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Viewing cable 06SEOUL1858, KORUS FTA: AMBASSADOR'S MEETING WITH DEPUTY PRIME

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Reference ID Created Released Classification Origin
06SEOUL1858 2006-06-05 09:17 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Seoul
VZCZCXYZ0000
PP RUEHWEB

DE RUEHUL #1858/01 1560917
ZNR UUUUU ZZH
P 050917Z JUN 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8264
INFO RUCPDOC/DEPT OF COMMERCE WASHDC 1476
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SEOUL 001858 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS USTR FOR CUTLER, AUGEROT AND KI 
STATE FOR EB/TPP/BTA AND EAP/K 
COMMERCE FOR 4431/MAC/OPB/EAP/DUTTON 
TREASURY FOR IA/ISA/BUCKLEY AND ITT/CHANG 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN PGOV KS
SUBJECT: KORUS FTA: AMBASSADOR'S MEETING WITH DEPUTY PRIME 
MINISTER HAN DUCK-SOO 
 
REF: A. SEOUL 1821 
     B. TRICK-CUTLER APRIL 26 E-MAIL AND SUBSEQUENT 
 
SUMMARY 
------- 
 
1. (SBU) Deputy Prime Minister and Minister of Finance and 
Economy (MOFE) Han Duck-soo told the Ambassador on June 2 
that the results of the May 31 local elections were probably 
unrelated to the economy, which is doing well.  He attributed 
the poor showing of Uri Party candidates to personality 
politics and unfair treatment of the Roh Administration and 
the Uri Party by the local press.  The Ambassador raised USG 
concerns about excessively harsh regulatory and investigatory 
treatment of certain politically unpopular foreign firms. 
Han countered with familiar assurances about a "level playing 
field," and noted that the Korean government cannot intervene 
in judicial investigations. 
 
2. (SBU) On issues related to the U.S.-Korea Free Trade 
Agreement (KORUS FTA), Han affirmed the plan announced by the 
Ministry of Health and Welfare (MHW) to reform the National 
Health Insurance system, including introducing a "positive 
list" for reimbursing pharmaceuticals.  Han said the plan had 
been under discussion by the Korean government for some time, 
and is necessitated by the fiscal constraints faced by the 
government.  The Ambassador strongly reiterated our criticism 
of the plan and noted that it could complicate the KORUS FTA 
negotiations.  Han stressed that he and other cabinet 
officials would continue to vocally support the KORUS FTA and 
that President Roh remains firmly committed to the agreement. 
 End Summary. 
 
ELECTION RESULTS 
---------------- 
 
3. (SBU) Han told the Ambassador that the results of the May 
31 local elections (Ref A) would not have any affect on 
Korean economic policy, or on the KORUS FTA.  He asked 
rhetorically, "What economic policy could we possibly 
change?"  Han commented that, contrary to press reports, he 
does not think that economic issues played any significant 
role in the election outcome, particularly since the economy 
is performing well.  Instead, Han suggested that Korean 
voters are more swayed by the relative strengths of the 
candidates' personalities.  He laid the most blame for the 
Uri Party's poor performance, however, on the media's unfair 
and relentless criticisms of the Roh Administration and the 
Uri Party.  He declined the opportunity to speculate on his 
own future in the Administration. 
 
PHARMACEUTICALS 
--------------- 
 
4. (SBU) DPM Han stressed to the Ambassador that MHW's 
envisioned reforms to the pharmaceutical pricing and 
reimbursement system, including the introduction of a 
positive list system and eliminating A7 pricing, had been 
under consideration by the ROKG for some time, including 
mention in the Health Minister's confirmation hearings, and 
could not have come as a surprise to the U.S. Government.  He 
said that the reform of the system along the lines proposed 
by MHW is essential due to the fiscal constraints the 
government is facing.  In current budgetary circumstances, 
reducing costs is "critical."  Han also noted that even 
though the current system is a "negative list," MHW has been 
running it as a de facto positive list for some time (Note: 
thereby confirming one of U.S. industry's chief complaints), 
meaning that the reform would not mean a great deal of change 
for U.S. industry. 
 
5. (SBU) Han denied the Ambassador's criticism that the 
reform plan was launched by Health Minister Rhyu Si-min 
without full consensus be other ROKG elements, saying that 
the reform plan had been fully coordinated and approved in 
advance.  He tried to allay U.S. concerns by commenting that 
the reform would not imply dramatic changes for treatment of 
U.S. industry, though he admitted that the positive list 
would try to exclude some of the "more expensive" drugs. 
Responding to the Ambassador's point that the health system's 
financial difficulties are more attributable to the 
relatively high price of the local generics (which account 
for 72 percent of drug expenditures), Han said that the 
government would also seek to cut those costs by eliminating 
 
 
insurance fraud and other corrupt practices.  He disagreed 
with the Ambassador's premise, however, saying that the high 
costs of new drugs are the primary cost driver. 
 
6. (SBU) DPM Han noted that the Korean government also plans 
to introduce supplementary private health insurance designed 
to cover costs not covered by the national plan.  This 
optional coverage could include costs for drugs not included 
on the positive list. 
 
7. (SBU) The Ambassador reiterated our serious disappointment 
and disagreement with the MHW reform plan, and expressed 
regret that Han was not willing to reconsider the proposal. 
He emphasised that the United States views the plan as a 
breach of faith that will complicate the upcoming KORUS FTA 
negotiations.  He also noted that the MHW proposal would do a 
disservice to Korean patients by restricting their access to 
new and innovative drugs.  Han responded that such an 
argument may have merit, but needs to be carried out by 
Koreans amongst themselves.  He added that Korea cannot wait 
until all its FTAs are completed before making necessary 
reforms.  He opined that it was in fact better to get the 
reform over with, and negotiate based on the new situation, 
rather that negotiate on something that had to change 
eventually in any case. 
 
BROADER FTA ISSUES 
------------------ 
 
8. (SBU) Han assured the Ambassador that he and other cabinet 
officials would continue to speak out in favor of KORUS FTA. 
He emphasized that President Roh remains "firmly committed" 
to pursuing the FTA, and is convinced that the pact is 
necessary to raise Korea's competitiveness.  The Ambassador 
asked about Han's view of the U.S. FTA texts and whether Han 
saw any particular issues with our drafts.  Han replied that 
our demand related to the elimination of certain taxes on 
automobiles is "far too ambitious," and would cut Korean 
government revenue too much.  He asked if taxes are really 
the reason why U.S. autos do not sell well in the Korean 
market, pointing out that, overall, imports are doing quite 
well in recent years as measured by sales value (rather than 
number of units). 
 
VERSHBOW