Brazil–U.S. Informatics Trade Dispute: Negotiation Analysis

Introduction: The 1986 Informatics Dispute

In July 1986, Ambassador Flecha de Lima, the secretary general of the Brazilian Foreign Ministry, was invited to negotiate with U.S. representatives over the state of Brazilian restrictions in the informatics sector — specifically its manufacturing and trade restrictions.

The restrictions included a state market reserve, voted in 1984 and set to expire in 1992, which gave national (Brazilian) firms exclusive rights to engage in "informatics activities" and which clearly hindered the development of U.S. informatics firms in Brazil. A national firm was defined as one with at least 70% Brazilian ownership of voting stock and Brazilian control over management and technology development. National companies also benefited from state protections in the form of government procurement preferences and fiscal incentives.

In 1985, the U.S. determined that these conditions were unfair. In an effort to uncover foreign unfair trade practices and pressure the nations adopting them to change course, President Ronald Reagan ordered three investigations into unfair trade practices, one of which targeted Brazilian informatics restrictions. After numerous attempts to bring Brazil to the negotiating table, the U.S. succeeded in establishing the first round of negotiations in July 1986.

Brazilian and U.S. Negotiating Goals

Brazil's goals for the negotiation were to maintain trade conditions that would help the country manage a persistent balance-of-payments deficit — requiring strict control of imports — and to foster the development of its informatics sector. These goals were not subject to sacrifice. The extent to which those goals were achieved through trade restrictions, however, was negotiable.

Diagnosing the Negotiation: Distributive Dynamics

Negotiation can be divided into two broad types: integrative and distributive. Integrative negotiations refer to situations in which the outcome is a win-win solution; the negotiating parties seek an optimal result for all sides, one that maximizes joint gain. Multiple issues are analyzed from different angles, and negotiators metaphorically try to expand the pie rather than merely slice it, enabling trade-offs. Distributive negotiations, by contrast, refer to situations in which the outcome is a win-lose solution; one party obtains what it sought while the other concedes ground, leaving without achieving its objectives.

The Brazil–U.S. informatics trade dispute was subject to a distributive negotiation. The case attracted considerable attention as one of the most significant examples bearing on existing dependency theories. Both countries had much to lose from halting trade cooperation and much to gain from improving trade conditions.

On one side, Brazil viewed its informatics sector as strategically vital to national development. Building a national informatics industry was seen as essential for Brazil's future, since maintaining or increasing the competitiveness of domestically manufactured exports — rather than dependence on foreign technology — was a central priority. President-elect Tancredo Neves, who was elected in 1985, captured the sentiment: "A country that cannot control its informatics services will be condemned in a short time to be a sub-nation."

On the other side, the U.S. viewed Brazil as a large and attractive market for its firms. By 1975, Brazil had become the sixth largest market for informatics products in the world. U.S. interests in the country were driven by the volume of exports — between 1980 and 1982, U.S. computer exports to Brazil grew 14% per year — and by profit remittances from U.S. multinationals whose operations in Brazil were constrained by the 1984 Informatics Law.

Following the 1984 Informatics Law, many Brazilian firms resorted to software piracy, diverting profits that would otherwise have accrued to large multinationals such as IBM. Many of these companies, with significant operations in Brazil, lobbied Washington about piracy abroad. The adoption of intellectual property protections and restrictions on software piracy was therefore likely to be one of the primary issues at the first round of negotiations. The underlying goal was to encourage Brazil to develop a strong informatics sector through innovation rather than imitation. Consequently, in 1987, following the first round of negotiations, Brazil passed a software copyright bill and the U.S. suspended its threat of retaliation.

A second likely issue on the negotiating agenda was the barriers to U.S. investment in the Brazilian informatics sector. The U.S. was expected to request that its negotiating partner take measures to reduce burdens on American commerce — specifically, that a greater proportion of U.S. investment proposals be approved by Brazilian authorities.