Summaries of signqicant

Articles in Brief current articles.

THE BRAZILIAN WAY To TECHNOLOGICAL INDEPENDENCE

Rexford A. Hudson, Research A n a l y s t , L i b r a r y of Congress.

Abstract from Inter-American Economic Affairs, Autumn 1983, p.
23.

T h i s article d e s c r i b e s t h e a i r c r a f t i n d u s t r y a s a case exam-

p l e o f B r a z i l ' s approach t o reducing t e c h n o l o g i c a l dependence
and f o r e i g n c o n t r o l . S i n c e e s t a b l i s h m e n t i n 1969, t h e B r a z i l -
i a n A e r o n a u t i c a l Company (Embraer) has become one o f the
w o r l d ' s t e n top g e n e r a l - a i r p l a n e manufacturers. Its s u c c e s s
h a s been fostered by a combination o f government p r o t e c t i o n -
ism, e x p o r t subsidies, and f i n a n c i a l , technical and salcs-
a s s i s t a n c e programs.

A t a x i n c e n t i v e program aided p r i v a t e i n v e s t o r s when t h e

company w a s set up, b u t it had o n l y l i m i t e d s u c c e s s so public
sources provided 81.9% of t h e c a p i t a l . Embraer's first p r o d u c t
w a s a n 18-passenger, twin-turboprop p l a n e , t h e Bandeirante,
developed i n Brazil. Its status w a s f o s t e r e d by a new govern-
ment p o l i c y r e q u i r i n g that m o s t new arms be b u i l t i n B r a z i l by
companies w i t h m a j o r i t y local c o n t r o l . The good f u e l economy
and performance o f t h e f i r s t 80 Bandeirantes and t h e rapid
rise o f f u e l p r i c e s a f t e r 1973 led t o a s t e a d y i n c r e a s e i n
export sales i n subsequent y e a r s .

I n 1974 Embraer e n t e r e d i n t o a 10-year j o i n t v e n t u r e w i t h

Piper to b u i l d l i g h t p l a n e s i n B r a z i l . Cessna had a 60% market
share b u t it w a s excluded from t h e market as soon as Embraer
was able to supply c o m p e t i t i v e p l a n e s . P i p e r ' s compensation
w a s p r i m a r i l y from sale of components and a s u p p o r t f e e . Local
production o f many components h a s been p r o g r e s s i v e l y developed
b u t e n g i n e s and some o t h e r i t e m s c o n t i n u e t o be imported.

Embraer's most important m u l t i n a t i o n a l v e n t u r e is a l a r g e -

scale program undertaken i n 1980 with I t a l i a n and B r i t i s h
f i r m s t o pxoduce a n I t a l i a n designed tactical j e t f i g h t e r . The
B r a z i l i a n s are r e s p o n s i b l e f o r d e s i g n o f some parts and manu-
f a c t u r e of o t h e r s . European associatess have been favored i n
part because o f fear of e x p o r t r e s t r i c t i o n s on U.S.-made p a r t s
t o some c o u n t r i e s . For f o r e i g n companies, Embraer o f e r s both
t h e advantages o f i t s government's s u p p o r t and costs up t o 30%
below t h o s e i n advanced c o u n t r i e s .

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 By 1977 sales i n B r a z i l had peaked b u t exports maintained
t h e company's growth. S a l e s rose 72.3% from 1978 t o 1980 with
e x p o r t s i n c r e a s i n g from 38.2% t o 49.1% of t h e t o t a l . By 1982,
t h e B r a z i l i a n government accounted f o r o n l y 5% of s a l e s . Like-
w i s e t h e government's s h a r e o f s t o c k had dropped t o 8 % , t h e
balance b e i n g h e l d by 200,480 s h a r e h o l d e r s . However, t h e
government had r e t a i n e d 51%of t h e v o t i n g s h a r e s .

By l a t e 1982 91 Bandeirantes had been e x p o r t e d t o t h e United

States and Embraer w a s accounting for 95% of U.S. i m p o r t s o f
commuter a i r p l a n e s . However, t h e p l a n e s accounted f o r o n l y
6.6% o f U.S. commuter s e a t i n g c a p a c i t y . Two U.S. f i r m s sought
countervailing-duty p r o t e c t i o n a g a i n s t t h e imports because o f
t h e B r a z i l i a n s u b s i d i e s . However, t h e r e q u e s t w a s r e j e c t e d
because t h e r e w a s no U.S. p l a n e l i k e t h e Bandeirante and t h e r e
was "no r e a s o n a b l e i n d i c a t i o n " t h a t a U.S. compnay w a s h u r t by
t h e i m p o r t s . T h i s experience d i d , however, lead to r e d u c t i o n
i n t h e e x p o r t b e n e f i t s given by t h e B r a z i l i a n government.

Despite complaints about B r a z i l i a n import r e s t r i c t i o n s ,

"Embraer's p r e s d e i n t p o i n t e d o u t t h a t U.S. p r e s e n c e i n t h e
Brazilian a e r o n a u t i c a l market ...
h a s been i n c r e a s i n g , w i t h
t h e e x c e p t i o n of i m p o r t s of p i s t o n e n g i n e s and turboprop
a i r c r a f t , and t h a t o v e r 90% of B r a z i l ' s a e r o n a u t i c a l i m p o r t s
are exempt f r o m i m p o r t t a x e s . " Embraer c o n t i n u e s t o import
e n g i n e s , p r o p e l l e r s , electrical components and o t h e r items.
B r a z i l remains dependent upon MNCs for key components a l o n g
with medium and l a r g e j e t p l a n e s . The B a z i l i a n s have no expec-
t a t i o n of becoming producing i n a broad range o f the most
s o p h i s t i c a t e d equipment. The Bandeirante had 75% local c o n t e n t
by 1981 and 45% and 50% f i g u r e s w e r e achieved for the P i p e r
models. C o n t r a c t s for v a r i o u s components had brought many
forms o f technology i n t o t h e c o u n t r y , e. g. a chemical-welding
p r o c e s s used for making some advanced p a r t s .

"The demand for c o s t l y imported i n p u t s h a s r i s e n s h a r p l y as

t h e i n d u s t r y h a s grown, c r e a t i n g a new form o f dependence and
l e a d i n g t o balance-of-payments problems. However, B r a z i l i a n s
a c c e p t t h i s cost as a n e c e s s a r y investment t o achieve techno-
l o g i c a l independence i n t h e l o n g run." The high cost, t h e y
e x p e c t t o be compensated f o r by i n c r e a s e d employment and
export e a r n i n g s a l o n g w i t h t e c h n o l o g i c a l , managerial, and
personnel improvements throughout t h e n a t i o n ' s manufacturing
sector. The B r a z i l i a n s r i s k reducing t h e i r prospects for
a t t a i n i n g t e c h n o l o g i c a l independence i n t h e long r u n by
o v e r z e a l o u s l y l i m i t i n g MNC p a r t i c i p a t i o n i n j o i n t v e n t u r e s for
short-run g a i n s . F o r example , t h e d e c l i n i n g i n t e r e s t of Canad-
i a n firms i n making any major new investments i n B r a z i l a t -
t r i b u t e d t o the s m a l l r e t u r n s - 5 y e a r s o f r o y a l t y payments,
a t most - f o r p r o v i d i n g high technology. T h i s s i t u a t i o n may
l e a d t o some e a s i n g of B r a z i l i a n policies.

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