US embassy cable - 05WARSAW3300

UNCLAS SECTION 01 OF 02 WARSAW 003300 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EUR/NCE 
STATE PASS USTR FOR DONNELLY/ERRION/KLEIN 
 
E.O. 12958: N/A 
TAGS: ETRD, PL, SA, WTO 
SUBJECT: POLAND: PROBLEMS WITH SAUDI WTO ACCESSION 
 
Sensitive But Unclassified/Not For Internet Distribution 
 
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DUAL ENERGY PRICING REGIME UNACCEPTABLE, SAY POLES 
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1. (SBU) Econoff spoke with Sara Riley from the U.K. Embassy 
regarding the WTO accession of Saudi Arabia.  Riley noted 
concerns with regard to certain EU member states, including 
Poland, stemming from dual fuel pricing regimes (one for 
domestic, one for export).  According to Riley, the Poles 
are insisting on the inclusion of a "balancing mechanism" in 
the Saudi working party offer.  The mechanism would seek to 
place financial disincentives on the import of other 
products, if the dual pricing regime remains unchanged. 
 
2. (SBU) Tomasz Ostaszewicz, Deputy Director of the Economic 
Ministry's Trade Policy Office, confirmed Riley's 
assessment, and added that Poland is not alone in supporting 
the Commission on this issue.  Although Ostaszewicz noted 
that the U.K. and Netherlands are lobbying hard to have the 
balancing mechanism language removed, Germany is neutral and 
all other EU members, he said, are in favour of the 
Commission's position. 
 
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RUSSIA, NOT SAUDI ARABIA, IS THE ISSUE 
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3. (SBU) Ostaszewicz said that Poland's position is based 
not only on "principle," but mostly is tactical, focused on 
Russian WTO accession and the unacceptable dual fuel pricing 
regime that Moscow implements.  He believes the Russians 
will take a hard look at what the working party finalizes 
with the Saudis, and that they will push hard to have the 
same concession. 
 
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COMMENT 
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4. (SBU) Although Post understands that Washington has no 
immediate position on this issue, our U.K. contacts inform 
us that State and USTR will likely receive expressions of 
concern from the British Embassy there.  Below is the U.K. 
nonpaper presented to the Poles on this issue. 
 
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Begin Text 
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If Saudi Arabia's accession to the WTO is to be complete by 
the Hong Kong WTO Ministerial, the EU would need to agree 
the terms of Saudi accession by mid-October at the very 
latest.  Saudi WTO membership is vital to encouraging 
political and economic reform in Saudi Arabia, ensuring 
stability in the region, expanding trade flows between the 
EU and Saudi Arabia, opening markets, and reducing 
unemployment - all important EU objectives. 
 
Currently only the EU is unable to accept the terms Saudi 
Arabia has offered. 
 
Some EU Member States believe that a balancing mechanism 
should be established between Saudi Arabia and the EU to 
address any harmful aspects of Saudi energy dual-pricing. 
The UK's national position has consistently been that this 
is unnecessary.  Saudi Arabia's dual-pricing policy is 
compatible with WTO rules and there is no evidence that 
Saudi practice causes, or would in the future cause, harm to 
EU industry.  Saudi Arabia's latest offer on WTO accession 
already goes beyond normal WTO requirements.  Moreover Saudi 
Arabia will never accept a balancing mechanism (the Saudis 
have written to Peter Mandelson to let him know this).  In 
addition, the UK has serious concerns about a balancing 
mechanism in principle as a trade defence instrument. 
 
If the EU blocks Saudi WTO accession, this will be 
enormously damaging to the EU's image and to its relations 
with Saudi Arabia.  It would also prevent conclusion of an 
EU/GCC Free Trade Agreement and have a knock-on 
(detrimental) effect on EU-GCC relations.  As Presidency, we 
wish to move quickly to unblock the way to Saudi WTO 
accession. 
 
The UK understands the Commission may propose legislation to 
the Council to establish a balancing mechanism as a fixed 
element in the EU's negotiating position.  We have told the 
Commission that if the Council were to vote on such a 
balancing mechanism we would vote against.  As Presidency, 
we hope you will form a national position taking account of 
the facts of the Saudi position and the risks of blocking 
accession.  We would like to hear your views, and trust you 
will also make them clear to the Commission. 
 
The UK will support Saudi Arabia's accession on the basis of 
the additional language on dual-pricing offered by Saudi 
Arabia for inclusion in the WTO accession working party 
report.  Saudi Arabia's latest offer already goes beyond 
what WTO rules require and is a significant concession to 
the EU. 
 
Saudi dual-pricing is not comparable to the practices 
addressed in the EU's bilateral agreement with Russia on its 
accession.  Russia's dual pricing is WTO-incompatible, Saudi 
Arabia's is not.  All of the Russian products in question 
are sold on the world market, some of the Saudi products are 
not.  The volume of EU/Russia trade is significant and 
growing, particularly owing to its geographical proximity; 
the volume of EU/Saudi trade is not significant. 
Consequently, without new WTO commitments, Russia's 
practices would have ongoing direct negative consequences 
for EU business.  Saudi Arabia's practices do not 
discriminate against foreign-owned companies.  All in all, 
we think that there are very significant differences between 
the two pricing regimes, enough for the EU to be able to 
argue convincingly that any agreement we reach with Saudi in 
the context of its WTO accession should not set a precedent 
for Russia. 
 
It is also worth noting that agreement on Saudi's accession 
to the WTO will remove one of the most significant barriers 
to finally concluding a trade agreement between the EU and 
the Gulf Co-operation Council (GCC).  Such an agreement 
could enable duty-free access to the EU market for unwrought 
aluminium from GCC countries (especially the UAE).  This 
would help meet the long-standing Polish demand for access 
to competitively priced aluminium for its downstream 
processing industry.  End Text. 
Ashe