EU AID/TRADE FOR NORTH CYPRUS STALLS

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 003821

SIPDIS

E.O. 12958: DECL: 09/09/2014
TAGS: PREL EAID ETRD ZS TU EUN USEU BRUSSELS
SUBJECT: EU AID/TRADE FOR NORTH CYPRUS STALLS

REF: A. USEU BRUSSELS 3778


B. USEU BRUSSELS 3225

Classified By: USEU/POL Harry O'Hara, reasons 1.4 b/d.


1. (C) Summary: EUR DAS Kennedy's Brussels consultations
coincided with an important September 2 COREPER meeting in
which EU member states were unable to find a way to move the
Commission's proposed trade preferences for Northern Cyprus
ahead -- leaving the EC's trade/aid package effectively
frozen for now. The Dutch Presidency might have to delink
trade and assistance in order to get the assistance through.
The Commission and the Turkish Mission to the EU are
concerned that delinking the packages might have a negative
impact on those in the North who voted for reunification. On
the other hand, there is broad understanding that a nasty
public spat among EU member states over North Cyprus could
spill over, and adversely impact this fall's intense debate
on whether to offer EU accession talks to Turkey. End
Summary.


2. (C) On September 2, EUR DAS Kennedy met key European
Commission officials involved in the formulation of the EC's
trade and assistance package for North Cyprus and in the
preparation of the EC's October 6 Report for Turkey. (Turkey
discussions ref A.) Kennedy also met with Turkish Mission to
the EU officials, Council Secretariat officials including
Director General Robert Cooper and, via a telephone
conference, with Dutch MFA European Affairs Official Pieter
de Gooijer. During her visit, the EU Perm-Rep Ambassadors
also discussed the Commission's proposed trade and aid
proposals for North Cyprus at their September 2 COREPER (EU
decision making body made up of the EU member state Perm-Reps
assigned to the EU) meeting. Both Commission and the Council
Secretariat officials expressed concern over Cypriot

SIPDIS
resistance to EU trade preferences to North Cyprus.

Trade preferences in trouble
--------------


3. (C) Pierre Mirel (please protect throughout),
DG-Enlargement head of unit for the Cyprus Task Force,
expressed worry to Ambassador Kennedy that the EU member
states will not/not extend EU trade preferences to North
Cyprus. He was concerned that this blockage will undercut
pro-unification forces in North Cyprus, particularly Talat.
Though he had no evidence that Denktash is interested in
running again in next elections in North Cyprus, he felt that
direct trade with the EU was absolutely critical to show
those who supported the Annan plan that they would get
"something" from the EU for their efforts. He noted that the
EU's 259 million Euro aid package to North Cyprus (over three
years) will take much longer to show "visibility" than trade.
Mirel wondered if this "visibility" of trade, when compared
to the slower disbursement of an aid package, is why the
Greek Cypriots are so vigorous in their opposition to the
trade preferences. Nonetheless, he also expressed concern
that the Greek Cypriots might "stall" the aid package until
they get assurances from the other member states in the
Council that the trade part of the deal is "dead." (Mirel was
speaking to us even before the COREPER discussion on Cyprus
had taken place.) Kennedy urged the Commission to continue to
pursue their proposed measures for the Turkish Cypriots, even
if the measures were ultimately not realizable, in order to
send a positive signal to Talat and prevent Papadoupolos from
becoming further emboldened in the run-up to the December
vote on Turkey,s EU accession. She noted this would
maintain awareness among EU member states that the Greek
Cypriots were the obstructionists in these efforts.

Dutch opposed to unbundling trade and aid
--------------


4. (C) Dutch MFA official De Gooijer said that the Dutch
Presidency wants to go ahead with both trade and aid. The
Cypriots had told him, he said, that they could "live" with
aid but hold "considerable concerns -- even objections -- to
direct trade." In Cyprus, they had told visiting Dutch
Minister for European Affairs Atzo Nicolai that they want to
be "flexible" on the North -- though it remains unclear what
they are prepared to be flexible about.

"Hiding" behind dueling legal interpretations?
-------------- -


5. (C) Mirel told us that some member states are hiding
behind the current disagreement between the Commission and
the Council Legal Services over the legal basis of EU trade
preferences for North Cyprus. (ref B). This disagreement
allows some member-states (he specified Italy, Germany, and
France) to avoid weighing in on this issue. He also said that
Cyprus has been very active in working member states to get
support, not only for their position, but also to get their
"solidarity." In this context, "solidarity" for Cyprus would
mean that other member-states would join up with Cyprus so as
to prevent a "new" member state from being isolated or
"embarrassed" in a public and open fashion. He suggested that
other member-states might also be sympathetic to a "small"
state standing up for what it believes in and might decide to
support Cyprus on this basis. States might also link the
Cyprus problem to their own unique concerns (i.e. Spain and
Gibraltar) and side with Cyprus in the hopes they are spared
from a similar situation later on. In light of these
potential internal EU sentiments, Mirel told us that it is
hard to see how the Commission's interest in extending trade
preferences to North Cyprus can move in a positive direction.

Possible next steps on Cyprus; spill-over on Turkey
-------------- --------------


6. (C) Mirel wondered if the Dutch Presidency might decide,
or feel compelled, to decouple the aid package and the trade
preferences at the end of September or beginning of October.
To avoid this, he understood that some in the Commission seem
to believe that by letting the Cypriots "win" the argument
over which legal service advice to follow (i.e. go with the
Council ruling that it should be consensus, and not qualified
majority voting, for trade preferences to North Cyprus),
Nicosia would be inclined to accept trade preferences. Mirel
expressed skepticism that giving the Cypriots what they want
in this area would move Cyprus to accept trade in any case.
Enlargement Director General Fabrizio Barboso told DAS
Kennedy that Turkish FM Gul had written to CFSP High-Rep
Solana asking that the trade and aid packages not be
delinked. In discussions with key Solana advisor, Robert
Cooper, he suggested a blow-up among the member-states over
North Cyprus could endanger a positive EU judgment on
offering accession talks. Cooper suggested that this could
affect strong Greek support for Turkey and could also lead
the Dutch to postpone the trade part of the North Cyprus deal
until after Turkish accession issues are settled this fall.


7. (C) Mirel suggested that Turkey's decision to limit it
customs union to the "EU-minus Cyprus" had been a mistake. He
wondered, however, whether Cyprus would permit aid to go
ahead even with an accommodation by Turkey on this.
Currently, Cyprus has been working to modify the Commission's
aid proposal and to introduce new concerns about it. The
Cypriots are now asking the Commission to exclude any
assistance to public administrators in North Cyprus, to
provide guarantees that no Commission money will go to
"contested properties," and that the EC not "sign" any
documents that would provide any kind of implicit recognition
of North Cyprus or its officials. Turkish diplomatic
officials here told Kennedy that Ankara would be ready to
find a way to extend their current Customs Union with the EU
to all 25 members, but feel that they need to get something
in return. Kennedy urged that Turkey not delay on this issue.

The Greek/Turkey Factor
--------------


8. (C) Mirel said that one factor working against asking the
Greeks to lean on the Cypriots to solve the current impasse
is the wider Turkish game. Greece needs Cyprus to agree to
offer Turkey a date for EU talks, and does not want to do
anything to get in the way of this critical Greek political
objective. De Gooijer also told us that during his visit,
Dutch Minister Nicolai told the Cypriots that the EU expects
the Greek Cypriots to keep their concerns about North Cyprus
"bilateral" and not carry them out "at the expense of EU-25
decisions on Turkey." De Gooijer also said that the Dutch
Prime Minister had urged Greek PM Karamanlis not to let
Greek/Turkey bilateral issues become problems in the EU's
relationship with Turkey. The Dutch have also been telling
the Turks to avoid controversial actions, including at the
forthcoming Organization of Islamic Conferences (OIC)
meeting, where the Northern Cypriots will allegedly be
described as the Turkish Cypriot state. In a separate
conversation with Turkish Mission to the EU Ambassador
Demiralp, Demiralp denied that this was the case and
emphasized that the Northern Cypriots were part of the
organization under the name of the Turkish Cypriot
constituent state, a name drawn from the Annan plan.

EU Cyprus Package Stalls; "political" decision next?
-------------- --------------


9. (C) In the end, Cyprus did hold tough at the COREPER
meeting, and no EU member state was willing to push them to
back off. EU-Enlargement Director-General Barboso and his
staff members told Kennedy that the Commission legal service
was asked to write another paper analyzing the Council's
legal opinion. Some member-states had proposed a contact
group meeting and others suggested a trip to Cyprus. In light
of Dutch Minister Nicolai's recent visit, neither idea went
anywhere at COREPER. Another idea that was floated at
COREPER, per Barboso, was taking this to the EU Foreign
Ministers at the September 13-14 General Affairs and External
Relations Council (GAERC) on the grounds that it is becoming
a political decision. Barboso noted that this could really
open the discussion on North Cyprus in an unpredictable
fashion with a different set of interlocutors. But, he said,
for him the most important thing to come out of COREPER is an
understanding that the EU differences are "political," not
"legal."


10. (C) Cooper agreed that the North Cyprus problem is no
longer legal but is political. Cyprus continues to oppose
direct trade links, and remains "quiet" on the EU's 259
million Euro assistance package to North Cyprus. Cooper said
that the EU lacks a strategy for reunification of Cyprus;
rather what the EU has is trade/aid package that is a
"reward" to North Cyprus for its recent vote for
reunification. Ambassador Kennedy noted the importance
maintaining the linkage in the trade/aid package, and advised
against dropping either or both parts of the package, noting
this strategy helps keep hardliners from reemerging in North
Cyprus. Cooper replied that the EU has made a commitment to
North Cyprus that will not be dropped. However, timing is
also important and the EU doesn't want a political battle
over North Cyprus, if this could hurt Turkish membership in
the EU.

Gloom?
--------------


11. (C) Our gloomy Commission interlocutors characterized
COREPER as "frozen" and the GAERC route as a "dangerous
option." Barboso concluded that COREPER opened up a "new
wrinkle of uncertainty" on Cyprus.


12. (U) EUR DAS Kennedy cleared this message.

Schnabel