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Series on PROSPERING IN A GLOBAL ECONOMY Foreign Participation in U.S Research and Development Asset or Liability? Proctor P. Reid and Alan Schriesheim, Editors Committee on Foreign Participation in U.S. Research ant! Development `111, NATIONAL ACADEMY OF ENGINEERING NATIONAL ACADEMY PRESS Washington, D.C. 1996 .

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NATIONAL ACADEMY PRESS 2101 Constitution Avenue, NW Washington, DC 20418 NOTICE: 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 Sci- ences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and re- search, and recognizes the superior achievements of engineers. Dr. Harold Liebowitz is president of the National Academy of Engineering. This publication has been reviewed by a group other than the authors according to procedures approved by a National Academy of Engineering report review process. Partial funding for this effort was provided by the Carnegie Corporation of New York and the National Academy of Engineering Technology Agenda Program. Library of Congress Cataloging-in-Publication Data Foreign participation in U.S. research and development: asset or liability? / Committee on Foreign Participation in U.S. Research and Development, National Academy of Engineering/Proctor P. Reid and Alan Schriesheim, editors. p. cm. - (Series on prospering in a global economy) Includes bibliographical references and index. ISBN 0-309-05095-2 (alk. paper) 1. Investments, ForeignUnited States. 2. Research, Industrial- United States. I. National Academy of Engineering. Committee on Foreign Participation in U.S. Research and Development. II. Series. HG4910.F68 1995 332.6'73'0973dc20 96-11026 CIP Copyright @) 1996 by the National Academy of Sciences No part of this book may be reproduced by any mechanical, photographic, or electronic procedure, or in the form of a phonographic recording, nor may it be stored in a retrieval system, transmitted, or otherwise copied for public or private use, without written permission from the publisher, except for the purpose of official use by the United States government. Printed in the United States of America

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Committee on Foreign Participation in U.S. Research and Development ALAN SCHRIESHEIM, Chairman, Director and CEO, Argonne National Laboratory PETER BEARDMORE, Director, Chemical and Physical Sciences Laboratory, Ford Motor Company SAMUEL H. FULLER, Vice President of Research, Digital Equipment Corporation JOHN E. GRAY, Vice Chairman, Atlantic Council of the United States KARL E. MARTERSTECK, President, ArrayComm, Inc., San Jose, California JOEL MOSES, Provost, Massachusetts Institute of Technology THOMAS J. MURRIN, Dean, A. J. Palumbo School of Business Administration, Duquesne University ROBERT M. NEREM, Parker H. Petit Professor for Engineering in Medicine, School of Mechanical Engineering, Georgia Institute of Technology C. KUMAR N. PATEL, Vice Chancellor, Research, University of California, Los Angeles EDWIN P. PRZYBYLOWICZ, Director, Chester F. Carlson Center for Imaging Science, Rochester Institute of Technology MAXINE L. SAVITZ, General Manager, Ceramic Components, AlliedSignal Aerospace Company CHANG-LIN TIEN, Chancellor and A. Martin Berlin Professor, University of California, Berkeley NAE Staff PROCTOR P. REID, Study Director, Senior Program Officer PENELOPE J. GIBBS, Administrative Assistant . . . [I!

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Preface The past 2 decades have witnessed rapid growth in the involvement of for- eign nationals in U.S.-based research and development. By establishing or ac- quiring R&D performing companies in the United States, foreign companies have come to account for a significant share of privately funded U.S. R&D. Similarly, foreign firms, individual researchers, and students have become increasingly en- gaged in the publicly funded R&D activities of U.S. research universities and federal laboratories. These developments have elicited a mixed response from U.S. policymakers and the American public. Concerned that unrestrained foreign access to U.S.- based R&D assets may weaken the nation's technology base, increase U.S. de- pendence on foreign sources of technology, undermine U.S. military strength, or shift jobs and profits away from the United States, some observers have called for public- and private-policy actions to slow or reverse the trend. Meanwhile, oth- ers extol the benefits of deepening foreign involvement in the nation's technol- ogy base to the nation's economy and military power, and urge policy actions designed to facilitate, or at least not impede, the internationalization of publicly and privately funded R&D. Thus far, public debate regarding the nature and consequences of growing foreign participation in U.S. R&D has been highly polarized, driven largely by anecdotal reports and highly generalized arguments concerning the pros and cons of free international flows of trade, investment, and technology. The following consensus report, prepared by a committee of members of the National Academy of Engineering, seeks to improve public understanding of and policy responses to growing foreign R&D participation by documenting, measuring, and assessing v

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Al PREFACE the most important modes of foreign involvement in privately and publicly funded U.S. R&D activity. Based on its findings, the committee proposes specific ac- tions to minimize the costs and maximize the benefits of this trend to U.S. citi- zens. On behalf of the National Academy of Engineering, I would like to thank my fellow committee members for their considerable efforts related to the project. I also commend the NAE staff that supported the project for their professionalism and contributions to the study's success. Proctor P. Reid, Senior Program Officer with the NAE Program Office, directed and managed the project, helped elicit consensus among committee members, and drafted much of the report. Penelope J. Gibbs from the NAE Program Office provided critical administrative and lo- gistical support for the project. Bruce R. Guile, director of the NAE Program Office, contributed valued intellectual stimulus to the project during its initial stages. Greg Pearson, the NAE's editor, was instrumental in preparing the report manuscript for final publication. r - -r -~~~~= ~~~~ ~r~ ~ I would also like to extend the committee's thanks to all those from govern- ment, industry, and academia who contributed to the project. In particular, I want to express our appreciation to those who participated in the fact-finding roundtable held during the initial stages of the project (see Appendixes) and to others who briefed the committee. Finally, I would like to express my appreciation to the Carnegie Corporation of New York for its generous support of this project and related elements of the National Academy of Engineering's multiyear program of symposia and commit- tee studies on technology, trade, and economic growth. Alan Schriesheim Chairman

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Contents EXECUTIVE SUMMARY 1 INTRODUCTION 15 The New Wave of Foreign R&D Participation, 16 Calls for Public-Policy Action, 18 Foreign R&D Participation in Context, 19 THE CONTRIBUTION OF R&D TO U.S. ECONOMIC DEVELOPMENT 29 Research and Development: A Simplified Taxonomy, 29 The Multiplicity of R&D Outputs, 30 The Political-Economic Logic of Publicly and Privately Funded R&D, 31 R&D, Innovation, and National Economic Development, 32 How the Benefits of R&D Are Distributed at the National and International Level, 34 Implications for the Assessment of Foreign Participation in U.S. R&D, 35 Conclusion, 36 3 FOREIGN PARTICIPATION IN PRIVATELY FUNDED U.S. R&D 39 The Causes of Growing Foreign Participation, 40 Foreign Direct Investment, 42 v`' . .

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. . . Vlll International Corporate Alliances, 56 Opportunities and Risks, 58 Summary, 81 4 FOREIGN PARTICIPATION IN PUBLICLY FUNDED U.S. R&D ............................................................................................... University-Based Research, 91 Foreign Participation in U.S. Federal Laboratory R&D, 112 Foreign Participation in Recent Federal Industrial Technology Initiatives, 116 The Implications of Foreign Participation in Publicly Funded U.S. R&D, 1 18 Summary, 129 5 FINDINGS AND RECOMMENDATIONS .. R&D and Economic Performance, 141 Foreign Participation in Privately Funded U.S. R&D: Findings, 142 Foreign Participation in Privately Funded U.S. R&D: Recommendations, 145 Foreign Participation in Publicly Funded U.S. R&D: Findings, 147 Foreign Participation in Publicly Funded U.S. R&D: Recommendations, 151 Changing Perceptions and Their Implications, 156 REFERENCES COMMITTEE AND STAFF BIOGRAPHIES APPENDIXES Agenda ............ Particinants INDEX CONTENTS 90 ..140 .159 .172 181 .183 185

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Foreign Participation in U.S. Research and Development Asset or Liability?

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