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OCR for page R1
CONFLICT AND COOPERRTI[
IN NRTIONRL COMPETITION
FOR HIGH-TECHNOLOGY INDUSTRY
A Cooperative Project of the
Hamburg Institute for Economic Research
HWWA
Kiel Institute for World Economics
IMr
and
National Research Council
NRC
on
"Sources of International Friction and Cooperation
in High-Technology Development and Trade"
NATIONAL ACADEMY PRESS
Washington, D.C. 1996
OCR for page R2
NATIONAL ACADEMY PRESS · 2101 Constitution Ave., N.W. · Washington, DC 20418
The National Academy of Sciences is a private, nonprofit society of distinguished scholars
engaged in scientific and engineering research, dedicated to the furtherance of science and
technology and to their use for the general welfare. Upon the authority of the charter granted
to it by Congress in 1863, the Academy has a mandate that requires it to advise the federal
government on science and technical matters. Dr. Bruce Alberts is president of the National
Academy of Sciences.
The National Academy of Engineering, was established in 1964, under the charter of the
National Academy of Sciences, as a parallel organization of outstanding engineers. It is
autonomous in its administration and in the selection of its members, sharing with the National
Academy of Sciences the responsibility for advising the federal government. The National
Academy of Engineering also sponsors engineering programs aimed at meeting national needs,
encourages education and research, and recognizes the superior achievements of engineers.
Dr. William A. Wulf is interim president of the National Academy of Engineering.
The Institute of Medicine was established in 1970 by the National Academy of Sciences to
secure the services of eminent members of appropriate professions in the examination of
policy matters pertaining to the health of the public. The Institute acts under the responsibility
given to the National Academy of Sciences by its congressional charter to be an adviser to the
federal government and, upon its own initiative, to identify issues of medical care, research,
and education. Dr. Kenneth I. Shine is president of the Institute of Medicine.
The National Research Council was organized by the National Academy of Sciences in 1916
to associate the broad community of science and technology with the Academy's purposes of
furthering knowledge and advising the federal government. Functioning in accordance with
general policies determined by the Academy, the Council has become the principal operating
agency of both the National Academy of Sciences and the National Academy of Engineering in
providing services to the government, the public, and the scientific and engineering communi-
ties. The Council is administered jointly by both Academies and the Institute of Medicine.
Dr. Bruce Alberts and Dr. William A. Wolf are chairman and vice chairman, respectively, of
the National Research Council.
Limited copies are available from:
Board on Science, Technology,
and Economic Policy
National Research Council
2101 Constitution Ave., N.W.
Washington, DC 20418
202-334-2200
Library of Congress Catalog Card Number 96-70949
International Standard Book Number 0-309-05529-6
With the exception of Section V, copyright 1996 by the National Academy of Sciences.
All rights reserved.
Additional copies are available for sale from:
National Academy Press
Box 285
2101 Constitution Ave., N.W.
Washington, DC 20055
800-624-6242
202-334-3313 (in the Washington Metropolitan Area)
Printed in the United States of America
OCR for page R3
For the National Research Council, this project was overseen by the Board on Science,
Technology and Economic Policy (STEP), a new standing Board of the NRC established by the
National Academies of Sciences and Engineering and the Institute of Medicine in 1991. The
mandate of the STEP Board is to integrate understanding of scientific, technological, and
economic elements in the formulation of national policies to promote the economic well-being
of the United States. A distinctive characteristic of STEP's approach is its frequent interac-
tions with public and private sector decisionmakers. STEP bridges the disciplines of business
management, engineering, economics, and the social sciences to bring diverse expertise to bear
on pressing public policy questions. The members of the STEP Board are listed below:
A. Michael Spence, Chairman
Dean, Graduate School of Business
Stanford University
John A. Strong
Amherst, Massachusetts
James F. Gibbons
Dean, School of Engineering
Stanford University
George N. Hatsopoulos
President and CEO
Therrno Electron Corporation
Karen N. Horn
Chairman and CEO
Bank One Cleveland
Dale Jorgenson
Frederic Eaton Abbe Professor
of Economics
Harvard University
Ralph Landau
Consulting Professor Economics
Stanford University
Stephen A. Merrill
Executive Director
Lena L. Steele
Administrative Assistant
Staff
. . .
adz
James T. Lynn
Advisor
Lazard Freres
Burton J. McMurtry
General Partner
Technology Venture Investors
Ruben Mettler
Chairman and CEO (retired)
TRW, Inc.
Mark B. Myers
Senior Vice President
Xerox Corporation
Donald E. Peterson
Chairman and CEO (retired)
Ford Motor Company
James M. Poterba
Professor of Economics
Massachusetts Institute of Technology
George M. Whitesides
Professor of Chemistry
Harvard University
Charles W. Wessner
Program Director
George Georgountzos
Program Associate
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NATIONAL RESEARCH COUNCIL
BOARD ON SCIENCE, TECHNOLOGY AND ECONOMIC POLICY
Sponsors
The National Research Council gratefully acknowledges
the support of the following sponsors:
The German-American Academic Council
Northern Telecom Limited
MEMC Electronic Materials, Inc.
Trimble Navigation
Samsung Electronics Co., Ltd.
Varian Associates, Inc.
Hitachi, Ltd.
Siemens Corporation
Philips Electronics N.V
AT&T
General Electric Company
Program Support for the Board on Science, Technology and Economic
Policy is provided by a grant from the Alfred P. Sloan Foundation
Any opinions, findings, conclusions, or recommendations expressed in
this publication are those of the authors and do not necessarily reflect
the views of the project sponsors.
IV
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Table of Contents
I. Preface
lI. Introduction
III. Steering Committee Policy Recommendations and Findings
IV. NRC Summary Report on the Project
FOREWORD TO THE NRC SUMMARY REPORT
.......... 5
· 9
SOURCES OF FRICTION AND COOPERATION IN
HIGH-TECHNOLOGY INDUSTRIES 12
The Permanency of Competition for High-Technology
Industry, 12
Growth in Regional and National Technology
Development Programs, 13
Greater National Competition, 19
National Strategies: Producers versus Consumers, 24
The Importance of Conditional Government Support, 28
The Importance of Sustained Effort, 29
Export-Oriented Economies, 31
Creating Comparative Advantage, 36
v
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Al
Internationalization of "Domestic" Policies, 38
National Locational Competition and Its Impact on
Scientific Research and Cooperation, 41
Greater International Cooperation May Generate
Increased Friction, 43
Different Modes of Cooperation, 45
Principles of International Cooperation, 45
Challenges to Cooperation, 47
National and International Consortia, 48
Best Practice for National Programs of Technology
Development, 50
Producer versus Consumer Economies: Different Goals, 51
International Eligibility for Participation in National Technology
Programs, 54
A Case-by-Case Approach, 59
Strategic Alliances, 61
Globalization of R&D?, 64
Technology Cooperation and an Open Multilateral
Trading System, 66
Strengthening Institutions to Integrate Trade and
Technology Policies, 67
SYSTEM INTEGRATION AND SYSTEM FRICTION:
NEW CHALLENGES IN TRADE POLICY....................
Direct and Indirect Subsidies, 72
National Security and Dual-Use Technologies, 76
Discriminatory Public Procurement, 77
Product Standards, 79
Dumping and Antidumping, 80
Market Access: Compulsory Technology Transfers and
Aerospace Competition, 85
Intellectual Property Protection, 91
Investment Incentives, 94
CONTENTS
.72
DIFFERENT NATIONAL INVESTMENT REGIMES AND
THEIR CONSEQUENCES 96
National Investment Regimes Differ, 96
Investment Barriers, Licensing Agreements, and
Technology Transfer, 100
Foreign Direct Investment in High-Technology Industry, 102
Consequences for Competition Policy and Foreign Policy, 104
Consequences for High-Technology Competition, 107
Sanctuary Markets, 108
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CONTENTS
Bilateral Solutions?, 109
Competition Policy Convergence?, 1 15
Cumulative Consequences, 1 16
Global Competition among National Companies, 117
National Strategies for Multilateral Solutions, 118
. .
Vil
MAIN POINTS OF THE SUMMARY REPORT 121
SUPPLEMENTS TO THE SUMMARY REPORT 131
A. High-Technology Competition in Semiconductors, 131
B. Government Support for Technology Development:
The SEMATECH Experiment, 141
C. Implications of the U.S. Dual-Use Strategy, 152
D. The Global Positioning System: Government Missions,
Commercial Applications, and Policy Evolution, 158
E. Discriminatory Public Procurement: Prospects for Progress, 164
BIBLIOGRAPHY 173
Boxes within the Summary Report and Supplements
Box A. Why Are Countries Concerned about Their
High-Technology Industries?, 33
Box B. How Do Governments Support High-Technology
Industries?, 39
Box C. Dnvers of Cooperation in the Semiconductor Industry, 46
Box D. Real-World Case: International Cooperation on the
300mm Wafer, 60
Box E. Types of Alliance Activity, 63
Box F. Comparative Advantage and High-Technolo~,y
Competition, 70
Box G. The Dump~ng/Antidumping Policy Debate, 82
Box H. The Stakes in Aerospace Competition, 88
Box I. The U.S.-Japan Semiconductor Agreements of 1996, 1 11
Box J. Lessons in Technology Transfer, 151
V. Joint HWWA-If`7V Analysis: National Technology Policies and
International Friction: Theory, Evidence, and Policy Options 187
THE ECONOMICS OF TECHNOLOGY POLICY IN
GLOBALIZED MARKETS 190
APPROACHES TO CONFLICT RESOLUTION:
AGENDA FOR ACTION .............................................................................
.206
REFERENCES 237
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PROJECT STEERING COMMITTEE
Erhard Kantzenbach, Co-Chairman
President
Hamburg Institute for Economic
Research
Institut fur Wirtschaftsforschung
Hamburg
GERMANY
Richard E. Baldwin
Professor of International Economics
Graduate Institute of International
Studies
Geneva
SWITZERLAND
Charles Fine
Associate Professor of Management
Sloan School of Management
Massachusetts Institute of Technology
Cambridge, Massachusetts
USA
Frieder Meyer-Krahmer
President
Fraunhofer Institute for Systems
Analysis and Innovation Research
Karlsruhe
GERMANY
Sylvia Ostry
Chairman
Centre for International Studies
University of Toronto
Toronto
CANADA
George M. Scalise
Executive Vice President and Chief
Administrative Officer
Apple Computer, Inc.
Cupertino, California
USA
. . .
vale
Alan Wm. Wolff, Co-Chairman
Managing Partner
Dewey Ballantine
Washington, D.C.
USA
Horst Siebert
President
Kiel Institute for World Economics
Institut fur Weltwirtschaft
Kiel
GERMANY
Luc L.G. Soete
Professor
Maastricht Economic Research
Institute for Innovation and
Technology (MERIT)
Maastricht
THE NETHERLANDS
William J. Spencer
President and CEO
SEMATECH
Austin, Texas
USA
Hiroyuki Yoshikawa
President
University of Tokyo
Tokyo
JAPAN
Gerhard Zeidler
Chairman, Committee for Research
and Development
Confederation of German Industry
Bonn
GERMANY
OCR for page R9
I. Preface
.
PROJECT ORIGINS
This project has its roots in the belief that relationships need to be tended
in order to remain strong and vibrant. Reflecting his concern with the
vitality of the German-American intellectual dialogue, Chancellor Helmut
Kohl proposed to then President George Bush that a sustained effort be
undertaken to strengthen intellectual ties between the two countries. Presi-
dent Bill Clinton subsequently endorsed this concept and the German-American
Academic Council (GAAC) was established in March 1993. The purpose of
the Council is to support cooperation between Germany and the United
States in all fields of science and scholarship by providing a forum for
transatlantic dialogue and by collaborating on policy studies on issues con-
fronting decisionmakers in both countries.
As its first policy project, the GAAC chose to sponsor an examination of
the development of new technologies and the industries based on them.
These technologies and industries are sources of economic growth and hi~,h-
wage employment; competition for high-technology markets makes them
also a source of growing international friction that could undermine both
the multilateral trading system and the tradition of shared scientific and
technological information. In recognition of the importance of understand-
ing the roles of competition, conflict, and cooperation in high-technology
development and trade, the German-American Academic Council solicited
IX
OCR for page R10
x
PREFACE
and approved a proposal from the U.S. National Research Council, through
its Board on Science, Technology and Economic Policy (STEP), in partner-
ship with two leading German research institutions, the Institute for Eco-
nomic Research in Hamburg (HWWA) and the Institute of World Econom-
ics (IfW) in Kiel.
It was recognized from the outset that policy questions related to trade,
investment, technology development, and cooperative activities are essen-
tially global in nature. Furthermore, to ensure that the project yields practi-
cal policy recommendations for national governments, a sustained effort
was made to bring a variety of perspectives to bear, not only scholarly
analysis and technical expertise, but also business management and govern-
ment policymaking experience. Accordingly, an innovative structure was
adopted to secure the broadest participation with respect to project guid-
ance, finance, conferences, and related activities.
MULTINATIONAL STEERING COMMITTEE
In order to provide leadership and direction for the project, a Steering
Committee of distinguished academics, leading business executives, trade
and technology policy practitioners, and other experts was assembled. The
Committee includes members from Canada, Japan, Germany, and other European
countries as well as the United States. The diverse national perspectives
and training of this distinguished Committee brought a multidisciplinary
and global perspective to the complex issues considered by the project.
Different perspectives have a value in their own right but by no means
assure consensus. The Steering Committee discussions involved a sus-
tained effort to identify the limits of consensus on a broad range of analyti-
cally difficult and often contentious issues of great consequence for interna-
tional cooperation in science, technology, and trade. The Findings and
Recommendations reflect the consensus reached by the Steering Committee
on these issues.
PRIVATE SECTOR PARTICIPATION
The generous GAAC grant covered the costs of participation for the
German institutes and provided a foundation for the fundraising effort re-
quired of the National Research Council to meet its different budgetary
requirements as a private independent institution. The challenge of secur-
ing adequate funding was also seen as an opportunity to secure broad pri-
vate sector participation in the information-gathering phase of the project.
Validating the project's concept and the GAAC's interest, the National
Research Council succeeded in assembling, over a relatively short period, a
group of private sponsors that is very diverse in terms of nationality, sector
OCR for page R11
PREFACE
Xl
of activity, and corporate size. These corporate contributors and partici-
pants include companies based in the United States, the Netherlands, Japan,
Canada, Korea, and Germany, with operations across a broad range of high-
technology sectors such as consumer electronics, semiconductors, comput-
ers, telecommunications, turbines, and materials. The participating compa-
nies include Northern Telecom, Siemens, Hitachi, Samsung, Philips, General
Electric, MEMC, Trimble Navigation, Varian Associates, and AT&T.
The substantive and financial contributions of the project sponsors were
essential to the success of this undertaking. Without their financial support,
the NRC could not have carried out a project of this scope and intensity.
Equally important, the active participation of senior industry representatives
from these sponsors and a wide range of other companies, as well as of
academic experts and senior policymakers, helped ensure that the presenta-
tions and discussions of the conferences accurately reflected the genuine
opportunities for increased cooperation, the realities of global commercial
competition for high-technology markets, the national stakes inherent in
this competition, and the resulting policy challenges.
THREE CONFERENCES AND A SYMPOSIUM
The structure of the project reflected its international orientation, with
each of the three participating institutions responsible for one of the princi-
pal conferences, to which the NRC added a timely symposium. The goal of
these conferences was to assemble a body of analysis on the principal issues
of the project. The conferences brought together an exceptionally knowl-
edgeable group of academic experts, leading industrialists, and responsible
officials of national governments and supranational institutions to partici-
pate in the presentations and debate. The sequence of the conferences was
designed to progress from analysis of the underlying theoretical issues,
through an examination of particular high-technology disputes and cases of
international cooperation, to consideration of best practices and future policy
options.
Each institution independently organized meetings reflecting its particu-
lar analytical strengths, policy interests, and traditions. The first confer-
ence, The Economics of High Technology Competition and Cooperation in
Global Markets, was held at the HWWA in Hamburg, Germany, on 2-3
February 1995. The second conference, The Sources of Friction and Coop-
eration in High-Technology Development and Trade, was hosted by the
National Academy of Sciences on 30-31 May 1995 in Washington, D.C.
The third conference, Towards a New Global Framework for High-Technol-
ogy Competition and Cooperation, took place at the Kiel Institute of World
Economics on 30-31 August 1995 in Kiel, Germany.
In addition, the STEP Board of the NRC elected to hold a symposium,
OCR for page R12
. .
XZI
PREFACE
International Access to National Technology Development Programs, on 19
January 1995. This symposium was designed to ensure a balanced analysis
of the issue of foreign participation in national technology programs. Pro-
posals to restrict participation in U.S. government-sponsored programs had
generated intense debate in early 1995. The symposium enabled the project
to address, in a timely and effective fashion, this controversial element of
its agenda.
DIFFERENT TRADITIONS JOINED
The institutional partners in this collaborative effort brought different
perspectives and traditions to this undertaking. The two participating Ger-
man institutes form part of a system for providing high-quality economic
analysis of public policy issues to the German government and public at
large. For example, both institutes are well known for their expertise in
global trade developments and international economic policy. Both insti-
tutes make important contributions to German policymaking. The National
Research Council, as the operating arm of the National Academies of Sci-
ences and Engineering, advises the U.S. government on a broad array of
public policy questions. In addition to the different perspectives within the
Steering Committee on the substantive issues reviewed by the project, the
German institutes and the NRC have quite different procedures for taking
positions on public issues.
The National Research Council is obliged by its procedures and tradi-
tions to submit its reports to independent review by experts who were not
involved in the preparation of the report. The parent bodies of the NRC, the
National Academies of Sciences and Engineering, consider this review to be
an integral and constructive part of the study process, enabling committees
to test their rationales, conclusions, and recommendations before a report is
released to the public. Only after the authoring committee is independently
judged to have been responsive to the reviewers' comments is its report
released by the National Research Council. In this case, the Recommenda-
tions and Findings were agreed to by all members of the Steering Commit-
tee. Section IV of the report was prepared by the NRC staff, on the basis of
contributions by Steering Committee members, the commissioned papers,
and conference discussions. All sections of the Report were subject to the
NRC review process, with the exception of Section V, which was prepared
according to the procedures of the two Ghan institutes.
The German institutes have a different tradition, reflecting their role in
German public policymaking. They are able to release reports on their own
responsibility, and the institute presidents are authorized to take policy po-
sitions on behalf of their institutions. It is for this reason that the joint
document produced by the German institutes, though an integral part of the
OCR for page R13
PREFA CE
. . .
XZlI
report, was not subject to independent review. This joint report does, how-
ever, represent the views of the institutes and was an integral part of the
Steering Committee deliberations. It is therefore of great relevance to the
final Recommendations and Findings of the Steering Committee.
The Steering Committee met on four occasions. Three of the meetings
were held in conjunction with the conferences, in which Committee mem-
bers were the principal participants. The final deliberative meeting, which
took place at the NRC in Washington in December 1995, took into account
the conference papers, presentations, and discussions and the analysis pre-
pared by the three institutions. In the course of this final meeting, the
Steering Committee agreed to a comprehensive and significant set of rec-
ommendations on a series of interrelated and highly complex issues. The
Recommendations and Findings underscore the importance of the subject
matter and address specific issues of technology and trade policy, govern-
ment support of research and development, and policies affecting interna-
tional cooperation. The recommendations also highlight the need for addi-
tional information and identify specific areas that would benefit from further
analysis. In the rare instance where no agreement was possible, the Steer-
ing Committee acknowledges its inability to achieve consensus on a recom-
mendation.
FINAL PRODUCTS
The results of the project are in four parts. The proceedings of the
conferences and symposium are being published by the respective host in-
stitutions in three separate volumes. This volume contains the Findings and
Recommendations of the Steering Committee, and revised versions of the
two reports considered by the Committee at its final meeting, the first pre-
pared by the NRC staff, the second jointly prepared by the HWWA and IfW
staffs.
The process of arriving at the agreements which constitute this report
was not always easy. In the end, it was successful, largely as a result of the
cooperative spirit, dedication, and hard work of the participants. Indeed, in
a sense, the success of the project is perhaps itself a model and a lesson for
those who wish to strengthen international cooperation.
Erhard Kantzenbach
Project Co-Chairman
Alan Wm. Wolff
Project Co-Chairman
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