AMBASSADOR'S MEETING WITH FOREIGN MINISTRY U/S

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 001567

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC, EB/TPP, EB/IFD/OMA, AND NEA
STATE PASS USTR FOR SCRONIN, BPECK, LYANG
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/EOLSON/SHUPKA
TREASURY FOR NLEE/FPARODI
NSC FOR SHANNON, BREIER, RENIGAR

E.O. 12958: DECL: 06/09/2015
TAGS: KIPR ETRD EAGR EFIN BR IZ WTRO IPR
SUBJECT: AMBASSADOR'S MEETING WITH FOREIGN MINISTRY U/S
HUGUENEY ON COMPULSORY LICENSING THREAT AND OTHER TRADE
ISSUES

REF: A) BRASILIA 1507 (NOTAL) B) SECSTATE 103543 C)

SECSTATE 103222 D) BRASILIA 1067

Classified By: Economic Officer Janice Fair, Reasons 1.4 (b) and
(d)


1. (C) Summary. Ambassador Hugueney of Brazil's Foreign
Ministry (Itamaraty) told Ambassador June 6 that U.S.
pharmaceutical companies should improve their offers on
pricing and/or voluntary licenses for AIDS treatment drugs so
as to avoid compulsory licensing by the Ministry of Health
(MoH). Hugueney believed movement in the Chamber of Deputies
of legislation that would deny patentability to AIDS drugs
was likely intended to provide greater leverage to the
Ministry of Health in its negotiations with the
pharmaceutical companies. The bill's broad political
backing, he observed, makes a presidential veto unlikely
should the legislation pass. On the WTO Doha Round of trade
negotiations, Hugueney said Brazil will submit a
"substantially improved" revised services offer the week of
June 6. Hugueney expects to take up the post of Brazil's
Ambassador to the WTO by late August or early September.
Hugueney confirmed Brazil's plan to attend the June 21 to 22
US-EU International Conference on Iraq. End Summary.


2. (SBU) On June 6, Ambassador met with Clodoaldo Hugueney,
Itamaraty's Under Secretary for Economic and Technological
Affairs, to discuss a number of trade issues, principally,
pending legislation that would render drugs to prevent and
treat AIDS un-patentable, and the continuing threat of
compulsory licensing facing the U.S. pharmaceutical companies
Gilead Sciences, Abbott Laboratories, and Merck, Sharp &
Dohme for their AIDS treatment drugs (ref A). Hugueney was
accompanied by his assistant, Miguel Franco, and Otavio
Brandelli, Chief of the Ministry's IPR Division. Ecouns,
Commoff, and Econoff accompanied Ambassador.

AIDS Drugs - Compulsory License Threat and Patent Legislation


3. (C) Hugueney, who had just returned from Doha negotiations
in Geneva, said Itamaraty is following MoH negotiations with
the pharmaceutical companies closely and described them as
boiling down to issues of pricing or voluntary
license/royalty payments. He noted the intense pressure the
GoB is under from civil society, particularly NGOs, to issue
compulsory licenses. Hugueney agreed the best outcome would
be to avoid compulsory licenses, but opined that to do so
would require improved offers on price or voluntary licensing
from the companies. (Upon relaying this message to the
companies, the Merck representative here told us his company
was in the process of preparing a more detailed offer,
although he did not say that it would be more forthcoming on
prices. As for Gilead and Abbott, they have taken Hugueney's
suggestion "under advisement.") Hugueney further advised the
companies to maintain a dialog with the MoH to forestall
precipitous, politically motivated action by that Ministry,
and encouraged them to explain/present their proposals to a
wide array of GoB interlocutors.


4. (C) When questioned by Ambassador on whether an agreement
between the MoH and the pharmaceutical companies would
effectively kill pending legislation on patentability of AIDS
drugs, Hugueney demurred on a definitive response, but said
he did see the two as linked. Hugueney recounted an
interview on the O Globo news the prior evening in which the
bill's author prefaced his statements by saying the
legislation had been given renewed impetus in order to
provide greater leverage to the Ministry of Health in its
negotiations with the pharmaceutical companies. (Note: On
June 1, the Constitution and Justice Committee of the Chamber
of Deputies approved a previously dormant bill (PL22/2003)
which will exclude from patentability drugs used for the
prevention and treatment of AIDS, and the production
processes for their manufacture; the bill will now go
directly to the Senate unless a request to place the bill
before the Chamber plenary is made by 51 deputies within the
next five sessions. The bill's language is very general,
leaving open for debate whether or not it would be
retroactive, and its scope, i.e. does it cover drugs not only
for treating AIDS, but also for treating any type of malady
afflicting AIDS patients, is similarly unclear. End Note.)


5. (C) Although the Lula administration has not formally
endorsed the legislation, Hugueney noted it had wide
political backing in the Chamber and warned against assuming
the bill would move slowly in the Senate. (Note: although
the Planalto has not endorsed the bill, the Ministry of
Health has publicly lobbied for its passage.) In Hugueney's
view, the companies' best hope for a satisfactory outcome
would be to work toward a resolution of the licensing issue
with the Ministry of Health, rather than allow the
legislature to set patent parameters. He underlined the
importance of stopping the legislation within the Congress,
admitting that political factors would prevent a presidential
veto.


6. (C) Brandelli reported that the National Confederation of
Industries (CNI) was working to mobilize the necessary number
of deputies to request that the bill be considered within the
Chamber plenary; if successful, this would considerably slow
down the approval process -- aside from a full legislative
agenda the Chamber is also currently seized with a number of
scandals involving Brazilian congressmen -- and allow for a
broader debate on the bill's demerits. According to
Brandelli, CNI is also willing to work directly with the U.S.
pharmaceutical companies to devise a strategy for dealing
with the MoH's compulsory licensing threat.


7. (C) In a follow-up conversation with Econoff, Brandelli
reiterated Hugueney's comments regarding the need for the
companies to respond to MoH pricing or voluntary licensing
interests saying that investment plans are welcome, but do
not address the immediate issues. Gilead has been in close
communication with Brandelli and he openly praised the
company's proposal, which offers substantial concessions on
pricing; he described Abbott's investment plan as great for
2007, but containing nothing concrete for the MoH today.
Merck reps have not yet requested a meeting with Brandelli,
but did speak with Foreign Minister Amorim's Economic Advisor
Antonio Simoes on May 30 as part of a Brazil-U.S. Business
Council delegation. When Econoff suggested to Brandelli
that no pricing plan may satisfy the MoH if its overriding
interest is actually licensing, he pointed out that should
the companies need to pursue recourse through Brazilian
courts, they will have to demonstrate their good faith
efforts in the negotiations to address the MoH's underlying
concerns, which the ministry has identified as reliability of
supply and pricing.


8. (C) Brandelli suggested the companies approach the
Minister of Science and Technology, Eduardo Campos, as
another possible GoB ally. Despite Itamaraty's advice to
engage a number of GoB interlocutors, Brandelli admitted to
Econoff that an inter-ministerial working group is being
sidelined in the deliberations, which are principally between
the Ministry of Health and the Casa Civil, i.e., the office
of the President's Chief of Staff.

WTO Doha Negotiations


9. (C) Hugueney expressed disappointment with a lack of
leadership and organization in the agriculture negotiations
the week of May 30, and stressed the substantial amount of
work that must be completed to formulate a "first
approximation" by the end of July. He said the process would
require sustained ministerial involvement since "high level
officials" appear unable to make key decisions.


10. (SBU) Ambassador provided Hugueney with information
pertaining to submission of the U.S. revised services offer
(ref B). Hugueney described the Brazilian revised services
offer, which will be tabled later in the week, as a major
improvement, including such sectors as financial,
telecommunications, engineering, maritime services, among
others. As in the past, he cautioned that Brazil's ability
to be forthcoming in services and industrial products (NAMA)
negotiations will depend on advances in the agricultural
talks.


11. (SBU) Hugueney is slated to leave his post as Brazil's
chief capital-based WTO negotiator to take up the post of
Brazilian Ambassador to the WTO. His nomination is
tentatively scheduled to go before the Senate Foreign Affairs
Committee the week of June 13 before being forwarded for a
plenary vote. If all goes smoothly, Ambassador Hugueney
plans to take up his post in Geneva in late August or early
September.

U.S.-Brazil Soybean Discussions


12. (SBU) Due to his Senate confirmation hearings, Ambassador
Hugueney will not attend the June 16 bilateral discussions in
Washington on soybean support. The Brazilian delegation will
be led by Elisabeth Serodio, Secretary of International
Affairs in the Ministry of Agriculture; other participants
include Flavio Damico (Itamaraty Agriculture and Basic
Products Division),and representatives of ICONE (Institute
for International Trade Negotiations) as well as the private
sector. Hugueney described the upcoming Washington session
as a great opportunity for both sides to clear the air on
soybean subsidies, and appeared upbeat on the chances for
success of the talks.

Iraq Conference


13. (SBU) Ambassador delivered Ref C demarche on the June
21-22 US-EU International Conference on Iraq in Brussels.
Hugueney confirmed Brazil's plan to attend and assured
Ambassador the GoB would take into consideration the points
of the demarche.

Comment


14. (C) We are encouraging the U.S. pharmaceutical companies
to explore working with CNI on a strategy for better
informing the Brazilian Congress about the potential negative
consequences of both compulsory licensing and exempting AIDS
drugs from patent coverage. However, as Hugueney's comments
testify, the debate over patent protection for AIDS drugs is
highly political, complicating the GoB's ability to manage
the issue as well as the Mission's ability to engage the key
GoB decision-makers, which appear to be in the Presidency.
(Indeed, the Abbott representative told us that according to
his contacts, the impetus for licensing is coming from
President Lula himself; a high-level delegation from the
company may seek an appointment directly with the president
on this issue.) And notwithstanding assurances by
Presidential Chief of Staff Jose Dirceu that he would consult
with Mission concerning any compulsory licensing decision
(ref D),Post believes that at any moment political forces
could align so as to prompt precipitous action by the GoB.


15. (C) Post understands that USTR is reviewing legal
implications for Brazil's international obligations of both
potential compulsory licensing and eventual passage of the
patent legislation; Washington may want to start considering
a range of potential reactions, bearing in mind that allies
on this issue do exist within the GoB. We would welcome
guidance on the process/procedures the GoB would have to
follow should it decide to go the compulsory licensing route.
It is ironic that this potential clash on patent rights
comes just as cooperation by the GoB in the area of copyright
enforcement is finally showing substantial improvement.
Danilovich