US embassy cable - 04BRUSSELS3225

C O N F I D E N T I A L SECTION 01 OF 04 BRUSSELS 003225 
 
SIPDIS 
 
NOFORN 
 
E.O. 12958: DECL: 07/28/2014 
TAGS: PREL, PGOV, EAID, ETRD, ZS, EUN, USEU BRUSSELS 
SUBJECT: EU EFFORTS ON AID AND TRADE FOR NORTHERN CYPRUS 
ARE STALLING 
 
REF: USEU BRUSSELS 2938 
 
Classified By: Rick Holtzapple, PolOff, Reasons 1.4 B/D 
 
SUMMARY 
------- 
 
1. (C) During meetings with Dutch Presidency, Commission and 
Council officials on July 26-27, EUR DAS Laura Kennedy was 
told the prospects for positive developments on Cyprus looked 
difficult.   The Commission's proposed aid and trade measures 
to "end the isolation" of the north of the island (reftel) 
have been stalled in the Council by Greek Cypriot insistence 
that such measures can only be approved and implemented with 
the GoC's agreement and involvement.  Dutch and Commission 
officials said the problem has been complicated by a 
preliminary Council legal services' opinion that the 
Cypriot's legal arguments may have merit.  The Dutch said 
they have proposed a "cooling off" period over the August 
break, but are determined not to let the objections of two 
members (Nicosia and Athens) hold EU policy toward the 
Turkish Cypriots hostage.  A Presidency paper on September 2 
should propose possible solutions to the specific Greek 
Cypriot objections.  The Dutch hope the aid package of 259m 
euros, which must be unanimously approved by the Council, can 
be agreed at the September 13 GAERC (EU FMs') meeting.  They 
then hope the trade measures, where there is an argument 
about whether they can be adopted by qualified majority or 
only by unanimity, would be adopted by the end of September. 
As the EU struggles to get its measures passed, all EU 
officials urged the US to move ahead with our own package of 
aid and trade opening with the north.  END SUMMARY. 
 
2. (U) This is a joint USEU/Embassy The Hague report.  DAS 
Kennedy's discussions on Turkey are covered septel. 
 
3. (U) On July 26 and 27, DAS Kennedy met with a team of 
Dutch Presidency officials (Pieter de Gooijer, MFA Director 
for European Integration; Hannie Pollmann-Zaal, Director for 
Western and Central Europe; and Jurriaan Kraak, Enlargement 
Counselor of the Dutch PermRep in Brussels) as well as, in 
separate sessions, with Fabrizio Barbaso, the Commission's 
acting Director General for Enlargement; Leopold Maurer, Head 
of the Commission's Cyprus Unit; and Christoph Heusgen, 
Director of the Council's Policy Planning Unit. 
 
TWO MEASURES TO "END ISOLATION" OF NORTH BLOCKED 
--------------------------------------------- --- 
 
4. (C) All of the EU officials began their discussion of 
Cyprus by noting that in the immediate aftermath of the 
Cyprus referendum, the EU FMs at their GAERC meeting on April 
26 expressed their "determination to put an end to the 
isolation of the Turkish Cypriot community" and invited the 
Commission "to bring forward comprehensive proposals to this 
end."  Heusgen noted that some political steps had been 
taken, such as receiving "TRNC Prime Minister" Talat at a 
higher level in EU capitals.  But the real action lay with 
the proposals for increased EU aid to and trade with the 
north of the island that the Commission had brought forward 
on July 7 (reftel). 
 
5. (C) Barbaso noted the Commission had proposed three sets 
of measures.  The first, known as the "Green Line Regulation" 
would permit intra-island trade across the Green Line.  This 
regulation has been adopted by the Council, with the support 
of the Greek Cypriot government, and is now in the process of 
being implemented.  But the other two pieces, one for 259m 
euros of assistance that would be spent directly in the 
north, and one for approval of procedures that would allow 
for direct trade between the rest of the EU and the north, 
have been blocked in the Council by the Greek Cypriots. 
(NOTE:  Both the Commission and Dutch said that another 
Turkish Cypriot desire, direct flights into the north, had 
been "carefully left out of the package."  The Commission has 
said this is an issue for individual states, not the EU as a 
whole.  END NOTE.) 
 
6. (C/NF) De Gooijer and Kraak said negotiations in the 
Council had been very difficult.  Kraak said the Commission, 
apparently "fed up" with the Greek Cypriots, had taken a 
"rather inflexible" stance and is opposing giving them any 
role in implementation of the measures other than the Line 
Regulation.  The UK and "some of the Nordics" had been active 
in trying to overcome Cypriot and Greek opposition, but "many 
Member States don't want to get involved."  De Gooijer said 
the Dutch objective is to make progress as soon as possible, 
and certainly by the end of the year. 
 
GREEK CYPRIOT OBJECTIONS TO AID PACKAGE 
--------------------------------------- 
 
7. (C) Both the Dutch and the Commission indicated they 
thought the 259m euro aid package would be approved in 
September, despite the requirement that it be unanimously 
adopted by all EU Member States, as Nicosia says it supports 
it.  But Kraak and Maurer both noted several outstanding 
disagreements between Nicosia and the Commission (and 
others).  The Commission would like the assistance to be used 
as broadly as possible, including for educational and 
administrative training efforts; the GoC wants the package 
focused only on economic development.  The GoC says delivery 
of the aid should not involve local "authorities"; the 
Commission says this is unworkable.  The GoC insists projects 
should be consulted with or even approved by them to ensure 
"island-wide planning"; the Commission and Dutch view this as 
a "red herring."  (NOTE: DAS Kennedy noted that she had 
"politely declined" a similar demand by GoC FM Iacovou on the 
USG aid package for the north.  END NOTE.) The Commission 
wants the Regulation to explicitly note that Turkish Cypriot 
enterprises are eligible for tenders; the GoC objects.  The 
original Commission proposal was silent on the issue of 
expropriated property.  The GoC objected, pushing for 
language that Maurer said would imply the Commission would be 
responsible for "compensation" for any impact of projects on 
Greek Cypriot property; something the Commission could not 
accept.  The Commission is considering language that would 
oblige them to check that no Greek Cypriot property is 
involved in a project.  But Maurer noted that this could make 
some infrastructure projects, such as water and sewer 
projects, difficult to implement, and the UK has objected to 
such a procedure being included in the Regulation. 
 
AND ALSO OBJECTS TO THE TRADE MEASURES 
-------------------------------------- 
 
8. (C) De Gooijer commented that, even if the GoC had serious 
issues with the aid package, the proposed trade measures are 
"even harder for them to swallow."  Nicosia argues that 
direct trade from the north to the rest of the EU, rather 
than via the south, will promote continued division of the 
island, not reunification.  No one else agrees with them. 
But the GoC has also argued that the "legal basis" chosen by 
the Commission for its trade regulation (Article 133 of the 
Treaty of the European Communities) is invalid, because it is 
supposed to be applied to "third territories" outside the EU. 
 The GoC says that the correct "legal basis" would be 
Protocol 10 of the Accession Treaty, which suspends 
application of the EU acquis communitaire to the north of the 
island.  The reason this is important is because actions 
under Article 133 can be approved by a qualified majority 
vote (QMV) of the Council, while actions based on Protocol 10 
would require unanimity, giving the GoC a veto on the 
proposal.  The GoC would almost certainly use this veto to 
demand significant changes to the package, forcing all trade 
to leave the island via the south and insisting that the GoC 
must authorize the Turkish Cypriot Chamber of Commerce to 
issue certificates of origin and other documentation. 
(Maurer noted the Commission had accepted a requirement for 
GoC authorization of TCCoC certificates under the Line 
Regulation, but that this should not be necessary for trade 
not destined for the south of the island.  The Dutch 
Presidency, however, had been indecisive on this point so 
far.) 
 
9. (C) Unfortunately, the GoC objections to the "legal basis" 
have been supported by Athens and, more importantly, the 
interim oral opinion of the Council Legal Services.  The 
Commission lawyers emphatically disagree with their Council 
colleagues. (NOTE: We are told there is a history of bad 
blood between the two legal offices.)  The Commission (in a 
non-paper provided to EUR/SE) argues that Article 133 is not 
just for third countries, but has been applied to trade with 
EU territories that are not part of the EU's "customs 
territory" such as Gibraltar.  Maurer said other examples 
would include the Spanish territories of Ceuta or Melilla, 
and certain special territories in Germany and Italy. 
 
SO NOW WHAT? 
------------ 
 
10. (C) Kraak said that the Council last week had decided it 
would not force the issue through under QMV at this point. 
The Dutch decided to use the August break as a "cooling off" 
period.  They also are waiting to receive the Council legal 
service's written opinion on the "legal basis" question 
before plotting the way ahead.  But they plan to prepare a 
Presidency paper by September 2 that would inventory 
outstanding problems on both draft regulations, and suggest 
possible solutions.  De Gooijer said the Dutch would like to 
reach agreements as early as possible, with targets being to 
agree on the aid package at the September 13 GAERC, and the 
trade proposal by the end of September.  But he admitted it 
could take longer, saying "we will work hard in September and 
October."  De Gooijer added that it could take time, but the 
23 could not be held up by just two members on this. 
"Eventually, there will be a decision" and there would be an 
aid package and a trade package.  He insisted Nicosia alone 
could not dictate the entire EU's policy toward the Turkish 
Cypriots.  On how exactly to force Nicosia's hand, de Gooijer 
was less precise.  He said political pressure could be 
applied and the Presidency could start exploring about "what 
else do they want."  This could conceivably include some 
amendments to the package, or concessions to the GoC in other 
"outside" policy areas.  Somewhat offhandedly, de Gooijer 
even speculated that the Presidency could approach the issue 
"somewhat gradually" by accepting GoC demands that all trade 
go via the south, and then, when that failed, resuming 
pressure on Nicosia to be more flexible. 
 
11.  (C/NF) Barbaso said several scenarios are possible in 
September and much will depend on the attitude of the 
Presidency.  The Council could try to get approval of the aid 
package, unanimously, on September 13; and then go ahead and 
adopt the trade regulation under Article 133, simply 
outvoting Nicosia and Athens.  Barbaso said the GoC could 
then decide whether to contest the regulation at the European 
Court of Justice, but that while the case was being 
considered the regulation would be in place and direct trade 
could begin.  But the Commission would have to convince the 
Dutch and enough Member States to take this approach, and 
Barbaso dryly observed that such a confrontational strategy 
was "not common practice" in the EU.  Maurer (strictly 
protect) put the problem more bluntly, "The Member States are 
cowards.  We are even unsure that the UK would be willing to 
push the issue that hard." 
 
12. (C/NF) Some states were also a bit unnerved whenever the 
Commission looks like it is taking action over the will of a 
Member State.  But the Commission also has some leverage in 
the debate.  Under the EU treaties, unless the Commission 
assents to the change, the Council can only change the legal 
basis of the regulation by unanimity, if the UK or one of the 
Nordics objects, the Council cannot act.  The Commission was 
also trying to explore the views of various Member States, 
noting they had been surprised by the "bad behavior" (NFI) of 
the German Ambassador during last week's debate.  But Maurer 
speculated that the Dutch would be very cautious because the 
overriding objective of the Presidency is to get a good 
result on the question of Turkish accession negotiations in 
December (septel) and so they need the GoC to stay reasonable. 
 
IF THEY SUCCEED 
--------------- 
 
13. (C) Maurer and Barbaso said the Commission had not yet 
done detailed planning for implementation of the aid package, 
but the Commission was leaning toward using the European 
Agency for Reconstruction (EAR), a Thessaloniki-based agency 
established to administer EU aid to Kosovo, SaM and 
Macedonia.  This would mean about 20 people on the ground in 
Cyprus to administer the aid.  Maurer said serious work on 
programming the aid would begin in the fall, but the 
Commission was already concerned about the north's 
"absorptive capacity" given that 259m euros was a lot of 
money to spend on such a small population and territory, and 
one with some reasons for concern about corruption.  The 
overall priorities, however, would track "with what we would 
have done if a solution had been agreed."  Small and medium 
size enterprise development would be important, and other 
investments would focus on environmental issues such as waste 
management and sewer systems, water systems, energy networks, 
telecoms and agriculture.  Money would also probably be spent 
on developing administrative capacity, particularly on public 
health and veterinary institutes, and border and harbor 
management.  Finally, the EC would look at "people-to-people" 
programs including scholarships and youth exchanges. 
 
14. (SBU) As part of the Line Regulation, the Commission is 
already beginning work on expert exchanges to ensure all 
procedures are adequate, including application of strict 
rules of origin and veterinary and phyto-sanitary inspection. 
 Maurer noted that under the current regulation, trade in 
animal products (including cheese) and potatoes was excluded. 
 A quota system would also be in place to reduce the risk of 
fraudulent trade such as that found by the EU in sugar from 
the Balkan states.  In response to DAS Kennedy's inquiry 
whether, given the negligible quantity of trade likely from 
the north to the U.S., the EU-authorized procedures and 
certificates could be used by the U.S. for implementation of 
our own trade measures, Maurer and his staff said there was 
no problem with this from the EU side, if such documentation 
would be acceptable to US authorities. 
 
HOW THE U.S. CAN HELP 
--------------------- 
15. (C/NF) Both the Dutch and the Commission encouraged DAS 
Kennedy to have the U.S. move ahead with our own measures to 
end the north's isolation, and not wait for the EU.  Barbaso 
and Maurer said they hoped US implementation of aid and trade 
opening could help "pave the way" to EU action.  De Gooijer 
also said that US action could be a helpful signal to the GoC 
that "this is the way things are going to go" and might help 
show Nicosia "the limits of their ability to oppose" contacts 
between the Turkish Cypriots and the outside world.  De 
Gooijer noted that Papadopolous is "not in touch with 
Brussels realities" and needs to be led on this score.   The 
implementation of US trade measures could also demonstrate to 
Cyprus that direct trade from the north does not have to 
equate with political recognition.  De Gooijer also suggested 
that US officials, in contacts with the GoC, could help 
reinforce the Dutch message that the Commission's measures 
are almost inevitable by telling the Greek Cypriots that "our 
impression after talking to folks all around the EU is that 
these decisions are going to be taken."  DAS Kennedy noted 
the Dutch suggestion, although it would be delicate for us to 
speak for the EU.  But we would certainly continue to work on 
our aid and trade measures. 
 
16. (C) De Gooijer also inquired as to the prospects for UN 
action.  DAS Kennedy said the UK will lead the UNSC 
discussions in the fall.  We hoped for a UNSCR endorsing the 
SYG's good offices report, but would not support a 
waterred-down UNSCR that did not go as far as the SYG's 
recommendations.  She noted there was also the upcoming 
report on UNFICYP mission would prompt consideration on what 
sort of continued UN peacekeeping mission was or was not 
appropriate, especially with so many other places in need of 
such troops. 
 
17.  (C) DAS Kennedy asked if there were EU interest in "just 
dropping the Cyprus package," particularly considering a 
potential nexus with the decision on Turkish accession.  De 
Gooijer reiterated that the EU would not allow Nicosia to 
control the Union on this issue, either. "Cyprus is a member 
state whose concerns we must take seriously," he offered, 
adding "but not to the detriment to the interests of the 
whole." 
 
TURKISH PERSPECTIVE 
------------------- 
 
18. (C) In a separate meeting with DAS Kennedy, Mustafa Oguz 
Demiralp, Turkish Ambassador to the EU, said the GoT was very 
supportive of the Commission's proposals.  Turkey will 
continue to lobby for an EU decision in September, but 
Demiralp said he would not be surprised if there was no quick 
action.  He added that back in May he had already told Ankara 
not to expect too much; the Commission would draft good 
proposals, but the Council would find it hard to approve them 
because of Greek Cypriot obstructionism.  He argued that more 
important would be bilateral measures, particularly by the UK 
and US to open up to the north.  When DAS Kennedy noted that 
our aid package was far smaller than the EU's, but that we 
had declined GoC demands to be consulted on its disbursement, 
Demiralp replied that this political signal was far more 
important than the sum of money.  Demiralp also underlined 
how failure to make progress on opening measures would harm 
the reunification effort, as people in the north would be 
discouraged to see that despite their positive vote in April 
no real steps to end their isolation were being taken. 
Responding to DAS Kennedy's encouragement to the GoT to 
consider a symbolic step on troop withdrawals from the 
island, Demiralp said he understood the point, and heard it 
frequently from Enlargement Commissioner Verheugen, but that 
it would be very hard for a Turkish politician to explain the 
gesture to the public until some concrete measures had been 
taken to help the Turkish Cypriots. 
 
COMMENT 
------- 
 
19. (C)  The GoC appears to have the EU at an impasse.  EU 
officials such as de Gooijer or Heusgen insist GoC President 
Papadopoulos does not understand how the EU works and will 
eventually have to show flexibility or "pay the price."  But 
we wonder, particularly with the decision on Turkey looming 
in December, just how high a price the Dutch Presidency and 
the rest of the EU will be willing to impose.  The GoC knows 
this too, and will be looking to do as much as it can to 
water down the Commission's proposals come September. 
 
SAMMIS