This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 001567 

SIPDIS 

STATE FOR WHA/BSC, WHA/EPSC, EB/TPP, EB/IFD/OMA, AND NEA STATE PASS USTR FOR SCRONIN, BPECK, LYANG 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDOC FOR 3134/ITA/
USCS/OIO/WH/RD/DDEVITO/EOLSON/SHUPKA TREASURY FOR NLEE/FPARODI NSC FOR SHANNON, BREIER, RENIGAR E.O. 12958: 
DECL: 06/09/2015 
TAGS: KIPR ETRD EAGR EFIN BR IZ WTRO IPR

REF: A) BRASILIA 1507 (NOTAL) 
B) SECSTATE 103543 
C) SECSTATE 103222 
D) BRASILIA 1067 
Classified By: Economic Officer Janice Fair, Reasons 1.4 (b) and (d) 

¶1. (C) Summary. Ambassador Hugueney of Brazil's Foreign Ministry (Itamaraty) told Ambassador June 6 that U.S. pharmaceutical companies should improve their offers on pricing and/or voluntary licenses for AIDS treatment drugs so as to avoid compulsory licensing by the Ministry of Health (MoH). Hugueney believed movement in the Chamber of Deputies of legislation that would deny patentability to AIDS drugs was likely intended to provide greater leverage to the Ministry of Health in its negotiations with the pharmaceutical companies. The bill's broad political backing, he observed, makes a presidential veto unlikely should the legislation pass. On the WTO Doha Round of trade negotiations, Hugueney said Brazil will submit a "substantially improved" revised services offer the week of June 6. Hugueney expects to take up the post of Brazil's Ambassador to the WTO by late August or early September. Hugueney confirmed Brazil's plan to attend the June 21 to 22 US-EU International Conference on Iraq. End Summary. 

¶2. (SBU) On June 6, Ambassador met with Clodoaldo Hugueney, Itamaraty's Under Secretary for Economic and Technological Affairs, to discuss a number of trade issues, principally, pending legislation that would render drugs to prevent and treat AIDS un-patentable, and the continuing threat of compulsory licensing facing the U.S. pharmaceutical companies Gilead Sciences, Abbott Laboratories, and Merck, Sharp & Dohme for their AIDS treatment drugs (ref A). Hugueney was accompanied by his assistant, Miguel Franco, and Otavio Brandelli, Chief of the Ministry's IPR Division. Ecouns, Commoff, and Econoff accompanied Ambassador. AIDS Drugs - Compulsory License Threat and Patent Legislation 

¶3. (C) Hugueney, who had just returned from Doha negotiations in Geneva, said Itamaraty is following MoH negotiations with the pharmaceutical companies closely and described them as boiling down to issues of pricing or voluntary license/royalty payments. He noted the intense pressure the GoB is under from civil society, particularly NGOs, to issue compulsory licenses. Hugueney agreed the best outcome would be to avoid compulsory licenses, but opined that to do so would require improved offers on price or voluntary licensing from the companies. (Upon relaying this message to the companies, the Merck representative here told us his company was in the process of preparing a more detailed offer, although he did not say that it would be more forthcoming on prices. As for Gilead and Abbott, they have taken Hugueney's suggestion "under advisement.") Hugueney further advised the companies to maintain a dialog with the MoH to forestall precipitous, politically motivated action by that Ministry, and encouraged them to explain/present their proposals to a wide array of GoB interlocutors. 

¶4. (C) When questioned by Ambassador on whether an agreement between the MoH and the pharmaceutical companies would effectively kill pending legislation on patentability of AIDS drugs, Hugueney demurred on a definitive response, but said he did see the two as linked. Hugueney recounted an interview on the O Globo news the prior evening in which the bill's author prefaced his statements by saying the legislation had been given renewed impetus in order to provide greater leverage to the Ministry of Health in its negotiations with the pharmaceutical companies. (Note: On June 1, the Constitution and Justice Committee of the Chamber of Deputies approved a previously dormant bill (PL22/2003) which will exclude from patentability drugs used for the prevention and treatment of AIDS, and the production processes for their manufacture; the bill will now go directly to the Senate unless a request to place the bill before the Chamber plenary is made by 51 deputies within the next five sessions. The bill's language is very general, leaving open for debate whether or not it would be retroactive, and its scope, i.e. does it cover drugs not only for treating AIDS, but also for treating any type of malady afflicting AIDS patients, is similarly unclear. End Note.) 

¶5. (C) Although the Lula administration has not formally endorsed the legislation, Hugueney noted it had wide political backing in the Chamber and warned against assuming the bill would move slowly in the Senate. (Note: although the Planalto has not endorsed the bill, the Ministry of Health has publicly lobbied for its passage.) In Hugueney's view, the companies' best hope for a satisfactory outcome would be to work toward a resolution of the licensing issue with the Ministry of Health, rather than allow the legislature to set patent parameters. He underlined the importance of stopping the legislation within the Congress, admitting that political factors would prevent a presidential veto. 

¶6. (C) Brandelli reported that the National Confederation of Industries (CNI) was working to mobilize the necessary number of deputies to request that the bill be considered within the Chamber plenary; if successful, this would considerably slow down the approval process -- aside from a full legislative agenda the Chamber is also currently seized with a number of scandals involving Brazilian congressmen -- and allow for a broader debate on the bill's demerits. According to Brandelli, CNI is also willing to work directly with the U.S. pharmaceutical companies to devise a strategy for dealing with the MoH's compulsory licensing threat. 

¶7. (C) In a follow-up conversation with Econoff, Brandelli reiterated Hugueney's comments regarding the need for the companies to respond to MoH pricing or voluntary licensing interests saying that investment plans are welcome, but do not address the immediate issues. Gilead has been in close communication with Brandelli and he openly praised the company's proposal, which offers substantial concessions on pricing; he described Abbott's investment plan as great for 2007, but containing nothing concrete for the MoH today. Merck reps have not yet requested a meeting with Brandelli, but did speak with Foreign Minister Amorim's Economic Advisor Antonio Simoes on May 30 as part of a Brazil-U.S. Business Council delegation. When Econoff suggested to Brandelli that no pricing plan may satisfy the MoH if its overriding interest is actually licensing, he pointed out that should the companies need to pursue recourse through Brazilian courts, they will have to demonstrate their good faith efforts in the negotiations to address the MoH's underlying concerns, which the ministry has identified as reliability of supply and pricing. 

¶8. (C) Brandelli suggested the companies approach the Minister of Science and Technology, Eduardo Campos, as another possible GoB ally. Despite Itamaraty's advice to engage a number of GoB interlocutors, Brandelli admitted to Econoff that an inter-ministerial working group is being sidelined in the deliberations, which are principally between the Ministry of Health and the Casa Civil, i.e., the office of the President's Chief of Staff. WTO Doha Negotiations 

¶9. (C) Hugueney expressed disappointment with a lack of leadership and organization in the agriculture negotiations the week of May 30, and stressed the substantial amount of work that must be completed to formulate a "first approximation" by the end of July. He said the process would require sustained ministerial involvement since "high level officials" appear unable to make key decisions. 

¶10. (SBU) Ambassador provided Hugueney with information pertaining to submission of the U.S. revised services offer (ref B). Hugueney described the Brazilian revised services offer, which will be tabled later in the week, as a major improvement, including such sectors as financial, telecommunications, engineering, maritime services, among others. As in the past, he cautioned that Brazil's ability to be forthcoming in services and industrial products (NAMA) negotiations will depend on advances in the agricultural talks. 

¶11. (SBU) Hugueney is slated to leave his post as Brazil's chief capital-based WTO negotiator to take up the post of Brazilian Ambassador to the WTO. His nomination is tentatively scheduled to go before the Senate Foreign Affairs Committee the week of June 13 before being forwarded for a plenary vote. If all goes smoothly, Ambassador Hugueney plans to take up his post in Geneva in late August or early September. U.S.-Brazil Soybean Discussions 

¶12. (SBU) Due to his Senate confirmation hearings, Ambassador Hugueney will not attend the June 16 bilateral discussions in Washington on soybean support. The Brazilian delegation will be led by Elisabeth Serodio, Secretary of International Affairs in the Ministry of Agriculture; other participants include Flavio Damico (Itamaraty Agriculture and Basic Products Division), and representatives of ICONE (Institute for International Trade Negotiations) as well as the private sector. Hugueney described the upcoming Washington session as a great opportunity for both sides to clear the air on soybean subsidies, and appeared upbeat on the chances for success of the talks. Iraq Conference 

¶13. (SBU) Ambassador delivered Ref C demarche on the June 21-22 US-EU International Conference on Iraq in Brussels. Hugueney confirmed Brazil's plan to attend and assured Ambassador the GoB would take into consideration the points of the demarche. Comment 

¶14. (C) We are encouraging the U.S. pharmaceutical companies to explore working with CNI on a strategy for better informing the Brazilian Congress about the potential negative consequences of both compulsory licensing and exempting AIDS drugs from patent coverage. However, as Hugueney's comments testify, the debate over patent protection for AIDS drugs is highly political, complicating the GoB's ability to manage the issue as well as the Mission's ability to engage the key GoB decision-makers, which appear to be in the Presidency. (Indeed, the Abbott representative told us that according to his contacts, the impetus for licensing is coming from President Lula himself; a high-level delegation from the company may seek an appointment directly with the president on this issue.) And notwithstanding assurances by Presidential Chief of Staff Jose Dirceu that he would consult with Mission concerning any compulsory licensing decision (ref D), Post believes that at any moment political forces could align so as to prompt precipitous action by the GoB. 

¶15. (C) Post understands that USTR is reviewing legal implications for Brazil's international obligations of both potential compulsory licensing and eventual passage of the patent legislation; Washington may want to start considering a range of potential reactions, bearing in mind that allies on this issue do exist within the GoB. We would welcome guidance on the process/procedures the GoB would have to follow should it decide to go the compulsory licensing route. It is ironic that this potential clash on patent rights comes just as cooperation by the GoB in the area of copyright enforcement is finally showing substantial improvement. Danilovich