Commerce DAS Eric Stewart Visit to Rome

UNCLAS ROME 002171

SIPDIS


USDOC FOR 4220/ITA/MAC/EUR/DDEFALCO
USDOC FOR 3133/USFCS/OIO/EUR/ESLETTEN/PBUCHER
STATE FOR EB/TPP
USTR FOR JAMES SANFORD

SENSITIVE

E.O. 12958: N/A
TAGS: ETRD IT ECIP
SUBJECT: Commerce DAS Eric Stewart Visit to Rome


SENSITIVE BUT UNCLASSIFIED NOT FOR INTERNET DISTRIBUTION


1. (U) Summary and Introduction. On May 25, 2004, Deputy
Assistant Secretary (DAS) of Commerce for Europe, Russia,
and the Independent States Eric Stewart held discussions
with Government of Italy (GOI) counterparts and met with
local business representatives on trade and market access
and compliance issues of intellectual property rights
(IPR),pharmaceutical pricing, and the Trans-Atlantic
Business Dialogue (TABD).



2. (U) DAS Stewart met with representatives of the Prime
Minister's Office; Ministry of Productive Activities
(Foreign Trade); Ministry of Economy and Finance (Treasury
Police); Ministry of Culture; Business Software Alliance
and film and music industry; and pharmaceutical company Eli
Lilly. In addition, DAS Stewart was interviewed by Italy's
business magazine "Italia Oggi" (Italy Today). During his
meetings, DAS Stewart raised the issue of the Trans-
Atlantic Barrier-Free Marketplace, which has been discussed
informally among several Atlantic trade partners.


3. (SBU) DAS Stewart expressed U.S. concerns about IPR
enforcement and the lack of dialogue between the
pharmaceutical industry and GOI Ministries. The visit
helped to underscore U.S. Government (USG) interest in
resolving outstanding market and compliance problems with
Italy and to strengthen contact with host government
officials on trade and business issues of common interest.
End Summary and Introduction.


4. (U) Prior to his meetings with Italian officials, DAS
Stewart met with Ambassador Mel Sembler and was briefed by
members of the country team. The DAS was accompanied to
his meetings by officers and staff of the Economic and
Commercial Sections.

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ELI LILLY PHARMACEUTICAL COMPANY
--------------


5. (U) Karim Bitar, General Manager, Eli Lilly Italy, and
Augusto Ciampi, Corporate Affairs Director, briefed DAS
Stewart on the Italian business environment, based on their
company's active involvement in the Rome-based Italian-
American Pharmaceutical Group (IAPG),whose role is to
facilitate U.S.-Italian dialogue on pharmaceutical matters.
The Eli Lilly representatives reported that executives from
their U.S. headquarters will meet with Ministry of Health,
and possibly other, officials on/about June 10 on the issue
of GOI investment policy.


6. (U) Like other U.S. pharmaceutical companies, Eli Lilly
wishes to increase its dialogue with the Italian
Government. Although the firm meets regularly with the
Ministry of Health, Eli Lilly believes that contact with
the Ministry of Economy and Finance and other agencies is
also necessary. Eli Lilly maintains that GOI influence
over pharmaceuticals is spread thin among various agencies
and that discussions in Italy could be more informed.
Embassy officers noted that upcoming local and European
Parliament elections may have politicized recent
discussions on pharmaceuticals.


7. (SBU) Over the long term, Eli Lilly is interested in
investing about $250 million in its Italy operations, which
would create 400-800 new jobs locally. However, there are
disincentives such as unfavorable tax rates and rigid price
controls, which constrain the company's ability to reinvest
its earnings in research and development (R&D) and
innovate. (Normally the company seeks to invest about 20
percent of what it earns from its sales.) Eli Lilly would
urge Italian authorities to let patient/customer needs and
science drive its pharmaceuticals policy. As an example,
the company representatives cited the delay in bringing to
the local market new, effective drugs that counter
osteoporosis and cancer caused by exposure to asbestos.


8. (U) Eli Lilly officers also complained that, in Italy,
the Regions pay 40 percent of pharmaceuticals overspending,
while the pharmaceutical industry pays 60 percent. They
said that there is no "payback" system like this in the
world and called for a more equitable sharing of costs.
They also regretted that Italy is the only country in

Europe that does not have a "co-payment" system. This,
according to them, contributes to the escalation of health
care costs and complicates Minister of Economy and Finance
Giulio Tremonti's efforts to contain central government
spending. In addition, in Italy, unlike in the United
States, generic (in contrast to patented) drugs are not
popular. They noted that, within the IAPG, a full
alignment on how to promote cost-saving generics remains
difficult.


9. (U) DAS Stewart responded that the American
Pharmaceutical Association, or Pharma, whose interests are
represented by the IAPG in Italy, continues to explore with
the USG establishing a U.S.-Italian bilateral working group
to address the issues above. He agreed to discuss
industry's concerns with the GOI. He encouraged Eli Lilly
to continue to engage the Health Ministry and noted that,
in many other European countries, such positive contact
with the Ministry of Health is not possible. DAS Stewart
also said that public misperceptions of the pharmaceutical
industry hinder company efforts and urged that the company
and the industry in general emphasize their contributions
to good governance and corporate stewardship (e.g., in
African nations).

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ITALIA OGGI BUSINESS DAILY
--------------


10. (U) DAS Stewart was interviewed by Giampiero Di Santo,
business editor of "Italia Oggi" (Italy Today),Italy's
widely-circulated business daily. (A translation of the
interview, which was published in the daily's Saturday, May
29, issue, will be transmitted separately.) DAS Stewart
alluded to the importance and breadth of U.S.-Italian
relations, confirmed by the recent visit of Prime Minister
Silvio Berlusconi to the United States. DAS Stewart said
that the USG wishes to resolve the few remaining
differences on this front, as they represent billions of
dollars and euros in missed business opportunities. He
stated that reducing barriers and merging standards will
bring Americans and Italians significant, tangible
benefits.


11. (U) Asked about the U.S. Foreign Sales Corporation
(FSC) policy and its deleterious effect on U.S.-E.U. trade
relations, DAS Stewart replied that legislation is moving
forward in the U.S. Congress. He expressed optimism that
the issue will soon be resolved to everyone's benefit. He
also pointed out that this issue is bigger than just FSC
and that tax legislation of any kind is never easy to pass.


12. (U) The business editor inquired about American-Italian
and U.S.-European trade priorities. DAS Stewart underlined
the USG commitment to safeguard IPR, and noted Italy's
interest in protecting its great cultural heritage and
innovation. He explained how IPR protection can positively
protect jobs, increase tax revenues, and reward creativity.
He also maintained that the U.S.-Italian trade
relationship, already robust, can be further expanded, for
example, in the pharmaceuticals sector.


13. (U) In addition, DAS Stewart described the goals of the
Trans-Atlantic Business Dialogue, citing, inter alia, the
advantages of creating common international accounting
standards, "one set of books," which would greatly enhance
business services. Lastly, he reiterated the importance
that the United States places on World Trade Organization
negotiations and infrastructure and container security to
foster trade.

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BUSINESS SOFTWARE AND MUSIC AND AUDIOVISUAL INDUSTRY
-------------- --------------


14. (U) DAS Stewart met at the Embassy with Simona
Lavagnini, Attorney, ALGV Avvocatti (representing the
Business Software Alliance, or BSA); Enzo Mazza, Director
General, Italian Music Industry Federation (Federazione
Industria Musicale Italiana, or FIMI); and Luciano
Daffarra, Secretary General, Anti-Piracy Audiovisual
Federation (Federazione Anti-Pirateria Audiovisiva, or
FAPAV) to review the Italian business environment with
respect to IPR.


15. (U) The industry representatives told DAS Stewart that
IPR enforcement remains a problem at the judicial level
because of the slow pace in processing cases and a tendency
not to jail egregious violators (reportedly more than 90
percent of prison time is suspended). The representations
claimed that, thanks to new, solid legislation, judges have
the means to apply stiff penalties, but are not doing so.
They gave the police high marks, but said that time devoted
to anti-piracy efforts was insufficient. The Guardia di
Finanza, or Treasury Police, can only raid so often.


16. (U) The software, film, and music representatives
stated that the GOI has issued helpful press releases,
including from the Prime Minister's Office, and will
soon
embark on an IPR leaflet campaign to increase public
awareness. Unfortunately, a disconcertingly large number
of Italians continue to think that buying illegal CDs is
all right. Apparently, blank CDs enter Italy from East
Asia legally, but are then used to "burn" music or programs
illegally. Broadband communication is expected to increase
by 200 percent per year, which will exacerbate the problem.
Another area of continuing concern is the length of time
required to obtain waivers from stickering requirements for
software.


17. (U) In sum, the industry representatives were positive
about existing legislation (except for that pertaining to
trademarks, which dates back to 1922) and enforcement, but
expressed concerns about the judicial process.

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MINISTRY OF PRODUCTIVE ACTIVITIES (FOREIGN TRADE)
-------------- --------------


18. (U) At his meeting with Amedeo Teti, Director General
(DG) for International Trade, Ministry of Productive
Activities),DAS Stewart echoed USG appreciation for the
GOI's steadfast support in the war against terrorism and in
creating a stable and prosperous Iraq. The DAS said he was
fortunate to have attended the recent dinner in Washington
hosted by the Sons of Italy in honor of Prime Minister
Berlusconi and was moved by the latter's remarks on the
vitality of U.S.-Italian ties. DG Teti remarked on the
closeness and resilience of American and Italian relations
and observed that there are more than 25 million Italian-
Americans.


19. (U) On IPR protection, DAS Stewart called for a
redoubling of U.S. and Italian efforts, given its
implications for tax revenues, commercial sales, and each
nation's cultural patrimony. He suggested building on
recent progress spurred by bilateral educational
conferences and training of judges.


20. (SBU) DG Teti hoped that political leaders could do
more to encourage understanding of the need for IPR
protection, but noted difficulties in bridging cultural
gaps. For example, the GOI remains concerned about
"agropiracy" and thus is pushing for international
recognition of geographic indicators (GIs),although, he
detected, the USG does not see a problem in this regard.
DG Teti believes that IPR matters should be raised from a
technical to a political level and that the timing is right
for a joint "commission" to elevate them to their proper
place. "Would the Italian Government be willing to invest
more financial resources" in such an undertaking," DAS
Stewart asked? Because of the link between IPR and
national R&D capabilities, "yes," replied DG Teti.


21. (SBU) When asked about the apparent lack of penalties
for IPR crimes, DG Teti said that judges do not understand
that such transgressions are not "victimless." He again
recommended that the IPR issue be handled as a political
one and that political leaders, not just judges, receive
training on the various dimensions of IPR.


22. (U) On pharmaceuticals, DAS Stewart voiced concern
about the perceived lack of access by American companies to
Italian authorities and regulators, citing cases in which
innovative makers of new drugs could have benefited Italian
consumers markedly, but were hampered by delays of 10-17
months. He also stated that one American firm wishes to
invest a quarter of a billion dollars, but is concerned
about investment disincentives that exist in the Italian
market. DG Teti, with some sympathy to DAS Stewart's

point, said Ireland's own exports had burgeoned, thanks to
the exports of U.S. pharmaceutical firms that had invested
in Ireland. DG Teti asked if he could be provided with
practical, or pilot, cases/examples to bring to the
attention of his government contacts to determine where
U.S. firms are encountering problems in finalizing their
investment plans in Italy.


23. (U) Turning to the TABD, DAS Stewart asked how trade
partners such as the United States and Italy might get the
European Commission to accelerate a reduction of barriers.
DG Teti believes that a "bilateral" (i.e., U.S.-Italian)
system could help, given the difficulty in coordinating
E.U. policies and regulations. He also finds merit in
individual country efforts, such as Spain's recent move to
reduce the value-added tax on media products from 20
percent to four percent.

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TREASURY POLICE
--------------


24. (U) General Nino Di Paolo, Chief of Staff, Treasury
Police (Guardia di Finanza),received DAS Stewart at the
group's headquarters with an honor guard. General Di Paolo
said that illegal activities have grown more complex,
posing serious challenges to financially-constrained law
enforcement entities. (For example, cigarette smugglers
have turned to piracy.) Nonetheless, the GOI is better
prepared to meet these. He applauds new, more effective
legislation, which, together with directives from Economy
and Finance Minister Tremonti, gives enforcers more tools
to counter illegal activities. His agency has also
undergone a reorganization, a reflection of the importance
that the GOI attaches to IPR enforcement. He also welcomes
Italians' new attitude toward IPR: they better understand
the need for enforcement.


25. (U) General Di Paolo noted that, for the first time,
the Guardia di Finanza is assigning officers to Italian
diplomatic missions, beginning in Washington. This, he
said, is consistent with the will of Parliament. He
welcomes intelligence sharing and cooperation with the USG
on container security.


26. (U) DAS Stewart thanked the Guardia di Finanza for its
outstanding contributions to anti-piracy efforts and
stressed the importance of educating the public on the
interrelationships among criminal elements, including those
who counterfeit products in violation of IPR laws. He said
that, as a result of piracy, both the United States and
Italy are losing billions of dollars in potential revenues,
which might be used to improve public welfare.


27. (SBU) The General placed a premium on not just
countering criminal organizations, but also teaching
citizens that "cloning" someone else's work without
permission has deleterious consequences. He urged "360-
degree" education, engaging all government ministries.
When asked whether GOI agencies had encountered software
piracy problems, the General responded that a project on
this serious question has been undertaken previously for
all public administration to ensure compliance with the
norms and that all software use is "legitimate."


28. (U) With respect to the lack of significant jail time
or fines for IPR crimes, General Di Paolo indicated that it
is a matter that Parliament, which reflects popular
beliefs, needs to address. He also prefers "fiscal" rather
than "criminal" penalties in such cases, given law
enforcement's funding limitations. What matters for each
country, he said, is to achieve the ultimate goal of IPR
protection, even if it is by different means.

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PRIME MINISTER'S OFFICE
--------------


29. (SBU) DAS Stewart met with Mauro Masi, Deputy Secretary
General (DSG),Office of the Prime Minister, for a wide-
ranging discussion on trans-Atlantic commerce. DAS Stewart
highlighted the "barrier-free trade initiative" as one of
Secretary of Commerce Don Evans's top priorities and

SIPDIS
mentioned that the Irish, Danish, Dutch, British, and
Swedish Governments have expressed interest in it.

However, due to political sensitivities, European
governments, and both business communities, rather than the
USG, should be seen as driving such an initiative. DAS
Stewart also said that the TABD has embraced the idea and
will raise this issue at the upcoming U.S.-E.U. Summit. He
said that harmonization of standards (e.g., in accounting)
and regulations should be a central focus of the United
States and Europe, given their large impact on trade. The
above would be consistent with the goals of the Doha round
of international trade negotiations and E.U. Lisbon
conference on competitiveness goals.


30. (SBU) DSG Masi expressed keen interest in the barrier-
free trade initiative and in the TABD recommendations. He
asked for background on U.S. recommendations and said that
he will bring them to the attention of Under Secretary
Gianni Letta (Prime Minister's Office),Minister of Foreign
Affairs Franco Fratini, and Minister of Economy and Finance
Tremonti.


31. (U) DAS Stewart reiterated the need to solve remaining
problems in the already strong U.S.-Italian commercial
relationship, citing IPR enforcement and pharmaceuticals
policy concerns. DSG Masi explained that the systemic
independence of judges accounts for the relatively small
number of sentences and suggested that he will speak to
Minister of Justice Roberto Castelli about USG concerns.
He also recommended that the USG and GOI approach the
Italian magistrates' association on this matter.
Nonetheless, he thinks that law enforcement entities (the
Defense Ministry's Carabinieri, the Interior Ministry's
Polizia di Stato, and the Economy and Finance Ministry's
Guardia di Finanza) are doing a great job, given their
challenges and constrained human and financial resources.
DSG Masi also said that Italy needs a law for IPR
protection on the Internet.


32. (SBU) Regarding USG concern about the lack of
pharmaceutical companies' access to Italian agencies beyond
the Health Ministry (DAS Stewart again noted that drug
policy is not just a health issue, but also one with major
fiscal implications),DSG Masi said that he can be
contacted directly by the concerned firms and that he will
seek to facilitate their access to other Ministries. He is
sensitive to American company interest in investing in
Italy.

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MINISTRY OF CULTURE
--------------


33. (U) Minister Fabio De Nardis, Diplomatic Adviser to the
Minister of Culture, and Ornella Giustini and Giuseppina
Spina, Office of Intellectual Property, briefed DAS Stewart
on "historic," new Italian legislation, including the
Urbani Law, named after Minister of Culture Giuliano
Urbani. They maintain that Italy is much more aware of the
need to protect intellectual property and better equipped
than before to fight piracy. In keeping with new Italian
laws and E.U. directives, the Culture Ministry has also
been reorganized.


34. (SBU) DAS Stewart thanked the Ministry for its
continuing support in emphasizing the seriousness of IPR
violations and asked for its assistance in getting
magistrates to make the connection between piracy and
crime. Italian laws appear to be strong, but need to be
more widely enforced. Asked what could be done to counter
illegal products from China, DAS Stewart urged his
interlocutors to encourage their Ministers to press E.U.
counterparts. The Ministry representatives also promoted
the idea of establishing protections for all intellectual
property on the Internet, with penalties for copyright
violators. Speaking of fines, the officials favor
"administrative and monetary" over "criminal" penalties.


35. (SBU) On business and game software, DAS Stewart
indicated that, although American business appreciates the
GOI's exemption from the onerous stickering (bollino)
requirement, U.S. firms find waiver application procedures
burdensome. Moreover, American companies are concerned
that their legitimate products are being seized by mistake
after removal of duly obtained stickers.


36. (SBU) Would the Ministry be willing to exempt American

firms from this administrative procedure, DAS Stewart
asked? At first, the Ministry representatives implied that
there is little they can do, given that IPR legislation is
already in force. However, later during the discussion,
when DAS Stewart inquired whether the Ministry can meet
with BSA to discuss the stickering issue, the officials
were receptive and agreed to review any BSA position paper
on this matter. A significant and encouraging development,
the officials reasoned that there is time and GOI
willingness to look at the stickering issue again, given
that the Ministry must draft implementing regulations.


37. (SBU) At the end of the meeting, while the Ministry
officials expressed satisfaction with anti-piracy progress,
they also raised Italy's inclusion on the 301 Watch List
with respect to IPR protection and industrial impact. DAS
Stewart and an Embassy officer assured them that the USG
prepares the list after a careful and thoughtful
interagency review.


38. (U) This cable has been cleared by DAS Stewart.


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2004ROME02171 - Classification: UNCLASSIFIED