US embassy cable - 04ZAGREB1277

C O N F I D E N T I A L  ZAGREB 001277 
 
SIPDIS 
 
 
E.O. 12958: DECL: 07/09/2014 
TAGS: PREL, PGOV, EFIN, MASS, KAWC, HR, Defense Reform (Mil & NATO) 
SUBJECT: DAS STEPHENS REVIEWS RELATIONSHIP, URGES CROATIA'S 
REGIONAL ENGAGEMENT 
 
 
Classified By: PolOff Justin Friedman, reasons 1.5 (b and d) 
 
SUMMARY 
------- 
 
1.  (C) During her June 28-30 visit to Zagreb, EUR DAS 
Kathleen Stephens reviewed developments in our bilateral 
relationship.  Satisfaction with the NATO Istanbul Summit was 
an important theme.  Government interlocutors agreed that 
progress on refugee returns and the search for Gotovina must 
continue and intensify.  The GOC reaffirmed its recognition 
of the special obligations it has in the region.  DAS 
Stephens reinforced our continued expectation that the 
government move toward signing an Article 98 Agreement and 
provide increased support for the new government of Iraq. 
Government officials described how EU accession was helping 
spur economic reforms.  End Summary. 
 
NATO - GOT WHAT WAS WANTED AT ISTANBUL 
-------------------------------------- 
 
2.  (C) President Mesic told DAS Stephens he was pleased that 
the Istanbul Summit had gone as expected.  Although the press 
had commented negatively about the length of his meeting with 
President Bush (one paper had it at 28 seconds), Mesic said 
he was satisfied.  FM Zuzul also expressed satisfaction in 
his meeting with DAS Stephens, noting the Summit Communique 
had given Croatia a mechanism for advancing its own 
candidacy, giving Croatia greater influence over the tempo of 
its approach.  He said now that Croatia had the chair of the 
Adriatic Charter (A3) for the next six months, the A3 would 
be priority number one.  Commenting on the wide political 
consensus in Croatia for pursuing NATO membership, Zuzul 
joked that now the opposition parties were criticizing the 
HDZ government for not advancing Croatia's candidacy fast 
enough. 
 
NO MOVEMENT ON ARTICLE 98 
------------------------- 
 
3.  (C) DAS Stephens strongly urged FM Zuzul to move forward 
on our long-stalled discussion of an Article 98 agreement, 
noting that the lack of an agreement constrains our ability 
to assist Croatia to make progress on its NATO Membership 
Action Plan.  Zuzul said the GoC cannot move on Article 98, 
as it would have serious consequences for Croatia's relations 
with the EU.  He said he had told both Secretary Powell and 
Secretary Rumsfeld that while Croatia understands the U.S. 
 
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need for an agreement, there would have to be a softening of 
the EU's anti-Article 98 stance before Croatia could make a 
move.  Zuzul added that UK Minister for Enlargement Dennis 
McShane had told him that while London was not firmly with 
the EU position on Article 98, it was not prepared to protect 
Croatia in Brussels if it signed an agreement with the U.S. 
 
RECOGNIZING INTERIM IRAQ AUTHORITY 
---------------------------------- 
 
4.  (C) In her meetings with Mesic and Zuzul, DAS Stephens 
urged the GoC to join with other leading democracies in 
supporting the democratic transition in Iraq.  President 
Mesic agreed that it was necessary to send a message of 
tolerance, adding that the UN must play a role, which Croatia 
would support.  FM Zuzul responded that the GoC will try to 
do more in Iraq including putting together a civilian medical 
team together with Macedonia and Albania to provide care to 
Iraqi civilians.  Zuzul said that a statement welcoming the 
Transitional Authority would be issued that same day.  He 
said Croatia wanted to be more diplomatically active in Iraq, 
adding that the GoC would create an Ambassador-at-large 
position with responsibility for Iraq. 
 
MORE FOR AFGHANISTAN 
-------------------- 
 
5.  (C) Zuzul said he believed that President Mesic would not 
oppose expanding GoC efforts in Afghanistan.  Zuzul said the 
GoC was working with Germany with an eye toward contributing 
to a provincial reconstruction team.  (Note: Croatian troops 
are in their third rotation in Afghanistan.  End Note.) 
 
ICTY COOPERATION 
---------------- 
 
6.  (C) DAS Stephens welcomed Croatia's improved cooperation 
with the ICTY but cautioned that the Gotovina issue would 
continue to be an obstacle to Croatia's integration into 
Euro-Atlantic institutions.  The Minister of Justice said 
that Carla del Ponte had given Croatia six months to find 
Gotovina.  State Prosecutor Bajic said he was pleased with 
 
 
the cooperation the police and intelligence services were 
providing in the search for Gotovina.  He noted that no one 
was saying that Gotovina was not in Croatia any more, and 
that his goal was to find Gotovina, regardless of where he 
might be. 
 
REGIONAL ISSUES 
--------------- 
 
7.  (C) DAS Stephens observed that many leaders in the region 
are now looking to Croatia as a positive model to emulate on 
a broad range of issues including ICTY cooperation.  She 
suggested that it was time for the GoC to start playing a 
more active role in South Central Europe.  Zuzul responded 
that for obvious reasons, the GoC had been reluctant to be 
seen as playing a too-aggressive role in the region.  The GoC 
was now prepared to do more.  The Belgrade-Split rail 
connection had recently reopened, and the SaM was now talking 
seriously about replacing military with police to patrol the 
Croatian border. 
 
8.  (C) Similarly, Zuzul said that Croatia had had a go-slow 
policy with Kosovo.  However, Croatia had historically good 
connections to Kosovo and many Croatian businesses were eager 
to exploit their ties with Kosovar firms.  Zuzul offered DAS 
Stephens to use his good offices to provide a back channel to 
the Kosovo leadership.  He said he was ready to make a 
similar offer to the EU and UN, but would proceed cautiously 
to avoid giving Belgrade the impression that Croatia favored 
the Kosovars.  DAS Stephens thanked Zuzul for the offer and 
urged that the GoC could best help by reinforcing our message 
about standards.  Our core standard was that Kosovo become a 
place where non-ethnic Albanians (e.g., Serbs) could live 
safely.  Only when that was in place could the status of 
Kosovo be taken up.  Zuzul agreed, as he was concerned that 
the status quo could not be sustained and should not be the 
objective of the international community. 
 
9.  (SBU) Mesic welcomed the Serbian election results and 
planned to attend President-elect Tadic's inauguration.  (In 
the end, only FM Zuzul attended the ceremony, both Mesic and 
Sanader's offices announcing that scheduling conflicts 
prevented their attendance.) 
 
IPR MOU 
------- 
 
10.  (SBU) Zuzul told DAS Stephens that the GOC is finally 
ready to completely clarify the IPR MOU implementation. 
(Note: there are two laws that need to be amended to bring 
the MOU into effect -- the Patent Law and the Drug Law.  The 
Minister of Science has promised to facilitate the amendments 
to the Patent Law, while the Minister of Health has called 
such amendments "complicated."  End note.) 
 
EU ACCESSION IMPETUS FOR REFORM 
------------------------------- 
 
11.  (U) Martina Dalic, State Secretary of the Ministry of 
Finance, described reforms needed for EU accession as the 
number one priority.  They include tackling the external debt 
problem and the internal reforms needed for accession. 
 
12.  (SBU) The Ministry is combing the tax code to close 
loopholes and remove senseless exemptions.  The purpose of 
these changes is not so much to produce revenue as to help 
create a more transparent system, with which it would be 
easier to comply.  More emphasis would be put on collection. 
The Ministry had drafted a proposal to cut income and profit 
taxes.  Longer term, as spending is ratcheted down, the GOC 
wants to cut payroll taxes to improve competitiveness. 
Overall, the government needed to be downsized to "provide a 
space for the private sector." 
 
13.  (SBU) When Ambassador Frank asked about the 
privatization process, Dalic noted that the privatized 
sectors of the economy were clearly the most successful. 
Privatization was necessary for the further development of 
the energy and tourism sectors.  Dalic also discussed the 
concept of Public-Private Partnerships, which she felt could 
be useful in bringing managerial skills from the private 
sector to struggling public companies when "local problems" 
prevented a traditional privatization. 
 
PRESS INTERVIEW 
--------------- 
 
14.  (U) DAS Stephens' interview with Bruno Lopandic, foreign 
affairs correspondent of state-owned "Vjesnik," ran July 2 
under the headline "We expect Croatia's stronger engagement 
 
 
in Iraq."  Regarding Croatia's reluctance to sign an Article 
98 Agreement, Stephens recalled the position of the HDZ 
during the election campaign, and regretted that "time had 
not been found yet (for the government) to implement this." 
 
15.  (U) The following day, "Vjesnik" ran a commentary by 
Lopandic in which he lamented, "no matter how hard the 
authorities are trying to prove otherwise, there is no 
denying that relations between the two countries have 
deteriorated...Croatia still has not learned the importance 
of keeping its word.  The Racan government first said a 
secret 'maybe' with regard to Iraq that was followed by a 
 
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public 'no.'  The HDZ, on the other hand, made all kinds of 
promises when it was in the opposition but once it was in the 
ruling party, called upon official Washington to be 
understanding because it could not fulfill U.S. 
expectations."  Other media also picked up on the theme that 
the USG has not let the HDZ off the hook on either Article 98 
or Iraq. 
 
CONCLUSION 
---------- 
 
16.  (SBU) DAS Stephens' visit was extremely successful in 
pressing home the message that the U.S. is a firm friend of 
Croatia, but that it expects Croatia to live up to its 
obligations, be they to fulfill promises on Article 98 or to 
bring Gotovina to justice.  The GOC also made clear that it 
is serious about completing Croatia's pro-NATO, pro-European 
orientation. 
 
DAS Stephens has not cleared this message. 
FRANK 
 
 
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