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Viewing cable 06ZAGREB135, FREE TRADE PROPOSAL TOUCHES OFF STORM IN ZAGREB

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Reference ID Created Released Classification Origin
06ZAGREB135 2006-02-01 16:03 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Zagreb
VZCZCXRO4000
RR RUEHIK
DE RUEHVB #0135/01 0321603
ZNR UUUUU ZZH
R 011603Z FEB 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 5637
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 02 ZAGREB 000135 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR FOR EUR/SCE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ECIN EU HR
SUBJECT: FREE TRADE PROPOSAL TOUCHES OFF STORM IN ZAGREB 
 
 
ZAGREB 00000135  001.2 OF 002 
 
 
1.  (SBU) Summary and Comment:  The European Union touched 
off an exaggerated, if predictable reaction in Croatia last 
Friday when it gave its support to the Stability Pact Free 
Trade Agreement for Southeast Europe.  Seized upon by a press 
corps ever eager to stir up controversy and let political 
blood, the proposal was portrayed at best as an effort to 
stall Croatia's progress towards the EU and, at worst, an 
overt attempt to create a new Yugoslavia.  The far right was 
quick to take the bait and rational voices were hard to hear 
among the din of political and nationalist grandstanding. 
 
2.  (SBU) Prime Minister Sanader reacted more deftly, 
appeasing party faithful by stating the obvious that any 
attempt to rebuild Yugoslavia was unacceptable, but leaving 
himself room for maneuver by saying that Croatia would 
support the creation of such a zone within the framework of 
the Central European Free Trade Agreement (CEFTA).  Sanader 
has left himself a face-saving way out of this one, but will 
need help re-branding the proposal as being within the 
framework of CEFTA, which he can then sell as a concession to 
Croatia's demands.  End Summary and Comment. 
 
A Predictable Reaction 
---------------------- 
3.  (SBU) Croatia's reaction to the EU's backing of a 
Southeast Europe free trade zone was not entirely 
unpredictable.  An MFA contact told us that the GOC viewed 
the proposal as a draft agreement and so was caught by 
surprise when Enlargement DG Rehn endorsed it publicly.  With 
EU membership the top government priority and optimistically 
predicted by 2009, many here questioned the utility of 
entering into an agreement that would be obviated so shortly 
after coming into force.  Furthermore, Croatia, like Slovenia 
before it, is eager to leave its "Balkan" and "Yugoslav" past 
behind and take what many here view as its rightful and 
historical place among the nations of "Central Europe," so 
associations with its southern neighbors produce a 
predictably neuralgic reaction here.  In this context, the 
government found itself at a loss to explain a proposal that 
it was actually fully aware of beforehand. 
 
Current Web of Free Trade Agreements 
------------------------------------ 
4.  (SBU) Croatia has maintained that any free trade 
agreement must be based on CEFTA.  Croatia is a member of 
CEFTA and has bilateral free trade agreements with all the 
countries of the region.  CEFTA, originally conceived to 
bring the Visegrad 10 closer to EU membership, is the victim 
of its own success, with Bulgaria, Romania and Croatia the 
only remaining members.  With EU accession expected for 
Bulgaria and Romania next year, the organization would 
essentially cease to exist, absent an enlargement.  Until 
now, the criteria for CEFTA membership, which Croatia has 
been resistant to change, have been WTO membership and the 
existence of a Stability and Association Agreement (SAA) with 
the EU - points on which neither Serbia and Montenegro nor 
Bosnia and Herzegovina would qualify for membership.  Our 
contacts here now say that Croatia will support a relaxation 
of these criteria, as well as possibly the most cumbersome 
aspect of CEFTA, which is that new members require 
parliamentary ratification of their membership applications 
among existing members. 
 
If It Ain't Broke, Why Fix It? 
------------------------------ 
5.  (SBU) Many in Croatia contend that existing arrangements 
are sufficient for Croatia, particularly given what they hope 
is the short path to EU membership.  Croatian businesses have 
clearly benefited from these agreements, with exports to 
Serbia alone up nearly 50% last year.  Croatia would 
seemingly have the most to gain from a regional free trade 
zone, as Southeast Europe represents the best export markets 
for its products, which are only marginally competitive 
elsewhere.  Yet there is an attitude that the current system 
works fine.  A contact in a large agro-industrial producer 
here told us that his company, which is a large exporter, 
currently pays 1% duties in all of the countries of the 
proposed free trade zone, so that for them, this is only a 
question of politics.  He conceded, however, that this might 
not be the case between the other members. 
 
Sanader's Dodge 
--------------- 
6.  (SBU) An artful politician, PM Ivo Sanader reacted to the 
proposal by saying that Croatia would oppose any attempts to 
create a new Yugoslavia, but that his government would 
support the creation of a new free trade zone within the 
framework of CEFTA.  This is actually the reiteration of a 
long-standing Croatian line on the idea of a regional free 
 
ZAGREB 00000135  002.2 OF 002 
 
 
trade zone and gives Sanader the room to claim victory among 
the more conservative elements here, but still enable Croatia 
to join an agreement.  Clearly there is very little 
enthusiasm for this idea in Zagreb, but Sanader is also a 
realist and does not want to be seen as obstructing the EU's 
agenda for the region. 
FRANK