BRAZIL: EXPORTING ARMS TO THE THIRD WORLD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85S00317R000200020003-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: May 3, 2010
• Sequence Number: 3
• Publication Date: July 1, 1984
• Content Type: REPORT

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Directorate of Sea, et
Intelligence
the Third World
Brazil:
Exporting Arms to
ALA 84-10071
July 1984
Copy 4 7 8
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Intelligence
the Third World
Brazil:
Exporting Arms to
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An Intelligence Assessment
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Office of African and Latin American
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of Operations.
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Comments and queries are welcome and may be
directed to the Chief. South America Division, ALA,
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Secret
ALA 84-10071
July 1984
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Brazil:
Exporting Arms to
the Third World
Key Judgments Brazil's emergence as the world's eighth-largest arms exporter has made
Information available the weapons industry an important factor in the nation's economic and
as of 17 July 1984 international standing. Although arms constitute less than 5 percent of
was used in this report.
Brazil's exports, they have taken on added significance in Brasilia's efforts
to maintain a trade surplus and thereby meet its massive international debt
repayment obligations. Brazil uses arms exports to expand and solidify its
relations with Third World states and believes that the prestige of
manufacturing and exporting arms on a global scale contributes to the
country's drive toward grandeza, or great-power status.
Brasilia is aware of the domestic and in-
ternational implications of weapons exports, which from time to time have
become a subject of controversy within the government, and tries to limit
criticism by keeping details of arms deals out of public view. Despite
disagreement in Brasilia over the suitability of customers such as Iran and
South Africa and concern that sales to Central America could increase
tensions there, we believe Brazil will continue aggressively to expand the
volume and sophistication of its arms exports to Third World countries.
In our judgment, Brazil will continue to rely heavily on its traditional Arab
customers both for arms purchases and investment capital. The cooperative
ventures financed by Iraq, Libya, and other Arab states in recent years
have allowed Brazil to push forward with new weapon systems, in part by
giving the Arab purchasers a strong voice in determining the specifications
of the weapons to be developed. This concentration of sales to the Middle
East-Iraq and Libya now absorb well over half of Brazil's arms exports-
makes Brazil extremely vulnerable to any sudden cut in the region's
demand.
In view of intelligence assessments that project a shrinking world demand
for arms during the next several years, we believe Brazil will try to protect
export levels by aggressively penetrating new markets and expanding its
share of international arms sales. In our judgment, it will introduce new
product lines-the Osorio tank and the jointly produced AMX fighter, for
example, both of which it hopes to sell in the Middle East-and push sales
of its less expensive light armored vehicles and trainer aircraft to African
and Latin American countries, most notably oil producers like Nigeria and
Venezuela.
Secret
ALA-84-10 071
July 1984
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In our view, Brazil's emergence as a weapons exporter has both positive
and negative implications for the United States. On the plus side, there are
tangible benefits to Brazil from a growing domestic industry, a source of
foreign exchange to assist in the payment of its debt, and the contribution
to Brazil's sense of independence. Moreover, the United States stands to
gain from security-related arms sales to friendly countries that Washington
would like to support but may be unable to arm for diplomatic reasons, and
from the possibility that Brazil could displace suppliers of some types of
Soviet equipment in sensitive Third World markets such as Iraq, Algeria,
or Peru.
Brazil's customers include countries hostile to the United States, such as
Libya, however, and potentially Iran. Libyan support for insurgent groups
such as the Polisario Front and Chadian dissidents has included the supply
of some Brazilian weapons and training in the use of Brazilian armored ve-
hicles. Moreover, Brazil's dependence on Middle East markets for its arms
exports is an incentive for it to take stands in the United Nations and other
international forums that differ markedly from those of the United
States-such as supporting anti-Israeli motions.
Brazil's arms exports to Third World customers also raise questions about
the transfer of weapons technology. Recent US-Brazilian agreements on
military-industrial cooperation offer some opportunity to influence the
nature and direction of Brazil's arms sales and may encourage Brasilia to
formulate better controls over technology transfer. The Brazilians probably
will continue to resist controls on indigenous or derived technology, but we
judge they will accept some reexport restrictions in order to obtain
information on certain US systems such as the TOW antitank missile or
advanced US fire-control or imaging systems. Given the difficulty of
monitoring arms transfers, however, we believe there is a significant long-
term risk of leakage of US-derived technology to hostile states, either to
Third World countries in the form of hardware incorporating derived or
imitative Western technology, or to the Soviet Union in the form of
Western defense-related industrial processes. In particular, we believe that
Brazil's improving weapons technology has already piqued Moscow's
interest, while at the same time Brasilia's low level of awareness of the So-
viet technical intelligence collection effort has impeded its ability to
develop restrictive guidelines on technology exchange with the USSR.
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The Brazilian Arms Industry
Emphasis on Exports
Brazil's Arms Export Policies
Converging Goals
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Conflicts Over Sales
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Arab Involvement in Research, Development, and Purchases
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Iraq
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Libya
9
Egypt
10
Technology Transfer Issues
10
Prospects
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Implications for the United States
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Figure 1
Boundary representation is
not necessarily authoritative.
0 250 500 Kilometers
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Brazil:
Exporting Arms to
the Third World
Brazil has emerged as a major international arms
supplier. The promotion of an arms industry slightly
over a decade ago as a way to reduce import depend-
ence, obtain economies of scale, and acquire interna-
tional prestige has made Brazil the eighth-largest
weapons exporter in the world and a key supplier to
Third World countries. Moreover, military sales have
taken on added importance as Brazil tries to generate
export earnings to service its massive foreign debt.
Brazil's aggressive pursuit of markets and growing
technological sophistication raise serious questions
about the transfer of technology-some of it poten-
tially US-to hostile countries
The Brazilian Arms Industry
Prior to the mid-1960s, Brazil's weapons production
was limited to small arms and ammunition, while
heavier items were acquired from the United States.
When Washington cut back its military assistance
program following the military coup of 1964, Brasilia
turned to European suppliers.
the armed forces were dissatis-
fied with European-made equipment because of its
expense and the difficulty of obtaining spare parts and
became increasingly convinced that a domestic arms
industry was essential to national security. As a result,
in the late 1960s Brazil began a drive for self-
sufficiency in weapons production. The severing of
military ties with Washington in 1977, in response to
US criticism of human rights practices, provided
additional impetus to development of the arms indus-
try. Moreover, building a domestic arms production
capability furthered Brazil's quest for grandeza, or
great-power status. (see figure 4 at end of book).
The arms industry developed as a joint public and
private venture. A private firm began making military
trucks for the armed forces in 1965 and another
produced the first armored vehicle prototypes three
years later. A presidential decree in 1969 put Brazil in
the business of aircraft development and manufactur-
ing by establishing the public-private firm Embraer,
and series production of the first locally designed
Engesa (Engenheiros Especializados, S.A.)
Engesa, headquartered at Sao Jose dos Campos, Sao
Paulo, is one of the giants among Brazil's weapons
producers. It specializes in the design, marketing, and
production of wheeled armored vehicles and military
trucks. Its influential and outspoken president, Jose
Whitaker Ribeiro, is a former engineer.
Embraer (Empresa Brasileira de Aeronautica, S.A.)
A public private company engaged in general avia-
tion, Embraer is increasingly involved in the produc-
tion of military aircraft such as the Tucano trainer
and the AM-X subsonic jet. It is headed by Air Force
Col. (Ret.) Ozires Silva and is headquartered at Sao
Jose dos Campos
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Avibras Industria Aeroespacial, S.A.
Brazil's principal rocket firm, Avibras is active in
developing both the SONDA sounding rockets used in
Brazil's space launch vehicle program and a variety
of military rockets, including the versatile Astros
multiple rocket launching system. The firm's head- 25X1
quarters is located at Sao Jose dos Campos, near the 25X1
Air Force's principal research and development cen-
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Electrometal Acos Finos, S.A.
As the largest and most advanced specialty steel-
maker in South America, Electrometal is a key
supplier to Brazil's military and aerospace industries.
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Bernardini Industria e Comercio, S.A.
This small private firm specializes in the redesign
and reconditioning of older US tanks and armored 25X1
personnel carriers. Bernardini has sold some tanks to
the Brazilian Army, but exports have been disap-
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model began in 1974. Imbel, a government agency,
was founded in 1975 to direct operations at six state-
owned military factories.
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Armored Vehicles
Osorio Medium Tank. Still under development, Enge-
sa's first tracked armored vehicle will reportedly
incorporate laminate armor and have an optional
120-mm smoothbore gun capable of firing kinetic,
conventional, and high explosive antitank (HEAT)
ammunition.
Tamoyo Medium Tank. Bernardini's latest and most
advanced tank, the Tamoyo, will have an optional
105-mm smoothbore cannon and will reportedly be
able to fire afull range of modern antitank rounds.
EE-9 Cascavel. A six-wheeled, light armored recon-
naissance vehicle with a 90-mm gun as its main
armament, the Cascavel is popular for its reliability
and low cost (see photo).
EE- 11 Urutu. A six-wheeled, amphibious armored
personnel carrier that mounts a 50-caliber machine-
gun and is equipped with twin propellers and rudders.
EE-3 Jararaca. A light, four-wheeled reconnaissance
vehicle with a 50-caliber machinegun, the Jararaca
includes options for mounting a 20-mm cannon,
recoilless rifle, or antitank missile launcher.
Rockets
108R Multiple Racket Launcher. A small, towed,
tactical rocket launcher used by the Brazilian Army.
X-20 and X-40 Rockets. Twenty-km- and 40-km-
range tactical artillery rockets developed by Avibras.
Spurred by such government encouragement, the
arms industry has grown at a phenomenal pace. In
exports alone, output rose from negligible levels in
1974 to some $800 million in weapons deliveries eight
years later, and employment in defense-related firms
rose from a few thousand to over 100,000 in the same
period. In little more than a decade, according to our
analysis, Brazil emerged as the largest manufacturer
of armored cars outside the Warsaw Pact. A variety
Astros Multiple Rocket Launching System. A large,
advanced, truck-mounted multiple rocket launching
system, the Astrosfires three types of surface-to-
surface rockets and is produced for export to Iraq
(see photo).
Aircraft
Aermacchi 326 6B (Xavante). A short-range, subsonic
ground attack fighter, the Xavante was designed in
Italy and assembled in Brazil (see photo).
transport (see photo).
Bandeirante (Patrol Version). A maritime patrol ver-
sion of the commercially successful Bandeirante civil
Tucano Trainer. A commercially successful trainer/
light ground attack aircraft designed and built in
Brazil, the Tucano entered series production last year
and has already been sold to Egypt, Iraq, and
Honduras.
Brasilia (Military Version). Designed as a larger and
more capable follow-on to the Bandeirante, the Brasi-
lia also is intended to have military variants. Design
studies are in progress to determine which of the
possible military transport, maritime patrol, or early
warning versions is likely to be commercially success-
ful (see photo).
AM-X Centauro. An Italian-designed subsonic fight-
er, the jointly produced AM-X is intended to be the
backbone of the Brazilian Air Force in the early
1990s. The recent crash of the first prototype in Italy
during testing has been a setback for the program,
but plans continue for beginning series production. in
1987 (see photo).
of reporting from defense attache sources and techni-
cal journals indicates that Embraer, which established
itself as the largest general aircraft manufacturer in
the Western world outside the United States, has been
devoting an increasingly larger share of its resources
to military models. Of the firm's newest designs, one
is a subsonic jet fighter and another a combination
trainer/light attack aircraft.
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Cascavel
The rapid expansion of Brazil's weapons production
capability has resulted in part from its growing
exports to the Third World. The Arab states are
particularly valuable customers, with Iraq and Libya
accounting for more than one-half of all Brazilian
export sales. A variety of attache and open sources
report that less developed countries find Brazilian
arms attractive because of their simplicity, durability,
and low prices. Moreover, Brasilia has proved to be a
reliable supplier and does not insist on control over
reexport.
The government uses subsidies to stimulate exports,
which now account for some 90 percent of total
output. Brazil's 280,000-man armed forces are too
small a market to provide a sound economic base for
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an industry requiring large capital investments, a
sizable skilled labor force, and relatively long lead-
times for product development. Thus, according to a
variety of attache and embassy reporting, Brasilia
decided early in its planning to reduce unit costs by
aggressively marketing arms overseas and by making
export potential the overriding criterion in evaluating
proposals for new arms production.
The government also has used arms exports to help
deal with external financial problems. Following the
oil crisis of 1973, the government began to rely on
arms sales to the Middle East-often as counter-
trade-to cover some of the expense of petroleum
imports, according to attache reports. We see Brazil's
current financial troubles as an added incentive for
emphasizing weapons exports, both to earn badly
needed foreign exchange and to keep defense indus-
tries operating during a time of domestic retrench-
ment. Although annual figures vary sharply because
of fluctuating demand and the lag between agree-
ments and deliveries, the general trend of confirmed
sales clearly has been upward.' From 1978 through
1982, for example, the value of annual arms exports in
real terms quadrupled.
Brazil's Arms Export Policies
Arms export policies affect a wide variety of inter-
ests-foreign relations, employment, and balance of
trade in particular-and decisions on how to imple-
ment them, in our view, grow out of interplay between
various sectors inside and outside the government.
Key players are:
? The Foreign Ministry, which supports arms exports
for economic reasons and national prestige, but does
not want to endanger diplomatic and economic
relationships abroad by selling weapons
indiscriminately.
? The economic ministries, which usually focus on the
commercial aspects of arms sales with little regard
for the diplomatic implications.
' Statistics on these arms exports are difficult to obtain, because
Brazil, like many other suppliers, often shrouds its transactions in
secrecy. Moreover, the information it releases usually fails to
distinguish between contracts and deliveries, and may even over-
state total sales.
Figure 2
Brazil: Arms Exports, 1974-83
I
1.2
1.0
0.8
0.6
-
0.4
0.2
i
1974 75 76 77 78 79 80 81 82 83
Incomplete data. Agreements
Deliveries
303274 7-84
? The armed forces, which see weapons exports as a
boon to Brazil's power and to the military's prestige,
but which rule out sales to certain Communist
countries.
? The arms industries, which use their excellent con-
tacts in the government to promote sales.
? The presidential palace, which acts as a referee to
resolve disputes arising from these sometimes con-
flicting interests.
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Brazil's arms export policies are formulated through
the interaction of various actors in and out of govern-
ment. Their differing priorities sometimes lead to
conflict over the suitability of weapons clients.
The Foreign Ministry
Itamaraty-as the Foreign Ministry is called, after
the palace that originally housed it in Rio de Janei-
ro-lost influence after the coup of 1964, but today it
Itamaraty is a highly competent, projessional organi-
zation staffed by an elite corps of well-trained and
disciplined diplomats. It has been in the forefront of
Brazil's steady evolution away from a close identifi-
cation with the United States and toward diversified
political and economic ties. Most Foreign Ministry
officials advocate a pragmatic diplomacy that em-
phasizes economic and commercial relations and
down la s ideology.
w most of Foreign Minister Ramiro Guer-
reiro's top advisers favor a so-called Third World
orientation that seeks expanded links to developing
countries as the best way to advance national inter-
ests. Itamaraty, we believe, backs arms exports that
further overall diplomatic goals and opposes weapons
sales that might jeopardize existing relationships.
The Economic Ministries
The Planning and Finance Ministries are key players
in the making of international economic policy,
their goals often
clash with those of Itamaraty. They are most con-
cerned with commercial and financial matters and
are apt to be less sensitive than the Foreign Ministry
to the diplomatic nuances of arms sales. Because
Planning Minister Antonio Deem Netto has long
been a member of President Joao Figueiredo's inner
circle, the economic ministries can be a formidable
force in decisionmaking.
The Armed Forces
The military's direct role in foreign policy has dimin-
ished steadily over the past decade. Although the
armed forces probably retain a veto power over
certain issues, such as relations with Cuba, the high
command generally supports Itamaraty's overall ap-
proach to advancing Brazil's interests. The military
clearly has a stake in decisions regarding arms
exports, which affect the domestic arms industry as -
well as relations with the military establishments of
other countries, and is likely to weigh in strongly
when such issues are being debated.
The Arms Industries
Both public and private corporations involved in
weapons production lobby to advance their own inter-
ests. We believe the arms industries, many of which
are headed by retired military officers, have excellent
contacts in the government and, for the most part,
receive full cooperation in promoting overseas sales.
Jose Whitaker Ribeiro, president of the engineering
firm Engesa, is particularly influential by virtue of
his reputation as the driving force behind the coun-
try's arms industries and his standing as head of
Imbel, the government entity that coordinates weap-
ons production. Engesa and other weapons producers
enjoy the collaboration of Brazil's embassies and
military attache network in demonstrating equipment
and negotiating deals with foreign buyers.
The Presidential Palace
Ultimately, disagreements are resolved at the presi-
dential level. The National Security Council, com-
prising all Cabinet ministers, ostensibly must approve
all arms transfers but actually meets infrequently
and deals primarily with domestic issues. Day-to-day
decisions are made by the so-called Nine O'Clock
Group, composed of the President's five or six top
military and civilian advisers.
he group currently includes the heads of
the e -National Intelligence Service, the National Secu-
rity Council, and the Planning Ministry, as well as
the chiefs of the President's Military and Civil
Households.
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Converging Goals
In most cases, the goals of the different bureaucratic
actors are compatible, and Brasilia is able to use
weapons sales simultaneously as a means of earning
money and strengthening ties with other countries.
We see Africa as a region where this has occurred.
Bonds developed since the 1960s have yielded eco-
nomic benefits-petroleum supplies from Nigeria and
other countries as well as new markets for weapons
and other manufactures-while furthering Brasilia's
diplomatic objective of demonstrating interest in the
Third World.
Brazil initially excluded Portugal's former African
colonies from weapons sales following their independ-
ence in the mid-197k
By 1980, however, the Brazilians reconsid-
ered arms deals as they undertook a campaign to
forge strong relations with the new nations. The
change in policy also was aimed at tapping new
of Angola, a new source of petroleum.
shipped to Mozambique, according to the Brazilian
press. Moreover, during the past year, Brazil has
signed agreements to furnish relatively small quanti-
ties of military equipment to Guinea and Nigeria and
has shipped 90 armored vehicles to Zimbabwe, ac-
cording to press reports
Suriname, on Brazil's northern border, offers another
example of converging policy goals. Both the Foreign
Ministry and the Brazilian armed forces perceived
important strategic interests at stake in Cuba's links
to the regime of Surinamese strongman Desire Bou-
terse, In
April of last year, Brasilia made clear to Bouterse it
would not accept a large Cuban presence in Suriname
and, as a substitute for Havana's support, offered
Paramaribo military training and equipment as well
as technical cooperation and increased trade.
the Brazilians
subsequently agreed to extend a $15 million line of
credit for a variety of military items. They also have
conducted docking surveys to facilitate a delivery of
armored vehicles scheduled to arrive in August, ac-
cording to defense attache sources.
Arms sales to the Middle East-including Libya but
with the exception of Iran-also are the result of
policy convergence, as the economic need to assure
foreign markets and oil supplies complements the
Third World political orientation favored by the
Foreign Ministry. Despite growing disapproval
throughout the West of the Libyan regime, Brazilian
policymakers do not discriminate against it as an
arms customer. Libya is willing to provide oil in
exchange for arms, and Brasilia apparently sees it as a
viable market
Conflicts Over Sales
Notwithstanding the general agreement among the
various bureaucratic players, some potential arms
deals have sparked debate within the foreign policy
community, inhibited the formulation of coherent
policies, and caused confusion and contradictory be-
havior from Brazil.
Iran. The question of direct, or even indirect, arms
sales to Iran has been a particularly contentious issue.
some officials in the
military and the economic ministries are eager to tap
the potentially lucrative Iranian market.
the Foreign
Ministry fears that such exports would endanger
Brazil's carefully cultivated relations with Iraq and
Saudi Arabia, which are important both as major oil
suppliers and as markets for Brazilian goods
eign Minister Ramiro Guerreiro's trip to Iraq last
September was intended to assuage Baghdad's fears
following public speculation about weapons sales to
Iran.
Brasilia finally decided to shelve the deal rather than
jeopardize ties with Iraq.
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The differences of opinion over arms sales to Iran
recently have included transfers via third parties.
Brasilia last
November was considering a Syrian order for more
than 50 combat helicopters and an unspecified num-
ber of armored vehicles, many of them intended for
Iran. In March, moreover, an Army spokesman pub-
licly admitted that Libya had provided Brazilian war
materiel to Tehran, and he reiterated Brazil's policy
of attaching no end-user requirements to its arms
contracts. The Foreign Ministry. however, is contest-
small arms and ammunition but not one for the
Tucano aircraft, the sale of which would be more
difficult to conceal.
Other Cases. The military apparently has a veto over
weapons sales to certain countries, in part in keeping
with its longtime anti-Communist tradition. Accord-
ing to US defense attache reporting, of the three
nations-South Africa, Cuba, and North Korea-
cited by Brasilia last year as off limits to Brazilian
arms exporters, both Cuba and North Korea were
blacklisted because of pressure from the armed forces.
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Nonetheless, the issue is far from settled. Brasilia
continues to give signs of strong interest in the Iranian
market that include:
? A Brazilian commercial delegation visit to Iran in
mid-1983 to boost nonarms exports.
? The naming, last May, of a new ambassador to
Tehran, following several years during which the
mission was headed by a charge d'affaires.
? The public assertion in June by Brazilian officials-
obviously attempting to reassure Iran-that recent
press reports of arms deals with Iraq referred to
agreements signed two years ago.
? Private discussions in late June between a planning
ministry official and the Iranian Ambassador dem-
onstrating continued Brazilian interest in selling
arms to Tehran-but only if sales could be arranged
through third countries.
South Africa. In our view, Brazil's publicly declared
refusal to sell arms to South Africa is intended to
protect commercial and diplomatic bonds with black
African nations.
he Brazilian military favored the sale of
weapons to Pretoria but that the Foreign Ministry
vigorously o nosed it. A compromise a ears to have
been struck:
Brasilia planned to fill a South African order for
Sales to Central America also are limited, but for
different reasons. Brasilia has been wary of providing
arms to the Central American countries because of its
public support for the Contadora Group's peace initia-
tive and, we believe, its desire to avoid being seen as
contributing to tensions in the region. Nonetheless,
the Brazilians treat potential Central American cus-
tomers differentlyF-
~ Brazil prohibited all arms
exports to Nicaragua-a decision we believe stems
from the Brazilian military's distaste for the Sandinis-
tas' Marxist and pro-Cuban leanings. Although the
prohibition applies to a wide variety of weapons and
munitions, it does not extend to commerical explo-
sives, which were being shipped to Nicaragua in large
quantities in July. Brasilia also recently delivered four
of an order of eight Tucano trainer/light ground
attack aircraft to Honduras. The Foreign Ministry,
defending itself against widespread criticism of the
sale, argued that the planes were intended primarily
for training.
Save these exceptions, any country is free to purchase
Brazilian arms, even if it intends to reexport them.
Libya, for example, apparently has transferred some
of its Brazilian-made weapons to insurgent associates:
the Algerian-based Polisario Front has at least 50
Brazilian Cascavel armored vehicles, and we believe
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Figure 3
Brazil: Arms Deliveries and Agreements, 1982
Deliveries
Europe
Africa (Gabon and Togo) 2 (Cyprus and France) 2
Other Latin America 2 ,
Colombia 12 Iraq 66
(Taiwan and Thailand) 13-
Other Middle East 3
Ecuador 4
Arab Involvement in Research, Development,
and Purchases
Brazil's emphasis on Middle Eastern arms markets, in
our view, has enabled Arab clients to influence the
direction of the arms industry. The Arabs, as major
purchasers, have an ihterest in developing certain
weapons and determining their specifications. Brazil's
practice of being responsive to such customer needs
has brought new investment capital as well as addi-
tional arms contracts, but carries the risk of diverting
production into weapons for which Brazil has little
domestic need and leaving the industry vulnerable to
dramatic shifts in external demand.
Iraq
Brazil's most important arms purchaser and Middle
Eastern export market has backed several cooperative
ventures. The largest project so far-a $500 million
deal for the manufacture of the Astros multiple
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surface-to-surface rocket launching system-involves
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more than 82,000 rockets and 60 vehicles
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The Iraqis, searching for more powerful missiles, also
have shown an interest in Brazil's space program. In
June of last year, a senior officer of the Brazilian
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Aeronautical Technical Institute stated that in 1981-
82 there had been a "Special Middle East Project" to
produce a missile jointly with, or funded by, Iraq. The
project was canceled after 10 months
Libya
Tripoli-the second-largest purchaser of Brazilian
arms-also has had a role in the design of specific
weapon systems.
The Brazil-
ian press subsequently announced that the weapons
firm Engesa would equip its Jararaca line to fire
antitank missiles and install a filtering system that
would enable it to operate in nuclear-, biological-, and
chemical-warfare-contaminated environments. We
believe these modifications were undertaken specifi-
cally to accommodate the Libyan order, although we
do not know whether Libya is the user or if the
vehicles are for reexport to Iran or. one of Tripoli's
insurgent clients.
Libya also may be involved in the development of the
ET-1 Osorio medium tank.
Recent press reports.
also say Libya offered to finance the development of a
Brazilian main battle tank last year. According to US
defense attache reporting, however, Engesa president
Whitaker in January claimed to have signed a $2
billion contract with Saudi Arabia to develop and
produce the Osorio. Even if Tripoli is not the main
backer of the program, Whitaker is optimistic regard-
ing potential sales to Libya and Iraq, according to
defense attache sources.
Saudi Arabia
In addition to their reported interest in the Osorio
tank,
the Brazilians
were shipping the shorter range Astros to Saudi
Arabia for demonstration. Although Riyadh has not
been a significant buyer of Brazilian arms in the past,
it has shown more interest since the visit of a Saudi
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million contract with Kuwait for 422 Urutu armored
cars, which are to be mounted with one-man turrets
equipped with integral TOW antitank missile launch-
ers As of early June,
design work was continuing on the project, according
to US defense attache sources, although the visit of a
Kuwaiti inspection team was postponed due to deteri-
orating security conditions in the Persian Gulf.
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Egypt
Successful cooperative ventures with Arab arms cli-
ents are leading the Brazilians to export entire fac-
tories for weapons assembly and technical support.
According to press and US defense attache reports,
Brazil will sell 10 Tucano trainer/ light ground. attack 25X1
aircraft to the Arab Organization for Industrializa-
tion, which then will assemble 110 more at its plant in
Egypt. Eighty of these would be destined for Iraq, and
the remaining 40 would be for the Egyptian Air
Force. The $100 million package, the first substantial
transfer of weapons technology abroad by a Brazilian
firm, includes training, flight simulators, and an
option for the purchase of an additional 60 Tucanos.
We believe that the potential gains of this venture
have encouraged Brazil to begin discussions on the
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The Tamoyo medium tank
(above), and the Osorio (still
under development by Engesa)
reportedly will have laminate
armor and be capable of using
a full range of modern antitank
construction of a Brazilian armored vehicle plant in
Egypt, and similar talks probably are taking place.
with other Arab countriesi
Three types of technology transfer issues arise from
Brazil's expanding arms exports:
Export to Third World countries of weapons or
production processes incorporating existing Brazil-
ian technology.
? Potential future exports to Third World countries of
Brazilian military hardware incorporating advanced
Western technology, which would increase the le-
thality of their arms inventories while not necessar-
ily improving production capabilities.
? Potential future leakage to the Soviet Union of
advanced. Western defense-related technologies
through Brazilian research scientists, which could
occur before the Brazilian defense industry itself
has assimilated the new technology.
At present, the level of Brazil's own weapons technol-
ogy is not high enough for its export to constitute a
serious threat, but attractive prices and unrestrained
sales may increase the accessibility in the internation-
al market of some proven conventional systems. F-
As Brazilian industry acquires more advanced West-
ern arms technology over the next decade, the second
issue-increased lethality of weapons in Third World
countries resulting from derived or imitative Brazilian
technology-will grow in importance, in our view. A
proposed agreement on military industrial cooperation
between Brazil and the United States presumably
would lead to further transfers. Indeed, the Brazilians
are seeking advanced technology on such US weapon
systems as the TOW antitank missile, the Black
Hawk helicopter, the Maverick air-to-ground missile,
and advanced imaging and targeting systems, accord-
ing to Embassy and defense attache reporting.
In the past, Brasilia has been reluctant to accept
export controls over such technology. Since the 1960s,
it has conditioned some of its own foreign arms
acquisitions on suppliers' willingness to transfer the
requisite technology, thereby enhancing the country's
industrial base. Brazil traditionally has sold its weap-
ons to almost all comers, both to increase sales and to
project a foreign policy independent of either super-
power. Already some Brazilian policymakers have
shown signs of uneasiness with potential joint pro-
grams, fearing that cooperation with the United
States might tie their hands in dealing with other
countries. In January, for example, three high-rank-
ing military officers publicly emphasized the necessity
of selling arms to any country, reflecting concern that
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export controls could erode an advantage heretofore
enjoyed.by Brazil's arms industries.
Engesa officials
earlier this year chose a West German-made engine,
for the Osorio tank to avoid reexport restrictions on a
agreement in niobium metallurgy to include the Sovi-
et State Committee for Science and Technology. This
agency not only oversees policy but also is responsible
for acquiring technological intelligence from Western
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comparable US-manufactured engine.
Soviet Interest
Brazil's improving access to Western defense and
defense-related technologies has begun to attract
Moscow's attention, and the Soviets already may have
obtained useful information from Brazilian special-
ists. Last year, for example, a Brazilian firm gave
advice to a Soviet delegation on resolving certain
problems with specialty steel processes, according to
defense attache reporting. Earlier this year, moreover,
a visiting Soviet delegation broached the possibility of
cooperation in the area of optical communications,
according to the US Embassy. In early May, press
reports stated that the Soviets had expressed interest
in Brazilian research on plasma fusion and lasers,
which have military applications in advanced armor
plating and fire control. Brazil is already experiment-
ing with laser rangefinders on some of its exported
armored vehicles.
Niobium metallurgy is another technical field with
military applications that could be exploited by the
Soviet Union. According to press reports, Brazil con-
tains 85 percent of the world's reserves of niobium,
which is used as a superconductor of electricity and as
a component of sensors in military equipment. In
April, a Brazilian firm's European subsidiary report-
edly proposed expanding its technical cooperation
countries.
According to the US Embassy, Brazil has no firm
policy on technology sharing with the Soviets. Fur-
thermore, neither the National Security Council nor
the National Intelligence Service yet fully appreciates
the potential seriousness of this issue, in our estima-
tion. In early April, the Foreign Ministry official
responsible for scientific and technical cooperation
agreements informed the US Embassy's Science
Counselor that the government was still trying to
formulate a policy to handle the growing Soviet
interest in technical exchanges with Brazil.
We believe that Brazil will continue trying to expand
the volume and sophistication of its arms production
and exports, even though the effort will produce
debate among many actors in the policymaking arena.
The domestic arms industry already has yielded de-
monstrable economic and diplomatic benefits, and we
believe the considerations of prestige and national
security will continue to carry weight, particularly
within the armed forces. Brazil's serious international
financial problems put a premium on exports, no
matter how small. Moreover, now that the military
plans to surrender power to a civilian regime early
next year, it probably will give greater attention to the
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arms industry as part of its new emphasis on "profes-
sionalization." 2 The new civilian administration, for
its part, is likely to accord the military a substantial
voice in arms policy as a means of giving it a role in
national security that does not intrude too directly on
domestic political concerns.
In our view, Brazilian arms sales will continue to
grow, albeit at a slower rate, in the shrinking interna-
tional arms market that we foresee in the next few
years.' This growth will depend on continued Brazil-
ian sales to its two primary customers, Iraq and
Libya. We also expect Brazil to continue to expand its
markets in moderate Arab countries, such as Egypt
and Saudi Arabia, and in Latin America and Africa.
Besides the sales to Africa mentioned previously,
Brazil has targeted clients in Latin America-Vene-
zuela and Colombia are considering a purchase of
Brazilian armored vehicles, and Paraguay and Ecua-
dor have received shipments of 50 and 30 armored
vehicles, respectively, since the beginning of the year,
according to US defense attache sources. Brazil's
ability to offer a more advanced range of products
later in the decade-subsonic attack aircraft, tactical
missiles, and medium tanks-should improve its abili-
ty to penetrate these markets. Small arms, lightly
armored vehicles, and noncombat aircraft will, how-
ever, continue to be Brazil's principal income earners.
While seeking new customers, Brazil probably will
continue to rely heavily on its traditional Arab clients,
which appear willing and able both to place large
orders for arms and to bankroll the design and
manufacture of specific systems. Brasilia will be
careful to protect its Middle Eastern markets and
sources of. investment capital. Nonetheless, we believe
both the Iranian Government and some sectors of the
Brazilian military will continue to press for some form
of arms contract with Tehran, even if only through
indirect sales.
' In addition to plans to upgrade. military equipment-now substan-
tially on hold due to funding constraints-Brazilian military profes-
sionalization is to include expansion in the size of the armed forces
beginning in 1986, improvements in individual and unit training,
and greater attention to technical disciplines such as electronic
warfare.
We judge that the Brazilians are not likely to place
reexport controls on indigenous or derived weapons
technology because they see the absence of such
controls as an advantage in international markets. We
judge that Brasilia will try to avoid employing US
weapons components that carry reexport restrictions,
but it probably will accept limited controls in order to
obtain information on US systems in which it has
special interest. Over the midterm to long term, in our
view, there is a significant risk that US-derived
technology may be leaked via Brazil to countries
hostile to the United States.
Moreover, the low level of awareness in Brazil of the
Soviet technical intelligence collection effort, in our
opinion, probably will continue to impede the develop-
ment of guidelines on sharing technology with the
Soviets. Loss of some information in metallurgy and
perhaps in optical communications is a possibility. As
Brazilian weapons technology improves, it is likely to
attract greater interest from Moscow, particularly if
Soviet access to similar technology in developed West-
ern countries becomes more difficult.
Alternative Scenario
While we are confident of Brazil's commitment to an
aggressive arms production and marketing program in
the future, we are less certain that it will encounter a
hospitable commercial environment. We believe ex-
ternal factors could cause a serious decrease in arms
exports and negatively affect Brazil's defense indus-
tries. With 90 percent of production destined for
foreign buyers, these industries are highly vulnerable
to market disruptions. World demand could contract
even further than analysts expect due to unforeseen
circumstances such as an end to or gradual winding
down of the Iran-Iraq war. The loss of a few key
markets in the Middle East alone could slash sales
drastically. Brazil is particularly vulnerable because
just two countries-Iraq and Libya-purchase more
than half of all Brazilian arms exports, and both have
regimes subject to political instability, eroding fi-
nances, and erratic behavior by their leaders. If sales
should plummet, moreover, we consider it unlikely
that the Brazilian armed forces could absorb large
amounts of unsold equipment, given the country's
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Implications for the United States
Brazil's arms exports and the prospect that they will
expand have mixed implications for the United States.
On the positive side:
? The hard currency they earn helps Brazil meet its
international debt obligations.
? Brazilian weapons producers could arm states that
the United States supports but, for political reasons,
is unwilling to provide with arms.
? Some Brazilian weapons-simple, light armored.
vehicles, for example-are attractive alternatives
for LDCs to equivalent Soviet equipment because of
their simplicity, reliability, and low cost.~
The US-Brazilian accord on military-industrial coop-
eration could enhance the ability of the United States
to influence Brazil's arms sales practices, and at the
very least may encourage Brasilia to formulate coher-
ent technology transfer policies, but we believe it also
carries risks. More effective weapons incorporating
some aspects of US technology could be transferred to
hostile states such as Libya by means of derived or
imitative Brazilian technology. The growth of cooper-
ative projects, such as the joint rocket program with
Iraq, moreover, carries the potential for the introduc-
tion of more lethal weapons incorporating advanced
technology into regions of conflict.
Even when technology is not at issue, Brazil's arms
sales to Libya and other unfriendly countries conflict
with US goals. Tripoli's subsequent transfer of some
Brazilian weapons to insurgent associates-the Poli-
sario Front and the Chadian rebels, for examplee-
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In addition, we believe links to Arab oil suppliers and
arms markets reinforce Brazil's inclination to pursue
a foreign policy independent of the United States. We
expect Brasilia, in part because of these ties, to
continue to take a Third World stand and vote against
the United States in international organizations. In
particular, we believe the Brazilians at times will take
anti-Israeli positions-or at least abstain from votes
concerning Israel-in the United Nations in order to
protect their trade relationship with Arab clients.
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Figure 4
Evolution of Brazil's Arms Industry
Production Chronology of Major Systems, 1965-90
Vehicles
Trucks ?
Cascavel APC a
Jararaca
0-
scoutcara
tank b
Urutu APC a
Tamoyo
tank b
Rockets
Tactical
X-20/X-40 SS
Medium-range
Long-range
multiple rocket
rocket c
Astros
Astros
launch system a
multiple rocket
multiple rocket
launch system b
launch system b
Aircraft
Xavante
fighter a
Bandeirante
(patrol version) a
Tucano Brasilia AMX
trainer a (military version) b fighter b
a Entered series production.
b Projected entry into series production.
~ Completed test and evaluation; production status uncertain.
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