VZCZCXYZ0000
PP RUEHWEB

DE RUEHPG #0264/01 1201311
ZNR UUUUU ZZH
P 291311Z APR 08
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 0281
INFO RUEHXP/ALL NATO POST COLLECTIVE
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHDC
RHEHNSC/NSC WASHDC
RUEAMDA/MDA WASHINGTON DC

UNCLAS PRAGUE 000264 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV MASS MARR EZ
SUBJECT: CZECH REPUBLIC: EIGHTH VISIT OF THE STATUS OF 
FORCES NEGOTIATING TEAM 
 
REF: PRAGUE 241 
 
------------------------ 
Summary and Introduction 
------------------------ 
 
1.(SBU) From April 22-25, PM Senior Advisor Ambassador 
Jackson McDonald led an interagency team to Prague for the 
eighth round of negotiations with the Czech Republic on a 
Supplemental Status of Forces Agreement (SOFA). Ivan Dvorak, 
Director of Strategy and Policy at the Czech Ministry of 
Defense, led the Czech inter-ministerial delegation. 
 
2.(SBU) Although the Czechs demonstrated little flexibility 
with regard to their strict negotiating mandate, both sides 
eventually hammered out agreement on the following issues: 
 
--- judicial cooperation (e.g., pre-trial confinement, 
conditions, and duration, and evidentiary procedures); 
 
--- non-payment of air navigation and approach fees for 
official flights; 
 
--- required consultations on terms of return of facilities 
upon the departure of U.S. forces; 
 
--- the termination clause, which proved unexpectedly 
difficult; 
 
--- labor. (The Czechs had raised some last-minute concerns 
regarding the previously agreed article relating to the 
relationship between employment conditions and U.S. military 
requirements. These concerns were resolved.) 
 
3.(SBU) As instructed by DOD, the U.S. delegation proposed 
new, more flexible language on the scope issue.  Ambassador 
McDonald underscored that our agreement to limit the scope of 
the SOFA to the ballistic missile defense radar site 
constituted an enormous, unprecedented concession since the 
U.S. has general, broad-scope SOFAs with other NATO allies. 
The Czech greeting our proposal positively but have not 
responded formally, pending review by the Czech cabinet. 
 
4.(SBU) The Czechs proposed abbreviating the environmental 
article in order to obviate the need for "availability of 
funds" language under the U.S. Anti-Deficiency Act. This 
leaves all of the binding environmental commitments as well 
as the required ADA language within the Ballistic Missile 
Defense Agreement (BMDA), which was completed on April 3. 
 
5.(SBU) Taxation remains the last unresolved obstacle to 
completing the SOFA. The Czechs insist that U.S. contractors 
building, operating, and maintaining the radar facility, and 
U.S. contractor employees should pay taxes on profits and 
income generated in the Czech Republic in accordance with the 
U.S.-Czech bilateral tax treaty. Ambassador McDonald 
emphasized that the USG could not concede this issue. Dvorak 
said he would present the tax issue during the Czech 
government,s April 28 meeting. If the Czech government 
grants U.S. contractors tax-free status, the SOFA could be 
concluded quickly, possibly by phone or digital video 
conference. End Summary. 
 
----- 
Scope 
----- 
 
6.(SBU) In an unprecedented effort to reach agreement, the 
U.S. side proposed a radar-site specific SOFA, the provisions 
of which the Parties "shall apply" to other mutually agreed 
activities. The Czechs viewed this as a general SOFA under 
the guise of a limited SOFA. Overnight consultations with 
Washington resulted in a second and final formulation stating 
that the Parties "may apply" the SOFA to other mutually 
agreed activities. In offering this final position, 
Ambassador McDonald emphasized that this marked an 
unprecedented concession unfound in any other supplemental 
SOFA with a NATO ally. The Czech side responded positively. 
Dvorak indicated he would recommend the Government approve 
this new language during its April 28 meeting. 
 
--------------------------------------------- --- 
Availability of Funds and Environment Provisions 
--------------------------------------------- --- 
 
7.(SBU) The Czechs have repeatedly expressed concern that 
parliamentary opponents to the SOFA could negatively utilize 
 
language that ties environmental commitments to U.S. 
availability of funds, as required by the U.S. 
Anti-Deficiency Act (reftel). Dvorak proposed eliminating 
most of the environment article in the SOFA, thereby 
obviating the U.S. requirement to offset those commitments 
with "availability of funds" language. Both sides 
provisionally agreed to delete all but two general 
paragraphs. 
 
8.(SBU) This leaves all of the binding environmental 
commitments as well as the required ADA language within the 
Ballistic Missile Defense Agreement (BMDA), which was 
completed on April 3. 
 
----- 
Taxes 
----- 
 
9.(SBU) Taxation of U.S. contractors and contractor employees 
remains the sole unresolved issue. The Czechs insist that all 
U.S. contractors building, maintaining, and operating the 
radar facility first pay Czech taxes and then seek relief 
under the U.S.-Czech double taxation treaty (reftel). 
Ambassador McDonald made it absolutely clear that the U.S. 
will not concede on the taxation issue and that U.S. 
contractors have tax-exempt status in all other NATO 
countries where we have a supplemental SOFA. The U.S. tabled 
two possible solutions based on other bilateral SOFAs, but 
the Czech side remained intransigent on their position, 
unable (or unwilling) to fight a Ministry of Finance redline. 
On the last day of negotiations Ambassador McDonald enlisted 
the support of Ambassador Graber, who raised the tax issue 
with the Czech Prime Minister at a previously scheduled 
meeting. The Prime Minister said he understood the USG,s 
position and would discuss it with the Minister of Finance 
when the government convened on April 28. 
 
------- 
Comment 
------- 
 
10.(SBU) Now that the U.S. has conceded on scope, both sides 
have clear way to conclude the SOFA.  The Czechs must now 
reciprocate by conceding on taxation. Due to a desire to 
simplify the entire tax system, Finance Minister Kalousek has 
made the taxing of contractors a major "red line" issue.  He 
does not want to create a new, special tax regime. As one of 
the most powerful members of the Christian Democrats 
(KDU-CSL), itself a junior party in the three-party coalition 
government, the main party in the government, ODS, cannot 
simply overrule him. Such a step could jeopardize the 
Christian Democrats, support for the SOFA as well as their 
support for the current government coalition. 
 
11.(U) Ambassador McDonald cleared this cable. 
Graber