Appendix F

Marketable Technology Permits: An Alternative Approach

Note: In formulating its conclusions and recommendations, which appear in Chapter 7 and in the report’s Executive Summary, the Defense Task Force (DTF) explored and discussed a number of alternative approaches and options. For the most part, these alternatives are discussed in Chapter 6 as part of developing the rationale for action items the DTF decided to endorse. In addition to these options, DTF was also presented with the concept of using marketable technology permits to facilitate U.S.-Japan dual-use technology flows.1Following a discussion of the concept, the committee decided not to endorse this idea. However, because it represents a new and direct approach to the problem, DTF decided that it would be useful to include a brief discussion of the marketable permits concept in this appendix.

The concept of marketable permits for U.S.-Japan dual-use and defense technology transfers is adapted from the field of environmental economics, where it has been put into practice in a number of areas. There are three main points to the plan. First, Japanese firms that sell dual-use technologies to U.S. firms would receive a permit from the U.S. Department of Commerce to buy U.S. defense technologies. The permit would record the monetary amount of the transaction between the U.S. and Japanese firms. Second, these permits would be marketable in Japan, preferably on a stock or commodities exchange, so that a company desiring U.S. defense technologies but lacking the requisite permit could buy them from the exchange. Third, these permits would be required for Japanese firms to receive U.S. defense technologies.

Such a plan addresses several of the issues complicating U.S.-Japan dual-use technology collaboration. First, it creates an explicit linkage between the defense and commercial sectors throughout the Japanese economy. There may only be a limited number of firms that have mutual interests in each other’s technology. The permit system would allow for a Japanese dual-use technology to be transferred to the United States by one firm, while another Japanese firm receives U.S. defense technology, without either government having to get involved directly.

Second, the burden for balancing the technology transfers would be placed on the Japanese private sector, reducing the need for U.S. firms to lobby for dual-use technology licenses. Before a U.S. defense technology could be transferred to Japan, a dual-use technology transfer from Japan would have to have occurred. The hope is that Japanese firms would start contacting U.S. firms with dual-use technologies that they wish to sell, eliminating the costly need for U.S. firms to search the Japanese economy.

A marketable permits system has several additional virtues, in that it could be phased in and fine tuned over time, U.S. government coordination requirements would be minimal, and measuring progress in achieving reciprocal technology flows would be straightforward.

1  

A more detailed discussion of the concept is contained in James Chung and Richard J. Samuels, “Facilitating the Transfer of Dual-Use Technology from Japan Through the Use of Marketable Permits,” briefing paper for the Defense Task Force, 1995.



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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force Appendix F Marketable Technology Permits: An Alternative Approach Note: In formulating its conclusions and recommendations, which appear in Chapter 7 and in the report’s Executive Summary, the Defense Task Force (DTF) explored and discussed a number of alternative approaches and options. For the most part, these alternatives are discussed in Chapter 6 as part of developing the rationale for action items the DTF decided to endorse. In addition to these options, DTF was also presented with the concept of using marketable technology permits to facilitate U.S.-Japan dual-use technology flows.1 Following a discussion of the concept, the committee decided not to endorse this idea. However, because it represents a new and direct approach to the problem, DTF decided that it would be useful to include a brief discussion of the marketable permits concept in this appendix. The concept of marketable permits for U.S.-Japan dual-use and defense technology transfers is adapted from the field of environmental economics, where it has been put into practice in a number of areas. There are three main points to the plan. First, Japanese firms that sell dual-use technologies to U.S. firms would receive a permit from the U.S. Department of Commerce to buy U.S. defense technologies. The permit would record the monetary amount of the transaction between the U.S. and Japanese firms. Second, these permits would be marketable in Japan, preferably on a stock or commodities exchange, so that a company desiring U.S. defense technologies but lacking the requisite permit could buy them from the exchange. Third, these permits would be required for Japanese firms to receive U.S. defense technologies. Such a plan addresses several of the issues complicating U.S.-Japan dual-use technology collaboration. First, it creates an explicit linkage between the defense and commercial sectors throughout the Japanese economy. There may only be a limited number of firms that have mutual interests in each other’s technology. The permit system would allow for a Japanese dual-use technology to be transferred to the United States by one firm, while another Japanese firm receives U.S. defense technology, without either government having to get involved directly. Second, the burden for balancing the technology transfers would be placed on the Japanese private sector, reducing the need for U.S. firms to lobby for dual-use technology licenses. Before a U.S. defense technology could be transferred to Japan, a dual-use technology transfer from Japan would have to have occurred. The hope is that Japanese firms would start contacting U.S. firms with dual-use technologies that they wish to sell, eliminating the costly need for U.S. firms to search the Japanese economy. A marketable permits system has several additional virtues, in that it could be phased in and fine tuned over time, U.S. government coordination requirements would be minimal, and measuring progress in achieving reciprocal technology flows would be straightforward. 1   A more detailed discussion of the concept is contained in James Chung and Richard J. Samuels, “Facilitating the Transfer of Dual-Use Technology from Japan Through the Use of Marketable Permits,” briefing paper for the Defense Task Force, 1995.

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Maximizing U.S. Interests in Science and Technology Relations with Japan: Report of the Defense Task Force In considering the marketable permits idea the Defense Task Force noted several complications. One involves valuation of the permits. Most arms-length technology deals are not valued in lump sums but are contracted as a percentage of a resulting future stream of revenue. A second complication might lie in defining dual-use technologies. Unless the definition stipulated a very clear criterion—such as requiring utilization on a DoD contract—issuance of an approved list of dual-use technologies and an approval bureaucracy might be required. Perhaps the most important complication involves the ultimate implications for wider U.S. interests of introducing a new export control regime. Although most of the complications could perhaps be addressed, the DTF decided not to endorse the marketable permits concept. As a new and direct approach to the issues discussed in the report, the DTF believes that including a discussion of the idea in this appendix will be useful in stimulating discussion.