Linking Trade and Technology Policies An International Comparison of the Policies of Industrialized Nations (1992) / Chapter Skim
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7. MANAGING TRADE CONFLICT IN HIGH-TECHNOLOGY INDUSTRIES
7. MANAGING TRADE CONFLICT IN HIGH-TECHNOLOGY INDUSTRIES
Pages 67-96
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From page 67... ...
Trade among the advanced industrial countries in manufactured goods, which accounts for a large and growing fraction of total world trade, is a glaring exception.) Intraindustry trade among these countries in automobiles, computers, sophisticated telecommunications products, and a wide range of other manufactured products cannot be attributed to national differences in availabilities of land, labor, and capital.
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From page 68... ...
They can be attributed, at least in part, to salient differences in how national economies are organized and in the economic objectives they pursue.2 As intraindustry trade and competition among the developed countries have intensified, the role of such differences in shaping competitive outcomes has drawn increasing attention. Competition among American, European, and Japanese companies has spilled over into competition among the American, European, and Japanese models of capitalism.3 And trade conflicts, once narrowly focused on allowable national border policies, have spilled over into conflicts about allowable national differences in areas that have traditionally been the domain of domestic policy choice.
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From page 69... ...
Technology-intensive industries have been a source of recurrent trade friction between the United States and its trading partners. Trade in these industries has never really been free in the classical sense.
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From page 70... ...
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From page 71... ...
MANAGING TRADE CONFLICT IN HIGH-TECHNOLOGY INDUSTRIES 7 TABLE 2 Exports of High-Tech Products, by Selected Countries: 1970-86 All France West Japan United United Countries Germany Kingdom States Other Europe Exports Billions of Dollars 1970 31.841 2.241 5.127 3.84 3.054 9.02 8.589 17.792 1975 77.942 6.467 12.723 9.487 7.759 20.282 20.864 46.183 1980 185.957 14.425 29.046 31.338 20.168 44.869 46.129 105.414 1982 192.464 15.102 29.612 35.798 18.037 50.234 43.681 101.225 1984 221.521 15.41 28.585 54.1 18.432 56.54 48.454 104.272 1985 237.575 16.556 31.466 55.531 21.333 59.243 53.446 115.981 1986 289.481 20.36 41.937 69.105 25.304 63.483 69.292 149.672 All France West Japan United United Other Europe Countries Germany Kingdom States Percentage shares Share of total high-tech exports 1970 100 7 16 12 10 28 27 56 1975 100 8 16 13 10 26 27 59 1980 100 8 16 17 11 24 25 57 1982 100 8 15 19 9 26 23 53 1984 100 7 13 24 8 26 22 47 1985 100 7 13 23 9 25 22 49 1986 100 7 14 24 9 22 24 52 * Includes, in addition to those shown here, Australia, Austria, Belgium, Canada, Denmark, Greece, Iceland, Ireland, Italy, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, Yugoslavia.
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From page 74... ...
Rather the goal is to use trade policy, along with other policy instruments, to secure a national share of world production and the associated spillover benefits of high-technology industries. The simultaneous pursuit of this goal among the developed countries has been the source of a growing trade conflict.
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From page 75... ...
Trade barriers, broadly defined in this way, are important sources of trade friction because they are actively used to build national or regional production bases in hightechnology industries. Other trade conflicts emanate from structural differences among nations in a wide variety of policies and institutions that affect the terms of international competition.
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From page 76... ...
The relatively open and rapid flow of technological information in the United States is encouraged by the high job turnover of scientific and engineering manpower and by the concentration of the nation's basic research in academic institutions. In Japan, lifetime employment and the concentration of basic research in proprietary laboratories has the opposite effect.8 TRADE BARRIERS, STRUCTURAL DIFFERENCES, AND NEW MULTILATERAL RULES FOR TECHNOLOGY TRADE: A LONG-TERM AGENDA Traditionally, the United States has followed a rules-based approach in its multilateral and bilateral trade negotiations.
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From page 77... ...
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From page 78... ...
Intellectual Property Protection t° The fundamental problem confronting the development of new international disciplines for intellectual property protection is how to balance the objective of promoting innovation with that of facilitating the diffusion of technology. At the international level, there is an important North-South dimension to this problem, with the developed countries seeking strong protection of intellectual property to safeguard the competitiveness of their high-tech firms, and developing countries arguing that strong international rules would limit their ability to persuade rights holders to transfer technology.
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From page 79... ...
It is especially irksome, however, when the predator is foreign, since the profits that result from market power do not accrue to domestic residents. The first-best solution to the problem of predatory pricing or any other form of predatory behavior for that matter is a set of supranational rules on competition policy to regulate anticompetitive business practices and a complementary set of enforceable rules to regulate government subsidies, trade barriers, and other government subventions that encourage such practices.
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From page 80... ...
Current GATT regulations allow for large national differences in antidumping procedures.
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From page 81... ...
This requires an antitrust or competition policy perspective. Consequently, as new international codes are developed, the international system should set up some mechanism whereby such a perspective is brought to bear on the use of antidumping laws by individual nations.
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From page 82... ...
The definition of an infant-industry support program is comparable to the definition of industrial targeting suggested by the United States in the Uruguay Round discussions: an infant-industry program is a specific industrial policy for emerging industries, encompassing direct financial support, backed up with collateral measures such as a high level of domestic protection, R&D support, relaxation of competition laws, and export credits. New international rules are required to restrict such programs, and, when they are allowable, to require that they be made available to foreign firms on the same terms as domestic firms enjoy.
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From page 83... ...
Foreign Direct Investment Policy As flows of investment become ever more important relative to flows of trade, the competition among nations will increasingly take the form of locational competition for shares of the world's high-technology production base regardless of ownership. Under these circumstances, the challenge facing each individual nation is twofold: to make itself an attractive location for both domestic and foreign producers;20 and to work with its trading partners to restrict "beggar-thy-neighbor" competition for investment by these companies.
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From page 84... ...
It is this interdependence in market outcomes that makes structural differences in national competition policies a source of recurrent trade friction. If Japanese firms are allowed to engage in certain kinds of business practices at home, they may gain an advantage abroad.
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From page 85... ...
The Community is developing a precise set of rules to govern business and member government behavior in all of the policy areas discussed heregovernment procurement, intellectual property protection, antidumping procedures, industrial targeting and subsidies, and competition policy. Moreover, in developing these rules, it has allowed for two approaches harmonization of policies in some areas and mutual recognition of policy differences in others.22 The evolution of policy convergence within the European Community also indicates the critical role of a supranational court system- in the European case, the Court of Justice to enforce international rules, adjudicate disputes among governments and businesses, and establish legal precedents.
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From page 86... ...
At no point in the application of the nation's dumping laws is it necessary to document the structure of the industry in question, the market power of the dumper, the predatory intent or effect of the dumping, or the trade barriers, structural impediments, or other foreign government subventions that might underlie it. In short, there is absolutely nothing in the existing procedures to determine whether dumping is an "unfair" or "predatory" business practice or whether it is supported by the "unfair" behavior of foreign governments.
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From page 87... ...
Rather, it means designing them to be used more effectively for their appropriate objective to deter predatory or anticompetitive behavior by foreign firms and governments. When such behavior is not at issue, but when foreign competition is nonetheless injuring or threatening to injure American companies, the safeguards or CVD clauses of the nation's trade laws, not the dumping laws, are the appropriate remedy.
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From page 88... ...
Nor does the CVD approach address the effects of foreign subsidies on business expectations and strategies. As the literature on strategic trade theory demonstrates, a credible commitment by a foreign government to target an industry can have profound effects on the strategies of both domestic and foreign firms.
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From page 89... ...
trade law for addressing foreign trading practices that impede access to foreign markets. Section 301, which was introduced in the 1974 Trade Act, deals with disputes over particular goods, while "Super 301," which was introduced in the 1988 Trade Bill, deals with disputes between individual countries on a broad range of unfair trading practices.27 The 301 approach has been critized both at home and abroad for its "aggressive unilateralism." In a 301 action, the U.S.
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From page 90... ...
unilateralism may help overcome some of the negotiating inertia currently blocking needed reforms.28 But the main defense of the 301 approach is that it is essential as an interim measure- the alternative is not a world of free trade unimpeded by overt trade barriers and structural impediments, but a world in which such barriers and impediments can damage national economic interests, especially in imperfectly competitive technology-intensive industries. In such a world, the real policy alternatives are to accept the damage; to try to offset it by subsidy or protection at home; or to negotiate for the removal of the barriers or impediments that cause the damage.
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From page 91... ...
These unavoidable delays mean that in technologyintensive industries, where one year can destroy a technological advantage, trade policy cannot be an effective substitute for a domestic policy response. If the health of American producers is jeopardized by foreign trading practices, the American government should have the capacity and the will to introduce interim domestic assistance measures while it continues to negotiate with the trading partners.
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From page 92... ...
For such products, the real policy choice is not between free trade and protection but between appropriate combinations of liberalization and government intervention that improve national economic welfare in the short run and sustain a more open international trading system in the long run. This real policy agenda requires using the nation's trade laws as they were designed to be used, to offset the negative effects of market distortions abroad.
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From page 93... ...
13. Under current practice, both the United States and the European Community tend to employ a full average cost standard—dumping is interpreted to occur when price falls below average cost, broadly defined to include both variable and fixed costs, and a profit margin judged high enough to attract investment capital.
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From page 94... ...
21. For a more complete discussion of the kinds of international rules that may be needed in the area of foreign direct investment, see Bergsten and Graham (1991)
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From page 95... ...
In Completing the Uruguay Round: A Results Oriented Approach to the GATT Trade Negotiations, J Schott, ed.
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From page 96... ...
In Completing the Uruguay Round: A Results Oriented Approach to the GATT Trade Negotiations, J Schott, ed.
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