Bonum Certa Men Certa

Cablegate: “The Free Software Movement is Building Support Within the Government of Brazil and Throughout Brazil”

Cablegate



Summary: The Government of Brazil (GoB) comes under US pressure and the increased adoption of Free software in the country is also being mentioned

TODAY's coverage of Brazil contains several "Sensitive" Cablegate cables. It is more of the same colonisation effort.



Argentina was put on the "watch list" as part of the attempt to change the laws there, making the country more receptive towards foreign monopolies. "Post recommends that Brazil remain on the Priority Watch List for the 2004 Special 301 Review," says the first cable that we present today, demonstrating the same approach of shame lists or the targeting of nations that step 'out of line'. "Lula administration has not yet developed a comprehensive national strategy for addressing the country's poor IPR enforcement, nor has it reduced the backlog of patent and trademark applications," complain the diplomats.

So?

Does a government become "bad" for not providing patent monopolies?

As the cables show, the US is trying to help Brazil change. A cable says that "Monteiro is most proud of the IPR introductory training course now required at the federal police academy and hopes to duplicate the success of this program in all police training curricula (civil and military)."

Further down there is a section titled "Patents - Talk but Little Action".

Recall what was done in Brazil for OOXML. The "IPR" card was being used to daemonise ODF, as cables revealed years after the act. Microsoft called it an "attack" on IPR.

The cable below speaks about copyrights as well, later on with a rant about "TRIPS Compliance and Related Issues" (we wrote about TRIPS before [1, 2, 3, 4]).

See ۦ6 which says: "In July 2003 President Lula signed a law amending the Brazilian criminal code with respect to copyright violations (ref L). The law increases the minimum penalty from one to two years' imprisonment, levies a fine and allows for improved seizure and destructions procedures for contraband. The law does not include increased sanctions for software infringement. The free software movement is building support within the GoB and throughout Brazil. GoB procurement regulations prohibit use of unlicensed software, according to Itamaraty officials, but no special decrees or directives exist to further encourage compliance with international standards of copyright protection."

And ۦ11 says: "In January 2004, Monsanto announced that it had reached an agreement with farmers from the Brazilian state of Rio Grande do Sul to receive remuneration for the use of Roundup Ready technology found in the company's soybean variety grown widely throughout the state. The GoB's position on biotechnology remains undecided, as the biotechnology bill is still under debate in Congress (ref D)."

Here goes the first cable.










UNCLAS SECTION 01 OF 03 BRASILIA 000445

SIPDIS

SENSITIVE

STATE FOR WHA/BSC AND EB/IPC WILSON COMMERCE FOR KSCHLEGELMILCH PLS PASS USTR BPECK, USPTO JURBAN/DLASHLEY-JOHNSON, AND LOC STEPP

E.O. 12958: N/A TAGS: KIPR [Intellectual Property Rights], ECON [Economic Conditions], ETRD [Foreign Trade], KCRM [Criminal Activity], PGOV [Internal Governmental Affairs], BR [Brazil], IPR & Biotech SUBJECT: BRAZIL - 2004 SPECIAL 301 RESPONSE

Refs: A) State 29549 B) Sao Paulo 276 C) Rio de Janeiro 128 D) Brasilia 313 E) Brasilia 222 F) Brasilia 202 G) 2003 Sao Paulo 2199 H) 2003 Brasilia 3868 I) 2003 Brasilia 3138 J) 2003 Brasilia 3122 K) 2003 Brasilia 2943 L) 2003 Sao Paulo 1186

SENSITIVE BUT UNCLASSIFIED, PROTECT ACCORDINGLY.

ۦ1. (SBU) Summary: Post recommends that Brazil remain on the Priority Watch List for the 2004 Special 301 Review. Despite several positive developments, including tougher penalties for copyright infractions and increased (but isolated) police action against copyright theft, the Lula administration has not yet developed a comprehensive national strategy for addressing the country's poor IPR enforcement, nor has it reduced the backlog of patent and trademark applications. Several signs suggest that substantial progress is in the offing, but to date there has been little concrete improvement in Brazil's enforcement record. Widespread recognition of the harm caused by IPR abuse to Brazilian artists, tax revenues, and technological progress/industrial development has increased, due in part to successful public awareness campaigns launched by both the private and public sectors. The federal government has incorporated intellectual property regime improvements in its 2004-2007 Pluriannual Plan, and the formation of a Commission of Parliamentary Inquiry (CPI) and a permanent Caucus (Frente Parlamentar) on the issue of piracy and tax evasion in Brazil's Congress has generated much positive momentum. Leaving unaltered Brazil's Special 301 status while recognizing the progress it has made would send the clear signal that its continued poor IPR enforcement is a significant bilateral concern, but not damage the efforts of those within Brazil who seek tangible improvement. End summary.

Copyright Piracy - Positive Strides But Piracy Still Rampant

ۦ2. (SBU) Several of the industry Special 301 submissions welcome the increased interest in piracy and tax evasion generated in the Brazilian Congress in 2003. The Chamber of Deputies' Piracy CPI and the spin-off permanent Caucus may well represent the best hope for national-level action to improve copyright enforcement. As IIPA's submission suggests, the CPI's final report due in June will include several private sector generated action proposals for the federal government that should substantially remedy the lack of concrete coordinated action against piracy. While the issue gains prominence, the crime continues unabated. Special piracy task forces or police units in some Brazilian states and municipalities have produced enforcement successes and worked cooperatively with the CPI to make some high-profile arrests (refs E, G, H, I, K). These encouraging but isolated foci of activity are not coordinated and exist despite the Administration's failure to formulate a national strategy.

ۦ3. (SBU) The administration's Inter-ministerial Committee to Fight Piracy (IMC) met 11 times during its first year under the leadership of former federal police official Clovis Monteiro da Silva, but was bogged down in the bureaucracy of transition to the new Lula administration for much of the first half of 2003. Residing in the Ministry of Justice, the IMC continues to disappoint most with its lack of vision in addressing the fight against piracy. One member of the committee told econoff recently that the IMC has lots of great ideas but no authority or resources to implement them. Monteiro notes that the IMC still suffers from insufficient funds to accomplish its mission, and some ambitious 2003 plans, such as a Mercosul IPR conference, had to be postponed.

ۦ4. (SBU) Ref B notes Brazil-based industry representatives' assessment of the IMC as largely ineffective, but several of the committee's actions in 2003 deserve mention. Monteiro is most proud of the IPR introductory training course now required at the federal police academy and hopes to duplicate the success of this program in all police training curricula (civil and military). The public awareness campaign initiated in 2003 with radio, billboards and isolated television spots in a few cities will be expanded nationwide to include anti-piracy movie trailers. Monteiro insists that the educating role of the IMC is significantly undervalued, and that in the long-term, this effort will reduce piracy. He admits that the IMC would gain from improved self-promotion and publicity to inform the interested public of its activities and accomplishments. According to Monteiro, the Committee's role of coordinating action within the Federal government, including with the police and customs officials where true enforcement takes place, is difficult to appreciate, but he believes that the growing recognition of the scope of Brazil's piracy problem is due to the quiet, consistent work of the Committee. There wouldn't be a CPI on piracy if the IMC did not exist, he told econoff.

ۦ5. (SBU) The IMC and the Federal Police are developing a database of piracy actions that will be accessible by federal, state civil and military police. This effort entails modifying an existing crime database to include crimes related to piracy. The IMC has not yet finalized its 2004 action plan, which is to be included in the National Public Security Plan, but held its first meeting of the year on February 19. Monteiro plans to focus on widening the public awareness campaign and strengthening ties within Mercosul and with WIPO. The IMC will also be studying changes to the legislation that created the Committee to strengthen its powers and expand its jurisdiction. Contrasted with the CPI's warm and cooperative relationship with the private sector, the IMC appears to regard the industry associations with a certain suspicion, particularly concerning industry statistics on damages caused by piracy -- which the IMC maintains are not credible. The IMC is working on developing its own statistics and studying the economic impacts of the creation and theft of intellectual property. With the start of the CPI, the private sector's involvement with the IMC has waned, but the IMC invited private associations to participate in several 2003 meetings, according to Monteiro.

ۦ6. (SBU) In July 2003 President Lula signed a law amending the Brazilian criminal code with respect to copyright violations (ref L). The law increases the minimum penalty from one to two years' imprisonment, levies a fine and allows for improved seizure and destructions procedures for contraband. The law does not include increased sanctions for software infringement. The free software movement is building support within the GoB and throughout Brazil. GoB procurement regulations prohibit use of unlicensed software, according to Itamaraty officials, but no special decrees or directives exist to further encourage compliance with international standards of copyright protection.

Patents - Talk but Little Action

ۦ7. (SBU) As ref C illustrates, Brazil's difficulties in granting patents and trademarks continues to worsen, as INPI lacks much needed resources and the involvement of the Ministry of Health's Sanitary Vigilance Agency (ANVISA) in pharmaceutical patents become more pronounced. INPI's Patent Director estimates the current patent backlog at 50,000. PhRMA's estimate of 450,000 pending trademark applications strikes us as reasonable. The administration's industrial policy goals, focusing on improving the technological base of Brazilian industry with special emphasis on software and pharmaceutical industries, put INPI in the spotlight. The 2004- 07 Pluriannual Plan fixes the objective of reducing processing time for patents from seven to four years and for trademarks from four to one year.

ۦ8. (SBU) There appears to be recognition within the administration that the INPI/ANVISA linkage with regard to patent approval for pharmaceutical products or processes has taken on negative dimensions, but no remedies have been proposed (refs C and F). INPI's staffing woes should be ameliorated somewhat this year with the addition of 108 positions now available to qualified civil servants, and officials from the Ministry of Development Industry and Foreign Trade (MDIC) expect a permanent President of INPI to be named shortly.

TRIPS Compliance and Related Issues

ۦ9. (SBU) Presidential Decree 4370/03 amends existing patent legislation regarding compulsory licensing in situations of national emergency or public interest. The GoB quickly instituted the measure after the August 30 WTO Access to Medicines Agreement while in the midst of price negotiations with several pharmaceutical companies regarding medicines for its world-renowned HIV/AIDS treatment program. The measure has not been invoked, and its TRIPS compliance is uncertain (ref J). Legislation pertaining to designs for integrated circuits (Bill 1787/96) remains pending in Congress; Itamaraty officials have repeatedly requested priority action on the bill, to no avail. ۦ10. (SBU) Previous Brazilian legislation dealing with aspects of genetic "patrimony" or heritage related to biodiversity conservation, integrity of genetic patrimony and traditional knowledge was superceded by the issuance of Provisional Measure 2.186 of August 23, 2001, which together with Decree 3.945 of 2001 and subsequent regulations, subject access and transfer of genetic patrimony to the approval of the Genetic Heritage Management Council (GHMC) - - a body composed of several ministries, academics, and others which is directed by the Ministry of Environment -- and to the sharing of benefits in contractual terms and legally established conditions. New draft legislation on genetic patrimony, which would replace the Provisional Measure and subsequent regulations, is reportedly under consideration in the Brazilian Executive Branch, and could be introduced in the Brazilian Congress later this year.

Biotechnology

ۦ11. (SBU) In January 2004, Monsanto announced that it had reached an agreement with farmers from the Brazilian state of Rio Grande do Sul to receive remuneration for the use of Roundup Ready technology found in the company's soybean variety grown widely throughout the state. The GoB's position on biotechnology remains undecided, as the biotechnology bill is still under debate in Congress (ref D).

ۦ12. (SBU) Itamaraty confirms that the GOB has no plans to ratify the 1996 WIPO Copyright treaty or the WIPO Performances and Phonograms Treaty.

Recommendation

ۦ13. (SBU) Despite positive strides in some sectors, post believes that the continued lack of tangible improvements in IPR protection and enforcement as a whole in the last year manifestly precludes lowering Brazil's Special 301 status. However, we recognize a positive momentum that should bear fruit this year, with projects in the pipeline such as the CPI's final report and INPI's increased staffing. We concur with industry submissions that suggest that retaining Brazil as a Priority Watch List country will appropriately convey the importance of the issue in our bilateral relationship, and believe that this position would not unduly discourage the forces of positive change within Brazil. To ensure that we can use the announcement to promote further progress we request that, should Brazil's status be maintained, USTR's announcement clearly recognize the positive developments regarding IPR that did occur and the USG's desire to work collaboratively to produce tangible results in the coming year.

HRINAK







So they are restricting access to drugs, shaming Brazil, and using WTO/WIPO to apply some sorts of sanctions or other pressure instruments for Brazil to accept the US law and permit them to rule the nation.

In another cable, one titled "WTO Services Negotiations: Request For Comments On U.S. Market Access Priorities," it is being claimed that "Open Source Software is being adopted by the Brazilian government." Here it is in full:








UNCLAS SECTION 01 OF 03 BRASILIA 000128

SIPDIS

STATE PLEASE PASS TO USTR/CHOOKER GENEVA PASS USTR/AGREENIDGE USDOC FOR 3134/USFCS/OIO/WH/EOLSON USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A TAGS: ETRD [Foreign Trade], BR [Brazil], WTO [World Tourism Organization], Trade SUBJECT: WTO SERVICES NEGOTIATIONS: REQUEST FOR COMMENTS ON U.S. MARKET ACCESS PRIORITIES

REF: 04 STATE 270998

ۦ1. This cable is based upon input provided by FCS Sao Paulo.

ۦ2. Per reftel request, below is a ranking of the various service sectors in terms of priority for the USG and level of openness. Where appropriate, we have included comments regarding doing business issues for a specific sector.

ۦ3. Begin text.

SECTOR PRIORITY LEVEL OF LEVEL OPENNESS ------------------------ -------- --------

LEGAL SERVICES 3 MEDIUM COMMENT: FOREIGN COMPANIES CAN OPERATE THROUGH PARTNERSHIP WITH LOCAL FIRMS OR BY ESTABLISHING AN OFFICE IN THE COUNTRY AND HIRING LOCAL ATTORNEYS. FOREIGN PROFESSIONALS CANNOT PRACTICE IN BRAZIL DIRECTLY.

ACCOUNTING, AUDITING AND 5 LOW BOOKKEEPING SERVICES COMMENT: ONLY LOCAL ACCOUNTANTS REGISTERED AT THE ACCOUNTANTS' COUNCIL CAN PROVIDE SERVICES. THE BRAZILIAN BOOKKEEPING SYSTEM IS SLIGHTLY DIFFERENT FROM THAT OF THE U.S.

ARCHITECTURAL SERVICES 5 LOW COMMENT: FOREIGN ARCHITECTS MUST HAVE THEIR DEGREES VALIDATED IN BRAZIL. THE PROCESS IS VERY COMPLICATED AND TAKES A LONG TIME.

ENGINEERING AND INTEGRATED 3 MEDIUM ENGINEERING SERVICES COMMENT: FOREIGN FIRMS ARE REQUIRED TO HAVE A LOCAL REPRESENTATIVE WHO HOLDS A LICENSE TO PRACTICE ENGINEERING IN THE COUNTRY, AND THE COMPANY HAS TO BE REGISTERED AS AN ENGINEERING FIRM IN BRAZIL.

URBAN PLANNING AND LANDSCAPE 5 LOW ARCHITECTURAL SERVICES COMMENT: FOREIGN ARCHITECTS MUST HAVE THEIR DEGREES VALIDATED IN BRAZIL. THE PROCESS IS VERY COMPLICATED AND TAKES A LONG TIME.

COMPUTER AND RELATED SERVICES 3 MEDIUM Comment: Computer and peripherals are manufactured in Brazil. (One example is Dell Computers.) Almost all electronic components used in the industry are imported. However, used computers and peripherals cannot be exported to Brazil. Open Source Software is being adopted by the Brazilian government. Brazil is set to adopt a digital TV standard in the near future.

RESEARCH AND DEVELOPMENT 1 HIGH SERVICES

REAL ESTATE SERVICES 3 MEDIUM COMMENT: FOREIGN COMPANIES CAN OPERATE THROUGH PARTNERSHIP WITH LOCAL FIRMS OR BY ESTABLISHING AN OFFICE IN THE COUNTRY.

RENTAL/LEASING SERVICES 3 HIGH

ADVERTISING SERVICES 5 HIGH

MARKET RESEARCH AND PUBLIC N/A OPINION, POLLING SERVICES

MANAGEMENT CONSULTING SERVICES 1 HIGH COMMENT: IN CASES INVOLVING THE TRANSFER OF TECHNOLOGY, THERE IS A LENGTHY REGISTRATION PROCESS AT INPI - THE BRAZILIAN INSTITUTE OF INTELLECTUAL PROPERTY. IN ADDITION, ALL IMPORTS OF SERVICES ARE SUBJECT TO THE FOLLOWING TAXES/FEES: IRRF - INCOME TAX: 15%, CIDE - CONTRIBUTION TO THE ECONOMIC INTERVENTION DOMAIN: 10%, ISS - MUNICIPAL SERVICES TAX: 5%, AND PIS/COFINS - SOCIAL INTEGRATION AND SOCIAL SECURITY FINANCING CONTRIBUTIONS: 9.25%. TECHNICAL TESTING AND 3 MEDIUM ANALYSIS SERVICES SERVICES INCIDENTAL TO 1 MEDIUM AGRICULTURE, HUNTING AND FORESTRY, AND FISHING

SERVICES INCIDENTAL TO MINING 3 MEDIUM COMMENT: POTENTIAL ONLY FOR FRONT-END ENGINEERING STUDIES, SUCH AS MINERAL PROCESS ADVANCED CONTROL SYSTEMS. IN GENERAL, FOREIGN SUPPLIERS MUST WORK IN CONSORTIUM WITH LOCAL COMPANIES, BOTH TO LOWER COSTS AND TAP LOCAL EXPERTISE.

ENERGY SERVICES 1 HIGH COMMENT: ELECTRICAL POWER DISTRIBUTION AND OIL AND GAS SERVICES TAKE PLACE IN BRAZIL PURSUANT TO A CONCESSION REGIME ADMINISTERED BY THE BRAZILIAN GOVERNMENT. THESE SERVICES ARE EQUALLY OPEN TO DOMESTIC AND FOREIGN COMPANIES. THE PRINCIPAL DIFFICULTY FACED BY U.S. FIRMS IN THESE MARKET SEGMENTS IS NOT MARKET ACCESS, BUT INADEQUATE CONTRACT STABILITY, DELAYS IN OBTAINING ENVIRONMENTAL PERMITS, AN UNSTABLE REGULATORY SYSTEM (ESPECIALLY IN THE POWER SECTOR), AND THE NEED TO MEET LOCAL EQUIPMENT REQUIREMENTS. HOWEVER, ALL OF THESE ISSUES EQUALLY AFFECT DOMESTIC AND FOREIGN COMPANIES OPERATING IN BRAZIL.

PLACEMENT AND SUPPLY SERVICES 4 HIGH OF PERSONNEL

INVESTIGATION AND SECURITY 3 MEDIUM

RELATED SCIENTIFIC AND 1 HIGH TECH CONSULTING SERVICES COMMENT: IN CASES INVOLVING TRANSFER OF TECHNOLOGY, THERE IS A LENGTHY REGISTRATION PROCESS AT INPI - THE BRAZILIAN INSTITUTE OF INTELLECTUAL PROPERTY.

MAINTENANCE AND REPAIR OF 5 HIGH EQUIPMENT

BUILDING/CLEANING SERVICES 5 HIGH

PHOTOGRAPHIC SERVICES 5 HIGH

PACKAGING SERVICES 2 MEDIUM

PRINTING, PUBLISHING 2 MEDIUM

CONVENTION SERVICES 2 HIGH

COURIER SERVICES 1 MEDIUM (EXPRESS DELIVERY)

TELECOMMUNICATION SERVICES 1 MEDIUM

AUDIOVISUAL SERVICES N/A

CONSTRUCTION AND RELATED 3 MEDIUM ENGINEERING COMMENT: FOREIGN FIRMS ARE REQUIRED TO HAVE A LOCAL REPRESENTATIVE WHO HOLDS A LICENSE TO PRACTICE ENGINEERING IN THE COUNTRY, AND THE COMPANY HAS TO BE REGISTERED AS AN ENGINEERING FIRM IN BRAZIL.

DISTRIBUTION SERVICES 1 HIGH

ENVIRONMENTAL SERVICES 3 MEDIUM COMMENT: THE MARKET IS RELATIVELY SMALL BUT EXPANDING, PARTICULARLY IN THE REMEDIATION AND CLEAN UP OF CONTAMINATED SITES BUSINESS. U.S. COMPANIES USUALLY ASSOCIATE WITH LOCAL ENVIRONMENTAL COMPANIES FOR THE DEVELOPMENT OF SPECIFIC PROJECTS.

BANKING AND OTHER FINANCIAL 4 HIGH SERVICES INCLUDING SECURITIES

Comment: Brazil's Central Bank regulates banking and financial services, and maintains strict accounting and operational supervision. Private pension funds are among the fastest growing sectors of the Brazilian economy, and consists of open funds (including those similar to U.S. 401(k) plans) and closed funds.

INSURANCE SERVICES 4 HIGH Comment: U.S companies wishing to enter into the Brazilian insurance market are advised to do so through a joint venture, acquisition or partnership with a local company, or to open a subsidiary. Under current legislation, insurance companies must be organized as corporations (Sociedade Anonima, or S/A), and submit to local regulatory authorities an application to operate as an insurance company. The insurance company may not engage in activities other than insurance. These same rules apply to reinsurance companies, though their scope for action is limited by the existence of a government monopoly reinsurer, the Brazilian Reinsurance Institute (IRB). Foreign firms currently are barred from offering reinsurance on their own account, but may conduct business with the IRB. Foreign insurance companies may establish a representative office in Brazil, but are not allowed to engage in certain insurance activities, such as issuing policies. Current legislation allows foreign insurance companies to hold the entire equity participation or voting stock of a Brazilian insurance company.

End Text.

CHICOLA







In the following cable, it is said that "China will remain one of Brazil's more important commercial partners for the foreseeable future, not only as a market for its primary commodities, but also as source of infrastructure investment and collaboration in certain technology-related areas, including satellites and development of open-source software."








UNCLAS SECTION 01 OF 03 BRASILIA 000128

SIPDIS

STATE PLEASE PASS TO USTR/CHOOKER GENEVA PASS USTR/AGREENIDGE USDOC FOR 3134/USFCS/OIO/WH/EOLSON USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A TAGS: ETRD [Foreign Trade], BR [Brazil], WTO [World Tourism Organization], Trade SUBJECT: WTO SERVICES NEGOTIATIONS: REQUEST FOR COMMENTS ON U.S. MARKET ACCESS PRIORITIES

REF: 04 STATE 270998

ۦ1. This cable is based upon input provided by FCS Sao Paulo.

ۦ2. Per reftel request, below is a ranking of the various service sectors in terms of priority for the USG and level of openness. Where appropriate, we have included comments regarding doing business issues for a specific sector.

ۦ3. Begin text. UNCLAS SECTION 01 OF 05 BRASILIA 000212

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR FOR SCRONIN, KLEZNY NSC FOR MIKE DEMPSEY DEPT OF TREASURY FOR FPARODI USDOC FOR 3134/USFCS/OIO/WH/DDEVITO/DANDERSON/EOLSON USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D USDA FOR JB PENN, U/S, FFAS

E.O. 12958: N/A TAGS: ETRD [Foreign Trade], BR [Brazil], WTRO [World Trade Organization], Trade SUBJECT: BRAZIL'S 2005 TRADE AGENDA: MORE OF THE SAME

REF: A) BRASILIA 94 B) SAO PAULO 89 C) 04 BRASILIA

3100 D) 04 BRASILIA 2882 E) 04 SAO PAULO 1659

ۦ1. (U) This cable has been coordinated with AmConsulate Sao Paulo.

ۦ2. (SBU) Summary and Introduction. Changing the "geography of trade" has become a Lula administration hallmark. Over the past two years, the GoB has aggressively used Brazilian and Mercosul trade policy to strengthen economic and political ties with other developing countries, in part to diversify Brazil's export markets, but more pointedly to develop strategic partnerships with countries that can help Brazil realize various geopolitical objectives. Private sector critics claim the GoB's focus on developing country partners has diverted its attention from securing more lucrative economic opportunities through trade agreements with the EU or with the United States (See Ref A). Dissension within the government over trade policy is also still evident with Ministers Furlan (Development and Trade) and Rodrigues (Agriculture), who support the private sector perspective, at odds with the Foreign Ministry, whose trade strategy continues to enjoy the backing of President Lula. Recent criticism of GoB trade policy by Minister Furlan prompted a rebuttal by President Lula on January 18 in which he justified a continuation of current policy in order to further reduce the "dependence" of Brazil on the EU and the United States. While there is widespread domestic support for the priority the GoB has assigned to the global WTO trade negotiations, substantial benefits from the Doha Round are only expected over the long-term. A brief overview of Brazil's trade agenda for 2005 is presented below. End Summary and Introduction.

WTO - Doha Development Agenda

ۦ3. (SBU) In public comments laying out GoB trade priorities for the coming year, Foreign Minister Amorim has stated explicitly that the WTO Doha Round is Brazil's top priority. In Amorim's view, the Doha Round represents an opportunity for Brazil to press for elimination or reduction of the worst trade distorting practices affecting global agricultural trade -- the key demand for Brazil given that agriculture accounted for about 42 percent of its exports, 34 percent of its GDP, and 37 percent of its employment in 2004.

ۦ4. (SBU) In the WTO, the GoB will continue to actively utilize its strategic partnerships with other developing countries. The GoB is expected to maintain an assertive stance in Geneva on agriculture reform; Brazil's sometimes strident leadership of the G-20, even the failure of the Cancun Ministerial in 2003, are seen here as having paid off in Brazil's inclusion in the Five Interested Parties (FIPs) process and in the eventual substance of the July negotiating framework package.

ۦ5. (SBU) Amorim has acknowledged that negotiations on market access for industrial products and services must also proceed for a final package to emerge, suggesting that Brazil may negotiate on these issues as part of strategic coalitions formed around specific issues. He has also warned that Brazil's posture in these and other areas may not always be defensive, pointing to GoB formulation of proposals relating to export credits and investment (local content requirements). According to Ambassador Clodoaldo Hugueney, Brazil's top WTO negotiator, the GoB hopes the Doha negotiations can be wrapped up before the 2007 expiration of an extended TPA either undermines an ambitious outcome or causes an indeterminate delay in concluding the Round (Ref C). (Note: Hugueney will soon be leaving his current post to replace Luiz Felipe de Seixas Correa as Ambassador to the WTO.) While the nomination of Seixas Correa as WTO Director General may have been largely prompted by Brazil's interest in spoiling the candidacy of Uruguayan Carlos Perez del Castillo, the GoB would relish having a Brazilian diplomat in this key position during the final phase of the negotiations.

Mercosul-EU ۦ6. (SBU) Amorim continues to list free trade talks with the European Union as a GoB priority. The EU is Brazil's largest export market, absorbing $24 billion worth of its goods in 2004, 25 percent of Brazil's total exports. While Amorim conveys confidence that progress in the negotiations can be made in 2005, he has also suggested that the talks may proceed in tandem with the Doha negotiations. Bilateral technical-level meetings were held December 2 last year in Rio de Janeiro and are expected again in February. A meeting between Minister Amorim and UE Trade Commissioner Peter Mandelson in Davos at the end of January is meant to give impulse to a Ministerial slated for March that will set a work program for future discussions.

ۦ7. (SBU) Many Brazilian analysts are skeptical that the two sides' differences can be bridged in 2005. Negotiations broke down in October 2004 over inadequate offers put forward by both sides. Mercosul's last offer was a retrenchment, expanding product coverage to 90 percent, but reducing the percentage receiving duty-free status from 87.5 percent to 82 percent. Mercosul offerings in government procurement, IPR (geographic indicators), and investment were also deemed insufficient by the EU, whose own offer capped certain Mercosul agricultural exports at a level below current trade flows. Agricultural products, which account for roughly 70 percent of Brazil's exports to the EU, have figured prominently in the negotiations. While questioning the EU's commitment to substantial agricultural trade liberalization, Brazil's private sector, particularly those represented by Sao Paulo's FIESP industrial federation (whose companies generate 70 percent of the country's GDP) also fault Foreign Ministry inflexibility and Mercosul internal disarray for the breakdown in negotiations.

Free Trade Area of the Americas

ۦ8. (SBU) After FTAA negotiations went into abeyance in June of last year, the FTAA at times was absent from listings by Foreign Ministry officials of GoB trade priorities. However, with the exchange of letters between out-going USTR Zoellick and Minister Amorim at the end of 2004, the FTAA has again crept onto the GoB trade agenda. Official GoB remarks state a willingness to work in good faith with the U.S. as co-chairs to identify a way forward for the negotiations; Itamaraty highlights efforts for Amorim and Zoellick as well as for DUSTR Allgeier and his counterpart Ambassador Bahadian to meet to chart a course forward.

ۦ9. (SBU) However, this is less than a full embrace. In recent interviews Amorim has again clarified that while an FTAA is desirable, it is not essential for Brazil. Describing the current FTAA impasse as caused by the USG's insistence in negotiating rules for IPR, services and investment without adequately addressing Brazil's demands on agricultural subsidies, Amorim has emphasized that improved access to the U.S. market is key for Brazil, and that a focus on market access for goods would facilitate the negotiations. Amorim also has reiterated that from Brazil's perspective, market access discussions with the U.S. need not be within the FTAA, but could also be pursued within a Mercosul-U.S. FTA. The GoB position may have in fact hardened since last June, if, as top daily Folha suggests, President Lula believes he can prevail upon President Bush in a post-election environment to show greater flexibility on market access for key products, such as orange juice, sugar, steel and beef, if the U.S. is serious about moving the FTAA forward.

ۦ10. (SBU) Further complicating the public FTAA debate is the reemergence of a (in our view, flawed) December 2003 Ministry of Planning study which concludes that under an FTAA the bilateral U.S.-Brazil trade balance would swing to $1 billion in the USG's favor (Ref B). Although publicly Amorim claimed the study supports his reticent stance toward the FTAA, Antonio Simoes (the ForMin's Economic Advisor) admitted to Ecouns in a January 12 converstaion, that no study, no matter how well-designed, could accurately predict the impact of an FTAA upon trade flows. Simoes, former head of Itamaraty's FTAA Office, added that sensationalist press reporting of items such as this only make it more difficult for the two sides to reach consensus.

ۦ11. (SBU) While many economic analysts are not optimistic about near-term prospects for the FTAA, they argue that the FTAA is crucial for Brazil to avoid an erosion of 1) its relative level of competitiveness in the U.S. market vis-a-vis hemispheric competitors, and in other Latin markets vis-a-vis U.S. producers, and 2) its attractiveness as an FDI destination. Export growth to the United States has not kept pace with the expansion of Brazil's exports overall; in 2004, Brazil's exports to the world grew by 32 percent to reach $96.5 billion, compared with a 20 percent increase in exports headed to the United States to total $20.0 billion. In a study released November 4, 2004, former ambassador to the U.S. Rubens Barbosa and researchers from FIESP and the Institute of Studies of Trade and International Negotiations (Icone) claim Brazil's competitive position in the U.S. market vis-a-vis other regional partners is eroding and urge the GoB to address the issue in resumed FTAA negotiations (Ref B). Some companies, including Dixie-Toga, whose president is head of Sao Paulo's AmCham, have made public their intention to consider investments in countries having trade agreements with the U.S., rather than expand domestic production.

Canada

ۦ12. (SBU) The substantive scope of soon to be launched trade talks with Canada, and their relation to the FTAA, are unclear. A joint communique issued during the visit of Canada's Prime Minister, Paul Martin, in November last year stated that he and President Lula "agreed to promote the expansion of commercial relations between Mercosul and Canada by means of market access negotiation in the areas of goods, services and investments, in the context of the configuration of a future FTAA." In a subsequent conversation with Econoff, Canada's trade officer in Brasilia said the visit had caused a stir in Ottawa resulting in conflicting interpretations of what the "talks" would entail. Despite Canada's uncertainty, its trade officer said there is no doubt that Minister Amorim believes Canada and Mercosul will be moving ahead with market access negotiations in the three areas. Initial discussions may take place as early as February.

South-South

ۦ13. (SBU) On December 20, Ambassador Regis Arslanian, Itamaraty's Director of International Negotiations, outlined prospects for 2005 for other trade negotiations. Although Arslanian's list was lengthy, Ronaldo Costa Filho, who heads up the European Union and Extra-Regional Negotiations division for Arslanian, and Gilberto Goncalves de Siqueira, deputy in Itamaraty's Regional Integration Division, told Econoff that Mercosul's current plans include launching negotiations in 2005 with only three additional countries: Morocco, Egypt, and Mexico.

ۦ14. (SBU) Tariff preference negotiations, covering a limited number of products, will proceed with Morocco and Egypt based on relatively standard framework agreements signed November 26 and December 16, 2004, respectively. Indicative of Brazil's driving force behind Mercosul trade policy, according to Costa, the negotiations with Morocco are the result of intense lobbying by Brazil's Ambassador to Morocco, former FTAA negotiator Carlos Alberto Simas Magalhaes, while discussions between Minister Amorim and Boutros Boutros-Ghali during a G-20 meeting in December 2003 have led to the negotiations with Egypt. Two-way trade between Brazil and Morocco totaled only $560 million between January and November 2004; with Egypt only $593 million over the same period.

ۦ15. (SBU) The negotiations with Mexico follow up on the GoM's stated intention of seeking Mercosul associate membership, which requires a free trade agreement with the bloc. The aim is to consolidate the trade agreements Mexico has with individual Mercosul partners, which vary in terms of coverage, to form a comprehensive Mercosul-Mexico FTA. Brazil currently has an Economic Complementary Agreement with Mexico, which covers only about 790 products, largely auto parts, chemicals, and some agricultural products, and an automotive agreement. Two-way Brazil-Mexico trade reached $4.7 billion in 2004, dominated by Brazilian exports of $3.9 billion. Talk are expected to begin in the first semester of 2005.

Potential Negotiations

ۦ16. (SBU) Mercosul has established work programs for exploratory talks both with countries of the Central American Integration System (SICA) and with CARICOM. Sessions with both groups are slated to take place in February and April, 2005. According to Siqueira, only after these sessions will Mercosul determine if there is an adequate convergence of interests to proceed with negotiations.

ۦ17. (SBU) According to Costa, Mercosul hopes to complete a feasibility study on negotiations with South Korea by the end of 2005. Nonetheless, he did not expect trade negotiations to commence soon thereafter due to Brazilian private sector concerns with Korean protectionism, particularly in agriculture. Pakistan and Israel have recently notified Mercosul of their interest in initiating trade negotiations. Other countries that have conveyed an interest in developing closer commercial relations with Brazil/Mercosul include: the EFTA countries, Australia, New Zealand, the Gulf Cooperation Council, and Japan.

China

ۦ18. (SBU) As Brazil's largest market for soybeans and third largest individual export destination, the GoB views China as a key trading and geopolitical partner. In 2003, Brazilian exports to China almost doubled totaling $4.5 billion. With continued growth, exports reached $5.4 billion, and imports $3.7 billion in 2004. The importance of the relationship was evident in the state visits paid by both leaders in 2004. However, Brazil's industrial sector is terrified of the competitive giant, particularly following Lula's decision to grant China "market economy" status (Refs D and E). Despite an agreement during Lula's trip to China in May 2004 to conduct a feasibility study on launching Mercosul-China trade negotiations, Costa admitted to Econoff that work is not proceeding even on terms of reference for the study. Even without formal trade negotiations, China will remain one of Brazil's more important commercial partners for the foreseeable future, not only as a market for its primary commodities, but also as source of infrastructure investment and collaboration in certain technology-related areas, including satellites and development of open-source software.

Russia

ۦ19. (SBU) There are no plans by Mercosul at this time to negotiate a trade agreement with Russia. References by GoB officials to trade talks typically refer to discussions on resolving specific impediments to trade, such as Russia's ban on imports of Brazilian beef stemming from foot and mouth disease outbreaks. The two countries are also trying to stimulate bilateral trade through export promotion activities. Danilovich







Here are a couple more that mention Free/open source software:








UNCLAS SECTION 01 OF 04 BRASILIA 001307

SIPDIS

NSC FOR M DEMPSEY USDA FOR FAS/FAA/ITP, U/S PENN AND FAS ADMINISTRATOR TERPSTRA USDOC FOR 4322/ITA/MAC/WH/OLAC/WBASTIAN/JANDERSON/DMCDO UGALL/ ADRISCOLL USDOC FOR 3134/USFCS/OIO/DDEVITO/EOLSON TREASURY FOR OASIA/SEGAL PLS PASS TO EXIM FOR A FOLEY PLS PASS TO USTR FOR SCRONIN, LYANG, BPECK

SENSITIVE

E.O. 12958: N/A TAGS: EIND ECON EINV ETRD KIPR PGOV BR SUBJECT: GRAB BAG OF GOB INDUSTRIAL POLICY MEASURES

Refs: A) Brasilia 1098 B) Brasilia 661

SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY.

ۦ1. (U) Summary: As promised, Minister of Development, Industry and Trade (MDIC) Luis Furlan unveiled a huge composite of measures under the umbrella of Industrial, Technology and Foreign Trade Policy (PITCE in the Portuguese acronym) on March ۦ31. A grab bag of recycled programs, financing and tax incentives as well as new councils and government agencies, the PITCE comes with promises to modernize, restructure, and streamline the broken pieces of government that hamper industrial growth. Attractively wrapped in technological innovation, the PITCE offers something for everyone (plus a little extra for the four strategic sectors of semiconductors, software, pharmaceuticals and capital goods) while attempting to appear sufficiently different from the discredited industrial policies of Brazil's past. Fiscal constraints necessarily limit the viability of the various options, but the GoB has already budgeted R$ 550 million (US$ 183.3 million) for ۦ2004. Furlan and his deputies insist that PITCE is not static and will be altered when necessary to fit the country's development needs. Their assertion parallels Itamaraty's often- voiced reluctance to commit to any multilateral trade obligations that would limit GoB flexibility in this sphere. End Summary.

Everything But The Kitchen Sink -------------------------------

ۦ2. (U) On its web site, MDIC defines over 50 industrial policy measures under the headings of a) industrial modernization, b) foreign markets & competitiveness, c) product, process, and management innovation, d) strategic options for semiconductors, e) software, f) capital goods and g) pharmaceuticals, h) harbingers of the future, i.e. biotech and nanotech i) strengthening small and medium enterprises, j) strengthening the national system of innovation, and k) creating a favorable environment for industrial development. Each listing includes a definition of the measure, a goal and a responsible government entity to lead the effort. With such broad parameters, existing programs are easily folded, or slightly modified to fit, into the PICTE.

ۦ3. (U) Under foreign markets and competition, export-promotion publicity campaigns executed by the Ministries of Tourism, Culture and Foreign Relations constitute a specific measure. The program "Brazil Exporter," launched in November 2003 by MDIC and also a PICTE measure, is itself a collection of assistance efforts aimed at getting small businesses to export via training, improvements in product design, and greater access to credit. The PICTE broadens the Brazil Exporter program to include specific measures for Brazilian states underrepresented in the export market as well as a new drawback system that would partially reimburse import duties on goods re- exported or used in manufacture of exported goods. Expanding the application of special computerized customs procedures to include semiconductors, and efforts to reinvigorate the metrology network and certification programs under the supervision on INMETRO (The National Institute of Metrology, Standards and Industrial Quality) for paper, cellulose and furniture industries, exemplify the relatively low-cost PICTE goal of redirecting the efforts of bureaucratic structures to accommodate sectors the GoB believes have greater export potential.

ۦ4. (U) Modernizing customs policies and procedures, facilitating the opening and closing of businesses, creating MDIC-led competitiveness forums for biotechnology and franchising, as well as development of a broad extension service designed to assist smaller businesses to export their products, typify the horizontal measures that account for much of the PICTE's efficiency and transparency goals. The plan also calls for installation of foreign trade and investment attraction kiosks within the international branches of the Bank of Brazil, as well as the creation of five distribution and logistics centers overseas to support the efforts of small and medium-sized export businesses.

ۦ5. (U) The PICTE spawns more policymaking, calling for the development of specific industrial-policy programs for nanotechnology and biomass. The PICTE prioritizes the passage of several bills including innovation legislation, which would create a legal framework for privately conducted research to be funded through government resources and, in some cases, using government labs. Passage of a bill (1787/96) protecting the intellectual property of lay-out designs of integrated circuits, a TRIPS requirement that has lain dormant in the Brazilian Congress for several years, is now an objective of the Lula administration. Digital inclusion and the free software movement also figure in the policy. Incentives will be designed for the development of software solutions using open code, and the GoB plans to add 30,000 to the network of computer-using small businesses by 2007.

Potentially Affecting the Bottom Line -------------------------------------

ۦ6. (U) At least eight of the PITCE measures are concrete tax or concessional financing incentives, the most broad being the "Modermaq" program which offers fixed-rate 5-year financing for up to 90 percent of the sale price of industrial-equipment purchases. In addition to Modermaq, the PICTE includes a reduction of the import tax on some capital goods without locally or Mercosul-produced equivalents. (Note: Brazil grants case-by-case reduced tariff rates on specialized capital goods not produced locally.) This reduction of the exceptional tariff rates from 4 to 2 percent for goods produced within Mercosul and to zero for goods not produced within Mercosul began with the implementation of a resolution in February 2004. The GoB characterizes the equalization of the COFINS (social security system contribution) tax on imports and exports (reftel A) and the gradual elimination (starting with a 30 percent rate reduction in 2004) of the industrial production tax (IPI) on equipment destined for productive activity as PICTE measures as well. A Presidential decree (no. 4,928/03) of December 2003 permits reductions in the calculation of the net profit taxes (CSLL) for businesses that invest in technological research and product development.

ۦ7. (U) The meat of the benefits for the four strategic sectors are Brazilian Development Bank (BNDES) lines of credit for software marketing and export; pharmaceutical production, research activities, business incorporation, acquisition and fusion; and the purchase or production of made-to-order capital goods. The line of credit for semiconductor production will come from the Ministry of Science and Technology's (MCT) FINEP, the Ministry's financing arm for studies and projects linked to sector specific funds. 2004 financing under these credit schemes ranges from R$ 10 million for chips to R$500 million for pharmaceuticals and capital goods.

More or Less Bureaucracy? -------------------------

ۦ8. (U) The PICTE calls for the creation of a National Council of Industrial Development as well as a Brazilian Agency for Industrial Development. While both are to be organized by MCT and MDIC, the Council would bring together government, business and labor to help define policy directives, and the Agency would concentrate the execution of policy objectives in one government organ. In addition, the PICTE envisions a one-stop- shop for potential investors that would also develop the agenda for sector-specific investments. Called the "Special Room for Attracting Investment," this permanent group directly linked to the Presidency would bring together representatives of the Ministries of Development, Foreign Relations, Finance, Planning, Mines and Energy, Agriculture, Science and Technology, Tourism, and the Civil Household.

Government-run Labs -------------------

ۦ9. (U) Several PICTE objectives aim to create new public laboratories, and to modernize existing ones. While several are specific to the pharmaceutical sector, including a new national factory for the production of blood tests and vaccines and a laboratory for nuclear medicine research and production, others would focus on metrology and biotechnology. A planned national public laboratory for chemical metrology would establish a certification framework to judge the purity of chemical products, and a national laboratory for material metrology would set national standards for building materials such as ceramics and carbon fiber products. The National Laboratory of Industrial Technology will develop projects and promote research in applied micro and nantechnology in partnership with businesses and the function of the Biotechnology Center of the Amazon, inaugurated in 2002, will be strengthened to better assist businesses with sustainable harvesting of biotech production for commercial purposes. The policy recognizes that bringing successful innovations to market will require strong intellectual property protection, especially in the target areas of pharmaceuticals, software, nanotech, and biotech. Therefore, the restructuring of the Brazilian Patent Institute (INPI) and improving the regulation of ANVISA, the Brazilian Sanitary Surveillance Agency, are key PICTE measures that require further elaboration (septel).

Comment -------

ۦ10. (SBU) The PICTE is nothing if not ambitious in scope, and it endeavors to encompass parts of the GoB's total development agenda, even social priorities in health and education through digital inclusion and expanding production at public labs. Inclusive, modern, nationalist, populist, this policy offers something to every constituent. By promoting industrial growth and efficiency via incentives to invest in new technology and export, particularly high-value added goods and services, the real prize the Lula administration seeks is job growth. Fostering cutting-edge technological development in the innovative sectors of the future and correcting bureaucratic bottlenecks is the icing on the cake that appeals more to the business than labor crowd.

ۦ11. (SBU) Above all, the set of measures which Lula's GoB is cumulatively presenting as its industrial policy is manifestly crafted to avoid significant new budget outlays or adverse policy impact. The designers of the PICTE creatively aim to accomplish its specific goals with minimal fiscal distress, chiefly by re-modeling existing structures and supplementing the energy of the private sector. While there are some clear import-substitution goals, especially in pharmaceuticals, petroleum and gas production, the plan introduces no overtly protectionist quotas or tariff hikes. Those measures that require substantial public investment like the creation of new public laboratories may necessarily be longer-term goals, despite Brazil's world-class research capabilities, due to the tight fiscal environment. MDIC's Secretary for Production, Carlos Gastaldoni has frankly characterized the PICTE to us as part standard operating procedure and part wish list. He considered the Modermaq program as the most significant in short-term impact, characterizing the access to capital at a fixed rate as one of the biggest hurdles small Brazilian businesses face. He noted that the strong emphasis on technological innovation should help guarantee a dynamic policy that can respond to industry's evolving needs.

ۦ12. (SBU) The GoB's industrial-policy ideology has a trade- policy dimension. Lula's administration considers its freedom to intervene with government supports as potentially essential for Brazil's industrial progress. Any proposal - presented in the context of free trade or not -- that might hem in this ability is rebuffed as an effort to deny an indispensable right, a right that, GoB interlocutors often remind us, more developed economies have freely exercised in the past. Brazilian recognition that the positives and negatives of globalization have significantly altered governments' toolkit of viable options plainly influenced this leftist GoB's supposedly improved version of national `industrial policy.' The result aims to be a hybrid applicable to Brazil's local realities, but also compatible with existing trade commitments. In practice, its impact in the internal sphere is likely to remain muted. There is far too little in GoB coffers to significantly subsidize chosen industries and too much reliance on trade earnings for this GoB to repeat wholesale the statist policy errors of the nation's 1950s'-1970s' past. For current and future trade negotiations, however, industrial policy goals will continue to limit what the GoB views as in its interest for further liberalization in sectors such as services, government procurement, investment and IPR.

HRINAK







And another one:








VZCZCXRO9665 RR RUEHRG DE RUEHBR #1355/01 1861906 ZNR UUUUU ZZH R 051906Z JUL 06 FM AMEMBASSY BRASILIA TO RUEHC/SECSTATE WASHDC 5995 INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2417 RUEHRG/AMCONSUL RECIFE 5074 RUEHSO/AMCONSUL SAO PAULO 7379 RUEHBU/AMEMBASSY BUENOS AIRES 4125 RUEHAC/AMEMBASSY ASUNCION 5527 RUEHMN/AMEMBASSY MONTEVIDEO 6346 RUEHSG/AMEMBASSY SANTIAGO 5616 RUEHPE/AMEMBASSY LIMA 3070 RUEHCV/AMEMBASSY CARACAS 3331 RUEHQT/AMEMBASSY QUITO 1886 RUEHLP/AMEMBASSY LA PAZ 4689 RUEHBO/AMEMBASSY BOGOTA 3826 RUCPDO/USDOC WASHDC RUEHGV/USMISSION GENEVA 1495

UNCLAS SECTION 01 OF 03 BRASILIA 001355

SIPDIS

SENSITIVE SIPDIS

STATE PASS USTR GENEVA FOR USTR STATE PASS USPTO USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA

E.O. 12958: N/A TAGS: KIPR ECPS BR SUBJECT: BRAZILIAN COPYRIGHT OFFICE SEEKS AN ALTERNATIVE PATH ON IPR ISSUES

ۦ1. (SBU) Summary. Recently, Econ and FCS personnel met with officials at Brazil's Copyright Office (organizationally, located within the Ministry Culture) to discuss Brazil's emerging policy on IPR and digital inclusion issues. This meeting was to follow-up on an earlier, June 7 session between U.S. Patent and Trademark Deputy Director Stephen Pinkos and counterpart Brazilian policy level officials. Our interlocutors outlined the full array of challenges they faced, inter alia, resistance within Brazilian domestic industry to paying royalties, bureaucratic and statutory obstacles to the development of a balanced doctrine of "fair use," and, of course, rampant piracy. (Notwithstanding Brazil's plethora of well-known musicians, because of copyright piracy, we were told, no more than 30 could make a living from musical royalties.) The Ministry had established a network of cultural facilities which artists could use for free, provided they licensed any works produced there to the creative commons. Internationally, our contacts complained of developed country dominance at the World Intellectual Property Organization (WIPO) and stated that the idea behind Brazil's proposed "Development Agenda" was to level the IPR playing field. End Summary.

ۦ2. (SBU) On June 28, FSC Deputy Senior Commercial Officer, Econ Counselor and Econ Assistant met with Marcel Alves da Souza, the head of the Ministry of Culture's Copyright Office, and Angeline Monteiro Prata, the Ministry's Copyright Manager, to learn more about the workings of that office. Souza declared that the Copyright Office was besieged on all fronts as private industry sought to enforce its legal rights in the face of widespread piracy, while government policymakers (in particular Minister of Culture Gilberto Gil) actively worked to afford citizens greater access to informational materials. Notwithstanding the Copyright Office's best efforts, it was becoming increasingly difficult to reconcile the conflicting demands, he stated.

--------------------- ------------------ ------------------ Payments for Use of Copyrighted Songs in Audio-Visual Works --------------------- ------------------ ------------------ ۦ3. (SBU) Souza cited as an example the payment of fees to musical copyright holders when their works were used in domestic Brazilian films. In such cases, a private sector organization, RECADE, he noted, was charged with collecting compensation from filmmakers. However, the film industry balked at paying such monies, arguing (incorrectly) that this was not the practice in the U.S. Indeed, he continued, using that argument the film lobby had nearly gotten the Brazilian Congress to enact legislation withdrawing the legal requirement to pay compensation in these situations, though that effort had ultimately failed. Further complicating the matter, was the lack of transparency of RECADE itself, with a number of artists alleging that it keeps for itself an undue share of the fees collected on their behalf.

---------------------------------- Piracy and the "Fair Use" Doctrine ---------------------------------- ۦ4. (SBU) Discussion then turned to the issue of the scope of the "fair use" doctrine in Brazil - i.e., the degree to which the public could use minor portions of a copyrighted work without paying royalties to the author. Souza stated that while the vast disparities in income in Brazil militated in favor of an expanded "fair use" doctrine, in fact, Brazil, as was the case in many other Latin American countries, applied the concept more restrictively than in the United States. Part of the problem, he observed, was that statutory code, rather than common law, governed on this issue, and even though the relevant statute had been enacted in 1998 in many ways it was already out of date. The public's increasing use of the internet meant that the statute needed to be reworked. To help tip the scales in favor of reform, he observed, the Ministry sought to organize civil society groups (like libraries) to lobby for greater "fair use." However, the local IPR legal lobby vigorously opposed this, he noted, notwithstanding the fact that it

BRASILIA 00001355 002 OF 003

was practically impossible for rightholders to collect royalties for such small-scale activity. All that restricting the "fair use" doctrine did, he concluded, was make the public insensitive to the difference between minor copying and blatant piracy.

ۦ5. (SBU) The textbook example of this, Souza stated, was textbooks. There were cases of enforcement entities catching students for small-scale copying while true pirates - i.e., those who xeroxed and sold entire textbooks - often got away scot free. The GOB realized that if it could persuade the publishing industry to lower the price of school books, then it might be able to reduce the economic incentive for piracy. Hence, the GOB eliminated valued added taxes on textbooks. Yet, the tax cuts did not result in lower prices, Souza said, as the industry - noting the limited demand for Portuguese-language publications - argued that its high prices helped it cover high costs due to the lack of economies of scale.

---------------------------------- Digital Inclusion and Cultura Viva ---------------------------------- ۦ6. (SBU) Souza noted that Minister Gilberto Gil was a strong advocate of accommodating intellectual property rights protection to "the needs of development." In this vein, Gil has been outspoken on issues such as free software and digital inclusion of disadvantaged populations. Domestically, one program which the Ministry has taken to implement this vision is "Cultura Viva," the principal element of which is the establishment of various cultural centers throughout the country where low-income artists could have access to studios, internet connections, and other production facilities. Cultural centers have been set-up - through contracts with local NGOs - in such major cities as Sao Paulo, Rio de Janeiro, Salvador, and Brasilia. The only requirement that the government levies on the use of such facilities is that the artist license whatever they produce to the creative commons. The idea is that providing young artists a platform to create, Souza said, gives them the opportunity to gain recognition - which can then translate into market bargaining power. The most notable works which have come from these cultural centers, he noted, have been innovative hip-hop routines produced in Rio.

---------------------------- The GOB's Development Agenda ---------------------------- ۦ7. (SBU) Souza, Brazil's representative at the World Intellectual Property Organization (WIPO), stated that the GOB felt that within that entity the deck was stacked in favor of the developed countries. The rich nations, he intimated, were able to buy votes from the Third World by offering benefits like technical assistance or even travel money and per diem. Hence, he said, the GOB and its emerging country allies, had formulated the "Development Agenda" to break the developed countries' hegemony over the discussion of IPR issues. The "Development Agenda," he continued, was simply the international component of the GOB's overall efforts to make IPR policy more consistent with the needs of emerging nations. International copyright protection should not be absolute, he declared, and Brazil was intent on pushing this point in multilateral fora. One example of how the status quo needed to change, he observed, was the treatment of translations. Given that so few people in Brazil spoke English, he noted, the issue of protection of translated work had special significance for the GOB. Why should a translated work receive full copyright protection, he asked, if the copyright had already lapsed on the original work?

------- Comment ------- ۦ8. (SBU) Though the positions Souza and Prata espoused were in line with the ruling PT party's stance on IPR, they took pains to make clear that they were non-partisan. As civil servants, they would

BRASILIA 00001355 003 OF 003

likely remain in their jobs, they said, even if the opposition PSDB party (generally considered to be more business-friendly) were to prevail in the October 2006 election. Indeed, in our chat with him, Souza declared that the "Development Agenda" would remain high on Brazil's priorities within WIPO for the foreseeable future.

Williamson







Gilberto Gil, the artist, is mentioned by name as he "has been outspoken on issues such as free software and digital inclusion of disadvantaged populations."








VZCZCXRO9665 RR RUEHRG DE RUEHBR #1355/01 1861906 ZNR UUUUU ZZH R 051906Z JUL 06 FM AMEMBASSY BRASILIA TO RUEHC/SECSTATE WASHDC 5995 INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2417 RUEHRG/AMCONSUL RECIFE 5074 RUEHSO/AMCONSUL SAO PAULO 7379 RUEHBU/AMEMBASSY BUENOS AIRES 4125 RUEHAC/AMEMBASSY ASUNCION 5527 RUEHMN/AMEMBASSY MONTEVIDEO 6346 RUEHSG/AMEMBASSY SANTIAGO 5616 RUEHPE/AMEMBASSY LIMA 3070 RUEHCV/AMEMBASSY CARACAS 3331 RUEHQT/AMEMBASSY QUITO 1886 RUEHLP/AMEMBASSY LA PAZ 4689 RUEHBO/AMEMBASSY BOGOTA 3826 RUCPDO/USDOC WASHDC RUEHGV/USMISSION GENEVA 1495

UNCLAS SECTION 01 OF 03 BRASILIA 001355

SIPDIS

SENSITIVE SIPDIS

STATE PASS USTR GENEVA FOR USTR STATE PASS USPTO USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA

E.O. 12958: N/A TAGS: KIPR ECPS BR SUBJECT: BRAZILIAN COPYRIGHT OFFICE SEEKS AN ALTERNATIVE PATH ON IPR ISSUES

ۦ1. (SBU) Summary. Recently, Econ and FCS personnel met with officials at Brazil's Copyright Office (organizationally, located within the Ministry Culture) to discuss Brazil's emerging policy on IPR and digital inclusion issues. This meeting was to follow-up on an earlier, June 7 session between U.S. Patent and Trademark Deputy Director Stephen Pinkos and counterpart Brazilian policy level officials. Our interlocutors outlined the full array of challenges they faced, inter alia, resistance within Brazilian domestic industry to paying royalties, bureaucratic and statutory obstacles to the development of a balanced doctrine of "fair use," and, of course, rampant piracy. (Notwithstanding Brazil's plethora of well-known musicians, because of copyright piracy, we were told, no more than 30 could make a living from musical royalties.) The Ministry had established a network of cultural facilities which artists could use for free, provided they licensed any works produced there to the creative commons. Internationally, our contacts complained of developed country dominance at the World Intellectual Property Organization (WIPO) and stated that the idea behind Brazil's proposed "Development Agenda" was to level the IPR playing field. End Summary.

ۦ2. (SBU) On June 28, FSC Deputy Senior Commercial Officer, Econ Counselor and Econ Assistant met with Marcel Alves da Souza, the head of the Ministry of Culture's Copyright Office, and Angeline Monteiro Prata, the Ministry's Copyright Manager, to learn more about the workings of that office. Souza declared that the Copyright Office was besieged on all fronts as private industry sought to enforce its legal rights in the face of widespread piracy, while government policymakers (in particular Minister of Culture Gilberto Gil) actively worked to afford citizens greater access to informational materials. Notwithstanding the Copyright Office's best efforts, it was becoming increasingly difficult to reconcile the conflicting demands, he stated.

--------------------- ------------------ ------------------ Payments for Use of Copyrighted Songs in Audio-Visual Works --------------------- ------------------ ------------------ ۦ3. (SBU) Souza cited as an example the payment of fees to musical copyright holders when their works were used in domestic Brazilian films. In such cases, a private sector organization, RECADE, he noted, was charged with collecting compensation from filmmakers. However, the film industry balked at paying such monies, arguing (incorrectly) that this was not the practice in the U.S. Indeed, he continued, using that argument the film lobby had nearly gotten the Brazilian Congress to enact legislation withdrawing the legal requirement to pay compensation in these situations, though that effort had ultimately failed. Further complicating the matter, was the lack of transparency of RECADE itself, with a number of artists alleging that it keeps for itself an undue share of the fees collected on their behalf.

---------------------------------- Piracy and the "Fair Use" Doctrine ---------------------------------- ۦ4. (SBU) Discussion then turned to the issue of the scope of the "fair use" doctrine in Brazil - i.e., the degree to which the public could use minor portions of a copyrighted work without paying royalties to the author. Souza stated that while the vast disparities in income in Brazil militated in favor of an expanded "fair use" doctrine, in fact, Brazil, as was the case in many other Latin American countries, applied the concept more restrictively than in the United States. Part of the problem, he observed, was that statutory code, rather than common law, governed on this issue, and even though the relevant statute had been enacted in 1998 in many ways it was already out of date. The public's increasing use of the internet meant that the statute needed to be reworked. To help tip the scales in favor of reform, he observed, the Ministry sought to organize civil society groups (like libraries) to lobby for greater "fair use." However, the local IPR legal lobby vigorously opposed this, he noted, notwithstanding the fact that it

BRASILIA 00001355 002 OF 003

was practically impossible for rightholders to collect royalties for such small-scale activity. All that restricting the "fair use" doctrine did, he concluded, was make the public insensitive to the difference between minor copying and blatant piracy.

ۦ5. (SBU) The textbook example of this, Souza stated, was textbooks. There were cases of enforcement entities catching students for small-scale copying while true pirates - i.e., those who xeroxed and sold entire textbooks - often got away scot free. The GOB realized that if it could persuade the publishing industry to lower the price of school books, then it might be able to reduce the economic incentive for piracy. Hence, the GOB eliminated valued added taxes on textbooks. Yet, the tax cuts did not result in lower prices, Souza said, as the industry - noting the limited demand for Portuguese-language publications - argued that its high prices helped it cover high costs due to the lack of economies of scale.

---------------------------------- Digital Inclusion and Cultura Viva ---------------------------------- ۦ6. (SBU) Souza noted that Minister Gilberto Gil was a strong advocate of accommodating intellectual property rights protection to "the needs of development." In this vein, Gil has been outspoken on issues such as free software and digital inclusion of disadvantaged populations. Domestically, one program which the Ministry has taken to implement this vision is "Cultura Viva," the principal element of which is the establishment of various cultural centers throughout the country where low-income artists could have access to studios, internet connections, and other production facilities. Cultural centers have been set-up - through contracts with local NGOs - in such major cities as Sao Paulo, Rio de Janeiro, Salvador, and Brasilia. The only requirement that the government levies on the use of such facilities is that the artist license whatever they produce to the creative commons. The idea is that providing young artists a platform to create, Souza said, gives them the opportunity to gain recognition - which can then translate into market bargaining power. The most notable works which have come from these cultural centers, he noted, have been innovative hip-hop routines produced in Rio.

---------------------------- The GOB's Development Agenda ---------------------------- ۦ7. (SBU) Souza, Brazil's representative at the World Intellectual Property Organization (WIPO), stated that the GOB felt that within that entity the deck was stacked in favor of the developed countries. The rich nations, he intimated, were able to buy votes from the Third World by offering benefits like technical assistance or even travel money and per diem. Hence, he said, the GOB and its emerging country allies, had formulated the "Development Agenda" to break the developed countries' hegemony over the discussion of IPR issues. The "Development Agenda," he continued, was simply the international component of the GOB's overall efforts to make IPR policy more consistent with the needs of emerging nations. International copyright protection should not be absolute, he declared, and Brazil was intent on pushing this point in multilateral fora. One example of how the status quo needed to change, he observed, was the treatment of translations. Given that so few people in Brazil spoke English, he noted, the issue of protection of translated work had special significance for the GOB. Why should a translated work receive full copyright protection, he asked, if the copyright had already lapsed on the original work?

------- Comment ------- ۦ8. (SBU) Though the positions Souza and Prata espoused were in line with the ruling PT party's stance on IPR, they took pains to make clear that they were non-partisan. As civil servants, they would

BRASILIA 00001355 003 OF 003

likely remain in their jobs, they said, even if the opposition PSDB party (generally considered to be more business-friendly) were to prevail in the October 2006 election. Indeed, in our chat with him, Souza declared that the "Development Agenda" would remain high on Brazil's priorities within WIPO for the foreseeable future.

Williamson







Lastly, the following cable says that Rogerio Santana "mentioned the importance of a public software website, administered by his office, offering free software to assist local administrations throughout the country."








VZCZCXRO3444 RR RUEHRG DE RUEHBR #0003/01 0021945 ZNR UUUUU ZZH R 021945Z JAN 08 ZDK FM AMEMBASSY BRASILIA TO RUEHC/SECSTATE WASHDC 0750 INFO RUEHRI/AMCONSUL RIO DE JANEIRO 5621 RUEHSO/AMCONSUL SAO PAULO 1392 RUEHRG/AMCONSUL RECIFE 7540

UNCLAS SECTION 01 OF 02 BRASILIA 000003

SIPDIS

SIPDIS PARIS FOR OECD

E.O. 12958:N/A TAGS: ECON EINV SCUL PREL BR SUBJECT: OECD DSG AT BRAZIL KNOWLEDGE MANAGEMENT CONFERENCE

BRASILIA 00000003 001.2 OF 002

ۦ1. OECD Deputy Secretary General Thelma Askey spoke at a conference in Brasilia, the "Fourth International Conference on Knowledge Management in the Public Sector" on December 11. The Brazilian Chamber of Deputies, Planning Ministry, Presidential Council for Economic Development, and Long-Term Planning Secretariat organized the conference with the Brazilian Association of Knowledge Management (SBGC). The conference explored how better to incorporate knowledge management into public administration in Brazil, drawing on local and international experiences and lessons learned. The conference considered the definitions of "knowledge management," noted its effects on economic growth, and examined the specific situation in Brazil. Other speakers included the Brazilian Minister of Science and Technology, the head of the Brazilian Chamber of Deputies, and the Casa Civil (Presidency) E-Government office. End Summary.

------------------------------ SAMPLING OF BRAZILIAN SPEAKERS ------------------------------

ۦ2. Arlindo Chinaglia, Chairman of the Chamber of Deputies, opened the conference. He noted knowledge management, with origins in the corporate sector, proves its value in the public sector if it helps improve the quality of services to the population. He noted the website Interlegis (www.interlegis.gov.br), developed by the Brazilian congress with IDB assistance, is an example of knowledge management. The website furthers government transparency and information sharing by facilitating public access to congressional activities and legislation.

ۦ3. Sergio Resende, Minister of Science and Technology, noted that knowledge management is a challenge to Brazil's public sector mainly due to systemic education problems. As an example, masters and PhD programs in the United States have existed for 150 years, while in Brazil these programs began 40 years ago according to the minister. Brazilian corporations' knowledge management challenges now include innovation and research and development. The Minister added that the Brazilian Innovation Law provides subsidies for investment in technology, including e-government. Rogerio Santana, Executive Secretary for e-government at the Casa Civil, Presidency of the

SIPDIS Republic, expanded on this theme, saying knowledge management includes both what people know and how they share their information. He mentioned the importance of a public software website, administered by his office, offering free software to assist local administrations throughout the country. Santana noted as well that knowledge management is not only the federal government pushing information out to local entities. Knowledge management also means creating opportunities for local-level talent, including indigenous and riverside cultures, to enrich federal level decision-making.

ۦ4. Federal Deputy Gastao Vieira, Education Committee Chairman, further developed the education theme, strongly asserting Brazil needs to implement a literacy program for elementary schools, drawing on best-practices at state level for educational reform. He noted a 2003 GOB report that found teacher training programs in Brazil are thirty years out of date. The deputy felt the poor performance of Brazilian students on the OECD PISA (Program for International Student Assessment) exams reflected the lack of investment in education and Brazil's failure to set a few achievable priorities (e.g. an adequate syllabus, teacher training, and materials investment) instead of myriad overambitious goals. He commented that knowledge management and international trade are also linked, as increased know-how raises exported products' value-added and trade itself increases knowledge acquisition.

-------------- OECD DSG ASKEY --------------

ۦ5. Thelma Askey, OECD Deputy Secretary-General, spoke on a panel entitled "The Public Policy of Knowledge Management and the Agenda of Global Development" with Maristela Baioni, program coordinator in Brazil for UNDP. Askey underlined that knowledge management is among OECD governments' top five policy priorities. OECD identifies and shares best practices in order to enhance this global public good for all countries. OECD knowledge management goals include: 1) helping members adapt to change; 2) opening communication channels; 3) furthering investment in higher education and in information technologies; and 4) promoting integration and exchanges among academic institutions, the private sector and the public sector.

ۦ6. DSG Askey noted that the OECD has an indicator for measuring investment in knowledge, and that OECD member countries invest, on average, nearly six percent of GDP in knowledge development and management. Investment mechanisms include e-government structures; higher education; development and implementation of research systems, databases and internet platforms; and partnerships among governments. Askey stressed that, for the public sector, investment in knowledge management should target building public trust, for example through creation of reliable, independent statistics

BRASILIA 00000003 002 OF 002

agencies. Askey advocated that governments should create incentives for knowledge sharing and should stress transparency and policy coherence. Ms. Askey concluded by reiterating the importance of coordination among private sector, academic and public sector institutions, as well as the importance of sharing experiences and lessons learned among countries.

ۦ7. COMMENT: The conference provided an important opportunity for Brazilian government, academia and international organizations to share perspectives on increasing transparency and investment in knowledge in a democracy. The event, co-planned by Brazil's executive and legislative branches with civil society participation, was an interesting and informative step in Brazil's on-going public sector reform dialogue. END COMMENT

CHICOLA







We will hopefully find time to return to Brazil in the future of this Cablegate series. What the US wants is the sort of compliance we see in Portugal, another Portuguese-speaking nation. To pick just one cable from Portugal, consider the following one which says: "Patent Protection: Currently, Portugal's patent protection is governed by the Code of Industrial Property that went into effect on June 1, 1995. In 1996, new legislation was passed to extend the life of then-valid patents to 20 years, consistent with the provisions of TRIPS. A new industrial property code, designed to bring Portugal into full conformity with EU and international norms, came into effect at the beginning of 2003."

Here is the full cable:








VZCZCXRO8178 RR RUEHIK DE RUEHLI #0022/01 0141440 ZNR UUUUU ZZH R 141440Z JAN 10 FM AMEMBASSY LISBON TO RUEHC/SECSTATE WASHDC 8060 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 07 LISBON 000022

SIPDIS

DEPT FOR EB/IFD/OIA DEPT ALSO FOR USTR

E.O. 12958: N/A TAGS: EINV [Foreign Investments], EFIN [Financial and Monetary Affairs], ETRD [Foreign Trade], ELAB [Labor Sector Affairs], KTDB [National Trade Data Bank], PGOV [Internal Governmental Affairs], OPIC [Overseas Private Investment Corporation], USTR [Office of the Special Representative for Trade Negotiations], PO [Portugal; Azores; Madeira Islands] SUBJECT: PORTUGAL'S 2010 INVESTMENT CLIMATE STATEMENT

REF: 09 STATE 124006

LISBON 00000022 001.2 OF 007

ۦ1. The following is Portugal's submission for the 2010 Investment Climate Statement:

A. Openness to Foreign Investment

Portugal offers a favorable investment climate for foreign capital, both in the near and long term. Its economy has become increasingly diversified and service-based since the country joined the European Community in 1986. On January 1, 2002, Portugal introduced the euro as its official currency, further integrating itself with the European Union's financial and economic policies. Prime Minister Jose Socrates, who began his second term in office in 2009, has made opening Portugal's economy to foreign investment a key priority.

Government Promotion Agencies: The agency leading Portugal's economic development policy is AICEP (the Portuguese Agency for Foreign Investment and Commerce). AICEP is responsible for the promotion of global Portuguese trademarks, exports of goods and services, and attracting foreign direct investment (FDI). It serves as the point of contact for investors with projects over 25 million euros or companies with a consolidated turnover of more than 75 million euros. For foreign investments not meeting these requirements, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as IAPMEI, the Institute for the Support of Small- and Medium-sized Enterprises (SMEs), which provides technical support, or to AICEP CAPITAL GLOBAL, which offers technology transfer, incubator programs and venture capital support.

Government Policies - General: According to the Bank of Portugal, foreign direct investment is defined as an act or contract that obtains or increases enduring economic links with an existing Portuguese institution or one to be formed. Foreign direct investment is thus all investment made by a non-resident of, at least, 10 percent of a resident company's equity, provided that the direct investor also plays a role in the company's decision making.

The Portuguese legal system is based on non-discrimination with regard to the national origin of investment, and foreigners are permitted to establish themselves in all economic sectors open to private enterprise. However, foreign and domestic investments alike are limited in relation to certain economic activities. Portuguese government approval is required in the following sectors: defense, water management, public service telecommunications operators, railways, maritime transportation and air transport, or if they involve the exercise of public authority. Private-sector companies can operate in these areas only through a concession contract.

Finance/Insurance: Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms). In both cases, the authorities carefully consider the proposed transaction, but in the case of non-EU firms, the Ministry of Finance especially considers the impact on the efficiency of the financial system and the internationalization of the economy. Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.

Foreign Workers: Non-Portuguese EU workers must obtain a residence card for EU nationals but are not required to have work permits. Non-EU workers are required to have both a residence visa and a work permit. The permanent authorization for residence is granted when an employee has a labor contract, rent contract or a permanent resident evidence document and is registered in the Social Security Services. The request is processed at the Servios de Estrangeiros e Fronteiras (SEF) Branch. The requests are regulated by the act Law 23/2007 dd 4/07 and by the Decree-Law 84/2007 dd 05/11. For more information visit http://www.sef.pt

Structural and Cohesion Funds: For the 2007-2013 programming period, Portugal has been allocated 21.5 billion euros of Structural and Cohesion Funds financing under the European Union's Convergence, Regional Competitiveness and

LISBON 00000022 002.2 OF 007

Employment, and Territorial Cooperation program. Portugal plans to use the funds to develop a skilled workforce, to promote sustainable growth, to guarantee social cohesion, to ensure territorial development, and to improve governance efficiency. One of the most important public policy priorities for growth and competitiveness of the Portuguese economy is the Technological Plan, an action agenda which aims to mobilize enterprises, families and institutions to overcome the modernization challenges the country has faced during the last years. For more information visit http://www.planotecnologico.pt

Following are Portugal rankings for several widely-accepted measures of the business and investment environment:

Measure Year Ranking ------- ---- --------- TI Corruption Index 2009 35 of 180 Heritage Economic Freedom 2009 53 of 179 World Bank Doing Business 2010 48 of 183

For more information about these measures visit: http://www.transparency.org/policy research/surveys indices/ cpi/2009/cpi 2009 table http://www.heritage.org/index/ http://www.doingbusiness.org/economyrankings/

B. Conversion and Transfer Policies

Portugal maintains no current or capital account restrictions. On January 1, 1999, Portugal and ten other European countries formed the European Monetary Union. On January 1, 2002, Portugal introduced the euro as its official currency, replacing the Portuguese escudo which is no longer in circulation. Currently, there are sixteen member-states that use the euro.

C. Expropriation and Compensation

There have been no cases of expropriation of foreign assets or companies in Portugal in recent history, nor is there concern about future expropriation.

Banco Portugues de Negocios (BPN) was nationalized November 2, 2008, the first bank nationalization in Portugal since 1975. At the time of the nationalization BPN had lost approximately 700 million euros from declining investment values from the global financial crisis, but the Ministry of Finance stressed that BPN was taken over as a result of an ongoing investigation into mismanagement and malfeasance.

D. Dispute Settlement

The Portuguese legal system is slow and deliberate, with many cases taking years to resolve. In an effort to address this problem, the government introduced reforms in litigation procedures and public administration in 2007. These reforms are intended to reduce delays in the justice system and improve its effectiveness by reorganizing the court system and redefining the division of the court's jurisdiction.

E. Performance Requirements and Incentives

As an incentive to both national and foreign companies, resident entities or branches of non-resident entities whose main activity is of a commercial, industrial or agricultural nature are subject to a corporate income tax (IRC) with a rate of 12.5 percent for the first 12,500 euros of income and 25 percent for income exceeding 12,500 euros, and a set municipal surcharge of no greater than 1.5 percent of company's taxable profit subject to IRC. Rates vary from municipality to municipality. Other tax regimes are in place for the country's two autonomous island regions: the Azores and Madeira.

The Portuguese Government also offers several incentive packages tailored to investors' needs and capital based on industry, proposed size of investment and project sustainability. Details about the programs are available on the AICEP website: http://www.portugalglobal.pt

For example, under Portugal's investment incentive regime, AICEP is empowered to negotiate a tailored incentives package for large investment projects on a case-by-case

LISBON 00000022 003.2 OF 007

basis, including tax cuts and subsidized or interest-free loans, as well as cash grants. Large-scale investment projects are investment projects exceeding 25 million euros, within a period of three years, or those promoted by a company, or group of companies with a total turnover greater than 75 million euros. The goal of the program is to leverage investments for proposed projects that support the government's economic development goals. AICEP has designed the program to address Portugal's long-term competitiveness, including human resources, and to promote Portugal's brands and patents in the industrial, energy, construction, transport, tourism, commerce and services sectors. For more information visit http://www.portugalglobal.pt

The National Strategic Reference Framework (NSRF) seeks to improve the quality of Portugal's workforce and encourage economic and socio-cultural development through expanded human resources development opportunities, support for entrepreneurship and innovation, streamlined public administration, and other measures. For more information visit http://www.qren.pt or http://www.incentivos.qren.pt

F. Right to Private Ownership and Establishment

Private Ownership/Enterprise: Private ownership is limited to 49 percent in the following sectors: basic sanitation (except waste treatment), international air transport, railways, ports, arms and weapons manufacture, and airports. The government requires private firms to obtain concessions, contracts, and licenses to operate in a number of sectors (public service television, waste distribution, waste treatment), but grants these on a non-discriminatory basis. Foreign firms have the right to establish themselves in all economic sectors open to private enterprise. Foreign investments affecting public health, public order or security, or relating to the arms industry, require approval of the competent authorities.

Competitive Equality: Law No.18/2003, of June 6, 2003, governs protection and promotion of competition in Portugal. It specifically outlaws collusion between companies to fix prices, limit supplies, share markets or sources of supply, discriminate in transactions, or force unrelated obligations on other parties. Similar prohibitions apply to any company or group with a dominant market position. The law also requires prior government notification of mergers or acquisitions which would serve to give one company more than 30 percent market share in one sector or among entities which had total sales in excess of 150 million euros in the preceding financial year. The Competition Authority has 60 days to determine if the merger or acquisition can proceed. The European Commission may claim authority on cross-border competition issues or those involving entities large enough to have a significant EU market share. For more information visit http://www.concorrencia.pt/en/index.asp

Privatization Program: Portugal engaged in a wide-ranging privatization program that sold 100 enterprises and generated approximately USD 14 billion in revenues between 1996 and 2006. Privatization involves the sale of government shares in state-owned companies, typically in a series of share offerings. These share offerings often include private transactions, usually to attract a "strategic partner" as an equity holder, and public offerings.

Major privatizations in recent years included sales of interest in Portugal Telecom (telecommunications), EDP (electricity), REN (Electricity Transmission System Operator) and GALP Energia (petroleum refining and marketing, natural gas distribution).

G. Protection of Property Rights

The government adopted the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and provisions of General Agreement on Tariffs and Trade (GATT) in 2003. Portuguese legislation for the protection of intellectual property rights has been consistent with WTO rules and EU directives since 2004.

Portugal is a participant in the eMAGE and eMARKS projects, which provide multilingual access to databases of trademarks and industrial designs. These international efforts assist participating customs authorities in preventing sales of counterfeit goods. Other countries involved include France, Austria, Hungary and Spain.

LISBON 00000022 004.2 OF 007

Trademark Protection: Portugal is a member of the International Union for the Protection of Industrial Property (WIPO) and a party to the Madrid Agreement on International Registration of Trademarks and Prevention of the Use of False Origins. Portugal's current trademark law entered into force on June 1, 1995. The law, however, is not considered to be entirely consistent with TRIPS.

Copyright Protection: Portugal has transposed the EU information society and protection of databases directives into national legislation (Decree-Law 50/2004 and 112/2000, respectively). However, the software piracy rate is slightly greater than average software piracy rate in EU.

Patent Protection: Currently, Portugal's patent protection is governed by the Code of Industrial Property that went into effect on June 1, 1995. In 1996, new legislation was passed to extend the life of then-valid patents to 20 years, consistent with the provisions of TRIPS. A new industrial property code, designed to bring Portugal into full conformity with EU and international norms, came into effect at the beginning of 2003.

Portugal grants health (FDA-equivalent) approval to market new drug products without crosschecking for existing products with unexpired patent protection already in the market. This forces companies to pursue redress through the court system, an expensive and time-consuming process. U.S. pharmaceutical companies have brought a number of cases before Portuguese tribunals for the violation of patent rights by Portuguese companies. One U.S.-owned pharmaceutical company has won five cases and has several more pending.

H. Transparency of Regulatory System

In the recent past, businesses frequently complained about red tape with regards to registering companies, filing taxes, receiving value-added tax refunds and importing materials. Decision-making tended to be centralized and obtaining government approvals/permits can be time- consuming and costly.

The Ministry of Economy has promoted various initiatives to improve the situation. In 2007, it worked with the Ministry of Justice to launch the "Cutting Red Tape" website, a repository of information for all measures taken since 2005 to reduce bureaucracy in the incorporation, registration, certification, liquidation, dissolution and merging of businesses in Portugal. Other initiatives include the "Empresa na Hora" (On-the-Spot Company) which allows for the incorporation of companies in less than one hour at Corporate Formalities Centers and Business Registration Offices; and other services such as online company incorporation, labor mediation, bilingual commercial registration, and patents and trademarks. Since 2005, a total of 14,471 companies have been incorporated under the "Empresa na Hora" program, while over 450 companies have been incorporated using the online service. More information can be found at the "Cutting Red Tape" website: http://www.cuttingredtape.mj.pt

I. Efficient Capital Markets and Portfolio Investment

One result of Portugal's participation in the European Monetary Union is the country's increasing integration into a European-wide financial market. As a member of the Euro- zone, Portugal offers low exchange rate risk for foreign investors, interest rates comparable to other EU countries and a greater availability of credit. In addition to bank lending, the private sector has access to a variety of credit instruments, including bonds. Legal, regulatory, and accounting systems are consistent with international norms.

The Portuguese capital markets code (the CVM) came into effect on March 1, 2000, and has rationalized and streamlined Portuguese capital markets legislation. The Lisbon stock market is part of Euronext, which also includes the Paris, Brussels and Amsterdam markets.

Portugal has about 45 banking institutions, and the six largest bank groups account for seventy-eight percent of the sector's total assets. The country's largest bank, Caixa Geral de Depositos (CGD), is controlled by the Portuguese government. Despite recent economic challenges, the financial sector continues to perform well.

LISBON 00000022 005.2 OF 007

In addition to banks and stock markets, Portugal has taken specific steps to ensure that the financial needs of SMEs are met. IAPMEI has a program of mutual guarantees so that SMEs do not have to use their assets or those of their shareholders to collateralize debt. The companies pay an initial evaluation fee and an annual fee equal to 0.75-3.00 percent of the guarantee. IAPMEI has also supported the creation of venture capital funds and venture capital companies, which will channel capital to SMEs.

J. Competition from State Owned Enterprises

The Portuguese system is based on non-discrimination regarding national origin of investment. Foreign and domestic private companies are limited in relation to certain economic activities, such as water utilities, postal services, rail transport and the maritime ports. Private sector companies, regardless of national origin, can operate in these restricted fields only through a concession contract.

There is no sovereign wealth fund in Portugal.

K. Corporate Social Responsibility

There is strong awareness of corporate social responsibility in Portugal, and broad acceptance of the need to consider the community among the key stakeholders of any company. RSE Portugal (Corporate Social Responsibility Portugal), the leading association for corporate social responsibility in Portugal, was formed in 2002 as the successor to the Portuguese Business Network for Social Cohesion, which was formed in 1996. RSE Portugal aims to build bridges between the private sector and key stakeholders towards a more responsible and sustainable future. RSE Portugal's mission is to promote corporate social responsibility as business' contribution for sustainable development through the conception, execution, and support of programs and projects in educational, formative, social, cultural, scientific, environmental, civic, and economic areas in Europe and in developing countries. Since its formation RSE Portugal has sponsored numerous classes and workshops promoting corporate social responsility and collaborated with Nike to fund and support innovative projects for young people in the areas of social sciences, health, education, and training. RSE Portugal has also carried out studies of competitiveness and sustainability in the construction industry in collaboration with counterpart organizations in Italy, Spain, Hungary, and Austria.

For more information visit http://www.rseportugal.eu

L. Political Violence

There have been no incidents involving politically motivated damage to projects and/or installations. Potentially destructive civil disturbances are not likely.

M. Corruption

Corruption plays a limited role in Portugal's business culture. Although U.S. firms occasionally encounter limited degrees of corruption in the course of doing business in Portugal, they do not identify corruption as an obstacle to foreign direct investment. In Transparency International's 2009 Corruption Perceptions Index, Portugal ranked 35 out of 180 countries considered (listed from least to most corrupt). Portugal has ratified the OECD Anti-bribery Convention and recently passed legislation to bring its criminal code in compliance with the Convention. Tax evasion remains a problem for the government, which has implemented several initiatives to improve collection rates. The Socrates administration is taking steps to address the limited degrees of corruption that businesses, both U.S. and other, face in Portugal.

N. Bilateral Investment Agreements

http://www.portugalglobal.pt

Listing of International Treaties: http://www.gddc.pt/siii/paises-organizacoes.a sp

O. OPIC and Other Investment Insurance Programs

Portugal is a country with low political risk, and the potential for significant OPIC insurance programs in

LISBON 00000022 006.2 OF 007

Portugal is limited. Portugal is a member of the Multinational Investment Guarantee Authority (MIGA) of the World Bank.

P. Labor

Numerous labor reform packages aimed at improving the productivity of Portugal's workforce have been enacted over recent years, with limited success. A package of labor reform laws took effect in 2003 permitting greater geographic and functional mobility for employees. The labor code limits the role of unions and makes it more difficult for workers to strike. It also addresses absenteeism and fraudulent leave. Additional changes were enacted in 2009 clarifying rules concerning intermittent and seasonal employment, specifying leave flexibility regarding parenthood and family support, and other issues. However, low productivity and difficulty in firing workers continue to hamper Portugal's ability to attract foreign investment.

Labor strikes and work stoppages in Portugal, as in much of Europe, are more common than in the United States. Most strikes, however, are of short duration. In recent years work stoppages have been more common among public sector workers, including the transportation sector and teachers, than in the private sector.

Portugal is a member of the International Labor Organization (ILO) and adheres to the ILO Conventions Protecting Labor Rights. Portugal ratified ILO Convention 138, which establishes a minimum employment age of 15 for all economic sectors. As of January 1, 1997, the minimum working age in Portugal is 16, thereby exceeding the ILO norm.

Unemployment: Portugal's unemployment rate reached 10.3 percent in the 4th quarter of 2009. This is an increase of 30 percent from the same quarter of 2008 (7.8 percent) and up 0.5 percent from the previous quarter (9.8 percent). The number of unemployed was estimated to be 575.6 thousand individuals.

Q. Foreign-Trade Zones/Free Ports

Portugal has two foreign trade zones (FTZ)/free ports in the island autonomous regions of Madeira and the Azores. These foreign trade zones/free ports were authorized in conformity with EU rules or incentives granted to member states. Industrial and commercial activities, international service activities, trust and trust management companies, and offshore financial branches are all eligible. Companies established in the foreign trade zones enjoy import/export- related benefits, financial incentives, tax incentives for investors and tax incentives for companies.

The Madeira FTZ has approximately 6,500 registered companies. Under the terms of Portugal's agreements with the EU, companies in the Madeira FTZ can take full advantage of the tax incentives provided until December 2011, when those incentives will begin to be phased out. For more information visit http://www.madeira-management.com

R. Foreign Direct Investment flows into Portugal

http://www.portugalglobal.pt

S. Portuguese Trade with the U.S.

http://www.census.gov/foreign-trade

T. Major Foreign Direct Investors

Selected Major Foreign Investors in Portugal: http://www.portugalglobal.pt

U. Web Resources

Bank of Portugal: http://www.bportugal.pt

Portuguese Agency for Foreign Investment and Commerce: http://www.portugalglobal.pt

"Cutting Red Tape": http://www.cuttingredtape.mj.pt

Empresa na Hora (On-the-Spot Firm):

LISBON 00000022 007.2 OF 007

http://www.empresanahora.pt

QREN (National Strategic Reference Framework 2007 - 2013) http://www.qren.pt

EUROSTAT (Statistical Office of the European Communities): http://ec.europa.eu/eurostat

U.S. Census Bureau: http://www.census.gov

Technological Plan: http://www.planotecnologico.pt

The "Cutting Red Tape" Investment Incentive Program: www.cuttingredtape.mj.pt

Portuguese Government: http://www.portugal.gov.pt

American Chamber of Commerce in Lisbon: http://www-cca.cliente.imediata.pt

IAPMEI (Institute for S.M.E. Support and Investment): http://www.iapmei.pt

INPI (Portuguese Patent and Trademark Office): http://www.inpi.pt

Trade and Competition Directorate-General: http://www.dgcc.pt

US Commercial Service in Portugal: http://www.buyusa.gov/portugal/en BALLARD

For more reporting from Embassy Lisbon and information about Portugal, please see our Intelink site:

http://www.intelink.sgov.gov/wiki/portal:port ugal BALLARD







In summary, the US wants Brazil to be more like Portugal before it can be removed from a "watch list" that shames Brazil into accepting other nations' sovereignty.

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His wife shows the 4 of them for the first time (2 hours ago)
Protesters in Kenya Need Software That is Free (Libre) and Supports Real Encryption in Order to Avoid Capture and Torture (Sometimes Execution)
There's more to fight over than economic issues
The Ludicrous Idea That GNU/Linux is a "Poor Man's" Operating System
Seeing the trends in countries such an Norway, it ought to be abundantly clear that adoption of GNU/Linux has nothing to do with poverty
Links 22/07/2024: Internet Optimism and Kamala Harris Policies Debated
Links for the day
Something is Happening at OFTC
It looks like it shrank by 20,000 users
GNU/Linux Usage in Guadeloupe Rises Closer to International Average, Based on Web Data Collected by statCounter
It should be noted that the estimates of GNU/Linux usage are now in 4.5% territories
The Impact of OFTC's Latest Changes on the Perceived Scale of IRC Globally
IRC is still one of the more potent alternatives to the social control media conglomerates
New: Why They Really Went After Assange
Uploaded by Chris Hedges
Links 21/07/2024: Health, Politics, and Kamala Harris in Focus
Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Sunday, July 21, 2024
IRC logs for Sunday, July 21, 2024
A Drop in Half (From 208 to 104): Sharp Decline in Number of Gemini Capsules That Use Let's Encrypt CA Since December
Gemini is increasing its independence from Certificate Authorities (CAs)