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Viewing cable 07STATE470, DEMARCHE TO ROMANIA AND BULGARIA ON BILATERAL

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Reference ID Created Released Classification Origin
07STATE470 2007-01-03 21:29 2011-08-25 00:00 UNCLASSIFIED Secretary of State
VZCZCXYZ0040
OO RUEHWEB

DE RUEHC #0470 0032136
ZNR UUUUU ZZH
O P 032129Z JAN 07
FM SECSTATE WASHDC
TO RUEHBM/AMEMBASSY BUCHAREST IMMEDIATE 0000
RUEHSF/AMEMBASSY SOFIA IMMEDIATE 0000
INFO RUEHBS/USEU BRUSSELS PRIORITY
UNCLAS STATE 000470 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: BU ETRD EUN RO
SUBJECT: DEMARCHE TO ROMANIA AND BULGARIA ON BILATERAL 
TRADE AGREEMENTS WITH THE UNITED STATES 
 
REF: A. A) BUCHAREST 1804 
 
     B. B) SOFIA 1613 
     C. C)USEU/DASTIN-USTR/MOLNAR EMAIL 12/09/06 
 
1. THIS IS AN ACTION REQUEST.  SEE PARAGRAPH 19. 
 
2.  SUMMARY: Per refs a and b, the Governments of Romania and 
Bulgaria have recently presented diplomatic notes to 
Embassies Bucharest and Sofia, respectively, proposing to 
amend or terminate several economic agreements with the 
United States in anticipation of their accession to the 
European Union.  Both appear to be doing so on direction from 
the European Commission.  The USG has maintained the position 
that no changes to our bilateral agreements with EU Members 
are necessary unless specific incompatibilities with EU law 
have been identified.  We would like to strongly encourage 
Bulgaria and Romania to maintain the existing agreements with 
the United States, with the exception of two agreements that 
we consider to be obsolete.  Washington agencies request that 
action addressee posts convey to host governments the key 
points in paragraph 19 to address GO and GOR concerns about 
the agreements. 
 
 
Background 
 
3.  Bulgaria and Romania have presented the United States 
with notes verbales regarding the compatibility of certain 
bilateral agreements with European Community law in light of 
these countries' accession to the European Union on January 
1, 2007 (refs a and b).  The GOB proposes to terminate two 
agreements, a 1995 Agreement for the Protection of 
Intellectual Property Rights and a 1938 Agreement on Waiver 
of Legalization of Certificates of Origin; and to amend a 
third, the bilateral Agreement on Trade Relations 
(US-Bulgaria BTA).  The GOR proposes to replace the bilateral 
Agreement on Trade Relations between the Government of the 
United States of America and the Government of Romania 
(US-Romania BTA) with a newly negotiated economic cooperation 
agreement (ECA) and to terminate an agreement on Long-Term, 
Industrial, Economic, and Technical Cooperation.  Both 
countries have indicated that the changes requested come as a 
result of reviews taken to harmonize their agreements with 
the EU's common trade policy. 
 
4.  The issues raised by the GOB and GOR are similar to those 
raised during the May 2004 enlargement of the European Union. 
 At that time, the European Commission pressured acceding 
countries to terminate their bilateral trade agreements 
(BTAs).  The Commission appears to have asserted that those 
agreements were incompatible with EU membership on the basis 
of overall Community competence over trade matters, rather 
than because of specific incompatibilities with the EU's 
"acquis communautaire."  Our position then was that there was 
no legal requirement for the agreements to be terminated if 
specific incompatibilities with the "acquis" were not 
identified.  We pointed out that 13 of the 15 then-EU members 
(all but Sweden and Portugal) had Friendship, Commerce and 
Navigation Treaties (FCNs) with the United States (containing 
trade provisions) that remained in force, and thus an unfair 
demand was being made of the new candidates.  Although no 
incompatibilities were identified, in the end, the Czech 
Republic, Hungary, and Slovakia all elected to terminate 
their BTAs with the United States.  Only Latvia maintained 
its BTA.  Poland retained a hybrid trade and investment 
treaty, although, per information below, the investment 
section of this treaty was amended. 
 
5.  EU law and practice to date do not support a requirement 
to terminate the Bulgarian and Romanian agreements in 
question.  Article 6 of the Act of Accession; Article 307 of 
the Treaty of Establishing the European Community; and 
Council of Ministers Decision 2001/855/EC, which expired in 
April 2005, permit the continuation in force of pre-existing 
agreements in areas of Community competence, if they do not 
contain incompatibilities with EU legislation and 
obligations.  (The expired 2001 decision was only the last in 
a series of five-yearly decisions  going back decades, that 
left these agreements in place without challenge.)   If there 
are incompatibilities, Members are required only to take 
appropriate steps (e.g. amendment) to eliminate those 
incompatibilities; according to the Act of Accession, Article 
6(10), termination of those agreements is required only if 
such adjustments are not possible before accession.  We 
understand that Commission Legal Services has, over the past 
year or so, conducted a comprehensive review of all 
agreements listed in Decision 2001/855/EC to determine their 
compatibility with the acquis, but we are not aware of its 
conclusions or of any decision having been taken on what 
action might be necessary.  DG Trade recently informed USEU 
Brussels (reftel C) that in theory, if there are instances of 
incompatibilities with the EU treaty, or EC regulations and 
directives, they can be challenged in the European Court of 
Justice (ECJ).  However, to date, no cases have been filed by 
the Commission in relation to any of the US. bilateral 
treaties with existing Members States.  A Member State 
contact confirmed to USTR that a gentlemen's agreement exists 
between the Commission and the Member States providing that 
the Commission will not file a case in the ECJ on this issue, 
and that Member States will review their agreements for 
potential problems with EU regulations.  If problems are 
perceived, a Member State may decide that problematic parts 
of the treaties should be changed. 
 
Agreements and the May 2004 Enlargement 
 
6.  In 2003, after extensive consultations with the European 
Commission and EU accession candidates regarding Bilateral 
Investment Treaties (BITs) between the United States and many 
of those candidates, including Bulgaria and Romania, 
agreement was reached on certain common amendments to the 
BITs and accompanying interpretations in order to address any 
potential incompatibilities with the EU acquis.  Those 
amendments received Senate advice and consent, and are now in 
force for the Czech Republic, Estonia, Latvia, Lithuania, 
Poland, and Slovakia.  We expect to exchange instruments of 
ratification to bring into force the amendments of the BITs 
with Bulgaria and Romania. 
 
7.  After the BIT negotiations were concluded and before the 
May 2004 enlargement, several acceding countries approached 
the USG seeking to terminate their BTAs with the United 
States or to replace them with economic cooperation 
agreements (ECAs) akin to the one Romania is proposing now. 
In 2005, the Government of Hungary decided to let its BTA 
with the United States lapse without renewal according to 
that agreement's schedule, and in 2004, the Czech and Slovak 
Republics terminated their BTAs in accordance with their 
terms.  The Latvian government sought to terminate its BTA 
and to negotiate a new ECA.  The United States persuaded 
Latvia to retain its BTA after the GOL failed to demonstrate 
any specific legal incompatibilities between the agreement 
and EU law. 
 
8.  Like most of the original EU 15 Member States, a number 
of the Members States that joined in 2005, namely Estonia, 
Latvia, Malta, and Slovakia also have not terminated their 
FCN relationships with the United States.  It is possible 
that the comprehensive Commission review referred to in para 
5 above will lead to requests to terminate or amend some or 
all of those FCNs. 
 
 
US-Bulgaria and US-Romania BTAs 
 
 
9.  The US-Bulgaria BTA, which entered into force on November 
22, 1991 for an initial term of three years, is automatically 
extended for successive terms of three years unless either 
Party gives written notice to the other Party of its intent 
to terminate the agreement at least 30 days prior to the 
expiration of the current term.  The current term began on 
November 22 2006 and the BTA thus cannot be terminated 
unilaterally until November 22, 2009.  The BTA also provides 
that if either Party foresees a problem with domestic legal 
authority, the agreement requires that Party to request 
immediate consultations with the other Party.  The other 
Party is obligated to enter into consultations as soon as 
possible with a view to finding a solution.  If either Party 
does not have domestic legal authority to carry out its 
obligations, it may unilaterally suspend the application of 
the Agreement, or, with the agreement of the other Party, any 
part of the Agreement. 
 
10.  The GOB proposes not to terminate or suspend the BTA, 
but to amend the BTA by mutual agreement to remove core 
bilateral trade commitments such as Most Favored Nation and 
National Treatment, market access provisions for products and 
services, financial provisions, import safeguards, general 
exceptions, and intellectual property rights, including a 
side letter on IP. 
 
11.  The US-Romania BTA, which entered into force on November 
8, 1993 for an initial term of three years, also is 
automatically extended for successive terms of three years 
unless either Party gives written notice to the other Party 
of its intent to terminate the agreement at least 30 days 
prior to the expiration of the current term.  The current 
term begins on November 8, 2005 and cannot be terminated 
unilaterally until November 8, 2008.  The US-Romania BTA 
contains the same provisions as the US-Bulgaria BTA regarding 
potential and actual problems with respect to domestic legal 
authority to carry out obligations under the agreement.  The 
GOR proposes to replace the BTA with a new ECA through 
negotiations by mutual agreement. 
 
12.  The GOR has generally asserted problems, but no 
specifics, with respect to the compatibility with EC law of 
the US-Romania BTA's articles related to the application of 
GATT and certain GATT agreements, government commercial 
offices, and business facilitation, and for that reason 
proposes to negotiate a new ECA.  The draft text of the ECA 
that the GOR provided contains little in terms of obligations 
and consists mainly of pledges to increase bilateral 
cooperation in a number of sectors and areas.  The USG does 
not view the proposed ECA as equivalent in substance to the 
existing BTA.  Provisions under the BTA related to 
intellectual property rights and transparency are 
particularly important to us.  As a matter of 
policy/principle, we disfavor terminating agreements 
unnecessarily, even if they are reaffirming WTO principles 
such as national treatment or most favored nation treatment. 
Further, it is unclear what the specific concerns are about 
the areas the GOR has identified as problematic, especially 
with respect to the standard business facilitation and 
government commercial office articles. 
 
 
US-Romania Long-Term Industrial, Economic, and Technical 
Cooperation Agreement 
 
 
13.  The USG has reviewed this 1976 agreement and agrees with 
the GOR that it should be terminated.  The Joint Commission 
that it sets up is now defunct and many of the cooperative 
activities that it covers are mentioned in the BTAs.  Even if 
the BTA were terminated, the 1976 agreement is so dated that 
we would not see the utility of retaining it. 
 
14.  The Agreement, which entered into force on May 5, 1977, 
provides for an initial term of ten years, and is 
automatically renewed for successive one-year periods unless 
either Party provides six-months written notice of intent to 
terminate.  The Agreement could be terminated unilaterally by 
delivery of a note by the GOR of its intent to do so in 
accordance with the Agreement.  The Agreement would terminate 
at the earliest 6 months after such notice is given. 
Alternatively, the two countries could conclude a separate 
agreement to terminate the 1976 agreement.  For the United 
States, Circular 175 authority would be necessary for such 
mutual terminations. 
 
 
US-Bulgaria Waiver of Legalization of Certificates of Origin 
Agreement 
 
15.  The USG has reviewed this 1938 agreement and agrees with 
the Bulgarian analysis that it is very outdated.  The 
agreement would sanction parts of border regimes that were 
discontinued long ago. 
 
16.  The Agreement does not contain a provision regarding its 
termination.  The two countries could conclude a separate 
agreement to terminate the 1938 agreement.  For the United 
States, Circular 175 authority would be necessary for such 
mutual termination. 
 
US-Bulgaria 1995 Agreement on the Protection of IP 
 
 
17. The US-Bulgaria 1995 Agreement on the Protection of IP 
entered into force when Bulgaria was a key location in Europe 
for optical disc piracy.  The 1995 Agreement includes 
important measures to regulate and enforce optical disc 
imports, exports, manufacturing, or distribution, and 
specific details that flush out how to apply TRIPs Agreement 
commitments in this particular situation.  The Agreement, 
among other things, established specific commitments 
regulation on the registration of optical disc production 
equipment so that legitimate production could occur and 
sufficiently severe penalties for violations to create a 
significant deterrence against future violations.  Although a 
new optical disc law took effect in Bulgaria in September 
2005, the commitment and provisions in the 1995 Agreement 
remain important in the case of Bulgaria, especially because 
enforcement of the optical disc law and presence of pirated 
problems remain as problems. 
 
18.  The United States has a bilateral IPR agreement with 
Hungary.  The Hungarian Government did not raise the 
bilateral IPR agreement with us in the enlargement context: 
likely it knew the importance attached to the agreement and 
what the USG reaction would be.  The BTA with Latvia contains 
a detailed IPR section. 
 
 
Action Request and Key Points 
 
 
19.  In responding to the GOB and GOR requests, Washington 
suggests that posts draw on the following key points: 
 
Begin points; 
 
Romania and Bulgaria:  Bilateral Agreements on Trade 
Relations (BTAs) 
 
--  We are very interested in maintaining our BTA with 
Romania/Bulgaria as the BTA has stood as an important 
foundation and symbol of our close relationship on a number 
of important issues.  The agreements provide important 
protections for Bulgarian/Romanian and US. exporters.  The 
sections on IPR, transparency, and even those related to 
business facilitation remain particularly important to us, 
although others which bilaterally reaffirm WTO principles 
(MFN, national treatment) are of value as well. 
 
--   The United States retains Friendship, Commerce, and 
Navigation Treaties (containing three provisions) with 13 of 
the original EC 15 member states and a number of the 2004 
entrants, a BTA with Latvia and a business and economic 
relations treaty with Poland. 
 
--  While the European Commission has reviewed some of these 
agreements in the past, Member States have not amended them, 
and there has not to date been any litigation against Member 
States for retaining the agreements. 
 
--  We should encourage the GOB/GOR to insist that the 
Commission treat Bulgaria and Romania the same as other EU 
Member States.  As new members of the EU, they have rights 
under the European Community Treaty permitting them to retain 
treaties/agreements that are not incompatible with their EC 
legal obligations.  We believe this is especially appropriate 
in the case of treaties and agreements with the United 
States, a longstanding partner, friend, and ally of their 
country. 
 
-- Remind the GOB/GOR that, although it has listed certain 
provisions in the BTA that it seeks to eliminate, it has not 
provided any explanation of specific legal incompatibilities 
between the BTA and EC law, and request that it do so. 
 
-- Inform the GOB/GOR that the USG is willing to discuss any 
specific incapability identified in the BTA and that a video 
conference or other communication with Washington exports on 
the treaty can be arranged, if necessary. 
 
-- If appropriate, remind the GOB/GOR that the United States 
amended its BITS with candidate countries in 2003, and that 
we soon expect such BIT amendments with Romania and Bulgaria 
to enter into force. 
 
--  We should point out that under the BTAs, unilateral 
termination of the agreement is permitted only upon written 
notice at least 30 days prior to the end of the current 
three-year term. 
 
(For Bulgaria -- if needed) 
 
--  The GOB proposes to remove core bilateral trade 
commitments such as Most Favored Nation and National 
Treatment.  IF the GOB argues that these commitments are 
provided for in the WTO, stress that we place significant 
value on the bilateral expression of these principles. 
 
-- If the GOB indicates that its entry into a customs union 
creates a problem under the BTA, explain that a customs union 
does not create a problem in terms of the GOB's BTA 
commitment.  There is an exception in Article 1.4 of the BTA 
for preferential treatment that is afforded as part of a 
customs union or free trade agreement. 
 
-- If the GOB raises the market access provisions, explain 
that the market access provisions correspond to core WTO 
principles related to technical barriers to trade and other 
duties and charges and ask them to identify the specific 
problem under EC law. 
 
-- If the GOB raises the financial provisions, explain that 
they are standard requirements on the free movement of 
currencies and that we would appreciate an explanation of any 
specific problem with them under EC law. 
 
-- It is particularly problematic that the GOB is seeking to 
remove IPR obligations as they reaffirm Bulgaria's commitment 
to international agreements and conventions on IPR and 
provide for adequate and effective protection of copyrights, 
related rights, trademarks, patents, layout designs of 
semiconductors, and trade secrets.  The agreement also 
provides a valuable framework for IPR enforcement that 
previously appears to have assisted Bulgaria in addressing 
piracy and counterfeiting, particularly in the area of 
enforcement against optical disc pirate production. 
 
(For Romania - if needed) 
 
-- The GOR has cited Article 1 of the US-Romania BTA as 
problematic under EC law.  If Article 1 is raised 
specifically, we should explain that it reaffirms adherence 
to the GATT Agreements and ask them to identify the specific 
problem under EC law. 
 
-- If the GOR raises the article on government commercial 
offices, we should note to the GOR that the United States, 
Romania, and the vast majority of EU Member States maintain 
such offices and should ask GOR to explain its specific 
concerns with respect to this article. 
 
-- Similarly, if the GOR raises the article on commercial 
representations, we should ask for an explanation of the 
specific concerns under EC law regarding the provision of 
commercial representations from the other Party and providing 
basic rights to run an office in one another's country.  The 
rest of the provisions relate of the ability of companies to 
do things like hire agents, conduct sales, do market studies, 
etc.  We do not see why any of these provisions are 
problematic under EC law. 
 
Romania:  Proposed New Economic Cooperation Agreement (ECA) 
 
-- We should express to the GOR that we appreciate its 
efforts to frame and alternative economic cooperation 
agreement (ECA), but that t we do not see specific legal 
incompatibles between the existing BTA and EC law.  We should 
explain that we do not terminate existing agreements lightly, 
especially when their obligations remain relevant.  We do not 
see particular value in the type of ECA suggested by the GOR. 
 
Romania:  1976 Long-Term Industrial, Economic, and Technical 
Cooperation Agreement 
 
-- We should inform the GOR that we agree that the 1976 
agreement is now very out of date.  Many of the issues in it 
are superseded by the BTA, in any case. 
 
-- If the GOR sends a diplomatic note of its intent to 
terminate this agreement in accordance with its terms, it 
shall be considered terminated upon expiration of the 6-month 
notice period. 
 
-- If the GOR wishes for this agreement t be terminated 
mutually, the USG would be willing to consider this. 
However, the USG must first receive the domestic authority to 
do so. 
 
Bulgaria:  Waiver of Legalization of Certificates of Origin 
Agreement 
 
-- Inform the GOB that we have reviewed this agreement and 
agree that it is very outdated and does not reflect the 
current framework in which we are trading. 
 
--  We will proceed as the GOB suggested in its note and we 
will prepare a formal response to your diplomatic note to 
terminate this agreement.  The USG must first receive the 
domestic authority to do so. 
 
Bulgaria:  1995 Agreement on Intellectual Property 
 
--  Since the signing of the 1995 Agreement, the GOB has 
adopted a new Optical Disc Media Law that went into effect in 
September 2005, under which Bulgarian authorities have made 
commendable efforts to conduce unannounced inspections of 
licensed plants.   We should urge the GOB to continue to 
honor the 1995 Agreement by monitoring its licensed optical 
disc plants and providing enforcement against pirate 
protection. 
 
-- In addition, the 1995 Agreement includes an obligation for 
Bulgaria to apply effective and deterrent criminal and 
administrative penalties for IPR infringement.  We should not 
to the GOB that we understand that enforcement problems 
remain today in Bulgaria, as noted in our 2006 Special 301 
Report.  Clearly, the 1995 Agreement's elements of 
enforcement and regulation of the production of optical media 
goods remain relevant today. 
 
-- Remind the GOB that our two governments are working 
together to assess whether or not Bulgaria should be removed 
from our Special 301 Watch List. 
 
This work focuses on enforcement problems in particular. 
Absent any demonstrated incapability with EC law, Bulgaria's 
proposal to terminate our Bilateral IP Agreement (as well as 
significant provisions of the IP letter that is part of our 
BTA) would undermine ongoing and important efforts in this 
area.  (Consider adding:  Please note that the US. bilateral 
IPR agreement with Hungary and the detailed IPR section of 
the US BTA with Latvia have not demonstrated any 
incompatibility issues with EC law since those Member States 
acceded to the EU. 
 
Indicate to the GOB that we hope to continue to work with GOB 
officials on IPR issues utilizing a variety of tools, 
including the Bilateral IP agreement and IP Side Letter, 
which have assisted the two countries in making progress to 
date and improving Bulgaria's investment regime. 
 
End points. 
 
Please slug responses for State (SKo, JStruble, JUrban), USTR 
(LMolnar), Commerce (SSavich, K Najdi) 
RICE