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Cablegate: Czech Republic: Eighth Visit of the Status Of

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

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