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U.S. Trade Representative

1. The Problem: The problem is to persuade Brazil to review and set aside the strict market reserve law that it has formulated for informatics, streamline and relax its import and investment policy, and tackle piracy of software. 2. Our goals: Our first goal is to get the market reserve for informatics repealed. We need to oppose the increase of the market reserve law to eight years, the extension of the market reserve to electronics components, communication equipment and all digital equipment. These steps should be achieved without invoking the GATT or using retaliatory moves.

3. Diagnosis: The main outstanding issue is to get the law on market reserve annulled. The last position of Brazil was that they were willing to begin negotiations over market reserve on informatics. Brazil has confirmed that it will not seek to extend the market reserve beyond 1992, nor will it expand its jurisdiction to sectors beyond informatics. In addition, Brazil has assured that it will pass a law that shall guarantee copyright protection for software similar to that passed by Japan (Odell. J, & Dibble. A, 1992).

Our last position was that during negotiations there would be no threats of reprisals, no deadlines and no new law that would hurt the interests of Brazil. Brazil’s outside alternative is that the US should not threaten retaliation, should not insist on deadlines and not change laws. This is the lowest probable value. Please remember that it was the US pledge of not insisting on deadlines, not threatening retaliation and not changing laws that was instrumental in bringing Brazil to the negotiation table. In case the US breaks any of these promises, Brazil will break the negotiations and end the talks.

The lower level of acceptable agreement from the US standpoint is that Brazil should agree to further negotiations. This is the minimum reserve because of two reasons. First, the negotiation stage has been reached through gestures from both the sides. The US has promised that it will not threaten reprisals, set no deadlines and enact no new law detrimental to the interest of Brazil and Brazil has confirming that the market reserve will not be applied beyond the eight year limit and will not be extended to any other product. Second, if there are no further negotiations US may be compelled to seek the GATT route or use retaliatory measures.

In short if Brazil does not agree to continue negotiations then the US will be compelled to either take action through GATT or use retaliatory measures. Yes, there is a positive zone of agreement now. One outside alternative is that the US does not threaten, impose time limits and make new laws and the other outside alternative is that Brazil should continue to negotiate. Between these two ends the zone of agreement could be that the US would not adversely evaluate Brazil and Brazil would agree to a reduction in the scope of market reserves.

This reduction of market reserve for informatics can be in the form of decrease in the number of years from eight years to either two or four years. On the other hand there can be a reduction in the definition of informatics activities. For instance, Brazil may decide to keep electronic components or optical-electronic products outside the scope of the definition of informatics activities. Again Brazil might lower the benefits it offers to ‘national’ information companies and may agree to offer benefits or incentives to US companies.

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