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RR RUEHRG
DE RUEHBR #0708/01 1411939
ZNR UUUUU ZZH
R 201939Z MAY 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 1744
INFO RUEHSO/AMCONSUL SAO PAULO 2117
RUEHRI/AMCONSUL RIO DE JANEIRO 6184
RUEHRG/AMCONSUL RECIFE 8068
RUEHAC/AMEMBASSY ASUNCION 6818
RUEHBU/AMEMBASSY BUENOS AIRES 5538
RUCPDOC/USDOC WASHDC

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 
 
BRASILIA 00000708  002 OF 002 
 
 
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