BRAZILIAN INFORMATICS and the UNITED STATES: DEFENDING INFANT INDUSTRY vs. OPENING FOREIGN MARKETS
The writer of this work is assuming the position of a team member on a team of advisors to the Brazilian Ambassador Flecha de Lima. The goal specified within this scenario is to decide if the Ambassador should seek or protect more than one value and to outline them in descending order of priorities showing the order in which they should be sacrificed if trade-off provides inescapable. These trade-offs may be debatable and might have to be revised however, the writer of this work will use the best possible judgment in making these determinations. Questions to be answered are the following:
Is the situation distributive or integrative?
As of September 1983, was it possible to change the situation and make both better off?
Who are the main parties?
What main issues are likely to be on the agenda?
What is our best alternative to opening negotiation or to accepting the offer on the table?
6) What is their best alternative to an agreement with U.S. right now?
7) What would breakdown mean to them?
8) What incentives do they have to reach agreements?
I. The ISSUE
Brazilian president Jose Sarney dealt with quite a dilemma five months into his first term as president in the form of an American investigation into the Brazilian computer industry’s activities. This order came under the authority of Section 301 of the U.S. Trade Act 1974 which enabled the imposing of penalties of a retaliatory nature on exports from Brazil to the U.S. If was determined that there had been unjustifiable or unreasonable import restrictions on or other policies had been set up that were damaging to the commerce of the United States.
Brazil and the United States ran into trouble in their trade relations in the early 1980s because U.S. firms invented new technologies yet they were excluded from selling the products and did not even receive payment of fees for the technology lending to the view that this was “sheer piracy.” The question asked by on U.S. official was “whether Brazil is developing its own technology or is it merely learning how to copy.” (Odell and Dibble, 1992) Informatics in Brazil had become a distributive process in that conflicting goals existed and the profits were being realized overwhelmingly by Brazil as compared to the U.S. In 1984 the Informatives law in Brazil which had the provisions of:
1) state authorization to continue the market reserve for eight years until 1992 granting national firms exclusive rights to engage in informatics activities;
2) Broad definition applied to informatics activities included development, production and sale of electronic components, optical electronic products, their electronic inputs and machines and devices based on digital techniques and Article 2 made the provision for the continual adjustment of the informatics process to the needs of Brazilian society.
Considerations in this dilemma include the following:
Brazil is anti-communist and Brazil had historically been an ally to the U.S.
The U.S. is of more importance in trade to Brazil than vice-versa.
The principle foreign policy goals of Brazil in regards to the U.S. were the attraction of military aid, financial support and private investment and to maintain an open market for Brazil’s exports.
II. STRATEGIES for NEGOTATION of the DILEMMA
There were mixed feelings by U.S. computer companies in their assessment of the law’s impact. Brazil was viewed as a “great potential market” by all U.S. computer companies. One U.S. official noted that the primary objective of the law and Brazil’s investment policies was to push U.S. computer companies out of the market. Things worsened in 1984 and IBM filed several lawsuits in the courts of Brazil that alleged infringement of copyright on PC software and hardware however “to no avail.” (Odell and Dibble, 1992) While U.S. exports were falling and the trade deficit growing “free competition…was not a problem, but a good long-term policy for the U.S. According to President Reagan, diplomats understood the common interests including “its international debt problem, the pain the debt was causing Brazilians and the possible threat it posed to U.S.S. banks. On the other hand, Brazil stood out as one of the largest markets in the developing world and one of the most influential leaders among developing countries as a group” (Odell and Dibble, 1992)
What had occurred is that Brazil was essentially talking out both sides of its mouth because when it came to shoes the U.S. had been lectured by Brazil “on the law of comparative advantage, saying that the U.S. should move its workers out of declining industries and into others. However. The U.S. allowed decline of its shoe industry and moved workers into electronics and Brazil shut out U.S. products. Brazil was tapped as a nation of terrible trade policies and an investigation ordered by then President Ronald Reagan and the Brazilians reacted with “hot fury” (Odell and Dibble, 1992). Because the situation was so overwhelmingly unfair and in the favor of Brazil it was decided by President Reagan that the issue had to be tackled head-on.
The best alternative at this point was for Brazil to open negotiations and this is precisely what occurred however it appeared that Brazil was merely using stall tactics and yet the Brazilians needed to export their products because they had a terribly high debt that had to be paid to the U.S. Banks. It is obvious that President Reagan understood that the U.S. held the trump card in this situation.
In 1986 the Democrats brought a trade bill to the floor of the House of Representatives which was passed. At this point a new tone was set and Brazil was informed that there would be no changes in the law, no deadlines, no threats of reprisals… And the situation was thus altered and negotiations once again ensued over the informatics issue. At least however, the distributive situation had become integrative because now both sides to this issue had a full grasp of what they might lose if negotiations did not go well.
The U.S. companies had great incentives to reach some type of agreement because some companies, for example IBM counted on Brazil for approximately forty-percent of its exports. While retaliation was the battle cry by many companies the president of the computer manufacturers association (CBEMA) said while the software bill of Brazil was “unacceptable” the worse possible move by the U.S. Government was retaliation against Brazil. The U.S. was unaccepting of the state of affairs in relation to two of the primary objectives:
1) Investment liberalization and 2) Improved protection of intellectual property rights. (Odell and Dibble, 1992)
By February 1987 the Brazilian government had fallen into deep political upheaval and particularly in light of trade and Brazilian computers products grew rapidly however, the prices of Brazilian computer products was 2.5 to 3 times that which could be procured in the form of imports. In June 1987 Apple Computer accused a Brazilian firm of technology pirating and cloning of its Macintosh computer. Washington made a decision to retaliate if the software bill was not passed by Brazil’s Congress.
The software bill passed but the legal import of MS-DOS software was rejected by the SEI and Reagan ordered retaliation. The plan was to ban all Brazilian computer product imports and to raise tariffs by 100%. Finally in January 1988 the SEI’s decision was reversed and Washington was called on by the Group of Thirty to cancel the retaliation order comparing going ahead with the retaliation to ‘throwing a nuclear bomb after having won the war.” (Odell and Dibble, 1992) February 29 it was announced that the sanctions were postponed.
III. POSSIBLE TRADEOFFS
The government of Brazil stalled for as long as was possible in regards to the informatics dilemma and since its products were inferior and the prices two to three times higher than superior computer products, Brazil had more to lose than to gain in refusing to negotiate the informatics issue with the United States. There were hundreds of thousands of jobs that were at stake if the U.S. imposed trade sanctions on Brazil. Because Brazil’s trade barriers to U.S. informatics products was so blaringly in violation of international trade rules and was of the nature that justified retaliation Brazil was faced with the loss of lucrative markets abroad that they had worked many years to build. Shoe manufacturers employed 700,000 workers while the computer industries only provided 40,000 jobs and exported practically nothing. Therefore, Brazil had everything to lose and little to gain in refusing negotiations of this matter.
The United States took every opportunity to gently lead Brazil toward reducing and mitigating the trade barriers which appear to be quite intentional and heavily one-sided in terms of the benefits derived however, when the economy in Brazil showed signs of weakening and then inflation took hold, President Reagan understood that this was the time to move and indeed Brazil responded accordingly.
Odell, John and Dibble, Anne (1992) Brazilian Informatics and the United States: Defending Infant Industry vs. Opening Foreign Markets. Institute for the Study of Diplomacy.