Cablegate: Brazil - Growing Recognition of Importance of Promoting

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RR RUEHAST RUEHDH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHSL RUEHTM
RUEHTRO
DE RUEHBR #1175/01 2641032
ZNR UUUUU ZZH
R 211032Z SEP 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5119
INFO RUEHSO/AMCONSUL SAO PAULO 4570
RUEHRI/AMCONSUL RIO DE JANEIRO 8216
RUEHRG/AMCONSUL RECIFE 9955
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 04 BRASILIA 001175

SENSITIVE

SIPDIS

DEPT FOR OES/STC, WHA/BSC, WHA/ESPC, OES/STAS, EEB/TPP/IPE

E.O. 12958: N/A
TAGS: ECON TSPL TPHY TNGD TINT KIPR KSCA NSF BR
SUBJECT: BRAZIL - GROWING RECOGNITION OF IMPORTANCE OF PROMOTING
INNOVATION OPENS WAY FOR GREATER U.S. COOPERATION

REF: A) Brasilia 1017 B) Brasilia 1042 C) Brasilia 1105

BRASILIA 00001175 001.2 OF 004

(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET
DISTRIBUTION.

1. (SBU) SUMMARY. The Government of Brazil (GOB) and the private
sector have identified promoting innovation as a key priority. Many
of the Mission's governmental interlocutors view innovation as
pivotal to accelerating Brazil's continued development and economic
success. Working with the GOB on innovation presents an opportunity
for the USG to further its on-going scientific and technological
cooperation and science diplomacy with Brazil. It simultaneously
presents the USG with an opportunity to pursue its interests in
intellectual property rights (IPR) by demonstrating their importance
to creating an innovation-friendly business environment. Moreover,
increasing collaborative research and development (R&D) and Small
Business Innovative Research (SBIR) projects could be a boon for
both countries. END SUMMARY.

INNOVATION: THE TOPIC OF THE DAY

2. (SBU) Innovation, and a desire to promote it, is a frequent
topic of conversation with Mission Brazil's interlocutors within the
GOB. Many Brazilian agencies, including the Ministry of Science and
Technology (MCT), the Ministry of Exterior Relations (MRE), the
Ministry of Development, Industry and Foreign Commerce (MDIC), the
Ministry of Health (MS), and the Brazilian Agency for Industrial
Development (ABDI), list increasing innovation within Brazil as one
of their top priorities. This need is acutely felt because Brazil,
despite having world class scientific talent, has not been a leader
in innovation and commercializing new products and ideas.

3. (SBU) In most innovation related conversations, the Mission's
interlocutors cite the United States as the world's leader in
innovation, and they see partnership with the USG and other U.S.
groups as valuable in finding a way to better promote innovation in
Brazil. Some interlocutors, with a more nuanced understanding of
the concepts behind innovation, realize that the U.S. experience is
different than that of many other countries, and for historical and
institutional reasons would not be 100% applicable to Brazil, but
they nonetheless see the United States as a partner that can help in
their efforts.

THE CHALLENGES - TRADITION AND FINANCE

4. (SBU) A fundamental obstacle to improving the innovative
environment in Brazil relates to the existing stove piping of
academic, business and governmental cultures. Professors' and
academics' careers are based on their ability to generate new
discoveries in the basic sciences for publication in international
journals, or to help their graduate students develop academically.
Professors openly admit that they have little expertise in
administration, financial management, entrepreneurship, and IPR.
This plays a strong role in the fact that comparatively few
Brazilian academics apply for patents for their discoveries.
According to an oft-cited statistic, Brazil is responsible for 2% of
scientific publications in the world, but only 0.2% of patents.
Thus innovation in Brazil is 10 times lower than their participation
in scientific production. The patenting process in Brazil is
time-consuming and professors do not see it as their role, or worth
their time, to be involved in this process. Some Mission contacts
have also indicated that there is a perception that patents do not
create enough benefit to be worth the effort required to secure
one.

5. (SBU) On the other side of the equation, most Brazilian
businesses do not have a tradition of conducting research and
development (R&D). Some large firms, such as the oil giant
Petrobras, do spend a significant amount of money on R&D, but small
and medium-sized companies rarely make such an investment. This is
unlike the experience of the United States and many other developed
nations, where small start-ups are very likely to invest in R&D, as
their ability to bring a new and innovative product to market is
what will ensure their success and survival. In a country ranked
129 out of 183 economies in the World Bank Doing Business 2010
report, with 120 days needed to start a business, 2,600 hours needed
to prepare and file taxes, a cumbersome and costly labor system, and
four years needed to close a business, the incentives and
attractiveness of opening a start-up company, and devoting money to
R&D in an existing SME, are notably hampered.

6. (SBU) The disconnect between researchers and industry is not the
only obstacle to promoting an innovation culture. The immature
state of the venture capital system in Brazil is also cited by some
experts as a limiting factor to innovation in Brazil. According to

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Fernando Rizzo and Antonio Galvao, Directors at the Center for
Strategic Studies and Management (CGEE), there is a nascent venture
capital system in Brazil, but clearly not nearly as developed as the
venture capital system in the United States. Additionally, they
claim that there is no such thing as angel investing, or other
critical mechanisms that support innovative, start-up companies in
high-risk endeavors.

IPR: PROTECTION NEEDS STRENGTHENING

7. (SBU) The lack of a strong intellectual property rights (IPR)
culture in Brazil is also a significant problem for the promotion of
an innovative environment. Despite some progress on enforcement
against piracy and counterfeiting and an increased willingness to
discuss IPR protection under the umbrella of innovation, some within
the GOB see IPR protection as an optional tool for economic
development or even a barrier, rather than a critical catalyst for
innovation. The IPR conversation in Brazil has two competing
threads: a relatively positive attitude on copyright and trademark
enforcement (though improvements in criminal counterfeiting
penalties should be enacted), and an ambiguous attitude toward
patent protection. The MRE has attempted to delink the innovation
dialog from IPR discussion.

8. (SBU) In the pharmaceutical sector, Brazil often displays
outright hostility towards patents. Brazil does have some excellent
medical researchers and laboratories. In fact, the National
Institutes of Health (NIH) enjoys long-standing research ties with
Brazil, supporting over a hundred joint research activities each
year with about USD 28 million, the most in the Western Hemisphere.
However, Brazil's national health system seeks to lower costs of
drugs and support generic production. In one case in 2006, the GOB
used the public emergency provision to require compulsory licensing
of a patent on an HIV/AIDS medicine. In April Brazil and a handful
of other developing countries suggested in their plenary statements
at a meeting of organized under the UN Framework Convention on
Climate Change (UNFCCC)that they would like any new climate change
agreement to provide for an exemption for developing countries from
patent protection for environmental/green technology patents as a
way of lowering the cost of reducing greenhouse gas emissions.

GOVERNMENT R&D AND INNOVATION PROMOTION EFFORTS

9. (SBU) The distance between the businesses providing the funding
and the researchers doing the work undermines the drive to produce
commercial results. One effort by the GOB to promote innovation is
a system under which companies may invest funds into R&D in order to
benefit from significant tax breaks. The GOB gives these tax
benefits to companies that invest two percent of their profits into
R&D. The research must be performed by academic research facilities
that are registered with the Ministry of Science and Technology
(MCT) rather than in-house R&D units or contractors. For example,
the Federal University of Rio de Janeiro's Coimbra Institute of
Post-Graduate and Engineering Studies (UFRJ-COPPE) Director recently
told ESTH Officer that UFRJ-COPPE receives almost 50% of its funding
from industry sources. Their largest customer is Petrobras, and
they are receiving sufficient funds to build a new research
facility. One contentious aspect of this effort is the stipulations
that a portion of the two percent must go to a governmental S&T
fund, rather than toward company related research. Company
executives have complained to Embassy officers that this stipulation
has a distorting effect on R&D spending.

10. (SBU) MCT also works with or through other agencies to promote
entrepreneurship among innovators and small business innovation.
The Brazilian Innovation Agency (FINEP), a division of MCT, has made
promoting innovation a priority. FINEP has a variety of programs
and funding vehicles designed to help small businesses to become
more innovative. Some of its programs are purely financed by FINEP,
while others are partnerships in which FINEP works with investors
and private equity funds to secure the financing that small
innovative firms need to grow and thrive. There are, however, some
complaints that support from FINEP and other government programs for
small companies are not well distributed. According to Mauricio
Schneck, the International Relations Advisor for the Brazilian
Association of Science Parks and Business Incubators (ANPROTEC),
FINEP's programs for small businesses suffer from poor
implementation and FINEP's planning and awarding process is out of
sync with the emerging venture capital cycle in Brazil, which causes
problems for business trying to obtain FINEP's support.

11. (SBU) MCT also works extensively with the Center for Strategic
Studies and Management (CGEE). CGEE is a think tank that is not
technically government run or funded, but that has a majority of its
contracts with the government and that also routinely employs

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government employees to round out its staff. CGEE has completed a
wide variety of studies for MCT and other government agencies to
help them identify policies and other actions that the government
can take to encourage innovation.

12. (SBU) The Brazilian Agency for Industrial Development (ABDI) is
a public-private agency charged since 2004 with implementing the
Industrial Policy. Among ABDI's programs, two focus specifically on
innovation. The program for "Production Development and an
Innovative Environment" aims to facilitate access to tools for
development and innovation, for example by the implementation of an
"innovation web portal" and development of a national network of
public and private agents involved in industrial development and
innovation. Another program supports the development and
implementation of pro-innovation policies in strategic industries
such as nanotech, biotech, and biofuels.

13. (SBU) Beyond the agencies mentioned above, there are other MCT
agencies (such as the National Council of Scientific and Technologic
Development - CNPq) as well as agencies in other Ministries,
including the Ministry of Development, Ministry of Agriculture, and
Ministry of National Integration, that are engaged in research and
innovation related activities. The Presidency of the Republic
launched in 2008 the Policy of Productive Development ("Poltica de
Desenvolvimento Produtivo" or "PDP") Program with the same target.

USG INTEREST IN BRAZILIAN INNOVATION

14. (SBU) The large number of National Science Foundation, National
Institutes of Health, and other USG grants that are carried out in
cooperation with Brazilian researchers is a testament to the degree
to which their scientific abilities are valued by their U.S.
counterparts. USG technical agencies have also greatly benefited
from our robust scientific and technological cooperation. This
cooperation increasingly includes conversations about promoting
applied science (rather than merely focusing on basic research),
incentivizing entrepreneurship among researchers, and
commercialization of scientific and technological developments. The
increased focus on these areas not only benefits the USG, but it
also could create new opportunities for private sector business
development. Finally, talking about innovation provides the USG
with a perfect opportunity to stress the importance of IPR to an
innovative environment.

U.S.-BRAZIL COOPERATION: INITIAL STEPS FORWARD

15. (SBU) The GOB, the Brazilian private sector and universities
are seeking to learn from the U.S. experience in developing an
environment supportive of innovation. ABDI is working with the
Brazilian Competitiveness Movement (MBC) and the U.S. Council on
Competitiveness (CoC) to organize a series of conferences that they
are calling "Learning Laboratories." These conferences are part of
the preparations for the group's Second U.S.-Brazil Innovation
Summit, tentatively scheduled for early 2010 in Washington, D.C.
The goal of these conferences and the Summit is to help academics,
entrepreneurs, and government officials learn from each other's
experiences and to work together to increase innovation in both
countries. The U.S.-Brazil Economic Partnership Dialogue and the
U.S.-Brazil Joint Commission on Science and Technology have also
been working at a governmental level to identify ways in which the
two governments can work together to address the need for increased
innovation. The National Forum of Innovation Managers and
Technology Transfer (FORTEC), which represents Brazilian
universities and research institutes in innovation policies,
recently met with the Mission's PTO office to provide U.S. speakers
on IPR valuation and patent drafting for its annual conference to be
held in October 2009.

THE WAY AHEAD

16. (SBU) Recently the MRE's Division for Science and Technology
Cooperation (DCTEC) expressed interest in moving our cooperation on
innovation to a new level. The wide variety of workshops and
dialogs organized by both public and private sector entities has
created a solid base for this cooperation. However, some GOB
interlocutors are looking to refine their focus and concentrate on
specific, more concrete, actions. One example is to start focusing
on Small Business Innovative Research (SBIR) programs, where the
research being done by NSF and other agencies could potentially be
put into practice by financing agencies such as FINEP or FAPESP,
which focus on SBIR on a strategic level. Other examples have
included academic exchanges specifically aimed at researchers who
specialize in applied sciences or have an entrepreneurial
background; and increasing linkages between businesses and venture
capital groups in both countries.

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COMMENT

17. (SBU) The GOB would like to have Brazilian researchers and
institutes bring more innovative ideas to the market, but it has not
gone far to develop a conducive environment. Top down,
government-directed R&D expenditures have had limited results.
Often there is an anti-commercial attitude among researchers and
administrators at government-funded laboratories, which is difficult
to overcome. Discussions within the GOB about innovation generally
do not include the key element that governments are best suited to
do: creating a level playing field that facilitates innovative
activity in the private sector. GOB's ambivalence and differing
views across Ministries toward the importance of IPR underpinning
innovation and economic growth also impede progress.

18. (SBU) Still, there is an increasing awareness within the GOB
and the Brazilian private sector that the current situation
regarding research and innovation is not satisfactory. Brazil is
not living up to its potential. Thus, today we see a growing
interest within the GOB and the private sector in understanding the
U.S. system better and learning what innovation promoting elements
could be applicable to Brazil. Post is supportive of the GOB's
efforts because this should encourage the GOB to provide greater
support for IPR protection within Brazil and internationally, as
well as helping foster U.S.-Brazil R&D partnerships. The prospects
for genuine progress on innovation might benefit from increased
coordination between the various entities involved. A cohesive
innovation strategy for Brazil and more collaborative R&D and SBIR
projects would be a boon for both countries. END COMMENT.

KUBISKE

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