NICARAGUA QUITS TRADE NEGOTIATIONS WITH EUROPEANS

UNCLAS SECTION 01 OF 02 MANAGUA 000387

SIPDIS
SENSITIVE

STATE PASS USTR
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN

E.O. 12958: N/A
TAGS: ETRD EAID ECON NU
SUBJECT: NICARAGUA QUITS TRADE NEGOTIATIONS WITH EUROPEANS

REF: A) 08 MANAGUA 1437; B) 07 MANAGUA 0438

Summary
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1. (SBU) On April 1, Nicaragua withdrew from the seventh round of negotiations for an Association Agreement between the European Union and Central America. The Nicaraguan delegation was upset that this demand for a 60 billion euro compensation fund was not seriously considered by all parties. While President Ortega has blamed the Europeans for the breakup of negotiations, other Central American countries have criticized Nicaragua. On April 7, Nicaragua announced it would accept an invitation from the European Commission to meet informally in Brussels on April 23 with other Central American countries to chart a course forward. This incident illustrates our concern that ideology, not common sense, drives Nicaraguan foreign policy. End summary.

60 Billion Euros to Address Asymmetries
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2. (U) On April 1, Nicaraguan Vice Minister of Foreign Affairs Manuel Coronel Kautz announced that Nicaragua had withdrawn from the seventh round of negotiations for an Association Agreement between the European Union (EU) and Central America (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). According to a Ministry of Foreign Affairs press release, "Nicaragua has been unable to convince other Central American delegations to establish . . . necessary safeguards that would allow Central America to . . . find minimum compensation for the profound asymmetries that negotiations with the European Union would imply." By safeguards, Kautz was referring to a Nicaraguan demand that the Association Agreement include the capitalization of a 60 billion euro "Common Economic and Financial Fund," with 90 percent of that sum provided by the EU and the balance by Central American governments.


3. (U) In public, President Ortega has glossed over any disagreement with his Central American colleagues. He explained, "The presidents [of Central America] have decided to back a proposal that would ensure that this process of association does not include political conditions and establishes a development fund that takes into account asymmetries." Instead, Ortega blamed the Europeans for the breakup when he spoke to the press while in Cuba last week. He claimed to have ordered his delegation to withdraw because, "The Europeans want to impose a treaty where they would be the sharks eating us, the sardines." He added, "The Europeans believe we are back in the times of Columbus and . . . they can steal from us just as they did 500 years ago." On trade issues, the terms of the agreement are even harsher than those negotiated in CAFTA-DR, Ortega concluded.

Central Americans, Europeans Call Proposal Unrealistic
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4. (U) Other Central American countries have criticized Nicaragua
for withdrawing from the negotiations. Among the most vocal was
Costa Rican Foreign Minister Bruno Stagno, who called the Nicaraguan
proposal for a 60 billion euro fund "unrealistic" and the decision
to withdraw "inopportune." Salvadoran Vice Foreign Minister Eduardo
Calix said the Nicaraguan withdrawal was unfortunate because parties
were very close to wrapping up negotiations. He added that the
process should continue, and the Nicaraguan delegation would be
welcome whenever it chose to return.


5. (SBU) Marc Litvine, Charge d'Affaires for the European Commission
in Managua, confirmed that the Nicaraguans had in fact presented a
proposal for a 60 billion euro compensation fund, despite opposition
from Costa Rica, El Salvador, and Guatemala. He told Econoff that
the European delegation had rejected the proposal out of hand and
advised the Nicaraguan delegation to "be more realistic." Litvine
explained that in previous rounds, the Nicaraguans had talked about
a 20 billion euro fund. He speculated that the request for 60
billion euro was a misguided negotiating tactic that only served to
further exacerbate tensions between the Nicaraguans and other
Central American delegations.

April 23 Meeting to Regroup
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6. (SBU) Jose Adan Aguerri, President of the Nicaraguan Federation
of Business Associations (COSEP),has called on the Nicaraguan
Government to rejoin the negotiations. Litvine said the European
Commission has invited all participants in the negotiations to meet
informally in Brussels on April 23 to chart a course forward. In
his view, the Nicaraguan delegation is welcome, but its
participation is not necessary. According to an EU press release,
"We are ready and willing to listen carefully to the requests from
Nicaragua and we will spare no effort to find mutually agreeable
solutions." In response, Vice Minister of Foreign Affairs Kautz,
who had called for a six-month moratorium on negotiations, announced
on April 7 that Nicaragua would attend the meeting in Brussels to
present its proposal for a compensation fund.

Comment
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7. (SBU) Ideology, not common sense, drives Nicaraguan foreign policy, especially when hard-line Vice Minister Kautz is at the helm. The Nicaraguan demand for an astronomical compensation fund from the Europeans reflects not only economic asymmetries but also the idea that the Europeans owe Nicaragua and its neighbors for plundering the isthmus during colonial times. When it became clear that other countries preferred a more pragmatic approach to negotiations, the Nicaraguans chose to play the spoiler. However, those close to President Ortega with businesses interests at play -- such as Economic Advisor Bayardo Arce and first-born son Rafael Ortega -- may yet convince President Ortega to moderate his demands for a compensation fund.

CALLAHAN