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Cablegate: Gsp/Ipr: Brazil's Emerging Initiatives

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
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

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