EC GREEN LINE LIBERALIZATION GAME PLAN FOR CYPRUS

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
.