U.S.-EU Economic Issues

MODERATOR: Ladies and gentlemen, we want to thank Ambassador C. Boyden Gray, our Ambassador to the European Union, for being here today. The Ambassador is on a bit of a tight schedule. He has about 35 minutes to spend with us or 30 minutes to spend with us. So would you like to start this off with anything, any remarks, or just open it up?

AMBASSADOR GRAY: Well, just simply say that the meetings -- there have been three major meetings that have taken place -- [European Union High Representative Javier] Solana's visit and [German Chancellor Angela] Merkel and then [European Commission President Jose] Barroso with other key officials from the European Union, and so quite heavy traffic. And I think the meetings went very, very well and the relationship is very solid and working very productively. And I think this is something that doesn't really get out in the press about how close the relationship is and how well it's working. And I hear European diplomats say that the relationship has never been better than it is right now. So there are lots of economic ties that undergird this, of course, and the economic dialogue is very, very rich, full of -- not full, but you know, containing certain potholes, but things are moving forward.

And one of the big potholes, of course, is trade, but I myself personally am really confident that we're going to get a deal. The President is absolutely committed to it, made that clear in recent days very, very strongly. And the reason why I think it's going to happen is because the whole alternative energy renewables revolution is gaining such traction, especially in this country, slowly now in Europe, that it's going to absorb this excess agriculture capacity to, I think, take agriculture off the table as a sticking point between the two continents.

And indeed, you're running into questions now from environmental groups where we're cutting too much into the food production. Well, you can't have it both ways. You can't be flooding the world market with surplus and cutting into the food production at the same time. And the minute, I think, when we begin to hear questions about the food supply being strained, you know that this problem is on its way to being solved as a surplus subsidy problem. So that's why I'm very, very confident that we're going to get our deal ultimately. And that, I think, will unlock a lot of other things which will be very, very positive. And the President said that Germany's proposal to work harder at getting rid of not only trade constraints but the regulatory disconnects, which is very, very important for the long-term future, that that will have to await resolution at Doha. But I think once that -- once Doha is resolved, then you'll see a greater engagement on the long-term regulatory issues which are very, very difficult. But that's why it needs high-level attention.

So that's the economics, but on the diplomatic front or security front enormous cooperation on every issue. And whatever one might say about the past in Iraq, the Europeans are obviously not going to put troops into Iraq, but they will be ready to help us with reconstruction if we can provide the security.

So and there's obviously enormous cooperation on Lebanon, on Palestine, on Iran and on all the other issues -- Darfur, Somalia, even Afghanistan now, a renewed -- I think renewed or commitment by the Europeans to deal with the issues there. So that would be my introduction.

QUESTION: One of the issues that the U.S. had been pressing the Europeans on is this whole issue of the banking system and Iran. Did that come up in the meetings at the White House and is there any coherence on that issue?

MODERATOR: I'm sorry. When you ask a question, could you just identify yourself?

QUESTION: Sure. Mark Drajem at Bloomberg.

AMBASSADOR GRAY: So where do you -- I mean there is, I think, an appreciation by the President that the efforts that have been made to -- in Korea and now to a lesser extent but still happening in Iran have had some success and some traction in forcing Korea to be a little more cooperative, and we hope that -- we see the result -- some results in Iran and just hope that maybe they will also become more cooperative.

QUESTION: But are the Europeans being cooperative in that? The Europeans --

AMBASSADOR GRAY: Yes, yes. I mean, how actively engaged are they pressing? I can't -- I don't have an answer to that because I don't know the details of what Treasury has done with the banks. They, of course, are private sector. Not sure if they are being cooperative, and not being discouraged by their host governments.

QUESTION: Markus Ziener, German news business daily Handelsblatt. What makes you confident that we're going to see a breakthrough in -- on Doha? You seemed pretty optimistic.

AMBASSADOR GRAY: Well, I think the most important thing is the President's commitment. I mean, I think that, you know, he's looking -- staring Mandelson in the eyes, staring his own trade rep in the eyes, saying get this done. And you don't have that kind of direct presidential staring in the face occur so often, so I think the President's commitment makes a huge difference. And there's no question about Barroso's commitment to it or Mandelson's commitment to it on their side. So that's the political construct.

But what I was saying -- I'll repeat it -- because maybe I have to repeat it because people just don't understand it. We are undergoing now in this country what the chief economist at the Department of Agriculture has described as the most profound change in American agriculture in 200 years. I repeat, the most profound change in American agriculture in 200 years. That profound change is opening up new markets for surplus agriculture and that is what I think is ultimately going to take agriculture off the table as a sore point between the two continents. This revolution has not yet gained the same kind of traction in Europe as it has here, but I'm told just this morning that in Germany they're building ethanol plants and biodiesel plants faster than they can get equipment to construct with. And that's what I'm saying. And as I said, the new Chairman of the House Agriculture Committee says that the new farm bill will be driven by renewables. It will be a renewable-driven farm bill. And that means that the Democratic Congress is not going to interrupt this profound change; they're going to help accelerate it.

QUESTION: My name is Daniel Anyz. I'm with Czech daily paper Hopodarske Noviny. But do you think that the process is already that quick that it could be done in the timetable like till the end of June? Because I think there is some delay in the change of -- you have to build the plants, you have to buy the corn and it could take months and -- or years to create the demand. But there is a timetable when the Congress is about to prolong or maybe pass Mr. Bush's ability to make the trade deals? So isn't the time too short?

AMBASSADOR GRAY: The commodity prices in the United States are already up sufficiently to allow for a reduction in the subsidies. They're already up enough today now, as we speak, and the question is whether -- how long-sustained that will be. It's not a question of how fast we can get it going. It's already going. The question is how long will it be prolonged. Will it last more than a year? And what I'm saying is when the Democrats, the leading Democrat in the Congress says the farm bill which will determine farm issues for the next five -- I don't know how many years -- when he says it's going to be renewable-driven, he -- and this, I think, echoes something Senator Harkin said last week or two weeks ago.

When you have the chairmen of the two committees saying the same thing, it means that the Democrats are not going to slow this thing down, they're going to accelerate it or at least keep it going. And then I think you see what the Senator from Montana - Baucus -- wrote in the Wall Street Journal signaling that they are not going to block this multilateral -- the development round trade regime. Whatever difficulties there have been in the past over certain bilateral deals over environment and labor and whatnot, I do not -- I think the signal in that article is they are not going to hold up this development round.

So the change in control in the House and Senate is not going -- the perception beforehand was oh, gee whiz, it's going to make life more difficult for trade. All I'm saying to you is I think no, I think it -- I'm not sure it makes it better, but it's certainly not going to make it more difficult. And I don't think the Democrats are going to block a trade deal. And I think the underlying driver is going to be accelerated.

QUESTION: May I have a follow-up? So would you expect that the breakthrough could be made till the end of June?

AMBASSADOR GRAY: Well, I'm not involved in the details so I'm skeptical -- when I say there's going to be -- I'm skeptical that they can wrap it all up and do it, but I also believe that they'll be close enough that they will be able to get an extension of TPA (Trade Promotion Authority) for this purpose to allow it to happen before the end of the year. It might be a temporary extension of TPA for this purpose, but I believe that they'll be close enough to get that extension if they don't actually have it done by then. So much depends on what the Europeans do for market access. All of you are familiar with these issues. But I thought that Mandleson was very open about their flexibility on market access in these meetings, so that's why -- one of the reasons why I'm so confident. I'm not going to put words in his mouth, but I thought I saw more flexibility on his part than I have been aware of in the past.

QUESTION: Brian Beary from Europolitics. Can I just go back to the point on the renewables, because if the agricultural land has been transformed so that it's used more to produce fuel than food for people, will the subsidy issue not still recur because the farmers will still be getting huge amounts of subsidies on their crops will be used to produce ethanol and --

AMBASSADOR GRAY: But understand in the United States the subsidies are structured differently than they are in Europe. I think they're output-related in Europe, but in the United States they're price-related. So if the price -- if the farmers are getting a good price for their crops, they don't get a subsidy. Does that make any sense?

QUESTION: You're saying that the whole issue gets taken off the table simply because the crops are being used more for ethanol --

AMBASSADOR GRAY: They're getting a better -- because they have more markets for their -- they're getting a better price for their crops.

QUESTION: But surely the subsidies for the ethanol industry are going to become the next issue then, rather than --

AMBASSADOR GRAY: It's possible. But the subsidy for the ethanol is less than the subsidy for the corn, so you save money in the process. I mean, yes, there are more ethanol subsidies as ethanol production grows, but there are less corn subsidies. And the increase in ethanol subsidies is less than the decrease in the corn subsidies. Does that make any sense?

But that's not being attacked by the Third World. The ethanol subsidy is not being attacked. Now, there's some question to be sure about -- which is really separate, about the ethanol tariff that, you know, makes it hard for Brazil, say, to import or export ethanol into the United States. That's a separate issue, but right now I don't think Brazil's got the capacity to export a whole lot to the United States anyway.

But the ethanol subsidy today is not an issue in these -- it hasn't been an issue for years. I don't see any reason why it becomes an issue in the future just because the production goes up.

QUESTION: What you say makes a lot of sense. It doesn't seem that American farmers have bought onto this yet, though. Have they? The Farm Bureau is meeting this week and saying we want the same farm bill to get extended for another five years. Do you get any sense that farmers have --

AMBASSADOR GRAY: I think the corn growers have understood this. The corn growers understand very well what the issues are. Now, the American Farm Bureau I can't tell, but I think the corn growers understand. And that's the principal commodity at issue. I mean, that's where almost half the subsidies are for corn and that's where the principal increase in price has come. And so I say market access remains a problem for the industry generally, which is why market access becomes -- is important for farmers generally. But that is -- and that's where the Europeans have to make flexible changes.

QUESTION: What difference did it make that the EU presidency is now in the hands of Germany, because it's a different way than Finland and especially a different agriculture? So did it make any difference in the approach of European Union?

AMBASSADOR GRAY: I don't understand.

QUESTION: After Germany took the presidency, whether it pushed like new dynamic in the process or -- of the negotiations? But as Angela Merkel was here it was kind of startup of the new negotiation or --

AMBASSADOR GRAY: Sure, it's all of a piece, but the President has been very anxious to get this done. He made a big push in the summit in Austria, in Vienna in June and he's been very keen to do this. It hasn't been publicly understood perhaps, but I'm telling you that he's been almost obsessed with this. That may be too strong a word, but it's never -- he's never faltered in his efforts to get this.

But it's equally important for the Europeans. And I don't think Mandelson has ever faltered in his effort to get it throughout all of the presidencies. Merkel comes in and supports it. I don't think she's adding anything, but she certainly is keeping up the pressure, and then Barroso, of course, with his visit. So did Merkel add anything new? I don't think she added anything new. It's just continued pressure to get this done, which is why I think when you have this pressure from both sides politically, the negotiators are going to do it. And I suppose it's possible that the farm groups will -- back to your question -- will balk at it, but I don't think the farm community doing as well as it's doing now, these commodity groups especially, that there will be a problem. Again, Europe has to come in and be more flexible on market access for other farm products in order to make this work.

QUESTION: Yasmin Schulten, German press agency. Yesterday at the press briefing Mr. Mandelson talked about the window of opportunity that it is there right now and only for the first quarter of the year to get an agreement between the EU and the U.S. And he talked about that after that window of opportunity if we do not get it done during that time that it will be possible, kind of very hard to reopen that window. Do you think it's possible to sign an agreement within this quarter of the year?

AMBASSADOR GRAY: Yes. I'm now repeating myself, but I do believe maybe you can't finalize it by the technical deadline of the TPA and you have to actually finalize it some weeks before then for technical reasons. And I do believe that they'll be close enough if they can't finish it -- be close enough to get an extension of TPA to allow it to be finished before the end of the year.

QUESTION: So before the end of the year or within that timeframe that --

AMBASSADOR GRAY: Well, there may be -- have to be a temporary extension of TPA. The deadline now is an artificial deadline. The deadline -- there's no deadline that says if you don't finish by X the talks just disappear. The deadline is an artificial one set by the fast-track authority. And what I'm saying is that Congress, in the abstract, probably would not extend fast-track authority generally. But if it looks like there is a deal on Doha, I think everybody agrees that Congress would for that purpose extend the fast-track authority to complete the deal.

QUESTION: Isn't there a danger that this extension could be endangered by the Iraq policy of White House because in the speech the President is doing tomorrow he will announce a surge of troops. And on the democratic side, at least what we can read from media here, is that they will put aside the other agenda and everything will be focused on Iraq.

AMBASSADOR GRAY: Well, the farm bill doesn't have to be finished by June 1st in order to have a Doha agreement by June 1st. I think the important thing is the direction and that's already been announced. And when you have both Harkin and Peterson saying that the farm bill is going to be heavily driven by renewals that is a signal that this renewable revolution, or whatever you want to call it, is going to be continued. And that is what is the key I think on our side for reducing our subsidies, which then will require Europe I think to come forward on their (inaudible) ability and market access to do their part of it.

I'm not saying that it's already done. If it were done I'd tell you it were done but it's not. I'm just saying that I'm -- everybody seems to be quite optimistic that the opportunities here are considerable. And the fact that the Democrats may be disagreeing with the President on Iraq and preoccupied by budget issues or is not going to -- it's different people. It's different committees, different experts, different constituencies and I don't think it's going to have any effect -- Iraq's not going to have any effect on what Congressman Peterson's going to do or Senator Harkin's going to do.

QUESTION: Deniz Arslan from Turkey Anatolia news agency. Would you talk about the Turkey-EU negotiation process? It seems that Cyprus is the main obstacle now. And Turkey -- the EU expects Turkey to combine its obligations which is opening its ports to the Cyprus Government. And Turkey expects the EU to ease the embargo of Northern Cyprus before opening its ports. What can the U.S. Government do to help this process go any further and how do you see the latest development?

AMBASSADOR GRAY: Well, step back. I mean, there really is not much the U.S. can do actively to resolve this issue. This is really a European problem and I think the position of the U.S. is -- the President expressed this recently -- we would very much hope that Turkey would gain admission but we're not taking an active role in lobbying the member states or taking any other actions to deal with this. This is really an internal problem for Europe and everyone knows what the U.S. position is but we're not taking any steps beyond that and there's really not much we can do except state what our position is.

QUESTION: Barroso yesterday talked about the visa wavier program and was really pushing hard on that. What do you think are the chances of getting new countries in this year into the visa waiver program? I mean, President Bush made positive comments a couple of months back but Congress seems to be the real problem. How do you assess the whole situation at the moment?

AMBASSADOR GRAY: Well, Congress is -- they do set the standards. They do write the legislation and I think the Europeans have at times not understood that. They sort of look to President Bush or to the Executive Branch to fix it and we can't fix it unilaterally. Will Congress make the changes? I don't know. But I'm confident that we can satisfy the congressional concerns about security and about immigration. I think we can solve those problems but I wouldn't want to commit because it's not something the Executive Branch can --

QUESTION: Does it make a difference to new Democrat leadership?

AMBASSADOR GRAY: Well, I think it does actually, because the prior Chairman of -- I think it's House judiciary --

QUESTION: Senator Sensenbrenner --

AMBASSADOR GRAY: Had an unusually strong set of views about this and his replacement, I think, does not have those deeply rooted views. And so I think there is an opportunity that may not have existed before.

QUESTION: You've been talking about Iraq and that the Europeans are ready to assist in terms of reconstruction once security is provided. Are there any benchmarks here we can --

AMBASSADOR GRAY: On how to devise security?

QUESTION: How you define --

AMBASSADOR GRAY: No, I don't. I don't know how to -- I wouldn't know how to help you on that. I mean, we didn't -- it wasn't discussed in any of these meetings. There was no tasking of coming up with a definition. I think everybody knows when it will happen. In Baghdad right now it's not -- it's not happening.

QUESTION: I have a question. Philippe Gelie, Le Figaro of France. There seems to be renewed concern over the ATS system, you know, the targeting system, this huge database.

AMBASSADOR GRAY: Passenger name record.

QUESTION: Yeah, right. Can you address those concerns at the time when they have to find new legal basis --

AMBASSADOR GRAY: Well, I think -- the letter was sent -- I think Secretary Chertoff sent a letter. I can't remember if it was Chertoff or who sent the letter right before Christmas explaining -- maybe it was one of his deputies, but sending a letter saying that this does not violate the agreements that we have that are now pending and are going to be renegotiated by the middle of the year and I think have satisfied the Europeans. This is all going to be subject to renegotiation beginning in just a few weeks with an eye towards trying to wrap it up by midyear and I don't want to predetermine those negotiations. But this question you raise, I think has been solved at least temporarily until we get back in or they get back into the detailed negotiations.

QUESTION: The deadline for the --

AMBASSADOR GRAY: I think it's like June 30th. Yeah, I think it really is midyear.

QUESTION: By which the transfer of information would stop if there is no agreement?

AMBASSADOR GRAY: It's possible if there's no agreement the transfer would stop.

QUESTION: Thank you.