Conflict and Cooperation in National Competition for High-Technology Industry (1996) / Chapter Skim
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System Integration and System Friction: New Challenges in Trade Policy
System Integration and System Friction: New Challenges in Trade Policy
Pages 72-95
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From page 72... ...
Indeed, the inclusion of what were formerly considered to be domestic policies in the GATT negotiations was a major source of contention in the Uruguay Round.178 During the 1980s, national and regional policies to encourage high-technology industry played a major role in the increased international trade conflict centered on high-technology systems such as aircraft, superconductors, and telecommunications products; technology-intensive products such as automobiles and steel; and key components such as semiconductors and machine tools. The Airbus dispute was primarily over direct subsidies.
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From page 73... ...
As noted in Box B, other more traditional and widespread instruments of intervention include direct grants, loan guarantees, equity participation, targeted tax incentives, and R&D infrastructure enhancement, plus many other sectoral and regional supports.182 In part as a result of U.S. pressure to strengthen GATT disciplines over government subsidies, the Uruguay Round produced an agreement on Subsidies and Countervailing Measures (SCM)
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From page 74... ...
A recent National Research Council report, though not directly concerned with GATT definitions, nonetheless underscored the inadequacy of the view inherent in the GATT text. The report notes that while some projects are clearly basic research and others clearly applied research, the discovery process often does not respect these simple categories.
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From page 75... ...
But where such subsidies distort international trade and cause injury, they should remain actionable. No reliable definition exists to separate "good" from "bad" subsidies.
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From page 76... ...
The creation by the Uruguay Round of a safe harbor for subsidies depending on what they are called was, in fact, an unnecessary and retrograde step in the long attempt with GATT to reduce trade distortions. It was the result of a lesser concern with regulating subsidies than with the efficacy of countervailing measures.
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From page 77... ...
, large highspeed computers for education and national defense needs, and of course civil aircraft, competitive access to procurement markets is important for producers of high-technology equipment. The markets are large, and orders often involve significant follow-on business and can generate significant economies of scale.196 Public procurement of high-technology products has sparked trade disputes on purchases ranging from those of Airbus aircraft by national airlines to those of telecommunications equipment by national service providers in Europe, sonar mapping equipment in the U.S., and computer equipment in Japan.197 Notwithstanding the attempts of the GATT to extend the reach of national treatment to public purchases, progress in opening public contracts 194 Maximizing U.S.
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From page 78... ...
Fundamentally, a reexamination of the way the multilateral trading system addresses government procurement is now necessary.200 In the aftermath of the Uruguay Round agreement, government purchases are one of the few areas not covered in a thorough manner by international trade disciplines. To a large extent, this is because the existing Government Procurement Agreement (GPA)
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From page 79... ...
Treating the policy issues associated with hightechnology competition and cooperation is an essential part of this dialogue. See, for example, the calls for greater cooperation in information technology, competition policy, government procurement, and common eligibility for R&D programs.
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From page 80... ...
In principle, "forward pricing" occurs when a firm prices below current costs in anticipation of generating sufficient demand to push actual costs below a price target.203 Yet within the GATT system and the national laws implemented consistently with that system, dumping is selling below fair value, usually considered to be the home market price.204 Strategic dumping differs from "normal forward pricing" in that it usually involves subsidizing exports through domestic prices which are significantly higher than world market prices; it is made possible by collusive price behavior among domestic firms and restricted access to the market by competitive foreign producers.205 Market closure may result from structural differences in industrial organization, access to capital, and corporate governance (e.g., stockholder expectations) , as well as public and private restrictions on imports and investment.206 In combination, these factors provide both solid protection and powerful incentives for firms to seek foreign market share.
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From page 81... ...
In addition, the time required to process antidumping complaints is already the subject of legitimate concern in high-technology industries with short product life cycles.210 Administrative delay in rapidly evolving product markets can permit foreign producers to move on to the next product cycle before a finding is made. The high cost, rapid innovation, and short product cycles characterizing these industries make possible significant damage to domestic industry in relatively short periods.211 207 For analysis of this and related issues, see Laura Tyson, Who's Bashing Whom?
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From page 82... ...
These theorists argue that the targeting of specific industries under the conditions of techno logical externalities, increasing returns to scale, and imperfect competition can lead to 212 See, for example, Laura Tyson's discussion, Who's Bashing Whom?
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From page 83... ...
Many economists, in particular, object to the use of constructed measures of average production costs by government agencies charged with the enforcement of antidumping legislation, on the grounds that national antidumping laws can be used "to preclude foreign suppliers from continued 214 For an excellent summary of the arguments of strategic trade theorists and the related industrial policy theories, see Jeffrey A Hart and Aseem Prakash, "Implications of Strategic Trade for the World Economic Order," paper prepared for the Annual Meeting of the International Studies Association, San Diego, Calif.
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From page 84... ...
218 Laura Tyson, Who's Bashing Whom?
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From page 85... ...
443–459. See also Paul Milgrom, Predatory Pricing, 1987, cited in Laura Tyson, Who's Bashing Whom?
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From page 86... ...
Pacific Rim countries such as Singapore, Taiwan, and South Korea are seeking offset deals that include increased technology transfer, particularly in aircraft design, to become self-sufficient in military production and to overcome industrial weaknesses that are hindering their efforts to compete in the world aerospace market with U.S. and European manufacturers.
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From page 87... ...
study notes that "commercial aerospace has become a key target industry for many advanced as well as industrializing nations,"226 who have adopted explicit industrial policies to advance this goal. Countries as diverse as Germany, France, Japan, and China believe the aerospace industry has the broad range of spillover effects typical of high-technology industries.
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From page 88... ...
This direct support included government contracts for development, loans and loan guaran tees on favorable terms, equity infusions, tax breaks, debt forgiveness, and even guarantees against losses caused by changes in exchange rates.230 Overall, the effort to build Airbus involved years of sustained expenditure, with some estimates of the net European investment at about $26 billion.231 In addition, European governments were able to influence procurement decisions of national airlines, through both outright government ownership and regulatory powers.232 This preferential procurement pro vided the crucial, first initial launch orders necessary to begin aircraft programs.233 This sustained, integrated, regional effort has been a success.234 The Airbus consor tium is now the world's second-largest commercial aircraft manufacturer and supports 228 High-Stakes Aviation: U.S.-Japan Technology Linkages in Transport Aircraft, National Academy Press, Washington, D.C., 1994.
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From page 89... ...
5. 239 Laura Tyson, Who's Bashing Whom?
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From page 90... ...
The joint development program also called for the transfer of leading-edge Japanese technologies to U.S. manufacturers.242 Some reports, noting the aircraft cost almost twice what the Japanese government expected to spend, have described the plane as a "sleek, supersonic monument to the inordinate cost of Japan's industrial policy -- the strategy of entering new industries by subsidizing businesses to develop them."243 Others see this co-development project both as a source of momentum for Japan to develop its defense and commercial aerospace industry, and as a source of pressure to ease its ban on weapons exports in order to gain the economies of scale necessary to make systems like the FSX economically viable.244 Continued U.S.
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From page 91... ...
E1. Intellectual property protection remains at the forefront of the international trade agenda.
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From page 92... ...
Intellectual property law is being called 248 "U.S./China Make Progress in Talks; Many Industries Urge U.S. Action." International Trade Reporter, vol.
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From page 93... ...
The 1996 U.S. Government National Trade Estimate report finds that foreign companies continue to face a series of obstacles in trying to obtain effective patent rights in Japan, including narrow claims and patent interpretation, patent-flooding, and a difficult and very slow judicial appeals process, among others.
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From page 94... ...
Many American states have adopted industrial policies focused on this locational competition. As a result, "the financial incentives offered by competing States have grown dramatically since the mid-1970s." 257 The rapid growth in the locational competition among states and the heavy subsidies this competition engenders have sparked calls for federal action.
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From page 95... ...
These incentives are linked to regional economic conditions and are subject to review under EU jurisdiction over competition policy. Others argue that as cities, states, and regions increasingly become the locus of competitive advantage, it makes little sense for national authorities to limit their flexibility in attracting investment, an argument that can be applied to European nations as well as the American states.258 With respect to the locational competition among American states, some observers have identified an emerging consensus on several aspects of the competition among states (which are not unrelated to international competition)
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