Conflict and Cooperation in National Competition for High-Technology Industry (1996) / Chapter Skim
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Pages 131-172
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From page 131... ...
Moreover, because the strategic significance of the industry is widely recognized by policymakers around the world, "the semiconductor industry has never been free of the visible hand of government intervention." 340 A Catch-Up Strategy From its position as a late industrializer, the Japanese government recognized the strategic importance of semiconductors to its economy, in terms both of economic growth and national autonomy. In the 1970s Japan made a systematic effort, under MITI guidance, to promote a domestic semiconductor industry.341 Building upon their experience in consumer electronics, 339 This section draws heavily from the contributions to Committee deliberations of George M
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From page 132... ...
As Laura Tyson notes, "it is important to emphasize that the objective of the Japanese industrial policy in the semiconductor industry, as in other industries targeted for development, was not consumer welfare." (Pp. 86–87, italics added.)
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From page 133... ...
companies joined in the mid-1980s in filing dumping actions against the Japanese semiconductor producers with respect to 64K DRAMs and EPROMs. In 1985 the Department of Commerce self-initiated a case in reaction to 343 Laura Tyson provides an excellent analysis of the competition for dominance in the semiconductor industry.
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From page 134... ...
and other foreign markets, but also to remedy the problem of effective market access in Japan. Previous efforts to obtain equivalent access to the Japanese market had proved elu 345 While the Semiconductor Agreement and SEMATECH represent innovations in U.S.
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to grow and to exceed 20 percent by the year 1991.347 The Agreement and the policies associated with its implementation included three principal features: • Provisions designed to lead to concrete market access for non-Japanese firms, • A specific target acknowledged as a threshold for foreign market share, and • A mechanism to monitor semiconductor cost so that dumping could be addressed quickly and effectively with the prospect of sanctions should the terms of this agreement not be respected. 346 As noted above, given the enormous R&D costs associated with the semiconductor industry and the resulting importance of competing in all markets to recoup these costs, access to the Japanese market, now the largest in the world, is considered essential for competitiveness in this global industry.
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From page 136... ...
By 1990 the increased share of the Japanese market made possible by the agreement translated into additional sales of over $1 billion for American companies alone.349 And Industry Cooperation The success of the STA also depended heavily upon industry commitment. The STA not only established a realistic target for market access, but 348 A Council on Competitiveness study concluded that a credible government commitment to sanctions may be necessary to ensure compliance with trade agreements, especially when they affect the interests of powerful foreign companies.
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semiconductor industry: the emphasis on intellectual property protection (including the enactment of a chip protection law in the United States at the end of 1984 and in Japan beginning in 1986)
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consumers of semiconductors and in a windfall gain in profits for Japanese producers. In this view, the agreement's "bubble profits" for the Japanese producers were plowed back into R&D investment, having the "perverse result of strengthening the Japanese companies for future rounds of competition in new products." (Laura Tyson, Who's Bashing Whom?
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From page 139... ...
Japanese market share is estimated at 39 percent, with the substantial remainder made up by the rest of the world, notably Korean, Taiwanese, and European production of DRAMs. The DRAM market showed a phenomenal increase, rising from $13 billion in 1993 to $41 billion by 1995.
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From page 140... ...
producers were significant.357 Some U.S. and foreign producers, and their customers, were disadvantaged by price increases and especially by delay in product delivery.358 It is important to recognize, however, that these trends were under way before the trade agreement took effect, and reflected the characteristic "market counter-measures" taken by many Japanese industries in depressed markets.359 The shortage in supply of DRAMs did prove highly profitable for Japanese semiconductor producers.
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response to the challenge to its semiconductor industry in the period 1985–1995 involved three inter-related elements. As noted in the Japanese market.
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In the early 1980s, U.S. manufacturing quality had fallen behind the standards of the Japanese industry.
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ability to produce key components of critical weap 365 The Semiconductor Industry Association put forward a proposal in May 1987 for a research consortium supported by shared government-industry funding. 366 Eleven of the original fourteen are still members.
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The proposal was closely aligned with DOD's own plans for the development of semiconductor manufacturing technology, especially as it was completing a five-year program in the design of integrated circuits for military applications. This technology could allow the Defense Department to deploy advanced integrated circuits in virtually all of its major defense systems in a more effective and cost-efficient manner.
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government and the U.S. semiconductor industry.
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The industry interaction within the consortium changed the dynamics between device makers and suppliers, with the collaboration generating new technical perspectives for the participants and encouraging the give-and-take between manufacturer and supplier so as to enrich, improve, and expedite the technology development process. Because SEMATECH programs are focused on SEmiconductor MAnufacturing TECHnology (hence SEMATECH's name and its mission)
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From page 147... ...
The Semiconductor Roadmap represents an unprecedented collective effort to identify opportunities and obstacles to the continued exponential growth in performance of the industry's products. SEMATECH's efforts became the basis for the development of 374 Andrew Procassini, the former president of the Semiconductor Industry Association, confirms this point in Competitors in Alliance, p.
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This operational flexibility is a strength and probably essential in an industry evolving as rapidly as the semiconductor industry. 380 For example, SEMATECH has met its objectives in the development of process technology, the supply of manufacturing equipment, and collaboration between manufacturers, suppliers, and research centers.
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While other factors were also in play, many in the industry believe SEMATECH made a major contribution to these turnarounds. The consortium certainly achieved its initial objective to match and then overtake its competitors in semiconductor manufacturing technology.
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supply base while contributing to the diversity of equipment supply which is essential for the maintenance of vigorous global competition. DOD Goals Met The Defense Department's return from SEMATECH can be similarly assessed.
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The United States is thereby assured of capturing a significant proportion of the economic growth, high-wage employment, and technological competency to be gained from the phenomenal growth that characterizes this industry. More broadly, the United States will continue to maintain and benefit from the economic leadership, independence, and prosperity that are uniquely associated with the mastery of high-technology manufacturing.
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From page 152... ...
Indeed, government-military procurement was instrumental in accelerating innovation in aerospace and even in generating new industries 385 Presentation by Jacques Gansler to the conference Sources of International Friction and Cooperation in High-Technology Development and Trade, 30–31 May 1995. For a discussion of the need for the U.S.
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Moreover, the high development costs for new technologies are best supported by high-volume sales of consumer products. In addition, the acceleration of product life-cycles in competitive markets means that commercial producers have become significantly more responsive and flexible than military producers.392 As a result of these trends, the Defense Department no longer leads in critical technologies such as information systems, telecommunications systems, microelectronics, and a variety of fields associated with advanced design tools.393 Senior defense officials now assert that declining defense budgets, demand levels, and resources make reliance on defense-only suppliers both unaffordable and ineffective.394 To accommodate these trends, current U.S.
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Laura Tyson, Who's Bashing Whom?
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Solo, "Gearing Military R&D to Economic Growth," Harvard Business Review, November–December 1962, pp. 49–60, cited in Richard Samuels, Rich Nation, Strong Army.
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dual-use program on flat panel displays, an unusual effort to encourage a U.S.-based commercial industry -- where none exists -- to meet military needs from lower-cost, high-volume, commercially oriented production facilities.407 404 Richard Samuels, Rich Nation, Strong Army, pp.
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The study also suggests that efforts by the U.S. government have lacked consistency and coordination in the pursuit of more balanced technology flows in defense technology 408 Paul Kaminski in Sources of International Friction and Cooperation in High-Technology Development and Trade.
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From page 158... ...
policy on the Global Positioning System illustrate the powerful synergies made possible by government-funded research and infrastructure investments and by the private sector's development of innovative commercial applications. For national security purposes, the U.S.
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While applications are growing rapidly in both the military and commercial sectors, the market for civilian applications now exceeds that for military applications "by roughly three-to-one." This is expected to widen to eight-to-one over the next few years, with projected sales of commercial GPS equipment expected to soar from the current $2 billion to $8.5 billion in the year 2000.416 The rapid evolution of GPS represents a significant, if 414 Critical Technologies Institute, A Policy Direction for the Global Positioning System: Balancing National Security and Commercial Interests, Research Brief, Washington, D.C., December 1995. 415 A recent Academy report points out that the development of concurrent technologies including satellites and microelectronics was essential to the creation of GPS, as was the assignment of responsibility to the Air Force for the development of a navigation system for all military services.
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251. 421 Critical Technologies Institute, A Policy Direction for the Global Positioning System, p.
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, it is essential the 422 Legislative Provisions, Global Positioning System. "In view of the pressures on the defense budget, the necessity for increased civil-military cooperation, the importance of dualuse technology for economic competitiveness and conversion, and the President's interest in effective infrastructure investments, the committee believes that the time has come to examine carefully a number of GPS technical and management issues.
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From page 162... ...
To this end, the policy guidelines adopted for the operation and management of GPS under this directive included decisions to • provide the GPS Standard Positioning Service for peaceful, civil, commercial, and scientific use on a continuous, worldwide basis; • make the service available free of direct user fees; • discontinue the Selective Availability of GPS signals "within a decade," thereby making available for commercial use the most precise positioning information, formerly reserved only for military applications; 426 See U.S. Global Positioning System Policy Fact Sheet, The White House, OSTP/NSC 29 March 1996.
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Lessons from GPS The development of the Global Positioning System captures many of the special features of high-technology development and competition. As noted, the industry grew as a result of U.S.
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From page 164... ...
Finally, notwithstanding these policy challenges, it is important to keep in mind the unprecedented opportunities offered by the Global Positioning System. The growth in GPS applications offers major benefits in terms of consumer welfare, national productivity, and the ability of national, state and local governments to better perform their missions.
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From page 165... ...
At that point the Norwegian government -- which was providing R&D support to a fledgling Norwegian producer of automated toll collection systems and was also funding the Oslo toll road project -- entered the picture and directed Oslo to buy the Norwegian product. Oslo resisted and the matter became the focus of intense media attention.
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From page 166... ...
As a means of supporting new generations of existing commercial technologies, however, the benefits of selling to the government are far less clear. In the semiconductor industry, for instance, government specifications tend to lag behind the state of the art and can impose additional requirements that have no commercial benefit.
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From page 167... ...
Only in 1979, with the conclusion of the Government Procurement Agreement as one of the Tokyo Round codes, did the GATT contracting parties begin to introduce a measure of discipline and international obligation to government procurement practices. For the purchases it covers, the GPA requires signatories to accord MFN and national treatment to other signatories.
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From page 168... ...
In fact, very few countries scheduled their state-owned enterprises, whatever their field of business.433 U.S. companies operating in these sectors thus obtained no new market access under the GPA.
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From page 169... ...
This all-or-nothing approach leaves no room for the type of steady improvement in market access that has been so successful with tariff reductions in the GATT. Since its adoption, the Government Procurement Agreement has been modified through almost continuous negotiations, but GPA membership has expanded only marginally.435 In an attempt to plug procedural holes that permitted signatories to follow the GPA rules and still steer contracts to local suppliers, most modifications to the GPA during the 1980s added new procedural requirements, further complicating the agreement.
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From page 170... ...
Michael Gadbaw in Sources of International Friction and Cooperation in High-Technology Development and Trade. 440 At the first GATT/ITO Preparatory Committee meeting in London in 1946, the United States set out five objectives for the new organization, many of which could be applied today to the GPA.
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From page 171... ...
Current Prospects Leading WTO members have begun to consider the need for changes to the GPA. At the meeting in Kobe, Japan, on 1921 April 1996, the trade ministers of Japan, Canada, the European Union, and the United States (the Quad ministers)
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From page 172... ...
First, such an agreement would serve as a means by which significant numbers of additional countries could sign on to government procurement disciplines. Second, even without a national treatment commitment, transparency provisions alone would greatly improve the environment for foreign companies seeking to do business in signatories to the interim agreement.
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