as we 
do with 
CFIUS. 
 
¶15.  In discussing Russia, we should also continue to explore 
ways 
we can constructive engage Moscow to promote market 
liberalization 
there.  We work together closely on Russia's WTO 
negotiations, and 
have collaborated well on joint IPR efforts; we need to 
broaden 
this.  The EU has an extensive engagement effort with its 
neighbor 
to the East, and believes these activities will intensify with 
Medvedev.  We should use the lunch to identify opportunities 
to, 
including through the Investment Dialogue, to deepen our 
engagement, 
as we have with China after the last TEC meeting.  We need to 
find 
constructive points of leverage, such as convincing Moscow it 
cannot 
reverse the slide in oil and gas production without U.S. and 
EU 
help.  (And we need to help the Commission overcome member 
state 
resistance to the development of a common and coherent 
internal and 
external energy policy.) 
 
¶16.  We also need to take a strategic view in assessing the 
Framework.  Our bilateral economic issues with the EU stem 
largely 
from differing approaches to regulatory processes across 
sectors 
(e.g., food safety, chemicals, financial services, 
competition or 
security).  Improving the way the EU regulates - the work 
that Susan 
Dudley (and John Graham before her) and OMB/OIRA staff are 
doing on 
horizontal regulatory cooperation - is probably the most 
important 
TEC achievement to date, and still to come.  In some ways, 
the motto 
 
BRUSSELS 00000704  008 OF 010 
 
 
for the United States of the TEC should be "no more REACHes." 
 In 
part because of our stepped up cooperation on regulatory 
approaches, 
the EU in 2006 established the Commission's Impact Assessment 
Board 
(IAB).  The IAB was strengthened in February of this year so 
now EU 
Directorates cannot submit proposals to the Commission until 
IAB 
economists have approved the accompanying impact assessments. 
Further, at this TEC, OMB's Susan Dudley and the IAB Chair, 
Alexander Italianer, will discuss steps they've taken to 
ensure we 
both consider the external impacts of domestic regulations. 
We have 
also agreed to intensify discussions on conducting risk 
analyses, a 
critical underlying aspect of regulation (and where EU 
practices are 
often questionable).  Having just met the head of the new EU 
Chemical Agency, I think our efforts over the years to 
improve the 
transparency of REACH are beginning to take root. 
 
¶17.  Improving the EU's approach to regulation is one of our 
top 
priorities and should be a constant theme in all TEC 
discussions 
across economic sectors:  transparency, science-based risk 
analysis, 
thorough impact assessments, respect for a broad range of 
public 
comment, eliminating unnecessary regulatory burdens.   You 
can speak 
with authority on these issues and I encourage you to do so. 
We 
cannot make this point too forcefully to the Commission.  We 
both 
need smart regulation to improve our competitiveness and 
expand 
economic growth opportunities on both sides of the Atlantic. 
If we 
regulate efficiently, we can also minimize unnecessary 
regulatory 
divergences and regulatory burdens while promoting 
transatlantic 
economic integration 
 
¶18.  The EU has not done enough to resolve the sectoral 
regulatory 
problems that could dminate the TEC, in particular on 
poultry and 
the EU's chemical regulation, REACH.   Failure to find a 
solution to 
the REACH cosmetics issue will adversely affect  the import 
of two 
billion dollars of U.S.  exports of personal care products to 
Europe.  If we do not leave Tuesday with strong assurances 
that 
these problems will be resolved before the Summit, we should 
be 
prepared to go to the WTO.  As with EU energy policy with 
Russia, 
the major stumbling block is the continuing ability of the 
stronger 
member states to interfere with common EU-wide policy for its 
integrated internal market. 
 
 
BRUSSELS 00000704  009 OF 010 
 
 
¶19.  In contrast, where the EU has concerns with us - 
primarily 
suppliers' declarations of conformity for low-voltage 
electrical 
equipment, 100% scanning of containers and even our 
state-based 
insurance regulation - we are not breaking international trade 
rules.  We should be direct in pointing this difference out to 
them. 
 
¶20.  TEC debates on these thorny issues should not obscure 
either 
the other achievements in transatlantic integration that have 
taken 
place since the signing of the Framework last year.  These 
include: 
the horizontal regulatory issues mentioned above, the ability 
of our 
food and drug regulators to share confidential information, 
new 
agreements on cooperation on auto safety and internet 
problems, the 
joint investment policy statement the TEC will issue, joint 
action 
against IPR piracy, and a strong roadmap to improve supply 
chain 
security. 
 
New Priorities - Climate Change 
------------------------------- 
 
¶21.  The TEC is also meant to recommend to the Heads new 
priorities 
for the year ahead.  We have much to do on the existing 
agenda, but 
we should press the EU to add cooperation in energy and 
climate 
change technologies to the TEC lighthouse projects.  Much 
work is 
already underway in this area: DOE is re-invigorating its 
energy R&D 
cooperation with the EU and we are implementing strong action 
plans 
on biofuels and energy efficiency, and hope to have another 
in clean 
coal technology soon.  Adding energy and climate technologies 
to the 
TEC agenda will ensure cabinet-level attention to these 
efforts, a 
critical part of our story to a (skeptical) European public 
that we 
are working together to address climate change.  Biofuel 
standards 
could become a point of dispute as there are signs that the 
EU may 
be designing sustainability criteria to protect against 
biofuels 
imports, including even imports of ethanol from the United 
States. 
 
¶22.  Promoting growth and competitiveness through integration, 
working over the long haul to improve EU regulation, and 
cross-cutting policy level discussions that help us approach 
strategic economic policy issues are the real rationale for 
this 
Council meeting, and in that sense it is sure to be a 
success.  But 
we also need serious movement on the most contentious issues - 
poultry and cosmetics.  With your help in the TEC, I believe 
 
BRUSSELS 00000704  010 OF 010 
 
 
we can 
achieve even this. 
 
I look forward to working with you on all these issues when 
you're 
here. 
Murray 
.