KOSOVO: NEW SERBIAN CUSTOMS POLICY HARDENS

C O N F I D E N T I A L SECTION 01 OF 03 PRISTINA 000085 SIPDIS SIPDIS DEPT FOR EUR, EUR/SCE, NSC FOR BRAUN, USUN FOR DREW SCHUFLETOWSKI, USOSCE FOR STEVE STEGER E.O. 12958: DECL: 02/26/2018 TAGS: PREL ETRD ECON EAID EAIR ETTC PTER KTFN UNMIK KV, YI SUBJECT: KOSOVO: NEW SERBIAN CUSTOMS POLICY HARDENS PARTITION, THREATENS EMBARGO Classified By: COM TINA KAIDANOW FOR REASONS 1.4 (B) AND (D) ¶1. (C) SUMMARY: After violent demonstrations temporarily closed two border crossings along the Kosovo-Serbia border last week, UNMIK Customs officers have yet to return to these crossings (Gates 1 and D31) in northern Kosovo. International police have returned to duty at these gates but logistical issues and concern for the safety of customs personnel has prevented them from resuming full customs responsibilities. Although commercial traffic has been minimal at these crossings since Kosovo declared independence on February 17, there is concern Serbia will take advantage of the customs void to try and reintegrate Kosovo into the Serbian customs regime. Indeed, USOP has recently learned from Embassy Belgrade that Serbia intends to withdraw customs personnel from the Serbian side of the border (though thus far only from Gates 1 and D31) and effectively cease to acknowledge Kosovo as a separate customs zone. Information from UNMIK sources also indicates that Serbia could soon open a customs office in north Mitrovica. Without the swift return of UNMIK customs personnel to Gates 1 and D31, the international community risks Serbia establishing customs control over northern Kosovo, implementing a de facto trade embargo, and hardening the partition between the Serb-majority north and the Albanian-majority south of the Ibar river. UNMIK's failure to act quickly will also put at risk the establishment in the north of the two follow-on EU-led missions and will sorely try the patience of the Kosovo Albanians, who have already witnessed the ejection of their police, customs officials and judges from the north and have thus far refrained from reaction. END SUMMARY. Background ¶2. (C) On February 19, anti-independence demonstrators destroyed the infrastructure of two border crossings along the Kosovo-Serbia border, Gates 1 and D31. The crossings are located, respectively, in Leposavic and Zubin Potok, two of northern Kosovo's three Serb-majority municipalities. KFOR subsequently secured the gates and refused traffic access for a period of 24 hours. On February 20, Gates 1 and D31 re-opened with international police officers manning the crossings. No UNMIK customs officers have been re-deployed to these gates due to concern for their safety and, at least at Gate 1, the complete destruction of all border infrastructure. The remaining five border crossings along the Kosovo-Serbia border are operating normally, although there continues to be violent protest at some of them. To help facilitate movement and minimize potential revenue loss, Serbian customs has been re-directing large commercial traffic to Gates 3 and 5 to the east, both near the town of Podujevo. According to UNMIK Pillar IV Head Paul Acda, this is not a long-term solution but is sustainable as long as commercial traffic remains light and Serbian customs continues to cooperate. Border police have been delegated customs authority to direct small traffic to an UNMIK customs processing facility in Albanian-majority south Mitrovica. ¶3. (C) However, USOP has since learned through Embassy Belgrade (via the UN office in Belgrade, which is in contact with Serbian government authorities on the customs issue) that Serbia no longer plans to cooperate with UNMIK customs under UNSC 1244. The Serbian Government has decided to treat Kosovo as part of a single Serbian customs regime and remove customs checkpoints from the Kosovo border -- although at this point, only from Gates 1 and D31, according to Serbian authorities. It is also expected that Serbia could soon establish a Customs office in north Mitrovica. Effect of the New Serbian Policy on Customs ¶4. (C) Currently, all goods of Serbian origin or manufacture exported to Kosovo are exempt from customs duties and excise taxes. Goods manufactured in third-countries destined for Kosovo are also allowed to transit Serbia without taxes or duties imposed. The decision by Serbia to cease recognition PRISTINA 00000085 002 OF 003 of Kosovo as a separate customs territory and removal of customs officials from Serbian gates would eliminate zero-rated Serbian exports to Kosovo, meaning that preliminary duties on goods transiting through Serbia to Kosovo would have to be paid in Serbia. If Kosovo continued to collect duties on goods passing through Gates 1 and D31, third-country manufacturers would in effect have to pay customs fees twice, making export of goods through Serbia to Kosovo highly unattractive. The same principle would apply to goods of Serbian origin destined for Kosovo. Serbian producers, unable to obtain Kosovo end-receipt certificates for an area considered part of Serbia, would no longer escape Serbian indirect taxes on goods destined for Kosovo without an UNMIK presence at the border to issue the certificates. ¶5. (C) Thus far, the indication is that this new Serbian policy will only be applied at Gates 1 and 31. Removing Serbian customs officials from all gates along the Kosovo-Serbia border (as opposed to just Gates 1 and 31) and applying the "single customs zone" policy to every border point between Serbia and Kosovo would magnify the negative impact and in effect constitute a de facto embargo on goods destined for Kosovo, leading to the need to re-route goods through other entry points and raising costs accordingly. This latter is not yet a clearly articulated Serbian government policy, but SRSG Ruecker admitted to COM that this was the implication of what the UN had been told in Belgrade. Possible UNMIK Responses ¶6. (C) The new Serbian policy on customs presents us and UNMIK with a series of generally unattractive options. One option would be to maintain the current situation and not re-staff UNMIK Customs at Gates 1 and D31, simply maintaining an international police presence to monitor the border. In effect, this would move the customs border south of the Ibar River and permit unregulated commercial traffic into northern Kosovo, essentially ceding UNMIK territorial control over this area and effectively annexing northern Kosovo into Serbia proper. Another option, more practical, would be to close the border to all commercial traffic, thereby allowing free flow of passenger vehicles but maintaining UNMIK authority and limiting the potential for smuggling across an unregulated border point. On the downside, this would likely provoke a strong political reaction from Serbs living in northern Kosovo, who would portray the move as an attempt to deny Serbian goods from entering Kosovo (even though goods could continue to enter from the south or, potentially, from other border gates with Serbia). ¶7. (C) A third - and from our perspective, the most viable - option is to re-deploy UNMIK Customs to Gates 1 and D31 and turn away any commercial traffic refusing to pay customs duties. The impact of this policy would be to uphold UNMIK authority, though the increase in customs revenue would be relatively small (on the assumption that commercial traffic will already have paid duties or taxes in Serbia and thereby be unwilling to pay again in Kosovo). The other implication of this policy lies squarely in the security realm: having made it crystal clear that they will meet any reinsertion of customs at the northern gates with violence, the potential for Serb mob action will require an almost constant and resource-intensive presence of both international police and KFOR to protect customs officials and the border points themselves. More, there is also the potential for confrontation with angry commercial drivers over paid or unpaid customs fees. Still, in the absence of such a policy, UNMIK will find its authority diminished to the point where it will be almost impossible to recover. Message to SRSG Ruecker: Re-Establish Customs, Assert UNMIK's Authority ¶8. (C) At a February 26 meeting with SRSG Ruecker and Pillar IV Head Paul Acda, COM, accompanied by USAID Director and EconOff, emphasized the need to re-establish customs PRISTINA 00000085 003 OF 003 officials at Gates 1 and D31 as soon as possible. Ceding UNMIK Customs authority at the gates, she emphasized, cedes control to Serbia as far south as the Ibar River. Ruecker acknowledged that Serbia's agenda to partition northern Kosovo is becoming clearer, and as such poses a direct challenge to UNMIK's mandate. Though he professed a desire to reinstate customs at the two gates, Ruecker was far less concrete on the timeline or the mechanism to do so; he claimed that UNMIK was "working to gather international support through New York to lean on Belgrade," while working with KFOR locally to bring customs personnel back to the gates. ¶9. (C) COM emphasized that both logistical and security challenges need to be overcome quickly, and recommended a coordinated UNMIK-KFOR approach on reintroducing customs to the gates. She also underscored that opening a Serbian customs or tax office in north Mitrovica would be an open provocation and UNMIK should be prepared to take action by closing it down. Ruecker admitted that the specific security implications of the new Serbian customs policy had not yet been assessed and that he would need to discuss with KFOR the probable security needs involved in support of international police efforts, which would likely include sufficient security to protect customs personnel at the gates, security for movements of personnel to and from the gates, and sufficient protection from potential mob violence. UNMIK Pillar IV head Acda also noted that a letter soliciting customs personnel support from EC member states and the U.S. was forthcoming. UNMIK currently has five internationals available to staff Gates 1 and D31 (which is likely enough only to keep Gate 1 functioning while 31 would remain closed to commercial traffic). Though he was unenthusiastic at the prospect of closing down a Serbian tax office if it became functional, Ruecker again expressed his commitment to restoring customs officials at the border with KFOR assistance, and said he would seek confirmation from New York on the approach. ¶10. (C) COMMENT: The re-establishment of UNMIK Customs control at the Gates 1 and D31 is a necessary demonstration of continuing international authority over Kosovo territory. Further delay on this matter while UNMIK still has the authority to take action under 1244 will make any post-UNMIK deployment of customs and other officials to the north virtually impossible. It also tests the patience of Kosovo Albanians who have put up with the ejection of Albanian police, customs officials and judges from the north, but who will be unwilling to countenance a border effectively pushed south of the Ibar. We will continue to impress these equities upon UNMIK and work with KFOR to do everything possible to support international police and enable the swift return of customs officers to these gates. USOP strongly advocates that these message be conveyed to UN New York, as well, since their backing will be necessary for a robust UNMIK approach. END COMMENT. KAIDANOW