Cablegate: Calling All Smugglers - Brazilian "Sacoleiros" Bill

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R 201939Z MAY 08
FM AMEMBASSY BRASILIA
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RUEHRI/AMCONSUL RIO DE JANEIRO 6184
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UNCLAS SECTION 01 OF 02 BRASILIA 000708

SENSITIVE
SIPDIS

DEPT FOR EB/TPP/IPE JENNIFER BOGER, INL/C/CP JAMES VIGIL
DEPT ALSO FOR EB/TTP/MTA/IPC RACHEL WALLACE
DEPT PASS USPTO
DEPT PASS USTR FOR KATHERINE DUCKWORTH AND JENNIFER CHOE GROVES
USDOC FOR ITA/MAC/OIPR CASSIE PETERS
USDOC FOR ITA/MAC/WH/OLAC/MCAMPOS

E.O. 12958: N/A
TAGS: KIPR ETRD ECON BR
SUBJECT: CALLING ALL SMUGGLERS - BRAZILIAN "SACOLEIROS" BILL

REFTEL: 07 Sao Paulo 242

1. (SBU) SUMMARY: A Brazilian bill intended to improve customs
processing at the Paraguayan border would likely serve to increase
opportunities for the importing of counterfeit goods and smuggling
of all types. The so-called "Sacoleiros" (or peddlers) bill would
allow small-scale importers to register and receive a lowered,
uniform customs fee on certain goods being brought into Brazil
across the Paraguayan border at Ciudad del Este. Opponents of the
bill complain that the primary Paraguayan export to Brazil is
counterfeit goods and, by creating this expedited channel with no
provisions for increased enforcement, Brazil would just facilitate
and legitimize such trafficking. The bill, which had been on a
priority fast track, has been slowed for 30 days of further
deliberation as a result of a public hearing May 8. Mission Brazil's
IPR working group is taking an active interest in the bill's fate.
END SUMMARY

2. (U) The Sacoleiros bill provides an opportunity for small scale
importers to register with the Receita Federal (RF), Brazil's
customs service, and receive a reduced tariff rate of 42.25 % on
products brought into Brazil up to a specified annual value. The
importers would have to purchase the goods from registered stores in
Paraguay which would transmit documentation of the purchase
electronically (through a system already in place) to the RF. The
RF would then use the documentation to confirm the purchase and
assess the flat tariff based on a predetermined book value. The
bill uses a positive list of items included in the program, which
includes many electronic products, as well as DVDs and CDs. Though
the bill's supporters envision a special customs lane at the border
for these importers with inspections, there are no provisions made
for enhanced customs oversights at an already overwhelmed border.
(Reftel A) The bill was put forward by the president as an urgent
measure which takes precedence over other items on the legislative
docket. The bill passed quickly through the lower house with
virtually no fanfare or public discussion. Three senate committees
slowed the process by calling for a joint public hearing.

3. (SBU) At the public hearing which took place May 8, Chief of the
Mercosul Division at the Foreign Ministry, Bruno de Risios Bath,
stated the bill had its origin in a plea from Paraguayan officials
in 2005 to help control the tense situation at the border.
Detractors later seized onto this fact and argued that a bill that
had its origins in another capital needed to be carefully assessed
for its effect on Brazilian interests. The Secretary of RF, Jorge
Rachid, and his Deputy testified as to the nature of the plans at
the border and how this could help manage the chaotic situation in
Ciudad del Este. They argued the bill will streamline the customs
process, as well as possibly induce small scale smugglers to comply
with the law by lowering the cost and simplifying the procedures.
In addition, there is hope the bill might also create social
pressure to comply. Ana Lucia Gomes, head of the Council to Combat
Piracy, told Econoff separately the idea is that smugglers would
self-police in order to avoid allowing free-riders that wouldn't be
paying the uniform 42.25 percent tariff.

4. (U) During the hearing, representatives from the Brazilian
Institute for Defense of Competitiveness (IBDC), Brazilian
Association for the Electrical and Electronics Industry (ABINE), the
National Manufacturers Association for Electrical Products
(ELETROS), the Latin American Motion Picture Association (MPA), the
Brazilian Association for Production of Discs (ABPD), and the
Association of Importers at Brasilia's infamous "Paraguayan" market
all spoke. All but the last, who argued the benefits to the little
importer struggling to compete, were opposed to the bill. Each
industry spokesman spelled out the damage done to his industry by
pirated goods and those coming from Paraguay particularly. They
also stressed the fact that these goods would have no consumer
protection, would not meet Brazilian industry standards, and would
have no provisions for environmentally safe disposal (particularly
of electronic goods). Specifically addressing the threat from
across the Paraguayan border, Humberto Barbato of ABINE noted that
only 20% of items crossing that border were now being inspected,
calling it paradoxical to expect a workload increase to help improve
control. Lourival Kicula of Eletros questioned whether the proposed
bill would be acceptable under either Mercosul or WTO rules. Marcio
Goncalves of MPA noted that Paraguay is already the source of 87% of
pirated DVDs that are apprehended in Brazil, leading to an annual
$198 million loss. However, it may have been Edson Vismona of IBDC
who made the point that resonated most with the Senators. He called

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the tariff reduction a subsidy to Chinese and Taiwanese
manufacturers of pirated goods and showed a Brazilian newspaper ad
for submarket priced products with the website address
www.chinadirect.com.

5. (U) In addition to the aid for counterfeiters theme, senators
questioned the efficacy of a 42% tariff as an inducement to
cooperate with customs for those who currently pay nothing. Others
were concerned that this might set a precedent for other border
regions. Prominent opposition senator Arthur Virgilio (Brazilian
Social Democracy Party, opposition; of Amazonas) admonished RF that
they should not be involved in politics and further that the
government should not be in the business of aiding those who traffic
in pirated goods. Others commented that the bill had been rushed
through and not even RF, much less industry, knew for sure which
items were to be included on the positive list for imports affected
by this bill.

6. (SBU) Former president and sitting Senator Jose Sarney
(Brazilian Democratic Movement Party, government; of Amapa) a close
government ally, expressed his faith in RF. RF Secretary Rachid
noted that RF was constantly working to improve border enforcement.
Though Rachid acknowledged they would never achieve 100% compliance,
he urged the Senate not to let the perfect be the enemy of the good.
(Note: in conversations with Embassy and business community
interlocutors, Rachid has seemed more resigned to, rather than
supportive of, this bill but he carried the government's water
faithfully in the hearing. End note.) Other coalition senators
cautioned that the bill was an important signal to Paraguay at a
critical time in the relationship, and some linked this bill to an
attempt to head off controversial Paraguayan demands to renegotiate
contacted energy rates from the bilateral hydroelectric dam, Itaipu.
In the end, the Senators agreed to disagree for the time being,
calling for a 30 day period for further debate before taking a vote
on the measure.

6. (SBU) COMMENT: Mission Brazil is closely following this
expedited proposed legislation. Ambassador Sobel has weighed in
with key senators and we've reached out to government contacts and
the international community in Brasilia to raise awareness of the
potential negative ramifications of the bill. We have liaised with
the private sector as they prepared for productive testimony at the
hearing. We also have reached out to the Brazilian law enforcement
community; many were not aware of the bill, but those who were, have
stated that they oppose this bill. We will continue to ensure that
there is attention being paid to the likely effects of this bill.
Passage could be costly to U.S. industry and could add to the border
enforcement problems in the triborder area. Much of the industry
community has been reluctant to vocally oppose what they view as a
potentially disastrous bill, because it has the backing of the
President and they view resistance as a losing battle. We are
hopeful that the 30 day debate period will lead to some serious
reconsideration, and if necessary perhaps reformulation, of this
bill's unintended negative effects. END COMMENT.

Chicola

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