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UNCLAS SECTION 01 OF 03 WARSAW 000050 
 
SIPDIS 
 
STATE FOR EUR/NCE/MSESSUMS 
STATE PASS USTR FOR DONNELLY/ERRION 
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS 
 
E.O. 12958: N/A 
TAGS: PREL EFIN ECON PL CVIS ETRD
SUBJECT: POLAND: Scenesetter for CODEL Duncan Visit, January 
19-21, 2006 
 
 
Summary 
------- 
 
¶1. (U) Poland with an area of 313,000 square kilometers is 
about the size of New Mexico.  Poland's population of 38.6 
million (2004 est.) is 96 percent ethnically Polish and 
almost entirely Roman Catholic.  However, there are also 
small German, Belarussian, Roma, Ukrainian, Jewish and 
Russian minorities.  Poland ranks eighth in Europe in 
population, and sixth within the expanded European Union. 
According to the most recent IMF data, the Poland's GDP 
totaled $242 billion GDP in 2003, while per capita GDP was 
$6300.   Poland thus accounts for about 8 percent of the 
EU25 population, but only 2 percent of EU25 GDP.  Polish 
public opinion, given close and long-standing ties to the 
U.S. rooted in past Polish immigration (there may be 10 
million Americans of Polish ancestry), generally supports 
U.S. policies and American ideas about democracy and free 
markets.  Poland shares U.S. views on the importance of 
human rights and remains an active supporter of the 
international human rights agenda.  Despite support among 
elites for Polish engagement in Iraq, however, the Polish 
public remains deeply skeptical, with large majorities 
favoring withdrawal.  Poland's media, while still evolving, 
play a largely positive role in promoting lively political 
debate, rooting out problems such as corruption, and 
furthering the marketplace of ideas. 
 
Political Overview 
------------------ 
 
¶2. (U) Poland is one of our closest allies, and there is 
much official and public support for a close relationship 
with the United States as well as for strong trans-Atlantic 
relations.  The close political and strategic relations 
Poland and the United States enjoy are often regarded in 
terms of a "special relationship," of the sort that the 
United States has with Great Britain and other key allies. 
The Poles are intent on sustaining and even deepening this 
relationship, which they view as strengthening Poland's 
position within an expanded European Union. 
 
¶3. (U) On September 25, center-right Law and Justice (PiS) 
founded and led by identical twin brothers Jaroslaw and Lech 
Kaczynski, won parliamentary elections in Poland with 26.99 
percent of the popular vote. PiS was followed closely by the 
centrist Civic Platform (PO), which won 24.14 percent of the 
votes.  For two years before the elections, these parties 
planned to form a coalition.  Coalition talks unexpectedly 
failed in October after PiS candidate Lech Kaczynski edged 
out PO's Donald Tusk in the Presidential run-off. (Note: 
President Kaczynski assumes office on December 23). PiS 
Prime Minister Kazimierz Marcinkiewicz instead formed a 
minority government of 18 ministers: 10 PiS loyalists and 8 
apolitical policy experts.  Thus far, PiS has effectively 
courted support from third place finisher Self Defense (SO), 
headed by the controversial populist Andrzej Lepper, and 
from the ultra conservative League of Polish Families (LPR), 
headed by Roman Giertych. Given that the support of these 
two extremist parties is tenuous, PiS leaders have indicated 
they will seek early elections if they are not able to 
achieve their legislative agenda.  Should new elections be 
held in the near future, current polls show PiS would 
improve its standing in parliament, as would PO. 
 
¶4. (U) The new GOP supports strong partnership with the 
United States, and has publicly vowed to keep troops in Iraq 
until July 2006.  We expect a decision in the next ten days. 
The Kaczynskis and their party are Euro-skeptic and during 
last fall's campaign promised to be more forceful when 
dealing with Russia and Germany.  However, they realize that 
Polish integration into the EU and NATO is crucial to 
Poland's economic and political growth, and will continue 
along the broad outlines of the Poland's existing foreign 
policy. 
 
 
Economic Overview 
----------------- 
 
¶5. (U) Poland's economy continues to grow at a decent rate 
after several years of sluggish growth at the beginning of 
the decade.  Although final data are not available for 2005, 
most observers think GDP grew 3.5 percent in 2005.  For the 
second year in a row, one of the most important drivers 
behind this growth is strong exports (up over 16 percent in 
2005), particularly to EU markets.  Based on this record of 
growth, foreign companies, and at a slower pace, also 
domestic companies have resumed investing.  Industrial 
production is up almost 8 percent in the last quarter of 
¶2005. 
 
¶6. (U) The rapid expansion of domestic demand in the latter 
half of the 1990s, combined with the Russian financial 
crisis of 1998, led to a worrisome deterioration in Poland's 
external finances.  The current account deficit peaked at 
7.5 percent of GDP in 1999.  Since then, significantly 
slower import growth and a strong export performance have 
cut the deficit, which fell from 4.2 percent in 2004 to 1.3 
percent in 2005, despite significant real appreciation of 
the zloty.  The U.S. is a relatively small trading partner 
for Poland, accounting for roughly two percent of its total 
trade volume.  In 2004, U.S. exports to Poland totaled 
$929.2 million, while U.S. imports from Poland totaled 
$1,821.5 million. In the first ten months of 2005 U.S. 
exports reached $1.03 billion while imports from Poland 
stood at $1.6 billion. 
 
¶7. (U) Poland has attracted more than $85 billion of foreign 
direct investment (FDI) since 1990, according to the Polish 
Agency for Foreign Investment (PAIZ).  U.S. companies have 
invested a combined total of over $14 billion in Poland 
since 1990.  The PAIZ estimates that FDI inflows for 2005 
exceeded $8 billion, close to the record level of $10 
billion reached in 2000.  Large-scale FDI and portfolio 
inflows have allowed net official reserves to increase, from 
$21.2 billion at the end of 1997 to over $40 billion at the 
end of 2005. 
 
EU Perspectives 
--------------- 
 
¶8. (U) Poland's accession to the European Union in May 2004 
and integration with the internal European market will 
accelerate modernization and strengthen the competitive 
position of Polish business.   The entry into the EU of such 
a close ally -- and one so clearly determined as Poland to 
deepen bilateral relations with us further -- should serve 
to strengthen the relationship of the U.S. and the European 
Union and encourage greater European engagement in facing 
global challenges.   For the present, the Poles remain 
concerned about continuing strains in the transatlantic 
relationship over Iraq and other issues, and hope that their 
new EU partners and the U.S. can resume their traditional 
cooperation as quickly as possible.  And while Poland is not 
likely to be the U.S. "Trojan horse" that some in Brussels 
have feared, accession raises to the forefront several 
issues of particular importance to Poland that may give rise 
to conflict with the Commission: agriculture, labor 
mobility, and state aids for declining rustbelt industries. 
 
¶9. (U) Agriculture: Approximately 16 percent of all working 
Poles are employed in farming, the highest percentage in the 
EU25.  Nevertheless, the farm sector accounts for only 3 
percent of GDP.  Ironically, while Polish farmers were some 
of the most vocal opponents of accession, they have also 
been among the biggest early winners.  Due mainly to 
purchases of meat by buyers from the Netherlands and 
Germany, some Polish farmers have seen farm-gate prices for 
their livestock rise almost 60 percent since accession.  Not 
all Polish farmers have enjoyed this windfall, however, and 
the main concern among them (and the Polish government) is 
that EU agricultural subsidies be phased in as quickly as 
possible and not be reduced. 
 
¶10. (U) Labor Mobility: Poland's unemployment (17 percent 
plus) is the highest in EU.  The demographic bulge is now 
reaching working age, and youth unemployment exceeds 35 
percent.  The UK, Ireland, Sweden, and the Netherlands have 
opened their markets to Polish workers effective May 1, 
2004, and more than 100,000 Poles have found jobs in these 
countries over the past 20 months.   Poland is rapidly 
creating one of the best-educated labor forces in Europe. 
In 2004, more than 1.80 million students were enrolled in 
Poland's universities and schools of higher education, not 
far behind the 2.3 million studying in Germany - a country 
more than twice as large.  Foreign investors consider the 
large available pool of college graduates to be one of the 
chief attractions of the Polish economy.  In recent years, 
dozens of U.S. and European firms have located outsourcing 
and business processing operations to Poland to take 
advantage of its highly educated labor force.  Despite such 
improvements, it will take some years before economic growth 
is able to bring down the rate of employment to moderate 
levels.  To relieve labor market pressures, Polish policy- 
makers continue to advocate removal of the remaining labor 
market restrictions within the EU (especially in Germany, 
France, and Austria) as rapidly as possible. 
¶11. (U) State Aids: Infrastructure investment remains an 
important issue for Poland, which rightly sees its miserable 
road system as a brake on economic development.  Poland 
looks to the EU to provide funding which will accelerate the 
removal of this bottleneck.  The restructuring of declining 
rust-belt industries (coal mining, steel, ship-building, and 
railways) remains politically sensitive due to the difficult 
labor market situation.  Poland will be looking for EU 
tolerance of continued subsidies to these sectors, including 
exceptions from certain state aids restrictions.