POLAND: PROBLEMS WITH SAUDI WTO ACCESSION

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