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Maximizing U.S. Interests in Science and Technology Relations with Japan A Framework for Maximizing U.S. Interests in Science and Technology Relations with Japan This report is the final product of the Committee on Japan's (COJ) overview study on Maximizing U.S. Interests in Science and Technology Relations with Japan.1 The study examines the major U.S. interests at stake in science and technology relations, identifies long-term strategic priorities, and recommends specific actions for U.S. government, industry, and research institutions to advance U.S. interests. This framework statement is based on the findings and recommendations of the Defense Task Force (DTF), which released its final report in 1995, and Competitiveness Task Force (CTF), which completed its work in July 1997.2 The study was requested in the Defense Authorization Act of 1992-1993.3 CONTEXT AND MOTIVATION FOR THE STUDY When this study was requested and conceived, Japan was enjoying considerable success in high technology. Based largely on superior performance in manufacturing quality, marketing, and product development, Japanese companies gained global market share throughout the 1980s in manufacturing and technology-intensive industries such as automobiles, consumer and industrial electronics, advanced machinery, and important areas of advanced materials. Japanese industries established dominant positions in critical component and equipment areas such as dynamic random access memories, liquid crystal displays, and photolithography. Leveraging this strong competitive position, Japanese firms moved aggressively to increase their ties to U.S. science and technology through investments in high-technology companies and support for U.S. university research. In fields where Japan was behind, a range of targeted government-industry programs had been launched to close the gap. Even in military and aerospace technologies, areas where Japan had been considered relatively weak, Japanese industry had diffused know-how acquired through military programs to gain important footholds in certain high-technology commercial sectors such as aircraft and space. The FS-X fighter codevelopment project symbolized Japan's ambition to ascend to the world's top tier in all key technology areas. 1 The study was supported by the National Institute of Standards and Technology of the Department of Commerce, the Department of Defense, the Department of Energy, the Department of State, and the National Science Foundation. In undertaking the study, the two task forces and the Committee on Japan also drew on other work from recent years supported by the Rockefeller Brothers Fund and the United States-Japan Foundation. See Appendix B for complete Committee on Japan bibliography. 2 The framework outline was developed at a Committee on Japan meeting on June 3, 1997. Drafts were shared with members of the Committee on Japan, Competitiveness Task Force, and Defense Task Force, and their input was incorporated. The background information supporting the framework statement is contained in the task force reports. 3 "Beyond these specific administrative improvements, the committee is interested in promoting a comprehensive assessment of scientific and technological relations between the United States and Japan. Therefore, the committee directs the Secretary of Defense to commission an independent study of this subject by the National Academy of Sciences. The study should analyze the strengths and weaknesses in Japanese science and technology and present a framework for pursuing U.S. interests through scientific and technological relations with Japan in the future." Committee on Armed Services, United States Senate, National Defense Authorization Act for Fiscal Years 1992 and 1993 (Washington, D.C.: U.S. Government Printing Office, 1991), pp. 173-174.
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Maximizing U.S. Interests in Science and Technology Relations with Japan Japan's science and technology successes and momentum, combined with the difficulties being experienced by many U.S. companies and industries at that time, led to increased focus on the U.S.-Japan science and technology relationship. A number of concerns and questions were raised. Why were Japanese companies apparently better positioned to capitalize on U.S. innovations than were U.S. firms? Would Japanese dominance of some critical component and equipment areas leave U.S. consumers and producers vulnerable to anticompetitive practices, and impair the ability of the United States to incorporate leading edge commercial technologies in weapons systems? Was it appropriate for Japanese firms to enjoy access to a U.S. university research base built through years of U.S. government investment, while providing only incremental funding? Did Japan's relative emphasis on targeted research in proprietary settings over more fundamental work in open settings constitute "free-riding" on the world's fundamental research base? Would rising Japanese investments in U.S. manufacturing and high technology help to sustain U.S. capability to innovate? Would increased U.S.-Japan trade friction centered on high technology lead to a split in the security alliance? Why had most U.S. efforts to achieve greater reciprocity produced disappointing results, at times appearing to place even greater strains on the U.S.-Japan relationship? Over the time that the study has been conducted, some elements of this context have shifted dramatically. On the national security side, the United States and Japan have mostly reaffirmed existing arrangements and taken initial steps to reorient the security alliance to fit the post-Cold War environment. On the economic side, the U.S. economy and U.S.-based companies appear to be very strong today, while Japanese advantages have diminished and in some cases dissipated. In particular, U.S. strengths in innovation and technology commercialization have reasserted themselves. The emergence of new high-technology competitors based in Asia is affecting U.S. and Japanese strategies, prompting a shift in focus from bilateral to multilateral relationships. At the same time, important aspects of the U.S.-Japan science and technology relationship, including many traditional asymmetries in exchange and cooperation, have not fundamentally changed. This framework statement seeks to integrate the findings and recommendations of the two task forces, outline the long-term U.S. interests that are at stake in the science and technology relationship with Japan, and highlight the key priorities that the U.S. public and private sectors should pursue in the future. LONG-TERM U.S. INTERESTS AT STAKE Future U.S. economic performance and security depend to a considerable extent on maintaining and enhancing U.S. capabilities to generate and utilize innovation in developing and producing competitive goods and services for the global market. Science and technology relations with Japan can affect these capabilities in a number of ways. In the national security area, cooperation in defense production, often involving transfer of U.S. technology to Japan, has long been an important part of the alliance. This cooperation has facilitated increased Japanese defense capabilities within the alliance and generated revenue for U.S. companies that could be reinvested in next-generation technologies. The alliance itself has advanced long-standing U.S. security interests in Asia, such as preventing the rise of a hegemonic power, ensuring the freedom of sea lanes in the region, and expanding commerce and trade. This cooperation has also delivered considerable benefits to Japan, in the form of enhanced manufacturing capabilities, and a business and technological base in aircraft and related components industries needed to enter commercial markets.
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Maximizing U.S. Interests in Science and Technology Relations with Japan Although the U.S.-Japan security alliance continues to advance fundamental U.S. security interests, the overall security environment and the relative capabilities of the partners have changed. Patterns of cooperation should change as well. Cooperation featuring primarily one-way transfers of defense technology from the United States to Japan can no longer be justified by U.S. security interests. Rather, expanded, reciprocal cooperation with Japan in defense and dual-use technology could potentially advance U.S. interests in a number of ways. For example, U.S. systems would benefit from incorporation of leading-edge Japanese commercial technologies. The United States and Japan could also develop, manufacture, and upgrade common systems at lower cost. Although an equal balance in defense technology flow is not a realistic expectation in the foreseeable future, due to wide discrepancies in capabilities, more reciprocal cooperation in these areas could become a positive focus of U.S.-Japan interchange, enhancing the overall security alliance. In the civilian technology arena it was agreed that creating and maintaining high-wage employment over the long term should be the key U.S. economic performance goal. The experience of recent years has made it abundantly clear that U.S. capability to generate and utilize innovation is a critical element in creating and maintaining good jobs for U.S. citizens and enhancing our standard of living. The U.S.-Japan science and technology relationship can have an impact on U.S. capability to innovate in several areas. For example, it is increasingly important for U.S.-generated innovations to gain access to global markets, particularly early in the innovation cycle. Global market participation generates income for future technology investments and provides opportunities to learn from a global base of sophisticated customers and suppliers. Japan plays a key role as one of the largest, most advanced markets for many high technology products. It is just as important for U.S. interests that products based on U.S. innovations access Japan's market as it is to Japan that innovative Japanese products access the U.S. market. In addition, competition and investment from Japanese companies can contribute to maintaining U.S. capabilities. Many U.S.-based companies have improved their performance in response to challenges from Japan-based competitors. Through investment in U.S. research and development (R&D) and manufacturing, Japan-based companies have begun to contribute to overall U.S. capability to innovate. Further, Japan is increasing government R&D investments aimed at strengthening its own fundamental research base and will move ahead of the United States in absolute non-defense government R&D spending early in the next decade if current trends continue. U.S. entities and the U.S. innovation infrastructure may derive increasing benefits from monitoring, tapping, and leveraging Japan's expanding capability; being second is not a familiar position for the United States. This does not, of course, diminish the importance of maintaining U.S. R&D investments and infrastructure. Finally, some of the positive and negative lessons of the U.S. experience in competing and cooperating with Japan can be utilized in relationships with emerging techno-industrial powers, particularly in Asia. A number of the issues arising in relations with some Asian countries are similar to those encountered in the relationship with Japan, such as difficulties in protecting intellectual property, and strong public-private partnerships aimed at maximizing inward technology flow. The potential for negative impact on U.S. interests from possible anticompetitive Japanese business practices, withholding technology, U.S. dependence on Japanese dual-use components and equipment for military systems, and Japanese ownership of U.S. high-technology assets, appears to have diminished in recent years. This is due to a combination of factors, including the resurgence of some U.S. companies and the entry of new competitors. As technological capability becomes more global and the international division of labor in high-technology products becomes more complex, it is very possible that potentially harmful concentrations of
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Maximizing U.S. Interests in Science and Technology Relations with Japan high-technology production and capability will emerge in Japan or in other countries in the future. In order to minimize the risks of negative impacts on U.S. interests, it will be necessary to continue efforts within the World Trade Organization and other bodies to promote open markets and transparent competition policies on a global basis. The findings and conclusions of the two task force reports highlight several key priorities, specific action items, and issues for possible future study. MARKET PARTICIPATION SPURS INNOVATION Expanding sales of innovative U.S. products and services is a vital long-term economic and national security interest. As pointed out above, global sales provide revenues for future technology investments, as well as opportunities to learn from sophisticated customers and suppliers. In the long term, U.S. economic and security interests do not conflict but rather complement one another. America's innovative infrastructure and human resources underlie future economic performance and military capabilities. Indeed, the economic foundations of national security have been more widely appreciated in recent years and have long been appreciated in Japan. Japanese government and industry have traditionally aimed to maximize inward technology transfer while limiting market participation by foreign-based firms. Substantial progress toward more open Japanese markets has been made in areas such as software, semiconductors, and personal computers. However, there is evidence that a number of Japanese manufacturing and high-technology markets, such as telecommunications, auto components, and areas of production equipment, remain difficult to access. Japan remains by far the largest single-country market outside the United States for high-technology products. Japan-based companies, as a group, will remain the most important competitors and partners for U.S.-based companies in high-technology industries. Despite the current difficulties being experienced by Japanese companies and the Japanese economy, full participation in the Japanese market remains an urgent priority. The United States would not be the only beneficiary from accelerated progress in this area. Since dynamic markets help to spur innovation, particularly at the frontiers of technology, high barriers to domestic and foreign-based entrants have contributed to recent difficulties in innovation experienced by some Japanese companies and industries. Although the emerging techno-industrial powers of Asia are employing a variety of approaches to building technological capability and high-technology industries, some of the positive and negative lessons from the historical experience with Japan are applicable. In particular, the ability to protect intellectual property is a key factor in accessing markets, and U.S. innovators have experienced difficulties in Japan and other Asian countries. The long delay experienced by Texas Instruments in receiving patents for its basic semiconductor technologies in Japan is a well-known example. The United States can take a number of steps to improve opportunities for market participation in Japan and elsewhere in Asia. Intellectual property protection should be a special focus. The U.S. Trade Representative's Office and the U.S. Patent and Trademark Office should develop a program to monitor patent applications by U.S. citizens in Japan and perhaps other countries that cover major scientific and technological advances. 4 This effort would help ensure that critical patents receive timely and effective international protection. On the multilateral trade front, effective implementation of the Uruguay Round will advance U.S. interests considerably. In future multilateral negotiations, the United States should focus on 4 In this context, the term ''U.S. citizen" is intended to cover U.S.-generated innovations, including patents filed by companies, universities, and other organizations, as well as individual inventors.
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Maximizing U.S. Interests in Science and Technology Relations with Japan areas where barriers to participation in the Japanese market continue to arise: direct investment and competition policy (antitrust). The United States should also explore expanded policy cooperation and coordination with Japan in trade policy areas where we share common interests, such as ensuring minimum standards for intellectual property protection. The private sector has an important role to play as well. U.S. industry and industry associations should redouble their efforts to expand access to the Japanese market and Japanese technology and seek a greater role in policy processes and debates, both in Japan and the United States. Participation in standards-setting, advisory committees, and monitoring implementation of official agreements are examples of areas where the private sector has made important contributions. MONITOR, UNDERSTAND, AND PARTICIPATE IN JAPANESE SCIENCE AND TECHNOLOGY One important lesson of this project is that in the past lack of knowledge about Japan and complacency about the future have been dangerous for U.S. industry and the nation as a whole. At the same time, improved performance on the part of particular U.S. companies and industries has been aided by exposure to the techniques and accomplishments of Japanese organizations in innovation, and adaptation of some Japanese practices to a U.S. context. Although there is good reason to be pleased with many aspects of U.S. technological and economic performance today, the United States, particularly the science and technology community, must avoid complacency and turning inward in the belief that we have nothing more to learn from the rest of the world. In order to avoid repeating the difficulties of the 1970s and 1980s, it will be necessary to understand at an early stage the new business and technical approaches being developed by Japan and by other countries. U.S. institutions and citizens should be aware that although U.S. innovation is relatively strong today, continuous effort will be needed to maintain our capabilities. In addition to investment and improved approaches on the domestic side, this increasingly involves accessing and utilizing a global science and technology base, as well as cooperation and competition with international entities. Despite current challenges, Japan will be the most important country in this process for some time to come, although novel approaches and competitors may emerge from new or unexpected sources.5 Although there is currently a growing segment of opinion that would write Japan off as a technological and industrial power, the task force reports document Japan's resiliency and continuing strengths in technology and innovation. Both task force reports deal with aspects of U.S. engagement in Japanese science and technology. The common theme is that effective engagement requires long-term commitment, focus, and investment by both the private and public sectors. In this regard, the U.S.-Japan Agreement on Cooperation in Research and Development in Science and Technology (U.S.-Japan S&T Agreement) deserves particular attention. The importance of the U.S.-Japan S&T Agreement and U.S. capability to track developments in 5 A number of relevant statistics are presented in Chapter 3 of the DTF report and Chapter 4 of the CTF report. Here we will simply note that Japan is ranked second in the world to the United States, with wide gaps to the third ranked country, in government and private R&D expenditure, number of R&D scientists and engineers, and number of U.S. patents granted. In 1994 Japan was the largest foreign market for U.S. high-technology products (by a slim margin over Canada) and the largest exporter of high-technology products to the United States (by a wide margin, constituting almost 30 percent of high-technology imports). See National Science Board, Science & Engineering Indicators-1996 (Washington, D.C.: U.S. Government Printing Office, 1996).
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Maximizing U.S. Interests in Science and Technology Relations with Japan Japan will grow in the future. As the United States and other advanced countries are slowing growth in government science and technology spending, Japan has plans for significant increases in the next few years. Budget increases by Japan present an opportunity to leverage investments internationally in areas of basic research and expensive science and technology, like global climate change and health. The U.S.-Japan S&T Agreement should be utilized more proactively than it has been in the past as a mechanism to pursue equitable benefits in the bilateral science and technology relationship. This will mainly require more focus and resources for implementation and monitoring of the agreement on the U.S. side. This also requires encouraging effective program management, developing metrics to track progress in the overall relationship, and ensuring that Japan's rapidly expanding government-funded research efforts are as open as comparable U.S. efforts. The United States should also maintain stable long-term public and private investments in programs that train U.S. scientists and engineers in Japanese language, send U.S. scientists and engineers to Japan to participate in R&D and manufacturing, and collect and disseminate Japanese science and technology information. Although matching programs and the needs of users has sometimes been difficult, these efforts have produced clear benefits for the participants, and fill a broader national need for capability to track developments in Japan. These programs are modest in size and, in some cases, federal investments leverage significant resources from other sources. While U.S.-Japan cooperation in defense production and related technologies has traditionally been conducted under a separate policy framework, greater incentive and opportunity for cooperation in defense and civilian technology may also emerge as civilian-derived technologies play a larger role in advanced weapons systems. Taking advantage of these trends will require U.S. focus and commitment. In particular, the Department of Defense should work with the Japanese government and the private sectors of both countries to develop new mechanisms that facilitate technological collaboration between U.S. and Japanese companies to address common defense needs. One possible approach would be a program to fund U.S.-Japan industry R&D on specific enabling technologies, including the adaptation of commercial technologies targeted at applications in future weapons systems. Finally, there is room for improvement in the Japanese government approach to providing access to science and technology information. Although much science and technology information is available, a great deal of information related to trade and other issues that can affect science and technology cooperation remains difficult to access. The U.S. government should continue to press Japanese government and companies to make certain categories of information, particularly laws, regulations, administrative guidance, and other policy-relevant documents, available to the Japanese and international public, preferably electronically. A LONG-TERM, INTEGRATED U.S. APPROACH The United States must continue to build a long-term, integrated strategy to pursuing economic, security, and other interests in science and technology relations with Japan and other key countries. This will involve improved coordination across government agencies, and better communication between the public and private sectors. The U.S.-Japan science and technology relationship may be a harbinger of broader challenges that the United States will face as scientific and technological capabilities become more global, and as science and technology become more intertwined with the pursuit of the entire range of U.S. national interests. In dealing with Japan-related issues, U.S.-based companies and universities as well as government agencies have had to reexamine and modify
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Maximizing U.S. Interests in Science and Technology Relations with Japan traditional approaches to cooperation. We have been forced to reexamine the balance between short and long-term benefits and risks, and the balance between general and particular interests. In a pluralistic system such as in the United States, differences of viewpoint are inevitable and desirable. It is unrealistic to expect total coordination among government agencies and between the public and private sectors. However, conflicting agendas and lack of coordination among U.S. entities can be damaging to U.S. interests, and several lessons can be drawn from the experience with Japan to help guide future approaches. The United States developed new mechanisms for expanded public-private and inter-agency dialogue during the launch of SEMATECH, the response to Japan's Intelligent Manufacturing Systems (IMS) proposal, and in other cases. This experience points to a general need for expanded coordination on national and international science and technology issues that will become more apparent in coming years. As has been the case regarding Japan relationships, the United States will at times face short-term dilemmas in balancing pursuit of economic, security, and other interests. It will be important to continue and extend the efforts that have been made in the area of Japan policy to coordinate and integrate the agendas of the various agencies on an ongoing basis. It will also be important to maintain a focus on long-term strategy for science and technology cooperation with Japan and the rest of Asia that integrates both economic and national security interests, and involves significant, ongoing private sector input. Although U.S. innovation appears to be strong today, maintaining our strength will depend on continued efforts to improve our performance in translating research into superior products and services. U.S. industry, universities, and government should continue to increase investments in science and technology and develop new collaborative mechanisms that increase the economic returns on this investment. Partnerships focused on important commercial technologies linked with agency or broader national needs should be a particular priority. In addition, the Department of Defense should ensure a coordinated approach with other government agencies and appropriate private sector organizations in future collaborative defense programs with Japan. One approach that might be adopted as a minimum is designating a single authority within DOD with the responsibility for coordinating strategies toward major systems in which collaboration with Japan is under discussion. In the future, if conditions warrant it, the DOD might consider adopting a more formal mechanism such as an International Programs Coordinating Council analogous to the Joint Requirements Oversight Council. Further, the United States and Japan should institute an enhanced comprehensive security dialogue featuring an integrated discussion of the political-military, economic, technological, and other aspects of the relationship. Such a dialogue would lead to enhanced discussion across sectors in both countries focused on the long-term prospects and issues in U.S.-Japan relations. Neither task force recommended major changes in U.S. government budgets and organization for cooperation with Japan in science and technology, or in the official structure of U.S.-Japan agreements. Most of what needs to be done by the U.S. government to ensure that cooperation with Japan advances long-term U.S. interests can be accomplished through stable funding for current programs and more focused U.S. implementation of existing agreements. The policy frameworks for civilian and defense science and technology cooperation with Japan remain largely separate. The political and historical reasons for this separation are understandable. However, greater cooperation and leveraging of effort across U.S. civilian and defense agencies in science and technology cooperation with Japan is necessary over the long term. This is due to shifts in the environment documented in the task force reports, such as the increasing reliance of defense systems on commercially-derived technologies, and the growing imperative that government operations and programs operate efficiently and cohesively. Joining forces and activities is a step in that direction. Changes in the political environment in Japan may make it possible to overcome long-standing barriers to new approaches. The key U.S. players responsible for the civilian and defense aspects of official science and technology relations should consider
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Maximizing U.S. Interests in Science and Technology Relations with Japan establishing a regular exchange to explore new approaches that could be implemented unilaterally or discussed with Japanese counterparts.6 EPILOGUE The U.S.-Japan relationship both past and present can be considered a leading indicator of issues and questions that may emerge in relations with other countries, particularly the emerging techno-industrial powers of Asia. Inattention to technological and industrial trends and approaches of other countries could lead to serious challenges to national interests and U.S.-based institutions in the future. Tracking developments in Asia and developing cooperative strategies will take on increasing importance for the United States. Even U.S.-Japan cooperation and competition is taking on an increasing Asia dimension. The Japan experience also highlights the important general point that as global capability and competition in science and technology increase, the capability to generate and utilize innovation to create new products, companies, and markets, is perhaps the most important key to national well-being and prestige. The role of natural advantages such as mineral resources and geography will change, as nations increasingly focus on building their knowledge base, brain power, and technical infrastructure of institutions and facilities. Erich Bloch Chairman, Committee on Japan 6 For the purposes of this discussion, the "key U.S. players" are the U.S. members of the Joint High Level Committee, Joint High Level Advisory Panel, and Joint Working Level Committee under the U.S.-Japan S&T Agreement, and the U.S. representatives to the Systems and Technology Forum which is involved with defense-related R&D cooperation. But these discussions could include others as appropriate.
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