| Executive Summary
The effects of Paraguayan piracy are devastatingly far-reaching, hindering local development while also seriously threatening the United States and Paraguay’s Latin American neighbors. Piracy in this tiny Latin American country costs the U.S. nearly $300 million each year and rivals major pirate nations like China and Russia. Paraguay’s sea of counterfeits and fakes drowns local innovators and scares off potential investors. The U.S. and other countries lose millions of dollars as pirated recordings, video games, and merchandise flood neighboring countries, often decimating their industries. Extensive corruption promotes (and is promoted by) piracy, creating an environment of lawlessness without borders. Weapons, drugs and even terrorists have found their way to Brazil, Uruguay, and Argentina through Paraguay. Legislative efforts to improve intellectual property protection have been stymied by limited enforcement. Because U.S. exports dominate the Latin American market, reducing Paraguay’s role as the central distribution point for pirated goods is crucial for expanding trade. The United States Trade Representative (USTR) should continue to monitor Paraguay under its Section 306 category, which permits the imposition of sanctions if Paraguay fails to fulfill its bilateral trade agreements. The U.S. and Latin American countries should also work closely with the Paraguayan government to encourage more extensive anti-piracy efforts and leverage Paraguay’s participation in regional trade alliances with the country’s ability to confront piracy and corruption. Ultimately, improving intellectual property protection will increase U.S. regional commerce, spur Paraguayan development and also speed up the hemispheric integration process. |
| American nation is consistently one of the worst offenders in pirated
goods. In 1997, Paraguay had the 9th highest domestic CD and cassette
piracy level in the world and the 12th highest worldwide software
piracy rates. Paraguay’s 1998 piracy levels, an astonishing 90% for sound
recordings and musical compositions, 99% for entertainment software (e.g.
videogames) and 85% for motion pictures, rivals even the most notorious
global pirates. Overall, pirated goods in Paraguay cost the United States
almost $300 million annually.
As a center for transshipment, Paraguay facilitates the distribution of pirated goods throughout the Americas. Large shipments of counterfeit goods, usually originating in China, Taiwan and Macau, are frequently discovered in Miami and Panama en route to Paraguay. In just the past year, US Customs seized 14,000 counterfeit Sony Play Station Compact Disks valued at more than $15 million, 1.3 million CDs and CD-Roms and countless counterfeit Nintendo video game cartridges, business applications programs and electronic dictionaries before they reached Paraguay. The American software industry estimates annual losses resulting from Paraguayan piracy at nearly $14 million. Reducing international software piracy is crucial to the American computer industry, since global software piracy costs the US more than $11.2 billion in revenues, $1 billion in tax revenues and as many as 130,000 jobs annually. Latin American countries would also benefit significantly from decreased piracy. A recent PriceWaterhouseCoopers study estimated that if Latin America reduced its overall business software piracy to the benchmark level of 27% (from the current overall level of 68%), it would potentially increase employment by 127,936 and increase tax revenues by $2.3 billion in two to three years. Reducing software piracy is particularly important for Paraguay, which has no local software industry. It is not surprising that, under the current conditions, “the region’s code writers interested in making a living do not dedicate themselves to consumer applications like games or basic programs that are vulnerable to theft.” Business Software Alliance president Robert Holleyman criticized the somewhat naive outlook of many Latin American countries and emphasized the disastrous long term effects of piracy, “These countries probably think they’re the winners because they’re using American software...But they’re really the losers, because they’ll never develop an indigenous software industry.” Paraguayan piracy has a similarly devastating effect on the recording industry. According to Jay Berman, chairman of the International Federation of the Phonographic Industry, “It’s a double whammy: The world’s major record companies are reluctant to invest in these countries and these countries are losing export dollars that could be generated from the sale of music by local artists...In short, piracy is the number one obstacle to developing a healthy music industry in Latin America and the Caribbean.” As the major Latin American center for transshipments, Paraguay’s unabated piracy is at the heart of the problem. In 1998 alone, the American recording industry estimated losses of $280
million as a result of Paraguayan piracy.
Corruption and Piracy Paraguay’s piracy problems are closely linked to widespread corruption.
Ciudad del Este, a pirate’s paradise which sits on Paraguay’s border with
Argentina and Brazil, clearly illustrates why Paraguay was recently reported
to be the second most corrupt country out of 85 surveyed. The city’s
streets are crowded with vendors hawking fake watches, sneakers, clothing
and music. The vendors are only the last link in a chain of operations
that often includes the implicit approval of government officials, and
occasionally their explicit participation. Even the state governor was
under investigation after an airstrip and two unmarked planes were discovered
on his property.
Under pressure from the U.S. and its Latin American neighbors, Paraguay
improved its intellectual property laws in 1998. A law ratified last
August provides specific protection for well known trademarks. However,
the new copyright law enacted in October has several serious flaws. Alarmingly,
it regards copyright piracy as a private, rather than public, crime. Therefore,
it is the victim’s responsibility to initiate legal action; the government
offers no proactive assistance.
What the U.S. Should do The USTR now monitors Paraguay under its section 306 category, allowing
the United States to immediately impose sanctions if Paraguay fails to
comply with its bilateral Intellectual Property agreements. Though eager
to offer President Macchi an opportunity to take action, the USTR should
not hesitate to threaten or use sanctions, and if necessary, initiate World
Trade Organization(WTO) dispute settlement proceedings (as it did with
Argentina) if Paraguay once again fails to improve its abominable record
of intellectual property protection. The USTR’s decision to conduct an
out-of -cycle review in December will also help ensure that Paraguay is
serious about meeting its TRIPs obligations.
Although democratization and liberalized trade policies have helped
revitalize regional economies, Paraguay’s pirates’ kingdom remains a threat
to the economies and safety of its Latin American neighbors.
What Paraguay should do If Paraguay is to convince its Mercosur and Free Trade Area of the Americas
(FTAA) partners that it can provide a stable democratic economy capable
of international trade, the Macchi administration must confront the rampant
piracy and copyright infringement that currently occurs. The intellectual
property violations that are the norm serve as a major impediment to the
country’s development and stability. Studies have shown that pirate nations
develop imbalanced economies incapable of participating in a competitive
market. They also have weak leverage in trade talks and their position
will worsen as non-tariff trade barriers like this become a larger component
of trade liberalization.
Note: This report does not necessarily reflect the views of the Alexis
de Tocqueville Institution and its directors nor is it to be understood
as an attempt to aid or hinder the passage of any legislation before Congress.
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