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