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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 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 communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.
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Board on Science, Technology, and Economic Policy
National Research Council
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Copyright 1997 by the National Academy of Sciences. All rights reserved.
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BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY
For the National Research Council, this project was overseen by the Board on Science, Technology, and Economic Policy (STEP), a 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 interactions 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 and the NRC staff are listed below:
A. Michael Spence, chair
Dean, Graduate School of Business
Stanford University
Stanford, California
James F. Gibbons
Professor of Engineering
Stanford University Stanford, California
George N. Hatsopoulos
President, Chief Executive Officer
Thermo Electron Corporation Waltham, Massachusetts
Dale Jorgenson
Frederic Eaton Abbe
Professor of Economics
Harvard University
Cambridge, Massachusetts
Ralph Landau
Consulting Professor of Economics
Stanford University
Stanford, California
James T. Lynn Adviser
Lazard Freres
Bethesda, Maryland
Burton John McMurtry
General Partner
Technology Venture Investors
Menlo Park, California
Stephen A. Merrill
Executive Director
Lena L. Lawrence
Administrative Assistant
Ruben Mettler, vice chair
Chairman and Chief Executive Officer (ret.)
TRW, Inc. Los Angeles, California
Mark B. Myers
Senior Vice President
Xerox Corporation
Stamford, Connecticut
James M. Poterba
Professor of Economics
Massachusetts Institute of Technology
Cambridge, Massachusetts
Paul M. Romer
Professor of Economics
Graduate School of Business
Stanford University
Stanford, California
William J. Spencer
Chairman and Chief Executive Officer
SEMATECH
Austin, Texas
Joseph E. Stiglitz
Senior Vice President for Development Economics
The World Bank
Washington, D.C.
Alan Wm. Wolff
Managing Partner
Dewey Ballantine
Washington, D.C.
STAFF
Charles W. Wessner
Program Director
George Georgountzos
Program Associate
BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY
STEERING GROUP ON POLICY ISSUES IN AEROSPACE OFFSETS
Alan Wm. Wolff, chair
Managing Partner
Dewey Ballantine Washington, D.C.
James F. Gibbons Professor of Engineering
Stanford University
Stanford, California
Dale Jorgenson
Frederic Eaton Abbe
Professor of Economics
Harvard University Cambridge, Massachusetts
Ruben Mettler Chairman and Chief Executive Officer (ret.)
TRW, Inc.
Los Angeles, California
Mark B. Myers
Senior Vice President
Xerox Corporation
Stamford, Connecticut
William J. Spencer
Chairman and Chief Executive Officer
SEMATECH
Austin, Texas
PROJECT STAFF
Charles W. Wessner Director
George Georgountzos Associate
BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY SPONSORS
The National Research Council gratefully acknowledges the support of the following sponsors:
The White House National Economic Council
The Department of Commerce
Bureau of Export Administration and International Trade Administration
The Department of Defense
The Under Secretary of Defense for Acquisition and Technology
Office of the Deputy Under Secretary for Industrial Affairs & Installations and Office of the Deputy Under Secretary for International and Commercial Programs
The Defense Advanced Research Projects Agency
Program Support for the Board on Science, Technology, and Economic Policy is provided by a grant from the Alfred P. Sloan Foundation
Any opinions expressed in this publication are those of the participants and do not necessarily reflect the views of the project sponsors.
The Board on Science, Technology, and Economic Policy wishes to acknowledge the many fine contributions of the symposium speakers and participants from universities and thinktanks, the aerospace companies and unions, and the government agencies concerned with the future of this strategic industry. The Board would particularly like to thank the White House National Economic Council for its leadership. The Board also wishes to express its appreciation to one of its members, Ambassador Alan Wm. Wolff, who generously made himself available to serve as chairman of this project. Special recognition is due to Dr. Charles Wessner and Mr. George Georgountzos for their exceptional effort in developing the workshop program and preparing the summary report in what was, by any measure, a remarkably short period.
Contents
Preface
In February of this year the National Research Council Board on Science, Technology, and Economic Policy was asked to consider a request by the White House National Economic Council (NEC) to organize a major workshop to examine the pressures facing U.S. companies to grant offsets in the increasingly competitive global aerospace markets for both defense and commercial aircraft and related products.1 While cognizant of the definitional and analytical challenges associated with this subject, the Board accepted the NEC's request.
In accepting this task, the Board's principal concern was that in the timeframe required for this report, the Board would not be able to work through the analytical difficulties and overcome the data limitations associated with offsets. Consequently, the Board agreed to organize a comprehensive workshop and prepare a summary report of the workshop which would not, however, include recommendations or findings. Planning for the workshop began in earnest at the beginning of May and the workshop was held at the National Academy of Sciences building on June 9. The agenda for the meeting is reflected in the table of contents. A list of speakers and participants is available in the appendix to this report, as is an issues paper distributed at the workshop.
The overarching objective of the workshop was to provide a forum in which the various parties with an interest in aerospace offsets could come together to express their views on the practices, rationale, and current or future impact of offsets on U.S. national security, the competitiveness of the U.S. economy, and domestic employment in the aerospace industry. As requested by the NEC, specific attention was directed to the impact of offsets on key suppliers and sub-tier producers in this important part of the U.S. industrial base.
The workshop did not address a cluster of issues sometimes associated with offsets. Domestic or foreign outsourcing decisions taken on the basis of commercial considerations were outside the purview of the meeting, as were, at the other end of the spectrum, issues of arms control and proliferation. The focus of the meeting was commercial and military offsets, both direct and indirect, which companies are required to grant in order to complete sales of large systems. This area of inquiry proved to be more than adequate for the deliberations of a single workshop.
Indeed, the quality and density of the workshop presentations were a challenge to summarize. Every effort was made to capture the main points and supporting arguments of each speaker within the limitations of the time and space available. We apologize in advance for any inadvertent errors or omissions in the summaries of the participants' presentations.
The objective of this summary workshop report is to provide the reader an overview of the positions of the various participants on this complex and sometimes contentious topic. It is our hope that the report will contribute to a better understanding of what offsets are, why offsets are granted by U.S. producers, the different views of their impact and long-term consequences, and issues which may require further analysis.
CHARLES W. WESSNER
ALAN WM. WOLFF