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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Session 9 Participation in National Technology Development Programs Moderator: Charles Wessner, National Research Council CHARLES WESSNER: Before we begin this session, I would like to mention a symposium held earlier this year as part of this project. The symposium focussed on International Access to National Technology Programs and was organized under the auspices of the National Research Council's Board on Science, Technology, and Economic Policy. It allocated a full day to reviewing issues associated with foreign participation in national technology development programs—a subject not dissimilar to the topic of this session. Every effort was made to make that symposium as inclusive as possible. As with the other subjects that we have covered in the course of the today's discussion, such as Airbus and telecommunications policy, the question of participation in national technology programs elicits strong opinions but not always careful analysis. Although the STEP Board did not issue any formal findings from that symposium—and I stress that there were no formal findings—there were perhaps four points that are relevant to today' s discussion. Program complexity: The first point is that there is a great deal of complexity and many administrative differences in the programs of the participants in the international system. However, these programs share a common orientation; they are national technology programs designed to promote national industries. Practices differ: Second, the actual practices and procedures of these national programs differ a great deal. For example, they often differ in terms of administrative procedures and the judgments that result. One of the most interesting observations was made about a Finnish program, to the effect that if the Finnish administrators decided that they needed a company in the program to achieve its objectives, the company would be invited to join the program, regard-
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings less of its national origin. That is the national criteria standard they adopted, and it appears to be a very compelling standard and one which relies on good judgment of program administrators. Of course, here in the United States, some would have us codify a set of legal principles to address these issues, which may take on the dimensions of Hammurabi's Code. Linkages: A third point is the issue of linkages. Issues that are seemingly separate, such as public procurement, investment regimes, and trade practices, are in fact intimately linked. For example, some private sector speakers objected to the idea that they could cooperate on developing a technology together but then would not be allowed to sell that product in the home markets of the partners. Legislative complexity: Fourth, not only do the practices in each of the countries discussed differ, even the programs of the federal government in the United States differ quite substantially. Moreover, to ''realign" all of the U.S. technology programs to ensure that same condition of access would not only be conceptually difficult (given their different objectives and origins), but as Tom Kalil, who works with the White House National Economic Council, pointed out, opening up the legislation for all these programs would be impractical. Indeed, he jested that the policy solution for access to U.S. programs that the Congress might adopt is to abolish them all. The underlying point is, of course, that the topic of international access, like many others addressed in the course of this conference, could be the subject of a full day of presentations and discussion. We have three outstanding participants for this session: William Spencer, who is both a respected leader and a survivor of cooperation among American companies, will be our first speaker. We are also very pleased to have with us today the head of the Office of Naval Research, Rear Admiral Marc Pelaez. The Admiral has very kindly agreed to bring a perspective that was touched on earlier today with the DoD program and the dual-use program. Admiral Pelaez is responsible for a vast array of Navy and Marine Corps programs designed to provide a competitive edge in that most critical and unforgiving of environments, the battlefield. Our last speaker is William Keller, who works for the Office of Technology Assessment [OTA] which provides an invaluable service through its objective and thorough analyses of the technically complex questions that are raised by public policy issues today. Opportunities and Challenges in International Collaboration: A Civilian Perspective William Spencer, SEMATECH I am here to give you some idea of what we have done at SEMATECH, some of the lessons we have learned, and then some thoughts that might translate into ways we could cooperate internationally.
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings I want to talk about SEMATECH, about what it is and what it is not. The SEMATECH consortium of semiconductor manufacturers has been around for almost a decade, and I have been at SEMATECH for almost 5 years. It is still an experiment; all of its participants are still learning new methods, processes, and techniques. This year we have a budget of $180 million, half of which comes from the federal government; the other half comes from our member companies. We have approximately 750 people. Over 200 of them are assignees from our member companies. Our members send very good people to our organization for periods as short as a few months to as long as five years. Our assignees are a major asset. We run approximately 100 projects a year. Even though SEMATECH has been accused of subsidizing only the big companies in the United States, most of the money flows through to very small companies doing equipment development. Two-thirds of the companies in the United States who provide manufacturing equipment are under $12 million in sales, and the bulk of our money goes to these companies. We have even more meetings than the National Academy of Engineering. We run 600 meetings a year, and these are only the ones that we keep track of. Participating in these meetings are approximately 25,000 visitors each year. Communication is a major part of what we do. In addition, the semiconductor industry provides approximately $35 million a year for university research, and SEMATECH accounts for $10 million a year of that $35 million. This is administered through the Semiconductor Research Corporation located in North Carolina. About 15 months ago, the board of directors at SEMATECH asked us for a plan in which we would no longer use federal funding. Their thought was that, since the semiconductor industry in the United States was now fairly healthy, it was appropriate to have private industry assume full responsibility for funding SEMATECH in the future. Our board and SEMATECH's management extended what was a very gracious thank you to the federal government for the help they had given us, pointing out that we could not have accomplished what we had over the past few years without their support. The board determined that, in 1997 and beyond, SEMATECH would no longer seek direct federal funds. If you look at what happened in the November 1994 elections, our board was prescient. It was an extremely good move for us, though we certainly hope that the interactions that we have had with the government in the past will continue in the future. We believe that there are a great number of advantages, both for private industry and for government, in working together. The area in which we found that the semiconductor industry could best work together is in manufacturing technology not related to products. Specific products are certainly part of the competitive business that our member companies are in, so we stay out of it; we do not get involved in memories, microprocessors, logic, or any other products.
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings We also stay away from specific manufacturing processes. The way that, for example, Samsung manufactures memory and Hitachi manufactures integrated circuits is a competitive advantage to them. They have a process that is better than others, and that is one of the reasons why they have a strong position in the market. So we stay out of specific products and specific processes and instead focus on precompetitive areas for cooperation. Our biggest effort is in information exchange. We ask our members constantly: What do you get out of SEMATECH? And the biggest return they get is a place for their manufacturing people to come together with other manufacturing people and exchange information. That has never existed in the United States before. I am aware of many professional societies—the IEEE [Institute of Electrical and Electronics Engineers], the American Physical Society, and others—where R&D people can get together and share information, but manufacturing people have not had such a forum. As part of the effort at SEMATECH, over the last few years we have developed a roadmap for our industry, looking out 15 years into the future. That roadmap is admittedly fuzzy when you get 15 years out, but we think that for the next 6 or 7 years we know what the industry requirements will be. You heard yesterday from Northern Telecom that one of the key issues for the semiconductor industry is whether we can afford to build fabrication facilities in the future, facilities that are going to cost billions of dollars but that will nonetheless return a profit to the builder. The reason that the semiconductor industry has grown so rapidly for the past 30 years is that every year we have had a 30 percent reduction in the cost per function that is provided in silicon. That translates into over a million times improvement in productivity over that time frame. To look at it another way, in 1965, an individual transistor in a plastic package cost approximately $5. In 1985, just 20 years later, a 1-megabyte DRAM with over a million transistors in a plastic package cost approximately $5. There is a saying in Silicon Valley that every integrated circuit will ultimately cost $5 except for those that cost less. And it seems to be true; a lot of them cost less than $5 today. This is a tremendous improvement in productivity. And the real question is, when you are now paying $1 billion, $2 billion, or $3 billion for a manufacturing facility, can you continue to get that 30 percent per year improvement in productivity? We think we know the answer to that for quarter-micron technology—the technology that is required for megabyte DRAM manufacturing and the associated logic and microprocessors required in the 19981999 time frame—because our industry has gotten together, both the suppliers and the manufacturers, and worked out what equipment has to do to stay on a 30 percent per year productivity curve to the year 2000. And this year the U.S. semiconductor and equipment industries will start on 1-gigabyte technology, and in a year or two we believe that we will have the questions answered for that technology as well.
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings A very important question came up in the sessions this morning: Where is the research for this industry going to come from in the future? I happen to agree that industrial research is in terrible trouble and that the U.S. government is likely to reduce the funding for basic science and certainly for development programs. Universities are in a time of stress, and the national laboratories are searching for a mission. So where will our new inventions based on fundamental science come from? My choice for the source of future breakthroughs in semiconductor devices and technologies is the world's research universities. Research centers, similar to the National Science Foundation engineering research centers, could be established at selected universities. These centers, jointly funded by NSF and the semiconductor industry, would focus on the technologies required 10-15 years in the future, as identified by the National Technology Roadmap for Semiconductors. The first of these centers will soon be established by the NSF and the Semiconductor Research Corporation. Approximately three years ago, SEMATECH started to determine a return on the dues investment of its member companies. Our members, not SEMATECH, calculate this return; SEMATECH provides them any information they need and assists in the algorithms, but they make their own calculations. We had a goal of a factor of 4 in 1994; it had a nice ring to it. We did not know if we could make it; we did make 3.8—that is, for every dollar invested in SEMATECH, our members calculated they received a return on investment of $3.80—which we and our members thought was very good. Sharing information: One of the most interesting aspects of early information sharing in our consortium—particularly information on current manufacturing processes, things that we thought we could share about equipment reliability or other areas that did not affect competitive capability—was the question of who goes first. Fourteen member companies got in a room, sat around a table, and said, "Well, who's going first?" Fortunately one company, a very small company, spoke up and provided information that was of use to the others. And as we broke the log jam, a tremendous peer pressure arose that said, if you don't participate in this meeting, if you don't share in this meeting, you aren't welcome here any more. And that pressure was applied to the large companies just as it was to the small companies. What we learned is that there are very few secrets in this business. If you have been manufacturing integrated circuits for a number of years, the problems that you solve and the problems that you wrestle with are the same problems that are occurring down the street in the other person' s factory. I suspect that they are the same problems that are occurring in Korea, in Japan, in Europe, and everywhere else. So a big secret we have discovered is that there are very few secrets. Specific objectives are very important to the success of consortia. I was pleased that Dr. Jones from the Department of Defense described such objectives for consortia in DoD. In the cooperation on jet engines, for example, there were
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings specific goals: a 30 percent improvement in performance, a 20 percent reduction in cost. A consortium needs clear, measurable goals if it is going to succeed. We believe that it is important for SEMATECH to be led by industry, and we appreciate that we have had an extremely good working relationship with our colleagues in the DoD. Long-term support is also essential. SEMATECH's results would have been meager indeed if the consortium had not survived more than two or three years, because it takes that long to establish a clear direction and mission and begin working toward them. And, as I mentioned earlier, the involvement of member-company personnel has been essential to SEMATECH; we have over 200 assignees each year at our Austin, Texas, site. INTERNATIONAL COOPERATION Let me move now to international cooperation, and the possibility of things that we as nations and members of the global community might do together. Concerning environmental safety and health, we all recognize that the release of pollutants in Japan or Europe affects the United States and vice versa. There is no reason why everyone should look for a replacement for silicon; we ought to be able to do that together. 300-mm wafers: Another area for cooperation is in the conversion to 300-mm wafers. One reason the semiconductor industry has been productive is that we have consistently gone to larger wafers. We know that the cost of conversion from the current 200-mm wafers to 300-mm wafers will be between $10 billion and $20 billion. That is the same amount of money that it will take to build reactors for fusion energy 20 years from now. Our wafer conversion has to be done over the next two years, and the cost will be borne entirely by the semiconductor industry; I hope it will be an international effort, with the cost shared equitably by a large number of companies. X-ray lithography: X-ray lithography (or nonoptical lithography) may also be a great opportunity for international collaboration. Today, if you buy a laser for an exposure tool, it costs approximately $500,000. But today, a light bulb for x-ray lithography, just the light bulb alone, costs approximately $25 million. That is a 50-time increase. Now the rest of the exposure system does not go up by a factor of 50, but it is still significant. You can see why a future factory will cost $2 billion or $3 billion if you have an exposure tool whose light source alone costs $25 million or so. And you can understand why it may be a viable area for international cooperation. Roadmaps: Let me turn to roadmaps. I believe that the basic science activities around the world owe the rest of us a roadmap for what they want to do. Why, for example, is it important to put $10 billion in fusion energy? What are the milestones you expect to meet, when do you expect to break even, what are the things that you expect to deliver to the world to better our lives in exchange for the $10 billion it will cost you to perform that experiment? I think of myself as a scientist and sometimes as an engineer, and I believe
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings that as a group we have made a huge mistake in not communicating better to the general public, and particularly to our politicians, just why these programs are important. I believe that the U.S. academies might take a leadership role in developing roadmaps for biology, physics, chemistry, and computer science—and in those areas in which we will make large multibillion dollar investments, make clear why they are important and what the payoffs to the world will be for those investments. Industry, on the other hand, has a responsibility to set roadmaps within various technologies. Certainly our industry has found the National Technology Roadmap for Semiconductors very useful, and it has set an example for the development of roadmaps in photonics, batteries, jet engines, and other technologies as well. I believe that it is important that all of these interactions that I have described, whether local, national, or international, be treated as experiments. We found that our problems in the semiconductor industry are not primarily technology problems. They are management problems, business problems, financial problems—generally, technology problems are way down on the list. And when you start talking about international cooperation, the complications of trade policy, international financing, and intellectual property rights are going to be more daunting than the technology issues. These complex interactions will demand innovative experiments. NATIONAL AND REGIONAL CONSORTIA In addition to SEMATECH, a number of national or regional organizations have been formed to foster sharing in the electronics industry—EUREKA, ESPRIT, and JESSI in Europe; the Semiconductor Industry Research Institute Japan (SIRIJ); the Industrial Technology Research Institute (ITRI) in Taiwan, etc. Through such organizations, information can be provided to an entire industry. Adequate capital to follow up on international cooperative experiments is essential. If you are going to embark on international collaboration and do not have the capital to fund the results of that collaboration, you had best stay out of it; all you are going to do is frustrate yourself and the people who support the cooperation. Moreover, one country having more capital than another also complicates cooperation, because most high-technology industries today are very capital intensive. Each participant must have something to give. The U.S. semiconductor industry could not have entered into an international cooperation ten years ago; we were down. At that time, everyone believed that the U.S. semiconductor industry was going the way of the U.S. consumer electronics industry. Is an organization such as JESSI or SIRIJ or SEMATECH necessary? In my view such organizations may be necessary for international cooperation to succeed. Each nation must have a strong local organization and a strong national capability so as to share information.
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Today no single country, and certainly no single corporation, and generally no single economic region, will be able to do most of these high-technology activities itself, whether it is in pharmaceuticals, semiconductors, or software. Finally, it is important to point out that, not only does technology flow immediately over the worldwide web, so does everything else. Capital investments around the world are very fluid; they go to places where they will get the biggest return. People move very easily. People, capital, and technology are all on the move, and in such a fluid environment, international cooperation makes a lot of sense. Thank you. Opportunities and Challenges in International Collaboration: A Military Perspective Marc Pelaez, U.S. Navy Today there has been much talk about the DoD. I am going to give you some perspectives and put some issues on the table that may help with discussions for the remainder of this conference and beyond that. I will take issue with something that William Spencer said and take a potshot or two at a couple of the other speakers. Daniel Goldin said he was looking to the future. And in dealing with the future in the United States, I believe that the long-term view rests with the government. The investment for the government is in the basic research area. GOVERNMENT'S ROLE IN RESEARCH I am talking about the next generation of markets, not today's tools. I have talked with Bob Galvin, the Chief Executive Officer of Motorola, and his basic view is that industry uses technology, whereas the government implements technology. Industry does not invest in basic research. The government is the instrument in this country that has done it for the last 50 years. The brain trust that exists in the United States is in the university system. The way we use it is somewhat unique. There has been some reference here today to places such as AT&T and Bell Labs. Certainly some great corporate labs have existed in the United States—IBM and Westinghouse in Pittsburgh are good examples. For the most part, if you look at the history of those laboratories, they really existed as great scientific laboratories at the time when those companies enjoyed monopoly positions in the market. That gave them the flexibility to invest in the long-term view. Because we no longer have that monopoly, for better or for worse, we have seen a real decline in basic research as it existed in those types of institutions. So, again, it comes back to the government to invest. In taking issue with William Spencer because he said that basic science owes
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings us a roadmap, I do not believe that this is true in science. We tend to mix science and technology. As soon as you make roadmaps, you are out of the science business and thinking too close to the present. I like to think of the next generation of markets. I also take issue with Daniel Goldin's comment that researchers should sell the public on what research is all about and convince the public that it is a good investment. I manage an enterprise that takes $1.5 billion a year directly out of the Navy for science and technology. I was introduced at a conference recently as somebody to whom every man, woman, and child in this country gives $6 a year to invest wisely in science and technology. That hit pretty close to home. I decided that if I were to go out and personally ask people to give me $6 this year to invest in science and technology, I would not get much money. So there has to be some view that is beyond the general public. There is a governmental function, I believe, to sustain a longterm investment in the types of enterprises that are important to our economic health, as well as our military superiority. I do not want to lose sight of that. My situation is that I have a customer and I understand the customer, and many of you are in the same position. In terms of the military, I understand the customer very well. TECHNOLOGICAL SUPERIORITY Now we are moving to such things as dual use and drawing more on the private sector, and I believe that this is excellent. But we have to recognize that if we equip our forces, which are getting smaller, with whatever any country can buy off the shelf, then it becomes a numbers game beyond the training, and soon we are a second-rate institution. So our investment in science and technology is to give us that edge to cover those gaps that are not possible within the framework of industry. A good example are all the radars that are available in the private sector. There is plenty of antenna technology in the private sector. But frankly, the antenna technology is driven toward very specialized and unique components. For the military, we are looking for a much broader and more robust environment to operate in when we conduct electronic warfare. So there is a convergence between the commercial interests and the military interests, but there is also a point in which the military investment will be critical to giving us a winning edge. BASIC RESEARCH IS INTERNATIONAL Now I will take some potshots at a few things that may generate some discussion. I mentioned basic research. I really do believe that it is transnational. I do not believe that it is possible to capture the market in basic research. Science tends to move across borders very easily. Even during the Cold War, there was
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings considerable exchange with the Soviet Union, because scientists, to survive in most of the world, publish or perish. So what you find is that no one has a real monopoly on science. I do think some countries invest quite differently in it. CHALLENGES TO INTERNATIONAL COOPERATION When you move beyond science, you begin looking at international cooperation. What you are really talking about for the most part is the difficult and sticky points that center around technology, because technology gets much closer to application. I operate an office in London and an office in Tokyo as well, so we have a lot of interaction globally. There are a number of unique problems, one of which is the U.S. perspective. First, I do not believe that we are driven by a national strategy. That is a broad statement. The problem when we try to deal with technologies is that we tend to think in terms of critical technologies; Congress likes to do that. It is a very convenient way to discuss technology. Critical technologies, in my opinion, are the worst way to discuss your products. You need to look at what capabilities you want to achieve. If you are in the private sector, if you are in a business unit, such as the gentleman from AT&T who was here today, then you talk in terms of what capability are you trying to get to the market. And yet when we talk in terms of science and technology on a national scale, we tend to talk in terms of critical technologies, because that is easy to deal with and you do not have to be very specific. That causes us, in my opinion, a number of problems when we deal with other countries. I will mention a few of the countries and a few of the issues. I would hate to think that anyone would misplace my words as attempting to attack a particular country's interests, because I am not. The French. When I deal on a technology level with the French, I face a real dilemma. When I deal with the French government, I find I am also dealing directly with the French private sector, almost across the board. And yet, on my side, we tend to treat our industry somewhat as orphan children; we do not want to pick winners and losers. So we do not pick anyone. I end up with a government lab on my side and industry on their side. What technology am I going to transfer and where does it go? Where is the level playing field that you would like to have? It is a dilemma. I am not saying this has impeded us from entering into cooperative arrangements, and I am encouraged by some interesting opportunities. But it does pose a problem for us, and it is something that we have to think through. There was some discussion yesterday and today about producer-, worker-, consumer-based structures. Japan is very much a producer-oriented structure. Basically the Japanese have paid for the Americans to be there to support their defense structure for a long, long time. It has been a very good relationship for both sides. I am not sure of the actual numbers, but the Japanese nationals are paid billions of dollars to work and pay for land and utilities and such things for
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings us to operate there. This is a two-way street because our military presence actually gives us access to markets in a very diverse sector of the world that has the greatest trade with the United States and represents one of the greatest market potentials for the United States, even though we tend to be Eurocentric because it is convenient geographically. So this is a two-way street that has enabled the Japanese to concentrate on the producer side without investing heavily, although it has changed somewhat in the defense structure. THE NEED FOR PERSISTENCE Maybe it would be worth undertaking a case study about long-term strategy for the United States. One of the things to consider is that we do not have persistence. We have wonderful long-term investment in science and technology, but we do not always have a long-term view in terms of policy, and it tends to change at least every four years, if not every two years. For another example, there is a program that was the first cooperative development of a weapons system between the United States and Japan. It was a derivative of the F-16 aircraft, the FSX. It is managed and funded by the Japanese Defense Agency. The commercial contracts between the U.S. and Japanese industry result in the U.S. gain of 40 percent of the work share. The aircraft quantities are two flight tests, two ground tests, and approximately 100-130 aircraft in production. The history of this started in 1985, and in 1990 a memorandum of understanding (MOU) was finally consummated. The U.S. program goals were to assist in the development of an interoperable fighter for the defense of Japan, enhance two-way technology flow, and share a meaningful work plan for U.S. industry. The MOU outlined the process whereby the JDA or the Japanese FSX contractors provided all derived technology to the DoD or U.S. FSX contractors. This includes the ability to examine and evaluate without charge to the U.S. government or to U.S. industry Japanese indigenous technologies. Access also includes the opportunity to pursue special testing and full transfer of technology through separate contractual agreements. This memorandum has been fully supported by the Japanese. The problem is that we never took advantage of it. We could go down to the assembly line and sit right next to the U.S. F-16s that are being put together with all sorts of rivets and examine polymer co-cured composites on an adjacent line that is being used on Japanese aircraft. Other technologies in use include gallium-arsenide-based radars, as well as some others in terms of surface-mount technology for direct chip attachments in electronics, optical interconnects, advanced displays, and thermal management technologies, etc. When we enter into these agreements we have an opportunity for real tech-
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings nology transfer, but we do not take advantage of the opportunity. So there is an issue not only with having a strategy, but also a policy and a strategy that waivers with time, which does not serve our national interests. Criteria for Foreign Participation in National Programs William Keller, Office of Technology Assessment Today I am going to address the subject of criteria for participation in national technology programs. There is a lot of interest in this because, in the end, it comes down to who gets the money and according to what principles. So my talk today will center on money and principles. These are two ingredients that get rather mixed up in Washington at times. TAXPAYERS' MONEY The money is taxpayers' money. It is given to corporations, usually in matching grants, under technology development programs such as the Advanced Technology Program (ATP) and programs under the Energy Policy Act of 1992. These technology programs for the Department of Energy and the Department of Commerce are not insignificant. In FY 1995, the appropriation for the ATP was approximately $431 million, and the appropriation for the DoE technology programs was on the order of $2.3 billion. Some of the money is getting taken back by way of recision, but even after the recision, it is still a very significant investment in the nation's technology base. AND INDUSTRY'S The money is also industry's money. Government is not in the business of giving a handout to corporations. Usually industry must come up with half the money. And the money that industry antes up is a very special kind of money: It gets invested in technologies that may or may not pay off. This is why industry does not go it alone for many of these projects that are contemplated under these programs. The risks are simply too high. It is the government's money that brings the risk to an acceptable level. And it is the fact that government and industry are willing to take the risk with the money that enables the exploration of technologies that might otherwise not have been developed. There is not much agreement on the money these days. Some want to reduce it. Some would like to build it up. Some want to reserve it, I believe mistakenly, for U.S.-based companies under certain circumstances. And some think that foreign companies should have the same opportunity to compete for U.S. technology funding as U.S. companies do. So much for the money, now for the principles. PRINCIPLES It turns out there are two principles. The first is easy. To be eligible, firms must act in the economic interest of the United States, broadly defined. The
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings second is more elusive, which is the principle of national treatment. Nations should treat foreign countries as they treat their own indigenous firms. Let me take these one at a time, and the way to do this is to focus exactly on the ATP and the Energy Policy Act programs that I mentioned earlier. The legislative language that governs participation in these programs is virtually identical. There are two parts to it. The first is an economic interest test that applies to all firms that would like to participate. Economic interest: The legislation gives an illustrative list of what might constitute the national economic interest; this list includes investments in R&D and manufacturing in the United States; significant employment in the United States; and an agreement to promote manufacturing and resulting products in the United States. A fourth item on the list is oddly worded. It is an agreement to procure parts and materials from competitive suppliers. And we say they do not all have to be met, there could be other ones. It is an illustrative list, and it is very important to keep this in mind. These are broad criteria and presumably others would do as well. To my knowledge, no firm to date has been excluded from participation on the grounds that it did not contribute to the economic interests of the United States. So we may have a bit of a tempest in a teapot here. There has been so much argument against this. There have been entire coalitions of companies and large-scale business organizations that have fought it. Maybe they are fighting against a straw man. When you get down to it, there is a strong presumption that any firm, foreign or domestic, that conducts a lot of business in the United States, employees a lot of people, and conducts R&D is simply acting in the United States's interest. It is a net plus for the national economy. So much for the principle of economic interest. There are very few, if any, situations under which it would disqualify a foreign firm. National treatment: The second principle, the principle of national treatment, is really far more troublesome. It has several synonyms or elements, if you will: level playing field, equality of competitive opportunity, comparable treatment, basic fairness. If anything, there is less agreement here than there is about the money. This stems from the fact that there is a giant misunderstanding about what national treatment is, how it should be applied, whether and how it should be enforced, and whether it extends past investment to government procurement and/or beyond that to government funding of basic research, applied research, and technology development. Let me illustrate the dimension of this misunderstanding about national treatment as it applies to the ATP and the DoE technology program. The congressional staff who drafted the national treatment provisions of the legislation crafted it explicitly, or so they thought, as an instrument of national treatment. The basic intent of the comparable treatment provisions of this legis-
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings lation was to say that federal funds should not be provided to firms from countries that choose not to treat U.S. firms as they treat indigenous firms. And this extends past technology funding to intellectual property protection and also to investment at large, or investment generally. The proponents of this legislation believe that it is a legitimate application, indeed a ringing confirmation of the principle of national treatment. It simply says that we will provide funding to foreign firms on a competitive basis from countries that provide funding to U.S. firms on a competitive basis. And so far it includes every country except one. It is the golden rule. Furthermore, they contend, national treatment is a principle that is primarily applicable to private sector investment and trade. In this view, our legislation affirms national treatment by extending the ATP-EPEC rule into the public sector, indeed into the inner sanctum of national technology development, a place that it has not often been applied in the past. Opponents of this eligibility rule say that it is unilateral in character, it is something that national treatment was never intended to be. Indeed, far from affirming the principle of national treatment, it sets up conditions for foreign firms that U.S. firms do not have to meet. It is therefore conditional national treatment and a negation of national treatment itself. Moreover, it extends past reciprocity in national technology funding to reach intellectual property rights and direct investment more generally. To opponents it is a dangerous precedent, a slippery slope that threatens to erode progress toward a more free and open global trade and investment regime. Clearly, there are two distinct sides to this debate and this is one of the hallmarks of OTA. We learned to do this in an evenhanded way. Simple logic would suggest that both sides, being polar opposites, cannot be right. And if this is correct, then they probably cannot both be entirely wrong either. The problem is that each side has become a caricature of the other. FRICTION AND COOPERATION I would like to turn just briefly to the theme of the conference, which is the sources of friction and cooperation in high-technology development and trade. It is quite clear that some aspects of the national technology programs have the potential to become sources of considerable friction. They already have. Not long ago, for example, the European Commission found it necessary to notify the OECD that the foreign eligibility provisions that we have been talking about in the Energy Policy Act constitute a violation of the principle of national treatment. So we are already beginning to develop a prelegal infrastructure to deal with this. I would like to suggest in conclusion that the comparable treatment aspects of the national technology programs could also become a source of broad-based international cooperation. This might be accomplished by elevating the debate to the level of multinational negotiations. It would be possible, for example, to
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings include eligibility of foreign affiliates as a provision of the multilateral agreement on investment that is just now getting under way. I will end here with the further comment that one of the last OTA papers that we are likely to publish will be on this subject and it will be available soon. Thank you. CHRIS HILL: I am an avowed declared partisan in favor of the ATP program. History would be very helpful in understanding where this came from. The provision that you quoted or paraphrased was a substitute, very carefully put together by staff rather than, for example, the members who were in favor of establishing an ATP and wanted a very tough, U.S. firms type of provision in that bill. This was crafted as a way to sneak past the proponents—not the opponents but the proponents. It is a good provision, given where it came from. That does not mean that it could not be improved, but it seems to me that one should not take Congress to task for having done a bad thing in this provision. In fact, it is remarkably open to international participation, given its origins. WILLIAM KELLER: What you say is correct. But it has allowed the international foreign economic policy of the United States to devolve upon individual agencies, so that the Commerce Department is now in a position where it can decide that Japanese firms are not eligible—which it has done in the last round of awards—for the ATP program. So it does actually provide a legislative vehicle that was not in place before. HORST SEIBERT: A question for Mr. Spencer. Assume we take SEMATECH international, as you alluded to in some parts of your presentation. I can see that creating common standards would be a possibility there. But how do you solve the ''who goes first" problem? In a way, this is an issue of our conference. We can see attempts internationally to reduce transaction costs, if people can agree to rules, standards, and procedures. But again, if today we review, starting with the first talk, apparently competition must be the driving force so as to create new technology to open new vistas. So where is the dividing line between the role of competition on the one hand and possibly some type of rules that do reduce transaction costs? WILLIAM SPENCER: You have put your finger on a very important part of any collaboration. Let me give you our experience in that area, and I will try to elaborate on the story about 14 companies sitting around the table, all asking that question, who is going to go first. However, before I do that, if in my talk I alluded to an international SEMATECH, I take it back. This is something I have been asked about many times before, and I it is something that will occur sometime in the future. It has to be done through a series of experiments, and I offered four or five areas where we can experiment. And I think we should try those first.
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings When we started SEMATECH, many of the original people coming from the member companies were given very strict guidelines on what they could and could not say. They were also given safes in each of their cubicles in which they kept private information. We do not allow private information any longer at SEMATECH. If it comes to us—if, for example, someone wants us to contract with them to develop a new widget for manufacturing and they send us confidential information—we return it immediately. We will not accept private information. We share only things that we have been able to determine are totally precompetitive. That is why we stay away from any product or specific process. The noncompetitive things are common to all of us. The semiconductor manufacturers in other regions have been working to solve problems the same way we have, and if we sat down and talked with the people in Korea, Japan, Europe, or elsewhere, we would find that they are working on the same problems. The technology is similar—everyone is making CMOS [complementary metal oxide semiconductor] devices—and the precompetitive areas for cooperation are similar as well. As I said earlier, if we had stopped SEMATECH after two years, we would have accomplished very little. It took us at least that amount of time to begin to break down the barriers of secrecy and the question of who is going to go first. When you start an international cooperation, whether it be roadmaps or 300-mm wafers, or x-ray lithography, it will probably take a couple of years before the barriers break down and people are willing to open up. But in a business such as semiconductors, where the main thrust has to be increasing the size of the pie, it is possible. When you grow 15 to 20 percent a year, and when you see that, for the next two decades, the need for your products will grow in areas such as communications, computing, intelligent highways, and wideband entertainment into the home, you will see that the opportunity for reducing the costs on a global basis are there. And if we do not cooperate, we will end up spending more on this technology to keep the world moving into the information age. STEPHEN COONEY: I just want to make a statement to correct a possible misimpression made by Dr. Merten, which is that he is correct in that Siemens Corporate Research does not have any public funding yet. They have made one or two applications that have yet to be disposed. Siemens has participated in a number of programs from their operating units, however. We are involved in the intelligent transportation system, we are involved heavily in some DoE projects. My question is for William Keller. Is it possible that we, particularly Europe and the United States, will move to some type of a general reciprocity community in the same way that, for example, the GATT created MFN reciprocity agreements, which in turn created a basis for a community? The second question is to Admiral Pelaez. Did you say that U.S. industry has
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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings not followed up on some of the technology transfer agreements signed with Japan and the FSX after five years of that negotiation? ADMIRAL PELAEZ: That would be my impression. WILLIAM KELLER: I will tell you what I would do. If you want to get a general agreement on science and technology between the United States and Europe, I would not use the word "reciprocity." I would use something very different. It is possible to move toward that, but it is clearly against the drift. If you mean by that excluding other countries, either developing nations, or developed nations in other parts of the world, then it is against the drift toward a more multilateral framework in trade and investment models and, by extension, into technology development programs. But it might be a way to start where there is a good deal of commonality and understanding and a lot of projects already in play and already going on. So it might be a good place to start and then to open up from there. The problem is that it does not work, particularly in this area of national technology funding, if one country is more open than another. There are just too many interests that would come in to play. We have to start with as multilateral a framework as possible. ADMIRAL PELAEZ: I would like to add something. Nothing is absolute. Obviously there is technology transfer; individual companies do it in performing their job on their factory floor. The government has access to all that information, and I am not so sure we have taken advantage of the agreements to the extent that we could. That is my real comment. There has obviously been some technology transfer both ways. PARTICIPANT: Is this in an area of composites? ADMIRAL PELAEZ: There was some composite work, particularly in the electronics areas and in radionics. CHARLES WESSNER: There may be grounds for some debate here. There are two broader points. First there is the necessity of constancy of effort over a long period of time, which not all political systems seem equally well adapted to provide. You have also identified weaknesses in the U.S. acquisition system. Some of those weaknesses for commercial acquisitions seem to be aggravated by the fact that the military programs are the initial acquirers. So the transfer of these technologies is harder. There is also some debate as to whether or not the technology has been made freely available under the FSX program. Sometimes it is available in principle, but not in fact. During a stint as a diplomat in Europe, I came to understand that when a diplomat says he agrees with me in principle, you know you have a long hard road ahead to reach an agreement. Last, I would like to point out that some of these principles of cooperation, some of the difficulties of organizing broad international groups, are exactly the issues that we will be discussing in the next session.
Representative terms from entire chapter: