US embassy cable - 05VILNIUS731

UNCLAS SECTION 01 OF 02 VILNIUS 000731 
 
SIPDIS 
 
DEPT FOR EUR/NB AND OES/STC 
DEPT PASS TO NATIONAL SCIENCE FOUNDATION INTERNATIONAL 
DIVISION AND CIVILIAN RESEARCH AND DEVELOPMENT FOUNDATION 
COMMERCE FOR NIST 
 
E.O. 12958: N/A 
TAGS: ECON, TSPL, KSCA, PGOV, LH, HT26 
SUBJECT:  LITHUANIAN SCIENTISTS ADJUST TO A NEW, MARKET- 
BASED REALITY 
 
REFS: A) VILNIUS 675, B) VILNIUS 144, C) 04 VILNIUS 760 
 
1.  Summary:  Lithuania's research institutes have 
significant research and development (R&D) capabilities, but 
generally fail to produce profitable and marketable 
innovations.  While there are some exceptions -- notably in 
lasers, electronics, and biochemistry -- inadequate funding 
and a lack of communication among business and research 
organizations limit the usefulness of Lithuania's research 
institutions.  Closer integration of the needs of the 
Lithuanian economy with the capabilities of local scientists 
would benefit Lithuania's scientific community and its 
economic development.  Future Embassy Science Fellows could 
be helpful in this regard.  End Summary. 
 
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EMBASSY SCIENCE FELLOW ASSESSES LITHUANIAN R&D 
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2. Embassy Science Fellow Geoffrey Prentice visited Vilnius 
in May to promote collaborative activities between US and 
Lithuanian researchers, mainly by presenting a series of 
lectures on opportunities available through the National 
Science Foundation (NSF).  He visited several universities 
and research institutes during his stay and spoke with 
dozens of university faculty and research institute 
employees.  His experience also provided the Embassy with a 
useful overview of the state of Lithuania's R&D 
capabilities. 
 
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THE MAIN PROBLEM: MONEY 
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3. The main problem for Lithuanian researchers is the lack 
of funding.  Government expenditure on R&D is approximately 
0.6 percent of GDP; most industrialized countries spend 2-3 
percent.  The GOL, pressed by other public needs, is 
unlikely to raise this amount significantly in the near 
future.  Low expenditure on R&D results in low salaries, few 
opportunities for younger scientists, unattractive working 
conditions, and a general lack of economic incentive for the 
brightest students to become researchers.  The GOL's 
practice of generally allocating funding through block 
grants rather than a competitive process further compounds 
the problem by rewarding longevity rather than innovation. 
 
4. Lithuanian researchers have had some limited success in 
attracting other sources of funding.  A few have formed 
relationships with industrial partners, mainly companies 
based in Western Europe and the United States.  Some 
Lithuanian researchers have successfully competed for EU 
research grants. 
 
5. Even the most successful Lithuanian research institutes, 
however, face financial difficulties that limit their 
capabilities.  The Institute of Biochemistry, for example, 
employs 140 people, yet survives on an annual budget of 
about USD 2 million, half of which comes from research 
contracts and half from government.  This limited budget 
prevents the Institute from filing for and defending patents 
for its innovations.  Instead, its intellectual property is 
controlled entirely by its industrial partners, which 
include Bayer, Sigma-Aldrich, and Merck.  As a result, the 
Institute does not generate the continual, long-term profit 
that would come from owning patents on its innovations. 
 
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STRUCTURAL PROBLEMS: THE SOVIET LEGACY 
-------------------------------------- 
 
6. Universities in Lithuania are generally geared towards 
teaching, while most scientific investigation is conducted 
at research institutes, an arrangement standard throughout 
the former Soviet Union.  While some of the leading 
institutions, such as Vilnius University, Kaunas Technical 
University, and the Kaunas Technology Center, are 
integrating teaching and research successfully, this divide 
is still apparent. 
 
7. The collapse of the Soviet Union constituted an 
existential crisis for many of Lithuania's research 
institutes, many of which had specialized in defense-related 
activities.  Staff cuts up to 75 percent were common.  Those 
that remained were often the most senior researchers. 
Despite their significant scientific ability, these men and 
women had little experience in competing for grants or 
working on profitable and marketable innovations. 
Management at the institutes is becoming more 
entrepreneurial, but still lacks experience in applying for 
competitive grants and cooperating with private enterprise. 
 
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GLIMMERS OF HOPE 
---------------- 
 
8. The outlook for Lithuanian R&D is not entirely negative. 
Lithuanian research institutes employ many very capable 
scientists, and Lithuania has the potential to be a source 
of low-cost R&D for Western institutions.  Lithuania's 
capabilities in biochemistry and lasers are especially 
impressive.  In addition, Lithuania has strong capabilities 
in electronics: the Semiconductor Physics Institute, which 
collaborates with Lockheed Martin and the U.S. Army's Space 
and Missile Command, is conducting cutting-edge research on 
optoelectronics, chemical sensors, and defenses against 
electromagnetic pulses.  Unfortunately, this sort of 
collaboration is rare. 
 
9. The Embassy is finalizing negotiations on a new bilateral 
Science and Technology Agreement, which will be a vital step 
in strengthening U.S.-Lithuanian cooperation in this field. 
The agreement will establish valuable IPR protections, 
provide Lithuanian researchers with more opportunities to 
bridge the divide between research institutions and the 
commercial sector, ensure the long-term viability of 
Lithuania's science capabilities, and increase private 
sector investment in science-related activities, including 
R&D.  This long-awaited agreement (reftels) had been held up 
by an interpretation of EU directives that would have 
subjected purchases financed by USG grants to value-added 
tax (VAT) under Lithuanian law, a situation that would have 
prohibited most USG agencies from issuing grants in 
Lithuania.  The GOL's current proposal for alleviating this 
problem obligates the GOL to refund VAT to Lithuanian 
institutions that are assessed VAT on goods purchased with 
USG grant monies.  We expect that the GOL will formally 
present their proposal to us by the end of the summer. 
 
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COMMENT:  PARTNERS NEEDED 
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10. This year's Embassy Science Fellow, the third we have 
hosted, did an excellent job of reaching out to a wide array 
of research institutes in Lithuania and bringing to their 
attention funding opportunities that are available.  Given 
the resource shortages these institutes face, this type of 
assistance is vital.  The next logical steps for a future 
Embassy Science Fellow are to assist Lithuanian institutions 
in actually applying for specific sources of funding, 
identifying specific potential business partners and 
establishing collaborative arrangements with them, and 
helping establish more effective systems of innovation 
financing and management.  Projects that seek to tie 
Lithuania's R&D capabilities to profitable and marketable 
innovations would also be especially welcome. 
 
KELLY