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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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Copyright 1997 by the National Academy of Sciences. All rights reserved.
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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 are listed below:*
A. Michael Spence, Chairman
Dean, Graduate School of Business
Stanford University
James T. Lynn
Advisor
Lazard Freres
John A. Armstrong
Amherst, Massachusetts
Burton J. McMurtry
General Partner
Technology Venture Investors
James F. Gibbons
Dean, School of Engineering
Stanford University
Ruben Mettler
Chairman and CEO (retired)
TRW, Inc.
George N. Hatsopoulos
President and CEO
Thermo Electron Corporation
Mark B. Myers
Senior Vice President
Xerox Corporation
Karen N. Horn
Chairman and CEO
Bank One Cleveland
Donald E. Peterson
Chairman and CEO (retired)
Ford Motor Company
Dale Jorgenson
Frederic Eaton Abbe Professor of Economics
Harvard University
James M. Poterba
Professor of Economics
Massachusetts Institute of Technology
Ralph Landau
Consulting Professor of Economics
Stanford University
George M. Whitesides
Professor of Chemistry
Harvard University
Staff
Stephen A. Merrill
Executive Director
Charles W. Wessner
Program Director
Lena J. Lawrence
Administrative Assistant
George Georgountzos
Program Associate
NATIONAL RESEARCH COUNCIL BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY
Sponsors
The National Research Council gratefully acknowledges the support of the following sponsors:
The German-American Academic Council
Northern Telecom Limited
MEMC Electronic Materials, Inc.
Trimble Navigation
Samsung Electronics Co., Ltd.
Varian Associates, Inc.
Hitachi, Ltd.
Siemens Corporation
Philips Electronics N.V.
AT&T
General Electric Company
Program Support for the Board on Science, Technology and Economic Policy is provided by a grant from the Alfred P. Sloan Foundation.
Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the project sponsors.
PROJECT STEERING COMMITTEE
Erhard Kantzenbach, Co-Chairman President
Hamburg Institute for Economic Research Institute für Wirtschaftsforschung Hamburg GERMANY
Richard E. Baldwin Professor of International Economics
Graduate Institute of International Studies Geneva SWITZERLAND
Charles Fine Associate Professor of Management
Sloan School of Management Massachusetts Institute of Technology Cambridge, Massachusetts USA
Frieder Meyer-Krahmer President
Fraunhofer Institute for Systems Analysis and Innovation Research Karlsruhe GERMANY
Sylvia Ostry Chairman
Centre for International Studies University of Toronto Toronto CANADA
George M. Scalise Executive Vice President and Chief Administrative Officer
Apple Computer, Inc. Cupertino, California USA
Alan Wm. Wolff, Co-Chairman Managing Partner
Dewey Ballantine Washington, D.C. USA
Horst Siebert President
Kiel Institute for World Economics Institute für Weltwirtschaft Kiel GERMANY
Luc L.G. Soete Professor
Maastricht Economic Research Institute for Innovation and Technology (MERIT) Maastricht THE NETHERLANDS
William J. Spencer President and CEO
SEMATECH Austin, Texas USA
Hiroyuki Yoshikawa President
University of Tokyo Tokyo JAPAN
Gerhard Zeidler Chairman,
Committee for Research and Development Confederation of German Industry Bonn GERMANY
THE BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY wishes to acknowledge the many fine contributions of the conference speakers and participants from global high-technology corporations, universities and think tanks, and senior policy officials from the United States and other governments. The Board especially wishes to recognize the contributions of the project chairmen, Dr. Erhard Kantzenbach and Ambassador Alan Wm. Wolff, to the success of this complex international endeavor. The Steering Committee deliberations benefitted especially from the experience and expertise of William Spencer of SEMATECH, George Scalise of National Semiconductor, now president of the Semiconductor Industry Association, and Sylvia Ostry of the University of Toronto. The Board also wishes to extend special recognition to Charles Wessner, who was responsible for organizing this exceptionally comprehensive conference, and George Georgountzos, whose assistance was instrumental in assuring its success.
Contents
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Welcome |
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Introductions by Project Co-Chairs |
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The End of the Endless Frontier |
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The Multilateral System and National Economic Strategies |
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Producer versus Consumer-Oriented Economies |
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The Challenge of the East Asian Economic System |
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Consequences for the International Economic System |
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Foreign Direct Investment Restrictions: Consequences for Trade and Technology |
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Investment, Trade, and Corporate Strategies |
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Asymmetries in National Patterns of Foreign Direct Investment: Consequences for Trade and Technology Development |
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Sanctuary Markets and the Development of New Industries |
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Second Day's Welcome |
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Introduction |
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Opening Address |
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Dual-Use Technologies and National Security |
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A New Model for Defense Acquisition |
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Policy and Budgetary Drivers |
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Dual-Use: Implicit Japanese Policy |
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Military, Commercial, and International Realities |
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Research, Economic Growth, and Competitiveness |
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Defense Research and Technological Superiority |
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Public Funding of Research: A Strategic Imperative? |
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Foreign Contributions to the U.S. Research Base |
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The Concept of National Economic Strategy |
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Japan: The Philosophy of Government Support for Information Technology |
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Asymmetries in National Patterns of Foreign Direct Investment: Consequences for Trade and Technology Development |
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Technology Issues in the International Trading System |
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Dumping: Still a Problem in International Trade |
Preface
This volume is part of an innovative, international project on the Sources of International Friction and Cooperation in High-Technology Development, Competition, and Trade, organized under the auspices of three cooperating institutions—the Hamburg Institute for Economic Research, the Kiel Institute for World Economics, and the National Research Council's Board on Science, Technology, and Economic Policy. The three institutions were brought together through a grant by the German-American Academic Council (GAAC).1 As its first policy project, the GAAC chose to sponsor an examination of the development of new technologies and the industries based on them. These technologies and industries are sources of economic growth and high-wage employment; competition for high technology markets makes them also a source of growing international friction that, over time, could undermine both the multilateral trading system and the tradition of shared scientific and technological information.
Because policy questions related to trade, investment, technology developments and cooperative activities have both national and international dimensions, their analysis can only benefit from a variety of perspectives. Moreover, one of the project's goals was to ensure that the project yield practical policy recommendations for national governments. Consequently, every effort was made to bring a variety of perspectives to bear, not only
scholarly analysis and technical expertise, but also business management and government policymaking experience. Accordingly, an innovative structure was adopted to secure the broadest participation with respect to project guidance, finance, conferences, and related activities.
PRIVATE SECTOR PARTICIPATION
The generous GAAC grant covered the costs of participation for the German institutes and provided a foundation for the fundraising effort required of the National Research Council to meet its different budgetary requirements as a private independent institution. The challenge of securing adequate funding was also seen as an opportunity to secure broad private sector participation in the information-gathering phase of the project.
Validating the project's concept and the GAAC's interest, the National Research Council succeeded in assembling a group of private sponsors very diverse in terms of nationality, sector of activity, and corporate size. These corporate contributors and participants included companies based in the United States, the Netherlands, Japan, Canada, Korea, and Germany, with operations across a broad range of high-technology sectors such as consumer electronics, semiconductors, computers, telecommunications, turbines, and materials. The participating companies include Northern Telecom, Siemens, Hitachi, Samsung, Philips, General Electric, MEMC, Trimble Navigation, Varian Associates, and AT&T.
The substantive and financial contributions of the project sponsors were essential to the success of this undertaking. Without their financial support, the NRC could not have carried out a project of this scope and intensity. Equally important, the active participation of senior industry representatives from these sponsors and a wide range of other companies, as well as of academic experts and senior policymakers, helped ensure that the presentations and discussions of the conferences accurately reflected the genuine opportunities for increased cooperation, the realities of global commercial competition for high-technology markets, the national stakes inherent in this competition, and the resulting policy challenges.
THREE CONFERENCES
Each of the cooperating institutions was responsible for an independently organized conference reflecting its particular analytical strengths, policy interests, and traditions. The first conference, The Economics of High-Technology Competition and Cooperation in Global Markets, was held at the Hamburg Institute for Economic Research (HWWA) in Hamburg, Germany, on 2-3 February 1995. This conference was designed to lay the theoretical and empirical foundations of the study, addressing new growth
theories, strategic trade theory, and issues of industrial organization as well as issues related to different national approaches to technology policy.2 The second conference, The Sources of Friction and Cooperation in High Technology Development and Trade, was hosted by the National Academy of Sciences on 30-31 May 1995 in Washington, D.C. and is the subject of this volume. The third conference, Toward a New Global Framework for High-Technology Competition and Cooperation, took place at the Kiel Institute of World Economics on 30-31 August 1995 in Kiel, Germany. This last conference in the series considered policy prescriptions with special emphasis on multilateral or plurilateral rules and mechanisms for conflict avoidance.3 The respective host institutions are each responsible for the publication of their conference volume.
This volume is the second in this series of three conference volumes. In keeping with the NRC tradition of producing conference proceedings, as well as papers, when merited by the quality of the presentations, this volume includes both the presentations of the large number of distinguished speakers and comments of conference participants as well as commissioned papers prepared to address topics of particular relevance to the issues covered in the course of this conference.
A MULTINATIONAL STEERING COMMITTEE
The final report of this project was produced by the National Research Council in cooperation with the two German institutes under the direction of a multinational Steering Committee. The Steering Committee provided leadership and direction for the project as a whole. It was composed of distinguished academics, leading business executives, trade and technology policy practitioners, and other experts. The Committee included members from Canada, Japan, and other European countries as well as Germany and the United States.4 The diverse national perspectives and training of this distinguished Committee brought a multidisciplinary and global perspective to the complex issues considered by the project. Different perspectives have a value in their own right but by no means assure consensus. The Steering Committee discussions involved a sustained effort to identify the limits of consensus on a broad range of analytically difficult and often contentious issues of great consequence for international cooperation in science, technology, and trade.
The Steering Committee met on four occasions under the co-chairmanship of Professor Dr. Erhard Kantzenbach, president of the HWWA and Ambassador Alan Wm. Wolff. Three of the meetings were held in conjunction with the conferences, in which Committee members were principal participants. The final deliberative meeting, which took place at the NRC in Washington in December 1995, took into account the conference papers, presentations, and discussions, and the analysis prepared by the three institutions. In the course of this final meeting, the Steering Committee agreed to a comprehensive and significant set of recommendations on a series of interrelated and highly complex issues. These Findings and Recommendations form the basis for the summary report of the project.
A SUMMARY REPORT
That report, entitled Conflict and Cooperation in National Competition for High-Technology Industry, includes the Findings and Recommendations of the Steering Committee, and revised versions of the two reports considered by the Committee at its final meeting, the first prepared by the NRC staff, the second jointly prepared by the HWWA and IfW staffs.5 The Recommendations and Findings underscore the importance of the subject matter and address specific issues of technology and trade policy, government support of research and development, and policies affecting international cooperation. In the rare instances where no agreement was possible, the Steering Committee acknowledged its inability to achieve consensus on a recommendation. The recommendations also highlight the need for additional information and identify specific areas that would benefit from further analysis.
This volume represents a key element in the Steering Committee deliberations. The presentations, discussions, and papers included in this volume illuminate many of the complex issues addressed by this project. Indeed, the questions addressed in this timely and comprehensive conference remain central elements of the international economic dialogue.
Alan Wm. Wolff
Project Co-Chairman