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Viewing cable 06SEOUL1477, PHARMACEUTICALS: HEALTH MINISTER TELLS AMBASSADOR

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Reference ID Created Released Classification Origin
06SEOUL1477 2006-05-02 09:00 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Seoul
VZCZCXYZ0016
OO RUEHWEB

DE RUEHUL #1477/01 1220900
ZNR UUUUU ZZH
O 020900Z MAY 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7683
INFO RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE 1453
UNCLAS SEOUL 001477 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/K AND EB/TPP 
COMMERCE FOR 4431/MAC/OPB/EAP/DUTTON 
PASS USTR FOR CUTLER, AUGEROT AND KI 
 
E.O. 12958: N/A 
TAGS: ETRD EIND KS
SUBJECT: PHARMACEUTICALS: HEALTH MINISTER TELLS AMBASSADOR 
HE WILL STICK TO PLANS TO ANNOUNCE SHIFT TO "POSITIVE LIST" 
 
REF: A. PORTMAN-KIM LETTER OF 5/1/06 
 
     B. MEMCON ON TONG-LEE MEETING OF 4/28/06 
     C. STATE 66875 
 
SUMMARY 
------- 
 
1. (SBU) The Ambassador met on May 2 with Minister of Health 
and Welfare (MHW) Rhyu Si-min and expressed serious concerns 
with Rhyu's plan to officially announce on May 3 a proposal 
to shift to a "positive list" system for reimbursing 
pharmaceuticals.  The Ambassador urged Rhyu to postpone such 
an announcement until after sufficient intergovernmental 
discussions of the issue had taken place, or to reconsider 
the proposal entirely.  He noted that the sudden 
announcement of such a far-reaching decision could have a 
negative impact on the atmosphere surrounding the upcoming 
U.S.-Korea Free Trade Agreement (FTA) negotiations and 
significantly complicate the negotiations over 
pharmaceuticals. 
 
2. (SBU) Rhyu told the Ambassador that MHW would go ahead 
with plans to announce on May 3 its intent to begin the 
process of shifting Korea's system for reimbursing 
pharmaceuticals under the National Health Insurance (NHI) 
system from the current negative list to a positive list 
system.  He noted that the announcement would present 
"tentative" plans, not a full-fledged, final proposal.  Rhyu 
outlined three principles for carrying out the shift, 
offering assurances that the shift would not disadvantage 
foreign pharmaceutical companies and promising that the plan 
would not create any new non-tariff barriers to 
pharmaceuticals trade.  Rhyu noted that a two-month comment 
period starting May 3 would be used to seek comments from 
foreign manufacturers and governments.  Rhyu also commented 
that once FTA negotiations begin, if there is any evidence 
that implementation of his plan is creating significant 
difficulties for the FTA negotiations, he would be open to 
continued consultations on the matter. 
 
3. (SBU) In response, the Ambassador re-emphasized the need 
for substantive government-to-government talks on this 
matter, and stated that merely calling for a 60-day comment 
period was an insufficient level of transparency -- 
particularly given the context of FTA talks -- since 
negotiators would be presented with the problem of trying to 
negotiate around the substance of a moving target. 
 
4. (SBU) According to the Ministry of Foreign Affairs and 
Trade (MOFAT), Trade Minister Kim Hyun-chong met with Rhyu 
and a Blue House representative before Rhyu met the 
Ambassador in order to try to talk Rhyu out of going forward 
with these plans, but this effort was unsuccessful.  Embassy 
representatives will attend the May 3 MHW briefing on its 
decision to move forward with the positive list strategy. 
End summary. 
 
AMBASSADOR LODGES STRONG PROTEST 
-------------------------------- 
 
5. (SBU) Ambassador Vershbow told MHW Minister Rhyu that the 
United States has serious concerns with Rhyu's plans to 
announce on May 3 a shift to a positive list system for 
reimbursing pharmaceuticals.  He reminded Rhyu that Korean 
representatives had assured us in the last Quarterly Trade 
Meeting that there would be full consultations with affected 
stakeholders including foreign pharmaceutical companies. 
The Ambassador also outlined substantive concerns with the 
proposal, highlighting the potential of a positive list 
system to limit innovation, restrict Korean citizens' access 
to new and innovative drugs and disadvantage the research- 
based pharmaceutical industry. 
 
6. (SBU) The Ambassador also emphasized our concern that a 
positive list system would unfairly strengthen MHW's hand, 
enabling it to effectively force pharmaceutical companies to 
lower their prices to levels that do not recoup their 
research and development costs in exchange for being listed 
by the National Health Insurance.  He noted that this 
announcement has the potential to sour the atmosphere 
surrounding the upcoming FTA negotiations and make 
negotiations over pharmaceuticals much more complicated by 
creating a "moving target."  He urged Rhyu to either 
postpone this announcement until such time as interested 
stakeholders had had ample opportunity to comment and 
discuss its ramifications, or to reconsider his decision 
entirely. 
 
 
RHYU: INTEND TO ANNOUNCE TENTATIVE PLAN 
--------------------------------------- 
 
7. (SBU) Rhyu responded to the Ambassador by noting that he 
has an obligation to work for the health of the Korean 
people, and that he is fully aware of the concerns expressed 
by the Ambassador.  He said that Koreans use too many 
pharmaceuticals, which drives "excessive" health care 
expenditure.  In addressing this problem through 
introduction of a positive list reimbursement system, Rhyu 
said MHW would abide by three principles: 
 
-- First, MHW would ensure that a shift to a positive list 
system creates a system of fair competition, with "no 
discrimination in the market between domestic and foreign 
firms."  Rhyu also noted in this context the widespread 
prevalence, especially among local pharmaceutical 
manufacturers of corrupt, illegal marketing practices that 
also served to drive up expenditures, saying that a positive 
list system would help put a stop to such practices. 
 
-- Second, the shift to a positive list system would take 
place without introducing any new non-tariff barriers to 
pharmaceuticals trade.  Rhyu offered assurances that the 
principle of fair-market competition would be applied 
equally to all firms, regardless of where their headquarters 
are located. 
 
-- Third, Rhyu promised that there would be full 
transparency in the decision-making process surrounding 
adoption and implementation of a positive list system.  He 
emphasized that the May 3 announcement would not be of a 
final, full-fledged proposal, but rather of a tentative 
plan.  Rhyu said that a shift to a positive list system 
would not necessitate an amendment to law, but only to 
subordinate regulations.  He said he foresees taking a full 
two months to collect comments and opinions from 
stakeholders before finalizing the proposal.  Rhyu also told 
the Ambassador that, as part of MHW plans to enhance 
decision-making transparency, MHW would also set up an 
independent review system. 
 
8. (SBU) Summing up, Rhyu said that it is true that the 
change to a positive list system would proceed concurrently 
with FTA negotiations, although he averred that this fact 
was nothing more than a coincidence.  He assured the 
Ambassador that if problems are created, or allegations of 
new non-tariff barriers created by the positive list system 
arise, then MHW is "ready to discuss" any such issues.  Rhyu 
concluded by commenting that MHW's pursuit of a positive 
list system is "inevitable," but that the system would be 
established in a way so as not to create any new non-tariff 
barriers. 
 
AMBASSADOR: MUST NOT INTERFERE WITH TRADE TALKS 
--------------------------------------------- -- 
 
9. (SBU) The Ambassador thanked Rhyu for his assurances that 
he did not want to interfere in efforts to expand trade. 
But given the suddenness of this development, even 60 days 
would not be enough time to consult on the issue 
appropriately.  He added that it would have been 
preferential to have had extensive government-to-government 
consultations on this issue before it ever developed to this 
stage. 
 
10. (SBU) Rhyu replied by noting this idea should not be 
considered a surprise, since he had raised the possibility 
of seeking a switch to a positive list system in his 
February 8 hearing before the National Assembly, and again 
the week thereafter during the National Assembly's 
"inspection" of MHW.  He also noted that he had discussed 
MHW's basic principles on March 27 with representatives of 
the Korea Research-based Pharmaceutical Industry Association 
(KRPIA) and the American Chamber of Commerce. (Note: MHW 
Director Bae Kyung-taek later clarified that the positive 
list issue had only been raised tangentially in that 
meeting.) 
 
11. (SBU) The Ambassador concluded the discussion by 
emphasizing again that it is difficult to negotiate over a 
moving target, and that it is highly regrettable that this 
process is moving forward at the same time as FTA 
negotiations.  He expressed the hope that if MHW received 
enough negative reaction during the comment period, it would 
be willing to reconsider its plans. 
 
 
MOFAT TRIES, FAILS TO AVERT ANNOUNCEMENT 
---------------------------------------- 
 
12. (SBU) According to MOFAT Director General for Bilateral 
Affairs Lee Gun-tae, Trade Minister Kim met with Rhyu and an 
unnamed high-level Blue House advisor just prior to the 
Ambassador's meeting with Rhyu in an effort to persuade Rhyu 
to reconsider his plans to move forward with the positive 
list proposal.  Kim's efforts did not succeed, but may have 
sensitized Rhyu to the FTA ramifications of this proposal. 
 
MHW'S "UNOFFICIAL" MAY 3 PRE-BRIEFING 
------------------------------------- 
 
13. (SBU) MHW will hold what it is calling an "unofficial 
pre-briefing" for stakeholders on May 3 to explain its 
intentions regarding the positive list.  Despite MHW claims 
of transparency, only two representatives each from KRPIA, 
the Korea Pharmaceutical Manufacturers Association (KPMA), 
the Embassy, and the Mission of the European Union have been 
invited to attend.  Members of chambers of commerce or 
individual companies will not be allowed to attend. 
However, as currently planned, the event will be open to the 
press. 
 
VERSHBOW