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OCR for page 121
MAIN POINTS OF THE SUMMARY REPORT
Main Points of the Summary Report
THE IMPACT OF COMPETITION FOR
NEW TECHNOLOGIES AND NEW INDUSTRIES
ON INTERNATIONAL RELATIONS
121
For the reasons outlined in this report, the competition for high-technol-
ogy industry shows every sign of intensifying as governments seek to cap-
ture the benefits of economic growth, high-wage jobs, and political au-
tonomy for their citizens and of the "political space" successful programs
offer governments. Moreover, in the absence of the bonds provided by the
Cold War need for a common defense, the political saliency of these com-
peting policies and programs and the tensions they engender will become an
increasingly important element of international relations. Insofar as the
political tensions created by these national programs are unlikely to dimin-
ish, it is important that they receive sustained attention from policymakers.
Improved understanding of the rationale for government support for high-
technology industry and the recognition that governments will continue to
actively support high-technology industry within their borders are essential
for effective policymaking. An open discussion of the effectiveness of
these programs, including their effects on the multilateral system, could
provide the basis for reducing the friction these programs generate. Better
documentation of the goals of such programs and of the nature of the mea-
sures designed to achieve them can make the teas of the current competi-
tion among nations more transparent, and thereby improve the possibility of
international agreement on appropriate means and limits for such programs.
Developing "rules of the game" for programs supporting high-technolo:,y
industry cannot, however, be seen as a substitute for open and contestable
markets for these industries. Effective national and international competi-
tion within a transparent policy framework is an important means of en-
couraging the rapid development of new products and processes.
RECOGNIZING THAT DIFFERENT ASSUMPTIONS
AND GOALS MEAN DIFFERENT POLICIES
Reducing, international friction resulting from governments' efforts to
promote national industries requires that full recognition be given to the
differences in national objectives and values. Many countries do not seek to
maximize short-term consumer welfare, although the assumption that they
do often underlies discussions of Anglo-American policymaking. Instead, a
growing number of countries seek to create national comparative advantage
to capture the special benefits that hi~h-technolo~y industries impart to an
OCR for page 122
122
CONFLICT AND COOPERATION
economy and its workforce Understanding that countries' objectives le=,iti-
mately differ is an essential step in effective policymaking, both to advance
national economic interests and to reduce international friction.
THE IMPACT OF HIGH-TECHNOLOGY COMPETITION
ON TEIE STRUCTURE AND DISPOSITION OF RESEARCH
The increased emphasis on short-term research with a focus on commer-
cially relevant applications is changing the modes of operation of major
corporate R&D facilities, with the phase-out of large research laboratories
and the reduction of the basic research effort of large companies. Similar
pressures and concerns are changing the way universities and other research
institutions fund, carry out, and publicize research. Universities and re-
search institutes face challenges in terms of funding, mission, and relation-
ship to national programs. The exploitation of commercially relevant uni-
versity research, a concern accentuated by the financial pressures faced by
universities, raises complex questions as to the appropriate disposition of
results and associated benefits. Because of the importance of these devel-
opments~: further work on the impact of changes in public and private sup-
port for basic research is required. Similarly, further work on the role of
university and research institutes in national and international science and
technology research should be undertaken.
NEW TECHNOLOGIES AS A SOURCE
OF COOPERATIVE ALLIANCES
The race to exploit the opportunities inherent in new technologies gener-
ates powerful incentives for greater cooperation between otherwise compet-
ing companies and national programs. New product development increas-
ingly involves companies in a broad array of complex technologies and
production processes with high capital costs and special expertise, encour-
agin~ alliances across sectors and national boundaries. Some of these alli-
ances are technology driven; others result from the actions of governments.
In the latter case, these policies often explicitly target the acquisition of
new technologies for the domestic economy. While the need for govern-
ment intervention in private alliance activity is limited, it is equally impor-
tant to recognize the role of government action in creating alliances and the
impact of alliances on the competitive environment. In some cases, where
government action is the driver of alliance activity, other governments may
have legitimate concerns as to the goals, distribution of benefits, and com-
petitive consequences. Further data collection and analysis in this area
could improve understanding of the causes and consequences of different
types of strategic alliances.
OCR for page 123
MAIN POINTS OF THE SUMMARY REPORT
THE CHALLENGES POSED BY
INCREASED COOPERATION
123
The costs, complexity, and risk associated with the development of new
technologies will continue to encourage greater international cooperation by
public and private entities. As the scope and intensity of this international
interaction increase, the potential for friction will rise as well. Further
work should be undertaken on the problems and prospects of international
cooperation, particularly in commercially relevant areas. It should focus on
principles to guide international cooperation, incorporating the lessons of
existing international programs for the organization of cooperative research;
it should also recognize that such cooperation is a valuable option and an
opportunity, not a right
TECHNOLOGY DEVELOP5IENT PROGRAMS
WILL REMAIN NATIONALLY BASED
Technology development programs will continue to be driven by national
goals, whether for missions such as defense, energy, or the environment, or
broader economic objectives of the nation. These motivations will continue
to constrain, though not eliminate, opportunities for international coopera-
tion. Successful international cooperation requires that the limitations of
national objectives and other factors be taken into account.
These limiting factors include
· asymmetries in the structure and funding of national programs,
· the different technological competencies and assets nations or firs
bring to a cooperative enterprise,
· the related perception that some countries are not contributing their
"fair share" to basic research, and
.
inadequate and ineffective intellectual property protection and invest-
ment regimes which discriminate against foreign acquisition and fail to
provide national treatment (formally or informally).
The frictions generated by the asymmetries in national technology pro-
grams may become more acute as advanced high-technology companies
based in countries with significantly less-developed research infrastructures
seek to participate in national programs of the leading industrial countries.
FURTHERING COOPERATION THROUGH AN
INTERNATIONALLY AGREED NATIONAL BENEFITS TEST
Given the underlying differences in rationale, structure, funding, and
accessibility of national programs, a formal international agreement "guar
OCR for page 124
24
CONFLICT AND COOPERATION
anteeing access" is unlikely. Less formal understandings may offer a means
of assuring greater transparency, and ultimately result in greater foreign
participation in =,overnment-funded civilian R&D programs. For example,
a sustained effort to reduce conditionality, perhaps through the construction
of an objective, internationally accepted national benefits test, Right be
undertaken on a multilateral basis.
would be to
.
The advantage of a multilateral effort
make national performance requirements more transparent,
· establish agreed-upon guidelines, and
· focus on contributions to the national technology base rather than on
corporate "nationality ."
A sustained multilateral effort could also seek to improve understanding
of differences among national technology development programs. For ex-
ample, it could gather improved data concerning formal rules for participa-
tion in national or regional technology programs, supplemented by objec-
tive assessments of current administrative practices, i.e., actual foreign
participation and its rationale, rather than theoretical "openness."
CONDITIONS FOR SUSTAINABLE
INTERNATIONAL COOPERATION
The growth and success of international cooperation will thus be deter-
mined by the terms and conditions of proposed cooperation as well as by
the history of previous cooperation. The degree of agreement on shared
priorities, equitable technical contributions (not merely financial contribu-
tions), and a shared capacity to exploit the results of cooperation will deter-
mine the willingness of both firms and public authorities to participate in
international cooperative ventures. The perception of decisionmakers con-
cerning their opportunities to exploit the results of cooperation is a key
consideration. Consequently, the contestability of the end-product markets
is likely to become an essential condition for productive and sustainable
international cooperation.
THE LINKAGE BETWEEN INTERNATIONAL
TECHNOLOGY COOPERATION AND
A LIBERAL TRADE REGIME
Greater international cooperation in technology development will there-
fore be determined in part by developments in the multilateral trading sys-
tem An open, market driven, international trading system provides an
environment conducive to sustainable international cooperation for the shared
development of new technologies. Lon=,-term cooperative efforts, and the
OCR for page 125
MAIN POINTS OF THE SUMMARY REPORT
125
cooperative spirit they presuppose, coexist with difficulty in an environ-
ment marked by trade disputes or inadequate respect for the explicit and
implicit rules of the game.
Consequently, a key condition for sustained international cooperation in the
development of new technologies is improved adherence to the principles of a
liberal trade regime. Closed national markets, whether through quotas, dis-
criminatory standards, biased public procurement, or private anticompetitive
practices, undermine the political and policy conditions necessary for effective
international cooperation. Reciprocal access to national technology develop-
ment programs presumes equal access to end-use markets.
DOMESTIC POLICIES WITH
INTERNATIONAL CONSEQUENCES
Efforts to further technological cooperation, particularly public/private
cooperation, therefore imply parallel efforts to further trade liberalization in
areas "within the borders," such as government procurement, national treat-
ment for foreign investment, and effective competition policy. Sustainable
cooperation implies a competitive, transparent procurement regime, the right
of establishment for foreign investors, including roughly comparable re-
gimes for the acquisition of existing firms as well as market access for final
products resulting from such cooperation.
EFFECTIVE POLICYMAKING REQUIRES
INTEGRATED INSTITUTIONAL STRUCTURES
Because there are powerful, reciprocal relationships between trade and
technology policy, effective national policymaking requires institutions which
reflect this relationship. Institutions which link trade and technology policy
are most effective. Many countries have established national institutions
with the capacity to assess, coordinate, and implement the various policies
impacting the development of national high-technolo=,y industries. Coun-
tries such as the United States, which often do not follow an integrated
approach to international competitiveness in high-technology industries, can
impose needless costs on their consumers and producers while putting un-
necessary stress on the international trading regime.
The absence of effective foresight or alternative policy mechanisms to
support a promising industry has led some countries to impose protectionistic
measures, often because few other policy tools were available to decisionmakers.
And protectionist border measures, in the absence of a coherent policy
framework, can impose significant costs on those domestic producers de-
pendent on imports of foreign components, as well as on the consumers of
final products.
OCR for page 126
26
CONFLICT AND COOPERATION
CHALLENGES FOR THE WTO
The new World Trade Organization will face significant challenges in
seeking to contain and adjudicate the disputes arising from fierce competi-
tion for high-technology industry. The legitimate desire of countries to
encourage high-technology industry through a variety of largely domestic
measures collides with the legitimate concern of other countries that these
measures will disadvantage their national industry. For example, one country's
program of technology diffusion can appear to its competitors as an effort
to support domestic producers at the expense of foreign exporters. Simi-
larly, policies to encourage technological innovation by national firms can
be seen as an effort to create national advantage in international markets.
When "normal policies" of support for innovation and diffusion are supple-
mented by systematic restrictions on access to markets for trade and invest-
ment, bilateral policy approaches are likely to be adopted while multilateral
solutions are sought. Pressures to seek trade agreements with measurable
outcomes are likely to become more frequent. Indeed, in the short term
they may be the only market-opening alternative available to policymakers.
As the absence of investment opportunities generates greater pressure for
negotiated outcomes concerning access to and shares of regional markets,
the need for progress on an effective, enforceable investment accord be-
comes more compelling.
It is widely accepted that governments should support research. Simi-
larly, government support for R&D for government functions is also widely
accepted. There is less consensus on government support for applied re-
search. Yet the distinctions between basic and applied research are often
difficult to make and rarely decisive in defining the appropriate government
role. Existing GATT definitions and exemptions for these categories of
state aid involve considerable ambiguity. Definitional difficulties for the
current exemptions for R&D and the environment are therefore likely to
become a source of international controversy. International initiatives to
refine definitions and advise on disputes are unlikely to prove satisfactory.
Consequently, the decision to provide such an exemption should be revis-
ited. This is not to suggest that government R&D subsidies are necessarily
improper. But where such subsidies distort international trade and cause
injury, they should remain actionable.
PROGRESS ON GOVERNMENT PROCUREMENT
Public procurement remains a major means of government support for
national industries and a significant source of friction in the international
system. Because a significant share of markets for high-technology prod-
ucts is derived from public purchases, discriminatory public procurement of
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MAIN POINTS OF THE SUMMARY REPORT
127
high-technology products has sparked major trade disputes. Governments
continue to see public procurement as a means of supporting, national cham-
pions through noncompetitive contracts and government procurement deci-
sions continue to have an important impact on trade flows.
A reexamination of the way the multilateral trading system addresses
government procurement is now necessary. In the aftermath of the Uruguay
Round agreement, government purchases are one of the few areas not cov-
ered in a thorough manner by international trade disciplines. To a large
extent, this is because the existing, Government Procurement Agreement
(GPA) requires its signatories to make the leap to full national treatment in
government procurement, a leap that most countries remain unwilling to
make. The alternative described in Supplement E-would include all WTO
contracting parties as members of a new GPA and would adopt the GATT
tariff reduction procedures as a model that could be applied to achieve
steady market-access improvements in the government procurement area.
A broader, more effective agreement would also offer a means to reduce
a major source of friction in high-technology trade while providing, the
benefits of transparent competition to government acquisitions of hi~,h-tech-
nology products. In addition, such an agreement would be a major step
toward improving the transparency and due process in government procure-
ment which would help reduce the impact of corruption on trade in hi:,h-
technology products.
With respect to international cooperation, proponents of such coopera-
tion must recognize that cooperation to develop new technologies implies
transparent and competitive procurement regimes. Reserving markets for
national champions is ultimately incompatible with sustained cooperation.
This is especially true when firms benefiting from protected home markets
seek access to the publicly financed technology development programs in
countries with more open markets. Consequently, the contestability of par-
ticipating firms' home markets may become a de facto condition for coop-
erative activity. A revised Government Procurement Agreement could thus
reinforce efforts to encourage international cooperation.
MUTUAL RECOGNITION ON STANDARDS
Discriminatory or exclusionary standards practices are also incompatible
with efforts to improve international cooperation in the development of new
products. International cooperation is an excellent means to avoid conflict
over differing national standards for key technologies. Recent calls for
negotiations on a full and complete mutual recognition agreement for medi-
cal devices, telecommunications terminal equipment, information technol-
ogy products, and electrical equipment, as well as a common registrations
dossier for new drug products, should be supported.
OCR for page 128
128
CONFLI CT AND CO OPEN TI ON
INTELLECTUAL PROPERTY PROTECTION
There is a pressing, need for sustained international commitment to the
protection of intellectual property rights, which underpin much of the tech-
nological progress in sectors such as electronics and biotechnology. At the
same time, a cooperative effort should be undertaken to adjust existing
intellectual property rules to the needs of new fields such as global info~a-
tion systems and biotechnology. Multilateral efforts to constructively ad-
dress these issues should be encouraged.
THE SPECIAL DYNAMICS OF COMPETITION
IN HIGH-TECHNOLOGY INDUSTRY MEANS EFFECTIVE
ANTIDUMPING POLICIES REMAIN NECESSARY
In technology industries characterized by scale and learning economies,
forward pricing, strategies can be indistinguishable from predatory pricing.
The high cost, rapid innovation, and short product cycles characterizing
these industries make it possible for significant damage to domestic indus-
try to occur in relatively short periods. Moreover, the higher returns which
accrue to national firms benefiting from these practices can provide the
resources to fund additional research, more rapid product development, ex-
panded marketing,, and overseas acquisitions of competitors. Even when
practiced for relatively short periods, these strategies provide substantial
competitive advantage in high-technology markets. For the recipients of
dumped products, the revenue losses from both reduced exports and re-
duced domestic market share are compounded by the loss of the dynamic
efficiency gains, i.e., learning by doing, that characterize these industries.
The cumulative effect of these practices can permanently alter the terms of
international competition by forcing competing firms to exit a product mar-
ket or by deterring new entrants.
In these circumstances, the need for prompt and effective antidumpin=,
policy at the national level is heightened. This may be a second-best policy
solution, but it is likely to prove essential for countries with relatively open
markets in hi=,h-technology goods. From the international perspective, uni-
lateral national action could be usefully supplemented by improved consen-
sus and standards on competition policy and its enforcement.
INVESTMENT POLICIES:
THE NEED FOR A MULTILATERAL ACCORD
While the policymakers in some countries welcome the benefits of for-
eign direct investment and consequently have relatively open investment
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MAIN POINTS OF THE SUMMARY REPORT
129
regimes, many other advanced industrial countries and rapidly industrializ-
ing countries do not share this view or apply the same open policies toward
foreign investment. The explanations for this policy divergence among the
industrialized countries, as well as those rapidly industrializing, are many
and varied. However, the effect of these "structural impediments" is to
make foreign direct investment difficult' even exceptional in these coun-
tries, especially for the acquisition of existing firms in leading high-tech-
nolo=,y sectors. As a result, many high-technolo=,y companies are obliged
to settle for licensing agreements or find themselves excluded from impor-
tant markets.
COMPULSORY LICENSING
Licensing a:,reements, especially compulsory agreements, may work to
the serious detriment of the innovating firm. And restricted market access
can have powerful negative effects on the competitive position of compa-
nies denied the economies of scale and other competitive benefits so impor-
tant to high-technology industries.
INVESTMENT INCENTIVES
Better understanding of the scope of these incentives, their aggregate
costs and their impact on decisionmaking at the level of the firm would be
useful to national and regional policymakers. Within national jurisdictions
it may be possible to establish norms-with legislative underpinnings if
required to limit excessive public-private transfers in the competition for
new investment. At the international level this subject should be explored
as a potential element for inclusion in the negotiations for a multilateral
agreement on investment.
REDUCING NATIONAL DIFFERENCES
IN INVESTMENT ACCESS
The sharp differences in rational investment regimes are an important
source of friction and a destabilizing element in the global system. Unequal
access undermines the basis for sustainable international cooperation in the
development of new technologies. These asymmetries in national invest-
ment policy are a major source of trade imbalances and also gene ate pres-
sures for restrictions on 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 re-
duced trade friction. Progress requires a two-track approach: (1) a deter-
mined and sustained effort to improve access on a bilateral basis and (2) the
conclusion of a workable multilateral accord on investment.
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130
CONFLICT AND COOPERATION
In the case of the United States, the systematic collection of information
and sustained policy level attention to direct foreign investment, particu-
larly acquisitions, in high-technology sectors would improve understanding,
of their impact on the U.S. defense base and the U.S. competitive position.
In the case of Japan and the industrializing East Asian economies, more
open investment regimes would offer substantial benefits while also con-
tributing to more balanced, and therefore more sustainable, trade flows. In
the case of Europe, Basin=, the costs and administrative burden involved in
establishing new firms, as well as acquisitions of existing firms, would
offer enhanced opportunities for economic growth and employment.
Representative terms from entire chapter:
government procurement
