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For director Terry Gilliam, the bad part is finally over and the good part is about to begin.

In one of the more bizarre episodes in the history of the cinematic trade, Gilliam`s new film ”Brazil” (a remarkably unsettling fantasy that takes place ”somewhere in the 20th Century”) has at last escaped from the clutches of its U.S. distributor, Universal Studios–which declined to release ”Brazil” for more than a year, although it already had become a hit in Europe.

The problem, it seems, was the rather grim tone that creeps through

”Brazil” at times–especially at the very end, when the film`s daydreaming hero, Sam Lowry (Jonathan Pryce), appears to have broken free from an oppressive, ”1984”-like society, only to nosedive to earth in a shocking conclusion.

Sidney Sheinberg, president of Universal`s parent company, MCA Inc., reportedly felt that ”Brazil” would have a better chance in the U.S. if the film were recut and somehow made more optimistic. Gilliam, as one might expect, vigorously disagreed; and when his efforts to buy back the U.S. rights to ”Brazil” were rebuffed, he took out a full-page ad in Variety that read: ”Dear Sid Sheinberg: When are you going to release my film, `Brazil`?”

That public relations coup, plus some Los Angeles-area screenings, did the trick–especially when ”Brazil” was voted best movie of the year by the Los Angeles Film Critics Association before it had been formally released. And now that ”Brazil” is out and about (it makes its Chicago debut Friday at the Fine Arts Theater), Gilliam is out and about as well, drumming up support for what is likely to be one of the year`s most talked-about motion pictures.

”The dispute,” says Gilliam, as he travels in a limousine from O`Hare to his Chicago hotel, ”was basically about who`s boss–because if you`re the head of Universal, you have got to be the boss.

”And I kept saying, `Tell Sid he`s the most powerful man in the world;

I`m not arguing about that. I`m only arguing about my film. I`ll lie on my back, I`ll play dead, I`ll stick my legs up in the air, I`ll do anything if he`ll just keep his hands off my film.`

”After a while it was like watching `Brazil` repeat itself. Lines from the film were being thrown back at me in real life, especially from some people who were on my side. There`s a line in the film where Sam`s best friend, Jack (Michael Palin), says: `Sam, we`ve always been very close, but until this thing blows over just stay away from me.` I heard that–not word for word, but I heard it.

”What changes did Universal want to make? Well, I heard they were considering a variety of endings. One was when Sam and Jill (the hero`s dream girl) go to bed and then fly off into the sunset. Then of course there was the simple one of just cutting the final scene (in which Sam`s last fantasy is revealed for what it is).

”I think what was terrifying to them (the Universal executives) is that we had one preview where the audience was cheering Sam and Jill`s `escape.`

Then the final scene came along, and the theater became deathly quiet. And that`s how the people were when they walked out–quiet, introspective, thinking. To have those cheers followed by silence, I think that frightened them.”

To this point, ”Brazil” has been riding on its little-man-bests-big-corpo ration, behind-the-scenes story. But now it`s time for the film itself to take over.

Born in Minneapolis, the 45-year-old Gilliam is best known for the animated sequences he contributed to Britain`s celebrated ”Monty Python`s Flying Circus” television series–which were followed by two Gilliam-directed films, ”Jabberwocky” and the marvelous children`s picture ”Time Bandits.” Something of a sequel to ”Time Bandits” (”Think of the hero as the boy in `Time Bandits` grown up,” Gilliam says, ”and it gets very interesting”), ”Brazil” has nothing to do with the country of that name.

Instead the film–which is set in a grubbily oppressive, Orwellian society that Gilliam has fleshed out with a host of very convincing, elaborately detailed special effects–uses the 1939 pop tune ”Brazil” to evoke its hero`s dreams of freedom and release.

Those special effects, by the way, are very special, indeed; and Gilliam says that ”one of the things I quite like in `Brazil` is that sometimes the detail becomes the main thing, the background becomes the foreground.

”I love the idea of creating another world; it`s megalomania of the safer kind. I kept telling the crew that the film takes place everywhere in the 20th Century, with past, present and future all jumbled together. Sometimes I think of it as a parallel universe, perhaps what England might have been like if the Nazis had won.”

Featuring massive, neo-Fascist architecture and Gothic-appearing technology that suggests what might have developed if life had taken a wrong turn in the late 1930s, the decor of ”Brazil” is marvelous to behold. But it is quite creepy, too, the hallmark of a world that is horribly out of joint.

”A lot of that,” Gilliam says, ”came from the science magazines of the `40s and `50s, which I loved as a boy. Progress was going to be the answer, and there were all these articles about fantastic new inventions and ads that said `learn the secrets of electricity and make millions.` All that was part of my growing up, so I got a lot of old issues of Mechanix Illustrated and Popular Science and threw them around the art department, saying `consider this.` ”

There have been complaints, though, that both the look and the plot of

”Brazil” are too derivative, with the latter owing a huge debt to George Orwell`s ”1984” and the former feeding upon such recent sci-fi films as

”Blade Runner” and ”Logan`s Run.”

”To compare the film to `1984` seems rather silly to me,” Gilliam says, ”because aside from the simple narrative connections that`s not what

`Brazil` is about. And I don`t think I was borrowing from `Blade Runner`

because I was really borrowing from Moebius, the French cartoonist that

(director) Ridley Scott borrowed from for `Blade Runner.` I like to go back to the source.”

Often very funny, and visually dazzling throughout, ”Brazil” tends to leave audiences in a state of shock–for Gilliam`s ”parallel universe” is a nightmarish place in which torture is routine and people matter much less than bureaucratic paperwork.

”The comedy,” Gilliam explains, ”was the spoonful of sugar that helps the medicine go down, a way of drawing people`s attention to some of the horrors of life. You raise people up with laughter, and then when you pull the rug out from under them, the fall is that much greater and it hurts that much more.

”It was always a tightrope walk, and we were never certain at any point exactly how we should play it–how funny or how horrific a particular scene ought to be. But I did try to keep `Brazil` as abstract and cartoony as I could because I knew this film was going to be very disturbing. If it had been done realistically, I think it would have been too much to bear.”

So rich in detail that one feels compelled to find others who have seen it and are willing to talk about it, ”Brazil” probably will be a picture whose audiences will grow over time, as each new wave of devotees leads still others to attend.

”Yes,” Gilliam says, ”I`ve found that the film is pretty insidious that way. And I can also guarantee that `Brazil` gets better the more you see it. Everyone I`ve talked to who has seen it more than once liked it more each time because they keep noticing more things and finding new ways to interpret them.

”I don`t like to use the word art because it`s been used too often by all the wrong people. But this process, where people keep the film alive by bringing their own interpretations to it–that`s what art is about to me.

”It`s as though I`ve done my bit by making `Brazil,` and now I`m learning about what I`ve made from what people tell me about it. It`s not just my nightmare anymore.”