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News from the National Academies
Date: June 5, 1996
Contacts: Molly Galvin, Media Relations Associate
Bill Kearney, Media Relations Assistant
(202) 334-2138; Internet <news@nas.edu>


EMBARGOED: NOT FOR PUBLIC RELEASE BEFORE 5 P.M. EDT WEDNESDAY, JUNE 5
UNITED STATES SHOULD CAPITALIZE ON BENEFITS
OF FOREIGN PARTICIPATION IN U.S. R&D

WASHINGTON -- Insufficient evidence exists to substantiate the concern over possible negative effects of foreign participation in U.S. research and development (R&D), a committee of the National Academy of Engineering has concluded in a new report.* The committee recommended that Congress should avoid restricting foreign access to the nation's R&D efforts except when such participation poses a clear threat to national security. Restrictions discourage foreign direct investment in the United States and encourage similar discriminatory treatment of U.S. firms abroad.

"Foreign involvement in this country's R&D activities is increasing, and U.S. companies, universities, and federal laboratories should exploit the potential benefits of the trend rather than fight it," said committee chair Alan Schriesheim, director and CEO of Argonne National Laboratory, Argonne, Ill.

By a number of measures, foreign participation in privately and publicly funded U.S. R&D is clearly on the rise. During the 1980s, the share of foreign ownership of U.S. manufacturing assets nearly tripled, from 7.2 percent to 19.2 percent. Between 1982 and 1993, spending by foreign-owned firms in the United States jumped from 9.3 percent to 15.5 percent of all privately funded U.S. R&D. Foreign firms' involvement in publicly funded research is much smaller, accounting for less than 2 percent of total sponsored research at U.S. universities and federal laboratories. In 1991, however, 37 percent of all doctoral students and more than 50 percent of all post-doctoral candidates enrolled in U.S. science and engineering programs were not U.S. citizens.

Direct investment in the United States by foreign companies has driven their participation in privately funded U.S. R&D, the report says. Between 1982 and 1992, the amount of foreign direct investment in the United States grew from $124.7 billion to $430.2 billion. About 80 percent of foreign direct investment in the United States during this period was used to acquire existing U.S.-based businesses.

While acknowledging some lost opportunities for U.S. citizens due to foreign acquisition of U.S. high-tech companies or construction of new R&D facilities here, the committee noted that foreign direct investment also has brought benefits to Americans. The U.S. affiliates of foreign-owned firms are bringing significantly more patented technology into the country than they ship overseas and are providing jobs in this country. In 1992 alone, the U.S. affiliates of foreign-owned firms spent $13.7 billion on R&D and provided 104,500 research jobs in the United States.

Most foreign firms that conduct R&D in the United States do so to support their U.S.-based production facilities, to serve their U.S. customers better, and to improve their access to American scientific and technical expertise. Foreign companies try to exploit previously established competitive advantages in the U.S. market, rather than attempt to buy into areas of U.S. competitive advantage, the report says.

Foreign involvement in this country's R&D also has raised concerns that foreign-owned firms could gain a monopoly on technologies that are vital to U.S. national defense. The risks of denied or delayed access to critical technologies as a result of foreign ownership are real but poorly understood, the committee said. However, it cautioned against taking actions that ignore the substantial contributions made by foreign-owned firms. For instance, Sony Corp.'s 1989 purchase of Materials Research Corp. saved the semiconductor-equipment manufacturer from bankruptcy, thereby assuring the United States access to 60 percent of the world's production capacity for crucial defense materials.

On balance, the committee concluded, the growth of foreign investment in U.S. R&D and the increase in multinational alliances are positive trends. To maximize the benefits while minimizing potential risks of foreign participation in U.S. R&D, the committee also recommended the following:

> The federal government should continue its efforts to open foreign markets to U.S. trade and investment through international negotiation and more effective use of existing trade laws. Barriers to U.S. investment in the R&D systems of other nations impose real costs on U.S. citizens and raise questions about the fairness and value of foreign involvement here. As a result, some have called for unilateral measures that force a level playing field. However, such measures tend to discourage positive foreign investment and undercut long-standing U.S. efforts to remove trade barriers through negotiation, said the committee.

> Federal agencies should be given more latitude to benefit from the R&D capabilities of U.S.-based, foreign-owned firms. Foreign participation in publicly funded R&D is regulated by confusing and at times contradictory intergovernmental agreements and by U.S. agency directives and guidelines. These impede agencies in fulfilling their missions and diminish the contributions of federal R&D programs to the U.S. economy, the committee said. Laws and guidelines that regulate the R&D interaction of federal agencies and labs with U.S.-based companies should be reconciled so that agencies can take full advantage of R&D opportunities.

The committee's report was funded in part by the Carnegie Corp. and the National Academy of Engineering Technology Agenda Program. A committee roster follows.

The National Academy of Engineering (NAE) is a private, non-profit institution that provides technology advice under a congressional charter. An association of outstanding engineers from industry and academia, NAE shares with the National Academy of Sciences responsibility for advising the federal government. It also conducts studies of policy issues in engineering and technology, encourages education and research, and grants awards to distinguished engineers.

*Copies of Foreign Participation in U.S. Research and Development: Asset or Liability? are available from the National Academy Press at the mailing address in the letterhead; tel. (202) 334-3313 or 1-800-624-6242. The cost of the report is $29.95 (prepaid) plus shipping charges of $4.00 for the first copy and $.50 for each additional copy. Reporters may obtain copies from the Office of News and Public Information at the letterhead address (contacts listed above).
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[Internet availability: This news release is available on the World Wide Web at <http://www.nas.edu>; via Gopher at <gopher.nas.edu>; and via FTP at <ftp.nas.edu/pub/>.]

NATIONAL ACADEMY OF ENGINEERING

Committee on Foreign Participation in
U.S. Research and Development
Alan Schriesheim (1)(chair)
Director and CEO
Argonne National Laboratory
Argonne, Ill.

Peter Beardmore (1)
Director, Chemical and Physical Sciences Laboratory
Ford Motor Co.
Dearborn, Mich.

Samuel H. Fuller (1)
Chief Scientist and Vice President
Digital Equipment Corp.
Littleton, Mass.

John E. Gray (1)
Vice Chairman
Atlantic Council of the United States
Washington, D.C.

Karl E. Martersteck (1)
President
ArrayComm Inc.
San Jose, Calif.

Joel Moses (1)
Provost
Massachusetts Institute of Technology
Cambridge

Thomas J. Murrin (1)
Dean, A.J. Palumbo School of Business Administration
Duquesne University
Pittsburgh

Robert M. Nerem (1,2)
Institute Professor and Parker H. Petit Professor for Engineering in Medicine
School of Mechanical Engineering
Georgia Institute of Technology
Atlanta

C. Kumar N. Patel (1,3)
Vice Chancellor, Research
University of California
Los Angeles

Edwin P. Przybylowicz (1)
Director
Chester F. Carlson Center for Imaging Science
Rochester Institute of Technology
Rochester, N.Y.

Maxine L. Savitz (1)
General Manager, Ceramic Components
AlliedSignal Aerospace Co.
Torrance, Calif.

Chang-Lin Tien (1)
Chancellor and A. Martin Berlin Professor
University of California
Berkeley

NAE STAFF

Proctor P. Reid
Senior Program Officer

Penelope J. Gibbs
Administrative Assistant

(1) Member, National Academy of Engineering
(2) Member, Institute of Medicine
(3) Member, National Academy of Sciences