US embassy cable - 03ZAGREB2268

UNCLAS  ZAGREB 002268 
 
SIPDIS 
 
 
SENSITIVE BUT UNCLASSIFIED 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEED/MROGERS 
USDOC FOR 3150/USFCS/OIO/EUR/CEENIS/PBRADLEY 
 
E.O. 12958: N/A 
TAGS: ETRD, KIPR, HR, Intellectual Property 
SUBJECT: USDOC VISIT STEPS UP HEAT ON CROATIA OVER 
INTELLECTUAL PROPERTY MOU 
 
REF: ZAGREB 2176 
 
SENSITIVE BUT UNCLASSIFIED, PLEASE HANDLE ACCORDINGLY. 
 
Summary 
------- 
 
1.  (SBU) USDOC Market Access and Compliance Office 
Director, Susanne Lotarski, delivered a strong message 
to the Croatian government to forward the long-stalled 
bilateral MOU on intellectual property rights.  During 
an October 14-15 visit to Zagreb, she urged authorities 
to ratify the MOU or face possible trade sanctions under 
the U.S. Special 301 process.  Lotarski also emphasized 
the relation between strong IP protection, business 
ethics and rule-of-law -- all of which investors judge 
when evaluating a country.  Her warning came on the 
heels of a similarly forceful warning by the Ambassador, 
most recently with Deputy Prime Minister Simonic 
(reftel).  End Summary. 
 
"Ashamed" MOU Did Not Move Forward 
---------------------------------- 
 
2.  (SBU) In her October 14 meeting with Minister of 
Economy Ljubo Jurcic, Lotarski noted that a lack of 
progress on the part of the Croatian government on the 
intellectual property memorandum of understanding 
endangered some of the positive aspects of the bilateral 
relationship.  She said the U.S. is disappointed in the 
failure of the government to include data exclusivity in 
the recent drug law -- especially since protection of 
confidential test data is required by the WTO and the 
 
SIPDIS 
EU.  There was a good chance Croatia would be moved up 
on the 301 list during a fall out-of-cycle review.  This 
was an escalation in a process that could lead to trade 
sanctions, such as removal of GSP benefits -- and not 
only on pharmaceuticals. 
 
3.  (SBU) Jurcic said the Ministry of Economy supported 
WTO principles and the U.S. position on the MOU.  The 
Ministry of Health, on the other hand, supported 
Croatian pharmaceutical producers and Croatian 
consumers.  However, the visit of the Ambassador to the 
Deputy Prime Minister and the delivery of the non-paper 
had made an impression on the government, and the issue 
was being revisited. 
 
4.  (SBU) Acting Deputy Economy Minister Olgica Spevec, 
also at the meeting, recalled that she had assured the 
Embassy last fall that the MOU would probably make it to 
the parliament early in 2003.  She was frankly ashamed 
that the GOC had not lived up to its obligations, and 
noted that lately the Ministry of Economy had been left 
out of meetings on this issue, perhaps because the 
government did not like its stance.  Spevec asked 
whether the U.S. would consider amending the agreement, 
or at least adding a phase-in period.  We noted that the 
phase in contemplated in the MOU had already expired -- 
in 1999.  Lotarski reported that all EU accession 
countries had accepted strong IP provisions.  Even 
Poland, with whom we had had the most trouble, had 
implemented data exclusivity, if not for as long a 
period as we would like. 
 
MOH: Cheap Drugs the Priority 
----------------------------- 
 
5.  (SBU) Lotarski met the same day with Minister of 
Health, Ivo Vlahusic, and Director of Drug Approvals, 
Csaba Dohoszky, to deliver the same message.  Vlahusic 
was forthright in saying that as Minister of Health, 
with primary responsibility for the welfare of 
Croatians, he had to oppose the MOU.  However, as a 
member of the ruling coalition, if the government told 
him to go along with the MOU, he would.  (Note:  the 
Ministry of Health did indeed allow data exclusivity 
language to be inserted into the recent drug law.  It 
was, we were told, a call from Pliva to the Prime 
Minister that resulted in the yanking of that 
provision.) 
 
6.  (SBU) Dohoszky asserted that "Croatia is not the 
only country where intellectual property protection is 
not what the big multinationals want."  While Croatia 
did not face the same problems that under-developed 
countries did, generics are still vital to its health 
system.  Lotarski countered that the USG was not anti- 
 
 
generic, but it did demand a level playing field.  It 
was not fair that an innovative company had to submit 
test data, which was then used by a generics company as 
a basis for the latter's registration.  To add insult to 
injury, in Croatia, the (Croatian) generics company was 
likely to get its registration months, sometimes years, 
before the innovative company for the same drug, while 
benefiting from the innovative company's test data.  It 
came down to whether Croatia wanted to be known as a 
country with good business ethics and rule-of-law. 
 
7.  (SBU) Lotarski also pointed out that Croatia had 
received U.S. support for its WTO entry in return for 
the MOU.  "It would be fair to ratify the MOU, Vlahusic 
admitted, adding, however, that the promise to ratify 
the MOU in exchange for your support for our WTO entry 
was an "oral agreement."  Nevertheless, the Minister 
promised to contact the Croatian pharmaceutical industry 
and ask whether it would maintain its position in the 
face of possible trade sanctions.  He would also consult 
with the MFA and the government.  Commercial Counselor 
Beryl Blecher urged Vlahusic to meet with the foreign 
pharmaceutical producers as well. 
 
8.  (SBU) Dohoszky highlighted a problem that he said 
could be more acute than data exclusivity -- that is, 
"retroactive patent protection," otherwise known as 
pipeline protection.  "We all know that data exclusivity 
is inevitable, but this pipeline protection could really 
bust the health care budget if there is a big 
retroactive effect."  Would it be possible, the drug 
approval director asked, to modify the MOU or add a 
supplement to take the sting out of the pipeline 
protection provision?  Lotarski citing the importance of 
pipeline protection to the U.S., reported that Hungary 
had raised the same objections, but resolved its issues. 
 
MFA Will Try to Push Rock Back Up Hill 
-------------------------------------- 
 
9.  (SBU) Lotarski met also with Drazen Margeta, MFA 
Assistant Minister for Non-European countries.  Margeta 
emphasized the importance the GOC placed on its 
relationship with the U.S., highlighting recent joint 
military exercises.  Lotarksi described the threat that 
the failure to forward the MOU to the parliament posed 
to the relationship.  Margeta said his Ministry would 
try to forward the MOU to the Cabinet for approval -- 
again.  The MFA completed the procedure earlier this 
year, only to have the MOU shelved at the Cabinet level, 
apparently because of opposition from Croatian industry. 
 
10.  (SBU) Miro Kovacic, head of the Americas Desk, also 
said that pipeline protection had been raised as an 
important issue by Croatian drug makers.  They were 
floating the figure of 100 million euro as the extra 
cost to the Croatian health system of data exclusivity 
and pipeline protection.  Lotarski noted that other 
Central European countries had been asked to provide 
this protection, and found it worthwhile, when looking 
at the overall economic effect.  Competition and the 
health care system suffered if innovative drug makers 
did not want to bring new drugs into the market.  At the 
end of the day, a country could not use theft to balance 
its health care books, and a country had to live up to 
its word, even when governments changed. 
 
MOU is Not EU Accession Problem 
------------------------------- 
 
11.  (SBU) Lotarski's final meeting was with Orsat 
Miljenic, Deputy Minister of EU Integration.  Miljenic 
noted that the Ministry saw no reason to object to 
ratification of the MOU.  Updated intellectual property 
protections were clearly required by the EU, and his 
ministry wanted to meet EU standards as soon as possible 
-- regardless of Croatia's EU accession date. 
Convergence with EU standards wase good for Croatia 
regardless, he said, noting that Croatia aspired to be a 
"virtual member" of the EU, even before entry. 
 
Comment and recommendation 
-------------------------- 
 
12.  (SBU) With elections expected on November 23, 
action on the MOU is unlikely in the very short term, 
but a new government could take up the issue in January. 
Although the Parliament was dissolved on October 17 in 
 
 
anticipation of elections, we would like to see the new 
government -- which will likely be in place by early 
January -- act on this issue quickly.  Only increased 
outside pressure will move this issue forward in the 
face of fierce resistance from the local generics 
manufacturers.  To keep up the pressure, we would 
recommend accepting an out-of-cycle U.S. industry 
petition for Croatia and urge that Washington agencies 
move Croatia to the Priority Watch List. 
 
FRANK 
 
 
NNNN