VZCZCXRO7175
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVB #0920 2131346
ZNY CCCCC ZZH
R 011346Z AUG 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 6470
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L ZAGREB 000920 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/SCE, EUR/ACE 
USEU FOR MIKE MOZUR 
 
E.O. 12958: DECL: 08/01/2016 
TAGS: ECON ETRD PREL HR
SUBJECT: CROATIA CONCERNED PROTECTIONISM COMPROMISES CEFTA 
 
 
Classified By: EconOff Nicholas Berliner for reasons 1.4 b/d. 
 
¶1.  (C) Summary: Croatian MFA and Ministry of Economy 
contacts have expressed concern with the direction of talks 
on the enlargement of CEFTA.  Min Econ Assistant Minister 
Igor Lucic told EconOff on July 27 that both Serbia and 
Bosnia were taking positions that the Croatian side views as 
incompatible with the spirit and intent of CEFTA and 
represent a step back from the terms of their respective 
bilateral trade agreements.  The sides are also divided over 
the creation and location of a secretariat for CEFTA.  While 
both Croatia and Bosnia have resisted the creation of such a 
body, Serbia is in favor and has offered to host it in 
Belgrade.  MFA State Secretary Hidajet Biscevic told Charge 
on July 31 that, although the GOC does not like this idea, it 
may be willing to consider it as part of a compromise deal 
and a gesture of regional good will.  Both Biscevic and Lucic 
were optimistic that an Aug 1 meeting of regional PMs in 
Salzburg could generate progress towards a compromise 
solution.  End Summary. 
 
¶2.  (C) EconOff met on July 27 with Croatian Ministry of 
Economy Assistant Minister Igor Lucic to discuss progress on 
CEFTA enlargement.  Lucic, a self-described close personal 
friend of PM Sanader from Split and, until recently, director 
of the SEM Marina ferry company, was generally upbeat about 
the prospects for an agreement on CEFTA enlargement by year's 
end.  However, he said that talks were bogged down by what he 
described as intransigence on the part of Bosnia and Serbia, 
who have sought more restrictive conditions for several 
products that are important Croatian exports, including meats 
and milk in the case of Bosnia, and tobacco and petroleum 
products in the case of Serbia.  Lucic noted that both 
countries were trying to create terms more restrictive than 
those spelled out under existing bilateral (and partially 
suspended) agreements, which is not in keeping with the 
spirit of CEFTA.  Both Bosnia and Serbia represent important 
and growing markets for Croatian exporters who, lacking the 
capacity to compete strongly in Western European markets, 
have concentrated their efforts on the markets of the former 
Yugoslavia where many enjoy established brand recognition. 
Lucic cited Bosnia's partial suspension of its bilateral 
trade agreement with Croatia to note that Croatia's commodity 
exchange with Bosnia this year is now 1 percent lower than 
during the equivalent period in 2004 while Bosnian 
agricultural exports to Croatia have risen 32 percent in the 
same period. 
 
¶3.  (C) Lucic said other points where the sides are still far 
apart are on the liberalization of services and public 
procurement, both areas where Croatia believes itself to be 
in a strong position.  He cited Serbia as a particular 
obstacle on these points.  Lucic said Serbia was also 
isolated in its call for a secretariat to oversee CEFTA, with 
he said Croatia, Bosnia, Macedonia and Montenegro all oppose. 
 However, MFA State Secretary Hidajet Biscevic told Charge on 
July 31 that Croatia may be willing to consider Serbia's 
proposal of a secretariat in Belgrade as part of a compromise 
on a final deal and as a demonstration of regional 
cooperation.  Both were optimistic that progress would be 
achieved at an August 1 meeting of regional PMs in Salzburg, 
Austria. 
 
¶4.  (C) Comment: There has been no public discussion in 
Croatia of a Belgrade CEFTA secretariat, which would likely 
stir up controversy, as politicians of various stripes would 
evoke specters of the old Yugoslavia.  In fact, when asked 
directly about PM Sanader's call for Ukraine to be included 
in CEFTA talks, Lucic told EconOff that, while Croatia views 
Ukraine as a part of the family of European nations, 
expanding CEFTA to non-Balkan countries was symbolically 
important for Croatia precisely so that CEFTA would appear 
less like a new Yugoslavia. 
DELAWIE