Conflict and Cooperation in National Competition for High-Technology Industry (1996) / Chapter Skim
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Different National Investment Regimes and Their Consequences
Different National Investment Regimes and Their Consequences
Pages 96-120
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From page 96... ...
262 Ibid. For a comprehensive review of the issues associated with foreign direct investment, see Edward Graham and Paul Krugman, Foreign Direct Investment in the United States, Institute for International Economics, Washington, D.C., 1996.
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47, who notes that, in contrast to most countries, new foreign investment in Japan occurs primarily through greenfield establishments and/ or joint ventures. For an elaboration of this point, see Simon Reich, "Asymmetries in National Patterns of Foreign Direct Investment," p.
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From page 98... ...
These asymmetries continue. "In 1994, Japanese overseas FDI was $41 billion," while Japan's inward FDI was $4.2 billion.269 This lack of receptivity to foreign investment on the part of Japan is considered a major trade barrier.270 If Japan stands out among the industrialized countries for its barriers to foreign direct investment, it is by no means alone in having barriers.
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From page 99... ...
and Japan (34 percent) , "as conspicuous outliers," cited in Simon Reich, "Asymmetries in National Patterns of Foreign Direct Investment." 273 Sylvia Ostry, "Technology Issues in the International Trading System." p.
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Simon Reich, "Asymmetries in National Patterns of Foreign Direct Investment," p.
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From page 101... ...
As noted above, in strategic sectors such as aerospace, telecommunications, and automobiles, the imposition of compulsory technology transfer continues to grow. In the United States, the relative openness of the investment environment became a source of growing concern in the latter half of the 1980s, a period of very rapid growth in direct foreign investment.282 For example, the rapid acquisition of U.S.-based suppliers of semiconductor equipment and materials led the U.S.
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Tonelson points out that while foreign investment can add to the recipient country's wealth and to its wealth-creating capabilities, for a phenomenon as large and complex as foreign direct investment, broad generalizations about its effects offer little policy-relevant
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policy on foreign direct investment, see Robin Gaster, "Guiding Foreign Investment," Foreign Policy, Fall 1992. 288 This is especially true when the investing companies benefit from the direct support of their home government through equity investment, debt forgiveness or favorable loans by state controlled banks.
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From page 104... ...
Hoot, Competing Against Time, Free Press, New York, 1990. Studies documenting the delay in the delivery of key components, such as semiconductor manufacturing equipment to American producers by Japanese suppliers, include the Defense Science Board Task Force's Foreign Ownership and Control of U.S.
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298 Laura Tyson, Who's Bashing Whom?
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policymaking as they are for most other governments, with specific attention directed to foreign direct investments.302 299 Jeffrey A Garten, A Cold Peace: America, Japan, Germany, and the Struggle for Supremacy, Times Books, New York, 1992, p.
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In the absence of domestic production, foreign investment has distinct advantages. However desirable indigenous production and autonomous technological capabilities are as national goals, foreign direct investment, especially high–value-added investment, is distinctly superior to dependence on imports from foreign suppliers who locate their production, employment, and research facilities in their home markets.303 European policymakers have adopted this approach for some time.
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50. 309 Simon Reich, "Asymmetries in National Patterns of Foreign Direct Investment," p.
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Companies operating in markets open to foreign investment face greater competition than do firms which benefit from relatively closed investment regimes. Competition among domestic firms in protected markets may occur; though this restricted competitive environment lends itself to cartel behavior.
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and Japanese industry associations on international cooperation in the semiconductor sector and a related agreement between the U.S. and Japanese governments.
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and Japanese industry associations on international cooperation in the semiconductor sector and an agreement between the U.S. and Japanese governments concerning semiconductors.
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The government-to-government agreement affirms the support of both governments for cooperation by their respective industries and provides for regular consultations on the evolution of the semiconductor industry and policies affecting it. The success of the Semiconductor Agreements to date and the continued difficulty in obtaining market access for other high-technology products has led some analysts to conclude that similar agreements offer a pragmatic and effective means of resolving long-standing trade conflicts.315 In this view, 315 For one of the most complete statements of the rationale for this approach, see Michael Borrus et al., The Highest Stakes, pp.
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From page 113... ...
These differences in access, or asymmetries, are also a major source of trade imbalances, and generate pressures for restrictions on foreign investment in countries which do have relatively open investment regimes. Finding a means to address these asymmetries is therefore an important instrument for both improved cooperation and reduced trade friction.
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In her 1992 analysis, she argues that "a prudent policy toward foreign direct investment when it involves a product or industry deemed critical to national security should follow two basic principles. First, it should use requirements for national ownership or local production by foreign suppliers to enhance national control over suppliers regardless of their nationality.
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policymakers.324 Moreover, in light of the role of the United States in the world economy, a better understanding of inward foreign investment in host countries abroad as well as in the United States, and policy decisions taken on the basis of that information might well contribute to the success of ongoing negotiations on a multilateral investment agreement. Better informed decisionmaking offers the prospect of strengthening the U.S.
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From page 116... ...
firms often encourage the licensing of core technologies.327 This contrasts with East Asian countries such as Japan or Korea where markets are less open, the mobility of skilled labor is low, direct acquisition of firms is virtually impossible, integrated industrial structures (in keiretsu or chaebol) provide firms with patient capital, and national institutions are less open to foreign access.328 The result of these structural differences is that accrued technological know-how tends to be retained locally and tends not to diffuse rapidly across national boundaries.329 325 Laura Tyson, Who's Bashing Whom?
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332 While the reality of global economic activity is incontestable, its meaning is subject to different interpretations, with substantial relevance for national policy. For example, a recent Japanese industry publication states that, "given the borderless nature of many fundamental operations in this [the semiconductor]
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Corporations also depend on the national educational and technological infrastructure, as well as on the trade and investment policies of a given country and in some cases on specific government support.335 From this perspective, far from being rendered irrelevant by the globalization of competitive functions, government policies can play an instrumental role in determining competitive outcomes in the rivalry between national enterprises competing on a global scale.336 NATIONAL STRATEGIES FOR MULTILATERAL SOLUTIONS Systematic differences in access to national markets for trade and investment pose serious risks for the international system. Mutual reductions of tariff barriers, while valuable in opening markets to trade, afford only part of the resolution of international trade and investment issues for high-tech 333 Howell et al., Creating Advantage, p.
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From page 119... ...
For example, the process of granting access to national technology programs in Europe and the United States must be informed by the realities of access to foreign technology and markets through both trade and investment. To gain reciprocal access to technologies, export markets, direct investment opportunities, and 337 See OECD, Industrial Subsidies and Box B above.
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Similarly, roughly reciprocal access to markets, investment opportunities, and enabling technologies appears fundamental to the continued health of the multilateral system, as does some international understanding on the appropriate rules-of-the-game for the support of targeted industries. To achieve these goals, countries are likely to pursue both bilateral and multilateral agreements, an approach that holds out the prospect of the incremental success necessary to the maintenance of the system as a whole.
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