VZCZCXRO4979
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0285 0850547
ZNR UUUUU ZZH
R 260547Z MAR 07
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 7452
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ZAGREB 000285 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV HR
SUBJECT: Commerce DAS Dyck meets Croatian Ministers of Economy and 
Finance 
 
¶1. SUMMARY: Deputy Assistant Secretary of Commerce Paul Dyck 
discussed possible investment opportunities in Croatia with 
Croatia's Minister of Economy and Minister of Finance. Dyck also 
commended Croatia for its economic progress, notably in working to 
resolve IPR issues. He also raised concerns expressed by US firms in 
Croatia regarding unresolved taxation issues and urged the GoC to 
take action. END SUMMARY. 
 
¶2. During a meeting with Minister of Economy Branko Vukelic, DAS 
Dyck expressed appreciation for the GoC's increasingly active 
commercial relationship with the U.S. and said he was impressed by 
initiatives to reinvigorate the economy, including the Investment 
Promotion Agency, Hitro, the one-stop shop for information on 
administrative procedures in establishing a business in Croatia, and 
two recent programs: Hitro Res and the Export Offensive. DAS Dyck 
mentioned the Department of Commerce's opening of the Invest in the 
USA office. Dyck said U.S. firms are interested in investing in 
energy, infrastructure and biotechnology projects in Croatia. He 
noted, however, that U.S. firms are concerned about lack of 
transparency and the high cost of the labor force in Croatia. 
 
¶3. Vukelic said energy was an important sector for U.S. investment 
and offered opportunities such as an LNG project and the Pan 
European Oil Pipeline (PEOP) project. He said entrepreneurship and 
industrial zones established throughout the country welcome foreign 
investors. He added Croatia's infrastructure is already in place 
with many established highways and rail lines. Vukelic also 
explained Croatia's workforce is not cheap labor because it is a 
knowledge-based society, but added that labor is less expensive than 
in western Europe. He thanked USAID for helping to develop the small 
and medium business sector and said the continuation of GSP will 
help the economy develop further. He said Croatia has created an 
agency for the protection of market competition, intended to ensure 
that all rules are applied fairly and obeyed in the commercial 
market. He added that he would like to see Croatia not only known as 
one of the best tourist destinations, but also one of the best 
business destinations. 
 
¶4. Minister of Finance Ivan Suker told DAS Dyck that Croatia has 
three objectives: macroeconomic stability, successful negotiations 
with the EU and the creation of an entrepreneurial environment to 
encourage domestic and foreign investment. He said he hopes to see 
more companies, like Barr Pharmaceuticals, come to Croatia. DAS Dyck 
commended Croatia for the handling of the Barr-Pliva sale, but said, 
after meeting with several US firms over the two day visit, that 
foreign companies still face challenges, especially in resolving 
taxation issues. Specifically, DAS Dyck discussed concerns of 
Xagent, an authorized Xerox agent, and Phoenix Trade, which 
distributes Sara Lee products. Xagent reported that the GoC is 
charging corporate tax on all of the revenues based on warranty-type 
maintenance and supplies contracts for sold or leased equipment. 
Phoenix Trade is being taxed on promotional activities; however, 
according to Croatian law, companies are exempt from such payments 
when the receiver of the promotional activities has its headquarters 
abroad. Phoenix is appealing the Ministry of Finance ruling that the 
company must pay taxes plus accumulated interest for promotional 
activities. Ambassador Bradtke will submit specific information 
about each firm directly to the Minister since the issues could not 
be resolved during the meeting. DAS Dyck also said companies were 
concerned about lack of transparency in the public procurement 
process, which makes it difficult for some companies to participate. 
 
 
¶5. Minister Suker said it is important for Croatia to be extra 
vigilant on taxation matters regarding multinational companies to 
guard against possible money laundering. He also said both of those 
companies have resident status and therefore must abide by Croatia's 
tax laws.  He said Croatia is aligning its legislation with EU 
legislation so there should be no question of transparency or of 
taxation in Croatia. After the discussion, he said his ministry 
would review both cases. Commenting on the procurement process, 
Suker said Croatia changed the law two years ago, which should make 
the process more transparent. He said the most difficult change will 
be in the mindset of the people involved in the process. He said the 
law should be fully implemented by the end of this year. 
 
¶6. Suker also questioned the delay in negotiating a Bilateral Tax 
Treaty between the U.S. and Croatia. DAS Dyck said he would work 
with AMCHAM and U.S. firms to provide a status report to the U.S. 
Treasury to advance Croatia in the queue. He said investments, such 
as Barr, will help make Croatia a higher priority. 
 
BRADTKE