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Statement - John H. Gibbons

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Statement of

The Honorable John H. Gibbons, Director

Office of Science and Technology Policy

before the

Subcommittee on Technology, Environment, and Aviation

Committee on Science, Space, and Technology
United States House of Representatives

April 20, 1994

Mr. Chairman, thank you for the opportunity to appear before the Subcommittee to discuss this Administration's new vision for science and technology policy and how the new Uruguay Round subsidies agreement advances that vision. Before I begin I would like to congratulate Ambassador Kantor, Ambassador Yerxa, and all our trade negotiators for their success in forging agreement on a new World Trade Organization. In my view the new arrangement will promote freer and fairer trade and enrich all the nations of the world.

I am particularly pleased with the treatment of subsidies in the agreement. The new subsidies agreement puts real teeth in disciplining unfair, trade distorting production and export subsidies. In this way it protects American industry from unfair competition. At the same time it protects our cooperative R&D programs with industry from potential challenge by foreign countries. These programs are among our most important investments in America's economic future.

President Clinton and Vice President Gore recognize science and technology as foundations for our nation's future. They realize that only a technologically vibrant and advanced economy will remain competitive in the global market. They are committed to ensuring that the United States not only remains competitive, but excels.

In advancing our science and technology policy, this Administration has taken a fresh approach. Traditionally, U.S. science and technology policy was aimed mostly at supporting basic science and defense-related research. That was fine for the days when our greatest national challenge was military, and we dominated the world economy.

However, it is not good enough today. Certainly, more than ever, we must maintain our historic support for fundamental science. Furthermore, we must continue to invest in advanced technologies to equip the finest fighting force on earth. However, the cold war is over. Today, our greatest challenge is economic.

We see technology as an indispensable engine for economic growth, and science as the foundation on which all technical progress is ultimately built. Technological advance fuels growth in the economy and creates productive jobs; through energy efficiency and resource conservation, it links a cleaner environment with wider markets and higher profits for business; and it holds the promise of new ways in education and training that will challenge and reward all of us.

The Clinton Administration's S&T policy faces the reality of an era of dynamic change. The challenges we face require a new direction for S&T policy. This Administration is ready for the challenge.

Let me highlight some of the more important changes that I believe dictate a new approach to science and technology policy:

-- With economic growth a national priority, we need to aim directly at developing promising civilian technologies in partnership with industry. Moreover, the civilian sector is now the technology driver in the U.S. economy. With some outstanding exceptions -- such as space technology -- the defense sector is now a technology follower. This means that the civilian economy is a prime source of leading-edge, affordable dual use technologies for defense. Our goal is to equalize Federal support for military and civilian R&D by 1998. A decade ago defense dominated federal research investments with more than 60 percent of total R&D. Already, we have reached a level of 47 percent civilian and dual-use, verses 53 percent military.

-- The American economy is undergoing rapid change. Corporations are downsizing. The great corporate laboratories that once brought us revolutionary breakthroughs -- like Bell Labs and the transistor -- are scaling back. Smaller, entrepreneurial companies are now a leading source of technical innovation. These structural changes have a significant effect on private funding of R&D. Because their pockets aren't deep, smaller firms generally tend to focus their investments in technologies directly related to bringing a product to market. Government investment in basic and applied research is now more important than ever.

The President's new vision for and commitment to science and technology is evident in his budget proposal for Fiscal Year 1995, which increases total R&D funding by 4 percent in nominal terms, and 1 percent in real terms. This is quite remarkable when considered in light of the fact that this budget is also one that reduces the deficit. The President recognizes the paramount importance of saving and replenishing our seed corn. Budget limits that freeze discretionary spending mean that any increase in R&D funding must come at the expense of other programs. The Federal Budget is no longer a zero sum game, rather it is a negative sum game.

One of the pillars of the President's R&D proposal is a significant increase in funding for our technology partnerships with industry. Sharing costs of pre-competitive R&&D leverages our investment and gets industry fully invested in the program, thereby enhancing the likelihood of success.

Unfortunately, it was precisely these partnership programs that were most at risk under the Dunkel Text of the GATT Subsidies Code, and it was this challenge which confronted our U.S. trade team in Geneva. The changes they negotiated were critical to the continuation of our R&D partnerships with industry.

Let me explain why. The Dunkel text, as this Administration received it, would have created a "green light" category of non-actionable R&D subsidies. However, in order to be protected, the government contribution could not exceed 50 percent for "basic industrial research" or 25 percent for "applied research". This formulation was particularly bad for U.S. technology policy because our investments in "applied research" are generally made in a 50-50 partnership with industry. This level of assistance exceeded the Dunkel limits and would have left many of our R&D programs subject to challenge.

Our principal focus in fostering industrial competitiveness and economic growth is in the form of R&D investments. U.S. support for R&D is much larger than that of other countries, and consequently would have been a bigger target under Dunkel. According to the latest comparable figures, the U.S. invested $28.4 billion in civilian R&D in 1991. Germany, the next largest provider spent less than half as much, and Japan even less.

The Dunkel text would not have had a similar effect on other countries because they rely less heavily on central government R&D support and more on other technology policies in support of industry. For example, Japan and the Europeans have used government procurement to support selected industrial sectors. Airbus has been the beneficiary of very large success-dependent loans from the consortium governments. Japan also uses a complex system of no-interest loans that the Japanese government provides to its aircraft industry. Programs such as these that go beyond support for pre-competitive development can be challenged under the new subsidies agreement.

Before it was modified, the Dunkel text made U.S. programs uniquely exposed to the uncertainties of countervailing duty actions by our trading partners. This situation led to an urgent call to renegotiate the R&D language of the subsidies agreement to provide greater protection for our investments in American industry that have long had bipartisan support. Fortunately, with Ambassador Kantor's able leadership and unflinching energy we were successful in renegotiating the R&D provisions.

As a result of these efforts, the final text fully protects the U.S. investment in fundamental research. Industrial research, planned with the idea of some commercial application down the road, may receive as much as 75 percent government support without challenge. Pre-competitive development activity, up to development of the first non-commercial prototype, can be funded with equal shares from government and industry. The definitions for these different stages of R&D activity are drawn from the private sector Industrial Research Institute, and reflect real industrial practice.

Without these efforts, a number of major U.S. programs that have long had strong support on both sides of the aisle would have been actionable. Now, they are eligible for "green light" treatment. These programs include:

-- The world-class biomedical research at the National Institutes of Health that has enabled the development of commercial pharmaceutical and biotechnology products;

-- Aeronautical and space research in NASA (dating back to 1915 for aeronautics);

-- SEMATECH, the six year old government-industry consortium to improve semiconductor manufacturing technology which has been credited with restoring the competitive edge of the U.S. semiconductor industry and strengthening the semiconductor equipment industry;

-- The Technology Reinvestment Program, a cornerstone of our defense conversion program, which supports the development and commercialization of dual-use technologies;

-- The Commerce Department's Advanced Technology Program which supports the development of high-risk, but potentially high-payoff civilian technologies;

-- The thousands of Cooperative Research and Development Agreements (CRADA's) that industry has signed with our federal laboratories to develop new competitive technologies.

Finally, the Partnership for a New Generation of Automobiles would also have been actionable under the Dunkel text. This public-private partnership is intended to

-- improve manufacturing techniques to make it easier to get new product ideas into the marketplace more quickly;

-- help develop technologies that can lead to near-term improvements in automotive efficiency, safety, emissions; and

-- support research that could lead to production prototypes of vehicles capable of up to three times greater fuel efficiency with no other changes in consumer amenities.

I hope you will agree with me that the new Uruguay Round subsidies agreement is good for American industry, and good for America's competitiveness. It protects the R&D investments that are the bread and butter of our technology policy, but tightens the GATT discipline on export and production subsidies that many other countries typically grant. Our ability to work cooperatively with industry in developing the technologies our country needs into the next century has been preserved.

Thank you again for this opportunity to address the Subcommittee on this important subject. I look forward to your questions.

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