Linking Trade and Technology Policies: An International Comparison of the Policies of Industrialized Nations (1992)

New approaches to linking trade and technology policy were a major theme in the presentations and in the discussions that followed. Sylvia Ostry made a persuasive case for new approaches by focusing on what she called a new innovation paradigm of continuous process and product improvements. This new paradigm, she argued, has changed the nature of global competition not only because price is less important, but also because systems are competing and some are more ''innovation friendly" than others. Competition for market share is not just among firms, but also among national systems.

Because the Japanese approach (of "managed markets") turns out to be more effective than the pluralist approach taken by the United States and Britain, or the German "social market" approach, the new innovation paradigm presents urgent challenges to U.S. policymakers to develop new approaches or risk further deterioration in the U.S. global market position. As Laura Tyson noted in her summary remarks, Japanese companies appear committed to maintaining and expanding their positions in high-technology trade, and there is good evidence that European nations are now intent upon ensuring that a significant share of high valued-added production takes place in Europe. Tyson asked the rhetorical question, Can the United States rest assured that the old policies used in many years past will work in this new context? Ostry answered the question by arguing that neither traditional trade policies nor technology policies provide the tools for formulating the

needed rules of global competition in the face of the new innovation paradigm.

Jean-Claude Derian's reflections on the "second battle of Poitiers" (the French response to a flood of Japanese-made VCRs) underscored the fact that there are very different approaches to government-business relations in Europe, the United States, and Japan. These different conceptions create trade conflicts. Europe and Japan have embraced industrial and technology policies, while the United States has been reluctant. Clyde Prestowitz went a step further to suggest that the United States manages trade "de facto" because our industrial policies do not work. Derian reminded the audience that there is no one recipe for a successful technology policy—the right mix depends on the traditions and structural features of the system. The growing interest in the United States in technology policy may, he speculated, help to establish common lines of thinking with Europe and ultimately result in an easing of trade conflicts.

There was, however, a great deal of debate (implicit and explicit) over what kind of technology policy is right for the United States. Alexander Flax noted that the Airbus consortium is not a success from the U.S. perspective. Suggesting the need to work with both bilateral and multilateral trade agreements that are sectorally oriented, he called on the United States to do a better job with sectorally oriented policies. Tyson and others noted, however, that there are a variety of forces (such as the American proclivity to buy the lowest priced goods and a presumption that no sector is better than any other) that make this difficult. Claude Barfield strongly disagreed with sectoral approaches, particularly subsidizing industries which he called "throwing money at the problem."

Prestowitz, who argued that the United States manages trade de facto, suggested that the real question is whether we do it well or poorly. Tyson made a case for "second-best approaches" that must be tried "in the meantime"—until new rules of the game can be established to deal adequately with the new style of competition that we see today in high-technology trade. The United States could use a stricter approach to antidumping (with tougher penalties when predatory intent can be proved) and a countervailing subsidy approach that would provide direct benefits to U.S. producers. These and other bilateral approaches to trade problems will not solve all the problems of U.S. high-technology industries, but they can buy some time. According to Tyson, bilateral approaches are justified as a kind of wrench shifting: You either get more competition in the best of all possible worlds, or you at least get some shifting from foreign to U.S. producers.

Ostry provided a counterpoint in arguing for new international rules of the game. These new rules must take into account the fact that systems are structured differently; they must be written to work toward a "mutual balance of benefits" in the face of asymmetries in access to technology and

investment. These new rules will not be easy to write, because they will have to deal with a much more complicated environment. Differences in standards, R&D subsidies, intellectual property rights, investment policies, procurement, and competition policies must all be addressed. One problem is that there is no transnational court for things like competition policy—where companies can take their complaints against other companies or where companies can take governments to task. Ostry called for a new supranational authority—not just a simple focus on harmonization of national rules. Work under way at the OECD was mentioned as pushing in this direction.

Bilateral and multilateral approaches can, in the eyes of some, be complementary. Bilateral approaches, however, must be combined with a heavy dose of competition policy, according to Sylvia Ostry and Margaret Sharp. Other speakers held to the view that the only right path is multilateral. Barfield, one of the most articulate proponents of this line of thinking, called for a multilateral approach that features "mutual recognition" and enhances competition even among very different systems. Others more skeptical about the feasibility of such multilateral approaches put stronger emphasis on bilateral trade policies to deal with the urgent problems of high-technology industries faced with a new style of competition from foreign companies and systems.