KEEP CROATIA IN GSP

UNCLAS ZAGREB 001051

SIPDIS

SENSITIVE

SIPDIS

STATE FOR EUR/SCE BALIAN
STATE FOR EB/TPP/MTA/MST SCHEIBE
STATE PASS USTR DONNELLY

E.O. 12958: N/A
TAGS: ECON ETRD HR
SUBJECT: KEEP CROATIA IN GSP

REF: STATE 128359


1. (SBU) In response to reftel, Post strongly
supports the retention of Croatia's GSP eligibility
and believes that there is a firm policy basis for
such a decision. Among the factors we believe the
Washington inter-agency should consider when
reviewing Croatia's status are: supporting regional
stability, encouraging economic development and
supporting Croatia's Euro-Atlantic orientation.


2. (SBU) Regional Stability: Although the states
of the ex-Yugoslavia are moving toward Euro-Atlantic
integration, stability has still not been
consolidated in this part of Europe. Given
commitments elsewhere, the continued stability of
the Balkans is a major USG policy priority. Croatia
and the other countries of the region are only now
recovering economically from the wars of the 1990s,
which is leading to a slow reintegration of their
economies as trade and investment flows grow.
Croatia, which has one of the strongest economies in
the region, is an important engine for this process.
Although its trade exchange with the U.S. is
relatively small, GSP provides an important stimulus
for its export sector. GSP could become an even more
important outlet as the Central European Free Trade
Agreement is expanded to include more ex-Yugoslav
countries, opening Croatia's own market to a greater
inflow of goods from its less developed neighbors.


3. (SBU) Economic Development: Croatia has
benefited from the USAID presence in the country
since shortly after its independence. Through
numerous projects over the years, AID has helped
Croatia make a difficult transition from a planned
economy that was devastated by war to a modern
market economy. These projects have been
concentrated particularly in the less developed
regions of the country that experienced massive
economic dislocations following the collapse of the
ex-Yugoslavia. As a result, many small and medium
sized enterprises have only now begun to grow and
increase employment, making up for the lost
industrial and agricultural giants of Croatia's
socialist past. For these companies, export markets
represent a key area for growth and GSP can play an
important role in continuing this process.


4. (SBU) As conditions have improved in Croatia,
USAID has made the decision to end its presence
after 2008. This reflects a view that the remaining
work to be done in Croatia can now be done by
Croatians themselves. Continuing GSP after direct
assistance ends, however, is a way of providing
support for the economic legacy of the millions of
dollars spent on Croatia's economic development, at
relatively little cost to the USG.


5. (SBU) Supporting Euro-Atlantic Orientation:
Croatia's last two governments have set the country
on a clear course toward both NATO and EU
membership. Despite myriad domestic challenges,
Croatia has stepped up to its international
responsibilities, contributing troops to NATO's ISAF
mission in Afghanistan and to various UN-led
peacekeeping operations around the world. Losing
GSP could lead some on the domestic political scene
in Croatia to question the benefits of a strategic
alliance with the U.S., making it politically more
difficult for the government to deliver on key U.S.
policy objectives.

BRADTKE