CHILE'S SPECIAL 301 OUT-OF-CYCLE REVIEW: POST

UNCLAS SANTIAGO 002303

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/TPP/IPE - JENNIFER BOGER
STATE PLEASE PASS TO USTR - JENNIFER GROVES, CARROLL COLLEY
AND RACHEL BAE
COMMERCE FOR CATHERINE PETERS

E.O. 12958: N/A
TAGS: ETRD KIPR PREL CI
SUBJECT: CHILE'S SPECIAL 301 OUT-OF-CYCLE REVIEW: POST
RECOMMENDS PRIORITY WATCH LIST

REF: A. STATE 149667


B. SANTIAGO 1761


1. (SBU) Summary: Post recommends that Chile be placed on the
Special 301 Priority Watch List. Nearly three years after
the entry into force of the U.S.-Chile Free Trade Agreement,
the GOC's institutional framework and political commitment to
IPR protection, whether for pharmaceutical patents or
copyrighted material, remain unclear at best. Over the last
five months since the announcement of an Out-Of-Cycle Review
for Chile, the USG has made a concerted effort to understand
better what progress Chile might have made on IPR issues.
Even during the Santiago visit of A/USTR Eissenstat, the GOC
was unable to lay out in an understandable fashion its IPR
protection regime. Though clear the GOC has taken some steps
over the last several years, real progress remains slow and
spotty at best. Worse, there seems to have been no increase
in the GOC's political commitment to protecting IPR, even for
its own long-term development. It is time to recognize that
the emperor has no clothes and place Chile on the Priority
Watch List. End Summary.

Data Protection
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2. (SBU) As reported in ref B, the GOC appears to have made
some progress in providing data protection for innovative
pharmaceuticals. The GOC holds out Decree 153, published in
December 2005, as a major step forward in providing
protection. At least one innovative drug has been granted
data protection for its clinical trials under this decree.
That being said, the decree creates many technical barriers
to receiving protection. Whether the decree will be applied
realistically and consistently by the Ministry of Health and
the Instituto de Salud Publica (ISP is the rough equivalent
of the FDA) remains a large question mark.

Pharmaceutical Patent Violations ) No Linkage In Sight
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3. (SBU) On the main issue of patent violations, the
continued absence of any linkage between the granting of
marketing rights and the existence of valid patents, there
has been no progress. The GOC privately admits that valid
patents have been violated in the past but maintains this
will not happen again. However, it is unable to explain to
the USG or to the affected pharmaceutical companies how it
will be able to ensure these patents are not violated. In
response to the question of the best course of action should
a patent be violated now or in the future, the GOC's only
suggestion is for companies to turn to the court system. It
considers the existing court system to be the linkage
required under the FTA. In essence, the GOC has shifted the
burden of upholding existing valid patents from itself to the
patent holder and by extension to an unprepared court system.


4. (SBU) The GOC maintains that patent rights must be upheld
by court rulings, rather than by executive branch decisions
on the part of either the ISP or the patent office. It is
possible that Chile's new patent regulations might expedite
the issuance of civil injunctions to stop the marketing of
unauthorized copies. However, it is too early to tell how or
even if this procedure will work. What is clear is that the
GOC intends to put the administrative and financial burden
wholly on the original patent holder to defend its patent
rights in Chile. The capacity of the Chilean court system
and its judges to serve as effective enforcers of patent
rights remains questionable at best.

Word Games
--------------


5. (SBU) In its discussion with A/USTR Eissenstat in August,
the GOC played semantics by arguing that the ISP's issuance
of sanitary approval does not violate the FTA's provision,
which bars Chile from granting marketing approval in
violation of a patent holder's rights, because the ISP does

not literally grant "marketing approval." But the fact is,
once a product receives sanitary approval, it can be legally
sold in Chile. This intentional failure to link the sanitary
approval process to existing, valid patent rights means quite
simply that pirated copies of patented medicines are able to
reach the Chilean market legally.


6. (SBU) The FTA specifies in Article 17.10.2 that parties
"shall not grant marketing approval to any third party prior
to the expiration of the patent term." When pushed, the
GOC's official position is that sanitary approval is not
marketing approval. However, there is no entity in the
Chilean Government which issues marketing approval and the
concept itself does not exist in the GOC approval process for
any product. In essence, the ISP's granting of sanitary
approval is official GOC approval to allow a pharmaceutical
product to come to market.

Inadequate Copyright Anti-Piracy Efforts
--------------


7. (SBU) On the streets of Chile's major cities and at
informal flea markets, the Chilean police can be relatively
aggressive in arresting sellers of pirated optical media.
However, these efforts have little long-term impact as
punishment is minimal, with most IPR violators not even
paying fines and criminal penalties suspended. The police
rarely investigate the manufacturing and distribution of
pirated materials. As a consequence, U.S. content industries
report that piracy in Chile continues to cost U.S. companies
significant revenue and market share in music, movies and
software.


8. (SBU) An anti-piracy bill introduced in early 2004 remains
in the Chilean Congress pending further review. Most local
and international industry observers consider the bill's
civil and criminal penalties too low to serve as an effective
deterrent. On another front, the GOC has also been slow in
seeking to obtain legitimate copies of computer software for
use by all government ministries, as required by the
U.S.-Chile FTA. President Lagos issued an executive order in
2003 instructing government offices to procure only licensed
software, but there has been no formal follow-up. The weak
anti-piracy bill combined with the GOC's half-hearted attempt
to police its own use of pirated software does not speak well
of the Chilean Government's commitment to copyright
protection.

Recommendation: Place Chile on the Priority Watch List
-------------- --------------


9. (SBU) At the heart of the lack of progress on IPR
protection in Chile is a lack of political will. Chilean
policy decisions and actions continue to fall short of
official rhetoric and formal trade agreement commitments on
IPR. It is possible that placing Chile on the Priority Watch
List -- it would become the first U.S. FTA partner to become
a PWL country -- will initiate a needed public debate on the
value of IPR to Chile. It will certainly be seen by Chile as
punishment should Chile vote for Venezuela for a
non-permanent UNSC seat. Nonetheless, the facts speak for
themselves.


10. (SBU) One of the pillars of President Bachelet's future
vision for Chile is innovation. That vision remains largely
unarticulated, but clearly investment in and protection of
intellectual property rights could play a constructive role
in fostering innovation. It is time for Chile to put some
consistent and transparent substance behind its rhetoric.
While the GOC provides assurances it understands USG concerns
on patents and copyrights, and it claims it has been moving
to address them (and constantly seeks praise for the steps it
has taken),real progress on the ground has been minimal.
Post has a strong sense that the GOC will continue, as long
as it feels it can get away with it, to do the minimum to
keep the U.S. at bay. At this point we have no choice but to
recommend Chile be placed on the Priority Watch List.

KELLY