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Cablegate: Does Russia Want the International Science and Technology

VZCZCXRO6648
RR RUEHAST
DE RUEHMO #2917/01 2760346
ZNR UUUUU ZZH
R 020346Z OCT 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 0197
INFO RUEHTA/AMEMBASSY ASTANA 0201
RUEHDBU/AMEMBASSY DUSHANBE 0095
RUEHEK/AMEMBASSY BISHKEK 2613
RUEHKV/AMEMBASSY KYIV 0292
RUEHSI/AMEMBASSY TBILISI 3892
RUEHYE/AMEMBASSY YEREVAN 0517
RUEHAST/USO ALMATY 0007

UNCLAS SECTION 01 OF 03 MOSCOW 002917

SENSITIVE
SIPDIS

DEPARTMENT FOR ISN/CTR AND EUR/PRA

E.O. 12958: N/A
TAGS: PARM KNNP PARM TBIO TSPL MNUC EAID TRGY PGOV OSCI
TPHY, TSPL, RS
SUBJECT: DOES RUSSIA WANT THE INTERNATIONAL SCIENCE AND TECHNOLOGY
CENTER?

REFS: A. MOSCOW 2883
B. MOSCOW 1631

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

1. (SBU) SUMMARY: Post understands that the Department is
considering the future direction of the International Science and
Technology Center (ISTC), in consultation with ISTC international
partners. Key local contacts over the past month have indicated
that although powerful forces would like to shut ISTC down in its
current incarnation and perhaps altogether, the GOR has yet to
arrive at a coherent position on ISTC's future. We believe there is
still time for Washington to work with the other ISTC partners to
prevent ISTC from being crippled by an upcoming GOR decision on
taxation and to resolve other political and bureaucratic challenges.
END SUMMARY.

------------------------------
RUSSIA STILL UNDECIDED ON ISTC
------------------------------

2. (SBU) Rosatom Deputy Director Nikolay Spasskiy told the DCM in
August, "You have to stop saying that ISTC is intended to employ
unemployed or underpaid Russian scientists so they don't go sell
their skills to Hezbollah and Al Qaida." Although the DCM denied
that the Embassy was making such comments, Spasskiy argued that the
U.S. had said similar things on many occasions in the past. He
stressed, "Russia can pay its own scientists and in fact has lots of
good work for them. The ISTC needs to be refocused and rejustified
as a partnership in both countries' interest."

3. (SBU) Spasskiy's comments reflect thinking on ISTC at higher
levels in several agencies. There seems to be a tussle between
those who want to save an ISTC with a broadened mandate and those
who want to kill it outright or through a slow death by bureaucratic
strangulation. None of our contacts believes ISTC should remain
focused solely on nonproliferation. In a meeting on September 29,
ISTC's Executive Director, Adriaan Van der Meer, described the wide
range of comments on ISTC from his Russian contacts, ranging from
solid support to extreme suspicion. The scientific community and
some Rosatom contacts contend that ISTC is a vital player in science
and technology cooperation and functions more effectively than
bilateral activities. On the other end of the spectrum, Federal
Security Service (FSB) officials and some at the MFA view ISTC as a
"Cold War instrument" that is stealing Russian know-how without
compensating Russian scientists for their intellectual property.
Van der Meer was horrified when the chairman of the commission at
the Russian Academy of Sciences responsible for approving ISTC
projects asked him only a week ago whether ISTC still existed.

4. (SBU) Aleksey Ubeyev, the acting director of Rosatom's
international department, told us on September 19 that the Russian
interagency is still trying to work out a coordinated position on
ISTC, joking that "in Russia, it is more difficult to close down an
entity than it is to establish one" (REF A). A working-level
contact at Rosatom's international department told us on September
30 that the MFA is engaging with the Finance Ministry to ensure that
ISTC maintains its tax-exempt status as an inter-governmental
institution (see below). The same contact, however, told us
approximately two months ago that then-Deputy Foreign Minister
Sergey Kislyak was a strong opponent of ISTC, and that the MFA would
likely be more favorably disposed toward the Center once Kislyak had
relocated to Washington as Ambassador.

---------------------------------
AN IMPENDING DECISION ON TAXATION
---------------------------------

5. (SBU) On September 26, Russian Academy of Sciences (RAS)
Vice-President Nikolay Laverov warned us that the Government of
Russia (GOR) is poised to deny tax-exempt status to ISTC (septel).
Decree Number 485 signed on June 28 by Prime Minister Putin cuts the
list of foreign grant-making organizations from approximately 100 to
12, all multilateral entities. The GOR is reportedly preparing a
new list, and previously tax-exempt organizations not included in
the new list will be liable for taxes beginning January 1, 2009.
Laverov said this decision would effectively kill ISTC, as the
Center's international partners would refuse to have their payments
to ISTC taxed in excess of 30 percent. Laverov expressed sadness,
saying that he had participated in establishing ISTC and had always
been a fervent supporter of the institution.

MOSCOW 00002917 002 OF 003

6. (SBU) Van der Meer was surprised and disappointed when we
conveyed Laverov's remarks, noting that although he has not been
informed of an official decision to remove ISTC's tax exemptions, he
had heard informally from MFA and Rosatom contacts that such a
decision might be coming. He said that ISTC has been lobbying the
MFA behind the scenes and provided MFA with ISTC's legal analysis
that the decree does not pertain to the Center because it was
established by international agreement. Although the MFA's legal
department has agreed orally that the decree should not apply, it
has not provided ISTC with a document to that effect.

----------------------
ISTC'S MANY CHALLENGES
----------------------

7. (SBU) ISTC faces many challenges besides the possibility of
crippling taxation. Van der Meer cited the issue of "inefficiency"
in obtaining host government concurrence on project proposals, with
an average of 400 days elapsing from the date of a project proposal
submission until concurrence. ISTC projects must receive
concurrence by the relevant Russian agency: Rosatom (for nuclear
projects), or RAS (for everything else). Approvals have slowed to a
relative trickle since 2006. The 20-25 project proposals that
Rosatom has approved and that now await ISTC Board approval are all
very non-sensitive, with no hint of any dual-use purpose. RAS
assured Van der Meer that it would convene its committee in early
October and approve a number of projects for Board consideration.

8. (SBU) Our GOR contacts suggest that these delays may be due
largely to political inertia, as the GOR has not designated a single
lead agency for ISTC issues. Almost two years ago, the GOR resolved
to establish an interagency commission on interaction with ISTC,
which in turn was to authorize entities to issue host government
concurrence. Over the past year, the Ministry of Science and
Education, RAS, and Rosatom were all considered as possible lead
agencies. Laverov told us that he made an attempt to have RAS
designated, but other forces in the government did not support the
proposal. Laverov noted pointedly that Science and Education
Minister Andrey Fursenko did not volunteer his ministry as the lead
agency and added that there are serious doubts whether Rosatom,
which is a state-owned corporation and no longer formally part of
the government, can legally serve as lead agency. Because the
question of what agency should be the lead for ISTC has not been
resolved, agencies have issued few host government concurrences. In
June, we invited the MFA to convene bilateral discussions on how to
transform ISTC's mission (REF B). The proposed dates for the talks
have repeatedly slipped for various reasons, and we are now awaiting
a GOR response on a proposed date in late October.

9. (SBU) Finally, Van der Meer cited the challenge of financing
ISTC's operations. He noted that the institution suffers from
excessive personnel costs and a significant number of
underperforming staff. Shedding this institutional dead-weight, he
said, is made difficult to impossible by Russia's restrictive labor
laws. He also leveled sharp criticism against the USG, which he
said had reduced its core funding of ISTC. He suggested that the
USG should back up its rhetorical support of the Center with greater
financial backing. Unless the U.S. party increases its project
funding, he said the Center would need to consider reducing its U.S.
expatriate staff. He knows that the EU has also been looking
critically at the disproportionate amount of U.S. staff at the
Center.

---------------------
POSSIBLE WAYS FORWARD
---------------------

10. (SBU) Van der Meer said that he wants to force a bold departure
for ISTC to break out of the current stalemate. He would like to
host a strategy session of the principal partners before the ISTC's
December board meeting to discuss the Center's future. If ISTC
remains in Russia, Van der Meer sees three possible options: (1)
Gain Russia's active buy-in to make ISTC into an international
center of excellence for non-proliferation that would make its
know-how accessible to other countries. This means that ISTC would
need to find new funding sources. (2) Alternatively, ISTC could
become an international center for science cooperation addressing
global security issues, such as safer nuclear energy, biomedical
research, global security and counterterrorism, climate change
research, and development of alternative energy. (3) ISTC could

MOSCOW 00002917 003 OF 003


change its regional focus to Central Asia and the Caucasus.

-------------------
COMMENT: ENGAGE NOW
-------------------

11. (SBU) In order to keep ISTC as a vital instrument of
international cooperation in nonproliferation and other scientific
research and development activity, the U.S. needs to act before the
Russian government makes a decision on ISTC's future. We agree that
ISTC should be transformed in place to meet the needs of its
partners. But to meet Russia's needs, ISTC's mandate will need to
be broadened beyond nonproliferation, which means that partners,
including Russia, will need to find new sources of funding.

12. (SBU) Post supports Van der Meer's proposal of an informal
roundtable meeting with all the parties, including Russia, before
the December ISTC board meeting. Post agrees that it would be
useful for the Department to express to key GOR contacts and ISTC
partners our interest in exploring broadening ISTC's mandate, even
though Ambassador Kislyak may not be the most supportive audience.
Hopefully, doing so will not precipitate a GOR decision that we
would not like.

13. (SBU) For its part, post has already requested an appointment
with the head of the Ministry of Science and Education's
International Department Nichkov for EST Counselor and a meeting
between Ambassador Beyrle and Minister Fursenko in the coming days.
Post also recommends that Department and post work with ISTC to
develop a list of ISTC accomplishments outside the field of
nonproliferation that were spurred by nonproliferation-related and
non-nonproliferation-related funding. This might help reinforce the
position of those who would like to save ISTC.

BEYRLE

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