Exclusive: In diplomatic shift, Europe seeks improved ties with Cuba

By Robin Emmott and Fiona Ortiz BRUSSELS/MADRID (Reuters) - The European Union will agree next month to deepen relations with Cuba in its most significant overture to the communist nation since diplomatic sanctions were lifted in 2008, people close to the matter told Reuters. Foreign ministers from the EU's 28 countries will give the go-ahead on February 10 to launch talks with Havana on a special cooperation accord to increase trade, investment and dialogue on human rights. The pact could be agreed upon by the end of 2015. "Cuba wants capital, and the European Union wants influence," said one person involved in the talks who declined to be named because of the sensitivity of the issue. "This cooperation could serve as a prelude to much more." Two other people with knowledge of the negotiations told Reuters that a consensus had been reached in Brussels to give momentum to the market-oriented reforms introduced under Cuban President Raul Castro and to position European companies for any transition to a more capitalist economy in the longer term. The opening with Europe comes after Cuba this week won a diplomatic victory at a summit meeting of Latin American and Caribbean leaders in Havana. At the summit, 33 countries from the region on Wednesday backed the right of their neighbors to choose their own political systems, a victory for Cuba as the only one-party state in the Western Hemisphere. Taken together, the steps by the EU and Latin American nations highlight warming ties with Cuba - in sharp contrast to the United States, which has imposed an economic embargo on Cuba since 1962 after severing diplomatic ties the year before. Washington has previously exerted pressure on Europe and Latin America to isolate the Cuban government, but it has not sought to block the EU's latest efforts, people close to the talks said. While U.S.-Cuba relations have taken a more pragmatic tone recently, with officials from both sides pointing to improvements, the Americans have barely budged since easing Cuban travel restrictions in 2011. The U.S. government says Cuba must improve human rights and release imprisoned U.S. contractor Alan Gross, who was sentenced to 15 years for attempting to establish an illegal communications network on the island. "We'll continue to look at this balance as to how do we advance necessary changes that could improve the situation but at the same time continue to express our concerns on these human rights issues," Ben Rhodes, President Barack Obama's deputy national security adviser, told reporters on Wednesday. The initial impact of EU-Cuba cooperation agreement will be limited, but the symbolism is huge for the EU, whose ties with Cuba had been strained since it imposed sanctions in 2003 in response to Havana's arrest of 75 dissidents. Although the EU lifted those sanctions in 2008, the normalization of relations has been tortuous because of resistance from Poland and the Czech Republic due to their own communist past. People close to the talks say Poland and the Czech Republic now back a deal with Cuba. The last time Cuba and the EU came close to negotiating an economic cooperation agreement was in 1996, but the Europeans called off talks in the wake of the shooting down of two small U.S. planes by Cuba off its shores, killing four Cuban exiles aboard. As a result, the EU adopted it's "common position" on Cuba in December 1996, placing human rights and democracy conditions on improved economic relations. Havana rejects the common position as interference in its internal affairs. TRANSITION In a sign of impatience with the status quo, the Netherlands sent its foreign minister to Havana in January. This first such trip by the Dutch since the 1959 Cuban Revolution broke with EU policy of limiting high-level visits. Spain, the former colonial power in Latin America and the Caribbean, has also been pushing for a change of approach since ailing, long-time Cuban leader Fidel Castro handed power to his younger brother Raul in 2008. Some EU countries see the 1996 "common position" policy as outdated because 18 EU governments have bilateral agreements with Cuba outside the common position, making it hard for the bloc to speak with one voice. Still, Spanish Foreign Minister Jose Manuel Garcia-Margallo has been adamant that the common position will remain for the time being while the European Commission, the EU executive, negotiates the cooperation pact. "If Europe wants to have a presence when there's a transition in Cuba, the EU has to start working now. It's right to start dialogue now so that Europe isn't absent when a transition happens," said Carlos Malamud, head of Latin American research at the Real Instituto Elcano, a think tank in Madrid. A cooperation pact, which the EU has used as a tool in the past to strengthen relations with Central America and Asia, is not likely to increase trade greatly because Cuba sells very little to Europe. Besides cigars and rum, Cuba's exports are not of huge interest to the EU, but Brussels believes developing business ties is the best way to press for change in Cuba. The European Union is Cuba's biggest foreign investor and Cuba's second biggest trading partner after Venezuela, and a third of the tourists to the island every year come from the EU. Cuba has opened a Chinese-style special economic zone and is preparing a new foreign investment law. It is seeking foreign investment at its port facilities in Mariel Bay to take advantage of the expansion of the Panama Canal. (Additional reporting by Adrian Croft, Daniel Trotta, Matt Spetalnick and David Adams; Editing by Mark Heinrich, Mohammad Zargham and Ken Wills)