PHARMACEUTICALS: HEALTH MINISTER TELLS AMBASSADOR

UNCLAS SEOUL 001477 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/K AND EB/TPP COMMERCE FOR 4431/MAC/OPB/EAP/DUTTON PASS USTR FOR CUTLER, AUGEROT AND KI E.O. 12958: N/A TAGS: ETRD EIND KS SUBJECT: PHARMACEUTICALS: HEALTH MINISTER TELLS AMBASSADOR HE WILL STICK TO PLANS TO ANNOUNCE SHIFT TO "POSITIVE LIST" REF: A. PORTMAN-KIM LETTER OF 5/1/06 ¶B. MEMCON ON TONG-LEE MEETING OF 4/28/06 ¶C. STATE 66875 SUMMARY -------------- ¶1. (SBU) The Ambassador met on May 2 with Minister of Health and Welfare (MHW) Rhyu Si-min and expressed serious concerns with Rhyu's plan to officially announce on May 3 a proposal to shift to a "positive list" system for reimbursing pharmaceuticals. The Ambassador urged Rhyu to postpone such an announcement until after sufficient intergovernmental discussions of the issue had taken place, or to reconsider the proposal entirely. He noted that the sudden announcement of such a far-reaching decision could have a negative impact on the atmosphere surrounding the upcoming U.S.-Korea Free Trade Agreement (FTA) negotiations and significantly complicate the negotiations over pharmaceuticals. ¶2. (SBU) Rhyu told the Ambassador that MHW would go ahead with plans to announce on May 3 its intent to begin the process of shifting Korea's system for reimbursing pharmaceuticals under the National Health Insurance (NHI) system from the current negative list to a positive list system. He noted that the announcement would present "tentative" plans, not a full-fledged, final proposal. Rhyu outlined three principles for carrying out the shift, offering assurances that the shift would not disadvantage foreign pharmaceutical companies and promising that the plan would not create any new non-tariff barriers to pharmaceuticals trade. Rhyu noted that a two-month comment period starting May 3 would be used to seek comments from foreign manufacturers and governments. Rhyu also commented that once FTA negotiations begin, if there is any evidence that implementation of his plan is creating significant difficulties for the FTA negotiations, he would be open to continued consultations on the matter. ¶3. (SBU) In response, the Ambassador re-emphasized the need for substantive government-to-government talks on this matter, and stated that merely calling for a 60-day comment period was an insufficient level of transparency -- particularly given the context of FTA talks -- since negotiators would be presented with the problem of trying to 
negotiate around the substance of a moving target. ¶4. (SBU) According to the Ministry of Foreign Affairs and Trade (MOFAT),Trade Minister Kim Hyun-chong met with Rhyu and a Blue House representative before Rhyu met the Ambassador in order to try to talk Rhyu out of going forward with these plans, but this effort was unsuccessful. Embassy representatives will attend the May 3 MHW briefing on its decision to move forward with the positive list strategy. End summary. AMBASSADOR LODGES STRONG PROTEST -------------- ¶5. (SBU) Ambassador Vershbow told MHW Minister Rhyu that the United States has serious concerns with Rhyu's plans to announce on May 3 a shift to a positive list system for reimbursing pharmaceuticals. He reminded Rhyu that Korean representatives had assured us in the last Quarterly Trade Meeting that there would be full consultations with affected stakeholders including foreign pharmaceutical companies. The Ambassador also outlined substantive concerns with the proposal, highlighting the potential of a positive list system to limit innovation, restrict Korean citizens' access to new and innovative drugs and disadvantage the research- based pharmaceutical industry. ¶6. (SBU) The Ambassador also emphasized our concern that a positive list system would unfairly strengthen MHW's hand, enabling it to effectively force pharmaceutical companies to lower their prices to levels that do not recoup their research and development costs in exchange for being listed by the National Health Insurance. He noted that this announcement has the potential to sour the atmosphere surrounding the upcoming FTA negotiations and make negotiations over pharmaceuticals much more complicated by creating a "moving target." He urged Rhyu to either postpone this announcement until such time as interested stakeholders had had ample opportunity to comment and discuss its ramifications, or to reconsider his decision entirely. RHYU: INTEND TO ANNOUNCE TENTATIVE PLAN -------------- ¶7. (SBU) Rhyu responded to the Ambassador by noting that he has an obligation to work for the health of the Korean people, and that he is fully aware of the concerns expressed by the Ambassador. He said that Koreans use too many pharmaceuticals, which drives "excessive" health care expenditure. In addressing this problem through introduction of a positive list reimbursement system, Rhyu said MHW would abide by three principles: -- First, MHW would ensure that a shift to a positive list system creates a system of fair competition, with "no discrimination in the market between domestic and foreign firms." Rhyu also noted in this context the widespread prevalence, especially among local pharmaceutical manufacturers of corrupt, illegal marketing practices that also served to drive up expenditures, saying that a positive list system would help put a stop to such practices. -- Second, the shift to a positive list system would take place without introducing any new non-tariff barriers to pharmaceuticals trade. Rhyu offered assurances that the principle of fair-market competition would be applied equally to all firms, regardless of where their headquarters are located. -- Third, Rhyu promised that there would be full transparency in the decision-making process surrounding adoption and implementation of a positive list system. He emphasized that the May 3 announcement would not be of a final, full-fledged proposal, but rather of a tentative plan. Rhyu said that a shift to a positive list system would not necessitate an amendment to law, but only to subordinate regulations. He said he foresees taking a full two months to collect comments and opinions from stakeholders before finalizing the proposal. Rhyu also told the Ambassador that, as part of MHW plans to enhance decision-making transparency, MHW would also set up an independent review system. ¶8. (SBU) Summing up, Rhyu said that it is true that the change to a positive list system would proceed concurrently with FTA negotiations, although he averred that this fact was nothing more than a coincidence. He assured the Ambassador that if problems are created, or allegations of new non-tariff barriers created by the positive list system arise, then MHW is "ready to discuss" any such issues. Rhyu concluded by commenting that MHW's pursuit of a positive list system is "inevitable," but that the system would be established in a way so as not to create any new non-tariff barriers. AMBASSADOR: MUST NOT INTERFERE WITH TRADE TALKS -------------- -- ¶9. (SBU) The Ambassador thanked Rhyu for his assurances that he did not want to interfere in efforts to expand trade. But given the suddenness of this development, even 60 days would not be enough time to consult on the issue appropriately. He added that it would have been preferential to have had extensive government-to-government consultations on this issue before it ever developed to this stage. ¶10. (SBU) Rhyu replied by noting this idea should not be considered a surprise, since he had raised the possibility of seeking a switch to a positive list system in his February 8 hearing before the National Assembly, and again the week thereafter during the National Assembly's "inspection" of MHW. He also noted that he had discussed MHW's basic principles on March 27 with representatives of the Korea Research-based Pharmaceutical Industry Association (KRPIA) and the American Chamber of Commerce. (Note: MHW Director Bae Kyung-taek later clarified that the positive list issue had only been raised tangentially in that meeting.) ¶11. (SBU) The Ambassador concluded the discussion by emphasizing again that it is difficult to negotiate over a moving target, and that it is highly regrettable that this process is moving forward at the same time as FTA negotiations. He expressed the hope that if MHW received enough negative reaction during the comment period, it would be willing to reconsider its plans. MOFAT TRIES, FAILS TO AVERT ANNOUNCEMENT -------------- ¶12. (SBU) According to MOFAT Director General for Bilateral Affairs Lee Gun-tae, Trade Minister Kim met with Rhyu and an unnamed high-level Blue House advisor just prior to the Ambassador's meeting with Rhyu in an effort to persuade Rhyu to reconsider his plans to move forward with the positive list proposal. Kim's efforts did not succeed, but may have sensitized Rhyu to the FTA ramifications of this proposal. MHW'S "UNOFFICIAL" MAY 3 PRE-BRIEFING -------------- ¶13. (SBU) MHW will hold what it is calling an "unofficial pre-briefing" for stakeholders on May 3 to explain its intentions regarding the positive list. Despite MHW claims of transparency, only two representatives each from KRPIA, the Korea Pharmaceutical Manufacturers Association (KPMA), the Embassy, and the Mission of the European Union have been invited to attend. Members of chambers of commerce or individual companies will not be allowed to attend. However, as currently planned, the event will be open to the press. VERSHBOW