DEPUTY USTR BHATIA'S MEETINGS IN MANILA: TRADE

UNCLAS SECTION 01 OF 03 MANILA 001221 SIPDIS SENSITIVE SIPDIS DEPT FOR EAP/MTS STATE PASS TO USTR FOR KBHATIA, RDEHAAN, BWEISEL AND DKATZ USDOC FOR 4430/ITA/MAC/DBISBEE AND SBERLINGUETTE E.O. 12958: N/A TAGS: ETRD EAGR ETTC EINV KIPR RP SUBJECT: DEPUTY USTR BHATIA'S MEETINGS IN MANILA: TRADE AND INDUSTRY SECRETARY FAVILA, MARCH 16 REF: A) 05 Manila 05447 B) 06 Manila 01080 C) 06 Manila 01138 SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION - PROTECT ACCORDINGLY -------------- SUMMARY -------------- ¶1. (SBU) In a March 16 meeting with Deputy USTR Karan Bhatia, Trade and Industry Secretary Peter Favila expressed appreciation for USTR's recognition of GRP progress on intellectual property rights (IPR) protection and the February announcement to move the Philippines from the Special 301 Priority Watch List to its Watch List. Favila noted that IPR protection is seen as an important part of the overall bilateral trade relationship, and will encourage investment and economic growth. Favila said the GRP is implementing interim measures to restore tax incentives to investors at the Clark Special Economic Zone (SEZ) while necessary legislation makes its way through Congress. Favila expressed support for the US position in the WTO Doha Round negotiations, especially with respect to agriculture, noting that President Arroyo has instructed key officials to support the US. However, Favila added that tariff reductions in agriculture are meaningless without reducing trade distorting structures in the Philippine economy. Favila also mentioned the upcoming ASEAN Economic Ministers Retreat in Boracay on May 15 and expressed hope that USTR Ambassador Portman would attend. -------------- PARTICIPANTS -------------- ¶2. (U) -- USG: Deputy USTR Ambassador Karan Bhatia, Assistant USTR Barbara Weisel, Special Assistant Bob DeHaan, Charge d'Affaires Paul Jones, Econ Counselor Robert Ludan, and Economic Officer Shannon Cazeau. -- GRP: Department of Trade and Industry (DTI) Secretary Peter Favila, Director Ramon Kabigting of the Bureau of International Trade Relations (BITR),Director General (DG) Adrian Cristobal of the Intellectual Property Office, and Assistant Chief Arlene Ligad of the Bilateral Relations Division, BITR. -------------- INTELLECTUAL PROPERTY RIGHTS -------------- ¶3. (SBU) Ambassador Bhatia congratulated Secretary Favila and DG Cristobal for their work on improving the protection of intellectual property rights (IPR),which contributed to the decision to move the Philippines from USTR's Special 301 Priority Watch List to the Watch List in February 2006. Bhatia emphasized that this had been a "tough decision" for USTR since it was not supported by many industry stakeholders; continued strong cooperation and progress on IPR initiatives will be all the more important in 2006. Secretary Favila said that both he and President Arroyo SIPDIS appreciated USTR's decision. Following the announcement, President Arroyo hosted a congratulatory lunch for IPR officials. At that time, she instructed the Philippine National Police (PNP) to double or triple its police forces involved in IPR, and she made it clear to the Secretary of Justice that she wants to see more convictions for IPR violators. Favila added that he sees IPR as an important part of the overall bilateral trade relationship and recognizes that improved IPR protection can result in increased investment and greater economic growth. ¶4. (SBU) DG Cristobal said that draft legislation to implement the World Intellectual Property Office (WIPO) internet treaties is now in committee in the House. Favila added that he has already talked to President Arroyo about the need to certify this bill as urgent at some point in the future. ¶5. (U) Bhatia raised concerns about draft legislation (ref A) that would reduce patent protection for pharmaceutical products, which may be inconsistent with the Agreement on Trade Related Aspects of Intellectual Property Rights MANILA 00001221 002 OF 003 (TRIPs),noting that DTI had circulated a position paper supporting the bill (SB 2139). Favila said that the GRP is willing to have a dialogue with the pharmaceutical industry, but that the end goal of lawmakers is to reduce the cost of medicines because people simply cannot afford to buy them. Cristobal asked that the Embassy arrange a forum for dialogue with industry. Bhatia said that USTR would be happy to talk to industry representatives about such a dialogue, and noted that it would be better to have dialogue before the legislation is actually enacted. -------------- CLARK SPECIAL ECONOMIC ZONE -------------- ¶6. (SBU) With respect to restoring investment incentives for the Clark Special Economic Zone (SEZ) (ref B),Favila said that he had already worked with President Arroyo to issue an executive order temporarily to restore incentives, as an interim measure, while the necessary legislation is pending in Congress. He added that Finance Secretary Teves has also been very supportive on this issue. Soon after the Supreme Court issued its ruling, Favila was approached by various business people, particularly from the U.S., who asked him to write a letter to the Supreme Court to advise that he did not intend to implement the ruling. Favila said that such a letter would have been in contempt of court and inappropriate. He asked business representatives to trust the GRP to resolve the issue, while in the meantime he would explore "stop-gap" measures to address the interim period. -------------- MINING AND THE USGS MINERALS SURVEY -------------- ¶7. (U) Bhatia gave Favila a non-paper on the US Geological Survey's proposed minerals survey, which requires about $1 million in funding from the GRP (ref C). Favila said that he is hoping "to move fast on this one" and has made an announcement about the US offer to work with the Philippines on this project. -------------- WTO DOHA ROUND -------------- ¶8. (SBU) Bhatia expressed concern for the GRP's slow movement on Doha Round initiatives, especially on agricultural market access. Favila said that the GRP supports and has been consistently pushing for the "dual pillars of market access and export subsidies." The GRP sees the Philippines' growth rate anchored to agricultural production and foreign investment and as such, this is where the GRP is focusing its attention, particularly with respect to agriculture. Favila said that any further lowering of tariffs on domestic agriculture would be meaningless if there were not also reductions on trade distorting measures and structural problems that lessen the impact on prices. Favila added that President Arroyo had told him and other officials that they "ought to look at the U.S. position and support it." Favila said that the GRP is taking a "general attitude of support" for the U.S. on agriculture. ¶9. (U) Bhatia said that agriculture is important but that the U.S. is also concerned about non-agricultural market access (NAMA). Sectoral initiatives are promising, particularly for the Philippines in the areas of mining, tourism, and electronics. Director Kabigting said that the GRP is happy to discuss these ideas, particularly with respect to electronics. -------------- ASEAN ECONOMIC MINISTERS RETREAT -------------- ¶10. (U) Favila mentioned the upcoming ASEAN Economic Ministers Retreat, which the Philippines is hosting on the island of Boracay (tentatively scheduled for May 15, 2006). Kabigting said that ASEAN is very excited about the possibility of USTR Ambassador Robert Portman attending, noting that ASEAN and the GRP would be very happy if true ministerial level could be achieved for the meeting. Bhatia said that he would relay the message to Ambassador Portman. MANILA 00001221 003 OF 003 -------------- COMMENT -------------- ¶11. (SBU) The overall tone of the meeting was very positive and cooperative, which highlights the GRP's continued willingness to work closely with the U.S. on bilateral trade issues. Favila has not been very involved on IPR issues since the main responsible agency, the Intellectual Property Office, reports directly to the President, although DTI does have "dotted line" authority over IPR. The February Watch List decision has generated much high-level attention to the issue, and Bhatia's meetings with Favila and other officials reinforced the importance of this issue to our trade agenda. This may translate into a more active approach at higher levels, which will help ensure forward movement on IPR initiatives. ¶12. (SBU) With respect to the Clark SEZ tax incentives, Favila is very supportive and is exploring creative short- term measures until Congress passes legislation. However, investor patience is wearing thin and the uncertainty created by the lack of formal resolution may deter future investment. Favila was enthusiastic about the USGS mining survey, although a funding commitment may have to await passage of the 2006 budget. Favila's statements on the WTO Doha Round were encouraging, but GRP delegations at WTO are sometimes out of sync with senior officials in Manila. The GRP has staunchly maintained that its applied tariff rates are already low and it does not intend to reduce them in the near term. There is also little room for the GRP to maneuver on NAMA due to current constitutional limitations. ¶13. (U) Ambassador Bhatia did not have an opportunity to clear this message. JONES