UNCLAS ZAGREB 002268

SIPDIS


SENSITIVE BUT UNCLASSIFIED

USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEED/MROGERS
USDOC FOR 3150/USFCS/OIO/EUR/CEENIS/PBRADLEY

E.O. 12958: N/A
TAGS: ETRD KIPR HR
SUBJECT: USDOC VISIT STEPS UP HEAT ON CROATIA OVER
INTELLECTUAL PROPERTY MOU

REF: ZAGREB 2176

SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY.

Summary
--------------


1. (SBU) USDOC Market Access and Compliance Office
Director, Susanne Lotarski, delivered a strong message
to the Croatian government to forward the long-stalled
bilateral MOU on intellectual property rights. During
an October 14-15 visit to Zagreb, she urged authorities
to ratify the MOU or face possible trade sanctions under
the U.S. Special 301 process. Lotarski also emphasized
the relation between strong IP protection, business
ethics and rule-of-law -- all of which investors judge
when evaluating a country. Her warning came on the
heels of a similarly forceful warning by the Ambassador,
most recently with Deputy Prime Minister Simonic
(reftel). End Summary.

"Ashamed" MOU Did Not Move Forward
--------------


2. (SBU) In her October 14 meeting with Minister of
Economy Ljubo Jurcic, Lotarski noted that a lack of
progress on the part of the Croatian government on the
intellectual property memorandum of understanding
endangered some of the positive aspects of the bilateral
relationship. She said the U.S. is disappointed in the
failure of the government to include data exclusivity in
the recent drug law -- especially since protection of
confidential test data is required by the WTO and the

SIPDIS
EU. There was a good chance Croatia would be moved up
on the 301 list during a fall out-of-cycle review. This
was an escalation in a process that could lead to trade
sanctions, such as removal of GSP benefits -- and not
only on pharmaceuticals.


3. (SBU) Jurcic said the Ministry of Economy supported
WTO principles and the U.S. position on the MOU. The
Ministry of Health, on the other hand, supported
Croatian pharmaceutical producers and Croatian
consumers. However, the visit of the Ambassador to the
Deputy Prime Minister and the delivery of the non-paper
had made an impression on the government, and the issue
was being revisited.


4. (SBU) Acting Deputy Economy Minister Olgica Spevec,
also at the meeting, recalled that she had assured the
Embassy last fall that the MOU would probably make it to

the parliament early in 2003. She was frankly ashamed
that the GOC had not lived up to its obligations, and
noted that lately the Ministry of Economy had been left
out of meetings on this issue, perhaps because the
government did not like its stance. Spevec asked
whether the U.S. would consider amending the agreement,
or at least adding a phase-in period. We noted that the
phase in contemplated in the MOU had already expired --
in 1999. Lotarski reported that all EU accession
countries had accepted strong IP provisions. Even
Poland, with whom we had had the most trouble, had
implemented data exclusivity, if not for as long a
period as we would like.

MOH: Cheap Drugs the Priority
--------------


5. (SBU) Lotarski met the same day with Minister of
Health, Ivo Vlahusic, and Director of Drug Approvals,
Csaba Dohoszky, to deliver the same message. Vlahusic
was forthright in saying that as Minister of Health,
with primary responsibility for the welfare of
Croatians, he had to oppose the MOU. However, as a
member of the ruling coalition, if the government told
him to go along with the MOU, he would. (Note: the
Ministry of Health did indeed allow data exclusivity
language to be inserted into the recent drug law. It
was, we were told, a call from Pliva to the Prime
Minister that resulted in the yanking of that
provision.)


6. (SBU) Dohoszky asserted that "Croatia is not the
only country where intellectual property protection is
not what the big multinationals want." While Croatia
did not face the same problems that under-developed
countries did, generics are still vital to its health
system. Lotarski countered that the USG was not anti-


generic, but it did demand a level playing field. It
was not fair that an innovative company had to submit
test data, which was then used by a generics company as
a basis for the latter's registration. To add insult to
injury, in Croatia, the (Croatian) generics company was
likely to get its registration months, sometimes years,
before the innovative company for the same drug, while
benefiting from the innovative company's test data. It
came down to whether Croatia wanted to be known as a
country with good business ethics and rule-of-law.


7. (SBU) Lotarski also pointed out that Croatia had
received U.S. support for its WTO entry in return for
the MOU. "It would be fair to ratify the MOU, Vlahusic
admitted, adding, however, that the promise to ratify
the MOU in exchange for your support for our WTO entry
was an "oral agreement." Nevertheless, the Minister
promised to contact the Croatian pharmaceutical industry
and ask whether it would maintain its position in the
face of possible trade sanctions. He would also consult
with the MFA and the government. Commercial Counselor
Beryl Blecher urged Vlahusic to meet with the foreign
pharmaceutical producers as well.


8. (SBU) Dohoszky highlighted a problem that he said
could be more acute than data exclusivity -- that is,
"retroactive patent protection," otherwise known as
pipeline protection. "We all know that data exclusivity
is inevitable, but this pipeline protection could really
bust the health care budget if there is a big
retroactive effect." Would it be possible, the drug
approval director asked, to modify the MOU or add a
supplement to take the sting out of the pipeline
protection provision? Lotarski citing the importance of
pipeline protection to the U.S., reported that Hungary
had raised the same objections, but resolved its issues.

MFA Will Try to Push Rock Back Up Hill
--------------


9. (SBU) Lotarski met also with Drazen Margeta, MFA
Assistant Minister for Non-European countries. Margeta
emphasized the importance the GOC placed on its
relationship with the U.S., highlighting recent joint
military exercises. Lotarksi described the threat that
the failure to forward the MOU to the parliament posed
to the relationship. Margeta said his Ministry would
try to forward the MOU to the Cabinet for approval --
again. The MFA completed the procedure earlier this
year, only to have the MOU shelved at the Cabinet level,
apparently because of opposition from Croatian industry.


10. (SBU) Miro Kovacic, head of the Americas Desk, also
said that pipeline protection had been raised as an
important issue by Croatian drug makers. They were
floating the figure of 100 million euro as the extra
cost to the Croatian health system of data exclusivity
and pipeline protection. Lotarski noted that other
Central European countries had been asked to provide
this protection, and found it worthwhile, when looking
at the overall economic effect. Competition and the
health care system suffered if innovative drug makers
did not want to bring new drugs into the market. At the
end of the day, a country could not use theft to balance
its health care books, and a country had to live up to
its word, even when governments changed.

MOU is Not EU Accession Problem
--------------


11. (SBU) Lotarski's final meeting was with Orsat
Miljenic, Deputy Minister of EU Integration. Miljenic
noted that the Ministry saw no reason to object to
ratification of the MOU. Updated intellectual property
protections were clearly required by the EU, and his
ministry wanted to meet EU standards as soon as possible
-- regardless of Croatia's EU accession date.
Convergence with EU standards wase good for Croatia
regardless, he said, noting that Croatia aspired to be a
"virtual member" of the EU, even before entry.

Comment and recommendation
--------------


12. (SBU) With elections expected on November 23,
action on the MOU is unlikely in the very short term,
but a new government could take up the issue in January.
Although the Parliament was dissolved on October 17 in


anticipation of elections, we would like to see the new
government -- which will likely be in place by early
January -- act on this issue quickly. Only increased
outside pressure will move this issue forward in the
face of fierce resistance from the local generics
manufacturers. To keep up the pressure, we would
recommend accepting an out-of-cycle U.S. industry
petition for Croatia and urge that Washington agencies
move Croatia to the Priority Watch List.

FRANK


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