(Adds more USTR comment, background, byline)

By Doug Palmer

WASHINGTON, April 30 (Reuters) - The United States criticized Thailand on Monday for steps it took to override patents of two HIV/AIDS drugs, but stopped short of threatening action at the World Trade Organization.

The U.S. Trade Representative's office, in an annual report on how well countries protect U.S. intellectual property rights, said it was elevating Thailand to its "priority watch list" because of an "overall deterioration in the protection and enforcement" of intellectual property rights there.

"In late 2006 and early 2007, there were further indications of a weakening of respect for patents, as the Thai Government announced decisions to issue compulsory licenses for several patented pharmaceutical products," the USTR said.

The Doha declaration adopted by WTO members in November 2001 reaffirmed that countries have some flexbility under international trade rules to ensure their populations have access to life-saving medicines.

Those include compulsory licenses requiring drug patent holders to allow others to produce their drugs.

"While the United States acknowledged a country's ability to issue such licenses in accordance with WTO rules, the lack of transparency and due process exhibited in Thailand represents a serious concern," the USTR said.

Victoria Espinel, assistant U.S. trade representative for intellectual property, told reporters the United States' concern stemmed from compulsory licenses issued by Thailand for two HIV/AIDS drugs and one heart medication.

Espinel refused to say whether the United States believed Bangkok's actions violated WTO rules and also would not comment on any future steps Washington could take.

Shortly after Prime Minister Thaksin Shinawatra was ousted last September, Thailand declared compulsory licenses to make or buy generic equivalents of an AIDS drug owned by Merck & Co <MRK.N>. Then it overrode patents on another AIDS drug owned by Abbott Laboratories <ABBT.KA> and a heart disease drug owned by Sanofi-Aventis <SASY.PA>, prompting an outcry from the companies and praise from HIV patient rights groups.

Abbott has been criticized for the high prices of its AIDS drugs in developing countries and the company initially said it would stop launching new drugs in Thailand to protest the Thai government's decision override drug patents.

Last week, Abbott offered to sell a new heat-stable form of an AIDS drug in Thailand for $1,000 per patient per year, matching an offer it made earlier in the month to about 40 low- and middle-income countries.

The drug patent issue is just one of the many reasons the United States decided to put Thailand on its priority watch list this year along with 11 other countries, Espinel said.

Thailand's copyright legislation and trademark rules need to be strengthened and "very serious enforcement concerns have existed for some time and don't appear to be getting any better," Espinel said.

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