Trade Policy Does Not Compute

DO America's trade laws work? Not very well, when it comes to high technology.

That is the conclusion of a new report released yesterday by the Council on Competitiveness. "Overall, US public policy has not been structured effectively to meet competitiveness challenges," says the council, a nonprofit group of chief executives in business, labor, and academia.

Although such coordination would have helped previous administrations, it is especially important for President Clinton.

"I think [former Presidents] Bush and Reagan needed it," says Eric Garfinkel, chairman of the council project's advisory committee. Today "the need is greater because we have a more activist president."

The new report echoes similar conclusions from other groups and individuals. In April, the Carnegie Commission on Science, Technology, and Government released a report that found in the White House "a crazy-quilt of poorly defined responsibilities for science and technology in international affairs," as Rodney Nichols, chief executive officer of the New York Academy of Sciences, put it.

Laura D'Andrea Tyson, now White House chief economist, has made the same point repeatedly. "The traditional approaches to trade and domestic policy that served the nation so well when American companies had an unrivaled technological lead are no longer adequate," she wrote in her 1992 book "Who's Bashing Whom: Trade Conflict in High-Technology Industries."

Perhaps the clearest example of trade-policy inadequacy is the case of liquid crystal displays or LCDs - the screens used on laptop computers. Policies can cost jobs

In 1990, US LCD producers filed an anti-dumping petition against the Japanese. Nearly a year later, the Commerce Department imposed 63 percent duties on active-matrix LCDs, used in high-end color laptops. That helped the US LCD industry but forced US computermakers Apple and Compaq to move part of their production abroad. That way they could import assembled computers, rather than just the displays, and avoid the duty.

In February, the International Trade Commission suspended the duties, pending a final decision from Commerce.

"Although the US government has described flat-panel displays as a critical technology, little has been done to improve the competitiveness of the industry," the council's report concluded. If LCDs are a critical technology, then policymakers "must create an integrated, systematic approach to the industry, which includes capital market reform, the establishment of consortia, and support for the underlying technology infrastructure." The Advanced Research Projects Agency (ARPA) in January budgeted $12 mil lion for a new United States Display Consortium after 12 US companies formally requested it.

The need to coordinate technology and trade policy seems to transcend party lines. Ms. Tyson describes herself as a "cautious activist."

Mr. Garfinkel was in the Commerce Department during the Bush administration.

In semiconductors, US policy was more successful. After three anti-dumping cases against Japanese chipmakers in 1985, the US and Japan signed an agreement calling for foreign chip companies to get a set share of the Japanese market.

It took six years, sanctions, and another agreement to reach that mark, but in 1992, the US and its counterparts finally captured 20 percent of Japan's market.

More important, the report says, the US followed up with an innovative domestic policy - an industry consortium, called Sematech, to improve the nation's ability to make the machinery that fabricates semiconductors. "Trade policy mechanisms should ... be complemented by a broader, competitiveness-based set of domestic policies," the council concluded. Sometimes no policy needed

But not too activist, as the case of high-definition television (HDTV) illustrates.

In 1989, activists and industry leaders were warning about the dire effects of Japanese and European government efforts in HDTV. Fortunately, the report concludes, government did nothing. A mid-sized US company called General Instrument created a digital HDTV and, suddenly, the US leapfrogged into the lead again.

Critics suggest that HDTV proves that government should take a hands-off approach. That's probably too simplistic. Government did play a role. The FCC made several key decisions that encouraged the industry to investigate HDTV. ARPA provided funding for several technologies that helped make the digital HDTV possible.

But "policymakers must take special care to ensure that their decisions do not deter the emergence of new, advanced technologies," the council report concludes.