VZCZCXRO1157
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHC #0951/01 3191331
ZNR UUUUU ZZH
R 141321Z NOV 08
FM SECSTATE WASHDC
TO EU MEMBER STATES COLLECTIVE
INFO RHEHAAA/WHITE HOUSE WASHINGTON DC 3739

UNCLAS SECTION 01 OF 02 STATE 120951 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EUN ECIN ECON EFIN ETRD EINV
SUBJECT: U.S.-EU INVESTMENT DIALOGUE MEETING, OCTOBER 14, 
2008 
 
¶1. Sensitive but unclassified, entire text. 
 
¶2. (SBU) At the third face-to-face meeting of the U.S.-EU 
Investment Dialogue (EUID) in Washington, D.C.,  U.S. and 
Commission participants agreed that soverign wealth funds 
(SWF) must demonstrate their commercial orientation, rather 
than pursue strategic goals, to obtain equal treatment from 
recipient countries. Treasury Deputy Assistant Secretary Nova 
Daly reminded EU officials that new U.S. procedural 
requirements for strategic foreign investment will speed 
reviews. U.S. and EU teams also agreed on outreach strategies 
for work iwth India, China and Russia.  Treasury DAS Nova 
Daly led the U.S. delegation, and Mauro Petriccione, Director 
of Services and Investment at Directorate General for Trade 
led for the Commission. 
 
Sovereign Wealth Funds 
 
¶3. (SBU) Participants reviewed the extensive OECD work on SWF 
recipient country principles, including stressing 
transparency, proportionality and accountability and using 
peer monitoring to review recipient country policies.  The 
group also discussed IMF-facilitated work within the 
International Working Group (IWG) of SWFs on best practices. 
Treasury reported that many SWFs have little experience with 
multilateral negotiations but have made major progress in 
discussing global standards.  U.S. and Commission 
participants agreed that SWFs must demonstrate their 
commercial orientation, rather than pursue strategic goals, 
to obtain equal treatment from recipient countries.  The IWG 
will discuss next steps. 
 
(SBU) The EU suggested keeping SWFs as a standing agenda item 
and adding investments from state-owned enterprises (SOE) to 
accommodate a running dialogue. 
 
Bilateral Investment Barriers 
 
¶4. (SBU) The EUID participants discussed bilateral barriers, 
including a Treasury report on improvements to the Committee 
on Foreign Investment in the United States (CFIUS) process, 
under the Foreign Investment and National Security Act of 
2007, in which 84% of the 147 cases closed within one 30-day 
review.  The Commission noted that some EU investors still 
see U.S. procedural requirements as excessive, particularly 
the information that would be required under the proposed 
regulations.  Treasury noted that the information requested 
under the proposed regulations reflected current practice and 
that requesting it in advance would speed reviews. Both sides 
discussed the value of the Transatlantic Economic Council 
considering the nexus between national security concerns and 
investment. 
 
¶5. (SBU) The Commission reported progress on Council 
discussions of the proposed &3rd Energy Liberalization 
Package.8 The Council has moved away from a &third 
country8 clause that imposed a higher barrier for non-EU 
investors in energy transmission assets, favoring 
case-by-case assessment by national regulators.  The 
threshold for the assessment would be &security of supply8 
and investor compliance with EU unbundling rules.  The 
Commission also reported the Energy Council approved a 
&level playing field8 clause preventing vertical monopolies 
from buying newly unbundled energy assets.  Closure on 
details of Commission &advice8 to national regulators is 
likely to delay final agreement. 
 
¶6. (SBU) On the proposed German investment review law, which 
would allow rejection of foreign investment in German 
"strategic sectors," DG Internal Market (MARKT) has 
informally told the Germans it was overly broad, but DG MARKT 
will determine the law,s compatibility with EU law after it 
is approved (likely in Spring 2009).  Petriccione said the 
final language may not explicitly conflict with EU law, but 
its application may. 
 
Third Country Investment Barriers 
 
¶7. (SBU) EUID participants discussed trade barriers in China, 
India and Russia.  USTR reported that the U.S. and China 
launched Bilateral Investment Treaty (BIT) negotiations in 
June 2008, but there is no expectation of rapid progress. 
Eileen Hill of the Department of Commerce noted that the 
recently-held Joint Commission on Commerce and Trade meetings 
covered key sectoral investment issues; for example, China 
gives preference to Guangdong firms over foreign firms for 
 
STATE 00120951  002 OF 002 
 
 
SOE software purchases but complains about U.S. procurement 
discrimination against China without offering examples.  Both 
sides have questions on the Chinese Anti-Monopoly Law (AML), 
particularly the security review authorized by Article 31, 
which China has yet to describe in detail.  Petriccione said 
investment is one of the EU,s major strategic concerns with 
China, and sees some regression in China,s commitment to 
open markets.  The Commission plans to hold investment 
seminars in China and would welcome U.S. participation.  The 
Commission seeks U.S. views on China,s understanding of key 
issues.  Both sides agreed to hold a dedicated DVC on 
investment issues in China, including the AML. 
 
¶8. (SBU) On India, the Commission just completed the 5th 
round of EU-India FTA discussions, including an investment 
chapter.  The 6th round will be in India in November.  The EU 
seeks to remove India's 49% foreign investment limit for 
firms, and wants progress in the postal, banking and 
insurance sectors.  Josh Kallmer of USTR noted that the U.S. 
held exploratory BIT talks with India in February and June; 
the first round of negotiations may be in December.  DG Trade 
noted that the communists have left the GOI ruling coalition, 
providing a chance to discuss key issues before parliament 
goes out of session in late November.  Most key GOI players 
favor investment reforms but are constrained by political 
concerns.  Both sides agreed their missions in India would 
share information on their respective talks with the GOI. 
 
¶9. (SBU) On Russia, Petriccione expressed EU concerns over 
the new Russia strategic sectors law (SSL).  The financial 
crisis has hit Russia hard, with investors fleeing and GOR 
rhetoric hardening.  The best approach would be to keep 
discussions technical, offering practical advice to Russian 
officials.  The Commission is modulating the speed of 
partnership and cooperation agreement (PCA) negotiations 
(including on investment) with Russia in the wake of 
developments in Georgia.  Petriccione sees no WTO accession 
progress with Russia.  Russia is also raising timber export 
duties, a problem for Central European Member States.  The EU 
has postponed broad investment discussions with Russia. 
Kallmer of USTR replied that the U.S. has halted BIT 
discussions with the GOR and tension is high.  Both sides 
agreed to consult on their respective working-level 
approaches. 
 
Stakeholder Outreach 
 
¶10. (SBU) Both sides agreed to improve stakeholder outreach, 
particularly with the Transatlantic Business Dialogue (TABD) 
and Transatlantic Consumer Dialogue (TACD.)  The group agreed 
to solicit information on specific business impacts of 
investment barriers, and to systematize responses to 
stakeholder input.  Several participants agreed on the need 
to seek greater responsiveness from consumer groups. 
Treasury set up an out-brief for TABD and TACD the following 
day. 
RICE