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
SUBJECT: AMBASSADOR'S MEETING WITH FOREIGN MINISTRY U/S 
HUGUENEY ON COMPULSORY LICENSING THREAT AND OTHER TRADE 
ISSUES 
 
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