The Brazilian Small Arms Industry

The Brazilian Small Arms Industry:
Legal Production and Trade1
Pablo Dreyfus, Benjamin Lessing
and Julio César Purcena
1.1
Introduction
While not the only country plagued by widespread armed violence, Brazil is one of only a handful
that also possesses a large and thriving small arms industry. This singular fact has myriad implications
for small arms issues in Brazil. At the most immediate level, it is now becoming clear that Brazilianmade small arms — particularly handguns — and not military style automatic weapons smuggled
into Brazil, make up the majority of firearms related to criminal activity. Taking two of Brazil’s most
violent states as examples, in 2002, 37,418 small arms were seized in São Paulo state and 18,056
seized in Rio de Janeiro state . In both cases, more than 70 percent of the weapons were made in
Brazil,2 and over 80 percent were revolvers and pistols, with a clear predominance of Brazilianmade revolvers.3 This runs counter to what was once the conventional wisdom, in part propagated
by the small arms industry itself: that criminals use military style foreign-made small arms to commit
crimes while law-abiding citizens use registered Brazilian made firearms for legitimate self-defense.
In reality, Brazil’s own SALW manufacturing companies produce a large percentage of the guns that
are responsible for its astronomic levels of armed violence.
At the same time, the small arms industry has always been a part, and today makes up the most
active sector, of a larger military-industrial complex, whose development and growth was in turn
shaped by Brazilian 20th century political history, and in particular the policies of the authoritarian
regime that ruled from 1964-1985. The central role that the arms industry as a whole played in the
economic and strategic plans of successive military governments had a deep impact on all aspects
of how small arms are dealt with in Brazil: from policies on registration, possession, and right to carry
to the way arms exports are classified in official trade statistics; from their status in the penal code to
the very structure of the market itself.
The Brazilian small arms industry we see today is largely the result of policies enacted in the 1970s,
policies that were principally directed at creating a domestic military arms industry, and only indirectly
concerned with small arms per se. Ironically, it was the small arms industry that proved most resilient,
long outliving Brazil’s heavy military industries and coming to dominate overall arms production.
Today, the Brazilian small arms industry is made up of a handful of companies, and is dominated by
just two: Forjas Taurus S.A. and the Companhia Brasileira de Cartuchos, or CBC. These companies
hold near-monopolies in handguns and small arms ammunition, respectively, and both continue to
maintain strong ties with Brazil’s defense and public security establishments. The other major player
in the small arms market, IMBEL, is a public company administered by the Ministry of Defense and
with strong ties to the Army, and is in large part a producer of military arms and ammunition. Together,
they have helped Brazil consolidate its position as a medium-sized SALW producer and exporter, the
second largest in the western hemisphere.
For the purposes of this work, we have used the phrase “Total SALW” or “SALW” to refer to small arms, light weapons, ammunition and parts. When a figure or number
corresponds only to small arms and light weapons, excluding parts and ammunition, we have used the term “firearms”.
2
Source for São Paulo: Secretariat of Public Security of the State of São Paulo. Source for Rio de Janeiro: Division of Control of Arms and Explosives (DFAE) of the
Civilian Police of the State of Rio de Janeiro, data analyzed by Viva Rio/ISER.
3
Source for São Paulo: Secretariat of Public Security of the State of São Paulo, percentage calculated over 37,418 small arms seized in 2002. Source for Rio de Janeiro:
Division of Control of Arms and Explosives (DFAE) of the Civilian Police of the State of Rio de Janeiro, data analyzed by Viva Rio/ISER, percentage calculated over 218,457
small arms seized between 1951 and July 2003.
1
50
50
How did this industry reach its current size? Why is it so highly concentrated? What are
its key markets, and how have they changed over time? Which companies shape the
Brazilian SALW legal market? What are the main features of these firms? Does the
industry rely more on the foreign or domestic market? Is the industry competitive and
innovative? Is it dependent on government protection, subsidies and incentives? When
and how did Brazil became a relevant player in the world SALW market? What are the
prospects for the size and dynamics of the industry in terms of the evolution of domestic
and international controls, particularly in light of the upcoming national referendum on
prohibiting the sale of all firearms to civilians? Will the Brazilian SALW industry be able
to keep up with international competition from other emerging middle producers? These
are some of the questions this chapter seeks to answer through the following sections:
Section 2 of this chapter provides a brief introduction to the evolution of the small arms
industry in Brazil. In order to ground our understanding of Brazil’s SALW industry, the
first part of this chapter presents a brief history of arms production in Brazil, from its
earliest incarnation in the early 19th century as the King of Portugal’s own gunpowder
factory to the crucial period under the military authoritarianism of the 1970s . We then
examine at length government policy and initiatives over the last thirty years and profile
the principal companies involved.
Section 3 presents an in-depth study of production, sales, and the domestic and export
markets. We discuss past and present trends and their place in the larger history discussed
in the first part.
Section 4 presents a brief analysis of the Brazilian SALW industry using the theoretical
tools developed by Keith Krause to explain the dynamics of military production and
trade. 4 Krause’s work, which dealt with the larger arms industry in general, is adapted
here to the specific case of the small arms industry in Brazil. We also present an outlook
for the future: what strategies Brazil’s SALW producers are likely to pursue in the coming
years, and what kind of results can be expected.
Finally, Section 5 presents a summary and description of the primary sources consulted
during the research, as well as an description and explanation of the methodological
and data- related obstacles that arose in the course of our research.
4
Krause, Keith. 1995. Arms and the State: Patterns of Military Production and Trade, Cambridge, Cambridge University Press, xi-299.
51
Although we relied on historical, secondary sources and interviews for much of the history
section, our primary research is based on official data from a series of government
sources. 5 While we were able to obtain a great deal of information and synthesize it
into a cohesive report, we did encounter a number of difficulties with these official sources,
exacerbated by the long time period studied. Not all sources were consistently available
over the last 20 years; others have not followed uniform reporting practices. In a few
cases, we discovered actual errors in official data, confirmed as such through subsequent
communication with the relevant government bodies. Above all, we came up against
the high level of secrecy and confidentiality with which the issue of small arms has
traditionally been treated by the government. Arms have always fallen under the purview
of the military, which in turn has made protecting the arms industry a priority. This has
resulted in a situation in which civilians, even civilian ministries, simply cannot get access
to the relevant information. In other cases, it appears that what should be public
information is not available because it has not been collected and tabulated efficiently.
The end result can be lacunae in historical series, contradictory or confused results, or
even what appear to be abject, intentional distortions. To deal with these issues, we
have included an appendix on methodology. It is directed primarily to other researchers,
both as a way to verify our work and to help clarify questions on data for future research
efforts.
2 History of the Small Arms and Light Weapons Industry in Brazil
6
As is the case in many Latin American countries, Brazil’s domestic arms industry is
essentially a 20 th century phenomenon, born in the 1930s along with import substitution
strategies; prior to this period Brazil relied almost entirely on imports from Europe and
the United States to supply its armed forces. However, the roots of Brazil’s current position
of regional dominance in arms production lie in its history, and in particular the history
of its armed forces, which were the prime movers and architects of the country’s arms
industry. While the first gunpowder factory appeared during the colonial period, when
the Portuguese court relocated to Rio de Janeiro in the wake of the Napoleonic wars, it
was during the late 19th century, which saw the war with Paraguay (1865-1870) and the
establishment of a republic at the hands of a military coup (1889), that a strong,
centralized military arose capable of voicing the perceived need for “arms
independence”. The abrupt and complete drying up of supply from Europe and the
United States during World War I made the need for a domestic arms industry patent. 7
These sources divide roughly into four types: data on the Brazilian economy, from the Brazilian Institute of Geography and Statistics (IBGE), data on foreign trade,
from the Secretary of Foreign Trade (SECEX), and company information from the Brazilian Security and Exchange Commission (CVM) and data on domestic production
and trade from the Statistical Yearbook of the Brazilian Army (AneEx). A more detailed treatment of these sources, problems encountered with the available data, and
solutions adopted can be found in the methodological appendix to this chapter. ,
6
For the purposes of this paper, we have used the phrase “Total SALW” or “SALW” to refer to small arms, light weapons, ammunition and parts. When a figure or number
corresponds only to small arms and light weapons, excluding parts and ammunition, we have used the term “firearms”.
7
Schwan-Baird, David, Ideas and Armaments: Military Ideologies in the Making of Brazil’s Arms Industries, (New York: University Press of America), 1997, p67.
5
52
Meanwhile, immigrants from Europe in the south and southeast of Brazil became the country’s
first private arms producers: in the 1920s the firms Boito, Rossi, and the Fábrica Nacional de
Cartuchos (today known as Companhia Brasileira de Cartuchos, or CBC) all began producing
arms or ammunition8. In 1937, Forjas Taurus, today one of the world’s largest producers of
handguns, began production. 9 It was during this period as well, under Getúlio Vargas’ first
period in power (1930-1945), that the army opened its first small arms and light weapons
factories.
By WWII, economic and political theorists were beginning to lay down what would come to be
known a decade later as the Brazilian National Security Doctrine (NSD), a comprehensive
program that saw economic development, industrialization, and the creation of a domestic
arms industry as facets of a single national project.10 Arms were identified as a key industry
for development, not only strengthening Brazil’s armed forces and providing increased
autonomy from the United States and Europe, but also bringing new technologies with positive
side effects for Brazilian industry as a whole. While this doctrine would not be fully implemented
until after the installation of the military authoritarian regime in 1964, aspects of its policy
agenda – protectionism, government investment in key sectors, technology transfers, and import
substitution – were seen under Presidents Vargas and Kubitschek (1956-1961), particularly in
basic heavy industry sectors like steel, petroleum and energy, and infrastructure.11 This period
saw the opening of a local subsidiary of the Italian company Pietro Beretta in São Paulo
(eventually bought by Taurus in 1980) as well as the founding of the private Indústria Nacional
de Armas (INA), which produced a variant of the Madsen 1950 .45 submachine gun.12
While the Vargas and Kubitschek period were important to Brazil’s development, it was the
aggressive protectionist economic policies of Brazil’s military authoritarian regime (1964-1985),
however, that truly laid the foundations for the diversified, export-oriented industry that exists
today. The driving force behind these policies was the so-called National Security Doctrine.
Different versions of this doctrine directed the policies of virtually all the military authoritarian
regimes of the Southern Cone throughout the 1960s, 70s and 80s. Adapted from French and
U.S. counterinsurgent military doctrines from the late 1950s and 1960s, the driving idea was to
use national political, economic, and social policy in a ‘total war’ against the threat of communist
expansion (a threat made all too real by the success of the Cuban Revolution in 1959). Economic
development became a central front in this ‘war’ since, according to the logic of the doctrine,
economic backwardness and poverty leaves the door open to communist infiltration.
Information from companies’ websites: http://www.eramantino.com.br/index1.html (Boito), http://www.cbc.com.br/cbc/1926.htm (CBC), http://www.rossi.com.br/
port/historia.htm (Rossi)
9
Company website: http://www.taurus.com.br/historico.php
10
Schwan-Baird, op.cit.. p.71
11
Ibid. pp. 70-81.
12
Wilson, R.L. Il Mondo Beretta: uma legenda internazionale, Milano, Sperling & Kupper, 2001, pp. 29 and 171. INA was closed by the military after the 1964 coup,
apparently because of grievances between the owner and the military government. Interview with gunsmith Amilcar Damaso, owner of Gun Tec Tecnonlogía em
Armamento, Rio de Janeiro, July 2004.
8
53
In the Brazilian version of the NSD, economic development and especially industrial
development was a way of advancing the permanent interests of the nation to a point were
the country (due to its size, vast resources, strategic location and uniqueness) would achieve
national greatness (grandeza) and thus would be respected as a regional power with global
projection. The defense industry was seen as a catalyst for technological and economic
development, but also as a way of building national power.13 The end result was a vision of
national development – including private industry – subordinated to the defense structure of
the state.
Perhaps the most important aspect of this cooperation for our purposes was in terms of
technology. Military and civilian technicians, schooled in the technical institutes of the armed
forces were transferred to private or semi-private defense firms like ENGESA (military transports
and light tanks) and EMBRAER (military and civilian airplanes).14 The military government
advocated — and a number of private firms successfully negotiated – joint ventures with
foreign firms and technology transfer agreements15 .
As explained by Patrice Franko-Jones,
“The partnership between the state and the firms throughout each step of the process allowed
Brazil to develop military technologies indigenously. Control over technologies developed
specifically for Third World conditions promotes the dual use of these products in other sectors,
an increased rate of “spin-offs” of research on both products and processes into other industries
and conserved foreign exchange. In partnership with the state, Brazilian firms were able to
develop indigenous technologies appropriate to national economic constraints as well as
military demand . With a clear view of the objective of autonomy, international transfer
agreements were negotiated which maximized the bargaining power of the Brazilian firm to
16
control the imported technology”
In the case of the SALW industry, acquisition of foreign technology took an additional route:
the purchase of Brazilian firms by foreign producers, followed years later by their ‘repatriation’.
This process began in the 1936, when the country’s principal private ammunition company,
Companhia Brasilieira de Cartuchos (CBC) was sold to Remington Arms Company and
Imperial Chemical Industries, later to be repatriated in 1980 with financial support from state
banks. A similar process was observed with the main private handgun producer, Forjas Taurus,
sold in the early 1970s to Smith and Wesson and ‘re-nationalized’ (purchased by Brazilian
stockholders)in 1977.17 These cases are reviewed in greater detail below.
On this issue see: Maldifassi, José O. and Abetti, Pier A. 1994. Defense Industries in Latin American Countries: Argentina, Brazil and Chile.Westport. Praeger, p.28 and
Schwam-Baird, op.cit.pp. 1 and 2 and 33-45
14
Shwam-Baird, Ibid. p. 155
15
Ibid. pp.104-105
16
Franko-Jones, Patrice.1992. The Brazilian Defense Industry Boulder, Westview Press, p.133 and 134
17
Purcena, Júlio César..2003. A indústria de armas pequenas e munições e a violência no Estado do Rio de Janeiro nos últimos vinte anos. Graduate essay, Faculdade
Moraes Júnior, Rio de Janeiro, pp. 16-21
13
54
From its inception, the military regime promoted and extended protectionist policies for the domestic
arms industry. These policies were particularly strong for SALW, where the regime sought total selfsufficiency. Made responsible in 1934 for controlling and monitoring the production, importation,
export and domestic sale of controlled products (which includes SALW and dangerous strategic
industrial inputs), the Army in 1965 enacted decree R-105. One key clause states that “since the
national industry is able to supply the domestic market then, in principle, the importation of handguns,
shotguns and ammunition for civilian use shall not be authorized”.18
Realizing the need to achieve economies of scale in technologically complex production processes
with high R&D costs, the regime looked toward exports to take up the slack in demand. In 1974, the
military government implemented the Military Equipment Export Policy (Política Nacional de
Exportação de Material de Emprego Militar, PNEMEM), a series of incentives for private and stateowned producers to export arms.19 In 1975, the armed forces reorganized their arms factories into a
single company, IMBEL (see below), while throughout the decade, cooperation between military
research institutes, industrial organizations, and the National Economic Development Bank (Banco
Nacional de Desenvolvimento Económico, BNDE20 ) led to the development and consolidation of
new arms-producing companies. BNDE also provided capital funds, in 1980, for the re-purchase
by Brazilians of controlling shares in CBC, Brazil’s only small arms ammunition producer.21 Other
factors that spurred the development of Brazil’s defense industry were the U.S decisions to limit transfers
of military technology to
Brazil and the Brazilian
government’s renunciation
of the 1952 military
assistance agreement with
the United States in 1977.22
Cooperation between the
state and the private sector
involved important flows of
resources, technology, and
personnel, illustrated in
Diagram 1 below.
Decreto Nº 55.649, January 28, 1965, “Dá Nova Redação ao Regulamento aprovado pelo Decreto nº 1.246, de 11 de dezembro de 1936”. Available on-line, http://www.lei.adv.br/
55649-65.htm. The view among the military that the SALW industry must be controlled (and protected) by the Army prevails to this day: the 2000 version of the R-105 forbids and/
or restricts the importation of any controlled product [including SALW] that is manufactured domestically. The import will be only authorized in special circumstances after a special
authorization conceded by the Army. See Decreto Nº 3.665, November 20, 2000, “Dá nova redação ao Regulamento para a Fiscalização de Produtos Controlados (R-105).” Available
on line: http://www.planalto.gov.br/ccivil_03/decreto/D3665.htm.
19
“Exposição do Ministro de Estado das Relações Exteriores, Embaixador Luiz Felipe Lampreia, perante a Comissão de Relações Exteriores da Câmara dos Deputados.” (Speech by
Embassador Luiz Felipe Lampreia before the Foreign Relations Committee of the House of Representatives), Brasília, November 22, 1995. Available on-line at: http://ftp.unb.br/pub/
UNB/ipr/rel/discmin/1995/3036.pdf
20
In 1982, the name of this institution changed to National Economic and Social Development Bank, or BNDES.
21
See: Purcena, Julio César, A indústria de Armas Pequenas e Munições e a Violência no Estado do Rio de Janeiro nos Últimos Vinte Anos, Graduate Essay (Economics), Faculdade Moraes
Júnior, Rio de Janeiro, November 2003, pp. 11-15
22
Maldifassi and Abetti, Defense Industries in Latin American Countries, p.28
18
55
The state provides:
• Protection from foreign competition through legislation. ,
• Financial support and facilities for national defense firms.
• Technical advice and support for research and development, principally through the
technological institutes of the armed forces.
• Commercial diplomacy for export promotion.
• Domestic market demand through the armed forces, and through protected police and
civilian markets in the specific case of small arms.
In return, private companies provide:
•
•
•
•
•
Arms
New technological skills and development
International prestige and regional military power
Substitutes for imports, helping balance of trade
Revenue and, in the case of exports, foreign currency reserves.
While not as dependent on high technology as other defense sectors, the small arms industry
was able to benefit from these initiatives, “hitching a ride” on the so called economic miracle
sparked by Brazil’s growing arms industry. In the 1980s, Brazil’s defense industry boomed as
it exported heavy military equipment to the Middle East during the Iraq-Iran war. A period of
readjustment followed the
end of the war in which a
number of heavy military
equipment firms closed or
retooled for civilian
production23 . At the same
time, the sudden and
abrupt reduction in
military expenditures that
accompanied the end of
the military regime and
the
transition
to
democracy in 1985 also
contributed to the decline
of the heavy arms
sector.24
See Franko-Jones, Patricia, “A Indústria Brasileira de Defesa em Crise”, in Uma Avaliação da Indústria Bélica Brasileira, Domício Proença Junior, ed., (Rio de Janeiro:
Grupo de Estudos Estratégicos), 1993, pp 299-327.
24
Interview with Colonel (R1) Roberto Guimarães de Carvalho, President Director of the Brazilian Association of Defense Materiel Industries (ABIMDE) the interest group
of Brazil´s defense companies. São Paulo, May 2004. Colonel Guimarães de Carvalho is also the president of AVIBRAS, a company specialized in the production of rocket
artillery systems.
23
56
With the demise of military rule, several elements of the state-private partnership established
during the authoritarian regime disappear while some new ones appear. Strengthening Brazil’s
arms industry as a way of achieving grandeza ceased to be one of the ruling principles of the
state (although this mentality prevailed within sectors of the Brazilian military and diplomacy).
Consistent subsidies to arms companies disappear as military budgets decrease, and achieving
prestige and regional power becomes an essentially economic and diplomatic affair. A new
factor, however, comes into play: “Influence in domestic affairs related to public security
matters”. After the transition to democracy the military maintained control over monitoring
and licensing the production, domestic sale and export of SALW, a prerogative they still retain.
Today it is still the military that decides, for example, what types of weapons the police are
allowed to use and whether they may import them from foreign countries. It is also the Army
that decides (discretionally) what types of SALW civilians are allowed to own and carry.
As the figures below show, by the 1990s, though it had lost its edge in heavy conventional
arms, Brazil was well established as a mid-sized global player in the international small arms
market. Considering that
civilian and police markets,
above all in the United States,
offer more stable and reliable
demand than the sporadic
purchase cycles typical of heavy
military weapons, the SALW
industry in Brazil appears to
have achieved ‘sustainability’
for the mid- to long-term where
its big brother did not. Indeed,
in the enormous U.S. market,
Taurus has secured a market
niche for good quality pistols
and revolvers at competitive
prices.
57
The mid-90s registered a tapering off of exports, due mostly to the pegging of Brazil’s
currency to the dollar in 1994, but the subsequent devaluation of the real from 1999
onward has led to a resurgence of exports, growing steadily from a low that year of USD
57 million to USD 94 million in 2003.25 The 90s also were a time of consolidation: today
Brazil’s small arms industry is concentrated in three large producers, Taurus, CBC, and
Imbel. Though only Imbel is state-owned, CBC and Taurus both maintain intimate contacts
with the Brazilian military; the result is a great deal of influence over both domestic and
foreign policy. 26 The industry also has its own lobby, which is publicly active in opposing
domestic arms control legislation.
3 Findings: Brazil’s SALW Industry, 1983-200327
At the most general level, research on legal arms production in Brazil is made difficult by
the fact that much of the most important data is not always available to the public.
Systematic and sufficiently disaggregated surveys of economic activity are a relatively
recent phenomenon in Brazil, making long time-series impossible in some cases. In
addition, we came across a number of anomalies and odd results that call into question
the integrity of certain data points, if not entire sources. In light of these problems, we
have adopted a method of juxtaposition and triangulation, bringing to bear whatever
data is available from the various sources, trying to correct for problems of comparability
and come to a reasonable conclusion about what a realistic value might be for missing or
inconsistent items. A complete discussion of the sources used, obstacles confronted, and
solutions taken can be found in the methodological appendix to this chapter.
3.1 Producers:
Brazil is South America’s largest producer of small arms and military equipment, and has
by far the most diversified output of any country in the hemisphere, excepting the United
States. Its arms industry is made up of both state-owned and private companies, both of
which have shown initiative in expanding into foreign markets, signing licensed production
and joint venture agreements, and even creating foreign subsidiaries.
Brazilian Secretary of Foreign Trade (Secretaria de Comércio Exterior, SECEX) official trade statistics
One blatant example of these links is the fact that, as reported by the periodical “Isto ɔ, after six years as head of the Army’s Directorate of Controlled Products (charged
with monitoring and authorizing firearms production and trade) Brigade General Antônio Roberto Nogueira Terra retired and became a special consultant to Forjas
Taurus through the private consulting firm Sulbras Consultoria e Assessoria Ltda (which, in turn, represents Taurus in Brasilia). In the midst of an intensive debate for
the regulation of the new small arms control law, this caused a major press scandal. See: Miranda, Ricardo. 2004. “A emenda Taurus” . Isto É, 9 June 2004. Available at:
http:// www.terra.com.br/istoe/1809/brasil/1809_emenda_taurus.htm. This is not very different from what happens with the industrial-military complex in the US with
heavy military weapons and military equipment.
27
The stated scope of this study is the last 20 years, which would ideally cover 1983-2003 (the last full fiscal year). However, some statistics are still unavailable for 2003,
and in a few cases, for 2002 as well. We have settled on 1982 as our starting point, providing stats up through whatever year is available.
25
26
58
According to Brazilian government statistics, the total sales of nationally produced non-military
SALW, ammunition, and parts thereof in 2001 was about USD 100.3 million.28 A great deal of
this production was probably exported: the Brazilian government reported total exports of
small arms and military items for 2001 as USD 62.5 million29 , or 62.3% of total sales. The
actual figure may be even higher, given that state-to-state transfers are not included in published
trade statistics.
Major producers:
• IMBEL30 – IMBEL, or Indústria de Material Bélico do Brasil, is a state-owned company with
ties to the Brazilian Ministry of Defense and specifically the Brazilian army. In addition to
commercial explosives, accessories, charges for heavy ammunition, propellants for missiles
and rockets, communication and electronic equipment, and other heavy military equipment,
IMBEL manufactures and supplies FAL assault rifles in 7.62, 5.56 and .22 calibers (this
latter for training) for military use, as well as a line of pistol models based on the Colt .45,
available in .45, .40 and 9mm calibers for military and police use (M911 A1, IMBEL MD1,
M973, and variants) and.380 caliber for civilian use (MD1N, GC MD1, and variants).31 In
the 1990s the plant developed the MD97LC 5.56 mm assault rifle that will soon be adopted
by the Brazilian Army as its standard assault weapon. A carbine version of the rifle will be
sold to state police units.
Until 2004, IMBEL owned a 30% share of stock in CBC (see below). Up to 2004 had a IMBEL
joint venture – South American Ordnance — with Royal Ordnance plc (RO), a subsidiary of
British Aerospace Defense Group, and Schahin Participações, a Brazilian company. In addition
to supplying heavy military artillery ammunition to Royal Ordnance, the company distributed
IMBEL’s other products worldwide, including SALW and ammunition.32 IMBEL’s SALW are
popular among armed and police forces in South America.
IMBEL’s small arms are produced at the Itajubá plant located at Minas Gérais. The plant
started life as the Itajubá Military Arsenal in July 1934 and was administered by the army. In
the 30s, Itajubá produced 1909 Mauser bolt action rifles under a license agreement with the
Deutche Waffen und Munitionsfabrik (DWM). Mauser production stoped after WWII. In 1960,
production began on Colt .45 M19A1 semiautomatic pistols for the Brazilian armed forces
(about 50,000 units are still in service). In 1964, a license agreement was signed with FN
Herstal for the production of 7.62 FAL assault rifles. At least 200,000 were produced between
1964 and 1983 and the rifle is still in production.33
Brazilian Institute of National Statistics and Geography (IBGE), Pesquisa Industrial 2001, IBGE, Rio de Janeiro, 2002. The actual amount listed is 215,530,430 reais,
and includes pistols, revolvers, shotguns, carbines, and all other non-military firearms; ammunition and cartridges for such weapons; and parts, accessories and services
related to these items. In addition, the survey lists US$38.5 million (92,574,783 reais) under another heading, ‘heavy military equipment’, which includes military arms
(armas de guerra), bombs, grenades and other projectiles; armored combat vehicles; and parts, accessories and services related to these items. Some of these items,
particularly assault rifles, grenades and mortar ammunition, may fall into the category of SALW.
29
Brazilian Ministry of Development, Industry, and Foreign Trade; Secretariat for Foreign Trade (Secretaria de Comércio Exterior, SECEX).
30
Unless otherwise quoted the source of the information concerning this company section is an interview with Colonel (R1), Alte. Zylberberg, Superintendent of IMBEL´S
Itajubá Factory, Itajubá, May 2004.
31
Company Information. See: http://www.imbel.gov.br/ingles/i_imb_expo.asp
32
See: http://www.southamerica.com.br/eng/princ.html ; and see: The America´s Intelligence Wire 28/5/2004: Imbel to enter partnership with EADS
33
Klare, Michael and Andersen, David.1996. A Scourge of Guns: The Diffusion of Small Arms and Light Weapons in Latin America, Washington D.C., p.18
28
59
In 1977, IMBEL was created, gathering together all of the Army’s arsenals and armories. In
1983, the company suffered a financial crisis provoked by the interruption of purchases by the
Army, at that time its main client and during the 1980s IMBEL became severely indebted to
the Brazilian government, prohibiting the company from selling weapons to national state
institutions (such as police) under national law. Illustrating the permeability between the private
and state defense industry, in the early 1980s the direction of IMBEL was handed to José Luiz
Whitaker Ribeiro, also president of ENGESA, a private defense company specialized in the
manufacture of tanks. It was during this time that IMBEL´s Realengo ammunition plant was
deactivated and its equipment incorporated into CBC in exchange for a 30% stake in the firm
for IMBEL. After Whitaker´s reorganization, control of IMBEL was passed back to its own
administrative board.34
In 1985 IMBEL started a partnership with Springfield Armory (USA) for the distribution of more
than 200 variants of the Colt .45 pistol on the U.S. civilian market. In 1998 IMBEL´s .45 pistol
is adopted as the official side weapon of the FBI´s hostage rescue team. Pistols are delivered
to the FBI by Springfield Armory. Currently 75% to 95% of the Itajubá plant’s income comes
from exports of variants of the M911A1 Colt pistol.
According to the Small Arms Survey 2002, more than 90 percent of the 2,000 .45 caliber
pistols that the company exports monthly go to the U.S. market, and between 40 to 50 percent
of the company’s production is exported.35
During the 1990s, thanks to income from exports, the company gradually started to pay off its
debt to the Brazilian government. Through a debt payment plan negotiated with the army
and an aggressive plan of financial reorganization the company was again authorized to
make sales to state organs. According to the recently organized Army’s Arms Factories Control
System (Sistema de Controle Fabril, SICOFA) IMBEL reported a production of 334,534 small
arms produced between July, 1977 and June, 2004. 36
Forjas Taurus — Taurus is a major producer of handguns, with 24 revolver and 14 pistol
models.37 The company was founded in Porto Alegre in 1937 as a tool manufacturer. After
WWII, the company began to produce revolvers, achieving large scale production in 1951.
By 1964 the company had consolidated its position in the domestic market, amplified and
modernized its production plant, and intensified production. During the politically turbulent
60s there was an increase in controls on the domestic sale weapons; at the same time, the
company did not yet possess adequate structure to compete on the international market.
Under these circumstances, most of the company’s shares were sold to Smith & Wesson at the
beginning of the 1960s.
Franko, Jones, Thre Brazilian Defense Industry, pp. 80-83
Small Arms Survey 2002, p.32
36
Information provided by the Directorate of Controlled Products of the Brazilian Army (DFPC).
37
See: http://www.taurus.com.br/produtos/index.htm
34
35
60
In 1977, with financial support from state banks, the Brazilian firm POLIMETAL purchased a
controlling share of the company’s stock, ‘re-nationalizing’ the company and all the knowhow that had been transferred to it under S & W’s ownership. Taurus continued to expand,
buying a British concern, IFESTEEL, and in 1980 buying out Beretta’s Brazilian subsidiary.
With this purchase, Taurus incorporated further machinery and technology and began the
production of Beretta licensed pistols (Model 92) and 9mm submachine guns (M-12). Both
these purchases were key to accumulating the production capacity and know-how Taurus enjoys
today. 38
The Taurus name has become internationally recognized, particularly in the United States.
Besides two non-gun related subsidiaries, Forjas Taurus owns Taurus Holding, which controls
Taurus International Manufacturing Inc. (TIMI), Taurus’s U.S. subsidiary. TIMI is based in Miami,
and is composed of a factory that assembles arms especially for the U.S. market, and a
distributor for Taurus arms made in Brazil. In 1997, Taurus purchased from Rossi (see below)
the patents, designs, and production rights for its handguns, making it the only Brazilian supplier
of pistols and revolvers for civilians. Taurus owns a non-controlling share of stock in Rossi.39
In 2002, Taurus had sales of USD 43.9 million and profits of USD 13.6 million, making it one
of the most successful Brazilian companies of the year.40 Forjas Taurus has a strategic
partnership with Chile’s state-owned Fabrica Maestranzas del Ejercito (FAMAE) to produce
the MT-40 .40 sub machinegun and a .40 carbine (the CT40) in Brazil with Brazilian- and
Chilean-made parts.
In the late-90s, Taurus started diversifying and modernizing its production away from traditional
(though reliable) Beretta models to counter the threat of competition from imported Glock 25
pistols for the civilian market. At the time, there were no domestically produced polymer
pistols, and the favorable exchange rate made imports cheap.41 Taurus responded with new
“fashionable” calibers such as .40 and the adoption, in the late 1990s, of new technologies
including the manufacture of polymer and/or titanium made pistols. To this we should add a
line of good quality and reliable revolvers. Through a combination of “classic but reliable”
and “trendy and good quality” products, Taurus conquered a niche in the U.S. market, as we
explore in more detail in the export section.42
38
CVM, IAN annual reports available on-line:http://www.cvm.gov.br/Port/CiasAbertas/Index2.asp; Purcena, Júlio César. 2003. A Indústria de Armas Pequenas e Munições
e a Violência no Estado do Rio de Janeiro nos Últimos vinte anos, Rio de Janeiro, graduate essay Faculdade Moraes Júnior, pp. 18-19 and Gangarosa Gene, Jr., Taurus
PT 92 9mm Evolution and development—it’s 25 years young! , http://www.taurususa.com/newsreviews/HG2004_000.cfm
39
Company information for Forjas Taurus filed with the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários, CVM). All information taken
from Annual Reports (Informações Anuais, IAN) and Standard Financial Reports (Demonstrações Financeiras Padronizadas, DFP). See: http://www.cvm.gov.br/ingl/
indexing.asp
40
Ibid.
41
Interview with firearms expert and importer Fernado Humberto Fernandes, July 2003.
42
For a sample of comments of U.S consumers referring to Taurus products as “excellent” and “affordable” prices the reader can consult the following specialized products
reviews:
Quinn, Jeff (2002), “Taurus Titanium 9mm Millennium”, Gun Blast.com, http://gunblast.com/Taurus_PT111.htm; Taurus Classic Model 85 Series .38 Special (and +P)
Revolvers, http://www.thearmedcitizen.com/gunpages/model85.htm; http://www.handgunreview.com/make.asp?make Taurus; http://www.smallarmsreview.com/pdf/
taurus.pdf; http://www.chuckhawks.com/taurus_pistols.htm; http://www.gunblast.com/Taurus941.htm; http://hunting.about.com/library/weekly/
aasttaurustitaniumautos.htm; http://www.gunweek.com/2001/feature1020.html; http://www.defensereview.com/modules.php?name=News&file=article&sid=603;
http://hunting.about.com/od/guns/l/aasttaurpt145_2.htm; http://www.thearmedcitizen.com/gunpages/model85.htm
61
Taurus is the jewel in the crown of Brazil’s SALW industry (and to some extent, its arms industry
as a whole). It has consolidated its position in the crucial American handgun market, opening
Taurus International Manufacturing Inc. (TIMI), its Miami subsidiary, in 1983. While its total
production of small arms
in terms of units is not
known, we can use sales
data provided to the
Brazilian Securities and
Exchange Commission
(Comissão de Valores
Mobiliários, CVM) to
create an estimate of units
produced43 :
But for all its success and the apparent stability of its foreign market share, Taurus seems to be
hedging its bets. In recent years it has diversified production into related but non-firearm
products areas such as bulletproof vests, helmets, armor for cars, hand tools, and machine
tools. The following
diagram shows Forjas Taurus and its
subsidiaries:
Although the official name of the entire corporate entitiy is also Forjas Taurus, in its financial
declarations Taurus distinguishe between the sum of all its operations, referred to as ‘Grupo
Taurus’, and its firearms business, referred to as Forjas Taurus. This allows us to look inside the
company’s operations and determine the relative importance of firearms to the company as
a whole.
43
62
For a complete explanation of the method used to create this estimate, see the methodological appendix to this chapter.
As can be seen in the
trend lines, while Grupo
Taurus as a whole is
generally expanding,
gross revenue from
firearms
sales
is
decreasing. This trend is
confirmed in the following
graph, which shows the
stark decline over time of
Forjas Taurus’ sales as a
percentage of total Grupo
Taurus sales:
While it seems unlikely that Taurus will ever pull out of the firearms business entirely, it may be
positioning itself for a potential defeat in the upcoming referendum on prohibiting arms sales
to civilians in Brazil. This should be welcome news to all: perhaps the dream of beating
swords into plowshares has found its modern equivalent in Taurus’ diversification into handtools
and protective gear.
Companhia Brasileira
de Cartuchos (CBC) –
CBC is by far the largest
Brazilian producer of
ammunition for the
civilian market.
In
addition to a wide range
of
ammunition
for
handguns and long arms,
CBC produces 18 models
of shotguns and 4 models
of rifles.44
See: http://www.cbc.com.br/catalogo/
index.htm.
44
63
Founded in 1926 as the Fábrica Nacional de Cartuchos e Munições Ltda., the company was sold in
1936 to Remington Arms Company and Imperial Chemical Industries, which brought new technology
and productive capacity to the company. Having consolidated its position as producer of cartridges,
in 1960 it began producing a small line of long arms, with exports beginning in 1966. The company
was re-nationalized in 1980 (as explained below), and in 1988 became a publicly traded company.
The company expanded in the early 1990s through acquisitions, and by 2002, CBC had profits of
USD 3 million on liquid sales of USD 41.2 million. Of its total sales, 34.13% were from exports,
28.87% for the Brazilian civilian market, and 37% for the Brazilian police and military. 86.8% of
sales are from ammunition.45 According to SICOFA, CBC produced 58,830 long arms between
May 2003 and November 2004.46
As with Forjas Taurus, it is
possible to estimate total
production from financial
data on file with CVM:
While CBC is not the only
Brazilian SALW firm to have
been
purchased
by
foreigners, than renationalized (Taurus was
purchased by Smith and
Wesson in the early 1970s,
and came back under
Brazilian control in 1977), it
is perhaps the textbook case
of cooperation between private enterprise, the military, and the government (in this case, a branch of
the military.) In 1980, IMBEL, using funds from Brazil’s National Development Bank, bought CBC
from its foreign owners. As part of the deal, CBC took over production of 7.62mm caliber ammunition
from IMBEL. In 1988, the company’s shares became publicly traded, and a year later the DFV
Participações investment group purchased 70% of the controlling shares. IMBEL retained 30% contrl
over CBC, and much of the company’s board
was made up of active or retired military
personnel. Finally, in April 2004, IMBEL sold
off the bulk of its remaining shares to PCDI
Participações Ltd. (This sale was likely
motivated by IMBEL’s desire to pay off a debt
to the federal government, which made it
ineligble for contracts with state police corps.)
The situation as of this writing looked like this:
Company information for CBC filed with the Securities and Exchange
Commission of Brazil. See note above.
46
“Relatório da Situação do SICOFA” ibid.
45
64
So who
controls CBC
now? Who
are DFV and
PCDI?
DFV is controlled by an entity known as DBB, which are the initials of its president, Daniel Birmann,
who was also head of the investment firm that arranged DFV’s original purchase of CBC’s shares.
(Sandra Salm is a private investor, Antonio Barros is president of CBC.) DBB, in turn, is owned
nearly in its entirety by Charles Limited, which is located in the British Virgin Islands, a tax haven.
Similarly, PCDI is owned nearly entirely by
the foreign firm Bookmon, whose
nationality is undeclared. The remaining
shares are owned by Frank De Luca,
president of DF Vasconcelos S.A.:
Of course, there is nothing necessarily
wrong with a private firm being owned
almost entirely by two foreign companies,
one of which is based in a tax haven and
the other whose home country is
undisclosed. However, it is worth
remembering that CBC was nationalized
in the first place with public money, and
was entrusted to IMBEL, which is in turn
controlled by the Army. It is also worth reconsidering, in the light of the above, the appeals to
patriotism and national greatness that the gun lobby so often makes, and the accusations of
disloyalty and treason it tosses out at gun control advocates.
• Amadeo Rossi – Rossi has sold its handgun production to Taurus, but continues to produce
shotguns and rifles, which make up 70% of total sales. It owns one non-arms-related subsidiary.
The company suffered a loss of USD 14 million in 2001, the last year for which data is available.
Rossi exports 77.3% of its production; 50% of production is sold through Braztech Inc., its U.S.
distributor. 47
47
Company information for Rossi filed with the Securities and Exchange Commission of Brazil. See note above.
65
Small Manufacturers:
• E. R. Amantino & Cia. / Boito – E. R. Amantino is the producer of the Boito line of
hunting shotguns, very popular in the producer’s home state of Rio Grande do Sul. The
company produces the following models: A-680, A-681, Era 2001, Miura I, Miura II, Pump
BSA-5T-84, Reúna, and the hand shotgun B-300. 48
• Companhia de Explosivos Valparaiba (CEV) – CEV is a producer of grenades and
mortars. According to Jane’s Infantry Weapons 2001/2, CEV produces M3 and M4 hand
grenades as well as the TIR 60 AE M3, TIR 81 AE M4, and TIR 81 AE M7 mortar bombs.
They have also produced a line of gas grenades for anti-riot. In 1997, CEV announced
that its submachine gun model, the Mtr M9 M1-CEV9, was ready for sale; however, no
further news on this item has been reported since 1998.49
• Mekanika / Bilbao – Both of these small firms were involved in the production of the Uru
Model II 9mm submachine gun, Mekanika from 1979-1988, and Bilbao, which bought the
rights from Mekanika in 1988. In 1997, Mekanica Indústria e Comércio, reacquired rights
to the Uru and entered into a Production agreement with Amadeo Rossi.50
13.2. Production and Sales
The most comprehensive and current data on total SALW production in Brazil comes from the
Annual Study of Industry by Product (Pesquisa de Indústria Anual - Produto, PIA-Product).
Unfortunately, this series only began in 1998. Based on a survey of all industrial production
facilities in the country,
organized by economic
activity, these figures offer
the best picture of recent
total SALW production.
See: http://www.eramantino.com.br/
Jane’s Infantry Weapons 2001-2002, Gander, Terry J., ed., (London: Jane’s Information Group), 2002.
50
“Submachine Guns (International)”, Forecast International, January 2002.
48
49
66
Prior to 1998, no disaggregated
data is available, but we can get a
sense of the historical evolution of
the SALW industry by looking at
data from the Economic Census,
carried out sporadically between
1950 and 1985. Because of
classification issues51, only firearms
and parts thereof, not ammunition,
are included here.
Both PIA and Census data are strictly
in terms of value. To get an idea of
quantity of SALW produced, we must
rely on data collected by the Army,
which by Brazilian law is ultimately responsible for monitoring and licensing the production, sale,
transport, and export of controlled products, of which SALW are a part. In theory, the army’s
Statistical Yearbook (Anuário Estatístico do Exército, AnEEx) contains a register of every permitteduse firearm and cartridge52 produced in Brazil; in practice, some years lack key data from SALW
producing regions. In addition, the Army’s data collection methodology is quite opaque, making
it difficult to evaluate the reliability of the data. On the other hand, this data was for a long time
considered a state secret, and its being made available to this study is itself an encouraging sign.
Note: No data available for 1970 or 1974. In 1975 and 1992,
no data was available for Rio Grande do Sul, where Taurus and
Rossi are located. This resulted in anomolously low numbers for
total Handgun production. For these years, therefore, we
eliminated the data points for ‘Handguns’ and ‘Total Firearms’,
but left ‘Long Arms’ as published. In 1986 and 1993-1995,
reported handgun production for São Paulo was zero. Since
average handgun production for São Paulo was around
50,000 per year, a zero value is suspect, but the difference to
total handgun production was not enough to warrant cutting
the data points. We have instead colored them white.
While the lacunae and variability
of this figure do not allow us to
draw strong conclusions about
firearms production, it is clear
that the general trend is upward, with average production more or less doubling from 400,000
to 800,000 per year in the three decades pictured here. In addition, it is clear that handgun
production is the key to that increase: average long barrel arm production has remained
essentially constant.
51
52
For most of the Census’ history, ammunition was included in a larger group of products including safety matches and industrial explosives.
‘Permitted-use’ refers to all calibres of firearms and ammunition permitted for use by civilians according to Brazilian law. See Carolina Iootty’s chapter on legislation.
67
As for ammunition, the
AnEEx data is even less
illuminating:
Note: No data available for 1970, 1974, and 1993.
In 1991, no information was available on
‘Cartridges’; as this category makes up the majority
of total ammunition production, the ‘Total’ data
point was also eliminated.
What does seem clear from this figure is that, excluding the turbulent pre-1975 period and
excepting the years 1982-1985, ammunition production is almost entirely made up of regular
cartridges. This data should be seen as supplementary to the analysis of CBC presented
above.
In sum, Brazilian production of SALW has grown steadily over the years, particularly in the
heydey of the military regime (1974-1983), reaching a current value of about USD 100 million
per year. We can further fill in some of the picture by looking at sales figures, which tend to
follow production figures quite closely.
Sales
The PIA-Product survey
actually defines the value
of production in terms of
sales figures53 ; as such, it
is not surprising that we
find little difference
between the two series:
Survey respondents report quantity produced, quantity sold, and total value of sales. The PIA-Product report includes only total value of sales, but divides through
by quantity sold to arrive at average price, then applies this average price to quantity produced.
53
68
Liquid sales are also
reported in companies’
yearly filings with the
Brazilian
Securities
Exchange Commission
(CVM). Although this
only encompasses the 3
l a r g e s t p r i v a t e S A LW
producers, and excludes
IMBEL, we can use the
sum of these companies’
sales to estimate total
national SALW sales:
This figure has the additional benefit of offering a graphic representation of the relative
importance of firearms and ammunition: CBC is the monopoly producer of civilian-use
ammunition, and produces only a modest line of hunting rifles and shotguns, while Taurus
and Rossi produce the bulk of Brazil’s firearms, and almost all of its civilian-use handguns.
(Note the diminution of Rossi’s segment after Taurus bought its handgun operations in
1997, making it the sole Brazilian producer of revolvers.) Sales of ammunition have
been relatively constant over the years, while sales of firearms, and in particular those
produced by Taurus, have varied a good deal.
How good a proxy are
the total sales of these
three companies for total sales acording to the
PIA-Product survey? A
side by side comparison
shows a relatively close
fit for the available
years:
Note: PIA-Product data for 2003 was not available as of this writing. The fact that in 1998 and 2000 the total value
of CBC, Rossi and Taurus’ sales exceeded the value reported by the PIA-Product survey may indicate differences in
accounting methods, poor sample selection by the PIA, or different reporting calendars.
69
3.3 The Size of Brazil’s SALW Industry in Context
While Brazil’s level of production makes it a medium-sized SALW producer — the second
largest in the western hemisphere – and the dominant regional player, it is important to
realize just how small a role small arms plays in the economy as a whole. This is
particularly so in light of arguments made by the gun lobby against restriction of
weapons sales to civilians and other gun control measures, viz. that the arms industry
represents a major source of employment and income generation for Brazilians. In
reality, small arms production constitutes an infinitesimal portion of total economic
activity, as the following three graphs illustrate:
Note: In the National Accounts system, all economic activity is broken into 3 sectors: primary (agriculture),
secondary (industry), and tertiary (services). Under this scheme, ‘Civil Construction’ is included within
‘Industry’ and ‘Government Spending’ is included under ‘Services’. However, the PIA-Product survey, used
in the following two graphs, is based on a different classification scheme, the National Classification of
Economic Activity (Classificação Nacional de Atividades Econômicos, CNAE), which considers these as seperate
sections. For the sake of coherence, we have adjusted the groupings used in the National Accounts system,
breaking out Civil Construction and Government Spending.
Here we see the basic divisions of the Brazilian economy, industrialized, with a welldeveloped service sector. Expanding out the slice ‘Industry’ we get:
70
Note:
The PIA-Product survey is based on the CNAE classifaction scheme, which divides industrial
production into two sections: ‘Industry of Transformation’ and ‘Extractive Industry’; the latter is made up
of 4 divisions, here grouped together in the single white slice ‘Mining and Quarrying’.
‘Industry of
Transformation’ is made up of 23 divisions, the 9 largest of which appear here in order of size. The
remaining 14 have been grouped under “Others”.
Machinery and Equipment, the
product division to which
SALW belongs, makes up only
5% of industrial output,
comapred with 9% for
automobiles and 7% for steel
and other metal products.
Still, it is among the larger
product divisions. However,
when we break open this
division, we see that SALW
make up an extroadrinarily
small share:
Note: the slices shown here represent product groups within the division Machinery and Equipment.
‘Firearms and Ammunition’ and ‘Heavy Military Equipment’ are product classes that together
make up the product group ‘Arms, Ammunition and Military Equipment’. However, only the class
‘Firearms and Ammunition’ corresponds to SALW.
71
Obviously, SALW production has little purely economic importance for Brazil as a whole: it
represents less than 1% of the product group to which it belongs (machines and equipment), and
a mere 0.048% of total industrial output. Indeed, of the 268 industrial product classes in Brazil’s
official statistics, ‘Firearms and
Ammunition’ ranked 222, just
after watches and socks. Key
Brazilian industries such as
automobiles, appliances, and
oil refining are all orders of magnitude larger. The SALW industry
is equally incosequential in terms
of employment:
This figure includes not only
SALW but all companies
producing heavy military
equipment; nevertheless, of the
32.5 million formal jobs held by
Brazilians in 2001 the SALW
industry made up only 0.02%.
Note: Source: Cadastro Nacional de Empresas, IBGE 2001 is the last year available. With less than a fifth of
its population formally employed, it is safe to say that Brazil’s informal labor market is enormous
Of course, Brazil is no exception: the U.S. SALW industry, the largest in the world, has also been
shown to be insignificant in the context of the U.S. economy as a whole.54 The Brazilian case
lends support to the conjecture that, in strictly economic terms at least, SALW are almost certainly
a losing proposition: the costs of gun violence to society are enormous, and the economic
benefits are modest at best.
3.4 Foreign Trade
Overall, official data on foreign trade is far superior in terms of disaggregation and years
available to data on production and sales. A complete data set for all Brazilian exports and
imports by country and by export code is available for the period 1982-2003.
However, foreign trade data presents its own difficulties. Careful analysis of official data strongly
suggests that large sales of heavy military weapons are occasionally misclassified under product
subheadings that correspond to SALW, while handgun exports are systematically misclassified
as hunting rifles. Accordingly, the data presented in this section has been “cleaned” and adjusted
to reflect our best judgement as to what Brazil’s actual exports of SALW items really were. A
complete explanation of our inclusion and exclusion criteria, as well as the raw official data, can
be found in the methodological appendix.
54
72
Small Arms Survey 2002 p27.
If Brazil is a medium-sized
SALW exporter at the global
level, within its region it is
absolutely dominant, almost
10 times the size of its nearest
competitor:
Note: *Mexico data for 2000. Excludes Mexican
maquila exports to USA and Peru’s exports of lead
pellets for later assembly into shotgun ammunition.
When we consider that a sizeable portion of Chile’s exports are made up of FAMAE
submachine guns made in partnership with Taurus, and the fact that Mexico’s exports
are nearly entirely made up of ammunition, the real scope of Brazil’s regional dominance
becomes even plainer.
The importance of exports to Brazil’s SALW firms is made clear in their own financial
statements, which provide information on the breakdown of sales into the three principal markets these companies sell to: the domestic civilian market, Brazilian public organs
(police, army, etc.) and the foreign market (exportation). Though not available for all
companies for all years, this data makes very clear that the Brazilian arms industry is
increasingly dependent
on exports.
Fo r j a s
Ta u r u s i n p a r t i c u l a r
appears
to
be
essentially an export
driven enterprise. While
the domestic civilian
and public markets have
been avidly protected by
Brazilian trade policies,
and surely provide an
important client base,
an increasing share of
income is coming from
exports.
73
CBC, Brazil’s only producer of
civilian-use ammunition, is also
reliant on exports, but not to the
same degree; civilian and
government demand for
ammunition soak up a
significantly larger portion of its
production:
The relative predominance
of
firearms
over
ammunition in SALW
exports can be clearly seen
here, in the time series of
Brazilian SALW exports:
Note: Some exports listed in official data for 1987, 1991-1993, and 2002 have been excluded in light of evidence that they represent military, non-SALW items. Please
see the methodological appendix to this chapter for details. For full listing of HS subheadings included in each category listed here, see methodological appendix.
Overall, what we see here is a healthy, stable, and generally expanding export market. It is
worthwhile considering the strong, though not decisive, effect of Brazil’s exchange rate on the
marketability of its exports.
74
Note: The IPA-OG Exchange Rate Index is a
composite index of real exchange rates with Brazil’s
16 largest trading partners, weighted by their
respective share in Brazilian exports in 2001. For
details see: http://www.ipeadata.gov.br/
ipeaweb.dll/NSerie?SessionID=
954859569&SERID= 36517_1&NoCache=
602276984 (in Portuguese).
Of particular interest here is the period beginning in 1994, when Brazil implemented
the Plano Real, replacing its moribund currency with the real which was pegged to the
US dollar. The peg held until early 1999, the period of exchange rate stability
corresponding to the leveled portion of the upper curve e in graph 26. With the real
artificially held above its natural rate, Brazilians found themselves with enormous
purchasing power, while Brazilian exporters found it harder to compete by lowering prices.
It certainly seems reasonable to conclude that a similar dynamic occurred in the SALW
export market; in the years following the devaluation of the real, SALW exports have
recovered steadily. On the other hand, it is clear that the exchange rate is only one of
many factors affecting exports.
Since the late 1980s, the United States has become the principal customer of Brazilian
SALW. As can be seen in
the graph below, this
trend has deepened
considerably since the
devalutaion of the real
in 1997.
75
Much of these exports to the United States represent sales of Taurus handguns as graph number
28 shows below. Latin America has also been an important market for Brazil over the years,
but in recent years has
ceded importance to the
U.S. market. We have
suggested elsewhere that
this is indicative of a
qualitative change in
Brazil’s SALW industry: a
move toward higherquality,
higher-price
products with positive
name recognition in
competitive
foreign
55
markets.
2003 marked a reversal of this trend, due mostly to a major shipment of ammunition to
Colombia. As such, it is too early to tell if this marks a new trend or simply an exceptional
year.
Interestingly, if we separate out exports of firearms and parts from ammunition, the patterns of
target markets for exports that emerge are quite different.
Dreyfus, Pablo and Lessing, Benjamin. (2003), “Production and Exports of Small Arms and Light Weapons and ammunition in South America and Mexico”, Background
paper prepared for the Small Arms Survey 2004, Rio de Janeiro,2003, 52p
55
76
Clearly, the US dominance of
overall SALW exports is made
up almost entirely of firearms
and parts, while Latin America
has increasingly become a
purchaser of ammunition. We
also note that the market for Brazilian ammunition is much more volatile and variegated than
that for firearms. This can be seen in the wider variation of top importers of ammunition as
compared with firearms and parts:
77
Note also the increasing dominance of the United States among firearms imports, as opposed
to the relative diversification of ammunition importers. It is important to note that Brazil’s
neighbor, Paraguay, shows up in all the four graphs above. Paraguay has one of the lowest
per capita incomes of the region and a small population of 7 million. The country is not at
war and does not register high rates of firearm related deaths. Clearly, the amount of SALW
imported far exceeded the country’s needs, offering further evidence of leakage of SALW from
the licit to illicit market in Paraguay. Much of this leakage flowed back into Brazil, eventually
leading Brazil, to cancel arms exports to its neighbor in 2000.56
Colombia is another interesting case. The extent of exports to this country in the second half of
the 90s could be explained by the dynamics of its internal conflict. According to interviewed
sources, INDUMIL (the Colombian state owned SALW company) is importing CBC ammunition
parts in order to complete orders for 9mm and 5,56mm cartridges for troops operating in
conflict areas.57
In terms of Brazil’s
national economy, as we
saw to be the case with
overall
industrial
production, SALW exports
make up only a tiny
fraction of total Brazilian
exports:
56
On this issue see: Dreyfus, Pablo; Godnick, William; Iootty, Carolina and Lessing Benjamin., Control de Armas Pequeñas en el Mercosur, London and Rio de Janeiro,
International Alert / Viva Rio, 2003, pp52 –53; and Lisboa, Marcos, Subert Aymore, Ramon and Fernades, Ruben César, As Exportações Brasileiras de Armas Leves, 19892000, Rio de Janeiro, ISER, 2000, pp.9 - 10.
57
Interview with a ranking official of INDUMIL´s sales department., Bogotá, July 2003.
78
Perhaps it is more
meaningful, for a major
agricultural exporter like
Brazil, to compare SALW
exports to other industrial
products. Even restricting
our
comparison
to
automobiles and related
parts, we see that SALW
exports are relatively
unimportant,
never
surpassing 3% of the value
of automotive exports:
On the other hand, SALW
imports have been kept
to a minimum through
protectionist legislation,
which prevents import of
products
produced
nationally:
Note: ‘Airguns’ refers to items under subheading 9304.00, air or spring powered guns. The 1999 figure likely
represents a misclassification. These items are not included in Total SALW.
Note that the scale of this
figure is entirely different
than that of SALW exports.
The result is that almost the
entirety of SALW exports
represents a positive balance of trade, with
imports rarely rising to
more than 10% of exports.
79
Between 1989 and 1994, SALW imports equalled less than 1% of SALW exports. The existence
of a massive trade surplus in SALW should not be surprising – indeed, it is the end result of
policies decided upon in during the military regime designed to produce just such a situation.
What is interesting to note is that the original PENEMEM was geared almost entirely at
generating such a surplus in the realm of heavy military equipment; small arms was seen
almost as an afterthought. Today, the surplus in small arms is well-consolidated – Brazil’s
export niches are relatively secure, its companies command brand loyalty abroad, etc. –
while its heavy arms industry is nearly extinct, and what remains is dependent on occasional
large orders.
4 Conclusions
In his book Arms and the State: Patterns of Military Production and Trade, Keith Krause develops
a theoretical model for understanding and explaining patterns of arms production and transfers.
Taking a historical view at the global level, his work is focused on the defense sector as a
whole, with an emphasis on heavy military equipment and weapons. Krause categorizes the
structure of arms production and transfers by states in the following way:
• First-tier suppliers innovate at the technological frontier
• Second-tier suppliers produce (via the technology transfer) weapons at the technological
frontier and adapt them to specific market needs
• Third-tier suppliers copy and reproduce existing technologies (via transfer or design), but
do not capture the underlying process of innovation or adaptation
• Strong customers obtain (via material transfers) and use weapons.
• Weak Customers either obtain modern weapons and cannot use them, or do not even
obtain them.58
Transfers and production are at the same time led by three motivating forces:
• The pursuit of wealth
• The pursuit of power
• Victory in war59
In the case of third-tier countries there would be several secondary motivations driving arms
transfers and production:
•
•
•
•
•
To
To
To
To
To
guarantee continued arms supplies to counter security threats;
provide a symbol or index of effective regional or international power
catalyse economic modernization efforts
develop local skills and technologies
substitute for imports saving hard currency and improving the balance of payments60
Krause, Arms and the State, pp. 31-32
Ibid. pp.12-33
60
ibid
58
59
80
In the case of Brazil, as seen earlier, we should add:
• Nation- and state-building
• Realizing a “manifest destiny” as regional power
Brazil and Argentina are the only two South American countries that managed to develop
(over the same historical period) an important industrial-military complexes. However,
only Brazil, in part because of its capacity to conciliate and coordinate the public and
private sector, managed to develop a major export market for, ,as Patrice Franko-Jones
puts it, “relatively simple, inexpensive, and easy to operate [military] machinery”.61
Light tanks, artillery saturation rocket systems and military training planes were successfully
exported during that decade to an international market niche concentrated in the Persian
Gulf region. However, as we saw, the end of the Iran-Iraq war, macroeconomic constraints
and the lack of substantive state support in the wake of the transition to democracy led to
the demise of the export-oriented Brazilian military-industrial complex. At the same time
a combination of technological leaps, lack of returns from further heavy weapons exports,
and cutbacks in state support, frustrated a series expensive projects (such as the Osório
battle tank) that sought to produce at the technological frontier. Brazil continued to be a
third-tier producer in the field of heavy conventional weapons.62 The same applies to
military small arms and light weapons, in spite of IMBEL’s successful FAL MD97L model.
The latter, while in some sense , equivalent to (and according to the manufacturers, as
good as) the M-16, the AR-70, the Galil and the FNC, is nonetheless years away from
third, fourth and fifth generation assault rifle such as the XM-8 / G-36 (Germany) or the
Tavor (Israel), which incorporate state of the art technology such as modular polymer
parts, red point sights or “Rail Interface Systems”.6 3
The case with handguns is somewhat different. We have seen that while not as dependent
on high technology as other defense sectors, the Brazilian handgun producers were able
to “hitch a ride” on the so called economic miracle sparked by Brazil’s growing arms
industry during the 1980s. By the 1990s, Brazil had lost her edge in heavy conventional
arms, but was well established as a mid-sized global player in the international small
arms market. Considering that civilian and police markets, above all in the United States,
offer more stable and reliable demand than the sporadic purchase cycles typical of heavy
military weapons, the SALW in Brazil appears to have achieved ‘sustainability’ for the
mid- to long-term where its “big brother” did not. Indeed, in the enormous U.S. market,
Taurus has secured a market niche for good quality pistols and revolvers at competitive
prices.
Franko-Jones, The Brazilian Defense Industry, p.195 and Maldifasi and Abeti, pp.108-126 and 225-239
See: Franko-Jones, The Brazilian Defense Industry, pp.189-247 and Krause, Arms and The State, pp. 32 and 155.
63
See: Beraldi, Alexandre.2004. O Histórico da Evolução do Fuzil de Assalto, a Atualidade e o Contexto Brasileiro, http//: www.defesanet.com.br/docs/fuzilassalto.pdf
for a detailed compraisson of the MD97L and LC with third, second, fourth and fifth generation assault rifles, and Small Arms Survey 2003, pp.22,23 and 24 for an
analysis of current and future technological trends in Assault Rifles.
61
62
81
Although most transfers of Brazilian SALW are for police and civilian users it is also true that, as
stated by the Small Arms Survey,
“Although the civilian market is certainly the largest part of the global small arms business,
accounting for more than 80 per cent of annual production, it is innovation in the military market
that generally defines the cutting edge of small arms technology”64
The application of technological advances in the military field to arms for the civilian market
allows us to adapt Krause´s theoretical considerations for military production and trade to the
specific sector of handguns. As we have seen in this chapter, Taurus (the leading company and
exporter) has, during the second half of the 1990s, adopted all of the few important innovations in
military side arms to its production of civilian-use handguns:
•
•
•
•
Reliable safety systems
The production of lighter and compact models
The use of polymer-based materials
The introduction of light materials such as titanium and composites
The company was also capable of introducing good-quality new products at competitive prices
into the U.S. market. At present, Brazil is the only relevant Latin American producer of small arms
for civilian and police markets that has mastered the technology of polymer, plastic composites
and titanium handguns. In this particular market with few technological constrains, it seems as
though Brazil has the potential to evolve, from a third-tier producer into a second-tier producer.
While it is tempting to conclude that the SALW industry succeeded where the heavy arms industry
failed, such a conclusion would obscure the differences in the two markets. Brazil never dreamed
of exporting heavy military weapons to the United States, after all – and yet today its SALW industry
is deeply dependent on U.S. importation of its products. Moreover, the majority of those imports
are clearly destined for sale on the U.S. civilian market, which represents a source of steady demand
that differentiates it from military and police clients at home and abroad, with their periodic purchase
cycles. For this reason, it is hard to believe the warnings of impending bankrupcy from Taurus in
the face of increasing domestic small arms controls in Brazil. Neither is CBC at great risk, in spite
of its greater dependence on the domestic market, since most of its sales go to a captive and
protected public security market.
On the other hand, the basic tenets of the NSD have in some ways played out in the case of Taurus
and CBC. Both were able to obtain know-how from periods of foreign ownership, both were renationalized (in the case of CBC through public financing), and both now enjoy – albeit to different
extents – high profits from sales on the export market, which they can use to obtain efficiencies of
scale and to finance further R&D. Of course, the central tenet of the NSD has meanwhile failed
spectacularly: success for these private arms firms has not translated into national economic
development, much less security. Indeed, if the connection between small arms proliferation and
violence explored elsewhere in this study is any indication, Brazil has paid all too dearly for the
success of these firms.
64
82
Small Arms Survey 2003, p. 21
5 Appendix: Sources and Methodological Obstacles
The government’s role in promoting the Brazilian SALW industry may not be as direct as
it was during the military dictatorship; with the coming of civilian rule, the ability of the
military to interfere in economic matters has diminished significantly. Nevertheless, the
Controlled Substances act (R105) gives the Ministry of Defence authority over all aspects
of trade involving SALW (among other things), and it has used this authority to promote
the Brazilian arms industry at home and abroad wherever possible. One of the ways it
has done this is through control of information. The most obvious example of this is the
classified nature of data on arms production and sales which, by law, the Army must
collect. This data is released only at the discretion of the Army high command, and it
may always invoke the sawhorse of national security to keep it secret.
Other important obstacles and methodological issues exist in those data sources that
are available. For the sake of clarity, we will consider production and sales data seperately
from foreign trade data, as the sources and the obstacles encountered therein are entirely
different.
We are not the first the first at encountering such problems while studing overal arms
exports (heavy and light) in 1992 Patrice Franko Jones wrote
“Armament exports are difficult to report because, in addition of being secret, [military]
deals are customarily signed for a multi year period. […] Official Brazilian sources for
defense exports data can be used as an indication of the export capability of the firms,
albeit with caution. […] Numbers published by CACEX, the export agency of the Bank of
Brazil, are difficult to interpret because of the nomenclature used to identify products.
For example, according to CACEX, ENGESA does not export tranks but rather truks.
Exports are not designated by civilian or military type …”65
In one of the first attempts to sistematically understand Brazil´s SALW exports, Marcos
Lisboa, Rubem César Fernandes and Ramon Stubert Aymore noted serious discrepancies
in the way handguns were classified by the Brazilian Foreign Trade Secretariat (SECEX).
These discrepancies are discussed below at length. 66
Conscious of the “sensitive” nature of the data, we have followed the advice and methods
of our predecessors, analyzing what data was available meticulously in an atempt to
answer some of the questions raised by previous studies. As must be the case in such
circumstances, we have done what we could with the available data. We hope that this
methodological appendix will be of service to other future researchers on this topic.
65
66
Franko, Jones, The Brazilian Defense Industry, op cit. pp. 141-142
Lisboa, Stubert Aymore and Fernandes, op.cit., p12
83
5.1 Production and Sales Data
Economic Surveys
As mentioned in section 1.3, the only available sources on overall production and sales are
government economic surveys of the economy. These have only recently become consistent
and sufficiently dis-aggregated to permit useful time-series analysis of SALW production and
sales. The relevant surveys are:
• Pesquisa Industrial Anual (Annual Industry Survey, PIA)
• Economic Census - Census of Industry
• Brazilian National Accounts System – GDP by sector
The PIA, a national industry survey, employs the National Classification of Economic Activity,
or CNAE67 , based on the International Standard Industrial Classification. This system contains
the product class “Firearms and Ammunition”, which corresponds to SALW. However, only
one portion of the PIA survey, the PIA-Produto, offers this level of detail. The PIA-Empresa
portion of the survey, which includes information on employment and cost breakdown, among
other items, is aggregated at the next-higher level, “Arms, Ammunition, and Military
Equipment”, which includes non-SALW items. In some cases we have had to use such figures.
Furthermore, the PIA-Produto was only begun in 1998, while the PIA-Empresa began in 1996.
Prior to this, the PIA survey aggregated all information at an even higher level, lumping SALW
in with other industrial categories.
For information on the period before 1998, we must turn to the Economic Census. This source,
however, suffers from grave limitations. Carried out each ten years since 1920, until 1940 the
census aggregated firearms with cutlery and hand tools. Between 1950 and 1985, the data on
firearms is usable. However, the ammunition data from 1950 – 1975 is aggregated together
with gunpowder and explosives, while from 1980 – 1985 ammunition is dis-aggregated, but
confidential. There fore, the only available and usable data is for firearms in the years the
census was carried out, 1950, 1960, 1970, 1975, 1980 and 1985.
This problem of aggregation is even more accute with wholesale and retail sales as measured
by merchant survey. Survey data is aggregated at a level where SALW is lumped together with
an enormous basket of non-SALW items, from including watches and optical products. Disaggregated data may exist, but all available avenues to obtaining them were exhausted. As a
result, no merchant data was consulted.
Another problem related to confidentiality is the need to protect individual company’s anonymity
in government surveys. When a given product has only a single producer, as is the case with
handguns and civilian-use ammunition, production and sales values are not divulged. As a
result, we have totals for the cateogry “arms and ammunition” (includes parts) but no breakdown
by firearms, parts, and ammunition.
67
84
available on-line at: http://www.cnae.ibge.gov.br/cgi-bin/cnae-prd.dll/html/Search?edtText=&TIPO=F110&btnHie=Estrutura&Order=C
Company Reports
Another important source for information on production and sales are the company financial
reports on file with the Security and Exchange Commission of Brazil (Comissão de Valores
Mobiliários, CVM). The CVM lists filings for all publicly traded companies, which includes
Taurus, CBC and Rossi, but excludes IMBEL, Boito and other small producers. The records on
file are of two types:
• Company Annual Reports (Informações Anuais, IAN) – company history and info, principal
products, market share, main markets, subsidiaries, employment, stockholder profile.
• Periodical Financial Statements (Demonstrações Financeiras Padronizadas, DFP) – net/
gross income, profits, sales, administration report.
Some CVM data is available on-line at: http://www.cvm.gov.br/
Deflators
All values in reais were deflated using the IPA index of wholesale and retail prices. Since
Brazil’s SALW firms sell both to retailers and directly to consumers, it was felt that a mixed
price index would better reflect the reality of SALW sales.
5.2 Foreign Trade
At first blush, foreign trade data appears to be much better than production and sales data.
Via Brazil’s Secretary of Foreign Trade (Secretaria de Comércio Exterior, SECEX) fully
disaggregated data by product subheading and country is available for the years 19892003. Previous years, in this case 1982-1988, were accessed through the Bank of Brazil’s
Foreign Trade Bureau (CACEX).
The first obstacle is deciding which product subheadings to include in SALW counts. There is
no perfect fit between the UN definition of SALW and the headings and sub-headings of the
Harmonized Trade System (HTS). Brazil currently uses a regional version of the HTS, the Mercosur
Common Nomenclature (NCM). Until 1996, Brazil used the Brazilian Merchandise
Nomenclature (NBM), but there are no major differences in the headings we are interested in.
For data from 1982-1988, a previous version of the NBM was used. We have included those
sub-headings thought to include only SALW, and excluded those sub-headings that may include
SALW but probably include non-SALW items.
Summary Table of HS Sub-headings
q = Sub-headings included under SALW counts as “Firearms”
u = Sub-headings included under SALW counts as “Parts”
l = Sub-headings included under SALW counts as “Ammunition”
m = “Mixed” Sub-headings, excluded but might contain SALW
v = Excluded
85
93.01
- Military weapons, other than revolvers, pistols and the arms of heading
93.07.
v9301
- Artillery weapons (for example, guns, howitzers and mortars) :
v9301.11 - Self-propelled
m9301.19 - Other
m9301.20 - Rocket launchers; flame-throwers; grenade launchers; torpedo tubes and similar
projectors
q9301.90 - Other
q93.02
- Revolvers and pistols, other than those of heading 93.03 or 93.04.
93.03
- Other firearms and similar devices which operate by the firing of an
explosive charge (for example, sporting shotguns and rifles, muzzle-loading
firearms, Very pistols and other devices designed to project only signal
flares, pistols and revolvers for firing blank ammunition, captive-bolt humane
killers, line-throwing guns).
v9303.10 - Muzzle-loading firearms
q9303.20 - Other sporting, hunting or target-shooting shotguns, including combination
shotgun-rifles
q9303.30 - Other sporting, hunting or target-shooting rifles
m9303.90 - Other
93.04
- Other arms (for example, spring, air or gas guns and pistols, truncheons),
excluding those of heading 93.07.
93.05
- Parts and accessories of articles of headings 93.01 to 93.04.
u9305.10 - Of revolvers or pistols –
u9305.20 - Of shotguns or rifles of heading 93.03 :
u9305.21 - Shotgun barrels
u9305.29 - Other
m9305.91 - Of military weapons of heading 93.01
m9305.99 - Other
93.06
- Bombs, grenades, torpedoes, mines, missiles and similar munitions of
war and parts thereof; cartridges and other ammunition and projectiles
and parts thereof, including shot and cartridge wads.
l9306.10 - Cartridges for riveting or similar tools or for captive-bolt humane killers and
parts thereof
l9306.20 - Shotgun cartridges and parts thereof; air gun pellets:
l9306.21 - Cartridges
l9306.29 - Other
l9306.30 - Other cartridges and parts thereof
m9306.90 - Other
v93.07 - Swords, cutlasses, bayonets, lances and similar arms and parts thereof
and scabbards and sheaths therefore.
86
Misclassification of Data – Missing Handguns
The problem of inclusion is particularly grave in the case of Brazil, due to what can only
be described as the systematic misclassification of exports by Brazilian authorities. By
law, Brazilian exports of SALW are channeled through the army, which emits export
licenses and forwards export data to the Treasury. Which sytematizes and realeses foreing
trade data (SECEX).
The prime example of misclassification is the case of the missing revolvers. Brazil exports
over USD 25 million per year in handguns to the United States but consistently reports
no entries in the customs heading corresponding to handguns (9302):
Source: SECEX
Meanwhile, US data clearly shows the handgun imports.
Source: USITC, United States International Trade Commision
Note subheading 930330, a catchall for other long arms such as hunting rifles and
shotguns. Though the numbers are not perfect, it seems plausible that Brazilian
authorities “hide” handgun exports in this subheading. In an official letter to Viva Rio,
the Treasury acknowledged this discrepancy, but could not explain it.
Misclassification of Data – The $500,000 Hunting Rifle
While a serious problem, the type of misclassification mentioned above does not affect
total reported values for SALW. A much more serious problem was encountered in the
data that reflects sporadic inclusion of non-SALW items in subheadings that refer to
SALW items, a practice that threatens to invalidate the data set in its entirety. This issue
can best be illustrated by example:
87
If we simply apply the
inclusion guidelines
mentioned above for all
years, we find that in
2002 total SALW exports
rose to USD 156 million,
a 150% rise over the
previous year and a major outlier in an
otherwise stable time
series:
SECEX data includes information on net weight, and in some subheadings, quantity.
This allowed us to search for anomalies in line items, revealing the following almost
humorous line item in the
subheading 9303.30,
other long barrel arms:
Source: Secex
It’s a pretty special hunting rifle that costs USD 486,999 and weighs more than 6,000
kg. Indeed, sources such as The Stockholm International Peace Research Institute (SIPRI)
and even Brazil’s own Ministry of Foreign Affairs confirmed that Brazil had sold an AVIBRAS
missile system to Malaysia at the end of 2001. While some of this system showed up in
the subheadings for military artillery (in itself odd, considering that all military weapons
subheadings had been zero between 1989 and 2001), it appears that part of the system
had been misclassified here.
In a clear case like this we simply eliminated the line item. Elsewhere no unit info was
available, as in shotgun shells (9306.21), where Malaysia imported USD 41 million.
Given the circumstantial evidence, and the fact that Malaysia had never imported
anything like that amount of shotgun shells in previous years, we chose to eliminate all
exports to Malaysia from 2002 totals.
A similar problem showed up in other years. Note the high peaks in the late 80s and
early 90s:
88
To “clean” our data of
misclassified non-SALW
items, we compared
SIPRI’s data on major
weapons systems transfers
for the period studied with the CACEX/SECEX trade data, searching for similar cases of suspect
entries. Anomalously large entries in the same two subheadings noted above, 9303.30 and
9306.21, were found for exports to Saudi Arabia and Qatar between 1987 and 1993 that
corresponded to values for missile systems reported by SIPRI. Because of the close
correspondence between reported delivery dates, purchase price, and the line items flagged,
we chose to eliminate these values from our data set. Other cases where misclassification
may have occurred were left intact for lack of conclusive evidence; in all of these cases, the
values involved were not
large enough to distort the
data. Below is a summary
of the eliminated values:
Removing these line items,
we found the resulting
curve far more intelligible:
It is this data set, with the
scale adjusted slightly,
that we have presented in
this chapter.
89
Deflators
We used the US GDP deflator, with 2003 set to 100, for all foreign trade stats.
5.3 Estimates of Total Annual Units Produced by Taurus and CBC
In the profiles of Taurus and CBC in the Production section of this chapter, we presented time
series estimating the total unit production of firearms, in the case of Taurus, and ammunition,
in the case of CBC. We present here the methodology used to arrive at these estimates.
As noted in the chapter, no data is available on production for individual companies.
Production data in value terms for the industry as a whole is available from the PIA for the
years 1998-2002, while a longer data set on production data in unit terms is available in
the Army’s statisitical annex, but presents lacunae and other problems. However, extensive
financial data for two of the largest Brazilian SALW firms68 is available from the Brazilian
Security and Exchange Commission (Comissão de Valores Mobiliárias, CVM). In their
company reports to the CVM, Taurus and CBC provide the following items (among others):
• Value of total sales (net revenue)
• Value of inventory at year end
• Breakdown of sales by sector (domestic civilian market, government contracts, exports)
For Taurus, this data is available from 1985-2003; for CBC, only the years 1987-2003 were
available. Relying on this data, along with estimates of average price per unit, we were
able to arrive at unit production estimates for these years.
The first step is to estimate the value of annual production. To get from value of sales to
value of production, we took the value of sales plus the change in the value of stock at the
end of the year considered over the end of the previous year:
Value of production = Net revenue + ? Value of inventory
where ? = Value of inventory (current year) - Value of inventory (previous year)
Having arrived at our estimate of the value of yearly production, we then divide by average
unit price to arrive at yearly unit production. However, no data on average price was
available. In fact, information on sales per model or type of firearm is almost entirely
lacking. The only information available for all years was the breakdown by sector mentioned
above. Thus, we opted to create three separate average price estimates for handguns (in
the case of Taurus).
Rossi also files reports with the CVM, but these reports lack key information needed to build our unit production estimate. In any case, Rossi was always small in
comparison to Taurus, even before its handgun production was bought out by Taurus.
68
90
To arrive at estimates, we collected observations of prices for Taurus products in the three
markets mentioned. Data on exports was the most readily available, providing model and
per unit price in USD FOB69 ; 268 observations were made. Data on the civilian market was
obtained by sampling retail prices at gun shops; 85 observations were made. Data on
government purchases was difficult to come by, but several states publish details of procurement
by police forces, from which we were able
to extract 4 observations. 70 The
observations were averaged for each sector,
giving the following results:
Sources: Export: Importing country customs data supplied by Urunet (www.urunet.com.uy).
Government: Secretaria de Administração Direta, Paraná; Secretaria de Segurança Publica,
Bahia; and Secretaria de Desenvolvimento Social, Minas Gerias. Civilian Market: Gun stores
Pégasus and Falcon, Paraná, and Castro Sport in SP.
For each year, we then calculated
((VP x %exp) ÷ Pexp) + ((VP x %civ) ÷ Pciv) + ((VP x %gov) ÷ Pgov)
Where VP = estimated value of production for that year, %z = the share of total sales that went to
a particular segment, and Pz equals the average price for that segment. Note that the average
price estimates were equal for all years. It is also interesting to note the rather surprising results
of our average price estimates: exported arms are far cheaper than on the civilian market,
which in turn are cheaper than those sold to police and other government bodies. There are a
number of possible explanations: arms exports are exempt from a series of taxes that apply
both to the civilian and government market, worth up to 70% of the value of the firearm. As for
the high price of government procured firearms, it may be the case that police and other agencies
purchase more expensive, restricted use weapons with higher average prices. Others have
suggested that collusion between Taurus and authorities has led to dumping abroad and
overcharging of government purchases.71 Of course, the low number of observations in the
case of government purchases makes it impossible to draw any firm conclusions.
Ideally, we would create the same three average price estimates for ammunition, but in practice
it was impossible to determine the unit price of ammunition in the export and government sectors.
However, some information on current unit production was available from CBC, allowing us to
estimate current year production. CBC’s corporate website provides information on its daily
production of ammunition by type. Multiplying through by 252 (the number of workdays in
Brazil) we arrive at an estimate of total annual production by type:
Converted to reais using the exchange rate for mid-October, 2004.
See Official Documents PR – 135/ 2004, PR 136/ 2004, BA - contrato 20-09788/ 2004, and MG – pregão nº 16/ 2004.
71
The lawyer Fernando Humberto Fernandes has filed a suit against the government alleging exactly this. See: 2000.001.134370-8/1; 2000.001.132766-1/1 (10º Vara
Fazenda Pública do Tribunal de Justiça do Estado do Rio de Janeiro) and 2002.5100123292-3 (15ª Vara Fazenda da Justiça Federal Seção Judiciária do Rio de Janeiro).
69
70
91
Source: www.cbc.com.br
We then divided total current year unit production by the value of production to arrive at an
average price estimate of R$ 0.54. Dividing through for previous years’ value of production,
we arrived at an estimate of unit production for each year.
Obviously, these unit production estimates are shot through with methodological limitations.
They are composite estimates, based on further estimates of value of production and average
price. Much key data was simply not available, and it was not possible to construct average
price estimates for each year studied. Moreover, in constructing the average price estimates,
we did not know the relative weight of different products within overall sales; we simply took
the average price of all observations.
For these reason, these production estimates should be as rough guidelines of the approximate
production capacity of these firms.
92
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Primary sources:
Banco do Brasil, Carteira do Comércio Exterior. Comércio Exterior: Exportação, Rio de Janeiro, CACEX, v.1, vários volumes (1982-1988).
CVM. Demonstrações Financeiras Padronizadas – DFP, Rio de Janeiro, CVM, vários volumes (1983-2003).
Disponível em: http://siteempresas.bovespa.com.br/consbov/IpeConsultaEmpresa.asp?pagina=demonstracoes&site=C. Informações Anuais – IAN, Rio de Janeiro,
CVM vários volumes (1983-2003)
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Pablo Dreyfus, Benjamin Lessing e Julio Cesar Purcena
Pablo Dreyfus is Research Manager of the Small Arms Control Project of Viva Rio/ISER; Benjamin Lessing is a Researcher at
Viva Rio’s International Programme for Human Security and Julio Cesar Purcena is Assistant Researcher at the Small Arms
Control project of Viva Rio/ISER.
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