VZCZCXRO4300
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0907/01 1341300
ZNR UUUUU ZZH
R 141300Z MAY 07 ZDK
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 2509
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2696

UNCLAS SECTION 01 OF 02 MADRID 000907 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: BEXP EAGR EAIR ECON EFIN EIND ETRD TBIO SP
EINV, UK 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
MAY 7 
 
 
MADRID 00000907  001.4 OF 002 
 
 
EINV: American Business Council lunch with Ambassador and Min 
of Industry 
EINV: Macroeconomic risks in Spain 
EINV/ECON: US Cautions against investing in Spain - According 
to ABC 
EINV/ETRD: Deal or no deal - Research money in exchange for 
patent protection 
EAGR/TBIO: Biodiesel production and renewable fuel guidelines 
 
¶1. (U) MINISTER OF INDUSTRY CLOS HOSTS AMBASSADOR AND 
AMERICAN BUSINESS COUNCIL FOR WORKING LUNCH 
 
Minister of Industry, Trade and Tourism Joan Clos hosted the 
Ambassador and an executive group from the American Business 
Council (ABC) for lunch May 10.  The ABC groups the largest 
U.S. investors in Spain, including Ford, GM, General 
Electric, American Express, EDS, IBM, and Deloitte.  The 
lunch is the result of a business dialogue launched by the 
Ambassador earlier this year, and the ABC had prepared a 
discussion paper outlining the members' concerns about the 
investment and business climate in Spain.  ABC 
representatives raised a number of issues.  They are very 
concerned about the change in interpretation by the Spanish 
tax authority concerning holding companies established by 
multinationals in Spain.  The previous government had passed 
very favorable tax legislation encouraging multinationals to 
group their international subsidiaries into holding companies 
based in Spain.  The tax authority has, within the past year, 
changed its interpretation of this law in a way much less 
advantageous to the firms, and it is seeking retroactive 
payments.  A second issue raised was IPR protection, with the 
ABC making a strong pitch for Spain to establish an effective 
notice and takedown regime to fight against illegal 
downloads.  The ABC also requested increased efforts to 
prevent pirated DVD and CD sales and recommended that bars 
and restaurants post anti-piracy posters.  (Note:  These 
requests track very closely with Embassy's own efforts with 
the GOS.)  The Ford representative raised the costs of rail 
and road transportation to port for finished industrial 
goods.  The American Express representative raised a fairly 
technical issue related to the margins that financial 
services companies can charge users and the payments 
mechanisms.  The Ambassador was accompanied by the DCM, Econ 
Counselor, and the Deputy Commercial Counselor.  Clos was 
accompanied by Secretary General for Trade Alfredo Bonet, 
officials from the INVES (Invest in Spain) office and the 
Office for Trade and Investment.  He followed the 
presentations closely and promised responses.  He and the 
Ambassador agreed to continue the dialogue, with the 
Ambassador scheduled to host the next working lunch, probably 
in November. 
 
BANK OF SPAIN POINTS TO MACROECONOMIC RISKS IN ITS MAY 3 
ECONOMIC BULLETIN 
 
¶2. (U)  The Bank of Spain is somewhat less bullish than it 
has been in the past on Spanish macroeconomic prospects.  The 
Central Bank's language is of course couched in tortured 
language, but although the Bank does not forecast difficult 
conditions in the short-term, it does focus more on the 
Spanish economy's well-known weaknesses.  It notes that 
productivity has not gone up, despite higher capital good 
investment.  Interest rate hikes are "exposing the private 
sector to adverse changes."  In perhaps the most exquisitely 
phrased statement, the Bank says that "there has been a pause 
in the rebalancing of national demand and net exports as a 
percentage of GDP", i.e. the current account deficit is still 
a very high nine percent of GDP.  (Comment: Given that the 
head of the Spanish Central Bank, Miguel Angel Fernandez 
Ordonez, is a PSOE loyalist and was appointed to the position 
by the government, the Bank's warnings, albeit put in gentle 
terms, are a subtle change.  This has been noticed by 
commentators and adds to speculation that maybe the Spanish 
economy is in for a slowdown.) (Expansion, May 4) 
 
ROSALINI INVESTMENT DISPUTE PROMPTS EDITORIAL 
 
¶3. (U) ABC Says "United States Asks its Big Companies to take 
Precautions in Investing in Spain": This May 2 front-page 
headline with an accompanying editorial was prompted by AmCit 
Dugan Rosalini's complaints that the Barcelona Forum has not 
yet complied with a Cook County, Illinois judgment.  Using 
language from this year's Investment Climate Statement, 
Rosalini and his partner got a naturally willing ABC to take 
potshots against the government on its economic policies, 
although ABC framed this in the context of generally bad 
U.S.-Spain relations.  The Investment Climate Statement 
includes a reference to Rosalini's dispute and then advises 
 
MADRID 00000907  002.2 OF 002 
 
 
that in the event American businesses sign a contract 
stipulating a U.S. court as the venue for resolving disputes, 
the U.S. business should find in advance an expeditious way 
to execute a possible U.S. judgment in Spain as there is not 
treaty between the U.S. and Spain recognizing judgments in 
the other country.  In a prototypical example of how the 
print media work in Spain, ABC spun this in to something 
bigger even though towards the end of the article it concedes 
that the Barcelona Forum case is an "exception." (ABC, May 2) 
 
 
FARMAINDUSTRIA OFFERS 300 MILLION FOR RESEARCH 
 
¶4. (U) Research & Development-based Pharmaceutical Industry 
offers Euros 300 million for more research in rare diseases 
over five years if GOS agrees to provide product patent 
protection for drugs that benefited from process patent 
protection prior to 1992:  Farmaindustria, which represents 
Spanish and the major American R&D pharmaceutical companies 
in Spain made this offer public on May 7.  The industry has 
already floated the idea in private meetings with the 
government.  The Ambassador has also mentioned it in meetings 
with President Zapatero's former Economic Adviser, Miguel 
Sebastian.  This is the first time the drug companies have 
made the offer public, and the first time the industry has 
proposed a specific number.  There are a number of 
blockbuster drugs, particularly medicines dealing with 
cholesterol, that will lose patent protection shortly unless 
patent policy is changed (the companies say this can be done 
without legislation).  The R&D-based industry uses the 
argument that this would "harmonize" Spanish patent practice 
with most other major EU countries.  The companies also say 
that TRIPS obliges Spain to provide this additional 
protection, although USG lawyers do not agree with this 
argument.  The Embassy has been supportive of the R&D-based 
pharmaceutical industry on public policy grounds.  (Comment: 
It is interesting that the industry has now tabled a concrete 
offer.  We wonder though whether the government will have the 
appetite to stave off lawsuits from the generics 
manufacturers even if significant additional research in rare 
diseases is presumably attractive.) (Expansion, May 8, 2000) 
 
BIODIESEL PRODUCTION FUTURE LOOKS PROMISING 
 
¶5. (U) If Spanish biodiesel producers were to bring on-line 
all of the production capacity that is currently indicated 
(on the books) for production by 2010, Spain would become one 
of the leading producers of renewable fuels in Europe.  By 
January 2008, production capacity will likely be at about two 
million tons, and by January 2011 that capacity is indicated 
at almost nine million tons. 
 
¶6. (U) However, most analysts here in Spain doubt that the 
biodiesel projects currently on the books for 2008 and beyond 
will become reality.  On the positive side of the equation 
are the EU renewable fuels guidelines, a new Spanish law (to 
be announced this year) that will require renewable fuels 
mixing, and a new generation of oilseeds crushing plants that 
can refine and direct the renewable oil to a variety of uses, 
including biodiesel, human consumption, import, export, etc. 
 
¶7. (U) On the unknown, but very important side of the 
equation is biodiesel-production profitability.  For the many 
small-scale production plants, currently operating and 
planned, that are dedicated to producing only biodiesel 
(single-outlet market), commodities markets can be especially 
pernicious as evidenced by the recent run-up in cereals 
commodity prices and a sharp drop in crude oil prices. 
Aguirre