Protected Computer Firms Is Issue : U.S. and Brazil in Trade Dispute
Brazilian leaders are bristling over Washington’s threat to impose economic sanctions to punish this South American nation for its heavily protected computer industry.
They see it as an attempt to keep the country from entering the 21st Century. Computers, national pride and billions of dollars are at issue in what the Reagan Administration sees as unfair protectionism by Latin America’s most industrialized nation.
Washington sent Deputy Secretary of State John Whitehead to Brasilia last month to explain why President Reagan may impose economic sanctions to punish Brazil for barring foreign companies from participation in its fast-growing $2.3 billion a year computer industry.
Angry Brazilian senators introduced retaliatory legislation that would limit profits sent back to the United States and do away with investment and tax benefits.
The diplomatic dispute Brazil is waging with its most important trading partner began in 1977 when the former military government, citing national security, forbade importation of mini- and micro-computers and components. It was determined to create a home grown computer industry and foreign companies were allowed to produce only main-frame computers.
Policy Extended
The 1984 Informatics Law, approved by Congress as Brazil was returning to democratic rule, has extended the policy through 1992.
Of the nine information technology companies operating in Brazil in 1977, six were foreign and dominated 98.2% of the market, Science and Technology minister Renato Archer said in an interview.
Despite a recession that crippled many other industries, the informatics sector thrived, growing at least 15% a year. By 1985, there were 274 Brazilian firms and 27 foreign firms involved in informatics. The market jumped from sales of $200 million a year to $2.3 billion in 1985. Sales are expected to exceed $3 billion this year.
Although Brazil imports about $600 million a year in silicon chips, semiconductors and software not yet produced in the country--and untold millions in smuggled IBM PC’s and Apple computers--the U.S. computer industry estimates that it lost $1.5 billion in exports from 1980 to 1984 because of Brazilian protectionism.
Last September, Reagan warned Brazil that Section 301 of the 1984 Trade Act allows him to impose trade sanctions on countries that unfairly keep out American products or investment. A trade advisory group has until June 25 to present Reagan with a list of possible sanctions. A presidential decision is expected in early September.
“It is possible that under our laws the government might adopt retaliations, and it is possible that our Congress might pass laws that would harm our trade with Brazil,” Whitehead said after meeting with Brazilian President Jose Sarney.
“I do not think, however, that either of those two results are likely. I think we are now on the path towards resolving this in a friendly, cooperative way that will benefit both countries,” he said.
Although Washington does not expect Brazil to allow American companies to compete in the small-computer area, it wants the Brazilian government to explain exactly what can be exported to Brazil.
Some Brazilian politicians concede that the law is too broad.
“The Brazilian definition of informatics is absurd,” said Sen. Roberto Campos, the law’s most outspoken critic. “Anything that contains a chip--pacemakers, medical equipment, singing Teddy bears--is included. They have created a monster, and the result is that it is impossible to do business with Brazil today because everything is classified as informatics.”
The Americans also would like to see joint ventures between U.S. and Brazilian companies. Such ventures are permitted only if the foreign partner transfers all technology and agrees to contribute a maximum of 30% of the operating capital without any voting rights. No joint venture proposals have been approved.
Risks Falling Behind
Critics argue such restrictions mean the country is losing an important source of development capital needed for costly computer ventures. And they say that Brazil, by insisting on developing its own technology, runs the risk of falling far behind other nations in the fast-changing industry.
At a recent Third World trade meeting in Brasilia, Sarney recognized that the trade tussle was part of Brazil’s growing pains. But he accused industrialized nations of withholding technology from developing nations.
“We want to guarantee our inalienable right to struggle to develop the new technologies that today are the driving force behind the industrial nations, so we can enter the post-industrial phase,” Sarney said.
