US embassy cable - 04BRASILIA2557

UNCLAS SECTION 01 OF 03 BRASILIA 002557 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/BSC, EB/TPP/MTA/IPC, EB/TPP/BTA 
STATE PASS TO USTR FOR PALLGEIER, SCRONIN, LYANG, BPECK 
USDOC FOR 
4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSEN/MWARD /DRISCOLL 
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO 
TREASURY FOR OASIA SEGAL 
NSC FOR DEMPSEY 
JUSTICE FOR CCIPS-CMERRIAM 
 
E.O. 12958: N/A 
TAGS: ETRD, KIPR, BR, Trade 
SUBJECT: GSP/IPR: GOB MOVES IN RIGHT DIRECTION, BUT HAS NOT 
YET ARRIVED 
 
REF: BRASILIA 2526 (NOTAL) 
 
1.  SENSITIVE BUT UNCLASSIFIED, PLEASE TREAT ACCORDINGLY 
 
2. (SBU) Summary and Introduction.  Post offers the following 
thoughts as interagency deliberations proceed on review of 
Brazil's trade benefits under the Generalized System of 
Preferences (GSP) resulting from a petition filed by the 
International Intellectual Property Alliance (IIPA) that 
alleges the country provides inadequate copyright protection. 
 Post is not averse to removing GSP trade benefits from 
Brazil should it cease cooperating with the USG within the 
GSP/IPR review process and fail to follow through on 
substantive actions to combat piracy.  However, a number of 
positive developments have emerged during the bilateral 
consultative process stemming from the GSP review.  While 
insufficient to warrant a closure of the investigation, Post 
believes a move toward punitive action at this juncture would 
be counterproductive.  Post recommends that the GSP review be 
extended for a substantial period of time to encourage 
continued constructive engagement with the GoB on copyright 
enforcement, and to enable evaluation of the effectiveness of 
anti-piracy measures it has recently put into motion and its 
commitment for future action.  Post also proposes 
consideration of technical assistance, as warranted, to help 
the GoB advance its anti-piracy efforts.  End Summary and 
Introduction. 
 
Positive Developments 
---------------------------- 
 
3. (SBU) Work by Brazil's Congressional Investigative 
Committee (CPI) on Piracy, and extension of the USG's GSP 
review have compelled the GoB to focus attention and 
resources on fighting copyright piracy.  The CPI has been 
persuasive in arguing to the Executive Branch and public that 
the level of economic informality, crime, and tax evasion 
bred by piracy is crippling Brazil's development. It is 
finally starting to dawn on opinion leaders that piracy hurts 
Brazil even more than it does U.S. copyright industries.  The 
GSP review brought home potential negative international 
consequences of GoB inaction to stem the tide, but also 
presented an opportunity for the United States and Brazil to 
recast a typically contentious issue as one in which 
collaboration could bear fruit. 
 
4. (SBU) During the 90-day GSP review extension, which ended 
September 30, the GoB accelerated consideration and action on 
a number of recommendations included in the CPI's final 
report.  Most notable were formation of a public-private 
sector national council to combat piracy, and Mercosul 
deliberations, led by Brazil, on coordinating anti-piracy 
efforts region-wide.  (Note: The Presidential Palace issued a 
&medida provisoria8 to enable formation of the council 
within the Ministry of Justice, but the presidential decree 
establishing the council has not yet been signed.) The GOB 
has also conducted raids (admittedly, without coordination at 
the federal level and without bringing convictions) and 
continues to strengthen its border measures, for example, by 
blocking the free-customs transit of blank CD-ROM's through 
Paraguay and cracking down on buses smuggling cargo across 
the border. 
 
5. (SBU) A further positive development has been the 
empowerment of Brazilian government entities that 
institutionally share our interest in tougher IPR 
enforcement.  Through the CPI's efforts, agencies such as the 
Federal Police and Customs have gained greater stature within 
the administration for their roles in fighting piracy and 
smuggling, enhancing their ability to secure political and 
financial support for this effort.  Likewise, now that those 
agencies have opened lines of communication among themselves, 
coordinated action -- as opposed to efforts by individual 
ministries -- is becoming more the norm.  Interaction on a 
technical as well as political level in the bilateral IPR 
Working Group has opened additional channels for discourse 
between our two governments, undercutting the more 
antagonistic Foreign Ministry as the exclusive government 
interlocutor on IPR issues.  The make-up of the new council 
may also help bolster these like-minded agencies and 
ministries; it is being established as a permanent organ of 
the Ministry of Justice, headed by its Executive Secretary, 
and will include representatives of the Federal Police as 
well as private sector. 
 
Shortcomings 
----------------- 
 
6. (SBU) During the September 22 meeting of the Bilateral 
Consultative Mechanism (reftel), Ambassador Hugueney 
commented that he had been surprised at what the GoB had been 
able to accomplish in such a short time, implicitly 
acknowledging that the GSP threat had compelled the GoB to 
mobilize on the issue.  He claimed the GoB's actions 
represented a sincere and determined effort to address 
Brazil's piracy problem, and that this should be sufficient 
reason to close the investigation resulting from the 2001 
IIPA petition.  Embassy does not agree.  We believe that 
ninety days is too short a time to turnaround what has been 
for years a worsening piracy situation -- recent GoB actions 
represent only a start. 
 
7. (SBU) There still is no "national" policy or strategy for 
combating piracy and without one the prospect for 
significant, sustained improvement in copyright protection in 
Brazil is dim.  The GoB answer is the new council, which will 
explicitly be charged with shaping and implementing a 
national plan.  While there is plenty of room for skepticism 
concerning the council, given the inadequate performance of 
the lower level inter-ministerial committee formed in 2001, 
the context in which the council is being formed is quite 
different.  The scourge of piracy was not an issue in public 
debate in 2001, but the CPI has brought it front and center 
as an urgent domestic issue.  Furthermore, with six seats at 
the table, private sector participation in the Council should 
help ensure that its work is focused and relevant. 
 
Recommendations 
---------------------- 
 
8. (SBU) Despite Ambassador Hugueney's urgings, the situation 
on the ground has not improved sufficiently to warrant 
closure of the IIPA investigation.  But likewise, the 
constructive way in which the GoB has engaged on this issue 
and its initial efforts to address the problem, suggest the 
other extreme of removing GSP benefits from Brazil at this 
time is neither warranted nor wise.  Post believes our 
positive bilateral engagement on the issue would evaporate in 
a backlash against USG imposed norms should we act in a 
punitive way at this juncture.  The ensuing conflict would 
produce little of value with the bilateral dialog likely 
shifting from improving copyright protection to GoB efforts 
to fight the "unjust" removal of GSP benefits, including 
perhaps a protest in the WTO.  Although some industries would 
no doubt complain to the GoB about the loss of trade 
preferences, it is unlikely the commercial impact on Brazil 
would be sufficient enough to force a change in GoB policy. 
We believe the mere threat of removing benefits creates much 
more positive pressure for change than the actual removal of 
benefits. 
 
9. (SBU) Given the coincidence in timing of the CPI's efforts 
and our GSP review, we have a rare opportunity to make 
headway with the GoB on an extremely sensitive issue.  So far 
the bilateral dialog has been constructive; we should act to 
maintain this positive momentum by not escalating the issue 
at this time.  For now, Post recommends Washington agencies 
extend the review to enable the USG and U.S. copyright 
industries to gauge the effectiveness of recent GoB actions 
and its commitment to sustained anti-piracy efforts for the 
future.  The extension should provide the GoB with a 
reasonable amount of time for formation of the council and 
for its formulation and implementation of a national plan 
while preserving the "pressure" implied in an ongoing review. 
 Embassy believes six to nine months may be required to see 
tangible effects on piracy in the country.  If at the end of 
that we do not see sufficient progress on IPR enforcement, 
then it will be time to turn towards more coercive measures. 
We also recommend that consideration be given to offering 
technical assistance, as warranted, to help the GoB advance 
its anti-piracy efforts. 
Danilovich