VZCZCXYZ0001
PP RUEHWEB

DE RUEHSG #0167/01 0521513
ZNR UUUUU ZZH
P 211513Z FEB 08
FM AMEMBASSY SANTIAGO
TO RUEHC/SECSTATE WASHDC PRIORITY 2809
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 3332
RUEHBO/AMEMBASSY BOGOTA PRIORITY 1951
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0184
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 0804
RUEHCV/AMEMBASSY CARACAS PRIORITY 1670
RUEHLP/AMEMBASSY LA PAZ FEB 5689
RUEHPE/AMEMBASSY LIMA PRIORITY 5457
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 3922
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY

UNCLAS SANTIAGO 000167 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/BSC AND EB/TPP/IPE - JENNIFER BOGER 
STATE PLEASE PASS TO USTR - KDUCKWORTH AND CWILSON 
COMMERCE FOR KRISTEN MANN 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD PREL PGOV CI
SUBJECT: CHILE: POST RECOMMENDS CHILE REMAIN ON PRIORITY 
WATCH LIST 
 
REF: STATE 9475 
 
¶1. (SBU) Summary: Post recommends Chile remain on the Special 
301 Priority Watch List (PWL) in 2008.  In January 2007, 
Chile was placed on the PWL following an Out-of-Cycle Review 
(OCR) and it remained there for all of 2007.  The GOC does 
not like being on the PWL, and the stick has provided 
motivation inside the government to begin work to improve its 
framework for the protection of intellectual property rights. 
 That being said, all that work remained in the draft stage 
during 2007.  The most significant step was the introduction 
of draft legislation in May 2007 on trademarks and 
copyrights.  This bill remains in Congress, with passage 
likely in 2008.  Little has been done on other issues such as 
joining the Patent Cooperation Treaty (part of Chile's Free 
Trade Agreement obligations to the U.S.) and improving 
protection of pharmaceutical patents and proprietary clinical 
data.  Finally and most tellingly, there remains no clear 
national policy on intellectual property rights.  End Summary. 
 
Priority Watch List Background 
------------------------------ 
 
¶2. (SBU) In 2006, the third year of the U.S.-Chile Free Trade 
Agreement (FTA), Chile was the subject of an Out-of-Cycle 
Review (OCR) due to its failure to fulfill many FTA 
commitments on the protection of intellectual property rights 
(IPR).  The OCR, announced in April 2006, resulted in an 
intensified and generally positive dialogue between U.S. and 
Chilean officials.  During the course of that dialogue, the 
GOC was unable to explain its institutional framework to 
protect IPR, essentially laying bare the lack of protection. 
On January 8, 2007, the Office of the U.S. Trade 
Representative (USTR) announced the results of the OCR and 
placed Chile on the Priority Watch List (PWL) for the first 
time.  Placing Chile on the PWL led to an immediate and 
sustained public debate on IPR, which almost exclusively 
favored more robust IPR protection.  Before the regular 
annual Special 301 review and announcement in April 2007, 
there were no significant changes, and Chile remained on the 
PWL for all of 2007. 
 
¶3. (SBU) One of the four declared pillars of President 
Bachelet's administration (she began a four-year term in 
March 2006) is innovation.  She appointed a presidential 
council, headed by a former finance minister, to identify 
potential value-added sectors for the GOC to promote.  Thanks 
to Bachelet's emphasis on the subject, there is a great deal 
of talk inside the GOC and in the public domain about the 
importance of innovation.  That being said, to date that talk 
has remained largely just rhetoric and there has not been 
much concrete action to back up the words.  At an elementary 
level, Chileans understand that improved IPR protection is a 
key part of fostering innovation and creating value-added 
sectors in the economy.  But, the GOC is struggling to find 
practical ways to turn its talk into deeds. 
 
Data Protection and Patent Linkage 
---------------------------------- 
 
¶4. (SBU) Since the FTA went into force in January 2004, there 
has been no institutional progress on core issues such as 
data protection and patents related to pharmaceutical 
products.  Despite new legislation and implementing 
regulations dating back to 2005, Chile has continued to grant 
approval for generic copies, which violate patents for 
innovative pharmaceuticals.  Additionally, the GOC has 
exhibited a pattern of allowing local companies to use 
exclusive company data from innovative Asian, European and 
North American companies as the scientific basis for granting 
sanitary (and thus market) approval for these generic copies. 
 International pharmaceutical companies continue to detail 
violations of exclusive company test data in the Chilean drug 
approval process. 
 
¶5. (SBU) On the issue of patents, there is no linkage between 
granting market access and the existence of valid patents. 
 
The GOC has consistently maintained that it provides linkage 
through the judicial system and that the dispute over linkage 
is a difference of interpretation as to the specific 
obligations in the U.S.-Chile FTA.  A French pharmaceutical 
company enjoyed one minor and partial legal victory in 2007 
in a case against a Chilean firm over a patent violation. 
The case was lengthy, the fine was minimal (USD 6,000) and 
the offending drug was not pulled from the market.  It's hard 
to see how the courts provide linkage in Chile. 
 
Dancing Sideways on Clinical Data 
--------------------------------- 
 
¶6. (SBU) In July 2006, the Instituto de Salud Publica (ISP) 
-- the rough equivalent of the FDA -- issued an internal 
regulation, which required any company seeking approval for a 
biotech product to submit its own proprietary clinical test 
data.  This was viewed by innovative pharmaceutical companies 
as a clear step forward in better protecting their clinical 
data and, hopefully, eventually their valid patents as well. 
By December 2006, in what has been privately described to us 
as part of an internal turf battle at the ministry, Minister 
of Health Barria overruled and removed the ISP regulation. 
Though there has been informal talk of Minister Barria 
re-issuing these rules under her own authority, over a year 
later nothing has happened. 
 
¶7. (SBU) As a further twist, new data protection rules were 
briefly published on the Ministry of Health's website in 
January 2008, only to be removed within days for "further 
drafting."  The official GOC explanation is that the rules 
were published for public comment.  The unofficial 
explanation is that they were removed due to pressure from 
Chilean pharmaceutical firms which saw the rules as 
disadvantageous.  What was briefly exposed to public view was 
largely in line with the ISP's initial regulation from July 
2006 and represented some improvement over existing norms. 
If something along these same lines were to be issued as a 
Ministry of Health decree, it could represent an advance in 
providing protection to proprietary clinical data.  However, 
it appears that once again everything is on hold. 
 
Piracy and Legislation on Copyrights and Trademarks 
--------------------------------------------- ------ 
 
¶8. (SBU) In the aftermath of being placed on the PWL, there 
was a burst of activity on the public anti-piracy front. 
Illegal copies of music, movies and books were seized, which 
made some headlines.  There has been a campaign to remove 
illegal copies from Santiago, but this has largely meant 
moving vendors rather than prosecuting them.  Overall, 
industry and anecdotal evidence suggests nothing has 
substantively changed.  If anything, the pirates' 
understanding of the market is more sophisticated and 
developed than ever.  On Santiago's streets, prices for 
pirated software, music and films have dropped, implying 
greater supply.  Additionally, the pirated market has become 
more sophisticated and segmented, with vendors increasingly 
catering to specific tastes and clientele rather than selling 
a little bit of everything. 
 
¶9. (SBU) There was a substantive anti-piracy reform package 
introduced by Bachelet with great fanfare in May 2007.  The 
reform package was far from perfect but represented an 
advance in developing a more practical IPR protection 
framework.  Additionally, the bill was supported by eight 
different Chilean ministries.  While not reason alone to 
cheer, this development showed the degree to which interest 
in and concern about IPR have spread inside the GOC.  Three 
years ago, the Ministry of Foreign Affairs was a lone voice 
inside the GOC as it transmitted U.S. and European concerns 
about IPR violations to other ministries. 
 
¶10. (SBU) In the course of 2007, as the bill worked its way 
through Congress, the GOC was receptive to a positive and 
sustained dialogue with the U.S. on suggested changes to the 
legislation.  This dialogue included formal meetings, such as 
 
the FTA's annual Free Trade Commission talks in November, 
informal exchanges via phone and e-mail and most 
substantively through a series of three digital video 
conferences (DVCs).  These DVCs brought together technical 
experts and allowed the U.S. to make clear its concerns with 
parts of the draft legislation.  Chile's Congress will likely 
pass the law in the first half of 2008 but to what degree the 
final version will reflect U.S. concerns is unclear. 
Whatever legislation is passed will, of course, be followed 
by the equally important phases of implementing regulations 
and then enforcement.  We are still far from being able to 
pass judgment on outcome of this reform package. 
 
Core Problem:  No Policy on IPR 
------------------------------- 
 
¶11. (SBU) As noted in previous years, the core issue at the 
heart of IPR-related issues in Chile is the lack of a clear 
government policy.  Chile has a strong presidential system, 
and individual ministries cannot on their own make policy on 
IPR.  Unambiguous direction must come from the top and that 
means President Bachelet.  Though the judiciary is 
independent, it also part of the same system and sees there 
is no clear policy direction.  As such, judges drag out court 
cases to the point of irrelevancy, make minor decisions as in 
the one legal victory in 2007 for an innovative 
pharmaceutical company, or find unrelated technical reasons 
for dismissal.  While the public debate favors greater IPR 
protection, and ministries are increasingly educated and 
engaged on the issue, the system as a whole is waiting on 
leadership from the top.  So far, that has not come. 
 
Recommendation:  Maintain Chile on the Priority Watch List 
--------------------------------------------- ------------- 
 
¶12. (SBU) Though 2007 was more positive for IPR in terms of 
dialogue and tone than previous years, Chile continues to 
fall far short of its rhetorical and practical commitments to 
its trade agreements.  Placing Chile on the PWL in January 
2007 was the right thing to do based on the facts.  It proved 
also a smart move in terms of generating a public debate on 
IPR.  As noted, that debate has favored improved protection 
and furthered understanding of the link between fostering 
innovation and IPR protection.  The stick of being on the PWL 
continues to motivate the GOC to take actions to remove 
itself from this list.  Removing Chile from the PWL in 2008 
would a mistake on every front.  We have the potential over 
the coming few years to move substantively and sustainably in 
the right direction on IPR in Chile.  To do that, we will 
need to keep up the pressure. 
URBAN