VZCZCXYZ0000
OO RUEHWEB

DE RUEHUL #0864/01 0750845
ZNR UUUUU ZZH
O 160845Z MAR 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6653
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY 1381
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHKO/AMEMBASSY TOKYO 0369
RUEHBJ/AMEMBASSY BEIJING 0281
RUEHGV/USMISSION GENEVA 1760

UNCLAS SEOUL 000864 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS USTR FOR CUTLER, AUGEROT AND KI 
STATE FOR EAP/K AND EB/TPP/BTA 
COMMERCE FOR 4431/ITA/MAC/EAP/DUTTON 
USDA FOR APHIS/ALFALLA 
USDA ALSO FOR FAS/ITP/CLAUS AND GRUNENFELDER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KS
SUBJECT: MARCH 2006 QUARTERLY TRADE MEETING: AGENDA-SETTING 
 
 
SUMMARY 
------- 
 
¶1. (SBU) The first Quarterly Trade Meeting (QTM) for 2006 
was held in Seoul on March 3.  While there were no 
breakthroughs, the meeting was constructive and identified 
no new problems.  The Korean government indicated a 
willingness to address USG concerns, including a potentially 
serious problem related to government regulation of secure 
software sales.  The U.S. delegation flagged the 
unhelpfulness of Korean courts' unwillingness to provide 
injunctive relief, especially in cases related to patents 
and IPR.  Our long-standing broadcasting and pharmaceuticals 
pricing and reimbursement concerns were discussed in some 
detail, but will henceforth be handled in the FTA 
negotiations.  We received repeated calls for concessions on 
issues holding symbolic value for the Korean government, 
especially unshu oranges and ginseng chicken soup.  The 
Korean government committed to continue the QTM process 
throughout this year's FTA neotiations, but sought to 
tamper USG expectations concerning the amount of attention 
the QTM would receive given the heavy FTA workload. End 
Summary. 
 
¶2. (U) The U.S. delegation was led by USTR Senior Director 
for Korea Scott Ki, who was accompanied by Jeffrey Dutton 
from Commerce, Cheryl Claus from USDA and Steven Chan from 
State.  Roughly twenty Embassy staff participated in various 
segments of the four-hour QTM discussion.  The Korean 
delegation was led by MOFAT North American Trade Division 
Director Lee Seong-ho, who was supported by colleagues from 
MOFAT, Ministry of Finance and Economy (MOFE), Ministry of 
Agriculture and Forestry (MAF), Ministry of Information and 
Communication (MIC), Ministry of Health and Welfare (MHW), 
Korean Intellectual Property Office (KIPO), Korea Food and 
Drug Administration (KFDA), Korean Broadcasting Commission 
(KBC) and other ROKG offices.  MOFAT and USTR have 
temporarily shifted their leads for the QTM from the 
Director-General level to the Director level for the 
duration of the U.S.-Korea FTA negotiations. 
 
¶3. (SBU) The QTM agenda comprised: 
 
-- Agriculture: Follow-up on access for beef including non- 
beef ruminant products; concerns related to implementation 
of the WTO rice agreement; threshold levels for adventitious 
presence of genetically modified organisms (GMOs) in 
processed organic foods; 
 
-- Regulatory Issues: Regulation of sales of secure 
software; Korea Post insurance regulation; dubbing and 
advertising restrictions in satellite retransmissions; 
cooperation with Regulatory Reform Committee; 
 
-- Pharmaceuticals and Medical Devices: Update on MHW review 
of A7 pricing decisions and progress toward identifying core 
criteria for pricing decisions; follow-up on MHW plans to 
work with industry to develop independent appeals system and 
improved written justification for pricing decisions; Lyrica 
reimbursement guidelines; follow-up on the industry paper on 
reimbursement rates of medical devices submitted to the ROKG 
in previous QTM; clarification on reimbursement guidelines; 
 
-- Intellectual Property Rights: Patent infringement cases 
and lack of injunctive relief; KIPO decisions being 
overturned by Patent Court; 
 
-- Korean Issues: Unshu oranges; ginseng chicken soup; visas 
for Korean nurses working in U.S. hospitals; and diamond saw 
blade U.S. anti-dumping investigation. 
 
CONTINUING THE QTM PROCESS: DIFFICULT, BUT NECESSARY 
--------------------------------------------- ------- 
 
¶4. (SBU) The formal discussions were preceded by a courtesy 
call on MOFAT Director-General for Bilateral Trade Lee Geun- 
tae.  DG Lee expressed satisfaction with the handling of 
events leading up to the announcement of FTA talks on 
February 2.  Lee confirmed that MOFAT is happy to maintain 
the QTM process, despite the human resource cost, as it 
provides a useful, parallel process to resolve trade 
concerns that might not fit into the context of upcoming FTA 
negotiations.  Lee cited the example of the stalled Korea- 
Japan FTA negotiations; Japan and Korea suspended their 
periodic bilateral trade discussions with the advent of 
those negotiations, and now both sides are struggling to 
resume non-FTA trade discussions.  Acknowledging the strain 
that would be placed upon both ROKG and USG resources in 
maintaining the QTM and FTA processes simultaneously, Ki 
explained that the USG will remain flexible on the venue and 
manner of future QTM discussions, perhaps arranging them 
around the margins of future FTA rounds. 
 
AGRICULTURE 
----------- 
 
¶6. (SBU) To open discussion at the QTM meeting itself, each 
side acknowledged both the importance of the upcoming FTA 
negotiations, and the progress made on key trade issues 
leading up to the FTA announcement -- including beef, screen 
quotas, and automobiles.  Director Lee thanked the U.S. for 
resolving the longstanding issue of access for Korean 
paprika (peppers) to the U.S. market. 
 
¶7. (SBU) Beef: Ki thanked Korea for the progress made so far 
on the resumption of beef exports to Korea.  He also noted 
the importance of cooperating closely to arrange for the 
auditing of U.S. meat processing plants by Korean experts, 
and urged Korea to begin the audits as soon as possible.  In 
addition, Ki noted that Charles Lambert, Acting Under 
Secretary for Marketing and Regulatory Programs at USDA, was 
 
SIPDIS 
expected to come to Korea on March 6 to clarify the audit 
process.  Director Lee acknowledged that there had been some 
delay in arranging the audits due to "administrative" 
issues.  He indicated that Korea wished to take a step-by- 
step approach since there was still some concern on the part 
of Korean consumers about the safety of U.S. beef. 
 
¶8. (SBU) Rice: Ki thanked the Korean side for completing the 
U.S. portion of the 2005 minimum market access rice tenders 
and asked for details on the 2006 tenders.  Lee Seong-ho 
responded that the 2006 tenders would be drawn up based upon 
the results of the 2005 tenders, for all countries, a task 
which has not yet been completed.  Yoon Dong-Jin, Director 
of MAF's Bilateral Cooperation Division, asked that the 
United States be patient, since this will be the first time 
that foreign rice will be available to the Korean consumer. 
Ki pressed for a possible timeline for the 2006 tender, and 
the Korean representatives at the QTM responded by 
reiterating that the 2005 tender process must be completed 
before a timeline can be set. 
 
¶9. (SBU) Ki noted USG concerns about the terms of the 2005 
tender, in which nearly 95 percent of the U.S.-specific 
quota called for "U.S. Grade 3 or better" quality rather 
than "U.S. Grade 1" quality.  Ki explained that the United 
States produces little, if any, Grade 3 quality rice.  U.S. 
exporters had no choice but to submit bids for Grade 1 rice, 
which raised the risk that the bids might be rejected by 
Korea due to the higher price.  Ki also asked for 
clarification regarding the mechanism Korea uses to 
determine price ceilings on tendered rice. 
 
¶10. (SBU) MAF's Director Yoon acknowledged the U.S. 
concerns, but stated that individual country concerns would 
not be addressed until the Korean consumer response to the 
imported rice could be gauged.  MOFAT Director Lee reassured 
Ki that MOFAT recognizes that it would not be to Korea's 
benefit to allow the United States' country-specific quota 
to revert to global quota.  Lee underlined Korea's 
commitment to the issue, and stated that he did not 
anticipate any problems in filling the country specific 
quota for the United States.  Ki asked if U.S. rice would 
have to be labeled as "Grade 3 or better," or if it could be 
labeled as "Grade 1" quality.  After first suggesting that 
there were no labeling requirements, the Korean delegation 
clarified that labeling requirements would be based on the 
terms included in the tender.  Yoon stated that it would be 
difficult to change the labeling requirements specified in 
the tender invitation for the 2005 quota, but said that the 
U.S. concerns would be taken into account for 2006 quota. 
 
¶11. (SBU) Adventitious Presence of GMO's: Commenting on U.S. 
concerns that Korea's current regulations allow no tolerance 
for adventitious presence of genetically-modified (GM) 
material in processed organic food producQ, MOFAT's 
Director Lee and representatives of KFDA (which handles 
processed organic food issues) stated that there are 
currently no plans to change Korea's system "so far."  They 
added that Korea is considering Qplementation of a process- 
based organic certification process in the near future. 
KFDA officials also reiterated that regulations stipulate 
that processed food can not be labeled as organic if it 
contains any traces of GM material.  KFDA added that if a 
global standard were to be devised, they would consider 
revising their labeling criteria. 
 
AGRICULTURE: KOREAN CONCERNS 
---------------------------- 
 
¶12. (SBU) Unshu Oranges: MOFAT Director Lee asked for an 
update on the status of Korea's request for access for 
Korean unshu oranges to Alaska.  Lee said while there is "no 
real commitment to export to Alaska," this issue has become 
a "symbolic importance" for the Korean FTA stakeholders. 
The USG APHIS representative confirmed our commitment to 
complete the risk assessment for unshu oranges to Alaska. 
 
¶13. (SBU) Ginseng Chicken Soup: Director Lee pointed out 
that it has been 12 years since Korea first raised the issue 
of Korean ginseng chicken soup, stating that although the 
World Organization for Animal Health (OIE) guidelines permit 
the trade of cooked, sterilized poultry meat, the United 
States is not using the OIE guidelines in this case. 
(Background Note: Although Korea first raised its interest 
in exporting ginseng chicken soup to the United States in 
1994, it abandoned its efforts due to lengthy regulatory 
requirements.  Korea raised the issue again in 2004). 
Director Lee pointed out that the United States emphasizes 
following OIE guidelines for the beef trade, but has not 
followed OIE guidelines in the case of Korea's request to 
export ginseng chicken soup to U.S. markets.  Lee added that 
this issue had been discussed in Korea's National Assembly 
and that Assembly members believe Korea to be trying its 
best to address U.S. concerns, but that the U.S. is not 
reciprocating.  Ki replied that the United States recognized 
the importance of the issue to Korea and that we would 
indeed "do our best" to resolve the ginseng chicken soup 
issue. 
 
REGULATORY ISSUES 
----------------- 
 
¶14. (SBU) Information Technology Security Products: Ki 
outlined grave USG concerns over the fact that Korea's 
National Intelligence Service (NIS) has drafted overly- 
protective information technology regulations, which is 
negatively affecting sales of U.S. I.T. products containing 
security features.  Ki urged NIS officials to attend 
bilateral briefings in Washington offered by the USG, before 
finalizing relevant ROKG policies on government procurement 
of I.T. products containing security features.  In response, 
an NIS representative stated that NIS representatives could 
not attend the March session as planned, but indicated that 
a trip in April would be possible.  The U.S. delegation 
raised concerns that, since NIS was planning to issue its 
"implementation manual" regarding how to properly implement 
I.T. security product guidelines at the end of March, 
rescheduling the session to April would be too late.  NIS 
replied that it would be no problem to delay release of its 
"manual" until after it had attended the information session 
in Washington. 
 
¶15. (SBU) The NIS representative also said that following 
Korea's accession to the Common Criteria Recognition 
Arrangement (CCRA), ROKG policies would be changed to be 
made in line with CCRA tenets concerning source code review. 
(Background Note: In addition to the question of following 
CCRA tenets, also important are the Financial Supervisory 
Service's regulations requiring that private sector 
financial firms only purchase IT security products that have 
been vetted according to the NIS system.  There also 
continue to be concerns related to the breadth of the 
"government agencies" that should abide by the program.  End 
Background Note.) 
¶16. (SBU) Korea Post: Ki prefaced that the U.S. side 
realizes that the issue of participation by Korea's post 
office in the banking and insurance sectors remains a 
delicate one for Korea.  But he explained that U.S. 
insurance, banking and financial services firms continue to 
complain that Korea Post enjoys unfair practical and 
regulatory advantages, and uses those advantages to advance 
in the Korean market at the expense of private providers. 
Korea Post, a Korean government enterprise, is now the 
fourth-largest life insurer and eighth-largest banking 
entity in Korea.  Ki asked what progress had been made in 
implementing the plan to appoint a Task Force to explore 
Korea Post's privatization, which had been announced in 
¶2003. 
 
¶17. (SBU) Deputy Director Kang Sung-tae of Korea Post's 
Postal Insurance Planning Division defended the postal 
service's financial businesses as a "not-for-profit" part of 
the ROKG social welfare system, originally set up to assist 
Korea's urban poor and far-flung rural populations.  Kang 
indicated that while Korea Post is indeed supervised by the 
Ministry of Information and Communications (MIC) rather than 
the Financial Supervisory Service (FSS), this was slowly 
changing.  In December 2005 a new law was passed that allows 
MIC to request oversight assistance from the FSS.  The 
timeline to explore any privatization of Korea Post, 
however, has been pushed back until after 2007, and would be 
"subject to negotiations after that time" between MIC and 
the FSS. 
 
¶18. (SBU) Korean Head of Delegation Lee Seong-ho summed up 
the difference between U.S. and Korean perceptions of Korea 
Post's non-postal businesses: "You think of this side of 
Korea Post's work as a financial institution, while we think 
of it as a part of our welfare system."  That said, Lee 
indicated the Korean side had taken notice of U.S. concerns 
and would revisit the issue in the future.  Ki, in response, 
underscored that U.S. concern is based on a solid trade- 
limiting argument.  Korea Post competes against the private 
sector on a non-level playing field.  Short of 
privatization, at a minimum, Korea Post should be subject to 
the same product and prudential regulations as private 
sector banking and insurance institutions. 
 
¶19. (SBU) Regulatory Reform Cooperation: Ki applauded Korean 
officials for their willingness to set up a regular channel 
for detailed communication with the American Chamber of 
Commerce in Korea and the U.S. Embassy, as part of the 
ROKG's ongoing regulatory reform review.  In response, 
Government Policy Coordination Deputy Director Jung Sang- 
bong said that cooperation should continue.  But he also 
stressed that the ROKG views the cooperation as a 
contribution to regulatory reform, rather than as a part of 
the U.S.-Korea trade policy process. 
 
PHARMACEUTICALS AND MEDICAL DEVICES 
----------------------------------- 
 
¶20. (SBU) DOC Dutton asked for an update on any progress 
Korea has made in carrying out its review of A7 pricing 
decisions, following the October 2005 QTM.  MHW Health 
Insurance Reimbursement Division Director Park said that his 
ministry is currently still reviewing the A7 pricing 
decisions made since 2000, but said the process would take 
some time since there are many products and a large amount 
of data to review.  As promised by MHW at October 2005 QTM, 
Director Park said that once the review was complete, MHW 
would consult with industry concerning A7 pricing criteria. 
 
¶21. (SBU) Dutton also raised the issue of setting up an 
independent appeals process for pricing and reimbursement 
decisions.  The ROKG had declared its support of developing 
such a process at the October 2005 QTM.  Park replied that 
there has been no substantive progress since the last QTM in 
developing an independent appeals system.  He said that MHW 
was still reviewing internally what could be done.  Park 
assured Ki, however, that MHW was currently close to 
completing a template for a written justification for 
pricing and reimbursement decisions that the ministry would 
soon be ready to share with industry for comments.  Ki 
emphasized that MHW should expedite its development of the 
appeals system and work closely with industry throughout the 
process. 
 
¶22. (SBU) Dutton also asked about the status of Lyrica, a 
neuropathic pain medication developed by a U.S. company, 
specifically inquiring about whether reimbursement 
guidelines had been set.  Park said that Lyrica has been 
eligible for reimbursement since March 1, and that there is 
a continuing review of related processes.  Park replied that 
any further details will be handled by the U.S. company and 
the corresponding organization "on our side." 
 
¶23. (SBU) Departing from the set agenda, Ki raised recent 
industry concerns about MHW's announcement that it was 
considering a switch to a "positive list" system for the 
National Health Insurance's reimbursement list.  MHW 
responded that there had been no concrete decision made on 
when or how to implement such a positive list system.  MHW 
explained that many of the over 20,000 drugs on the 
reimbursement list had overlapping functions and efficacies, 
and needlessly complicated management of the system.  Park 
added that he did not believe a positive list system would 
disadvantage any specific company.  However, since MHW 
recognizes that such a switch would affect all companies, he 
assured us that MHW planned to consult closely with 
industry.  Ki and EconMinCouns emphasized strongly that any 
concrete plan to switch to a "positive list" reimbursement 
system was certain to intensively worry pharmaceuticals 
importers. 
 
¶24. (SBU) Medical Devices: Dutton also raised the issue of 
reimbursement policies for medical devices, asking if the 
Korean side had looked into the industry paper -- provided 
at a previous QTM -- that showed that in most instances 
imported medical devices receive a lower reimbursement rate 
than domestically-manufactured ones.  MHW Trade Cooperation 
Division Director Bae responded that since this item had not 
been included on the agenda, MHW had not been able to 
prepare an answer to this question and could therefore not 
respond at this time.  Dutton asked for updates on MHW's new 
reimbursement guidelines for medical devices. Bae noted that 
the guidelines were in fact not new, but were made 
"official" from the existing guidelines. Bae said MHW will 
create a task force to study the reimbursement guidelines 
and plas to convene the first task force meeting in May. 
 
INTELLECTUAL PROPERTY RIGHTS 
---------------------------- 
 
¶25. (SBU) Ki emphasized to the ROKG delegation that 
improving IPR enforcement in Korea has been an important 
issue for a long time.  However, while all intellectual 
property issues are important, only two aspects of IPR 
protection would be discussed during this session of the 
quarterlies -- the lack of injunctive relief, and the harm 
caused to patent holders by the Patent Court overturning 
KIPO rulings. 
 
¶26. (SBU) The U.S. side expressed concern about an 
increasing volume of industry complaints that Korean 
authorities could not (or would not) provide injunctive 
relief in patent disputes through administrative channels, 
such as the Korea Intellectual Property Office.  Similarly, 
Korean civil courts appear to never provide injunctive 
relief, even though that authority exists.  Ki expressed 
concern that U.S. companies were not being protected during 
patent disputes because the alleged infringers were not 
being prohibited from continuing the action in question. 
Absent injunctive relief, he pointed out that even when 
protection was afforded by a favorable decision at lower 
levels, that protection was often negated by the fact that 
the defendant merely had to file an appeal in order to 
continue the infringing behavior.  Ki encouraged the Korean 
delegation to consider including a fix in the ROKG's "IPR 
Master Plan," constructing the relevant statutes necessary 
to authorize Korea's administrative courts -- at least in 
cases related to patents -- to issue injunctive relief. 
 
¶27. (SBU) In response, a KIPO representative asked for 
clarification whether our concern was that injunctive relief 
was not available, or that it was not given.  When the U.S. 
delegation replied that the USG was concerned about both, 
the Korean delegate described the Korean patent system as 
being the same as in the United States, and asserted that 
the Patent Court does have the authority to order injunctive 
relief.  This is contrary to what Embassy research -- and 
that of Korean law firms representing U.S. interests in 
patent disputes -- indicates.  Both sides undertook to 
research the matter further and to raise the issue in 
subsequent meetings. 
 
OTHER ISSUES 
------------ 
 
¶28. (SBU) Visas for Nurses: MOFAT Director Lee noted that H1- 
B visa quotas and the exclusion of big cities from the H1-C 
category create problems for Korean nurses in obtaining 
visas to work in the U.S.  Lee urged changes in the H1-B and 
H1-C requirements, and said that the ROKG would like to see 
this issue included in the FTA negotiations.  Ki explained 
that USTR does not have authority in visa issues and that 
only Congress has the authority to make changes in visa 
requirements.  Embassy staff noted that the Korean Consulate 
General in Houston has been working with Congressional 
offices in Texas on the visa issue, and urged them to 
continue working on this issue through that channel. 
Director Lee concluded that the visa issue is a "win-win" 
situation for both sides, whereby the U.S. gets qualified 
nurses to meet a growing demand and the Korean public would 
view such a move in a positive light. 
 
¶29. (SBU) Diamond Saw Blade Anti-Dumping Investigation: 
Director Lee asked that the USG take note that the Korean 
government considers our treatment of Korean manufacturers 
of diamond saw blades to be unfair, compared to China.  Lee 
also noted in passing that USG anti-dumping procedures are 
onerous for ROK manufacturers, most of which are small or 
medium-sized enterprises. 
 
VERSHBOW