2

Defining U.S. Interests in a Changing Environment

OVERVIEW OF U.S.-JAPAN SCIENCE AND TECHNOLOGY RELATIONS

U.S.-Japan cooperation in science and technology is extensive in terms of inputs (human, financial and organizational resources) and outputs (publications, intellectual property and high technology products). The bilateral science and technology relationship also encompasses a broad range of activities, including the creation and transfer of know-how through foreign direct investment and strategic alliances undertaken by corporations, educational and research ties in the academic sector, and long-standing government-to-government cooperative agreements and programs in basic science, defense equipment, energy, health, space and other areas.

The U.S.-Japan science and technology relationship became a subject of increasing attention and focus during the 1980s. The context was one in which U.S. companies in a wide range of high technology and manufacturing industries were experiencing significant competitive challenges from Japan. In this context, concerns were raised about current and future impacts of wide U.S.-Japan imbalances in science and technology flows as measured by bilateral personnel exchanges, arms length technology transfers and other metrics. These imbalances were continuing—and even widening—despite Japan's rise to a leading position in global high technology production and markets.

Motivated by a growing belief that the United States as a country should be deriving greater benefits from science and technology exchange with Japan, public and private initiatives were launched to increase the number of U.S. scientists and engineers capable of working effectively in a Japanese environment and to improve access to Japanese science and technology information. A variety of new bilateral approaches were introduced at the official level. Prominent among the latter was the U.S.-Japan Agreement on Cooperation in Research and Development in Science and Technology (U.S.-Japan S&T Agreement), signed by President Reagan and Prime Minister Takeshita in 1988. Although the two countries had an existing “umbrella agreement,” U.S. efforts to build in new provisions aimed at ensuring greater reciprocity in the mid 1980s renegotiation led to an essentially new agreement, including detailed intellectual property provisions, a specific focus on access to technology and a multilayered-joint oversight structure. No other U.S. bilateral science and technology relationship has such an extensive oversight structure.

Figure 2-1 shows the current structure of official U.S.-Japan science and technology relations. In addition to the U.S.-Japan S&T Agreement, which comes up for renewal every five years, the structure includes agency-to-agency cooperation in natural resources, energy and other areas not covered under the umbrella agreement. Cooperation in defense equipment, for example, is undertaken under the U.S.-Japan Treaty of Mutual Cooperation and Security and related provisions. Also, since 1993 the Common Agenda for Cooperation in a Global Perspective (the Common Agenda), has served to link U.S. and Japanese science and technology initiatives aimed at addressing global problems.



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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP 2 Defining U.S. Interests in a Changing Environment OVERVIEW OF U.S.-JAPAN SCIENCE AND TECHNOLOGY RELATIONS U.S.-Japan cooperation in science and technology is extensive in terms of inputs (human, financial and organizational resources) and outputs (publications, intellectual property and high technology products). The bilateral science and technology relationship also encompasses a broad range of activities, including the creation and transfer of know-how through foreign direct investment and strategic alliances undertaken by corporations, educational and research ties in the academic sector, and long-standing government-to-government cooperative agreements and programs in basic science, defense equipment, energy, health, space and other areas. The U.S.-Japan science and technology relationship became a subject of increasing attention and focus during the 1980s. The context was one in which U.S. companies in a wide range of high technology and manufacturing industries were experiencing significant competitive challenges from Japan. In this context, concerns were raised about current and future impacts of wide U.S.-Japan imbalances in science and technology flows as measured by bilateral personnel exchanges, arms length technology transfers and other metrics. These imbalances were continuing—and even widening—despite Japan's rise to a leading position in global high technology production and markets. Motivated by a growing belief that the United States as a country should be deriving greater benefits from science and technology exchange with Japan, public and private initiatives were launched to increase the number of U.S. scientists and engineers capable of working effectively in a Japanese environment and to improve access to Japanese science and technology information. A variety of new bilateral approaches were introduced at the official level. Prominent among the latter was the U.S.-Japan Agreement on Cooperation in Research and Development in Science and Technology (U.S.-Japan S&T Agreement), signed by President Reagan and Prime Minister Takeshita in 1988. Although the two countries had an existing “umbrella agreement,” U.S. efforts to build in new provisions aimed at ensuring greater reciprocity in the mid 1980s renegotiation led to an essentially new agreement, including detailed intellectual property provisions, a specific focus on access to technology and a multilayered-joint oversight structure. No other U.S. bilateral science and technology relationship has such an extensive oversight structure. Figure 2-1 shows the current structure of official U.S.-Japan science and technology relations. In addition to the U.S.-Japan S&T Agreement, which comes up for renewal every five years, the structure includes agency-to-agency cooperation in natural resources, energy and other areas not covered under the umbrella agreement. Cooperation in defense equipment, for example, is undertaken under the U.S.-Japan Treaty of Mutual Cooperation and Security and related provisions. Also, since 1993 the Common Agenda for Cooperation in a Global Perspective (the Common Agenda), has served to link U.S. and Japanese science and technology initiatives aimed at addressing global problems.

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP It is important to note that most U.S.-Japan science and technology cooperation in academia and industry occurs outside this official structure, although some problems and issues that might arise in private sector interactions, such as difficulties in accessing academic and public research facilities, could be raised and addressed under the U.S.-Japan S&T Agreement. Even in areas where the two governments play key roles in organizing cooperative programs, such as defense equipment, U.S.-Japan cooperation is largely industry-implemented. Appendix B contains a compilation of goals and objectives for the U.S.-Japan science and technology relationship as put forward in various agreements and official statements. Appendix C describes the role of the Joint High Level Advisory Panel established under the U.S.-Japan S&T Agreement. U.S. INTERESTS IN A CHANGING ENVIRONMENT U.S.-Japan Cooperation: Not an End in Itself One clear theme that emerged from the workshop discussion is that cooperation with Japan in science and technology is not an end in itself, and should be pursued as a means to advance other U.S. interests. Several participants pointed out that Japan has never approached international scientific and technological cooperation as an end, and has traditionally pursued cooperation in ways that would advance other national goals. Since World War II, economic development has been Japan's primary national focus, and international links in science and technology have served to enhance the capabilities and autonomy of domestic firms and other institutions. As discussed below, traditional Japanese approaches are currently facing a number of challenges. The specific U.S. interests to be pursued through science and technology cooperation with Japan can be divided into several categories. Furthering agency missions A variety of U.S. government agencies engage in scientific and technological cooperation with Japan that is linked to furthering agency missions, including the Department of Energy, the National Aeronautics and Space Administration (NASA), the National Institutes of Health (NIH) and many others. For example, cooperation with Japan in defense technology and equipment pursued by the U.S. Department of Defense illustrates how science and technology cooperation is linked to broader national and agency objectives.1 Japan is still the key to U.S. security strategy in Asia, and cooperation in defense production has long been an important aspect of the U.S.-Japan security alliance. However, the context and environment have changed considerably. Efforts have been made to move from a defense assistance paradigm in which rising Japanese military capability was seen as the primary way in which cooperation contributed to furthering U.S. security interests, to a new partnership in which sharing of technologies, engineering capabilities and risks with Japan will allow the United States to leverage constrained resources for defense R&D and procurement. 1   See National Research Council, Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force(Washington, D.C.: National Academy Press, 1995).

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP Addressing global problems As U.S. policy has placed greater emphasis on utilizing science and technology to ameliorate global problems such as environmental degradation, emerging diseases, and natural disasters, international cooperation is increasingly seen as a promising route to maximize the impacts of U.S. and other individual country efforts. Most of the areas of focus identified in the Common Agenda, such as environment, population and AIDS, fall into the category of global problems. Advancing U.S. commercial and economic interests Advancing U.S. commercial and economic interests is another end to be pursued through science and technology cooperation with Japan. Concern that Japan was enjoying much greater relative success than was the United States in deriving economic benefits from bilateral technological cooperation was an important part of the context surrounding increased attention to the relationship during the 1980s and early 1990s. Although the competitive context has changed somewhat, as discussed further below, the prevailing view of workshop participants was that technological innovation will remain a key determinant of U.S. economic growth, that innovation increasingly involves international cooperation and linkages of various types, and that Japanese companies will continue to bring considerable strengths to collaborative activities and competition in terms of technological capability and the ability to commit resources and focus to achieve long term goals. Several officially supported or sanctioned U.S.-Japan efforts are undertaken with the explicit goal of producing eventual economic benefits, such as the Intelligent Manufacturing Systems program (which involves countries and regions besides the United States and Japan), the U.S.-Japan Optoelectronics Joint Research Program, and Civil Industrial Technology cooperation undertaken by the U.S. Department of Commerce and Japan's Ministry of International Trade and Industry. However, the scale of this officially sanctioned cooperation is much smaller than U.S.-Japan cooperation undertaken entirely in the private sector. The government role in creating an environment in which private sector U.S.-Japan technology cooperation can produce economic benefits will be discussed further below. Advancing fundamental knowledge When the U.S.-Japan Cooperative Science Agreement was first concluded in the early 1960s, cementing bilateral “people ties” among American and Japanese scientists as a way to enhance the overall bilateral relationship was a major motivation for the United States. However, support for U.S.-Japan cooperation in basic science, whether at the level of individual investigators or large facilities, also advances the rate of progress in fundamental research and contributes to other national goals. As Japan's capabilities have grown, it has been anticipated the benefits of cooperation in basic research will grow, as is generally the case with other countries. These benefits include more effective efforts to push back the frontiers of fundamental knowledge than what the two countries could accomplish acting by themselves, and the expanded insight gained by U.S. scientists and engineers due to exposure to Japanese research. A Focus on Access In the decades following the end of World War II, advancing U.S. interests in science and technology relations with Japan often involved assisting Japan's efforts to build its own capabilities. Among U.S. agencies and companies, there was sometimes a relaxed attitude toward providing access to U.S. markets and know-how. This reflects a tendency among Americans to

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP view scientific knowledge and information as public goods, in contrast to traditional Japanese attitudes that treat knowledge as a valuable commodity. Workshop participants confirmed that U.S. attitudes have undergone change, and raised a variety of examples to show that now and in the future U.S. access to a variety of Japanese assets is required in order for the United States to derive significant benefits from the relationship. U.S. public and private sector leaders and organizations have found that in many instances there are significant obstacles blocking U.S. access and mutually beneficial relationships. Although many of the traditional obstacles remain, a number of recent and ongoing changes in both countries raise new issues and opportunities. Access to Japanese financial resources U.S. experiences with the Superconducting Super Collider (SSC) and Space Station Alpha show that undertaking future megascience programs will require sharing benefits and responsibilities with international partners and careful advance planning from the earliest stages.2 International cooperation can also enhance U.S. efforts to harness science and technology in addressing global problems. Japan can be a major international partner in these efforts, due to its significant capacity for investment in scientific programs and facilities, and its leading role as a provider of overseas development assistance and contributor to multilateral financial institutions. Although several participants at the workshop pointed out that significant barriers to cooperation with Japan continue to exist, others stated that there is great potential benefit for the United States in engaging Japan and other Asian nations in science and technology cooperation. The contrast between recent science and technology discussions in the Organization for Economic Cooperation and Development (OECD) and the Asia Pacific Economic Cooperation forum (APEC) are revealing. While the austere budget environments of many OECD member governments seemed to cast a pall over that discussion, the APEC meeting featured active discussion of proposals for new collaborative programs. Many APEC member governments are rapidly increasing their public spending on science and technology. Workshop discussions revealed that beneficial cooperation with Japan is ongoing in a number of areas and can be expected to expand based on specific and substantive needs. However, effective planning, coordination and continuity of commitments on the U.S. side will be needed to ensure maximum leverage for U.S. efforts and resources through cooperation with Japan, whether in a bilateral or multilateral context. Participants also suggested that greater attention to cooperation in the context of APEC and with individual APEC countries besides Japan could result in long term benefits to the United States. The U.S.-Japan Science and Technology Agreement and the Common Agenda have provided useful mechanisms to facilitate coordination on the U.S. side, and have enhanced U.S.-Japan cooperation in a number of areas without the commitment of additional resources. The agreements also serve to bring high level attention to specific programs where Japanese participation has been sought. Access to Japanese science, technology and related capabilities U.S. companies, government agencies and research institutes are increasingly challenged to do more with less. Effective cooperation with Japanese public and private sector entities to advance the strategic objectives of various U.S. organizations involves a more complex set of requirements than cooperation driven primarily by considerations of resource sharing. Workshop participants discussed the structural and ideological barriers that have traditionally impeded U.S. access to Japanese science and technology, and have served to perpetuate long 2 William J. Clinton and Albert Gore, Jr., Science in the National Interest, Office of Science and Technology Policy, August 1994, pp. 11-13.

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP standing asymmetries in the relationship. For U.S. companies, Japan 's market access barriers have had a major impact. Barriers to U.S. companies, including market access barriers, will be discussed further below. Another long standing and important U.S.-Japan asymmetry is Japan 's low spending on basic research in open settings, which results in much of the best Japanese research being done in proprietary rather than nonproprietary settings. Large supplemental appropriations have been made by the Japanese government in recent years to revitalize the education and research infrastructure, and a number of participants believe that this marks the beginning of a trend toward long term increases in public support for basic research that have been called for by various groups for many years. A major impetus for this trend is recent anxiety in Japan over competitiveness reversals in high technology industries, which have been partly blamed on weakness in basic research. It is clearly hoped that increased investment in basic research will strengthen the long term competitiveness of Japan's high technology industries. Several participants pointed out that the bulk of this expanded effort will need to be done in open, nonproprietary settings for the United States and other countries to be able to benefit from Japan's increased commitment to basic research, and that it is still unclear whether this will be the case. In comments following the workshop participants also highlighted continuing barriers in the area of access to Japanese scientific and technological information. Symmetrical access to Japanese information, particularly information related to regulatory and legal affairs, trade data, patents and results of government sponsored research, is becoming more important. Although many Japanese organizations are responding to the trend of making information available on the Internet, much of what appears on government and company sites has a public relations orientation. The Real World Computing Project World Wide Web site was noted by one participant in comments made after the workshop as a positive example for the Japanese government because the site provides access to free software and technical papers from the project. Other structural and ideological factors act as barriers to U.S.-Japan cooperation in specific areas. For example, the interpretation and implementation of Japan's arms export principles have served to constrain cooperation in defense technology and equipment. Participants also mentioned intellectual property regulations and underlying concerns about academic freedom as barriers to cooperation between U.S. companies and Japanese universities. These impediments, which affect Japanese as well as U.S. companies, have a particular impact in biotechnology, where much of the knowledge underlying new products is generated in universities. Mismatches between U.S. and Japanese agencies responsible for science and technology support in certain fields, such as telecommunications, can also serve as barriers. Finally, participants noted a number of areas in which the United States has not risen to the challenge of creating capabilities necessary for mutually beneficial collaboration. Difficulty in maintaining consistent budget priorities was mentioned above. In addition, participants noted that many U.S. organizations continue to lack a sufficient understanding of Japanese science and technology institutions and practices, including differences in U.S. and Japanese attitudes. Views among participants over the prospects for lowering barriers to cooperation were mixed. Some asserted that Japanese institutions are aggressively responding to changes in the environment, and are becoming more open in outlook. Others point out that many barriers to cooperation that require legal or regulatory reform in Japan will be difficult to address in the current Japanese political climate. Particularly in the area of access to Japanese scientific and technology information, the U.S.-Japan S&T Agreement has provided a mechanism for addressing some of these barriers, and participants highlighted the need for continuing efforts to encourage the Japanese government to open access to information on regulations, laws, trade, patents and government sponsored research.

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP Access to Japanese markets for science and technology-based products Several participants asserted that continued difficulty in accessing the Japanese market remains the overriding concern for U.S. industry, and constitutes the most significant issue in the U.S.-Japan relationship. Although formal barriers to trade and investment are comparable to those of other advanced countries, many aspects of Japanese market and institutional arrangements still reflect a traditional approach which has emphasized extracting technology from foreign sources, diffusing it widely in Japanese industry, protecting the domestic market and building capability in Japanese industry to replace imports and export to global markets. One participant drew an analogy between Japanese post World War II attitudes and institutions focused on economic development and U.S. attitudes and institutions focused on defense and national security. The link between the ability to access the Japanese market and mutually beneficial science and technology cooperation was explained by several participants. In an environment in which U.S. and other foreign companies can gain reasonable access to the Japanese market, these companies have an incentive to invest in organizational capabilities to monitor Japanese scientific and technological developments, and to incorporate insights and advances produced by suppliers and customers. This has been true in the semiconductor industry, where increased foreign participation in the Japanese market over the past decade has facilitated the formation of a number of reciprocal U.S.-Japan technology and manufacturing alliances. Although the impact of the U.S.-Japan Semiconductor Trade Agreement is difficult to quantify in this context, and increased competitive pressure on Japanese companies has certainly played a role, several participants believe that the agreement has been helpful in giving Japanese customers a strong rationale to act contrary to traditional relationships and purchase foreign chips that are superior on cost and performance grounds to those produced by keiretsu partners or other long term suppliers. In recent years, Japan's markets in a range of industries have become more open. In addition, many recent Japanese government-led industrial technology initiatives that have sought to steer market forces and establish autonomous Japanese leadership have met with failure. However, several workshop participants argued that significant problems remain in a number of areas. Even as Japan's companies adjust to the changing realities of global competition, it might be expected that many will try to preserve their advantages in the domestic market, and that parts of the bureaucracy will be sympathetic. Government and industry approaches to developing Japanese capabilities in the area of computer-aided logistics systems (CALS) were cited by one participant as reflecting the traditional imperatives of limiting market access and building domestic capability. A law passed in 1995 which provides for companies in industries undergoing regulatory easing to cooperate in developing “counter measures” also illustrates the deep rooted nature of traditional approaches. Although there is widespread support in Japan for decreasing bureaucratic control over the economy, Japanese “regulatory easing” will not necessarily lead to greater openness. Participants pointed to continuing challenges in areas such as public procurement of computers, and to impediments to implementing and enforcing existing U.S.-Japan trade agreements that are appearing in areas such as telecommunications equipment, where coverage of Nippon Telephone and Telegraph (NTT) subsidiaries under the NTT procurement agreement has become an issue. One participant predicted that trade in telecommunications equipment may become a bigger problem in the future if the proposed break up of Nippon Telephone and Telegraph goes forward. In comments following the workshop, participants also noted continuing challenges posed by Japan's intellectual property system, including the legal structure and enforcement. Obtaining intellectual property protection in Japan is still slow and expensive, and the resulting scope of

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Strategies for Achieving U.S. Objectives in Science and Technology Relations with Japan:: REPORT OF A WORKSHOP protection is often narrow. The ability of U.S. firms to participate in the Japanese market is closely tied to intellectual property protection, particularly for smaller companies. Although U.S. policy approaches to trade and science and technology relations with Japan do involve some mutual consultation and overlap, they are mainly pursued along separate tracks. Options for effectively linking science and technology with trade are discussed in Chapter 3. Access to people In order to undertake effective science and technology cooperation with Japanese organizations and utilize cooperation to produce concrete benefits, U.S. companies and agencies require access to skilled human resources. American scientists, engineers, managers and policy makers with Japanese language skills who can effectively operate in a Japanese environment are required, as are native Japanese scientists, engineers and managers. Although the flows of scientific and technical personnel between the two countries are still highly imbalanced—many more Japanese travel to the United States than vice versa—over the past decade the United States has been able to build a base of institutions and skilled human resources to undertake science and technology cooperation with Japan. At the bilateral level, a number of U.S.-Japan programs (the NSF Summer Institute, the DOC-MITI Manufacturing Technology Fellowships, the MIT Japan Program and other university-based efforts) support the development of this human resource base by providing opportunities for U.S. scientists and engineers to work and do research in Japan, often with significant Japanese financial or in-kind contributions. The Japanese government is also increasing its support for Japanese post-doctoral fellows at the National Institutes of Health. Most participants agreed that a great deal of progress has been made in the policy environment surrounding U.S.-Japan science and engineering human resources development and personnel exchange. Some participants pointed out that bilateral programs are not very heavily subscribed, reflecting disincentives for U.S. scientists and engineers to interrupt their careers to work overseas, and the low premium put on international skills by U.S. employers. According to other participants, technology-based strategic alliances, which often involve hundreds of U.S. and Japanese engineers in a given project, also serve to utilize and develop these skills. As pointed out above, the environment for such market-driven cooperation is heavily influenced by the openness of the Japanese market in particular industries.