TRADE SKIRMISHES. White House answers Brazil's software ban with tough tariffs
Microsoft has sold 11 million copies of its software program, MS-DOS, which gives personal computers operating instructions. Brazilians, however, are not among those who can use Microsoft's latest programs, because Brazil decided to protect its growing software industry from foreign competition.
In September, the Brazilian government rejected a contract between six Brazilian companies and Microsoft to import and sell the US company's programs.
The bar to Microsoft to license and sell its programs in Brazil is the focus of yet another trade dispute.
To make up for lost US sales, the White House said Friday it would impose $105 million in tariffs annually for the next three years on Brazilian exports to the US. Officials said they will consider tariffs on Brazilian goods such as airplanes, cars, machine tools, leather handbags, toilet bowls, and possibly footwear.
In addition, the US will restrict the sales of computer software that Brazil might sell to the US. According to the White House, Brazil currently does not sell any of these software products to the US. ``This will stand as a message for the future,'' a US trade official says. ``If they decide to switch to selling tropical technology, the door will be closed.''
The Brazilian Embassy in Washington termed the action ``regrettable.'' A US trade official said, ``We are braced for retaliation.'' Marty Taucher, a spokesman for Microsoft in Seattle, Wash., said the company appreciated the government's action but found it unfortunate that ``things had deteriorated to this level.''
In the past, the US has tried to tariff goods without raising prices for US consumers. Thus, it targeted imports that have strong domestic competition. This was the tack the US took earlier this year when it imposed tariffs on Japanese imports because of trade violations in the semiconductor business.
The Brazilian decision ``holds a strong message the US takes software copyright seriously and wants markets opened up,'' says Charlotte LeGates of the Computer and Business Equipment Manufacturers Association (CBEMA). Ms. LeGates says other areas where software manufacturers are pushing for open doors are South Korea, Indonesia, and the Middle East, where pirating is reported to be widespread, she says.
In making its announcement of the tariffs, the White House said it expects piracy of US software products in Brazil to increase since state-of-the-art computer software will not be legally available. CBEMA estimates at least 50 percent of the software in Brazil is pirated.
According to computer industry sources, Brazilian businessmen wanted to allow US software into the country so it could use the most modern and efficient equipment.
``Brazil is hoping its banks can provide financial services for the whole third world,'' LeGates says. ``But it is trying to do it with computers that should have been junked years ago.''
Penalizing the Brazilians also sends a message to Congress that the White House will act against countries that try to bar US high-technology products. Congress, which is still working on a massive trade bill, held hearings on the Brazilian situation earlier this year.
The US action comes on the heels of a complex agreement reached last week between Brazil and its creditor banks on its $100 billion debt. The banks agreed to lend Brazil a major portion of the money needed to pay the interest on its debt. Last week a team from the International Monetary Fund left for Brazil for further negotiations.
Tacking on the tariffs is a personal defeat for US Trade Representative Clayton Yeutter. Mr. Yeutter has gone to great lengths to negotiate with the Brazilians over the computer issue. He has made many trips to Brazil and has friends among the Brazilians.
Yeutter, for example, was instrumental in persuading Brazil to be more flexible in implementing its ``informatics'' policy of protecting high-tech industries. As a result of this agreement, the White House last year, suspended an investigation into Brazilian restrictions to US trade. Thus the White House considered the decision not to allow Microsoft into Brazil a reversal of this policy.
Yeutter talked to high-level Brazilians, who told him the government would look into the situation, according to a US official.
This past summer as part of the negotiations, the US trade negotiators showed the Brazilians how the Microsoft technology was different from their own. President Jos'e Sarney was informed of the US concern, but 24 hours later, Brazil announced it would not allow in the Microsoft technology.
The US viewed the decision as an expansion of Brazil's policy of keeping out imports that could harm infant industries. The US computer industry estimates it could double its $350 million in sales to Brazil if the policy were not in place. This policy had not been applied to software in the past, and the US made it clear it was opposed to such an expansion.
Brazil's Senate is considering legislation to extend copyright protection to software. The US industry, however, is unsure what impact this legislation would have on its products. ``It would help the situation if the Brazilians could pass something minimally acceptable,'' LeGates says.
This fall, John Sculley, chairman of Apple Computer, and William Gates, chairman of Microsoft, lobbied Congress, Treasury Secretary James Baker, and Secretary of State George Shultz on the issue. As a result, Secretary Baker at a recent meeting agreed to the trade sanctions. ``We finally decided it was easier to hit the Brazilians over the head with a two-by-four,'' says a trade official. ``It might make it easier to negotiate with them later.''