Report of the Competitiveness Task Force Executive Summary

OVERVIEW

In the late 1980s and early 1990s, Japan's economic and technological strength was an object of admiration and concern in the United States and elsewhere. Japanese companies had established leading positions in the global market for critical high-technology products, such as semiconductor memories, and dominated the production of key semiconductor manufacturing tools. Japanese industry and government appeared poised to build on accumulated strength in consumer electronics and electronic components to establish a leading position in the emerging synthesis of computing and communications, one of the key growth industries for the next century. Even in areas where Japan was presumed to lag, such as the aircraft and biotechnology industries, cooperative industry-government research partnerships and research collaboration with U.S. universities and companies were pursued aggressively. It appeared to be only a matter of time before Japanese companies would emerge at the forefront of these industries as well.

Juxtaposed with Japan's high-technology juggernaut, the United States appeared to be in serious decline as an economic and techno-industrial power. U.S. industry was experiencing increasing difficulty in translating the outputs of America's formidable research and development effort into globally competitive products, high-wage jobs, and an improved standard of living. Large economic imbalances with Japan in trade and investment contributed to this picture of relative decline.

The prospect that Japan might come to hold increasing sway over high-technology industries raised concerns about the long-term impacts on U.S. economic well-being and national security. One area of focus was the U.S.-Japan science and technology relationship. While U.S.-Japan interaction in science and technology is extensive and comprises a variety of counterparts and mechanisms, it is also widely imbalanced and asymmetrical in terms of the flow of people, knowledge, and many technology-based products.1 There is a sharp contrast between the effective utilization of U.S. science and technology often exhibited by Japanese companies and the low level of Japanese science and technology utilization by U.S. entities. As Japan's standing in technology-based industries continued to grow and the United States suffered reverses, some questioned whether continued asymmetrical science and technology relationships would impair America's future capability to produce and utilize innovation, the mainspring of future growth in productivity and economic performance.

With these concerns as a backdrop, the National Research Council's Committee on Japan formed the Competitiveness Task Force to assess the U.S.-Japan science and technology relationship and to develop recommendations on what the U.S. government, industry and research institutions should do to maximize the economic benefits to the United States of science and technology interaction with Japan in the future. For its assessment the task force examined the historical experience of U.S.-Japan science and technology relationships and their impact on competitiveness and economic performance, the current policy context, and U.S.-Japan

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Chapter 4 contains relevant tables and figures.



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Maximizing U.S. Interests in Science and Technology Relations with Japan Report of the Competitiveness Task Force Executive Summary OVERVIEW In the late 1980s and early 1990s, Japan's economic and technological strength was an object of admiration and concern in the United States and elsewhere. Japanese companies had established leading positions in the global market for critical high-technology products, such as semiconductor memories, and dominated the production of key semiconductor manufacturing tools. Japanese industry and government appeared poised to build on accumulated strength in consumer electronics and electronic components to establish a leading position in the emerging synthesis of computing and communications, one of the key growth industries for the next century. Even in areas where Japan was presumed to lag, such as the aircraft and biotechnology industries, cooperative industry-government research partnerships and research collaboration with U.S. universities and companies were pursued aggressively. It appeared to be only a matter of time before Japanese companies would emerge at the forefront of these industries as well. Juxtaposed with Japan's high-technology juggernaut, the United States appeared to be in serious decline as an economic and techno-industrial power. U.S. industry was experiencing increasing difficulty in translating the outputs of America's formidable research and development effort into globally competitive products, high-wage jobs, and an improved standard of living. Large economic imbalances with Japan in trade and investment contributed to this picture of relative decline. The prospect that Japan might come to hold increasing sway over high-technology industries raised concerns about the long-term impacts on U.S. economic well-being and national security. One area of focus was the U.S.-Japan science and technology relationship. While U.S.-Japan interaction in science and technology is extensive and comprises a variety of counterparts and mechanisms, it is also widely imbalanced and asymmetrical in terms of the flow of people, knowledge, and many technology-based products.1 There is a sharp contrast between the effective utilization of U.S. science and technology often exhibited by Japanese companies and the low level of Japanese science and technology utilization by U.S. entities. As Japan's standing in technology-based industries continued to grow and the United States suffered reverses, some questioned whether continued asymmetrical science and technology relationships would impair America's future capability to produce and utilize innovation, the mainspring of future growth in productivity and economic performance. With these concerns as a backdrop, the National Research Council's Committee on Japan formed the Competitiveness Task Force to assess the U.S.-Japan science and technology relationship and to develop recommendations on what the U.S. government, industry and research institutions should do to maximize the economic benefits to the United States of science and technology interaction with Japan in the future. For its assessment the task force examined the historical experience of U.S.-Japan science and technology relationships and their impact on competitiveness and economic performance, the current policy context, and U.S.-Japan 1   Chapter 4 contains relevant tables and figures.

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Maximizing U.S. Interests in Science and Technology Relations with Japan competitiveness trends in key industries. The present report is part of a larger study by the Committee on Japan of the U.S.-Japan science and technology relationship.2 The task force addressed two key questions. First, are there structural features of the U.S. Japan science and technology relationship that affect U.S. capabilities to produce and utilize innovation? Second, are there general lessons and insights to be drawn from the U.S. experience with Japan that could be applied to international science and technology relationships in the future? Although the broader issues related to America's economic future and the role that science and technology will play in shaping that future are outside the scope of this study, the task force hopes that this effort contributes to discussion of those issues. From today's perspective, the environment that gave rise to concerns over the link between U.S.-Japan science and technology relations and U.S. economic performance has shifted considerably. Japan's economy and its technology development complex have faced serious difficulties in recent years, while the United States has experienced something of a high technology resurgence. Concerns about the U.S.-Japan science and technology relationship have died down for the time being. The conventional wisdom about future prospects for the U.S. and Japanese economies has taken a 180 degree turn. Despite these shifts in the prevailing mood, the task force believes that science and technology relations with Japan continue to have significant implications for the U.S. economy and will be more important in the future than is currently perceived. Companies and industries based in Japan will continue to be formidable global competitors, and Japan is taking a number of steps to address the challenges it currently faces. A notable ongoing development is the redoubled effort by the Japanese government to strengthen fundamental research capabilities through increased funding and related policy changes. The task force also believes that the U.S. industrial and high-technology ascendancy apparent today is not a permanent state of affairs. Not only Japan but also emerging industrial powers such as Korea and China will produce strong competitiveness challenges for the United States in the future. Since U.S. policy debates over science and technology relations are not as heated or contentious today as they once were, the task force was able to focus more sharply on long-term trends and issues. Hopefully, the findings and recommendations developed here will contribute to building U.S. approaches to competition and cooperation with Japan in science and technology that strengthen U.S.-based innovation capabilities and allow maximum long-term benefits to flow to this country's economy and citizens. MAJOR FINDINGS Science and Technology Interactions Have Had a Considerable Impact on Economic Performance The acquisition, effective adaptation, and improvement of technologies from abroad, mainly from the United States, served as a basis for Japan's rapid economic growth and international competitiveness in a wide variety of manufacturing industries. For the United States the economic benefits of science and technology interactions with Japan have been much lower in relative and absolute terms, but there are indications of growing benefits in recent years. 2   While this report focuses on U.S. competitiveness and economic interests, a previously released companion report deals with U.S. national security interests. See National Research Council, Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force (Washington, D.C.: National Academy Press, 1995).

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Maximizing U.S. Interests in Science and Technology Relations with Japan The science and technology interactions between Japan and the United States that have had a considerable impact on the economic performance of the two countries have occurred predominantly in the private sector. They include licensing agreements and collaborative engineering ventures between companies and the activities of multinational corporations. From the end of World War II until well into the 1970s, Japanese government controls over trade and foreign direct investment allowed a coordinated industry-government approach to obtaining technologies from foreign companies in return for limited market access and licensing fees. The electronics and computer industries provide the best examples of how this approach worked. Japanese industry, through the development of superior production and enterprise systems, put foreign know-how to work in both established and new markets, thereby transforming imported technology into wealth and economic security. At the same time, the ability of U.S. companies to participate in the Japanese market was often blocked or impaired by Japanese industry or government-industry cooperation. Barriers to market participation lowered the returns that U.S. innovators received on technology investments; prevented learning and technology development opportunities that would have occurred through interaction with sophisticated Japanese customers; and greatly reduced incentives for U.S. companies to build organizational capabilities for manufacturing, marketing, and participating in innovative activities in Japan. In several extreme cases this had a negative effect on the long-term ability of U.S. companies to sustain technological, product development and manufacturing capabilities in the United States. More recently, U.S. companies have greatly improved their manufacturing and product development performance in response to Japanese competition. Japanese manufacturing investment in the United States has increased the productivity and technology levels of several industries and has provided high-wage employment. Although benefits and costs are difficult to quantify, Japanese investments in U.S. research and development activities and in small high technology companies and U.S. universities in such fields as biotechnology and instrumentation have provided additional resources for U.S.-based innovation and to date do not appear to have caused measurable harm to U.S. capabilities.3 The U.S.-Japan Science and Technology Relationship Is Changing In recent years a number of major changes have occurred in the US.-Japan science and technology relationship, most of them positive from a U.S. perspective. The strengths of the U.S. innovation and market systems have reasserted themselves, particularly but not exclusively in information-related industries. A wide range of U.S. manufacturing companies have developed more effective approaches to innovation, manufacturing, and marketing, in some cases adapting aspects of Japanese practices. There are now a considerable number of U.S. scientists and engineers with Japanese language capabilities and experience in Japanese laboratories and manufacturing facilities, and it is the task force's judgment that they have enhanced the ability of various U.S. organizations to understand and interact effectively with Japan. At the same time, the twin pressures of global market forces and U.S. trade policy initiatives have encouraged Japanese companies to enter into more reciprocal international relationships than they did in the past, albeit from a very low base. Japanese government and industry strategies to further strengthen Japan's leading role in global high-technology development and 3   Japanese-owned R&D labs are contributing to the current fierce competition in the United States for human resources in areas related to information technology, but most task force members would not characterize this as "harm."

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Maximizing U.S. Interests in Science and Technology Relations with Japan manufacturing have met with diminishing returns recently, owing to the loss of the most effective policy tools for limiting market access. Approaches to industrial development based on technology acquisition and improvement have become less effective due to the higher risks and uncertainties faced by Japanese companies as they have reached the technological frontier. Japanese firms also have faced challenges from new technological and industrial competitors in markets where they had established strong positions, such as semiconductor memories. But Important Asymmetries Continue to Exist Although the structural asymmetries in the U.S.-Japan science and technology relationship appear to have a less harmful impact on particular US. companies and industries now than was the case in the past, wide imbalances still exist. Opportunities for U.S. companies to fully participate in the Japanese market are still constrained in a number of high-technology industries. Statistics on personnel exchanges, technology licensing agreements between unaffiliated companies, and other aspects of the relationship reflect continued asymmetries. Therefore, a clear focus by policymakers and corporate managers on addressing these asymmetries will continue to be important. Barriers to market entry, now mainly nontariff barriers stemming from Japanese policies and business practices, still have the effect of limiting or filtering U.S. access to Japanese markets, technologies, and technological capabilities. Recent Japanese government and industry initiatives, particularly in the microelectronics and information sectors, indicate that traditional strategies to advance the interests of Japanese companies in the global economy continue to be used. Japan is also developing new approaches to government-industry partnership to better harness science and technology to build a stronger and smarter Japanese economy. Some Japanese policies and business practices continue to limit the ability of U.S.-based companies to fully participate in the Japanese market, and therefore may also limit the ability of the U.S. economy to innovate and create wealth and high-wage jobs. Japan Will Continue to Be a Major Partner and Competitor Japan-based companies, and most likely Japan as a location for research, innovation, and manufacturing, will remain formidable. Despite recent setbacks in competitiveness and technology development, the task force believes that Japanese companies will remain among the leading international competitors and collaborators for U.S. industry in a range of high-technology manufacturing and service industries and will manufacture and compete globally. Although companies based in Korea, Taiwan, and elsewhere in Asia have made impressive gains, Japanese companies are likely to remain among the world's premier manufacturers. A number of them are already making successful transitions from manufacturing primarily in Japan to coordinating efficient global production networks. The task force believes that the current effort by the Japanese government to increase support for fundamental research will lead to noticeable gains in the depth, breadth, and quality of Japanese research over the next decade. Finally, the Japanese public and private sectors are expanding their efforts to forge advantageous international linkages in science and technology, particularly in Asia.4 4   Several task force members noted recent alliances involving significant Japanese technology transfer to Asian counterparts and questioned whether Japanese approaches to Asia will ultimately be more effective than those of the United States.

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Maximizing U.S. Interests in Science and Technology Relations with Japan U.S. Government Policies Should Be Oriented Toward the Long-Term and Should Incorporate Industry Perspectives Future relations with Japan in science and technology can advance U.S. economic interests and involve greater mutual benefit than has been the case in the past, but formulating appropriate U.S. strategies requires a long-term perspective and consistent policy approach. Policymaking should include participation by US. industry. Although the U.S. position in technology and competitiveness relative to Japan appears to be much different than it was five years ago, it would be a mistake to assume that current conditions will continue indefinitely. U.S. government and industry should set future policies not according to the current mood, whether that be hubris or pessimism, but according to the long-term imperative of building domestic capabilities and international relationships in science, technology, and innovation that sustain and enhance wealth creation and high-wage employment in the United States. In particular, U.S. government and industry should continue efforts to build a more reciprocal U.S.-Japan science and technology relationship. Just because the relationship has featured wide asymmetries in the past that continue today does not mean that this must be the case in the future. Key Challenges Are Emerging in Asia Many of the key future challenges facing the United States and Japan in ensuring that international science and technology relationships enhance domestic economic performance lie in Asia. Asian high-technology markets are growing more rapidly than Japan's, and Asian companies are challenging Japanese dominance in a number of critical manufacturing industries. Japanese and U.S. industry efforts to invest in and tap Asian markets and capabilities are growing as well. Ties with Asia will become increasingly important for both countries, and for the U.S.-Japan relationship, raising three critical questions for the future: How will the Japanese industrial and technological presence in Asia affect U.S. interests in the future? How can the U.S. experience in dealing with Japan (positive and negative lessons) be applied to approaches toward emerging Asian economies? To what extent will the United States and Japan share common interests in Asia, with opportunities for expanded cooperation and expanded Japanese contributions to science and technology that benefit the region and the world? These questions are beyond the scope of this report. Nevertheless, the task force believes that its priorities and recommendations for U.S.-Japan relations are broadly applicable to science and technology relations with other rapidly emerging economies, including those of Asia.

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Maximizing U.S. Interests in Science and Technology Relations with Japan PRIORITIES FOR THE UNITED STATES AND POLICY RECOMMENDATIONS Continue Public Support for National Capabilities Needed to Access and Utilize Japanese Science and Technology From its broad assessment of U.S.-Japan personnel exchange and information programs in science and technology, the task force believes that these efforts have made an important contribution to U.S. capabilities to gain benefits from science and technology cooperation with Japan. These efforts have delivered specific benefits to users and participants, and over time have contributed to developing national capabilities that should be maintained. Although in some cases it has proven difficult to match programs and activities with specific user needs, several activities have achieved solid success over a considerable period. In addition, U.S. government investments are well leveraged with support from other sources. Therefore, the relatively modest public investments in Japanese language training and Japanese research opportunities for U.S. scientists and engineers, and in efforts to collect and disseminate Japanese scientific and technological information, should be maintained on a stable, long-term basis. Recommendations Stable, long-term U.S. government investment in a group of Japan-capable scientists and engineers should be maintained, particularly where limited U.S. investments leverage significant amounts of Japanese funding. Unlike U.S. relations with other Asian countries, where top U.S. educated Asian scientists and engineers frequently stay in the United States or can be hired by U.S. organizations, prevailing patterns of education and employment have served to impair U.S. access to Japanese science and technology. Continued public investment in a group of U.S. scientists and engineers proficient in the Japanese language and experienced in Japanese laboratories and manufacturing facilities will facilitate an expanded flow of information to the United States. Even in cases where participants are not immediately hired into positions working directly on Japan issues, their Japan-related skills and experience are often increasingly utilized over time. The modest level of public investment in recent years through programs of the National Science Foundation and the Air Force Office of Scientific Research has been effective and well leveraged. As scientists and engineers with Japan-related skills and experience advance in their industrial, academic, and government careers, their international perspective and capabilities will also contribute to U.S. ability to understand and participate effectively in technological relationships with other Asian countries. The need to train scientists and engineers in other languages and cultures, particularly those of Asia, also should be assessed. The U.S. government should maintain support for efforts to obtain, translate, and disseminate Japanese scientific, technical, business, and policy information. The Internet and related technologies enable a wider group of U.S. scientists, engineers, and businesspeople to access Japanese information quickly and easily.5 The small amount invested in U.S. government programs can achieve a large payoff in terms of increased awareness of science and technology developments in Japan. The U.S.-Japan machine translation center at the U.S. Department of Commerce is a recent positive example. U.S. government agencies should 5   By the same token, U.S. information is also easier to access by scientists and engineers in Japan and elsewhere, perhaps at a greater rate than that of other countries because of the wider diffusion of Internet participation in the United States.

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Maximizing U.S. Interests in Science and Technology Relations with Japan continue their efforts to coordinate among themselves, with a focus on ensuring that electronic resources are linked when possible, and cooperate with private-sector entities to ensure relevance to industry needs and the availability of materials in electronic form. The Commerce Department's Asia Technology Program should serve as the central clearinghouse and coordinator for these leveraging and linkage efforts. The U.S. government should continue to press the Japanese government and Japanese companies to make certain categories of information that affect market participation and technology relationships, particularly laws, regulations, administrative guidance, and other policy-relevant documents, available to the public, preferably electronically. The ability of companies based outside Japan to compete in the Japanese market is often impaired by a lack of access to relevant information that is shared informally among Japanese government and industry insiders. Making these categories of information available electronically, even in Japanese, would not solve all of the problems of access to Japanese markets, but it would enhance the ability of at least some U.S. companies to compete. Most Japanese agencies now have home pages on the World Wide Web, which could be used in making information more widely available. A number of US.-based companies and industry associations have advanced their interests through capability to monitor developments in Japan and participate in policy processes. U.S. industry should redouble efforts to expand access to the Japanese market and Japanese technology and seek a greater role in Japanese and US. policy debates. Positive examples include the American Electronics Association's Tokyo office, the American Chamber of Commerce presence in Japan, U.S. companies that have established a strong strategic and policy capability in Japan, and the U.S. software industry's role in discouraging changes in Japan's copyright law that might have allowed unrestricted decompilation and marketing of reverse engineered software products. Renew Efforts to Engage Japan in Science and Technology Relationships That Deliver Equitable Benefits The task force believes that Japan will follow through on its stated goal of sharply increasing public spending on science and technology over the next several years. Although changes in approach on the part of Japanese institutions will be necessary in order to translate this increased funding into a strong fundamental research base, the task force is optimistic about the future of Japan's science and technology capability. Because the Japanese science and technology budget is rising rapidly and growth in the U.S. budget will be constrained at best, now is precisely the time that the U.S. private and public sectors should renew efforts to engage Japan in equitably beneficial cooperation. Active utilization of the U.S.-Japan Agreement on Cooperation in Research and Development in Science and Technology (U.S.-Japan S&T Agreement) should be a particular focus. Recommendations The U.S. government should actively use the U S.-Japan S&T Agreement to advance US. interests by encouraging effective program management, developing metrics to track progress in the overall relationship, and ensuring that Japan's new publicly funded research efforts are open. Although ensuring reciprocity and equitable benefit in science and technology relationships is mainly the responsibility of the agencies, companies, universities, and research institutes that

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Maximizing U.S. Interests in Science and Technology Relations with Japan are themselves involved in research collaboration, the U.S. government can use the U.S.-Japan S&T Agreement more actively to advance U.S. interests. One focus of U.S. preparation for joint U.S.-Japan meetings under the agreement should be review of individual agency programs to encourage effective management. The United States and Japan should also develop a simple set of metrics in areas such as scientific and engineering personnel exchanges funded by each government, public funding of collaborative projects, participation by U.S. companies in Japan's publicly funded R&D programs (and vice versa), and intellectual property created by collaborative programs. These could be updated annually as part of the administration of the agreement. Finally, the United States should continue to use the agreement to ensure that, as Japan increases public science and technology investments, these new programs and institutions are as open to international participation as U.S. fundamental research. The United States should encourage expanded Japanese contributions in science, technology, and other cooperation that creates global benefits. Japan's efforts to revitalize its research base, especially the research capabilities of universities, will provide new opportunities for U.S.-Japan cooperation in science and technology to create global benefits in policy areas such as encouraging adequate protection of intellectual property rights. In the future the extent of Japanese contributions to basic research and to the training of scientists and engineers worldwide should be regarded as an important measure of the health of the U.S.-Japan relationship. Japan should be encouraged to exercise increased leadership, building on recent positive efforts such as the Human Frontier Science Program, an effort launched by Japan to fund fundamental research in the life sciences. US. companies and the US. government should utilize lessons from dealing with Japan in their dealings with emerging techno-industrial powers. A number of lessons can be drawn from the experience of U.S. companies that have derived concrete long-term benefits from their collaboration with Japanese partners and efforts in the Japanese market. Careful protection and management of intellectual property rights in the United States and in other markets, gaining direct access to customers, building market participation ''tollgates" into technology transfer agreements, focused training for engineers assigned to joint projects, and other approaches can help ensure that collaboration leads to sustainable competitive strength. Increase the Economic Benefits from U.S. Science and Technology Through Enhanced Industry-University-Government Cooperation Since the early 1980s, partly in response to the global competitive challenge led by Japan, the United States has developed a number of new programs and approaches to enhancing cooperation between industry, university, and government sectors in research, development, and commercialization. Overall, this effort has been very successful and has allowed faster and more effective commercialization of U.S. science and technology. Other countries, including Japan, are drawing their own lessons from the U.S. experience and developing their own new approaches to increase the economic benefits of science and technology through better intersectoral collaboration.6 In addition to maintaining and increasing overall levels of public and private investment in science and technology, the United States must continue to focus on improving the return on these investments. This is no time to rest on our laurels. Improving industry-university government collaboration continues to be a key imperative. Although some aspects of federal 6   For example, while large R&D consortia have previously featured strong Ministry of International Trade and Industry leadership, one of the new projects in microelectronics is being undertaken under private-sector leadership.

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Maximizing U.S. Interests in Science and Technology Relations with Japan support for R&D partnerships with industry focused on commercial technologies are controversial, government clearly has an important role in encouraging industry and universities to work together on long-term, high-risk research, particularly in areas linked to agency and broader national goals. In the United States, SEMATECH has contributed to the U.S. resurgence in microelectronics. An area in which the Japanese government is making major investments is intelligent vehicle and highway systems, which promise to deliver competitive advantage to auto manufacturers while improving national transportation systems. The United States should foster an environment in which new approaches to collaboration can be tried. Another issue that arises in relation with civilian technology programs is the terms by which foreign companies should be allowed to participate. The United States and Japan have very different approaches to organizing projects. The United States tends to rely on transparent competitive mechanisms, while many Japanese projects are developed through close industry government consultation far in advance of a project being budgeted. Several prominent Japanese projects have included foreign participation in recent years, and the task force recognizes that advancing a national science and technology agenda will increasingly involve tapping the capabilities of global companies based outside the United States. However, the task force does not agree on what approach the United States should take to foreign participation in the short term. At the moment, U.S. programs have a range of performance requirements that apply to all members and reciprocity requirements for foreign-based participants. Some task force members believe that the United States should unilaterally eliminate these reciprocity requirements and grant national treatment. Others believe that until multilateral rules are developed in this area the principle of reciprocity is important to uphold, particularly when the rules of other countries, such as Japan, are not always clear. The task force also recognizes that the definition and value of "foreign participation" in the two countries is probably quite different. Recommendation US. industry, universities, and government should continue to increase investments in science and technology and should 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 focus. Resolving the issue of foreign participation in such programs, and participation by US.-based companies in foreign government programs, is a pressing task for the future. Expand Market Opportunities for U.S. Science and Technology-Based Products in Japan and Globally As this report documents, access barriers to the Japanese market have played a major role in the differential economic benefits that Japan and the United States have derived from science and technology cooperation. Expanding opportunities for sales in foreign markets of U.S. science and technology-based products is increasingly essential to maintaining U.S. capabilities to generate and utilize innovation. As this study documents, global market participation is critical because (1) demanding customers spur technology development; (2) market participation allows the development of organizational capabilities in companies; (3) market participation increases the revenue base for investment in efficient manufacturing, services, and technology development; (4) international competitors are prevented from establishing a domestic "profit sanctuary"; and (5) head-to-head competition sharpens capabilities in research and development, manufacturing, and marketing.

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Maximizing U.S. Interests in Science and Technology Relations with Japan Regarding U.S. trade policy, task force members have a range of views on whether past bilateral trade initiatives with Japan have been effective and the relative importance that should be placed on bilateral, regional, and multilateral approaches in future U.S. trade policies. The task force is very much in agreement that the launch of the World Trade Organization (WTO) represents a major test for the United States and other trading nations and that an effective WTO would greatly advance U.S. interests. If the enhanced dispute settlement powers and other provisions of the Uruguay Round do meet expectations, future multilateral trade negotiations could address areas that will expand market participation. Trade and investment, and trade and competition policy, are likely to be the two highest priorities. The task force believes that improving global intellectual property protection is another key priority for the United States. Trade-related intellectual property measures were addressed in the Uruguay Round, and the harmonization of patent systems is being pursued through the World Intellectual Property Organization. The difficulties that U.S. companies have experienced in gaining effective intellectual property protection in Japan show that the interpretation and enforcement of intellectual property laws is just as important as the legal provisions themselves. 7 The United States will need to continue to pay particular attention to intellectual property protection in a global marketplace, effectively pursuing multilateral initiatives while dealing with individual countries when specific issues arise. The task force also believes that Japan and the United States will share common interests on an increasing number of global trade issues. In promoting adherence to multilateral rules by developing countries and working to develop common approaches to emerging issues such as trade and the environment, the United States and Japan can contribute to further positive development of the world trading system. This is of major importance to both countries. Recommendations Effective implementation of the Uruguay Round will advance US. interests considerably. In future multilateral negotiations the United States should focus on areas where barriers to participation in the Japanese market continue to arise: direct investment and competition policy. The U.S. Trade Representative's Office, the U.S. Patent and Trademark Office, and U.S. industry should develop a process to identify patent applications by U.S. citizens in Japan and perhaps other countries that cover major scientific and technological advances, to ensure that these critical patents receive timely and effective protection. In 1994 the United States concluded important agreements with Japan on intellectual property protection designed to address some of the most serious problems U.S. innovators have experienced with the Japanese system. The provisions are being implemented on a prearranged timetable. As part of the follow-up to this agreement and as a broader initiative to ensure that critical U.S. innovations receive timely and effective protection around the world, a "watch list" of such applications should be established. Inventors of potentially important innovations could 7   Intellectual property protection is an important focus of this report. Industry-specific issues in biotechnology and information industries are covered in Chapter 5. The committee believes that the overall strengthening of U.S. patent protection since about 1980 has benefited U.S. innovators, particularly the unification of appellate jurisdiction in the U.S. Court of Appeals for the Federal Circuit. Differences in the U.S. and Japanese intellectual property systems, and problems faced by U.S. innovators seeking protection in Japan, are covered in U.S. Congress, General Accounting Office, U.S. Companies' Patent Experiences in Japan (Washington, D.C.: U.S. Government Printing Office, 1993), and National Research Council, Corporate Approaches to Protecting Intellectual Property (Washington, D.C.: National Academy Press, 1994). The United States and Japan reached two agreements on intellectual property in 1994, which are described in U.S. Trade Representative, 1994 Annual Report (Washington, D.C.: U.S. Government Printing Office, 1995).

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Maximizing U.S. Interests in Science and Technology Relations with Japan apply for a place on the watch list. Problems in gaining timely and effective patent protection might be identified at an early stage and addressed through government-to-government consultations. Serious delays or limitations in protection could be addressed through trade actions. This program might be linked to efforts to expand opportunities for U.S. industry, particularly small and medium companies, to access Japanese markets by making information about intellectual property rights in Japan available to companies. The United States should explore areas for cooperation and coordination in trade policy and in other areas with Japan and other countries to promote more open access to markets and economies in developing countries. As more developing countries recognize the value of foreign direct investment in raising their technology levels, the United States and Japan can have a greater impact when working together to encourage adherence to multilateral rules, and to discourage national approaches that feature focused technology transfer as a condition for market participation. The United States and Japan should also work to develop common approaches to emerging issues on the multilateral agenda, such as trade and the environment.