BRAZIL AND HIGH TECHNOLOGY: A SOURCE FOR THE SOVIET BLOC

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T01235R000200260001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 27, 2016
• Document Release Date: February 28, 2012
• Sequence Number: 1
• Publication Date: June 1, 1987
• Content Type: REPORT

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Central
Intelligence
Brazil and High Technology:
A Source for the Soviet Bloc
Technology Transfer
Intelligence Committee
~J1/15'/0; i~lG~79~3'~
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k.L~i~ j~~it l N+u~
Secret
TTIC 87-10004
June 1987
?py 510
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Central
Intelligence
Brazil and High Technology:
A Source for the Soviet Bloc
Secret
TTIC 87-10004
June 1987
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The Technology Transfer Intelligence Committee (TTIC) is the DCI Committee
whose mission is to serve as the focal point within the Intelligence Community on
all technology transfer issues. The Committee coordinates Community activities
and is the principal source of intelligence support for those US Government
entities charged with the responsibility for policy and action on technology transfer
issues. It works with other Intelligence Community committees and appropriate
agencies to ensure that intelligence information collected on technology transfer is
consistent with the DCI's priorities and guidance and meets the needs of
Community production organizations.
Mr. Vincent DeCain
Mr. David Whitman
Dr. Robert Bingham
Mr. A. R. Cinquegrana
Mr. Rodney Huff
Maj. Mario Avalos
Lt. Col. J. Rob Robinson
Mr. Russ Vaughn
Mr. Arthur Long
Mr. William Meglen
Mr. Roger Diehl
Ms. Kristine Langdon
Lt. Col. Robert Davie
Central Intelligence Agency
Central Intelligence Agency
Defense Intelligence Agency
Department of Commerce
Department of Defense
Department of Energy
Department of Justice
Department of State
Department of the Air Force
Department of the Army
Department of the Navy
Department of the Treasury
US Customs Service
Federal Bureau of Investigation
National Security Agency
National Security Council
Office of the Secretary of the
Air Force
Technology Transfer Intelligence
Committee
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JCGI CL
This report assesses the role of Brazil as a target for Soviet Bloc acquisition of con-
trolled commodities and technology. It examines several indigenous high-technol-
ogy industries, including telecommunications, computers, strategic minerals, ro-
botics, and weapons, that the USSR and its allies could acquire. The report also
discusses Brazil's firm stance on economic sovereignty and its effect upon Brazil's
attitude toward export, control practices and technology transfer safeguards.
The report was prepared for the State-chaired Senior Interagency Group on the
Transfer of Strategic Technology. Information as of 24 April 1987 was used in
preparing this report. Members of the Working Group were:
Ms. Margaret Shields
Ms. Paula Todrin
Central Intelligence Agency 25X1
Air Force/Foreign Technology Division
Defense Intelligence Agency 25X1
Defense Intelligence Agency
Central Intelligence Agency
Central Intelligence Agency/TTIC
National Security Agency
Department of Commerce
Central Intelligence Agency 25X1
Department of Commerce
United States Customs Service
Central Intelligence Agency 25X1
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Brazil and High Technology:
A Source for the Soviet Bloc 25X1
Summary Brazil currently is a potential source of certain militarily critical technol-
and Conclusions ogies for the Soviet Bloc. In the past two decades, Brazil has registered re-
markable economic growth and achieved impressive gains in scientific and
technological development. We believe, however, that Brazil continues to
upgrade its indigenous capabilities and improves its access to Western high
technology, it will present an even more attractive target for Soviet Bloc
acquisition efforts. 25X1
Impressive advances have been made in areas where Brazil has devoted
adequate resources. We believe that the telecommunications sector, where
Brazilian scientists collaborate closely with Western researchers, will
provide the USSR with the best opportunities for acquiring high-
technology equipment and data. Brazilian capabilities in niobium produc-
tion and processing-a metal vital to the development of superconduc-
tors-is also an area the USSR can exploit. 25X1
Brazil's information technology industry is a less attractive target for the
Soviet Bloc; its low quality and high cost in relation to other sources in the
world market make sizable exports to the USSR unlikely. Brazilian
computer companies' lack of capital, management expertise, and research
infrastructure, coupled with highly protectionist policies, militate against
the development of an innovative informatics industry. We believe, howev-
er, the ties that some Brazilian computer companies have to Western firms
make small-scale diversions of COCOM-controlled' equipment possible.
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Because of its growing capability, emphasis on upgrading the arms
industry, and a commitment to expanding a scientific manpower base,
Brazil could be a viable source of additional sensitive technologies in the
coming years. Computer-assisted design systems now under development
and advanced semiconductor research may be future Soviet targets. At
present, the capabilities of Brazil's arms industry are too low to attract
Soviet attention, but Brasilia's determination to incorporate Western
technology into arms for export will present a threat to COCOM efforts to
safeguard sophisticated technology. Finally, the growing number of Brazil-
ians studying scientific and technical subjects at Western universities
presents a potential source of technical data transfer. 25X1
' Members of the Coordinating Committee on Multilateral Export Controls (COCOM)
include Japan and all NATO countries except Iceland. 25X1
v Secret
TTIC 87-10004
June 1987
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Secret
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Over the last year, Soviet efforts to increase the 25X1
still embryonic scientific and technological cooperation have gained mo-
mentum; the Soviets have been pushing aggressively for commercial deals
in informatics and telecommunications. Brazilian decisionmakers have
been unwilling to conduct significant exchanges in these two technologies,
but they have agreed to a commercial contract for the sale of optical fiber.
We believe the Soviet Bloc probably will continue to improve its access to
advanced indigenous and Western technology in Brazil; the transition to
civilian rule has brought a thaw in Brazilian-Bloc relations.
In our judgment, US efforts to reach an accord on technology transfer
safeguards will continue to meet Brazilian resistance. Resurgent national-
ism and economic exigencies will cause Brasilia to strongly resist any
pressure from Washington to curb its exports. The stalemated negotiations
over end use assurances on the purchase of a US supercomputer well
illustrate Brasilia's reluctance to retreat from its position that technology
transfer restrictions should be decided on a case-by-case, rather than
generic, basis. The politically embattled President Sarney will remain
vulnerable to a nationalistic backlash that could result if he agreed to
accept more wide-ranging technology transfer safeguards sought by the
United States and COCOM. Finally, if tensions between Brasilia and
Washington over trade issues or the foreign debt intensify, President
Sarney will come under considerable pressure from within and outside his
administration to take a hardline approach toward a technology transfer
agreement
Over the longer term, however, we believe that Brazil may become more
accommodating of the US position on protecting high technology. Resis-
tance to an agreement will erode if bilateral tensions are reduced. To a
large extent, however, Brasilia's stance will be determined by its reaction to
any potential cutoff of high technology from the United States and its
availability elsewhere; we believe Brasilia is counting on its strengthened
ties to Western Europe and Japan for access to advanced technology that
would be free from US restrictions. Even if Brasilia enters into serious
negotiations with the United States, it could well find a way to restrict pro-
visions of an agreement.
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Secret
Nevertheless, Brazil probably will not grant the extent of protection that
the United States requires and over time may skirt the restrictions. At best,
Brasilia will look upon controls as a burdensome, but necessary, expense of
obtaining the technology it wants and probably will be lax in enforcin
Memorandum of Understanding provisions.
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Summary and Conclusions
A Growing Technology Target
Level of Technological Development
1
High-Technology Industries
2
Relations With the United States
10
Technology Transfer Safeguards
11
Relations With the West and Japan
13
Brazil and the Soviet Bloc
13
Scientific and Technological Agreements
15
Trade Fairs and Commercial Transactions
16
S&T Intelligence Operations
17
Potential Acquisition Mechanisms
17
Brazilian Export Controls
18
Security Practices
19
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JCl"fCl
Brazil and High Technology:
A Source for the Soviet Bloc
A Growing Technology Target
In recent years Brazil has attracted the attention of
the Soviet Bloc as a potential source of strategic
technology. Brazil's solid scientific and technological
achievements, coupled with a thaw in relations with
the Eastern Bloc that resulted from the transition
from military to civilian rule, have led the USSR to
step up efforts to acquire science and technology
there
In only two decades Brazil has moved from the ranks
of a developing to a newly industrialized nation. The
military government that assumed power in 1964
embarked on a program of state-driven capitalistic
development that resulted in remarkable economic
growth, which has been dubbed the "Brazilian mira-
cle." In the past 20 years Brazil has transformed itself
from asemi-industrialized economy into a major
industrial power and exporter of a diverse array of
products, including airplanes, aluminum, petrochemi-
cals, automobiles, industrial automation equipment,
computers, and telecommunications equipment. This
economic transformation has been powered by:
? Brazil's ability to improve its manufacturing effi-
ciency by importing a diverse array of sophisticated
Western industrial goods and services .
? A willingness to allow foreign multinational corpo-
rations to invest in the industrial sector and to
transfer manufacturing processes and technology.
? Determined efforts to obtain sophisticated Western
technology via licensing and coproduction agree-
ments with Western firms in specialized product
niches.
Level of Technological Development
Brazil's indigenous scientific and technological devel-
opment has expanded steadily against the backdrop of
rapid economic growth. Brazilians have made impres-
sive advances in areas where they have devoted
adequate resources: the nuclear industry, computers,
and telecommunications. While still at the low end of
the scale as compared with industrial countries, Brazil
is making a concentrated effort to upgrade its domes-
tic capabilities.
Brazil has numerous science and technology research
institutions sponsored by the federal and state govern-
ments and by private industry. Most have been oper-
ating since the early 1970s, although some of these
facilities-such as the National Institute of Technol-
ogy (INT}-were founded much earlier. In general,
most technological research is applied rather than
basic; a number of major institutes focus on technol-
ogy adaptation and pilot plant facilities for industry,
rather than on basic or original research. 25X1
The US Embassy reports that the Brazilian Govern-
ment is committed to increasing research and develop-
ment capabilities. The government finances the bulk
of scientific and technological research and develop-
ment; the private sector contribution is negligible,
albeit growing. In recent years governmental research
and development expenditures have averaged between
0.6 and 0.7 percent of gross domestic product, a figure
that compares favorably with expenditures by similar
newly industrialized countries such as India (0.8
percent), but one that pales in comparison with those
of the USSR, the United States, and Japan at 4.9,
2.5, and 2.4 percent, respectively. The government,
however, has pledged to increase substantially R&D
funding, despite budgetary stringencies.~25X1
Brazil's reservoir of scientific and technological man-
power is steadily growing, although it is small when
compared with that of developed nations. The number
of students graduating from university-level degree
programs in science and technology rose more than
20 percent between 1981 and 1983. A slight dip
occurred during the 1984 economic slump, but the 25X1
trend has started upward again. Most educational
training is provided by state and federal universities,
although some research institutes offer advanced in-
struction and graduate degrees. The Technological
Institute of Aeronautics-part of the Air Force's
Aerospace Technical Center-provides undergradu-
ate and graduate education in aeronautical engineer-
ing for more than 600 Brazilian and foreign students,
only 10 to 15 percent of whom are military.
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Thrust unexpectedly into the presidency in April
1985 by the death of the immensely popular Presi-
dent-elect Tancredo Neves, Jose Sarney performed
e.~`ectively in the crucial first year of the transition
from military to civilian rule by adept political
maneuvering, enacting political liberalization mea-
sures, and promoting economic growth. When infla-
tion threatened his popular base, however, he took a
bold step in February 1986 by implementing the
Cruzado Plan-a comprehensive stabilization pro-
gram involving a new currency and wage and price
controls. That move caused a meteoric rise in his
popularity and led the electorate to give the governing
party, the Brazilian Democratic Movement (PMDBJ,
a sweeping victory in the congressional and guberna-
torial elections in November 1986.
In the first few months of implementation, the plan
quashed rising prices, but it has since veered o.B`'
track. Business investment is down, interest rates
have soared, and inflation as of April 1987 rebound-
ed to a 880 percent annualized rate. A sharply declin-
ing trade surplus, a halt in foreign borrowing, and a
slump in foreign investment have caused Brazil s
international reserves to dwindle to extremely low
levels, leading Brasilia to suspend payments on its
US $110 billion foreign debt. The US Embassy
reports that Brazil faces a major economic crisis:
confrontation with foreign debtors, hyperir~ation,
and low growth.
President Sarney has su,B"ered a precipitous drop in
public confidence and political support because of the
unraveling of the Cruzado Plan
his support within the party leadership is
slipping, business groups are extremely critical, and
labor strikes are proliferating. Political setbacks
have introduced fissures within Sarney s Cabinet,
impeding e,B`orts to regain support and hindering the
formulation of new economic and political strategies.
the military, heretofore
ingly worried about his ability to govern.
The President faces an uphill struggle to regain
political support and to govern eJ.l`ectively. His deci-
sion in February 1987 to suspend payments on Brasi-
lia's debt has given him a temporary political boost,
but his reprieve could be short lived without addi-
tional actions to put Brazil s domestic economy in
order and to restore public cortf~dence.
The Brazilian Government is assisting a number of
students in obtaining advanced scientific and techno-
logical training in foreign countries. At present 2,000
to 3,000 Brazilians are studying abroad; most are
studying in high-technology fields, and 45 percent are
in the United States. According to the US Embassy,
Brasilia hopes to increase the number to 10,000 by
1988. Most students will be doing graduate work in
informatics, biotechnology, precision machinery, and
new materials; almost all of them will be studying in
the United States, Western Europe, and Japan.
Science and technology policymaking is ostensibly the
purview of the Ministry of Science and Technology.
In practice, however, decisionmaking is diffused in a
number of ministries and subministries, and the
assignment of responsibility depends to a large degree
on the political influence of individual ministers and
subministers. In the past year, however, Renato
Archer, Minister of Science and Technology and a
prominent member of the left wing of the dominant
party, has expanded his influence in the scientific
establishment
High-Technology Industries
We believe Brazil may be a potential Soviet source of
sensitive Western technologies via scientific coopera-
tion agreements, as well as outright sales of commod-
ities or technological know-how. A current area of
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Despite high costs and ine.~ciencies, protectionist
policies have enabled Brasilia to develop successj'ully
a number ojindustries, most notably automobiles
and steel. On the basis of this experience, Brazil
extended protection to high-technology industries,
culminating in the passage oj'the Informatics Law in
1984.
The Special Secretariat j-or Informatics (SEIJ-the
executive agency charged with administering the
law-has been allowed a virtual free rein in regulat-
ing joint ventures and direct investment, in allocating
import quotas, and in overseeing the introduction of
new technology for the sector.
the SEI, a bureaucracy dominated by
strident economic nationalists, has interpreted the
law to gfject every company involved with the produc-
tion or distribution ojcomputers-including integrat-
ed circuits and soltware-and is using the legislation
to justly protection for industrial automation equip-
ment, and, most recently, for any product with elec-
tronic or digital components. Moreover, the SEI, like
CACEX, the oJ~cial foreign trade agency, subjects
each new foreign investment or import proposal to the
"national similars"test. It prohibits new multina-
tional investment, joint ventures, or imports if'the
product can be manufactured domestically, or if'a
Brazilian.firm promises to produce it.
Soviet interest is telecommunications research, a field
in which Brazilian scientists work closely with West-
ern groups to develop gallium arsenide and indium
phosphide semiconductor lasers and fiber optics.
the Soviets also are interested
in Brazilian telecommunications equipment-fiber-
The USSR lags the West in
utilization of fiber optics and is interested in acquiring
this technology. Brazil is developing an indigenous
capability in this critical, COCOM-controlled area
and could become a source of supply. In addition, we
believe telecommunications switching centers locally
manufactured by Elebra Telecon are also of otential
interest to Soviet end users 25X1
We believe major exports of Brazilian-made com-
puter-related equipment to the USSR are unlikely in
the short to medium term because of their high cost as
compared with similar items available from Singapore
and Taiwan and because Brazil resists countertrade.
However, computer-aided design (CAD) systems cu~25X1
rently under development in Brazil may be of future
interest to the Soviets. Brazilian companies are estab-
lishing aresearch infrastructure in the informatics
industry that also could be of interest to the USSR.
Additionally, the policies of the government's Special
Secretariat for Informatics (SEI) are currently under
attack at home, and, should they change significant1~25X1
over the medium term, the local informatics sector 25X1
would probably seek more sophisticated equipment
and technology for the domestic market. We believe
any redirection of policy will necessarily be gradual,
however, because of the power of vested interests in
the computer industry 25X1
Brazil's electronics manufacturing capabilities are
growing gradually, and, with a few exceptions, items
produced locally are at the low end of the high-
technology scale. Although some companies license
foreign technology for their production operations,
many others import kits and components for local
assembly. In addition, the heavily protected market 25X1
protects many inefficient producers. Although~25X1
costs are high, quality is low,25X1
and many technologies are obsolete by world stan-
dards, we judge there are selected segments that could
be of interest to the USSR because of industrial
applications or scientific potential. 25)(1
Microelectronics. Brazil's microelectronics industry
consists mainly of assembly, packaging, and testing
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operations based on imported die wafers. Devices 25X1
currently produced include memories, bipolar logic 25X1
chips, and discrete devices, with output destined for 25X1
both local consumption and export. Several large
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multinationals, including Texas Instruments and Sie-
mens (West Germany), have operations in Brazil.
Because the current Brazilian microelectronics capa-
bility centers on assembly, rather than on front-end
silicon processing, we believe there is little chance that
sensitive microelectronics technology could be trans-
ferred to the Soviet Bloc.
Brazil is unable to produce commercial quantities of
monocrystalline silicon that is used in semiconductor
manufacturing. Such electronic-grade material must
be more than 99.99 percent pure, and the production
technology needed to achieve this purity is sophisticat-
ed and costly. Brazil currently produces metallurgi-
cal-grade silicon (98.5 percent purity) for steel mak-
ing. Asmall domestic market, coupled with the large
amounts of capital required, make it unlikely that
Brazil will produce commercial quantities of electron-
ic-grade silicon in the medium to long term. Research
efforts on silicon purification are under way at the
Minas Gerais Technology Center, and a Sao Paulo
firm, Heliodynamica, is reported to be producing
some electronic-grade silicon
SID (Sistemas de Informacao Distribuda) is the only
Brazilian firm with front-end wafer production capa-
bilities, which it purchased from Philco/Ford (a US
firm) Philco/Ford
shut down its Minas Gerais wafer front-end plant for
automobile circuits in January 1984 because of weak
demand and market reserve problems that kept the
facility operating at only 65 percent of capacity. This
plant had two processing lines for handling three-inch
wafers (outdated technology by Western standards).
The line for discrete power transistors had a capacity
of 60 million transistors per year; the other line could
produce 10 million integrated circuits (ICs) annually.
SID purchased the plant in late February 1984 after
SEI guaranteed a market reserve for digital ICs.
According to press reports, SID acquired the
Philco/Ford facility for the bargain basement price of
$9 million-less than one-third its original value-
because the multinational was resigned to selling the
plant for scrap.
SID is currently
Brazilian press and US Embassy reporting indicates
that two other Brazilian companies, Itaucom and
Edisa, have been authorized by SEI to produce digital
ICs. Itaucom signed an agreement with a US firm in
1984 to acquire gate-array technology and standard-
cell libraries used in the design of very-large-scale ICs
for computer and telecommunications equipment. The
circuit designs by Itaucom were to be sent to the US
company for front-end processing; Itaucom would
then perform assembly and testing operations. We
have no information concerning the status of this
Elebra, the Brazilian electronics manufacturer, does
not yet have any semiconductor manufacturing capa-
bilities. Arecent DOD report indicates the firm will
begin production of 16-bit microprocessors in 1987
under an agreement with Intel (USA). These devices
are of a type that currently are subject to COCOM
restrictions.
SEI's Centro for Informatics Technology (CTI) in
Campinas performs research in microelectronics and
other informatics technologies. In 1984, CTI pur-
chased semiconductor packaging, assembly, and test-
ing equipment from a US firm that had abandoned
Brazilian operations because of the protectionist in-
formatics law. Output from CTI was targeted at 1
million chips annually in 1985. Front-end wafer pro-
cessing is to be performed by a foreign contractor
offshore until SEI invests in the necessary production
equipment. CTI
recently began accepting bids for the establishment of
processing 2- and 3-inch wafers and plans to move
into production of 3-micron line width, complemen-
tary metal oxide semiconductor (CMOs) devices by
1989. Current capacity, utilization, and yield rates for
SID's fabrication lines are not available. SID is also
looking into using US foundries to manufacture semi-
custom and custom devices on 4-inch wafers. How-
ever, 4- to 5-inch-wafer technology would require
replacement of the current production equipment.
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an electron-beam mask-making facility at its Campi-
nas headquarters. This $20 million facility would be
the first of its kind in Latin America and would be
utilized by CTI, as well as private Brazilian firms.
absorption and utilization of technology.
The government's plans for development of microelec-
tronics technologies for later transfer to private indus-
try are likely to be largely unfulfilled, at least in the
short-to-medium term. We believe Brazil's past expe-
rience with such cooperative ventures indicates that
private industry and research groups are probably not
yet ready for undertakings of this type. For example,
in 1978 Transit Semiconductors, aBrazilian assem-
bler of imported electronic diodes and transistors,
began a wafer diffusion project with the University of
Sao Paulo using technology from SGS-AYES (Italy).
The project ran into difficulties because of inexperi-
ence with technology transfer and inadequate and
insufficiently skilled engineering staffs. The venture,
and Transit itself, were disbanded in 1981 because of
a lack of human and financial resources for the proper
States for diffusion.
Local universities have been involved in microelec-
tronics R&D for more than 15 years. The University
of Sao Paulo has done work on bipolar, MOS, and
hybrid ICs, and in 1986 it began the country's first
experiments in semiconductor manufacturing. Its fa-
cilities are now oriented mainly toward postgraduate
training rather than R&D. The Federal University of
Rio de Janeiro (UFRJ) is currently working on large-
scale IC design and development of a related CAD
system. UFRJ does not have large-scale fabrication
facilities and sends its chip designs to the United
The University of Campinas (Unicamp) acquired mi-
croelectronics laboratory facilities in 1978 as an out-
growth of a project being carried out by the Telebras
Research and Design Center. Discussions with
Unicamp researchers indicated that they are working
on basic MOS and bipolar semiconductor manufac-
turing techniques, silicon purification, and computer-
aided IC design.
We 2
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believe that the financial burden of investment in new
microelectronics manufacturing facilities is too oner- 25X1
ous for most local firms because of the small size and
varied requirements of local microcircuit consump-
tion. As such, the establishment of major Brazilian
facilities is unlikely in the near term.
Computers. The Brazilian computer industry is devel-
oping rapidly and has some indigenous R&D in
progress that could be of interest to the Soviets
because of technological breakthroughs and commer-
cial adaptations, especially if Brazil is assisted by
Western and Japanese firms. According to press
reports, more than 150 Brazilian firms now make
computers and related equipment, producing enough
to supply about 45 percent of the local market.
Because the computers are produced largely from
imported kits and components, prices are high. US
Embassy reports indicate that Brazilian-owned firms
account for 70 percent of domestic production, but 25X1
because domestic models are less sophisticated, they
account for only 20 percent of the value of the
computer market.
Small/Medium Computers. In 1977 the market re-
serve for small (mini) computers was established, and
four local companies-Cobra, Sharp, Edisa, and
Labo-were initially chosen to develop the machines
through the purchase of foreign technology
By 1982 these firms were supposed to incorporate
80 percent of the local input in their finished products,
but, according to one press report, this ratio had
reached only 35 percent by 1983. A number of other 25X1
small companies produce pirated versions of US and
Japanese personal computers. Brazilian companies
manufacture other items that SEI places in the
microcomputer/minicomputer category, including
microcomputers, calculators, word processors, and
bank terminals.
A number of Brazilian firms tried to design their own
medium-sized (supermini) computers, but eventually 25X1
turned to foreign technical ties in order to speed loca125X1
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.~c~.i c~
development. Several local companies now use foreign
technology and also import components or semi-
knocked-down units for assembly into 32-bit comput-
ers. In addition, IBM recently received SEI approval
to manufacture four models of its 4381 computer line.
Cobra, the government-supported computer manufac-
turer, reportedly did develop the G-10 superminiin
association with a local university. However, no infor-
mation is available to confirm that this machine has
ever been produced on a commercial scale.
Mair4frames. Currently no market reserve extends to
the production or marketing of mainframe computers,
and no Brazilian firms produce them.
few Brazilians are willing to invest
in the manu acture of items that are not subject to
market reserve, nor are they attracted by joint-
venture opportunities, because firms that are less than
100-percent Brazilian-owned generally do not receive
benefits such as tax breaks.
Peripherals. Local firms produce computer and video
game keyboards, dot matrix and line printers, Win-
chester and floppy disk drives, tape drives, and color
and monochrome video monitors and terminals. Mul-
tinational firms, including Burroughs and IBM, have
licensed a number of Brazilian companies as original-
equipment manufacturers of modems, video termi-
nals, and printers. IBM will also begin its own local
manufacture next year of 2.5 and 5-8 gigabyte, large-
scale hard disk drives, which are a definite Soviet
target for both production technology and finished
products. Several Brazilian companies also hope to
produce similar equipment.
The local content of peripheral equipment varies
among products. According to one open source publi-
cation, some printers have 90 percent and some disk
drives about 45 percent local content, measured in
terms of final value added. Sophisticated peripheral
components that must be imported include magnetic
heads and stepper motors for disk drives.
Software. According to US Embassy reporting, there
is little reliable data available on Brazil's software
industry. Brazilian computer manufacturers and soft-
ware houses have developed systems and applications
software. Many of the programs are designed for
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reverse engineering-and imported and domestic 25X1
components. Most of the sophisticated technology is
imported from Japanese or German firms.
search groups and at least one private firm are
working on CAD software development, mainly for
semiconductor design.
According to Brazilian press reports, SEI recently
drafted a computer software law that would require
imported software programs to be registered with the
Secretariat to receive only limited copyright protec-
tion. We believe such a law could facilitate piracy of
imported software, which then could increase Soviet
software acquisitions. SEI currently prevents foreign
firms that supply information services such as soft-
ware design from upgrading their level of activities in
order to allow Brazilian firms to establish Computer-
Assisted Design/Computer-Assisted Modeling
(CAD/CAM) and other sophisticated software capa-
bilities.
Advanced Machine Tools/Robotics. Brazil's output of
advanced industrial automation equipment has grown
slowly since production began in 1982. According to
press reporting, only 400 pieces of numerically con-
trolled (NC) equipment were produced in Brazil in
1985. Local NC machine tool producers, most of
which are undercapitalized, are having difficulty ex-
panding their manufacturing capacity. In addition,
the cost of Brazilian-made machines-two to three
times higher than comparable foreign equipment-
hampers their marketability.
local publication indicated that Brazilian-developed
technology accounts for more than 30 percent of the
sector's output. Local manufacturers continue to de-
pend on imported microelectronic components for the
equipment they produce. Of the estimated 120 Brazil-
ian machine tool makers, 17 produce NC machine
tools and five firms manufacture numerical control
units. we believe Brazilian-
made NC machine tools are comprised of a mixture of
foreign and local technology-some derived through
Brazilian manufacturers plan to move aggressively
into the production of industrial robots, which is a
technology the USSR has been seeking in order to
upgrade its industrial capabilities. In 1984, SEI au-
thorized 17 firms to enter the sector, only four of
which will be able to use imported technology
~T'he local market for robots is small-estimated a25X1
some 200 units over the next three years-and we
believe it will be difficult for some of those firms to 25X1
stay afloat, particularly those that produce robots
exclusively.
An unconfirmed report in a Brazilian journal indi-
cates that Brazilian firms are also involved in other
aspects of the industrial automation sector. According
to the article, some 23 local companies produce
industrial process control systems, and 20 firms re-
portedly manufacture CAD/CAM systems. We be-
lieve any Brazilian-made CAD/CAM systems are
probably capable of only elementary design applica-
tions. Many of the firms probably produce only low-
end CAD terminals.
Telecommunications Equipment. The telecommuni-
cations sector, under the direction of the Ministry of
Communications, has generally not been subject to
regulations as stringent as the informatics market
reserve. Foreign telecommunications manufacturers
may set up local subsidiaries provided the majority of 25X1
shares is held by Brazilian partners, as compared with
the 100-percent Brazilian control required in the 25X1
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Brazil's 25-year-old, crossbar telephone switching sys-
tem is gradually being replaced by equipment incor-
porating locally produced, stored program-controlled
(SPC) switching centers and fiber-optic cable. Local
companies also manufacture teleprinters, PABXs,
FM transmitters, and statistical and time division
multiplexers. Satellite communications equipment is
being manufactured on an increasingly wider scale,
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~..... ~.
and satellite antennas, signal processors, and tran-
sponders all have been developed locally.
from 82 cents to 26 cents/meter since production
began, indicating improved manufacturing efficiency.
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pends on foreign sources for some of the sophisticated
components used in its telecommunications products.
Fiber Optics. SEI has awarded afive-year, optical
fiber market reserve to ABC-XTAL, a local firm that
will supply Telebras with 10 000 kilometers of optical
fiber annually. BC-
XTAL currently produces 500 to 650 km/month of
850 nanometer multimode optical fiber using a modi-
fied chemical vapor deposition (MCVD) process. The
company hopes to double its fiber production in the
near future. this
multimode fiber has typical characteristics that in-
clude an attenuation rate of 2.5 to 3 decibels/km and
a 250 megahertz/km bandwidth. According to press
reports, ABC-XTAL's price for this fiber has dropped
New monomodal fiber is under development by the
Telebras Research and Design Center and is sched-
uled to be ready for commercial production in 1987. It
will be capable of transmitting over 100 kilometers
without an amplifier, and there are hopes of increas-
ing the effective distance to 400 kilometers.
Other companies in Brazil are involved in fiber-optics-
related production. A subsidiary of the Italian firm
Pirelli produces small amounts of fiber-optics cable-
using imported fiber-but is restricted to exports or
nontelephonic applications. Two local firms, Elebra
and Condugel, are reportedly planning to manufac-
ture fiber-optics connectors, and Condugel and
FICAP also manufacture fiber-optics connectors and
fiber-optic cable
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Unicamp
finished devices to Telebras.
is working on gallium arsenide (GaAs), indium phos-
phide (InP), and indium antimonide (InSb) system
semiconductor lasers and detectors for telecommuni-
cations applications. The research involves devices for
longer wavelength fiber-optic applications-1.3 and
1.55 micrometer, single-mode operation. First-genera-
tion GaAs lasers developed by Unicamp have already
been tested in substations in Rio de Janeiro. The
InP-GaAs wafers used by Unicamp are imported,
primarily from Japan. Unicamp handles wafer diffu-
sion and mounting operations and then delivers the
Strategic Minerals. Brazil claims a significant share
of world reserves of strategic minerals that are used in
such important high-technology industries as aero-
space, computers, and precision instruments. Brazil is
a leading producer of niobium, as well as beryllium,
bauxite, manganese, and iron ore, all of which are
exported to the United States. (Brazil is the dominant
US supplier of niobium and beryllium.) These miner-
als are essential for the manufacture of high-strength
steels and alloys for weapons systems production.
um oxide.
Brasilia's dominance of the international niobium
industry is a key resource for the USSR to exploit
(niobium alloys and compounds are COCOM-con-
trolled). According to press reports, Brazil contains 85
to 90 percent of the world's reserves of niobium, and
the USSR appears to be short of domestic supplies.
This strategic mineral is used in advanced supercon-
ductors; two primary uses of niobium superconductors
are in magnetohydrodynamic (MHD) equipment and
as a Component of sensors in military equipment. The
Brazilian firm Compania Brasileira Metalurgia and
Mineracao, an affiliate of the West German firm
Niobium Products Company, has a technical coopera-
tion agreement with the USSR for niobium process-
ing technology in return for ferroniobium and niobi-
Arms Industries. Brazil is the largest producer of
arms in the Third World and the seventh largest non-
communist arms exporter. The government is encour-
aging arms manufacturers to keep abreast of technol-
ogy advances, to expand specialized industries and
refine their products, and to enter into coproduction 25X1
and licensing arrangements for new weapons systems.
We have no evidence that indigenous Brazilian sys-
tems have been of interest to the USSR; Brazil has
offered spare parts and training for USSR-origin
equipment to Third World Soviet clients, which sug-
gests some flow of technology from the USSR. Brasi-
lia is shopping aggressively for advanced, primarily
Western, arms both to bolster its own arsenal as well
as to incorporate the technology into domestically
produced systems designated for export. As Brazil
improves its access to advanced Western defense and
defense-related equipment, its arms industries will 25X1
attract Moscow's attention. 25X1
Much of the technology used in Brazil's arms produc-
tion and some of the more sophisticated components
have come from abroad, either directly through li-
censing arrangements or indirectly through nonmili-
tary subsidiaries of multinational corporations operat-
ing in the country. In the widely exported armored
personnel carrier, the Cascavel, Brazil frequently uses
a General Motors diesel engine that requires a US
license to export. Ground forces equipment is, how-
ever, gradually becoming more sophisticated. Brazil- 25X1
ian tanks are now just beginning to incorporate laser
night vision sights and rangefinders. Sights currently
being used are of Yugoslav design, but Brazil is
seeking British-designed laser sights. The next-gener-
ation tank is expected to use specialized engines and
advanced suspension systems. Brazil always attempts
to obtain arms technology transfers through licensing
arrangements or joint ventures that allow fora major-
ity Brazilian equity and the achievement of indige-
nous production. Significantly, Brazil only accepts
those licensing or joint-venture agreements that also
allow for the export sale of the item produced.
The main weapons systems where high technology
will have an immediate impact are helicopters, fighter
aircraft, rockets, and missiles. Italy and Brazil have a
joint venture for the development of the AMX fighter25X1
aircraft. Approximately 70 percent of the aircraft will
be imported, including avionics, the engine, heads-up
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display, fuselage, and armament. The Brazilian tacti-
cal and strategic rocket development programs are
expected to become major technology transfer issues
because Brasilia intends to export rockets.
The Brazilian arms manufacturer Engesa has re-
ceived large orders for armored vehicles from Iraq
and other Middle Eastern countries. The company
may face production constraints if large new orders
are placed. To remedy this deficiency, Engesa is
seeking computer-aided manufacturing and numeri-
cally controlled machine systems, advanced metal-
cutting systems, and probably flexible machining
systems in order to increase production rates and
manufacturing sophistication. There are no indica-
tions that such high-technology machine tools are
being reexported to Communist Bloc nations; these
items are remaining in Brazil for assimilation in the
domestic industry.
Nuclear Industry. We do not believe that the USSR
would be interested in Brazilian nuclear technology,
and we have seen no efforts by the Soviets to target it.
Brazil's nuclear research is pursued along two sepa-
rate tracks: a safeguarded nuclear power program
directed by Brazilian Nuclear Enterprises and an
unsafeguarded program involving technologies that
could lead to the production of materials used in
nuclear weapons. The latter program is nominally
administered by the Nuclear Energy Commission, but
the military services play the major role.
The safeguarded nuclear program is based on a
Western pressurized water reactor design, which is
similar to the Soviet VVER reactor series. The en-
richment technology under development in Brazil, the
Becker Jet Nozzle, has never been proved on a
commercial scale; we do not believe the project will be
foreign inspection.
completed. The USSR, which already has awell-
established nuclear weapons program and advanced
power reactor development, does not need Brazilian
nuclear technology. Also, we do not believe that
Brasilia would open its unsafeguarded program to
We believe that Brazil will continue to look to the
United States as its primary source of advanced
technology. Most Brazilian scientists are trained in
the United States and have a high regard for US
technology. The Brazilian Congress's recent ratifica-
tion of a bilateral agreement on scientific and techno-
logical cooperation and the formation of a high-level
joint scientific panel illustrate Brasilia's interest in
improving scientific ties.
According to the US Embassy, bilateral scientific
relations have been improving steadily under the
Sarney regime. The Science and Technology Ministry
has focused attention on several keys research areas
and has supported Brazilian agencies that have major
cooperative programs with American organizations,
especially in space sciences. Brasilia has initiated new
joint projects in seismology, environmental science,
meteorology, health, telecommunications, and water
resources.
debtors.
We expect, however, divergences between Brazil and
the United States on a number of issues, and these
may affect bilateral scientific and technological coop-
eration. Brasilia's growing competitiveness in world
markets, its use of protectionism to spur economic
development, and the strong element of government
control over its industries will continue to be conten-
tious issues. Serious conflict could result if Brazil
embarks on a confrontational course with foreign
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~ecrec
The litformatics Controversy
Brasilia's protectionist computer policy has been a
major irritant in LIS-Brazilian trade relationslor the
last two years. Bilateral talks have averted outright
trade confrontation, but progress has been slow in
resolving differences. A growing number of industri-
alists have criticized the policy, claiming that it will
retard seriously the development of an innovative
computer industry, as well as damage industrial
competiveness. The hardliners-composed o.1'an ac-
tive minority olhighly nationalistic military officers,
the lej?ist political parties, domestic computer execu-
tives, Minister of Science and Technology Archer,
and numerous congressmen-still have the upper
hand and have ejJ'ectively exploited nationalistic sen-
timents by portraying Washington as challenging
Brazil's sovereign rights to industrial development
and economic growth.
The Sarney administration has made two conces-
sions: it agreed to revamp SEI s administrative proce-
dureslor handling complaints, processing import
applications, and approving joint ventures; and it
allowed the import, heretofore banned, of a number
of high-technology items, although .for one year only.
We believe that the computer market reserve policy
will remain a contentious issue in bilateral relations.
In practice, the concessions mentioned above have
done little to open up the computer market because
SEI continues its stringent interpretation and appli-
cation of the Informatics Law. Moreover, Brasilia
appears unlikely to address US concerns on two of
the most important issues-software protection and
joint ventures. The US Embassy reports that the
current political situation, coupled with economic
di8-culties, could adversely gfj'ect the ejj"ort to settle
the dispute. A politically weakened Sarney will have
difficulty in convincing the hardliners to make addi-
tional concessions.
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,~?. ~~
Relations With the West and Japan
While we expect Brazil will continue to look primarily
toward the United States, it is increasing its scientific
ties to other COCOM nations. Brasilia has general
scientific cooperation agreements with Italy, Canada,
and the United Kingdom, and it has exchanged
scientists with West Germany in the priority areas of
biotechnology, informatics, environmental science,
and nuclear research. Brazil has cooperated most
closely with France; interest has centered on space
research, notably in the development of the Sonda
rocket.
Brazil also is seeking stronger links to Japan. Tokyo is
well placed to take advantage of enhanced ties be-
cause Brazil is host to the largest Japanese communi-
ty outside Japan and maintains a number of business
ties to Japanese companies. During 1986, Japan and
Brazil were involved in complex negotiations on the
modalities of a general scientific accord. Moreover,
the SEI has contacted several Japanese computer
manufacturers about importing mainframes, compo-
nents, and peripherals and about manufacturing such
products in Brazil.
We believe that the Japanese are unlikely to transfer
establish assembly operations in Brazil that would
allow a limited transfer of technology.
In our judgment, the Brazilians hope that strength-
ened ties to Western Europe and Japan will allow
them to obtain sophisticated technology free from US
end use and other restrictions. In 1983-84 the arma-
ments firm Engesa switched to Mercedes-Benz en-
gines for its Urutu and Cascavel armored personnel
General Motors diesel engines it used before. More 25X1
recently, Brazil has been considering purchasing
French helicopters. Petrobras and INPE have both 25X1
approached Japanese computer firms about purchas-
ing asupercomputer if they cannot obtain one from
the United States, and they also have asked the US
Embassy in Brasilia for details of the US-Ja anese
computer safeguard agreement. 25X1
25X1
The transition from military to civilian rule in Brazil
has brought a thaw in relations with the Soviet Bloc.
Several events illustrate the friendlier tone of rela-
tions: the Brazilian Foreign Minister's visit to Mos- 25X1
cow in December 1985-the first high-level visit in 25
years; President Sarney's acceptance of a Soviet
invitation to visit Moscow; and the reestablishment of
diplomatic ties to Cuba in the summer of 1986.
We believe President Sarney has shifted from the
former military government's correct, but cool, ap- 25X1
proach in order to preempt an issue that the left might
try to use against him, expand exports, and gain
access to whatever technological and scientific assis-
tance the Bloc countries can provide. The new tack
also reflects Brazil's longstanding conviction that it is 25X1
an emerging international power that should have
relations with both superpowers.
the Soviets have stepped 2.25X1
up their efforts to increase ties to Brazil. The new 25X1
Soviet Ambassador is a veteran diplomat with many 25X1
years of service in Washington. He has taken advan-
tage of civilian rule to project himself into the lime- 25X1
light by publicly promoting improved relations. More-
over, the number of official delegations traveling
between Brazil and the Bloc countries has increased
significantly, and the Soviets have been trying to
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~ecrec
Early in 1986 the COCOM nations decided to include
Brazil in the Third Country Initiative on technology
transfer. This had its origin in discussions that were
held in March 1985 by the COCOM Subcommittee
on Export Controls about the problem ojprotecting
strategic goods that were exported from, or in transit
through, non-COCOM, non-Communist nations. CO-
COM members feared that their controls would
become inetjective unless certain countries were will-
ing to protect COCOM-controlled and comparable
indigenous technology. The subcommittee identified
key Third Countries, and the COCOM members
agreed that these countries would be urged to cooper-
ate with COCOM along the following lines: establish
an import certification delivery verification system;
control reexports ojCOCOM-regulated commodities;
provide for prelicense and postshipment checks and
e~tforcement cooperation; and enact export controls
for indigenous commodities having strategic impor-
tance.
send a Navy ship to make a port call. Recently
Moscow approached the Brazilians about demonstrat-
ing ahelicopter to compete for the new Army aviation
program, but Brasilia has not responded. The US
defense attache reports that most officers remain
opposed to an exchange of attaches, even though such
an exchange has taken place with China.
The Bloc countries are also attempting to establish
ties to private arms manufacturers. Engesa, a manu-
facturer of armored personnel carriers and tanks, has
had preliminary discussions with Yugoslavia about
coproduction of laser rangefinders and reportedly is
scheduled to exhibit computers and railroad equip-
ment at an exposition to be held in June 1987 in the
USSR.
Economic and commercial links between Brazil and
the Soviet Bloc are still weak. There are no economic
assistance programs sponsored by Communist coun-
tries; nevertheless, during the Foreign Minister's visit
to Moscow in December 1985, Brazil and the USSR
si?ned an economic and technological agreement.
Canada has taken the lead on the Third Country
Initiative with Brazil. Canadian and Brazilian otjr-
cials have held preliminary discussions in Ottawa on
the issue ojexports ojstrategic technology. To date,
Brazilian o,.fficials have continued to assert that
Brazil will determine export controls on such com-
modities. Brasilia has agreed to receive a Canadian
delegation to discuss the Third Country Initiative in
early 1987.
establish close relations with Brazilian congressmen.
The Soviets provide most of the funds for the small
Brazilian Communist Party, which normally supports
Moscow's international policies. Moreover,
Moscow may furnish hydroelectric equipment for a
project in Parana and may enter into a coproduction
agreement with a Brazilian firm to manufacture
electrical equipment for sale to third countries. The
Soviets also have offered to provide advanced equip-
ment and financing for the Carajas mining project
and would buy large quantities of its pig iron and
manganese.
Since the reestablishment of diplomatic relations in
1986, Cuba has been pressing Brazil for increased
commercial ties. The Cubans reportedly are looking
to Brazil as a source for the technology, equipment,
and raw materials that are otherwise inaccessible to
them. Because of its severe hard currency shortage
and its limited variety of exports, Havana apparently
is emphasizing joint ventures and other forms of
the USSR, through East Germany
and Cuba, is attempting to gain influence with the
major non-Communist leftist party.
The Soviets do not sell arms or provide military
assistance to the staunchly anti-Communist Brazilian
armed forces. Brazilian senior officers have repeated-
ly rejected Soviet invitations to visit the USSR and to
economic cooperation.
Cuban officials are frustrated with
the minimal improvement in their commercial rela-
tions with Brazil because of Brasilia's lack of interest
in Cuban goods and its unwillingness to finance
exports to Havana.
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It appears that high-technology flows from Brazil to
the Soviet Bloc have been minimal,
We believe, however, that the Soviets regard Brazil as
a potentially fertile field for acquiring sensitive tech-
nologies in the com uter and telecommunications
industries. he USSR has
stepped up its acquisition efforts in these areas,
relying primarily on science and technology coopera-
tion and exchange agreements, on trade fairs, and on
commercial transactions to obtain high technology.
Scientific and Technological Agreements
In recent years Soviet efforts to improve scientific and
technological ties to Brazil have gained momentum,
but we do not believe these agreements have been or
are likely to be used to obtain sophisticated Western
equipment. Instead, the transfer of design information
and other sensitive intellectual property as a result of
such agreements is more likely. By improving links to
Western-trained Brazilian scientists, the Soviets un-
doubtedly hope to obtain significant amounts of tech-
nical data on advanced technologies, especially those
having military applications. Moreover, if Brasilia
significantly increases the number of its scientists
studying in COCOM countries, scientific agreements
and exchanges could eventually become a means for
Exchange visits by Soviet and Brazilian scientists are
just beginning. In 1986 a Brazilian scientist conduct- 25X1
ed space-sensor research in Moscow, and during 198725X1
the two countries will exchange two scientists for
training in space matters. The National Council for
Scientific and Technological Research reportedly has
approved travel to Brazil for at least nine Soviet
scientists, and three Brazilian scientists will travel to
Moscow.0 25X1
Brazil's scientific ties to other Communist countries
are even less developed. There are no cultural accords
with East European nations, nor are there any official
student exchange programs. Since mid-1986, East 25X1
Germany has been seeking increased scientific and
technological cooperation with Brazil, and Hungary
recently announced that it would begin discussions on
a bilateral science and technology agreement. The
Bulgarian computer manufacturer ISOT and the 25X1
trading firm Tekhnika have expressed interest in an
exchange of computer technology and in representing
Brazilian computer firms in other markets.
technology transfer to the Bloc.
fields of basic physics and space research.
Brazil and the USSR have had an agreement on
limited scientific and academic exchanges and on the
sale of low-level technologies for almost 10 years.
Since 1983, however, Brasilia and Moscow have held
discussions on the expansion of scientific agreements
in a wide range of fields. The meeting in Brasilia
during April 1986 of the subcommittee on science and
technology of the Brazilian-Soviet mixed commission
was a key event in Moscow's drive to promote bilater-
al cooperation. The two governments tentatively
agreed on expanded cooperation, especially in the
The USSR has had only limited success in formulat-
ing agreements for cooperation in two of their high-
priority fields: informatics and telecommunications.
We believe that the Soviets hope to advance their own
computer industry by acquiring technology through
Brazil, rather than by merely purchasing computers.
Evidence of this interest in technology, rather than
commodities, is the two-year science and technology
bilateral agreement that was signed in April 1986 and
included joint research on informatics. Also, in March
1985, Soviet foreign trade officials indicated interest
in importing Brazilian computers and in exchanging
computer technology.
the Soviets have placed
greater priority on gaining access to the Brazilian
telecommunications industry. The USSR has focused
on fiber-optics technology since Telebras began initial
research and development in the early 1980s, and it
has consistently pushed Brasilia to agree to joint
research projects in this field.
?
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To date, the Brazilians have ignored Soviet pleas fora Brazilian firms apparently are cognizant of the risks.
informed the US COCOM delegate that Brasilia was
considering joint research with the USSR in the field
of fiber optics, but stated that Brazil did not want to
operate counter to COCOM. In the spring of 1986,
Brasilia put off discussions on fiber optics, refusing to
establish specific scientific exchanges or even to agree
in general terms to cooperative activities.
US and European firms prohibited Brazilian comput-
er companies from selling certain technologies to the
Soviet Union. Apart from the possible sale of Nexus
microcomputers at the 1985 Moscow fair, we know of
no technology transfers that resulted from the Brazil-
ian or the Moscow expositions. We believe, however,
that the potential for technology loss through trade
fairs will increase as the Soviets and Brazilians ex-
pand their direct trade contacts in high-technology
In our view, the lower and middle levels of the
Brazilian scientific establishment are not pushing for
enhanced ties to the USSR.
most researchers are not
enthusiastic about improved relations because they
have strong ties to the United States and Europe and
believe the USSR is unlikely to share its advanced
technology.
We believe that Brasilia is likely to follow a pragmatic
approach toward technological cooperation with the
Soviet Bloc. The Ministry of Science and Technology
and the National Council for Scientific and Economic
Research will continue to take the lead in promoting
improved ties; they probably favor increased coopera-
tion, in part, to underscore Brazil's sovereignty on the
technology transfer issue. Most key decisionmakers,
however, would support ascertaining what benefits
Brazil can obtain from greater cooperation with the
Bloc, while limiting or avoiding exchanges in the
applied sciences because of a potential military or
industrial impact.
Trade Fairs and Commercial Transactions
The Soviets also have sponsored trade fairs to obtain
advanced technology through Brazil. In response to
Soviet requests, Brazil held high-technology trade
fairs in Moscow in 1985 and 1986. The Soviet
Embassy sponsored a trade fair in Rio de Janeiro in
September 1986. East Germany has also been urging
Brazil to participate regularly in the Leipzig trade
fair. So far, participation by Brazilian firms has been
limited
sectors.
The USSR has increased its efforts to acquire Brazil-
ian informatics and telecommunications equipment
through legal commercial sales. In 1985, the Soviets
were investigating the purchase of large numbers of 8-
bit personal computers (PCs) from Brazil, primarily
for use in their educational system. There has been no
confirmation of sales or shipments of such computers,
however, so it is unlikely that the USSR completed
the transaction.
While the Soviets have not been able to conduct joint
research with Brazil in fiber optics, they may meet
with greater success by purchasing fiber-optic-related
equipment. In the last few years, Brazil has sensed the
opportunity for lucrative contracts and has warmed to
the idea of fiber-optic sales to the Soviet Union.
During the April 1986 science and technology negoti-
ations, Brazil indicated interest in the workings of
COCOM's export control system, perhaps believing
that such information might facilitate trade in certain
Brazilian products such as fiber optics.
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~ecrei
We believe that Brazil's economic and political prob-
lems may have a damaging impact on its high-
technology sector in the short-to-medium term. Bud-
getary stringencies and low growth will reduce both
indigenous research and development and the pur-
chase of sophisticated Western equipment. National-
istic sentiments resulting from tensions or confronta-
tions with the United States and other developed
nations over debt and trade issues may lead to
increased protectionism and restrictions on foreign
investment, thereby further restricting Brazil's access
to high technology
Over the longer term, Brazil will continue efforts to
upgrade its scientific and technological capabilities.
However, Brazil's policy will be guided by economic
and nationalistic concerns that frequently operate at
cross purposes. We believe that, unlike a number of
newly industrialized countries, Brazil probably will
not attempt to be on the cutting edge of a broad range
of technologies; it will focus more on obtaining less
expensive, more readily available technology to incor-
porate into products for export and bolster the capa-
bility of key industrial sectors. Moreover, Brasilia
probably will remain willing to risk slower technologi-
cal growth by pursuing highly protectionist policies in
some areas-such as computer technology-to reserve
those sectors for domestic industrialists. For reasons
of national pride, security, or crucial economic devel-
opment, we believe that Brazil will try to improve
indigenous capabilities in the areas of telecommunica-
tions and defense-related technologies by keeping
open avenues to sophisticated Western technology,
and these areas of technology are of particular inter-
est to the Soviet Bloc.
We expect that the Soviets will improve their access
to controlled technology in Brazil during the coming
years. The thaw in Brazilian-Soviet relations,
nology operations there.
although gradual, will enhance the Soviet Bloc's
ability to mount illegal and covert science and tech-
Brazil's growing indigenous capability in certain tech-
nologies~specially fiber optics-and its increasing
access to COCOM-controlled technology will pose a
problem for current international trade control mech-
anisms. We see little likelihood that Brazil will tight-
en its export policies; the export control system will
remain guided largely by political and economic
concerns more than by any effort to restrict strategic
technologies. Brazil will view US pressure to curb
exports to certain countries as an infringement on its
sovereignty. Moreover, because it faces an over-
whelming debt-servicing crisis, Brazil is unlikely to
jeopardize badly needed foreign exchange by curbing
exports.
We believe that negotiations on an MOU on technol-
ogy transfer or a GSOMIA will be complex and
arduous. Some officials in Brasilia-the President,
the secretary general of the Foreign Ministry, and
some military chiefs-may be more sensitive to tech-
nology diversion concerns, but most policymakers do
not worry about leakage of high technology to the
Soviet Bloc. So far, Brasilia does not control any of
the dual-use technologies of concern to COCOM; only
technology that is directly utilized in sensitive areas
such as the nuclear industry and sophisticated weap-
ons research and development is restricted. Moreover,
we believe that the Brazilian military services and the
arms manufacturers steadfastly will oppose any
agreement that in their view would give Washington
explicit rights to block particular arms exports to
third parties.
We believe that nationalistic sentiments fueled by the
economic crisis will stiffen Brasilia's resistance to-
ward technology transfer safeguards. President
Sarney's dire political situation will make it difficult
for him to retreat from Brasilia's refusal to grant
generic end use assurances. He probably views adher-
ence to the case-by-case imposition of restrictions as
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the best way to avoid a nationalistic backlash against
his administration. Finally, should tensions heighten
between Brazil and the United States over informat-
ics, other trade issues, or the foreign debt situation,
we believe that President Sarney will come under
considerable pressure to take an uncompromising
attitude in MOU negotiations.
Over the longer term, however, we believe Brazil may
become more willing to reach an agreement with the
United States. An improved economic climate and
resolution of bilateral tensions would play a role in
lessening Brazilian resistance. To a large extent,
however, Brazil's stance on an MOU will be deter-
mined by how it would handle a possible cutoff of US
high technology if an agreement is not signed and by
the availability of such equipment from non-US
sources. We expect that even if Brasilia does begin
serious bilateral negotiations on a MOU, it may
attempt to find ways to restrict its scope.
We believe, however, that, if an MOU is agreed to,
Brazil will not afford it the degree of protection
Washington expects, and that, over time, Brazil even
may evade its provisions. To a significant degree,
Brasilia probably will adopt the same stance toward
MOU enforcement that it has toward nuclear safe-
guards. Many Brazilian officials may view technology
transfer controls, at least in part, as an effort by
Washington to hamper Brazil's quest for economic
independence and its ability to compete against the 25X1
United States in world markets. At best, Brasilia will
look upon the controls as a burdensome, but neces-
sary, expense of obtaining the technology and will
probably be lax in enforcing them. Finally, we believe
that Brazil, with its increasingly sophisticated techno-
logical and manufacturing base, will attempt to re-
verse engineer-imported, high-technology components
and then seek to export "Brazilian" versions of such
products. Regardless of the legal questions involved,
any Brazilian attempt to export such systems could
pose political problems for Washington in enforcing
its reexport regulations.
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