91445 1/3/2007 21:29 07STATE470 Secretary of State UNCLASSIFIED 07BUCHAREST1804 VZCZCXYZ0040 OO RUEHWEB DE RUEHC #0470 0032136 ZNR UUUUU ZZH O P 032129Z JAN 07 FM SECSTATE WASHDC TO RUEHBM/AMEMBASSY BUCHAREST IMMEDIATE 0000 RUEHSF/AMEMBASSY SOFIA IMMEDIATE 0000 INFO RUEHBS/USEU BRUSSELS PRIORITY UNCLAS STATE 000470
E.O. 12958: N/A TAGS: BU, ETRD, EUN, RO SUBJECT: DEMARCHE TO ROMANIA AND BULGARIA ON BILATERAL TRADE AGREEMENTS WITH THE UNITED STATES
REF: A. A) BUCHAREST 1804
B. B) SOFIA 1613 C. C)USEU/DASTIN-USTR/MOLNAR EMAIL 12/09/06
1. THIS IS AN ACTION REQUEST. SEE PARAGRAPH 19.
2. SUMMARY: Per refs a and b, the Governments of Romania and Bulgaria have recently presented diplomatic notes to Embassies Bucharest and Sofia, respectively, proposing to amend or terminate several economic agreements with the United States in anticipation of their accession to the European Union. Both appear to be doing so on direction from the European Commission. The USG has maintained the position that no changes to our bilateral agreements with EU Members are necessary unless specific incompatibilities with EU law have been identified. We would like to strongly encourage Bulgaria and Romania to maintain the existing agreements with the United States, with the exception of two agreements that we consider to be obsolete. Washington agencies request that action addressee posts convey to host governments the key points in paragraph 19 to address GO and GOR concerns about the agreements.
3. Bulgaria and Romania have presented the United States with notes verbales regarding the compatibility of certain bilateral agreements with European Community law in light of these countries' accession to the European Union on January 1, 2007 (refs a and b). The GOB proposes to terminate two agreements, a 1995 Agreement for the Protection of Intellectual Property Rights and a 1938 Agreement on Waiver of Legalization of Certificates of Origin; and to amend a third, the bilateral Agreement on Trade Relations (US-Bulgaria BTA). The GOR proposes to replace the bilateral Agreement on Trade Relations between the Government of the United States of America and the Government of Romania (US-Romania BTA) with a newly negotiated economic cooperation agreement (ECA) and to terminate an agreement on Long-Term, Industrial, Economic, and Technical Cooperation. Both countries have indicated that the changes requested come as a result of reviews taken to harmonize their agreements with the EU's common trade policy.
4. The issues raised by the GOB and GOR are similar to those raised during the May 2004 enlargement of the European Union. At that time, the European Commission pressured acceding countries to terminate their bilateral trade agreements (BTAs). The Commission appears to have asserted that those agreements were incompatible with EU membership on the basis of overall Community competence over trade matters, rather than because of specific incompatibilities with the EU's "acquis communautaire." Our position then was that there was no legal requirement for the agreements to be terminated if specific incompatibilities with the "acquis" were not identified. We pointed out that 13 of the 15 then-EU members (all but Sweden and Portugal) had Friendship, Commerce and Navigation Treaties (FCNs) with the United States (containing trade provisions) that remained in force, and thus an unfair demand was being made of the new candidates. Although no incompatibilities were identified, in the end, the Czech Republic, Hungary, and Slovakia all elected to terminate their BTAs with the United States. Only Latvia maintained its BTA. Poland retained a hybrid trade and investment treaty, although, per information below, the investment section of this treaty was amended.
5. EU law and practice to date do not support a requirement to terminate the Bulgarian and Romanian agreements in question. Article 6 of the Act of Accession; Article 307 of the Treaty of Establishing the European Community; and Council of Ministers Decision 2001/855/EC, which expired in April 2005, permit the continuation in force of pre-existing agreements in areas of Community competence, if they do not contain incompatibilities with EU legislation and obligations. (The expired 2001 decision was only the last in a series of five-yearly decisions going back decades, that left these agreements in place without challenge.) If there are incompatibilities, Members are required only to take appropriate steps (e.g. amendment) to eliminate those incompatibilities; according to the Act of Accession, Article 6(10), termination of those agreements is required only if such adjustments are not possible before accession. We understand that Commission Legal Services has, over the past year or so, conducted a comprehensive review of all agreements listed in Decision 2001/855/EC to determine their compatibility with the acquis, but we are not aware of its conclusions or of any decision having been taken on what action might be necessary. DG Trade recently informed USEU Brussels (reftel C) that in theory, if there are instances of incompatibilities with the EU treaty, or EC regulations and directives, they can be challenged in the European Court of Justice (ECJ). However, to date, no cases have been filed by the Commission in relation to any of the US. bilateral treaties with existing Members States. A Member State contact confirmed to USTR that a gentlemen's agreement exists between the Commission and the Member States providing that the Commission will not file a case in the ECJ on this issue, and that Member States will review their agreements for potential problems with EU regulations. If problems are perceived, a Member State may decide that problematic parts of the treaties should be changed.
Agreements and the May 2004 Enlargement
6. In 2003, after extensive consultations with the European Commission and EU accession candidates regarding Bilateral Investment Treaties (BITs) between the United States and many of those candidates, including Bulgaria and Romania, agreement was reached on certain common amendments to the BITs and accompanying interpretations in order to address any potential incompatibilities with the EU acquis. Those amendments received Senate advice and consent, and are now in force for the Czech Republic, Estonia, Latvia, Lithuania, Poland, and Slovakia. We expect to exchange instruments of ratification to bring into force the amendments of the BITs with Bulgaria and Romania.
7. After the BIT negotiations were concluded and before the May 2004 enlargement, several acceding countries approached the USG seeking to terminate their BTAs with the United States or to replace them with economic cooperation agreements (ECAs) akin to the one Romania is proposing now. In 2005, the Government of Hungary decided to let its BTA with the United States lapse without renewal according to that agreement's schedule, and in 2004, the Czech and Slovak Republics terminated their BTAs in accordance with their terms. The Latvian government sought to terminate its BTA and to negotiate a new ECA. The United States persuaded Latvia to retain its BTA after the GOL failed to demonstrate any specific legal incompatibilities between the agreement and EU law.
8. Like most of the original EU 15 Member States, a number of the Members States that joined in 2005, namely Estonia, Latvia, Malta, and Slovakia also have not terminated their FCN relationships with the United States. It is possible that the comprehensive Commission review referred to in para 5 above will lead to requests to terminate or amend some or all of those FCNs.
US-Bulgaria and US-Romania BTAs
9. The US-Bulgaria BTA, which entered into force on November 22, 1991 for an initial term of three years, is automatically extended for successive terms of three years unless either Party gives written notice to the other Party of its intent to terminate the agreement at least 30 days prior to the expiration of the current term. The current term began on November 22 2006 and the BTA thus cannot be terminated unilaterally until November 22, 2009. The BTA also provides that if either Party foresees a problem with domestic legal authority, the agreement requires that Party to request immediate consultations with the other Party. The other Party is obligated to enter into consultations as soon as possible with a view to finding a solution. If either Party does not have domestic legal authority to carry out its obligations, it may unilaterally suspend the application of the Agreement, or, with the agreement of the other Party, any part of the Agreement.
10. The GOB proposes not to terminate or suspend the BTA, but to amend the BTA by mutual agreement to remove core bilateral trade commitments such as Most Favored Nation and National Treatment, market access provisions for products and services, financial provisions, import safeguards, general exceptions, and intellectual property rights, including a side letter on IP.
11. The US-Romania BTA, which entered into force on November 8, 1993 for an initial term of three years, also is automatically extended for successive terms of three years unless either Party gives written notice to the other Party of its intent to terminate the agreement at least 30 days prior to the expiration of the current term. The current term begins on November 8, 2005 and cannot be terminated unilaterally until November 8, 2008. The US-Romania BTA contains the same provisions as the US-Bulgaria BTA regarding potential and actual problems with respect to domestic legal authority to carry out obligations under the agreement. The GOR proposes to replace the BTA with a new ECA through negotiations by mutual agreement.
12. The GOR has generally asserted problems, but no specifics, with respect to the compatibility with EC law of the US-Romania BTA's articles related to the application of GATT and certain GATT agreements, government commercial offices, and business facilitation, and for that reason proposes to negotiate a new ECA. The draft text of the ECA that the GOR provided contains little in terms of obligations and consists mainly of pledges to increase bilateral cooperation in a number of sectors and areas. The USG does not view the proposed ECA as equivalent in substance to the existing BTA. Provisions under the BTA related to intellectual property rights and transparency are particularly important to us. As a matter of policy/principle, we disfavor terminating agreements unnecessarily, even if they are reaffirming WTO principles such as national treatment or most favored nation treatment. Further, it is unclear what the specific concerns are about the areas the GOR has identified as problematic, especially with respect to the standard business facilitation and government commercial office articles.
US-Romania Long-Term Industrial, Economic, and Technical Cooperation Agreement
13. The USG has reviewed this 1976 agreement and agrees with the GOR that it should be terminated. The Joint Commission that it sets up is now defunct and many of the cooperative activities that it covers are mentioned in the BTAs. Even if the BTA were terminated, the 1976 agreement is so dated that we would not see the utility of retaining it.
14. The Agreement, which entered into force on May 5, 1977, provides for an initial term of ten years, and is automatically renewed for successive one-year periods unless either Party provides six-months written notice of intent to terminate. The Agreement could be terminated unilaterally by delivery of a note by the GOR of its intent to do so in accordance with the Agreement. The Agreement would terminate at the earliest 6 months after such notice is given. Alternatively, the two countries could conclude a separate agreement to terminate the 1976 agreement. For the United States, Circular 175 authority would be necessary for such mutual terminations.
US-Bulgaria Waiver of Legalization of Certificates of Origin Agreement
15. The USG has reviewed this 1938 agreement and agrees with the Bulgarian analysis that it is very outdated. The agreement would sanction parts of border regimes that were discontinued long ago.
16. The Agreement does not contain a provision regarding its termination. The two countries could conclude a separate agreement to terminate the 1938 agreement. For the United States, Circular 175 authority would be necessary for such mutual termination.
US-Bulgaria 1995 Agreement on the Protection of IP
17. The US-Bulgaria 1995 Agreement on the Protection of IP entered into force when Bulgaria was a key location in Europe for optical disc piracy. The 1995 Agreement includes important measures to regulate and enforce optical disc imports, exports, manufacturing, or distribution, and specific details that flush out how to apply TRIPs Agreement commitments in this particular situation. The Agreement, among other things, established specific commitments regulation on the registration of optical disc production equipment so that legitimate production could occur and sufficiently severe penalties for violations to create a significant deterrence against future violations. Although a new optical disc law took effect in Bulgaria in September 2005, the commitment and provisions in the 1995 Agreement remain important in the case of Bulgaria, especially because enforcement of the optical disc law and presence of pirated problems remain as problems.
18. The United States has a bilateral IPR agreement with Hungary. The Hungarian Government did not raise the bilateral IPR agreement with us in the enlargement context: likely it knew the importance attached to the agreement and what the USG reaction would be. The BTA with Latvia contains a detailed IPR section.
Action Request and Key Points
19. In responding to the GOB and GOR requests, Washington suggests that posts draw on the following key points:
Romania and Bulgaria: Bilateral Agreements on Trade Relations (BTAs)
-- We are very interested in maintaining our BTA with Romania/Bulgaria as the BTA has stood as an important foundation and symbol of our close relationship on a number of important issues. The agreements provide important protections for Bulgarian/Romanian and US. exporters. The sections on IPR, transparency, and even those related to business facilitation remain particularly important to us, although others which bilaterally reaffirm WTO principles (MFN, national treatment) are of value as well.
-- The United States retains Friendship, Commerce, and Navigation Treaties (containing three provisions) with 13 of the original EC 15 member states and a number of the 2004 entrants, a BTA with Latvia and a business and economic relations treaty with Poland.
-- While the European Commission has reviewed some of these agreements in the past, Member States have not amended them, and there has not to date been any litigation against Member States for retaining the agreements.
-- We should encourage the GOB/GOR to insist that the Commission treat Bulgaria and Romania the same as other EU Member States. As new members of the EU, they have rights under the European Community Treaty permitting them to retain treaties/agreements that are not incompatible with their EC legal obligations. We believe this is especially appropriate in the case of treaties and agreements with the United States, a longstanding partner, friend, and ally of their country.
-- Remind the GOB/GOR that, although it has listed certain provisions in the BTA that it seeks to eliminate, it has not provided any explanation of specific legal incompatibilities between the BTA and EC law, and request that it do so.
-- Inform the GOB/GOR that the USG is willing to discuss any specific incapability identified in the BTA and that a video conference or other communication with Washington exports on the treaty can be arranged, if necessary.
-- If appropriate, remind the GOB/GOR that the United States amended its BITS with candidate countries in 2003, and that we soon expect such BIT amendments with Romania and Bulgaria to enter into force.
-- We should point out that under the BTAs, unilateral termination of the agreement is permitted only upon written notice at least 30 days prior to the end of the current three-year term.
(For Bulgaria -- if needed)
-- The GOB proposes to remove core bilateral trade commitments such as Most Favored Nation and National Treatment. IF the GOB argues that these commitments are provided for in the WTO, stress that we place significant value on the bilateral expression of these principles.
-- If the GOB indicates that its entry into a customs union creates a problem under the BTA, explain that a customs union does not create a problem in terms of the GOB's BTA commitment. There is an exception in Article 1.4 of the BTA for preferential treatment that is afforded as part of a customs union or free trade agreement.
-- If the GOB raises the market access provisions, explain that the market access provisions correspond to core WTO principles related to technical barriers to trade and other duties and charges and ask them to identify the specific problem under EC law.
-- If the GOB raises the financial provisions, explain that they are standard requirements on the free movement of currencies and that we would appreciate an explanation of any specific problem with them under EC law.
-- It is particularly problematic that the GOB is seeking to remove IPR obligations as they reaffirm Bulgaria's commitment to international agreements and conventions on IPR and provide for adequate and effective protection of copyrights, related rights, trademarks, patents, layout designs of semiconductors, and trade secrets. The agreement also provides a valuable framework for IPR enforcement that previously appears to have assisted Bulgaria in addressing piracy and counterfeiting, particularly in the area of enforcement against optical disc pirate production.
(For Romania - if needed)
-- The GOR has cited Article 1 of the US-Romania BTA as problematic under EC law. If Article 1 is raised specifically, we should explain that it reaffirms adherence to the GATT Agreements and ask them to identify the specific problem under EC law.
-- If the GOR raises the article on government commercial offices, we should note to the GOR that the United States, Romania, and the vast majority of EU Member States maintain such offices and should ask GOR to explain its specific concerns with respect to this article.
-- Similarly, if the GOR raises the article on commercial representations, we should ask for an explanation of the specific concerns under EC law regarding the provision of commercial representations from the other Party and providing basic rights to run an office in one another's country. The rest of the provisions relate of the ability of companies to do things like hire agents, conduct sales, do market studies, etc. We do not see why any of these provisions are problematic under EC law.
Romania: Proposed New Economic Cooperation Agreement (ECA)
-- We should express to the GOR that we appreciate its efforts to frame and alternative economic cooperation agreement (ECA), but that t we do not see specific legal incompatibles between the existing BTA and EC law. We should explain that we do not terminate existing agreements lightly, especially when their obligations remain relevant. We do not see particular value in the type of ECA suggested by the GOR.
Romania: 1976 Long-Term Industrial, Economic, and Technical Cooperation Agreement
-- We should inform the GOR that we agree that the 1976 agreement is now very out of date. Many of the issues in it are superseded by the BTA, in any case.
-- If the GOR sends a diplomatic note of its intent to terminate this agreement in accordance with its terms, it shall be considered terminated upon expiration of the 6-month notice period.
-- If the GOR wishes for this agreement t be terminated mutually, the USG would be willing to consider this. However, the USG must first receive the domestic authority to do so.
Bulgaria: Waiver of Legalization of Certificates of Origin Agreement
-- Inform the GOB that we have reviewed this agreement and agree that it is very outdated and does not reflect the current framework in which we are trading.
-- We will proceed as the GOB suggested in its note and we will prepare a formal response to your diplomatic note to terminate this agreement. The USG must first receive the domestic authority to do so.
Bulgaria: 1995 Agreement on Intellectual Property
-- Since the signing of the 1995 Agreement, the GOB has adopted a new Optical Disc Media Law that went into effect in September 2005, under which Bulgarian authorities have made commendable efforts to conduce unannounced inspections of licensed plants. We should urge the GOB to continue to honor the 1995 Agreement by monitoring its licensed optical disc plants and providing enforcement against pirate protection.
-- In addition, the 1995 Agreement includes an obligation for Bulgaria to apply effective and deterrent criminal and administrative penalties for IPR infringement. We should not to the GOB that we understand that enforcement problems remain today in Bulgaria, as noted in our 2006 Special 301 Report. Clearly, the 1995 Agreement's elements of enforcement and regulation of the production of optical media goods remain relevant today.
-- Remind the GOB that our two governments are working together to assess whether or not Bulgaria should be removed from our Special 301 Watch List.
This work focuses on enforcement problems in particular. Absent any demonstrated incapability with EC law, Bulgaria's proposal to terminate our Bilateral IP Agreement (as well as significant provisions of the IP letter that is part of our BTA) would undermine ongoing and important efforts in this area. (Consider adding: Please note that the US. bilateral IPR agreement with Hungary and the detailed IPR section of the US BTA with Latvia have not demonstrated any incompatibility issues with EC law since those Member States acceded to the EU.
Indicate to the GOB that we hope to continue to work with GOB officials on IPR issues utilizing a variety of tools, including the Bilateral IP agreement and IP Side Letter, which have assisted the two countries in making progress to date and improving Bulgaria's investment regime.
Please slug responses for State (SKo, JStruble, JUrban), USTR (LMolnar), Commerce (SSavich, K Najdi) RICE