Trade Battle With Brazil Threatens U.S. Copyrights

Angered by subsidies to U.S. cotton growers, Brazilian lawmakers said Thursday that they were considering suspending the intellectual property rights of American products in their country if the U.S. government did not explain how it intended to change subsidy programs by July 1.

The deadline was set earlier this year by the World Trade Organization, which found that U.S. assistance to cotton farmers distorted world prices by encouraging overproduction. If implemented, Brazil’s plan would negatively affect a range of U.S. industries including entertainment, software and pharmaceuticals.

“Essentially, the Brazilian position would be, ‘We’re going to have state-sanctioned piracy,’ ” said Neil Turkewitz, an executive vice president of the Recording Industry Assn. of America, the music industry’s largest trade and lobbying group.

Although it’s not unusual for nations to slap high tariffs on a marketbasket of goods as retaliation in trade disputes, sanctioning the copying of one country’s products is unconventional and possibly illegal, trade officials said. At the minimum, the move would require a new law in Brazil and WTO approval, they said. The plan was the topic of a legislative committee meeting in Brasilia, the nation’s capital, Thursday.

Richard Mills, a spokesman for U.S. Trade Representative Rob Portman, called talk of Brazilian action premature. “We intend to comply so there will not be any need for retaliation,” he said.

U.S. cotton farmers received $1.6 billion in federal subsidies last year, with California growers getting $144 million, according to Environmental Working Group, a Washington-based nonprofit that tracks the data.

Brazil’s proposed strategy is designed to draw Hollywood, Silicon Valley and the pharmaceutical industry into the trade battle, said Pedro de Comargo Neto, head of a large farm organization and a former trade official who oversaw the nation’s successful challenge of U.S. cotton payments.

“We want other parties in the United States to understand that what the cotton lobby is doing is not in their interest,” Comargo said Thursday.

Rather than enlisting allies, the strategy could have the opposite effect.

Any Brazilian move against U.S. copyrights or patents probably would draw retaliation from the U.S. government on key Brazilian exports, said Dan Glickman, chief executive of the Motion Picture Assn. of America and Agriculture secretary during the Clinton administration.

“They sell a lot of airplanes in the U.S.,” Glickman said, referring to commuter aircraft maker Embraer. “This could become a pretty serious tit-for-tat trade dispute.”

A trade war would be the last thing Brazil wants, said Alan Tonelson, a trade expert at the U.S. Business & Industry Council in Washington. “They need the U.S. market far more than we need them,” he said.

Brazil is the U.S.’ largest trading partner in South America and ranks 14th overall, according to the World Institute for Strategic Economic Research. About $35 billion of trade occurs between the two nations each year.

Ordinarily, Brazil would raise tariffs on U.S. goods, the typical WTO-sanctioned remedy for getting nations to comply with the trade body’s rulings. But such a strategy is rarely effective and only raises the price Brazilian consumers pay for imported U.S. products, Comargo said.

Entertainment and software products are especially tempting targets because of the ease with which they can be copied. Piracy of music and movies is already a big problem for U.S. entertainment companies in Brazil, accounting for as much as 60% of the market. According to the U.S. trade representative’s office, American companies lost nearly $1 billion last year from copyright infringement in Brazil.

Nonetheless, Brazilians see economic and social advantages to easing copyright and patent restrictions. Making generic versions of drugs that fight HIV infection and other maladies is attractive because it serves a social value and reduces Brazil’s healthcare expenses, said Brazilian congressman Fernando Gabeira, a member of the Chamber of Deputies’ committee that took up the issue Thursday.

Allowing the copying of U.S. goods is meant to provide Brazil with leverage to overcome foot dragging in Washington caused by the powerful influence of the cotton industry lobby, Comargo said.

In March, the WTO told the U.S. to change a system that subsidizes cotton sales to fabric mills and exporters when the domestic price exceeds the prevailing world rate. Over the last decade the U.S. has paid out more than $2.4 billion in such so-called Step 2 payments, according to the Environmental Working Group.

Another program ruled in violation by the WTO provided guarantees to allow developing nations to purchase domestic cotton on favorable financial terms.

Brazilian officials are skeptical that the Bush administration can come up with a plan to trim payments to cotton farmers that will win approval in Congress. They say the issue has seen little movement since the WTO decision in March. Federal farm subsidies have proved among the most resilient programs in Washington, surviving numerous domestic assaults and pressure from abroad.

“Even when they have the right, it is hard for poor countries to go against rich countries,” Gabeira said.

Times staff writer Jon Healey contributed to this report.

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King of cotton

Biggest cotton exporters, 2004-05 forecast

(In thousands of metric tons)

United States: 2,918

Uzbekistan: 729

Australia: 414

Brazil: 392

Greece: 250

Mali: 212

Burkina Faso: 201

Source: U.S. Department of Agriculture

Los Angeles Times