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Introductions by Project Co-Chairs

Alan Wm. Wolff, Dewey Ballantine

Erhard Kantzenbach, HWWA

ALAN WOLFF: Our inquiry today calls for an examination of the sources of international friction and cooperation in high-technology industries.

We do not have to look very far to find friction in the world today. The current U.S.-Japan automobile dispute is a case in point. It demonstrates that friction of major proportions can still easily occur in the international trading system. The United States contends that the genesis of the friction is to be found in Japanese government policies that promote this key sector through protection of the home market. The U.S. reaction, however, is provoking as strong an adverse reaction from other countries as was Japan's protection.

We are not here today to resolve the problems of the automobile sector, but the dispute does point out that national economies differ as do national approaches to industrial support. These differences raise important questions. What forms of promotion are appropriate? What responses are acceptable? We have managed to channel some international disputes into settlements. Semiconductors and Airbus are two examples, but it is not at all clear that the system will manage itself.

As Korea, Taiwan, and ultimately China, increase their technological capabilities, the sources of friction are likely to become more, rather than less, pronounced. The appropriate responses are less clear. The general sentiment is that it is undesirable to manage trade. This is not the same as a desire to manage relations. A central question to address at this conference is how best to limit the causes of friction and to foster trans-border cooperation?

Several forces can be identified which may be leading toward reduced friction. First, budget constraints are forcing national governments to reduce public sector spending on industrial programs. In the United States, where industrial



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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Introductions by Project Co-Chairs Alan Wm. Wolff, Dewey Ballantine Erhard Kantzenbach, HWWA ALAN WOLFF: Our inquiry today calls for an examination of the sources of international friction and cooperation in high-technology industries. We do not have to look very far to find friction in the world today. The current U.S.-Japan automobile dispute is a case in point. It demonstrates that friction of major proportions can still easily occur in the international trading system. The United States contends that the genesis of the friction is to be found in Japanese government policies that promote this key sector through protection of the home market. The U.S. reaction, however, is provoking as strong an adverse reaction from other countries as was Japan's protection. We are not here today to resolve the problems of the automobile sector, but the dispute does point out that national economies differ as do national approaches to industrial support. These differences raise important questions. What forms of promotion are appropriate? What responses are acceptable? We have managed to channel some international disputes into settlements. Semiconductors and Airbus are two examples, but it is not at all clear that the system will manage itself. As Korea, Taiwan, and ultimately China, increase their technological capabilities, the sources of friction are likely to become more, rather than less, pronounced. The appropriate responses are less clear. The general sentiment is that it is undesirable to manage trade. This is not the same as a desire to manage relations. A central question to address at this conference is how best to limit the causes of friction and to foster trans-border cooperation? Several forces can be identified which may be leading toward reduced friction. First, budget constraints are forcing national governments to reduce public sector spending on industrial programs. In the United States, where industrial

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings promotion is eschewed, the budgetary pressures are reaching into pre-competitive research and development. There is a debate here as to whether to retain either the Department of Energy or the Department of Commerce, as well as whether to continue the National Institute for Standards and Technology (NIST) Advanced Technology Program. Are these institutions to be considered engines of growth and national assets, as many believe, or are they Jurassic Parks, as their critics charge? Should it be an accepted goal of government to promote the production of public goods, including providing for the development of technologies relevant to the national defense? Or should government go further to promote national economic and commercial interests? Different countries have differing views on this subject. Is the government's fostering of R&D in the form of a straight subsidy likely to lead to trade friction if these measures are not accompanied by more distorting promotional policies, such as market closure? Is the promotion of technological development, at least at the level of basic science, likely to lead to major trade friction or does it just spur healthy international competition? Many governments are continuing to implement competitive industrial policies with investment of public funds in the development of new, commercially relevant technologies. However, at the level of individual firms, the enormous increase in the complexity and cost of developing new technologies is driving an explosion of inter-firm cooperation. This is one of the forces governing the movement toward greater globalization taking place in recent years. Whether globalization is all to the good is also subject to debate. The answer depends in part on whether market forces are being allowed to determine the direction and amount of trade and investment flows, as well as competitive outcomes, to the maximum extent possible. In this connection, the record of individual countries is mixed. There was a very depressing article in the Financial Times not that long ago. It described advice being given by Japan's Official Development Agency to nations in Southeast Asia. The Japanese officials were quoted as saying that the United States was 100% open while Japan was 80% open. The counsel the officials gave was not to open up too much. The giving of advice of this kind, if the story is accurate, must be a cause for concern. It should be clear that countries do not need external advice to employ protectionist measures. In some corners of the world, it is the rule, rather than the exception, to seek to force technology transfer as the price for permitting investment and market access. This is a subject that should be dealt with in the Multilateral Agreement on Investment that is under discussion in the World Trade Organization. How best can conflict be replaced with cooperation? Fortunately we have an exceptionally fine roster of panelists and speakers to address this question. The possibility exists that we are on the threshold of a golden age of international

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings cooperation and healthy competition, all with the desirable side-benefit of spurring technological innovation and realization of widespread benefits through rapid commercialization. If we are good at pursuing the task we have set for ourselves in this project, we will contribute at least in some small part to understanding the forces that govern technological competition and cooperation. We can then work together to promote shared objectives in harmony without risking friction that could lead to debilitating trade wars. ERHARD KANTZENBACH: I will first say a few words about the two German institutes that are partners with the National Research Council in this project. The Kiel Institute and the Hamburg Institute are two of the six independent economic research institutes in Germany. The basic budgets of these institutes are financed jointly by the federal and state governments, but these governments have no influence on the research programs of the institutes. In this respect, they are absolutely independent. But the institutes also do project research, which is financed separately by the federal government, the Commission of the European Union, and private foundations and organizations. This is the second of three conferences that we, together with the National Research Council, have planned for this project, which is financed by the Foundation of the German-American Academic Council, as part of its program of common German-American research projects. This conference is also sponsored by European, American, and Asian business firms and organizations, and we are grateful for their support. This project has three stages. During the first conference in Hamburg, Germany, we dealt with the theoretical justification for public promotion of R&D and with the different national approaches of public technology policy. In this conference today we will investigate the sources of international friction that result from these different national technology policies. In the third conference, to take place in Kiel, Germany, in August 1995, we will discuss the possibilities for a new global framework for high technology competition, where it is hoped that we can agree on some basic principles for such new framework conditions so that we can submit these as proposals to our national representatives in the WTO. Of course, this is a very ambitious goal, and I hope that we will be able to reach it. Therefore, I wish this conference to become a great success.