LITHUANIAN SCIENTISTS ADJUST TO A NEW, MARKET-

UNCLAS SECTION 01 OF 02 VILNIUS 000731

SIPDIS

DEPT FOR EUR/NB AND OES/STC
DEPT PASS TO NATIONAL SCIENCE FOUNDATION INTERNATIONAL
DIVISION AND CIVILIAN RESEARCH AND DEVELOPMENT FOUNDATION
COMMERCE FOR NIST

E.O. 12958: N/A
TAGS: ECON TSPL KSCA PGOV LH
SUBJECT: LITHUANIAN SCIENTISTS ADJUST TO A NEW, MARKET-
BASED REALITY

REFS: A) VILNIUS 675, B) VILNIUS 144, C) 04 VILNIUS 760


1. Summary: Lithuania's research institutes have
significant research and development (R&D) capabilities, but
generally fail to produce profitable and marketable
innovations. While there are some exceptions -- notably in
lasers, electronics, and biochemistry -- inadequate funding
and a lack of communication among business and research
organizations limit the usefulness of Lithuania's research
institutions. Closer integration of the needs of the
Lithuanian economy with the capabilities of local scientists
would benefit Lithuania's scientific community and its
economic development. Future Embassy Science Fellows could
be helpful in this regard. End Summary.

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EMBASSY SCIENCE FELLOW ASSESSES LITHUANIAN R&D
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2. Embassy Science Fellow Geoffrey Prentice visited Vilnius
in May to promote collaborative activities between US and
Lithuanian researchers, mainly by presenting a series of
lectures on opportunities available through the National
Science Foundation (NSF). He visited several universities
and research institutes during his stay and spoke with
dozens of university faculty and research institute
employees. His experience also provided the Embassy with a
useful overview of the state of Lithuania's R&D
capabilities.

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THE MAIN PROBLEM: MONEY
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3. The main problem for Lithuanian researchers is the lack
of funding. Government expenditure on R&D is approximately
0.6 percent of GDP; most industrialized countries spend 2-3
percent. The GOL, pressed by other public needs, is
unlikely to raise this amount significantly in the near
future. Low expenditure on R&D results in low salaries, few
opportunities for younger scientists, unattractive working
conditions, and a general lack of economic incentive for the
brightest students to become researchers. The GOL's
practice of generally allocating funding through block
grants rather than a competitive process further compounds
the problem by rewarding longevity rather than innovation.


4. Lithuanian researchers have had some limited success in
attracting other sources of funding. A few have formed
relationships with industrial partners, mainly companies
based in Western Europe and the United States. Some
Lithuanian researchers have successfully competed for EU
research grants.


5. Even the most successful Lithuanian research institutes,
however, face financial difficulties that limit their
capabilities. The Institute of Biochemistry, for example,
employs 140 people, yet survives on an annual budget of
about USD 2 million, half of which comes from research
contracts and half from government. This limited budget
prevents the Institute from filing for and defending patents
for its innovations. Instead, its intellectual property is
controlled entirely by its industrial partners, which
include Bayer, Sigma-Aldrich, and Merck. As a result, the
Institute does not generate the continual, long-term profit
that would come from owning patents on its innovations.

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STRUCTURAL PROBLEMS: THE SOVIET LEGACY
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6. Universities in Lithuania are generally geared towards
teaching, while most scientific investigation is conducted
at research institutes, an arrangement standard throughout
the former Soviet Union. While some of the leading
institutions, such as Vilnius University, Kaunas Technical
University, and the Kaunas Technology Center, are
integrating teaching and research successfully, this divide
is still apparent.


7. The collapse of the Soviet Union constituted an
existential crisis for many of Lithuania's research
institutes, many of which had specialized in defense-related
activities. Staff cuts up to 75 percent were common. Those
that remained were often the most senior researchers.
Despite their significant scientific ability, these men and
women had little experience in competing for grants or
working on profitable and marketable innovations.
Management at the institutes is becoming more
entrepreneurial, but still lacks experience in applying for
competitive grants and cooperating with private enterprise.

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GLIMMERS OF HOPE
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8. The outlook for Lithuanian R&D is not entirely negative.
Lithuanian research institutes employ many very capable
scientists, and Lithuania has the potential to be a source
of low-cost R&D for Western institutions. Lithuania's
capabilities in biochemistry and lasers are especially
impressive. In addition, Lithuania has strong capabilities
in electronics: the Semiconductor Physics Institute, which
collaborates with Lockheed Martin and the U.S. Army's Space
and Missile Command, is conducting cutting-edge research on
optoelectronics, chemical sensors, and defenses against
electromagnetic pulses. Unfortunately, this sort of
collaboration is rare.


9. The Embassy is finalizing negotiations on a new bilateral
Science and Technology Agreement, which will be a vital step
in strengthening U.S.-Lithuanian cooperation in this field.
The agreement will establish valuable IPR protections,
provide Lithuanian researchers with more opportunities to
bridge the divide between research institutions and the
commercial sector, ensure the long-term viability of
Lithuania's science capabilities, and increase private
sector investment in science-related activities, including
R&D. This long-awaited agreement (reftels) had been held up
by an interpretation of EU directives that would have
subjected purchases financed by USG grants to value-added
tax (VAT) under Lithuanian law, a situation that would have
prohibited most USG agencies from issuing grants in
Lithuania. The GOL's current proposal for alleviating this
problem obligates the GOL to refund VAT to Lithuanian
institutions that are assessed VAT on goods purchased with
USG grant monies. We expect that the GOL will formally
present their proposal to us by the end of the summer.

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COMMENT: PARTNERS NEEDED
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10. This year's Embassy Science Fellow, the third we have
hosted, did an excellent job of reaching out to a wide array
of research institutes in Lithuania and bringing to their
attention funding opportunities that are available. Given
the resource shortages these institutes face, this type of
assistance is vital. The next logical steps for a future
Embassy Science Fellow are to assist Lithuanian institutions
in actually applying for specific sources of funding,
identifying specific potential business partners and
establishing collaborative arrangements with them, and
helping establish more effective systems of innovation
financing and management. Projects that seek to tie
Lithuania's R&D capabilities to profitable and marketable
innovations would also be especially welcome.

KELLY