the recent past, but pointed to the increase of 40,000 jobs (25,000 in production) in the last year as a sign of renewal in this strategic industry.

Mr. Sperling also underscored the importance of careful analysis of the role of public policy. This is clearly not an area where the market works perfectly, but one in which there is intrinsic government involvement. The market structure is oligopolistic, with significant government involvement in purchasing and supporting the development of technologies for strategic military and economic reasons. Thus, it is not so much an issue of whether government will be involved, but rather what form that involvement should take. One of the main questions facing the workshop should be to determine the appropriate policy of the U.S. government in order to balance the involvement of other governments in this important industry.

However, Mr. Sperling pointed out that the policy cannot be a single-minded focus on simply the reduction of foreign-mandated offsets. It is important, he stressed, to examine the counterfactual situation—what would the world look like under an alternative scenario. Given a world where there will be some foreign government involvement, the Administration will look at a variety of strategies and compare alternative strategies. The goal is to promote a high-wage workforce given the hand that we have been dealt.

In sum, the issue of offsets in aerospace is one that is already being discussed within the Administration and is likely to receive increased attention in the future. It is tied into a number of international economic issues, such as the Administration's China policy, hence the importance of this conference. He emphasized, however, that the workshop is not being convened to promote a particular viewpoint or a particular policy option. On the contrary, the conference is addressing an issue where the facts are in debate and where there is no clear policy direction. As a result, the workshop deliberations will feed directly into the Administration's policymaking process.

Workshop Introduction

Alan Wm. Wolff

Board on Science, Technology, and Economic Policy

Following Mr. Sperling's address, Ambassador Wolff opened the workshop deliberations with a brief review of the role of the National Research Council's Board on Science, Technology, and Economic Policy (STEP) within the Academy, relevant recent work, and the goals of this meeting. With regard to the STEP Board, Ambassador Wolff noted that it has the general mandate to provide timely information to policymakers on complex issues of science, technology, and economic policy—as its name implies. As an example of the STEP portfolio he cited the recent study, Conflict and Cooperation in National Competition for High-Technology Industry, now being translated into German, Korean, and Hungarian. This report gives a general analysis of the challenges posed to the multilateral trading system by the competition among nations for high-technology industry. Partly as a result of the analysis put forward in this report, along with other Academy work,1 the National Economic Council asked the STEP Board to convene this workshop and prepare a summary report.

Ambassador Wolff also emphasized the timeliness of the workshop, noting the increased concerns over the issue of offsets expressed by representatives of organized labor, government officials, and parts of industry. These concerns include the worry over the transfer overseas of jobs for products that some believe could have been produced domestically, the possible negative impact on the aerospace industry's competitive position, and the loss of technologies important for maintaining military superiority. However, opinions on the impact of offsets differ sharply. Most of those who offered them see offsets as an opportunity, even an advantage, or, at a minimum, a necessity for doing business. They believe that offsets are in fact a means of maintaining the technology base through enhancing revenues and can be used as a sales advantage in the fiercely competitive global aerospace markets. Current government policy has largely been to take a "hands off" policy toward individual offsets, while addressing the issue in various trade agreements.

Reflecting these concerns and these competing views, the NEC asked the STEP Board to convene this workshop in an attempt to address the gaps in our understanding of offsets in the aerospace industry. Specifically, the NEC has asked that the workshop address the following questions:

  • What are the pressures on U.S. companies to grant offsets?
  • What are the impacts of offsets on the suppliers of first- and second-tier components, particularly with respect to airframes and aircraft engines?
  • What are the implications of technology transfer for the primary contractors and the U.S. supplier base?

The conference agenda was structured to frame the key policy questions and bring together knowledgeable individuals with differing perspectives. The first panel presents an overview of the issue. The second

1  

See National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry. National Academy Press, Washington, D.C., 1996. See also National Research Council, High-Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft. National Academy Press, Washington, D.C., 1994.



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