This paper analyzes the trade dispute between Brazil and the United States over Brazil's 1984 Informatics Law, which granted Brazilian firms exclusive rights in the domestic computer market for eight years. Written from the perspective of an advisor to the Brazilian Ambassador, the paper examines whether the conflict was distributive or integrative, identifies the main parties and agenda issues, and evaluates each side's best alternatives to a negotiated agreement. It traces the escalation from a Section 301 investigation through threats of trade retaliation, the eventual passage of a Brazilian software bill, and the reversal of sanctions in early 1988, ultimately arguing that Brazil had far more to lose than to gain by resisting negotiation.
The paper applies distributive versus integrative negotiation frameworks directly to a real diplomatic case. By identifying the shift from zero-sum competition to mutual-gain awareness — the point at which both sides recognized what they stood to lose — the author shows how theoretical negotiation concepts translate into historical analysis. This technique of mapping a real-world event onto an academic framework is essential in international relations and diplomacy coursework.
The paper opens with a clearly stated scenario and a numbered set of guiding questions that anchor the analysis. It then moves through three substantive sections: the background and nature of the dispute, the negotiation strategies employed by both parties, and an evaluation of trade-offs and outcomes. A brief conclusion ties the analysis back to the strategic logic of timing and leverage. The structure is straightforward and well-suited to a policy-advisory format.
This paper is written from the position of a team member advising Brazilian Ambassador Flecha de Lima. The central task is to determine whether the Ambassador should seek to protect more than one value, to outline those values in descending order of priority, and to identify the order in which they should be sacrificed if trade-offs become unavoidable. These trade-offs may be subject to debate and revision, but the analysis below applies the best available judgment to the circumstances.
The guiding questions for this analysis are: Is the situation distributive or integrative? As of September 1983, was it possible to change the situation and make both parties better off? Who are the main parties? What main issues are likely to be on the agenda? What is Brazil's best alternative to opening negotiations or accepting the offer on the table? What is the United States' best alternative to an agreement with Brazil? What would a breakdown in negotiations mean for each side? And what incentives does each side have to reach an agreement?
Brazilian President José Sarney faced a serious dilemma five months into his first term in the form of an American investigation into the Brazilian computer industry. The investigation was authorized under Section 301 of the U.S. Trade Act of 1974, which allowed the United States to impose retaliatory penalties on Brazilian exports if it determined that Brazil had established unjustifiable or unreasonable import restrictions, or other policies damaging to U.S. commerce.
Brazil and the United States came into conflict over trade relations in the early 1980s when U.S. firms found themselves excluded from selling new technologies in the Brazilian market and received no payment of licensing fees. U.S. officials characterized this situation as "sheer piracy," and one official questioned "whether Brazil is developing its own technology or is it merely learning how to copy" (Odell and Dibble, 1992). The informatics sector in Brazil had become a distributive conflict in which the two sides held conflicting goals and profits flowed overwhelmingly to Brazil at the expense of the United States.
In 1984, Brazil enacted the Informatics Law, which contained the following key provisions: (1) state authorization to continue the market reserve for eight years until 1992, granting national firms exclusive rights to engage in informatics activities; and (2) a broad definition of informatics activities encompassing the development, production, and sale of electronic components, opto-electronic products, their electronic inputs, and machines and devices based on digital techniques. Article 2 further provided for the continual adjustment of the informatics framework to meet the needs of Brazilian society.
Several contextual factors shaped the diplomatic environment. Brazil was anti-communist and had historically been a U.S. ally. The United States was more important to Brazil in trade terms than the reverse. Brazil's principal foreign policy goals with respect to the United States were to attract military aid, financial support, and private investment, and to maintain open markets for Brazilian exports.
U.S. computer companies held mixed views on the impact of Brazil's Informatics Law. All major U.S. computer firms regarded Brazil as a market of great potential. One U.S. official characterized the primary objective of the law and Brazil's investment policies as an effort to push U.S. computer companies out of the market entirely. The situation deteriorated further in 1984 when IBM filed several lawsuits in Brazilian courts alleging copyright infringement on PC software and hardware — efforts that proved to be, in the words of the case record, "to no avail" (Odell and Dibble, 1992).
While U.S. exports were falling and the trade deficit growing, free competition was not viewed as a problem but as sound long-term policy for the United States. President Reagan's diplomats acknowledged their understanding of common interests, including Brazil's international debt problem, the hardship that debt was imposing on ordinary Brazilians, and the potential threat it posed to U.S. banks. At the same time, Brazil stood out as one of the largest markets in the developing world and one of the most influential voices among developing nations as a group (Odell and Dibble, 1992).
A notable inconsistency in Brazil's position was that it had previously lectured the United States on the law of comparative advantage in the context of the shoe industry, arguing that the U.S. should move workers out of declining sectors and into others. The United States did exactly that — it allowed its shoe industry to decline and shifted workers into electronics — only to find Brazil shutting out U.S. electronic products. Brazil was subsequently identified as a country with seriously problematic trade policies, and President Reagan ordered an investigation. Brazilian officials reacted with what observers described as "hot fury" (Odell and Dibble, 1992). Because the situation was so markedly one-sided in Brazil's favor, Reagan determined it had to be confronted directly.
The best available alternative at that point was for Brazil to open negotiations, and this is precisely what occurred. Brazil appeared, however, to be employing stalling tactics. At the same time, Brazil needed to export its products because it carried an enormous debt load owed to U.S. banks. Reagan clearly understood that the United States held the stronger hand in this situation.
In 1986, House Democrats brought a trade bill to the floor that passed. This shifted the tone of the negotiations considerably. Brazil was informed that there would be no changes in the law, no deadlines, and no threats of reprisals. The nature of the dispute thus changed, and negotiations over the informatics issue resumed. Crucially, the conflict had by this point evolved from distributive to integrative: both sides now had a clear understanding of what they stood to lose if negotiations failed.
U.S. companies had strong incentives to reach an agreement. IBM, for example, relied on Brazil for approximately forty percent of its exports. Although retaliation was the rallying cry of many industry voices, the president of the Computer and Business Equipment Manufacturers Association (CBEMA) argued that while Brazil's software bill was "unacceptable," the worst possible response by the U.S. government would be retaliation. The United States remained unwilling to accept the status quo with respect to two core objectives: (1) investment liberalization and (2) improved protection of intellectual property rights (Odell and Dibble, 1992).
By February 1987, Brazil's government had descended into deep political instability. Brazilian computer products grew rapidly in this period, but their prices were 2.5 to 3 times higher than comparable imported products. In June 1987, Apple Computer accused a Brazilian firm of pirating and cloning its Macintosh computer. Washington announced it would retaliate if Brazil's Congress did not pass the software bill. The bill ultimately passed, but Brazil's Special Secretariat for Informatics (SEI) rejected the legal importation of MS-DOS software, and Reagan ordered retaliation — a plan to ban all Brazilian computer product imports and raise tariffs by 100 percent.
The United States took every opportunity to gently lead Brazil toward reducing and mitigating its trade barriers, which appeared quite intentional and heavily one-sided in terms of the benefits derived. However, when Brazil's economy began to weaken and inflation took hold, President Reagan recognized the moment to act decisively. Brazil responded accordingly, and the long-running informatics dispute moved toward a resolution that reflected the underlying asymmetry of leverage between the two countries throughout the negotiation process.
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