SCENE-SETTER FOR VISIT OF DAS MANISHA SINGH

C O N F I D E N T I A L BUDAPEST 000992 SIPDIS EEB/TPP FOR DAS SINGH, JURBAN, CLACROSSE, JSHANNON; EUR/CE JLAMORE; COMMERCE FOR SSAVICH E.O. 12958: DECL: 10/07/2013 TAGS: ECON PGOV PREL HU SUBJECT: SCENE-SETTER FOR VISIT OF DAS MANISHA SINGH REF: BUDAPEST 964 Classified By: P/E COUNSELOR ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D) ¶1. (SBU) Welcome to Budapest. Your visit comes as the minority government's attention is largely focused on the passage of its 2009 budget and tax bill in Parliament. Hungary's economic problems, reform fatigue and sharp partisan divisions have resulted in considerable political gridlock. Embattled Prime Minister Gyurcsany is on the defensive personally and politically as the opposition (Fidesz) continues to press him on all fronts. With the dissolution of the coalition between Gyurcsany's Socialist Party (MSzP) and the Free Democrats (SzDSz) this past spring, the Government is now feeling its way forward without a Parliamentary majority and faces its most important test with the tax and budget bills. As a minority Government, its major preoccupation will be remaining in power until the 2010 elections. Moreover, a domestic espionage scandal has caught the attention of the media, and daily reports of new facts and accusations draw attention away from the issues of the day and further undermines the public's faith in the nation's institutions (reftel). ¶2. (C) Hungary's economic performance continues to trail that of its Central European neighbors, due largely to its low labor participation rate, overly complicated and high taxation and regulatory structure, and failure to enact urgently needed economic reforms. High levels of tax evasion erode the tax base and make it difficult for the government to fund its enormous social assistance programs. Moreover, the government's weak political position and the public's "reform-fatigue" have prevented the government from enacting reforms to the pension, healthcare, and social benefits systems which would help revive Hungary's anemic growth rate and restore its economic competitiveness. Additionally, businesses complain that corruption and a lack of transparency throughout the government prevent Hungary from achieving its full economic potential. ¶3. (SBU) Although the government and the public are preoccupied with domestic issues, the bilateral relationship remains strong. Your visit follows a number of recent noteworthy successes, including the approval of the last in a series of agreements needed to join our visa-waiver program and final steps toward Hungary's agreement to host strategic airlift assets for a NATO consortium. Hungary remains a committed partner in the trans-Atlantic relationship - providing forces in Afghanistan, Iraq, and Kosovo. But Russia casts a giant shadow. Dependent on Russia for the vast majority of its energy resources, the Gyurcsany government has attempted to advance its "Eastern interests" while maintaining its commitment to "Western values." Your visit presents an excellent opportunity to engage in bilateral economic issues, including transparency in procurement and IPR, as well as to discuss GOH views on trade liberalization and the WTO. ¶4. (C) Your schedule begins with Laszlo Varkonyi, Director of Trade at the Ministry of National Development and Economy, and will provide an opportunity to discuss both bilateral and multilateral trade issues. In general, the bilateral economic relationship is excellent, but we do hear frequent and growing complaints from U.S. and other foreign companies about the lack of transparency in the government procurement market in Hungary. The media also reports allegations of kick-backs being demanded in exchange for contract awards. Frustration with the business climate is on the rise, and one corporate representative here tells us that "thousands of negative decisions are being made about Hungary every day." The meeting will also provide a chance to ask Varkonyi about Hungary's views on the WTO, given Hungary's hard-line position within the EU against liberalization of its agriculture sector during the WTO talks in August in Geneva. Finally, Varkonyi may want to discuss Minister Bajnai's tentative trip to Washington in mid-January, and may seek your advice on whether meetings would be possible so close to the Presidential inauguration. ¶5. (SBU) You are then scheduled to meet with Mihaly Ficsor, Vice President of the Patent Office. Mr. Ficsor understands that the purpose of this meeting is to discuss broad IPR policy issues, given his involvement in policy coordination within the GOH rather than specific patent law issues. The meeting presents an opportunity to ask Mr. Ficsor about the problem of internet piracy in Hungary, and whether he believes Hungary has the legal tools necessary to address the growing problem of internet infringement. Mr. Ficsor is well aware of the Special 301 process, and may ask you your views regarding the 2009 NTE and Special 301 reports. ¶6. (SBU) Your meeting with Ferenc Kondorosi, Ministry of Justice State Secretary and coordinator of the Hungarian National Anti-Counterfeiting Body (HENT),will provide a good opportunity to learn about the activities of this government/private sector entity established in early 2008 to coordinate anti-counterfeiting efforts. Mr. Kondorosi will be interested in hearing your views on IPR enforcement in Hungary, and you might use this opportunity to discuss the extent to which resource constraints may be limiting the level of law enforcement and prosecutorial resources devoted to the investigation and prosecution of criminal IPR cases in Hungary. ¶7. (SBU) Following your address to the EEB EUR IPR Training Conference on October 15, you are scheduled to meet with Ambassador Foley. ¶8. (U) We look forward to welcoming you in person. Foley