Cablegate: Sanctions On Eu Products Due to Hormone-Beef Ban

VZCZCXRO3491
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHFR #2317/01 3581307
ZNR UUUUU ZZH
O 231307Z DEC 08
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5127
RHEHAAA/WHITE HOUSE WASHINGTON DC IMMEDIATE
INFO RUEHRC/USDA FAS WASHDC IMMEDIATE
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 PARIS 002317

WHITE HOUSE FOR USTR WILLIAM BUSIS AND AUSTR JAMES MURPHY
USDA/FAS FOR OA/YOST/JACKSON/ROSADO;
OCRA/HALE/NENON;
ONA/RIEMENSCHNEIDER/YOUNG
OSTA/MACKE

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EAGR FR
SUBJECT: SANCTIONS ON EU PRODUCTS DUE TO HORMONE-BEEF BAN

1. (SBU) Summary and Action Request: Embassy Paris recommends
modification of proposed list of French exports targeted under
revised sanctions. Country Team believes that, to be effective,
sanctions need to target major corporate interests with political
clout. Sanctions that target artisanal products tend to rally
popular and political support for the small farmers impacted against
the USG. Products currently proposed for targeting, including
Roquefort cheese, truffles and foie gras, are luxury items with
relatively inelastic demand. As such, much of the retaliation's
cost actually falls on U.S. consumers who purchase these items
regardless of price. Embassy proposes an alternative list of
products that will have greater economic impact on significant
French exporters.

2. (SBU) Embassy Paris supports aggressive retaliation against
WTO-illegal trade barriers maintained by the European Union. France
is one of the main culprits in fostering protectionism in
agriculture, especially by means of non-science based import
restrictions. Embassy has documented GOF efforts to promote an
EU-wide system of agricultural standards based on "societal
preferences" as determined by appointed experts or elected
officials. This initiative is intended to modify both scientific
evaluation and consumer preference as determined in the
marketplace.

3. (SBU) In order to be effective, Embassy has argued that USG
retaliation needs to target those French interests which can exert
influence on GOF decisionmakers. France is Europe's largest
agricultural producer and exporter and both the legislature and the
executive are focused on agricultural interests. However, the food
culture of France is also highly attuned to the uniqueness and
cultural importance of specific products, usually produced in an
artisanal fashion in a distinct geographic region. France as a
nation will die in a ditch before compromising on such products.
The current proposed retaliation list targets one export category -
feed grains - of real economic interest with no cultural
constituency. Mineral and aerated water, which appears in Annex II
of the Federal Register Notice, would also be an effective target
because it would marshal the corporate giants (see para 8E below) to
pressure the French government to change its position. However the
list also targets three products high in public sympathy: Roquefort
cheese, foie gras, and truffles.

4. (SBU) Roquefort cheese has been subject to a 100 percent duty
since the beginning of the current case. The cheese is produced
from sheep milk by a handful of cooperatives and independent farmers
in one of France's relatively poorer and more isolated regions. The
sheep industry in general is under considerable pressure since sheep
are raised in marginal grazing regions, and shepherds tend to be the
least well off members of France's agricultural sector. In fact,
this sector was recently recognized as one of the few "economically
endangered" sectors warranting special treatment during the
wide-ranging review of EU ag policy conducted under the French EU
presidency. Agricultural Minister Michel Barnier, who pushed for
this recognition, is from a mountainous region and is extremely
sympathetic to the shepherds' plight. Further, French farm activist
Jose Bove comes from the Roquefort producing region. While he is
the most militant activist against USG agriculture interests, he
also has very considerable public sympathy in France. The initial
imposition of the Roquefort duty led to Bove's destruction of a
McDonalds, helping him burnish his image as a protector of artisanal
French agriculture against what is perceived as the American
industrial agricultural model.

5. (SBU) Despite the difficulties of the ovine sector, Roquefort
cheese is generally acknowledged to be the king of the world's blue
cheeses. Despite the 100 percent duty, American imports of
Roquefort grew by 37 percent in 2007. While increasing this duty to
300 percent would certainly cut down U.S. demand, we suspect that
the cheese will continue to be imported and the cost of the sanction
will continue to be borne by American consumers rather than French
exporters.

6. (SBU) Foie gras is a similar product. While most French foie
gras is processed and exported by a handful of large firms, the
ducks and geese are raised by small farmers from a number of
France's most scenic regions. This is not a large scale
agro-industrial product. We also note that the largest foie gras
exporter, Euralis, has been one of the most vocal advocates in favor
of biotech corn.

7. (SBU) This brings us to truffles. Truffles are an exclusively
artisanal product gathered by peasants combing the oak groves with

PARIS 00002317 002 OF 002

their truffle hounds. The price of premium black truffles is
extraordinary, and the product itself symbolizes luxury. U.S.
Customs data indicate only a few kilos worth of imports in 2007,
making this a totally symbolic gesture. For those few Americans who
consume truffles, more expensive is probably better. As a result,
we forecast that taxing truffles will have minimal impact on exports
with American consumers absorbing the cost of the sanction.

8. (SBU) Embassy has identified a series of significant French
agricultural exports which have little public, patriotic or symbolic
importance but which represent substantial revenues for major firms
as follows:

A. Wheat gluten: HS Code 11090090. France is the largest supplier
(followed by the Netherlands) with few industrial suppliers,
including Roquette and Amylum. 2006 value: USD26.6 million

B. Enzymes: HS Code 35079070. France is the fourth largest
supplier. Several large companies supply this market. Many enzymes
are co-products of wheat starch and wheat gluten industry. 2006
value: USD24.5 million

C. Vegetable saps and extracts: HS Code 130219. France is third
largest supplier after China and India, due to its strong food
processing industry. 2006 value: USD29.1 million

D. Food preparations, Food Preparations Not Elsewhere Specified or
Included, Not Canned Or Frozen: HS code 2106909998. France is
second largest supplier after Canada. 2006 value: USD41.2 million

E. Mineral and aerated waters: HS code 220110. France is largest
supplier to the US. The two major mineral water companies are Swiss
Nestl and French Danone. 2006 value: USD81.4 million.

9. (SBU) Embassy requests Washington agencies modify proposed list
of sanctions on French products with respect to Roquefort cheese,
Prepared or preserved liver, and Truffles. Embassy recommends that
future retaliation against France include consideration of products
listed in para 8 above. Embassy recognizes that the current
retaliation must be based on items listed in the Federal Register
notice and recommends that Washington target Mixed feed or mixed
feed ingredients used in animal feeding; and, if possible, Mineral
and aerated waters.

PEKALA

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