US embassy cable - 04BRASILIA2253

UNCLAS SECTION 01 OF 06 BRASILIA 002253 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/BSC, EB/TPP/MTA/IPC SWILSON 
STATE PASS TO USTR FOR SCRONIN, LYANG, BPECK 
USDOC FOR 
4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/DMCDO UGALL/DRSICOLL 
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO 
TREASURY FOR OASIA SEGAL 
NCS FOR DEMPSEY 
 
E.O. 12958: N/A 
TAGS: KIPR, ETRD, ECON, BR, Trade 
SUBJECT: GSP/IPR: BRAZIL'S EMERGING INITIATIVES 
 
REF: (A) BRASILIA 2150 (B) BRASILIA 2017 
 
1.  SENSITIVE BUT UNCLASSIFIED; PLEASE TREAT ACCORDINGLY 
 
2.  (U) The announcement on June 30, 2004 to extend review of 
the possible withdrawal of trade benefits from Brazil under 
the Generalized System of Preferences, and the closing of the 
Congressional Investigative Commission (CPI) on Piracy on 
August 11 (ref a) have heightened public debate and led to 
work on new GoB initiatives to combat piracy.  Below provides 
an overview.  While some of the initiatives are not fully 
formed, the information provides some sense of the direction 
in which the GoB is moving; details are expected to be 
revealed during the second meeting of the bilateral IPR 
Working Group September 9-10 in Washington (ref b). 
 
National Council for the Defense of Intellectual Property and 
the Fight Against Piracy 
 
3. (U) In a formal ceremony on August 12, Deputy Medeiros led 
the CPI on Piracy in presenting the Commission's final report 
to President Lula, who was flanked by Minister of Political 
Coordination, Aldo Rebelo, and Minister of Justice Marcio 
Bastos.  President Lula did not speak, but Minister Bastos 
used the occasion to announce the first of the GoB 
initiatives flowing from the CPI report, formation of a 
public-private sector National Council for the Defense of 
Intellectual Property and for the Fight Against Piracy. 
Deputy Medeiros has reportedly been working closely with the 
private sector and the Ministry of Justice on drafting the 
decree to establish the Council.   (Note: During an 
Information Technology forum in Sao Paulo August 10, a 
private sector contact told Consulate Econoff of the upcoming 
announcement and claimed the GoB was expediting establishment 
of the Council out of concern over the potential loss of GSP 
trade benefits.)  See para 16 for an unofficial Embassy 
translation of the decree's initial draft. 
 
4. (SBU) Although the decree is not yet final, Ambassador 
Portella, Bastos's International Advisor, told Econoff in a 
meeting on August 23 he expected President Lula to sign it by 
the September 9-10 IPR Working Group meeting.  He said the 
final decree would not vary greatly in substance from the 
initial draft, the main hold-up being related to a mechanism 
for selecting private sector participants.  According to 
Portella, the new Council represents a significant 
improvement over the ineffectual Inter-ministerial Committee 
on Piracy, which will be dissolved with the Council's 
formation.  He claimed that to ensure clout, the rank of 
council members would be significantly higher, probably from 
within the first or second rung below minister; Committee 
members hailed only from the working-level. 
 
5. (SBU) In contrast to the Committee's many-paged, vague 
workplan, Portella also said the Council's work will be much 
more focused.  The decree directs the Council specifically 
to: elaborate a national policy for defending intellectual 
piracy and fighting piracy; create and maintain a national 
database, integrated into the Unified Public Security System 
for better coordinating enforcement at the federal, state and 
local levels; and propose specific enforcement actions, 
including special operations and investigations, and 
mechanisms for more effectively combating piracy.  He also 
noted private sector participation within the Council as an 
improvement; the draft decree provided for three civil 
society representatives, but private sector has been lobbying 
the Ministry to increase the number of seats to five.  (Note: 
At Deputy Medeiros' urging, on August 30, representatives of 
copyright industries -- audiovisual, music, software, books 
and the Institute for Ethical Competition -- formed the 
Permanent Forum of Entities in Defense of Intellectual 
Property, Combat of Piracy, Contraband, and Tax Evasion, 
which they hope will be the forum for selecting the private 
sector representatives to participate in the Council.) 
 
Mercosul Coordination 
 
6. (SBU) During the first IPR Working Group meeting in Rio de 
Janeiro August 5, GoB officials asserted that domestic action 
alone could not curb piracy given the magnitude of contraband 
flowing into Brazil from its neighbors (ref b).  At that 
time, they noted GoB plans to press for regional action by 
interjecting discussions on piracy into Mercosul 
deliberations during Brazil's time as the group's president 
pro tempore.  Following though on this, piracy and the search 
for collaborative efforts to address the problem region-wide 
are being discussed as part of a Mercosul (plus Associate 
Members) meeting September 1-3 in Manaus, Brazil of officials 
from Interior and Justice Ministries and Customs services. 
The group is charged with developing concrete actions for 
approval during a Ministerial slated to take place November 
19 in Brasilia. 
 
Paraguay 
 
7. (SBU) Cooperation within Mercosul will probably focus on 
bilateral projects with Paraguay.  According to Ernani 
Checcucci, Coordinator General of the Customs Administration 
within the Ministry of Finance, there have been bilateral 
initiatives in the past, but that effort is being stepped-up. 
 The GoB is considering changes to the "free customs transit" 
which provides inspection-free transit for containers passing 
through Brazilian territory from the Brazilian Port of 
Paranagua to the Paraguayan border.  Initially agreed to 
provide port access to Paraguayan exporters, this open 
channel has turned into a major corridor for merchandise 
moving into Paraguay for future smuggling into Brazil via the 
mass movement of trucks, buses and motorcycles over the 
Friendship Bridge linking Ciudad del Este in (P) and Foz do 
Iguacu (B).  Portella noted that the volume of virgin CDs 
moving through this corridor far exceeds Paraguayan 
consumption, leading the GoB to conclude that they are 
destined for illegal transport into Brazil. 
 
8. (SBU) On August 26, during a visit to Brasilia of 
Paraguayan President Nicanor Duarte, President Lula directed 
his economic team to within 30 days find a formula for 
financially assisting Paraguay to the tune of $25 million to 
$55 million for social dislocation (unemployment) associated 
with bilateral projects for fighting piracy.  In an August 30 
conversation with Econoff, Checcucci said the GoB is 
cognizant of the potentially explosive social reaction in 
Ciudad del Este should there be an immediate, severe clamp 
down on piracy and smuggling.  He explained that the GoB's 
goal is to work with Paraguay to "formalize" the Ciudad del 
Este economy, moving people away from smuggling toward legal 
commerce. 
 
Customs 
 
9. (U) Brazil's Customs service has an array of projects 
underway to improve its ability to control commerce moving 
across the border.  These have principally been prompted by 
USG security requirements post-9/11 and by GoB interest in 
improving the collection of import duties, but many serve 
anti-piracy interests as well.   According to Checcucci, the 
initiatives can be grouped roughly into three categories: (1) 
combat contraband, smuggling, and piracy; (2) regularize the 
assessment of duties and combat trade fraud; and (3) 
negotiate international customs assistance and cooperation 
agreements.  For some of these initiatives, customs is still 
in the process of securing a GoB budgetary commitment, and in 
cases involving organizational changes, approval of the 
Planning Ministry.  Below is a sketch of the specific Customs 
initiatives and their expected timelines within each category. 
 
1. Combat contraband, smuggling, and piracy 
1) Establishment of a National Plan for Customs Security 
(2004-2007); 
2) Establishment of a computerized system for declarations 
and movement of cargo (Siscomex for Ports) (2004-2005) 
(enhances 1997 Siscomex trade flow registration system); 
3) Establishment of a Computerized System for Control of 
International Passengers (2004); 
4) Restructuring of physical facilities, automation of 
transit controls, and separation of traffic across the 
International Friendship Bridge (Foz do Iguacu-Ciudad del 
Este (2005-2006); 
5) Creation of specialized enforcement customs units. (These 
specialized units would operate in the interior of the 
country; customs already has the authority to seize goods 
smuggled into the country.) 
 
2. Regularize the assessment of duties and combating trade 
fraud 
1) Creating Program for Fiscal Regularization: sets up a 
system whereby established trade operators may register with 
the service and once establishing legitimacy become eligible 
for a speedier customs clearance process (enabling Customs to 
focus efforts on more questionable movements) ; 
2) Establishment of a computerized system for risk assessment 
and inspection selection (2004); incorporation of artificial 
intelligence software into the computerized system to enhance 
its operation (2005-2007); 
3) Taking customs documents on-line (2004-2006); 
4) Second phase of Siscomex integration with the addition of 
information from state finance authorities (2005); 
5) Combat against customs fraud: registration of foreign 
suppliers (electronic invoices); establish process for 
official investigation on import valuation -- requires 
legislation (2004-2005). 
 
3. Negotiate international customs assistance and cooperation 
agreements 
1) Conclusion of bilateral customs agreements (2004-2007). 
Target countries: China, South Korea, Taiwan, Hong Kong, 
India, Italy, Germany, Israel and Bolivia. 
2) Integration of other countries' electronic customs systems 
into Siscomex:  Phase I (tests): Argentina and Paraguay; 
Phase II: Other South American countries (2004-2007); 
Phase III: Others. 
 
10. (U) To justify the expenditure of additional resources 
for its initiatives, Customs claims these projects will 
result in substantial savings for the government.  They 
estimate that the first activity (combating contraband, 
smuggling and piracy) would yield an annual rate of return of 
490 percent; the second (regularizing the assessment of 
duties and combating trade fraud), would yield an even higher 
rate of return of 2,854 percent. 
 
Agreement with Interpol 
 
11. (SBU) Following a presentation by John Newton of 
Interpol's IP Crime Unit during the Brazilian Intellectual 
Property Association's (ABPI) 24th National Seminar August 
18-19 in Brasilia, a private sector contact informed Econoff 
that the Ministry of Justice was working to form an agreement 
with Interpol for greater cooperation on piracy, including 
the stationing of a Federal Police officer in Lyon.  However, 
on August 23, Ambassador Portella could not confirm this. 
Public Debate 
12. (SBU) Less than a week after the CPI on Piracy concluded 
its work and presented a final report to President Lula, the 
ABPI hosted its two-day National Seminar on Intellectual 
Property.  With over 550 participants representing some 26 
countries, the seminar was a major platform for private 
sector and government debate.  What was striking was the 
consistent message from presenters -- for Brazil to attain 
its economic development goals, as a government and as a 
society it must protect intellectual property.  Broadly 
speaking, there were two elements to the argument: (1) 
sustainable economic development will to a large extent 
depend on creativity and technological innovation, which in 
turn requires a system in which intellectual property rights 
are assured; and (2) the economic informality and the 
pervasive crime, both street and organized, associated with 
piracy endangers the country's economic base and foundation 
on the rule of law, creating an untenable basis for economic 
development. 
 
Government Reaction 
 
13. (SBU) A notable exception was the more defensive posture 
presented by Brazil's Ambassador to Geneva Luiz Felipe de 
Seixas Correa and the Foreign Ministry's Director for 
International Trade Negotiations Ambassador Regis Arslanian; 
both said IPR interests  principally belong to developed 
countries.  Seixas Correa for instance stated categorically 
that TRIPs had hurt developing countries, although he quickly 
added that Brazil is not seeking to secede from the 
Agreement.  Arslanian portrayed IPR as one, if not the, 
stumbling block in Mercosul negotiations with the EU and 
United States.  In particular, he complained that the EU and 
U.S. are unreasonably pressing resource-strapped Mercosul to 
commit to a 100 percent enforcement rate.  Interestingly, 
neither mentioned the GSP/IPR review. 
 
14.  (SBU) Certain private sector contacts have also noted 
that their Ministry of Justice and Customs interlocutors are 
displaying much more interest and earnestness in discussing 
new initiatives for combating piracy than the Foreign 
Ministry, the one responsible for compliance with 
international obligations.  It may be that the former 
institutions welcome the focus that the CPI report, and even 
the GSP review, provide to the issue, helping them justify 
additional resources and gain political backing for 
undertakings they independently deem as important, whether it 
is improved duty collection or tools for better fighting 
organized crime. 
 
15. (SBU) Despite institutional wariness on the subject, the 
Foreign Ministry members of the IPR Working Group have by all 
accounts been diligently assembling what they view as a 
comprehensive report of GoB efforts to combat piracy, which 
they will present during the September 9-10 meetings in 
Washington.  This report, which is being translated into 
English, will focus on activities over the last year.  In a 
converstaion with Econoff September 3, Otavio Brandelli and 
Henrique Moraes of the Ministry's IPR Division said there is 
some concern that the Council decree will not be final by the 
meeting date, raising a question about whether or not they 
will provide the written text at that time or later, once 
information on the decree is available.  In any case, they 
plan to present whatever information is currently available. 
 
16.  (U) Unofficial Embassy translation: 
 
Decree no. of July    , 2004 
Regulates Creation of the National Council for the Defense of 
Intellectual Property and the Fight Against Piracy 
 
The President of the Republic, using the authority vested in 
him by art. 84, item IV of the Federal Constitution, 
 
DECREES 
 
Article 1: Creates the National Council for the Defense of 
Intellectual Property and Fight against Piracy, organ of 
collective deliberation, mixed composition, reporting to the 
Ministry of Justice. 
 
Article 2: The Council has the objective of elaborating 
proposals and structuring a national policy for the defense 
of intellectual property and the fight against piracy as well 
as: 
 
I - study the phenomenon of piracy and propose effective 
measures to adequately confront the problem, as well as 
actions for the protection of intellectual property in Brazil; 
 
II - propose measures for the defense of intellectual 
property and the fight against piracy; 
 
III - create and maintain a national database on the subject, 
integrated into the Single System of Public Security (SUSP); 
 
IV - study and support measures for the introduction of the 
fight against piracy to the States of the Federation by means 
of the Unified Public Security System (SUSP); 
 
V- encourage and support planning of special operations and 
investigations; 
 
VI - suggest mechanisms to combat the entrance of illegal 
products and control the entry of legal products that can be 
used in the practice of piracy; 
 
VII - suggest specific inspections in ports, airports, 
borders and Brazilian roadways; 
 
VIII - encourage and promote the training of public agents 
involved in operations and processing of information related 
to piracy; 
 
IX - prepare statistical data with the objective of 
establishing efficient mechanisms for prevention and fight 
against piracy; and 
 
X - encourage or coordinate educational campaigns about the 
defense of intellectual property and the fight against piracy. 
 
Article 3: The Council will consist of the following: 
 
I   One representative from the Ministry of Justice; 
II  One representative from the Ministry of Finance; 
III One representative from the Ministry of Foreign Affairs; 
IV One representative from the Ministry of Development, 
Industry and Foreign Commerce; 
V  One representative from the Ministry of Culture; 
VI  One representative from the Ministry of Science and 
Technology; 
VII  Two representatives named by the National Congress; 
VIII Three representative from civil society, chosen from 
organizations involved in the defense of intellectual 
property and the fight against piracy, chosen by the State 
Minister of Justice; 
IX One representative from the Federal Public Ministry 
Sole Paragraph.  Each organ mentioned in this article should 
determine members and substitutes who will be named to the 
Council by the State Ministry of Justice. 
 
Article 4: The Council will have an executive secretary with 
responsibility for promoting government coordination for 
planning and action for the protection of intellectual 
property and the fight against piracy. 
 
Sole paragraph.  The Executive Secretary of the Council will 
be named by the State Minister of Justice and will have 
duties set forth in the regulations. 
 
Article 5: The Ministry of Justice, through the National 
Public Security Secretary will provide technical and 
administrative support necessary for the functioning of the 
Council. 
 
Article 6: The members of the Council will not receive pay 
and their work will be considered relevant public service. 
 
Article 7: The Interministerial Committee for Combating 
Piracy created by the March 13, 2001 Decree no longer exists. 
 
Art. 8 This Decree goes into effect on the date of its 
publication, revoking the Decree of March 13, 2001. 
 
Brasilia,      of      , 2004.  183rd of Independence and 
114th of the Republic. 
 
End unofficial translation. 
Danilovich