VZCZCXRO8213
PP RUEHIK
DE RUEHPS #0447/01 2860739
ZNR UUUUU ZZH
P 130739Z OCT 09
FM AMEMBASSY PRISTINA
TO RUEHC/SECSTATE WASHDC PRIORITY 9343
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHNO/USMISSION USNATO 1219
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUCNDT/USMISSION USUN NEW YORK 1743
RHFMIUU/AFSOUTH NAPLES IT
RHMFISS/CDR TF FALCON
RHEFDIA/DIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEPGEA/CDR650THMIGP SHAPE BE
RHEHNSC/NSC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUZEJAA/USNIC PRISTINA SR

UNCLAS SECTION 01 OF 04 PRISTINA 000447 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EUR/SCE, EUR/PGI, INL, DRL, PRM, USAID 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV KV SR
SUBJECT: KOSOVO: EU(LEX)-SERBIA CUSTOMS AGREEMENT PRESENTS POTENTIAL 
FOR ANOTHER EU-GOK POLITICAL IMBROGLIO 
 
PRISTINA 00000447  001.2 OF 004 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
REFTEL:  Pristina 362 
 
¶1. (SBU) SUMMARY: European representatives, both in Brussels and in 
Kosovo, are developing a framework to negotiate a customs protocol 
between EULEX -- on behalf of the GOK -- and Serbia, which would 
include both data sharing on customs activity and the restart of 
revenue collection at Gates 1 and 31 in the majority-Serb north. 
The current European plan, though far from final, shows significant 
evolution from its starting point, thanks largely to our input.  The 
plan would place all funds collected at the northern gates in a 
special bank account for exclusive use in the municipalities of 
Leposavic, Zvecan and Zubin Potok.  Though the EU believes this 
approach should be acceptable to the GOK and would avoid "fiscal 
partition" of the country, Kosovo officials have told us that they 
find such plans for distribution of funds unacceptable.  While we 
and Kosovo officials are eager to see EULEX assume full customs 
control at Gates 1 and 31, we are concerned about what we perceive 
as an EU rush to negotiations with Belgrade despite some slowing of 
the EU's pace since our interventions.  With local elections in 
Kosovo in November, and oral arguments on Kosovo's declaration of 
independence at the International Court of Justice (ICJ) in 
December, Kosovo status politics, from both Pristina and Belgrade, 
will likely preclude any serious negotiations in the near term.  The 
Ambassador has urged Brussels-based and local EU officials to 
reexamine assumptions about what the GoK could accept with regard to 
distribution of revenues from Gates 1 and 31 and to delay presenting 
any formal proposals to either Pristina or Belgrade until at least 
after the December oral arguments at the ICJ.  Otherwise, the EU 
risks another acrimonious and destructive debate with the GOK over 
its presence and work here. END SUMMARY. 
 
EUROPEAN PLANS FOR A CUSTOMS TECHNICAL AGREEMENT 
--------------------------------------------- --- 
 
¶2. (SBU) EU representatives, both in Brussels and in Pristina, are 
developing a framework to negotiate a technical agreement on customs 
cooperation between EULEX -- on behalf of the GOK -- and Serbia. 
This would be the second such technical agreement between EULEX and 
Belgrade.  The first, the recently agreed arrangement on police 
cooperation, was the subject of acrimonious exchanges between EU 
representatives and official Pristina in September (Reftel), and 
only intervention by the U.S. with both sides prevented the debate 
from spiraling into a more serious political crisis.  Current 
thinking among our EU interlocutors is that the negotiations with 
Belgrade over a customs agreement should address both technical 
(i.e., the exchange of customs data between EULEX and Belgrade) and 
operational issues (i.e., the resumption of revenue collection at 
Gates 1 and 31 in northern Kosovo, including the disposition of 
those funds). 
 
¶3. (SBU) In our earlier conversations with EULEX, we had been told 
that the EU planned to negotiate the technical and operational 
issues separately.  We had warned our EU interlocutors that this 
would have been a serious tactical misstep -- a message the 
Ambassador repeated to EU officials in Brussels on October 1. 
Brussels-based officials told the Ambassador that they had dropped 
the idea of a "two-phased" approach to addressing outstanding 
customs issues.  On October 2, EU Special Representative Pieter 
Feith told local Quint representatives the same thing, stressing 
that the EU "wanted to be in lock-step" with the U.S. as it moved 
forward with negotiations over the customs arrangement.  Feith also 
informed the Quint that Brussels had asked his office (as opposed to 
EULEX) to lead the negotiations with Belgrade -- another welcome 
development from our perspective given EULEX's mismanagement of the 
police technical arrangement. 
 
¶4. (SBU) On October 4, the Ambassador and visiting Deputy Assistant 
Secretary Stuart Jones reiterated to Feith U.S. concerns over both 
the timing and the mechanics of the EU proposal.  Based on our 
critique of the plan during this meeting, Feith agreed that a more 
deliberate pace may be best.  He also noted that the mechanics are 
 
PRISTINA 00000447  002.4 OF 004 
 
 
still under discussion, "alternate mechanisms and vehicles" could be 
discussed, and that U.S. input would be seriously considered.  Feith 
has also developed a set of principles for the negotiations, which 
are drawn from a more detailed concept paper about the issue, and 
which he plans to share with Pristina and Belgrade soon. 
 
GATES 1 AND 31 THE REAL ISSUE 
----------------------------- 
 
¶5. (SBU) It is possible that the issue of exchange of customs data 
between EULEX and Belgrade could become politicized, but we do not 
anticipate that either Pristina or Belgrade will object.  EULEX 
already exchanges customs data with both Serbian Customs and Kosovo 
Customs.  A technical arrangement would merely formalize this 
exchange, and we understand, make the data exchanged admissible in 
court.  The more important, and more contentious, issues to be 
resolved in any talks on a EULEX-Belgrade customs agreement center 
on the resumption of revenue collection at Gates 1 and 31, which is 
the major outstanding issue preventing EULEX from carrying out full 
customs control in the north, something we and the GOK have been 
seeking and urging for months. 
 
A UNIFIED, KOSOVO-WIDE CUSTOMS CODE 
----------------------------------- 
 
¶6. (SBU) The resumption of revenue collection at Gates 1 and 31 
involves three important questions: 1) who collects the money and 
under what customs code; 2) where the money is deposited and kept; 
and, 3) how it is distributed.  The EU proposes that EULEX collect 
the revenue under the Kosovo Customs and Excise Code rather than 
under the previous UNMIK customs regime, an approach that EULEX 
believes is consistent with its mandate and would avoid a 
politically problematic situation where the Kosovo code is applied 
at border control points (BCP) in the south and UNMIK rules are 
applied in the north.  In addition, Articles 310 and 311 of the 
Kosovo code stipulate that Kosovo Customs may delegate authority to 
a third party, provided the GOK and the third party agree on details 
of the arrangement. (Note: European admission that a delegation of 
authority is necessary makes official Pristina central to any 
agreement on customs, a qualitative difference from EULEX's approach 
on the police cooperation agreement. End Note) All sides are likely 
to agree to EULEX agents collecting revenues, and the EU believes, 
to do so under Kosovo law, but where customs revenues are deposited 
and their distribution will be more contentious. 
 
DEPOSIT AND DISTRIBUTION OF REVENUES 
------------------------------------ 
 
¶7. (SBU) According to the current EU plan, revenue collected would 
be deposited in a bank account opened and controlled by a separate 
actor (as yet unnamed but possibly a non-EULEX EU actor), and 
separate from the Kosovo Consolidated Budget account.  These funds 
would automatically transfer to an account at the Central Bank of 
Kosovo (CBK), then would immediately be returned to the separate 
account and used exclusively for the northern municipalities.  This 
fulfills requirements to verify accuracy of revenue collections by 
matching funds against paperwork, but would require Pristina to 
accept the northern municipalities as the properly constituted and 
elected recipients of the funds collected at Gates 1 and 31.  The EU 
argues that this avoids a "fiscal partition" of Kosovo because even 
though the funds would not flow into the Kosovo Consolidated Budget 
and would be earmarked for use in the north, they would pass through 
the hands of official Pristina (via the CBK).  EU staff also stress 
that Pristina would be able to reduce spending in the north by an 
amount equal to revenue collected from Gates 1 and 31.  This 
arrangement would hold for one year and then be up for review and 
possible renewal. 
 
MINISTER OPPOSES SEPARATE ACCOUNT 
--------------------------------- 
 
¶8. (SBU) In meetings on September 30 and October 9, Minister of 
Economy and Finance Ahmet Shala already signaled to us the GOK's 
 
PRISTINA 00000447  003.4 OF 004 
 
 
concerns about possible mechanisms for the restart of revenue 
collection at Gates 1 and 31.  Shala was clearly uncomfortable with 
the concept of earmarking funds for use only in Leposavic, Zubin 
Potok, and Zvecan, which had been floated in the past.  He added 
that if a reasonable estimate could be made of annual revenue 
collected at the gates, equivalent funds could be allocated from the 
Kosovo Consolidated Budget for the three northern municipalities, 
though this would be a fraction of the money these municipalities 
currently receive from Kosovo.  Shala saved his strongest words for 
the separate bank account.  He said that under no circumstances 
would such an arrangement be acceptable to the GOK.  Expressing some 
of the alienation Kosovo officials feel from EU structures, he noted 
that EULEX negotiates with Belgrade but not with Pristina, adding 
that he would like Kosovo to work more closely with the EU rather 
than "just being acted upon."  On October 1, the Ambassador 
outlined, in general terms, to Brussels-based officials the 
possibility that the GOK may object to the EU's deposit and 
distribution proposals. 
 
POORLY CONCEIVED EU TIMELINE 
---------------------------- 
 
¶9. (SBU) The Europeans' proposed roadmap for the reestablishment of 
full customs controls notes that they will be operational as of 
March 31, 2010.  At the October 2 Quint, Feith suggested the EU 
planed to present a concept paper to Pristina and Belgrade within 
the next two weeks that included delineation of tasks and 
concurrence on revenue accounts and distribution.  In just days 
Kosovo will formally enter a municipal election campaign season. 
GOK officials with whom we have spoken fear that leaks to the media 
on a "customs protocol," especially any plans to earmark funds for 
the north, will inflame election rhetoric and, given the outcry over 
the recent EULEX-Serbia police cooperation agreement, will further 
alienate the Kosovo public from the international community.  In 
addition, both Belgrade and Pristina are preparing for December oral 
arguments at the International Court of Justice on the legality of 
Kosovo's declaration of independence.  As each side completes and 
presents its arguments, neither is likely to agree to compromise 
provisions that could be interpreted as the exercise of sovereignty 
by the other in the northern municipalities. 
 
COMMENT 
------- 
 
¶10. (SBU) The reestablishment of full customs controls at Gates 1 
and 31 is a goal that the USG, the Europeans and the GOK share. 
Since one reason we share this goal is our common desire to sideline 
parallel structures, the method that we employ to reestablish 
customs controls should avoid cementing in place the peculiarity of 
"The North."  This informs our belief that the way forward should 
fold Gates 1 and 31 into a larger discussion plans for full 
integration of the northern municipalities -- a principle the 
Europeans now appear to accept.  We are sympathetic to claims from 
the GOK that separate bank accounts and exclusive earmarks could do 
the opposite.  Maintenance of Kosovo as a single customs area and 
treatment of both Pristina and Belgrade as stakeholders with whom to 
negotiate are important principles present in the European plan. 
EUSR Feith's desire to achieve U.S. buy-in for the plan leaves us 
with the hope that our interventions can ensure that these 
principles are embodied in the eventual agreement. 
 
¶11. (SBU) When the European plan moves from principles to tactics 
and timelines, however, its flaws become apparent.  The path to full 
customs control is fraught with peril, leaving the EU caught between 
the Scylla and Charybdis of Pristina and Belgrade.  Moreover, EULEX 
does not have the best of track records when it comes to timely 
recruitment and deployment.  There is no reason to think that they 
will do better this time when the stakes are arguably the highest 
yet.  Feith is still looking to present the basics of a plan to 
Pristina and Belgrade next week, a move we feel plays directly into 
Belgrade's hands.  While EU staff admit privately that they have 
little leverage with Belgrade, a hasty rollout risks losing even 
that. 
 
PRISTINA 00000447  004.4 OF 004 
 
 
 
¶12. (SBU) The Ambassador will discuss this again with EUSR Feith on 
October 12, and with the Quint on October 13.  In both venues we 
will continue to urge a more deliberate process.  Our European 
counterparts know they must work with us and seriously consider the 
concerns we share with Pristina.  This useful lesson from the police 
protocol seems to have sunk in.  A deliberate approach is preferred 
over taking up these contentious issues when Pristina is embroiled 
in an election campaign and both Belgrade and Pristina are preparing 
for ICJ oral arguments.  Negotiation of a technical arrangement on 
customs can and should wait until mid-December at the earliest. 
 
DELL