US embassy cable - 05BRUSSELS584

C O N F I D E N T I A L SECTION 01 OF 02 BRUSSELS 000584 
 
SIPDIS 
 
DEPT FOR EUR/SE AND EUR/ERA 
 
E.O. 12958: DECL: 02/09/2015 
TAGS: PREL, CY, ETRD, EAID, EUN, USEU BRUSSELS 
SUBJECT: EC GREEN LINE LIBERALIZATION GAME PLAN FOR CYPRUS 
 
REF: BRUSSELS 537 
 
Classified By: USEU/POL Harry OHara, reasons 1.4 b/d 
 
1.  (C) Summary: Commission officials are pleased they 
negotiated a preliminary agreement on February 4 with the 
Cypriot Government to liberalize some green line commerce in 
Cyprus. The EC is also pleased that Luxembourg, as the EU 
president, seems intent on quickly moving the agreement to 
Council approval at the February 17 ECOFIN meeting. EC 
officials hope the long-promised 259 million Euro financial 
package by the EU can be approved mid-2005, but are 
pessimistic that member states will apply enough pressure to 
get Cyprus to accept the direct trade package for North 
Cyprus that the Commission proposed last July.  End Summary. 
 
2. (SBU) On February 4, EC Officials from DG-Enlargement 
reached a preliminary agreement with Cyprus to permit some 
liberalization of trade across the green line between North 
Cyprus and Cyprus. Key features of the agreement include a 
new crossing point in Nicosia (Ledra street) and an increase 
in the value of goods that can be carried across the green 
line for personal use from 30 Euros to 135 Euros. On the 
latter, Commission negotiators told us it took 5 hours of 
hard bargaining in Cyprus, and phone calls between EC 
Enlargement Director General Barbaso and Cypriot President 
Papadapolous, to arrive at the 135 Euros figure. 
 
A Cypriot Safeguard 
 
3. (C) Subsequently, the Cypriot government had second 
thoughts on the 135 Euro amount and told the Commission it 
would back away from the preliminary agreement unless the 
Commission also granted Cyprus a safeguard.  After 
discussions in Brussels February 7 and 8, the Commission and 
Cyprus agreed upon a safeguard whereby Cyprus can ask that, 
for a three month period, the value of goods taken duty-free 
across the green line for personal use be reduced to 30 
Euros, if the Cypriot government believes increased commerce 
over the green line is disrupting its economy. 
 
Luxembourg Presidency Engages 
 
4. (C) In response to the February 4 agreement, Commission 
officials (who make up the so-called ad-hoc Cyprus Group) 
held their first formal meeting February 8 with Luxembourg in 
the latters EU presidency capacity.  Commission officials 
were pleased and saw the meeting as a sign of Luxembourg 
engagement (reftel), but were ambivalent about the message 
they got from Luxembourg, namely that Luxembourg will let the 
Council structures be used to ratify or confirm Commission 
agreements as long as it is not too difficult or too divisive 
for EU unity. The Commission understands the message 
underlying this as do not do anything that will agitate 
Cyprus.  Another Commission official, who oversees both 
Cyprus and Turkey, told us DG-Enlargement believes it is 
possible for the Commission to push Cyprus a bit without 
complicating the Turkish accession process scenario for this 
year.  But Commission officials told us they would be careful 
not to push Luxembourg too hard on Cyprus. 
 
Next Steps 
 
5.  (C) The Commission will present its preliminary green 
line agreement with Cyprus at a working-level meeting with 
Council officials February 10. The Commission believes 
Cypriot concerns have been meet with the safeguard and hope 
they can get an early Council endorsement. They are pleased 
the Luxembourg Presidency is prepared to put it on the agenda 
of the February 17 ECOFIN meeting as an A point (i.e. 
expected to be approved without discussion).  On a separate 
track, the Commission is working with the Cypriot government 
and North Cyprus to get them to eventually agree to open a 
crossing point on the road between Zodia and Astromeritus. 
Commission officials tell us this will take some time, as a 
great deal of de-mining needs to be finished first. 
 
What about the Financial Instrument and Direct Trade? 
 
6. (C) The Commissions current plan is to start working with 
the Cypriot government in March to overcome its objections to 
the EUs financial instrument (currently blocked by Cyprus). 
The Commission hopes they now have a solution to Cyprus last 
major objection over the location of the EC Agency to design 
and administer programs in the North. The Commission will 
agree to a Cypriot request that the Agency operate under the 
laws of the Republic and that it will have an address in the 
South. In exchange, the Commission will ask for approval to 
operate throughout the island with an implicit understanding 
the majority of people working for the Agency will be located 
in the North. The Commission hopes that by mid-year they will 
have agreement from Cyprus to start programs. On the 
politically charged linkage between the financial instrument 
and a regulation facilitating direct trade between the North 
and the rest of the EU, the Commission hopes member states 
will allow the Commission to move ahead on the financial 
instrument, and not hold the assistance hostage to a solution 
on direct trade. 
 
7.  (C) Our Commission interlocutors increasingly are taking 
the unofficial view that direct trade for the North is dead 
and that Cyprus will not drop its opposition to it.  One 
Commission official told us he is working informally to see 
if some aspect of the direct trade proposal might be 
relabeled and repackaged for consideration by the UK 
Presidency in the latter of this year. To help sweeten the 
deal for the Greek Cypriots, the Commission has agreed that 
anything they do on direct trade would be based on consensus 
and not qualified majority voting -- thus letting Cyprus veto 
any aspect of direct trade.  This was a widely debated topic 
last fall between the Commission and Council legal services. 
Despite the ECs concession to the Council and the Cypriot 
view, Cyprus still has not budged in its opposition to direct 
trade for North Cyprus. 
 
McKinley 
.