Cover Image

PAPERBACK
$77.50



View/Hide Left Panel

I
INTRODUCTION



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings I INTRODUCTION

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings This page in the original is blank.

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings As described in the preface, this conference was a central element in an international cooperative effort to analyze the Sources of International Friction and Cooperation in High-Technology Development and Trade. In the course of this two-day conference a broad range of issues were examined by technologists, trade and technology policy practitioners, academic experts and current senior policymakers. In essence, the conference examined the challenges posed by different national economic strategies to the multilateral trading system and to international technology cooperation. As a first step, the important differences among national economic strategies and their consequences for the international economic system were reviewed as were the significant differences in the more specific national policies designed to support high-technology industry. One of the hallmarks of the conference was the emphasis on actual cases of both cooperation and friction resulting from governments' efforts to foster high-technology industry within their national economies. Two high profile cases, the Airbus Consortium and the semiconductor industry, were reviewed to illustrate both the potential for successful regional cooperation and the ability of competing trading partners to move from a situation of trade conflict to one of substantial cooperation. At the same time, the conference devoted considerable attention to asymmetries in national policies in key areas, such as national investment regimes, which are a source of instability for the multilateral system as well as a source of competitive advantage. Because restrictive investment regimes are particularly important for trade and product development in high-technology industry, special attention was given to the consequences of these asymmetries and current international efforts to develop an enforceable international agreement. The conference also examined the interplay between core national interests, such as national security, and the global development of new technologies. The diffusion of technological capability poses both a challenge and an opportunity for national technology programs. From the American perspective, considerable emphasis was placed on the need to adopt a dual-use approach to the development of new technologies, an approach successfully practiced by Japan and an established policy among other members of the international community. The same interplay between national interest and global opportunity was evident in the three closing panels which took up foreign participation in national technology development programs, international cooperative programs involving both public and private participants, and the growth of strategic alliances among private firms. Each of these topics has significant implications for public support of national programs, in terms of their rationale and perceived distribution of benefits. Several themes characterized this conference. Many of the Americans present expressed alarm at the prospect of growing cuts in funding for federal research and development programs. European participants shared concerns about national levels of R&D efforts and access to foreign programs against a

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings background of diverging performance in high-technology trade vis-à-vis both North America and East Asia. Industry participants emphasized the financial and technological imperatives driving enhanced cooperation, while public policymakers recognized the political and policy challenges posed for international cooperation by competing national programs and diffused technological capabilities. Most participants accepted the premise of the conference, namely the existence of genuine opportunities to cooperate, not only for ''traditional" scientific research, but also for the development of new commercially relevant technologies. Participants also accepted the premise that increased friction rather than increased cooperation remains a possible outcome from the growth in national development programs and from the significant asymmetries in national policies in areas such as trade, investment, and cooperative programs. PROJECT PAPERS Papers were commissioned from outstanding speakers who contributed significantly at one or more of the conferences to the development of the committee consensus. In other cases, papers were commissioned to provide greater analytical depth on particular topics and to help illuminate alternative views and perspectives. Differences in economic systems and national economic strategies are the source of considerable friction in the international system. Fairly fundamental differences in the orientations of public policy may be at the root of these policy differences. Noting the evolution of international trade over the last century from a raw material base to trade in knowledge-based products, Bruce Scott's paper, The Concept of National Economic Strategy, emphasizes the importance of national economic strategy rather than "inherited" comparative advantage. Scott stresses that government intervention is not always successful (any more than corporate strategies are always successful), yet when these strategies do succeed, as they often have in East Asia, the consequences in terms of economic growth and created national economic advantage are significant. In what he calls "producer-oriented" countries, national policies favor producers, at the short-term expense of consumers, to permit the exploitation of high-growth opportunities in leading industries—an approach aided further by protected home markets and export incentives. The consumer subsidy to producers permits "learning by doing" scale economies and ultimately is designed to build an improved standard of living around a higher rate of productivity growth and higher salaries rather than low consumer prices. Scott contrasts this approach with what he sees is the tendency of a number of the older industrial countries to reduce national investments in research and development and in public infrastructure. He argues the older industrial countries are failing to shift resources either towards areas of opportunity or advantage and instead are increasingly transferring resources on the basis of disadvantage. Although transfers of resources to the economically disadvantaged have recently

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings declined, at least in the United States, Scott observes that transfer payments to low-income groups have substantially increased (tenfold since the mid-1960s) while strategic investments have declined. As a former head of the Tokyo office of the American Electronic Association, John Stern has spent much of his professional career studying Japanese high-technology industry and the governmental policies that support them. Questioning the current conventional wisdom of American "technological supremacy," Stern notes that notwithstanding the recovery of the U.S. marketshare in leading industries such as semiconductors, the last decade has seen a significant erosion of the U.S. market position. Moreover, Stern observes that even during economic downturns the major Japanese electronics companies have recorded substantial profits in contrast to the tendency of American firms to actually lose money in similar circumstances. From a longer-term perspective, Stern emphasized that Japan's economic policymakers have accomplished a great deal. In 1960, Japan's per capita gross national product was barely 20 percent of that of the United States but by 1990 it had increased nearly fiftyfold. The Japanese standard of living showed 77 percent real growth between 1973 and 1993, a level of performance not lost on other East Asian countries. Stern emphasizes that this progress has been achieved in part as a result of Japanese government efforts to assist in the acquisition and diffusion of new technologies by promoting standardization, funding targeted research and development including supplying seed funding, blunting foreign competition, and generally reducing risks for business in adopting new technology. Stern also notes that government procurement is one of the most pervasive methods of supporting research and encouraging the development of new products. Stern's fundamental message, however, is that there is a broad national consensus in Japan as to the importance of high-technology manufacturing industries for the national economy. Interestingly, this point is affirmed in the course of Uzuhiko Uwatoko's presentation of the Japanese perspective on the Intelligent Manufacturing Systems program. One of the most central issues raised in the course of the conference, and indeed the project as a whole, was the crucial importance of restrictions on foreign direct investments and their consequences for trade and technology. Jeffrey Lang, the Deputy United States Trade Representative, emphasized in his presentation the strong linkage between trade and investment. The paper by Simon Reich of the University of Pittsburgh explores the ramifications of restrictive investment regimes for competition in high-technology industries. He suggests that significant advantages accrue to firms able to obtain higher rents from a protected sanctuary market. These include the ability to subsidize exports, thereby gaining market share and economies of scale, and to finance the high capital costs of succeeding generations of technologies. Moreover, the increasingly close coupling of direct investment and (intrafirm) trade suggests that asymmetries in investment regimes have long-term consequences for trade balances.

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings From a policy perspective, Reich argues that the current U.S. emphasis on the importance of emerging markets simply masks the inability of U.S. policymakers to make significant progress on liberalizing investment regimes in key industrial markets. Reich suggests, however, that competition in these emerging markets will also be conditioned by the advantages enjoyed by firms exporting or investing from a sanctuary market. In light of the linkages between trade and investment in high-technology industry, Reich sees a combination of bilateral and multilateral initiatives necessary to avoid friction and support the continued health of the world trading system. In a comprehensive overview, Sylvia Ostry of the University of Toronto draws on her vast experience as a national and international civil servant at the upper levels of G-7 policymaking to review the importance of technology issues for the international trading system. She notes that the most fundamental explanation for the increasing prominence of technology issues in the international agenda involves the "convergence" among the major trading powers in terms of technological and managerial capabilities, capital intensity, and education levels—a process greatly facilitated by the reduction of barriers to trade and financial flows promoted by post-war international institutions. Rapid Japanese economic growth, seen in part as a result of successful Japanese industrial policies, has encouraged policymakers in both the United States and Europe to focus on high-technology industries. Ostry sees these fundamental changes in the international environment and the policy tilt towards industrial policies in the 1980s as a source of international friction, often centered on technology-intensive sectors. Ostry's analysis reviews the major issues related to trade in high-technology products such as subsidies (and the national security exemption), government procurement, product standards, dumping and antidumping, intellectual property rights, asymmetric technology flows, foreign participation in national or regional technology programs, and the growth of strategic alliances. She emphasizes that while existing trade policy rules might be adapted to improve their effectiveness for high-technology sectors, improved international competition policies and a multilateral investment agreement are required in one form or another. Moving beyond the traditional trade agenda, Ostry also suggests the need for improved rules for international cooperation in science and technology, including the need for improved burden-sharing. In sum, the analysis put forward by Ostry underscores, in her words, "the broad range of technology issues that cut across the domains of trade, investment, competition, innovation, and science policies." This perspective of course underlies the concept of the project and this conference. While emphasizing the long-term importance of improved international competition policy, Ostry' s paper also addresses one aspect of dumping, i.e. strategic dumping, that she considers especially relevant to capital-and technology-intensive sectors. She describes strategic dumping as "essentially subsidizing exports

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings through higher home prices sustained by collusive price behavior and a protected home market" which can deter entry (or encourage exit) in industries with significant dynamic economies of scale and high fixed costs. The issues associated with dumping and antidumping policies emerged as some of the most contentious issues discussed in the course of the project. In this respect, the Steering Committee membership mirrored the divide which characterizes discussion on this issue in countries with relatively open markets. Interestingly, the divisions of opinion were less apparent on the basis of nationality, and more on the basis of academic training, with many of the economists on the Committee especially skeptical of antidumping policy. Reflecting the strongly held and divergent views on this aspect of high-technology trade, the Steering Committee ultimately could reach no agreement. As the Chairman noted on several occasions, much of the discussion of this issue paradoxically focuses on the problems associated with antidumping policies, rather than dumping. Relatively little attention is given to the conditions which are conducive to dumping by competitors seeking market share, and in particular to the restrictive trade practices which greatly reduce the commercial risks associated with dumping. Nor is there much awareness or discussion of the experience which led to antidumping legislation in the early part of this century. The trade policy article by Thomas Howell is designed to address these gaps, including the question of why antidumping policies remain in place in the face of vociferous criticism. Howell provides a historical perspective on dumping in the high-technology industry of 1900—that is, high quality steel—and describes the consequences of the weakened industrial base of the United Kingdom during the trauma of the First World War. A particularly interesting aspect of Howell's research is that the free trade debates at the turn of the century in Great Britain bear a striking resemblance to the debates on trade policy in the United States and the European Union today. Howell also draws parallels between the powerful economies of scale generated by high levels of capacity utilization in steel production, both in 1900 and today, and the similar economies which can be obtained in the utilization of high fixed-cost semiconductor production facilities. Howell also observes that the debate on antidumping policy is somewhat skewed, in part because the utilization of antidumping legislation is by definition reserved for countries with relatively open markets. Countries that maintain protected domestic markets through restrictions on investment, private or public barriers to competition, discriminatory standards and procurement regimes, and a host of other formal and informal measures do not require an active antidumping policy; government policy already ensures that exports are either blocked or restricted. Fundamentally, Howell suggests that the controversy surrounding antidumping is a symptom of a larger phenomenon, the divergence which exists between various national markets with respect to competition policy and which has frustrated all attempts at consensus for at least half a century. In this view, antidump

OCR for page 1
International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings ing measures have been assigned, more or less by default, the task of addressing specific problems created by this divergence. Interestingly, some opponents of antidumping believe that the practice is spreading as other nations emulate United States policy. Howell argues that, on the contrary, as countries such as Taiwan begin to liberalize and remove formal and informal barriers to trade, it then becomes necessary for the first time to have an overt mechanism to protect national industry from predatory trade practices. More broadly, Howell suggests that antidumping policies serve as an interface mechanism, a sort of political clutch between dramatically different economic systems. As such, he believes antidumping policy plays a critical role in the maintenance of support for a liberal multilateral trading system. The greater depth provided by the analysis put forward in these papers is designed to contribute to a better understanding of issues often positioned at the intellectual fault-lines that mark national policymaking on trade and technology policy or most favored nation treatment for investment and foreign participation in publicly funded cooperative research. The importance of these issues, their cross-cutting nature, and their impact on scientific and technological cooperation and international trade are reflected in the observations of the academic experts, industrialists, and senior policymakers brought together by the conference. While no attempt was made to agree on conclusions or recommendations, the conference deliberations did serve to underscore the necessity of a more integrated approach to issues too often treated independently. Recognizing the linkages among these seemingly disparate issues is essential in encouraging cooperation and reducing friction in the development and trade of high-technology products.