deal with government subsidies. Seventy percent of sales are sold government to government with the price constructed by the government. The revenue to the companies would be the same whether or not there was R&D recoupment. The difference between waiving R&D recoupment and not is the difference between making the sale or not. Thus, the issue is not a defense industry issue, but a government policy issue.

Dr. Flamm agreed with this last observation, noting that the important point is that the normal practice in FMS is to sell below the average cost being charged to the U.S. government—the average product-cycle costs of the system. Mr. Healey disagreed with Dr. Flamm's last point. Dr. Flamm reiterated that he is not criticizing the industry, merely pointing out the rules of the game over which industry has no control. Dr. Wessner noted that the discussion on dumping is recurrent and controversial. It was explored in some depth by a previous National Academy of Sciences' study on trade in technology, although no consensus was reached on the issue. The STEP report, Conflict and Cooperation in National Competition for High-Technology Industry, summarizes the competing views and provides useful source material.3 A companion volume, International Friction and Cooperation in High-Technology Development and Trade has two relevant papers. The paper by Thomas Howell is especially relevant. It describes the dumping of steel products at the turn of the century by producers in the United States and Imperial Germany (and the subsequent security consequences for the United Kingdom during World War I) and draws parallels with the more recent cases of dumping in semiconductors.4

John Shaw, Cambridge Consulting Group: Mr. Shaw agreed with Dr. Wessner's emphasis on the need for historical perspective. He suggested that much of the discussion assumes a continuum on the issue of military export sales. He stressed, however, that over the past 20 years there have been a number of different preoccupations, such as "merchants of death," foreign corrupt practices, and the end of the Cold War. Much of the moral posturing on the issue has subsided, but the overall problem remains: There is no overall policy. Policy keeps changing and various parts of the government get involved on an ad hoc basis. He noted that the current preoccupation is national economic security, with the central issue being the coordination of government activities with various private sector initiatives. This preoccupation has taken central stage in part because of the lack of other issues. Mr. Shaw cautioned that, based on the history of this topic, the industry is likely to be challenged by some new concern in the future.


See pp. 80-85 and Box G, "The Dumping/Antidumping Policy Debate" in Conflict and Cooperation in National Competition for High-Technology Industry (National Academy Press, Washington, D.C., 1996).


See T. Howell, "Dumping: Still a Problem in International Trade," in National Research Council International Friction and Cooperation in High-Technology Development and Trade (National Academy Press, Washington, D.C., 1997).

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