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Cablegate: Uk Cabinet Secretaries and Prominent Business

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1. (SBU) Summary. The United Kingdom cannot risk disengaging
or distancing itself from Brussels. The enhanced powers of
the EU post-Lisbon treaty, the size of the market, the
shifting economic power from developed to developing
countries, all underscore the need for an engaged, committed
UK in the EU, stated all the speakers at a January 14th
conference, sponsored by Business for a New Europe and the
Center for European Reform. Foreign Secretary Miliband and
Business Secretary Mandelson also stressed the importance of
concluding the Doha trade round, preventing protectionist
measures - though Mandelson gave a mixed message on "state
aid." They also called for a climate change strategy in the
wake of what they said was a "failed" conference in
Copenhagen. Business leaders, including Richard Branson,
Founder and Chairman of Virgin, John Kerr, Deputy Chairman of
Royal Dutch Shell, Michael Rake, Chairman of British Telecom,
urged the EU to adapt policies to promote green and
innovative technologies, be more pro-business, continue
service sector liberalization, and internally police
governments that adopt anti-competitiveness policies. Several
speakers cautioned the UK Conservative Party from allowing
its euro-skeptic wing dictate its approach to Brussels. End

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The Government View

2. (SBU) All member governments of the European Union need to
wake up to a new realty: the power of the emerging economies,
which is as historically significant as the industrial
revolution, argued Foreign Secretary Miliband. The iconic
image of U.S President Obama and Chinese President Hu huddled
together, tackling global issues, at the G-20 in London and
at the climate change conference in Copenhagen, is the new
reality of shifting global power. Europe needs to ask itself
what is its role? Europe's external power rests on its
internal strength, and Europe as a continent needs to put its
fiscal house in order and to concentrate on economic growth,
in particular, by focusing less on EU institutional reform
and more on the broader economic reform agenda - liberalizing
services, including health care and legal, pursuing green and
innovative technologies, and resisting calls for
protectionism. The UK must be fully engaged with Brussels and
with other member states on EU reform, otherwise the UK risks
being sidelined and disadvantaged, argued Miliband.

3. (SBU) Business Secretary Mandelson argued against
regulatory grand-standing or heavy-handedness by Brussels.
The need was for better, not more regulation, he stated. He
viewed new EU Commissioner for Internal Markets, Michel
Barnier, as sensible and not out to undermine London as
Europe's financial center. He joked, however, that he had
seen Barnier differently when the latter was France's
agriculture minister, defending French farming interests. "I
worked very closely indeed with him," he said wryly. "In
fact, I never took my eyes off him." Mandelson stated that
the previous EU Commission was anti-London. The Alternative
Investment Fund Management Directive (AIFM) reflected a
long-standing grudge against UK hedge funds rather than an
earnest attempt at regulation, he claimed. He said, however,
he was encouraged by recent changes proposed to the AIFM, and
hoped the new Commission would recognize the City of London's
key role in promoting growth throughout Europe.

4. (SBU) Mandelson also called for increased flexibility in
EU state aid rules to allow public financing of high tech and
innovative companies, and praised the industrial policy of
France as a good model to follow. (Comment: Mandelson was
vociferous in his opposition to the Kraft bid for Cadbury,
and on January 14, called together representatives from some
major UK companies to encourage company shareholders to take
a more active role in considering take-over bids. Responding
to an inquiry from the audience, Mandelson said that
government should be able to comment on such hostile
take-overs, but side-stepped the question about government
intervention. End Comment.) Contradictorily, at the same
time, he also argued that Europe should end this year the
temporary flexibility introduced into EU state aid rules
following the financial crisis.

5. (SBU) Both Miliband and Mandelson criticized the slow pace
of progress in the Doha trade round, with Miliband calling
negotiations "lifeless" and pointing to the resistance of
some "major economies" to engage in serious talks. Mandelson
described the Doha round as a source of immense personal
grief, and said that failure would deal a crippling blow to
the multilateral trade regime. Many countries already have
given up on this process and are striking bilateral deals
that actually could impede global trade, Mandelson argued.

LONDON 00000164 002.2 OF 002

The Business View

6. (SBU) The EU should follow the Hippocratic Oath: Do no
harm with its regulations, said Lord John Kerr, Deputy
Chairman of Royal Dutch Shell. He expressed concern that the
EU is not spending enough on infrastructure, innovation and
research. Percentages spent on these lagged the U.S., China,
and many other countries. He called the concept of binding
emissions targets nonsense, arguing that in the absence of
punitive measures against those who fall short, the targets
are meaningless. Germany is the biggest obstacle to pursuing
an EU energy security policy that lessens dependence on
Russian oil and gas. The EU has managed its relations with
Russia in general very badly, with too many individual states
pursuing their own agenda. The Germans also are dragging
their feet in allowing the EU to pursue nuclear energy, he

7. (SBU) Helen Alexander, president of the Confederation of
British Industries, also criticized the EU for its failure to
police governments that do not completely fulfill regulatory
requirements. Too many governments get just a slap on the
wrist when adopting protectionists measures. Richard Branson
of Virgin and Michael Rake of British Telecom also called for
greater expenditures on research and development, especially
in the innovative and green technology industries.

Advice for the Conservatives

8. (SBU) There is genuine concern in Brussels how the
Conservatives, if they win the general election, will engage
with the Commission and Parliament, said George Parker,
Political Editor, Financial Times. The Tories need to
understand how influential the European Parliament is and
will be, and how ill-advised it would be to disengage from
Brussels. The Tories also need to understand and use wisely
Britain's soft power and influence in Brussels, which Parker
noted, has been too often downplayed by the British press and
commentators. Without the UK's active engagement, the EU
would have been more anti-business and less competitive, and
would have less flexible labor markets and liberalization of
services. These same pressures are back, and without the UK's
involvement, the EU market could reflect the worst tendencies
of individual member states.

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