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Luncheon Address
International Competition for High-Technology Industry and the Multilateral Trading System

The Honorable Jeffrey Lang, Deputy United States Trade Representative

CHARLES WESSNER: For our next session we will hear presentations on some of the outstanding issues on the international trade agenda. We are pleased and honored to have Ambassador Jeffrey Lang, the Deputy Representative of the U.S. Trade Representative's Office, where he oversees the Office of Agricultural Affairs, Europe and the Mediterranean, industry, WTO affairs, investment and intellectual property, as well as the environment and national resources.

AMBASSADOR LANG: Let me say first that I do not know how you have defined high-technology, but one of the things I have learned is that it is dangerous to adopt a conventional or narrow definition. For example, a modern dairy farm is a form of high-technology. From this example, you can see that we take the concept of technology broadly. Obviously, the basic strategy of the Clinton administration is to favor competition, particularly competition in high-technology industries.

U.S. interests: There are several reasons for this administration's interest in high-technology trade. The first reason is that America is very successful with new technologies. The United States is investing more, and U.S. companies have restructured and are becoming more competitive.

Second, this is where the growth is. We are looking toward the future. Where are the growth markets and where are the growth products? Sixty percent of U.S. workers are knowledge workers, and eight of ten new jobs will move into high-technology sectors in the future. Those jobs will be well-paying jobs, good jobs.

A third reason that the administration is interested in this is because technology tends to be a basic driver. For example, telecommunications is not just something that is profitable for companies engaged in telecommunications goods and



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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Luncheon Address International Competition for High-Technology Industry and the Multilateral Trading System The Honorable Jeffrey Lang, Deputy United States Trade Representative CHARLES WESSNER: For our next session we will hear presentations on some of the outstanding issues on the international trade agenda. We are pleased and honored to have Ambassador Jeffrey Lang, the Deputy Representative of the U.S. Trade Representative's Office, where he oversees the Office of Agricultural Affairs, Europe and the Mediterranean, industry, WTO affairs, investment and intellectual property, as well as the environment and national resources. AMBASSADOR LANG: Let me say first that I do not know how you have defined high-technology, but one of the things I have learned is that it is dangerous to adopt a conventional or narrow definition. For example, a modern dairy farm is a form of high-technology. From this example, you can see that we take the concept of technology broadly. Obviously, the basic strategy of the Clinton administration is to favor competition, particularly competition in high-technology industries. U.S. interests: There are several reasons for this administration's interest in high-technology trade. The first reason is that America is very successful with new technologies. The United States is investing more, and U.S. companies have restructured and are becoming more competitive. Second, this is where the growth is. We are looking toward the future. Where are the growth markets and where are the growth products? Sixty percent of U.S. workers are knowledge workers, and eight of ten new jobs will move into high-technology sectors in the future. Those jobs will be well-paying jobs, good jobs. A third reason that the administration is interested in this is because technology tends to be a basic driver. For example, telecommunications is not just something that is profitable for companies engaged in telecommunications goods and

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings services. The more advanced your telecommunication sector is, the greater the variety of products and services it offers, and the more competition there is, the lower the costs of all the businesses that use those telecommunications services. This is what makes society more competitive and is why the administration focuses on things such as telecommunications and financial services. The WTO: How does this relate to the World Trade Organization, which came into existence on January 1, 1995? It seemed to me that almost the entire WTO is going to be helpful in providing opportunities for the advancement of high technology, particularly U.S. high-technology exports. Reciprocity: Part of the reason for this is the way markets are developing. The Uruguay Round and the World Trade Organization represented, in my opinion, the first genuine effort to involve developing countries in the global trading system on a reciprocal basis; that is, instead of just giving advantages for which there was no compensating concession, in this round, developing countries got a lot of advantages, but they also made a lot of concessions, and some of them were very important concessions. Major developing countries that have never bound their tariffs in the past, for example, bound 75, 80, and even 90 percent of their tariff schedules. If you are talking about installing a cellular telephone system in Tajikistan, these technologies are widely applicable in places where you might not expect them to be applicable. Access to those markets is very important. Tariffs: I want to mention a couple of specifics. First, we are not exactly looking at these things from a technology perspective. We have to divide them into the types of problems we experience. But in the tariff area, a lot of work, of course, was done in the Uruguay Round, and much of that work will be helpful in high-technology sectors. We continue to push for reductions in barriers in sectors that will benefit us. Almost all of these sectors are high technologies, such as advanced chemicals, electronics, and medical equipment. So that tells me that the tariff reduction programs of the United States, in terms of exports, will be helpful to high-technology industry. In addition, if you compare the U.S. schedule, for example, with that of the European Union, what you find are relatively few tariff inversions; that is to say, the input tariff is higher than the tariff on the finished product. That will help, because it means that you can buy an inexpensive chip and put it into an expensive computer. That is important for the development of a competitive high-technology sector. Bilateral market opening: The administration has been successful in opening to global competition some markets in which we have specific barriers that cannot be taken care of in the multilateral system. A good example is medical equipment exports to Japan, for which an agreement was negotiated under the framework system, and, I am told, it has been quite successful. Standards: Standards are another aspect of the multilateral system that are helpful to high-technology industries in a variety of ways. One example is the Sanitary and Phytosanitary Sanitary Agreement, which is a fairly technical agree-

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings ment that protects humans, animals, and plants from the risks of pests, diseases, contaminants, and toxins in foods and feeds. The key assurance that this agreement provides is that restrictions on trade flows have to have a demonstrable, scientifically based relationship to a chosen risk level. The risk level is chosen freely, and there are no restrictions because it is considered to be a social decision. But connecting that chosen risk level to the trade measure or other measures that restrict competition is new and makes it possible for the multilateral system to be used to fight for export opportunities that do not meet these criteria. By setting certain basic requirements on the use of sanitary and phytosanitary measures, the agreement prevents their use for protectionist purposes. There are other aspects of standards. The new Technical Barriers Agreement will be helpful in getting wider harmonization of standards that will apply in very specific cases. There are a lot of biotechnology products coming on stream. In foreign countries, Europe for example, there are concerns about these products, but we continually stress to our trading partners that these concerns have to be expressed consistent with these multilateral obligations. We are also seeking to expand the standards consensus, for example through a multilateral agreement on standards, which is a recognition agreement that would deal with recognizing tests made in foreign countries but applied in the importing economy. These may seem like dull negotiations, but they will make an enormous difference in approaching new markets with high-technology products. Agriculture: One particular sector that I believe is very much a high-technology sector, and that deserves special attention in this regard, is agriculture. Over $40 billion of U.S. exports are agricultural, and many of these industries are competitive without price support programs or subsidies, simply because they are productive and efficient. The Uruguay Round Agreement, of course, reduces barriers to those products, gives us minimum access to foreign markets, changes quotas into tariffs, and sets up a system that will gradually reduce trade barriers over a period of years. This agreement needs to be phased in because agriculture is sensitive in every country, including the United States. Intellectual property: Another innovation of the Uruguay Round that is now part of the WTO is its focus on intellectual property, an obvious connection to high technologies, which benefit from intellectual property enforcement regimes. Its expansion sets not only a multilateral standard, but it also creates two important things that I want you to understand from a technological or legal point of view. The second point about the intellectual property section of the agreement is that it also extends to many developing countries. We are not just trying to build agreements that solve the problems of the 1970s and 1980s. We are trying to build agreements that help us with the problems we will experience the rest of

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings this decade and into the next century. It will be difficult to do, but this is one way in which the WTO can be helpful with that problem. Cross retaliation: The first is that the WTO contains a concept known as cross retaliation or integration, meaning that if action is inconsistent with the agreement in one area, retaliation is not confined to the area where the agreement has been violated. Now, retaliation is the last step in the multilateral system, which emphasizes conciliation, compensation, and other ways of rebalancing the concessions that governments have made; but the ultimate threat for violating the intellectual property agreement may well be the limiting of imports of some product rather than simply trying to build a similarly restrictive intellectual property regime. This concept gives us a lot more freedom to maintain the type of competitive environment we need in the United States, while still using the agreement to achieve market opening and to achieve competitive results in our export markets. Investment: Investment is not treated very ambitiously in the Uruguay Round Agreements, but that has not stopped this administration and previous administrations and the Congress from being ambitious about the subject of investment. There is now a network of bilateral investment agreements around the world that has been negotiated. Last week in Paris we were working on initiating a process that will hopefully lead to a multilateral investment agreement among OECD [Organization of Economic Cooperation and Development] member countries, the 25 most advanced countries in the world, with the ultimate objective of expanding that effort into the World Trade Organization. This effort would protect foreign investments against seizure. It would provide rights of access. I believe that it is now generally accepted, in both the academic and the business communities as well as in government, that investment and trade are two sides of the same coin. So we need to move as ambitiously on that as we do on other things. Before concluding, I want to mention two other important areas within the WTO. One is telecommunications and the other is government procurement. Telecommunications: As you may know, the basic telecommunications services negotiation was not completed at the end of the Uruguay Round but is scheduled to be completed in April of 1996. The United States has ambitious goals for opening markets in foreign telecommunications services. This is both an investment agreement and a services agreement, because you need to be able to install the basic infrastructure to be able to develop telecommunications services, particularly in developing countries. So we are looking for a very ambitious package by next April. Teams have been negotiating on this subject for some time, and we are working with the Congress to make sure we have the domestic political support to achieve that objective. Government procurement: In government procurement, many of you know that much of the selling you can do in a foreign country is to that country's

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings government. For many years the United States has been trying to liberalize government procurement to ensure that foreign bidders have an equal chance to bid on government contracts with domestic bidders. Because we have a large government procurement market in the United States, we have had the leverage to accomplish a great deal on that. The agreement negotiated in 1979 and expanded in the WTO needs to be expanded both as to its membership and as to its acceptance in those countries that are prepared to move forward with it. In the area of electric power generation, for example, we have very competitive producers. We have a memorandum of understanding with the European Union about market access in that sector, and we continue to push for that agreement to be enforced in the European Union and elsewhere in advanced countries. Expanding that government procurement agreement into developing countries will be a great advantage to U.S. high-technology producers. Thank you. GEORGE KOOPMANN: One issue that you did not mention is subsidies, R&D subsidies in particular. In this field, there was a turnaround in the American position. The United States started the Uruguay Round with a position that R&D subsidies should be actionable, as other subsidies are; however, the threshold for nonactionable R&D subsidies was raised substantially at the U.S. insistence to 50 percent for precompetitive development and 75 percent for industrial research. This is a very vague concept, and apparently this move was to protect growing technology programs in the United States against possible sanctions from U.S. trade partners. How do you explain the turnaround in the U.S. position? My second question refers to investment. In this case, the American position seems to restrict the multilateral investment agreement in the first round strictly to OECD members and admit third-world countries only after an OECD consensus or agreement has been reached. In my view, this is not justifiable given the fact, for example, that the bulk of new investment goes into non-OECD countries. In 1993, this was 55 percent. Would it not be wiser to include these countries from the outset in the negotiations? AMBASSADOR LANG: With respect to the subsidy agreement, I was not present during the negotiations of the Uruguay Round. So, I cannot respond from personal experience. What I do know from my private sector and previous government experience is that many people in the United States have always seemed closely associated with a basic concept in the subsidies area of the generally available subsidy. And the association is that the subsidy was so far removed from the ultimate product itself that it should not be the subject of international action. The short answer to your question is that I do not know why the United States changed its position.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings With respect to investment, I agree with your point about the need to involve developing countries in a multilateral investment regime. This subject was discussed at the quadrilateral meeting of the trade ministers of Japan, Canada, the United States, and the European Union in British Columbia, three or four weeks ago, and discussed again last week at the OECD in Paris. We have some very carefully modulated language about this subject. We are to begin discussions on this subject in the WTO concurrently with beginning the negotiations of the MAI [Multilateral Accord on Investment] in the OECD. However, we all believe that getting the highest possible standards for investment access will be served by moving in the OECD first because that is where we have large investment flows. Just between the United States and Europe, there is a $450 billion investment. We need to lock in high standards and then approach the developing countries with that agreement. And at the same time, we need to engage the developing countries in discussions at the WTO. We are going to move on parallel tracks and all the ministers have agreed to language to that effect. CHARLES WESSNER: There have been some trade disputes in the automobile sector recently, notably between the United States and Japan. Do you have any prognosis as to how that might develop? AMBASSADOR LANG: The statistics suggest that the U.S. producers have invested over $170 billion in Japanese products in the last five years. Exports have increased to the world as a whole by 40 percent in the last three years. The automobile industry is the second largest consumer of semiconductors in the United States. It is a very important sector. Opening this market in Japan is a high priority. The United States has worked very successfully with the government of Japan on a number of agreements under this framework process that was set up by President Clinton. I think it is to Japan's advantage, and to the U.S. advantage, that the market open up as quickly as possible. HANS SCHARRER: Would you comment on how you relate unilateral action by the United States against Japan to the obligations undertaken by the United States within the WTO? AMBASSADOR LANG: The United States has not taken any action against the Japanese. The issue is under discussion now. Japan has asked for dispute settlement with respect to the announcement that the United States made of its intention with respect to sanctions. I think this is basically a procedural issue. The substantive question is whether the market is going to open in Japan for automobiles and automobile parts. To me, this presents a serious question for the system. As far as Japan's request for consultations on the announced sanctions, we responded in a timely

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings way last week. Japan has come back with some scheduling issues, and I assume we will deal with those in the normal course of the dispute settlement process. It is not appropriate to discuss the tactics of the United States and the litigation here. The important thing to focus on is opening the markets, and this is a sector in an important market that is not yet open to a very important product of the United States. GEORGE KOOPMANN: I have a short question regarding the Japanese case. Given that, at this time, we do not have international or multilateral competition rules so as to use the dispute settlement procedure by Article 23 of the GATT, do you see any possibilities of creating case law to open the Japanese market to remove this type of competitive distortion? AMBASSADOR LANG: Yes. But first let me explain some background for those of you who are not familiar with the WTO and the GATT. Dispute resolution involves a phase for consultation and then consideration by panels and ultimately an appellate body under what is known as Article 23. This article allows any country to raise issues that arise under the agreement that involve direct violations of the agreement or practices that undermine the benefit of concessions that a country reasonably expected, or any other situation affecting the operation of the agreement. These are broad provisions, but when it comes to competition, this raises an issue of just how far the agreement covers a complex situation such as the barriers that have been identified with respect to market access for finished vehicles, parts for new vehicles, and replacement parts. But some of the practices may not be covered by Article 23, and it may not even be a good idea to have them covered by it. For an example, take the situation of access to new car dealerships. This issue has been whether the government in Japan can discourage and avoid intimidation of dealers into carrying only one line of car, the car manufactured by the company with which the dealership has a close financial relationship. There is a similar situation in Europe, but with a striking difference. The European version of antitrust, Articles 85 and 86 of the Treaty of Rome, is, in effect, a competition law for the European Union. So to have single-brand dealerships, there has had to be a block exemption. That block exemption expires at the end of next month. The terms of its renewal will seriously constrain the block exemption, so that dealers can be allowed under European antitrust law to carry more than one brand. That may not be the identical situation to the one in the United States with respect to competition law, but the competition law is alive and well in Europe and is being enforced. American vehicles made by U.S. companies in Europe, as well as by American companies in the United States, have free access to the market as a result. Even though the difference may seem small and technical, it is a very important difference in a practical sense.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings So we do not need a multilateral agreement with respect to competition law enforcement in Europe or probably elsewhere in the world. That practice may or may not be covered. But, nonetheless, it forms an effective barrier to the export of finished vehicles to Japan, and that is why we are trying to deal with the problem under the framework agreement. SYLVIA OSTRY: Article 23(1)(b) was designed to bring Section 301 into the WTO. It is discouraging to hear what you have said. As it is very important that there be multilateral transparent rules in the area of competition policy, as part of the new WTO, Article 23(1)(b) would allow, and was designed to allow, a test case. You are correct that vertical agreements are not per se offenses in any country, but it is not clear to me what you are saying. If they are not per se offenses, if it is a rule of reason, and the dispute settlement understanding was also designed to allow expert advisors so that you have a perfect situation in which you can bring in the antitrust, competition policy, and the trade policy people, then the place to debate it is in the WTO. In regard to after markets and the safety regulations, it is not clear to me how you would deal with Article 23—with the nonviolation. Surely it is important for the United States, which has just signed the Uruguay Round and for whom Article 23(1)(b) was designed, to try and test it, to bring transparency into the system, and to move to a new set of rules, which would be multilaterally determined rather than bilaterally, through a framework agreement. AMBASSADOR LANG: I guess all I can do is comment on a comment and I am not sure I know enough yet to make a full comment. But anyway, Article 23 has been in the GATT since 1947. SYLVIA OSTRY: It has been redesigned to allow this to be drawn in. AMBASSADOR LANG: The timing is different, but the substantive provisions are no different. For one thing, as far as competition law goes, it may be that at some point in the future we may find, through the OECD process and ultimately through the WTO, that there are subjects we do want to cover on the substantive side. So far, all we have been able to cover are procedural matters. Moreover, there may be aspects of concern regarding the anticompetitive practices that our lawyers feel we can successfully raise in the Article 23 case that we are proposing to bring to the panel process. But, by the same token, there may be practices that are not covered by the multilateral system. So far the framework process has been a successful way of opening, on a MFN [Most Favored Nation] basis, Japan to competition from Europe and America and developing countries in a great variety of sectors. This basic process has been in existence now through a number of administrations. It is just more intensive in this administration. To the extent that we can

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings move forward with Japan and agree to open the market on a bilateral basis should not be seen as hostile to the multilateral system. Rather, this approach seems to support the multilateral system by having large markets open and matching people's expectations about what WTO concessions are supposed to deliver.