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10
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6
1
Document No.
CA
OFFICE OF CABINET AFFAIRS STAFFING MEMORANDUM
Date:
4-23-90
Due by:
Subject:
BNA Report -- Memo to Bromley
From:
Steve Danzansky
ACTION CONCUR FYI
ACTION CONCUR FYI
BATES
JACKSON
DANZANSKY
MCBEE
ADAIR
SCHALL
BUCHHOLZ
WETHINGTON
D'ANDREA
WILLIAMSON
DEWITT
YALE
DUGGAN
EVANS
FARRAR
HEIMBACH
Comments:
THE WHITE HOUSE
WASHINGTON
April 23, 1990
TO:
ALLAN BROMLEY
FROM:
STEPHEN I. DANZANSKY
I have taken the liberty of "marking-up" a recent BNA report
on our recent discussions and activities.
I think it is vital that these distinctions which we so
carefully worked out be kept clear. I fully realize you have
little control over reportings such as this, but it is these sort
of things which raise hackles around the campus here.
I will have Olin Wethington, our EPC Executive Secretary,
give you a call to reschedule your lunch so that the EPC group
can get started ASAP.
Hope all worked out with the speech.
4-13-90
(DER)
REGULATION, ECONOMICS AND LAW
(No. 72)
A - 11
The OTS warned that any transaction involving a
Addressing a science and technology conference
cash-out merger in which the resulting S&L does not
sponsored by the American Association for the Ad-
meet its fully phased-in capital requirements general-
vancement of Science, Bromley said the Office of
ly will not be approved.
Science and Technology Policy is in the process of
The agency noted that TB 38-3 applies to "signifi-
establishing a special panel required by law to begin
cant transactions," including acquisitions of control,
developing a list of priority technologies that are
mergers, mutual-to-stock conversions, and branch
important to a range of commercial applications. The
purchases that do not require federal financial assist-
panel will merge those "critical technologies" from
ance. The new capital guidelines do not apply to
lists prepared by the departments of Defense and
simple holding company reorganizations, where an
Commerce. Defense has completed its list, released in
S&L establishes its own holding company and there is
March, while Commerce will announce its list "soon,"
no material change in the thrift or its stock ownership,
Bromley said in a prepared text.
the OTS said.
The federal government has an important role to
play in supporting the development of those wide-
ranging technologies, which cannot be supported by
Capital Maintenance Agreements
private industry alone. "No single company can cap-
The second of the agency's two policy statements
ture enough of the benefits to justify investing an
makes clear when the OTS will require capital main-
adequate amount of R&D in them," Bromley said of
tenance agreements.
those technologięs.
In Thrift Bulletin 5a (TB 5a), the OTS said buyers
While the federal government should support such
whose newly acquired thrifts fail to meet fully phased-
R&D efforts, the science adviser did not specify in
in capital requirements must sign agreements-limit-
what form and to what extent the government should
ed capital maintenance agreements-promising to
step in to help private companies. Bromley talked at
infuse the institutions with added capital whenever
length about the administration's efforts to establish
their capital levels fall below current minimum re-
budget priorities dealing with science and technology.
quirements. Those requirements will increase each
"Unfortunately, in the reviews that were completed
year until they meet the fully phased-in capital levels
this past fall, the available budget resources would not
mandated by FIRREA.
stretch to cover all agency efforts-nor, I suspect, will
The maintenance agreement will have a dollar cap,
there ever be enough resources to cover all of the
limited to the difference between the S&L's actual
proposals," he said. "This problem of funding is, of
capital and the fully phased-in requirement that would
course, one with which OSTP is continually involved."
have applied immediately after the transaction. Gen-
Bromley underscored what he said are important
erally, limited capital maintenance agreements will
institutional improvements within OSTP that will fun-
expire after five years or after the acquirer has
nel more input to the administration from the private
demonstrated that the institution has exceeded its
sector, which he said was a problem in the past. "In
fully phased-in capital standards for eight consecutive
the future, much greater input will come from the
quarters, the OTS said.
President's Council of Advisors on Science and Tech-
The OTS noted that limited capital maintenance
nology," Bromley said of the group of 12 scientists and
agreements are not required for simple holding com-
engineers that President Bush assembled in February.
pany reorganizations, standard conversions, or simple
The group, chaired by Bromley, met at Camp David in
holding company conversions.
February and at the White House in March with the
OTS added that its latest thrift bulletins do not
president.
affect any net worth maintenance agreements and
Also helping to coordinate policy within OSTP is the
"pre-nuptial" agreements executed before April 12,
interagency Federal Coordinating Council for Science,
noting that they remain enforceable by the OTS or the
Engineering and Technology, which reviews, inte-
Resolution Trust Corp.
grates and coordinates the R&D activities of the gov-
TB 5a rescinds TB 5, which implemented the former
ernment that involve more than a single agency or
Federal Home Loan Bank Board's August 1988 policy
department. FCCSET, also chaired by Bromley, has
toward net worth maintenance agreements.
held two meetings to date. "For the first time since it
was created, FCCSET should be functioning as it was
designed to function," he said. wordmate D
While FCCSET will policy issues dealing
Science
Domestic
with science and technology within the Bush adminis-
tration, political and economic areas dealing with
BUSH SCIENCE ADVISER SAYS WORK ON TRACK
science and technology, such as global climate change,
TO DETERMINE TECHNOLOGY PRIORITIES LIST
will arrive at the Domestic Policy Council or the
Economic Policy Council through new working
A special administration panel charged with identi-
group, again chaired by Bromley, that will report to
fying broad technologies that are important to the
both councils, the science adviser said.
future of U.S. economic and national security. will
"Because I chair both FCCSET and PCAST, I have
make its first report to President Bush and Congress
the opportunity to coordinate their actions so that
on Oct. 1, White House chief science adviser D. Allan
each benefits from the other's activities," Bromley
Bromley said April 12.
added.
Copyright © 1990 by THE BUREAU OF NATIONAL AFFAIRS, INC., Washington, D.C. 20037
0148-8155/90/$00.50
THE white house
washington
Steve:
I recognize that this is far too long to serve
as a decision memo for the President, but per-
haps it could be the vehicle for internal dis-
cussion and serve as a background document. I
think we need to give thought to the decision-
or recommendation-making process internally;
you will note that the paper only presents
various options, both those identified by the
task force and others discussed internally.
We had talked about it going forward in this
fashion but I am more inclined to at least
try to narrow the options for the President's
consideration, perhaps limiting the discus-
sion of pros and cons only to points in con-
tention and presenting some consensus options
without comment.
Let me know your thoughts on process and your
comments on the paper (other than the self-
evident one about length - but I swear all
of this at least needs to be considered as
relevant!)
Barry
File:
Ocs.
February 20, 1990
I. ISSUE
A decision on the options presented by the Outer
Continental Shelf (OCS) Leasing and Development Task
Force is needed.
II. BACKGROUND
In your February 9, 1989 budget message to Congress,
you imposed a moratorium on three controversial OCS
lease sales scheduled for fiscal year 1990 -- Sale
116 in the Gulf of Mexico off the southwestern coast
of Florida, Sale 95 off the coast of southern
California, and Sale 91 off the coast of northern
California -- pending a review of the environmental
effects of the sales by a Cabinet-level task force.
The Secretary of the Interior, the Secretary of
Energy, the Director of the Office of Management and
Budget, the Administrator of the Environmental
Protection Agency and the Administrator of the
National Oceanographic and Atmospheric Administration
(NOAA) were named as members of the Task Force and
charged with making recommendations on the future of
the lease sales within one year. In fulfilling its
charge, the Task Force conducted briefings and public
workshops in Florida and California, hearing from
over 1,000 witnesses, met with Members of Congress
from those two states and other parts of the country,
and received over 11,000 witten comments. It also
commissioned and received a study from the National
Academy of Sciences (NAS) addressing the adequacy of
the scientific and technical data available on which
decisions on the three lease sales could be made.
The Task Force delivered its report to the White
House on January 5. It identified 11 options for
consideration with respect to the lease sales (three
for the Florida sale and four for each California
sale). It also proposed various options that are
ancillary to the decisions on the lease sales and
additional measures for consideration that would
address some of the general environmental concerns it
identified in analyzing the OCS program. On January
22 you met with the members of the Task Force,
Secretary Skinner and members of the White House
staff to discuss the report.
2
III. DISCUSSION
A. POLICY GOALS.
The OCS leasing program has been the focus of local
and national controversy in recent years over the
environmental effects of offshore oil and gas
exploration and development. The controversy has
resulted in yearly Congressional moratoria on certain
lease sales and even on some pre-lease planning
activities. The policy goal of the decisions on
these three lease sales and the analysis of the
entire OCS program that will inevitably accompany
these decisions must be to reconcile the need for
adequate domestic energy supplies through robust
exploration and development on the outer continental
shelf and the need for long-term protection of
sensitive environments and ecosystems. An additional
goal must be to regain executive branch control of
the OCS program by addressing Congressional and local
concerns and removing their stranglehold on the
program.
B. STRUCTURE OF OCS PROGRAM.
The OCS program is governed by the Outer Continental
Shelf Lands Act and overseen by the Minerals
Management Service (MMS) within the Interior
Department. The sale and development of leases under
the Act is accomplished in five-year programs, which
begin with thorough analyses designed to assess the
potential reserves derivable from the leases and any
problems that would accompany their development.
That process starts more than two years before the
beginning date of a five-year program. The MMS
undertakes twelve separate steps as part of this
evaluative process, preparing two drafts of the
program and an environmental impact statement. The
public is given the opportunity to comment at three
points in the process and Congress is also formally
notified before the program is finally approved.
Following final approval of a five-year program,
typically another 24 to 26 months are required before
any lease sale can take place. During this period
another EIS is prepared and additional opportunities
for public comment are provided, along with an
opportunity for comment by the governor of the state
offshore which the sale is to occur. Once a sale
occurs, exploration of the lease can take anywhere
from 1 to 10 years and development and production can
occur over several decades.
3
These three lease sales are all part of the 1987-
1992 five-year program. The sales were at different
stages when the moratorium was imposed:
O The final Environmental Impact Statement (EIS) for
the Florida sale was completed in October 1987; the
sale could have been held within 5 to 6 months.
O The initial area for the southern California sale
was identified in October 1987, but no EIS had been
prepared; the sale could have been held within 16
months.
O The public hearings for the northern California
sale were completed in February 1988, but the final
EIS was delayed; the sale could have been held within
10 months.
The initial steps for the 1992-1997 five-year program
are tentatively scheduled to commence in March with
Secretary Lujan's release of a proposal for comment.
Completion of the program development process is
expected to take until the summer of 1992, with the
first sale tentatively scheduled for September 1992.
That schedule is not mandated by statute or
administrative rule or regulation, however, and could
be delayed. A delay of up to six months would not
significantly affect the timing of the program and
the early sales, as only one to two months would be
lost.
C. ENERGY OUTLOOK.
The decisions with respect to these three lease sales
must take into account their relationship to total
domestic oil and gas production over the next 10 to
20 years. The Energy Department has forecast a fall
in U.S. crude oil production of 2.7 percent per year
through this decade, resulting in an average daily
production of 5.9 million barrels in the year 2000.
Production is predicted to fall through the
succeeding decade until the average daily production
in 2010 will be only 4.7 million barrels. Because of
predicted continued low prices, U.S. oil consumption
is expected to increase, rising to 18.6 million
barrels per day by the year 2000 and 20.8 million
barrels per day by 2010. Oil imports are predicted
to increase to 10.2 million barrels per day in the
year 2000 and 12.9 million barrels per day in 2010.
The MMS has developed mean estimates for the
undiscovered economically recoverable (using existing
4
technology) oil and gas resources derivable from each
of the areas in which the leases that are the subject
of the sales and from the leases involved in the
sales themselves:
O Florida (Sale 116)
480 million barrels of oil and 80 billion cubic feet
of gas; 110 million barrels of oil and no gas would
be leased through Sale 116.
O Southern California (Sale 95)
530 million barrels of oil and 1.07 trillion cubic
feet of gas; 230 million barrels of oil and 460/800
billion cubic feet of gas would be leased through
Sale 95.
O Northern California (Sale 91)
220 million barrels of oil and 490 billion cubic feet
of gas; 200 million barrels of oil and 410 billion
cubic feet of gas would be leased through Sale 91.
Greater resources may be available from the larger
planning areas within which the areas covered by the
two California sales are derived (the Florida sale
encompasses all of the unleased resources of the
entire planning area). The Southern California
Planning Area is estimated to contain 970 million
barels of oil and 2.21 trillion cubic feet of gas on
unleased acreage. The Northern California Planning
Area is estimated to contain 460 million barrels of
oil and 1 trillion cubic feet of gas on unleased
acreage.
Certain resources are already leased within the areas
off Florida and southern California (none of the area
off northern California has yet been leased), and the
impact on those leases of the decisions on these
three sales must also be analyzed. The 73 existing
leases off Florida are estimated to contain 140
million barrels of oil and 30 billion cubic feet of
gas. The existing leases in the Southern California
Planning area are estimated to contain 340 million
barrels of oil and 800 billion cubic feet of gas.
All of the figures regarding the resources from these
three sales and the areas from which they are derived
must be compared to the total undiscovered
economically recoverable resources from the U.S. as a
whole, including the entire OCS. It is also
instructive to compare the resources available from
these sales and the OCS to the resources available
from the Alaska National Wildlife Refuge (ANWR).
5
Total U.S. resources are estimated to be 34.8 billion
barrels of oil and 263 trillion cubic feet of gas, of
which 8.2 billion barrels of oil and 74 trillion
cubic feet of gas come from the OCS. In comparison,
ANWR is estimated to contain 2.7/3.2 billion barrels
of oil and 6.9 trillion cubic feet of gas (although
the production of natural gas from ANWR is considered
by some to be uneconomical).
Thus the relative values of these sales, the larger
areas surrounding the leases that are the subject of
these sales, the leased and unleased portions of the
planning areas incorporating these sales, the entire
OCS and ANWR can be compared as follows:
Oil
(Gas)
(billion
(trillion
barrels)
cubic feet)
Total U.S. Resources
34.8
263.0
Entire OCS
8.2
74.0
ANWR
3.2
6.9
Existing Fla. Leases
.14
.30
Existing S. Cal. Leases
.34
.80
Unleased S. Cal.
.97
2.21
Unleased N. Cal.
.46
1.0
Sale 116 Area
.48
.80
Sale 95 Area
.53
1.07
Sale 91 Area
.22
.49
Sale 116
.11
:
Sale 95
.23
.46
Sale 91
.20
.41
With the above chart in mind, the implications of the
cancellation of these sales on the entire OCS program
must also be considered. This could provide
additional ammunition to opponents of the program in
Congress and the environmental community and could
result in further and potentially more permanent
Congressional moratoria or in an informal but just as
effective practical moratorium because of
overwhelming political pressures. This could be
critical, as reliance on OCS lease sales in areas
that to this point have proven largely non-
controversial (such as the western and central Gulf
of Mexico and the Beaufort and Chukchi Seas in
Alaska) has been considered an essential part of
domestic oil and gas exploration and development
strategy and is perceived as vital in order to
maintain domestic energy security.
6
Evaluating the decisions on these three sales and its
impact on domestic energy security issues highlights
an incongruity in the timing of this process. If
made in the near term, these decisions will occur
without the benefit of the National Energy Strategy
(NES) which is currently under development by the
Energy Department; a preliminary draft of the NES is
scheduled to be delivered to the White House in early
April. It is logical to assume that the OCS will
have some role in the NES. Any final decision on
these sales could therefore produce an incoherence in
the NES or require significant reevaluation of the
strategy between the preliminary and final reports.
Delaying these three lease sales without any final
decision or structuring a decision to allow a
subsequent analysis of the sales would permit them to
later be considered in the context of the NES.
D. RELATIONSHIP OF STATE AND LOCAL GOVERNMENTS TO
OCS PROGRAM.
The relationship of state and local governments and
the citizens they represent to the OCS program is
also a relevant issue. The federal government's
perspective on the OCS program is premised on its
role within the nation's overall energy strategy,
with its national security and economic implications.
In administering the OCS program the federal
government also exercises its national stewardship
functions in managing resources on public lands and
protecting scarce and valuable environmental
resources. States and local governments, on the
other hand, represent only their constituents, who
will experience the direct impact of OCS development.
Most of the financial benefit of OCS leasing and
development accrues to the federal government (states
receive 100 percent of revenues from OCS leases
within the first three miles of shore; states receive
27 percent of the revenues from OCS leases from miles
three through twelve, with the federal government
receiving all revenues from leases further than
twelve miles offshore). Further, the residents of
the locality most directly affected by OCS activity
may or may not benefit proportionately from the
revenues received by the state if those revenues are
spent elsewhere. Despite the opportunities granted
for participation in the OCS process, persons
impacted by federal OCS decisions often feel that
their interests have not been represented; this
likely accounts for the contentious nature of many
recent OCS decisions. Although not a subject
7
directly addressed by the Task Force, the concept of
restructuring the program to give states a greater
share of the revenues arose during your meeting with
the Task Force.
E. NATIONAL ACADEMY OF SCIENCES STUDY.
The Task Force requested that the NAS study the
adequacy of the scientific and technical data
available on which decisions for the three lease
sales could be made.
The NAS report concluded that generally there is not
adequate data on which to base a lease/no lease
decision, but that the adequacy varies by lease sale.
The NAS conclusions with respect to the three
categories of data are as follows:
Sale
Oceanographic Ecological
Socioeconomic
Florida
marginal
inadequate
inadequate
N. Cal.
adequate
adequate
inadequate
S. Cal.
inadequate
adequate
doubtful
Although the NAS did not specifically identify those
studies which must be conducted in order to have a
complete scientific data base, the NAS recommended
that no decision be made on proceeding with the lease
sales until further studies are conducted. There is
no clear consensus opinion as to the length of time
needed to conduct adequate studies. Staff of the
Task Force estimates that it could take as long as
five to six years in Florida and as little as two to
three years in northern California.
Questions regarding the value of the NAS study and
the weight it should be accorded have been raised.
Some allege that the strictest academic "peer review"
standard was used to assess the available data. This
could be construed as far greater than the standard
generally used in making governmental decisions. Such
a standard could be seen as unreasonable in the
context of the real world, imposing a burden that
could rarely if ever be sustained, particularly when
the costs necessary to meet such a standard and the
benefits sought to be gained from the OCS process are
weighed against it.
The NAS was also requested to study the adequacy of
resource estimate methodology used by the MMS. The
NAS report concluded that the MMS methodology for
developing resource estimates is adequate and sound.
8
F. LOCAL CONSIDERATIONS.
As noted in Section A above, in preparing the report
the Task Force conducted local meetings in Florida
and California. These were designed to give the Task
Force the opportunity to discuss the proposed sales
with state and local officials, scientists, business
leaders and other interested groups and with members
of the general public. Demonstrations in opposition
to leasing were held at each of the nine public
workshops. In addition, the vast majority of
residents who spoke at the meetings were adamant in
their opposition to new leasing. Local opposition to
leasing does not appear to have lessened, and in fact
may have strengthened. An August California Poll
found that 75 percent of those surveyed opposed more
drilling off the coast, the highest level of
opposition yet expressed in a statewide poll.
State and local officials are also generally
unanimously opposed to the sales. In Florida, the
entire Congressional delegation, Governor Martinez
and all local elected officials oppose new leasing,
and in fact also oppose exploration on existing
leases off southeastern Florida. Both California
Senators oppose new leasing, as do virtually all
local elected officials. The California
Congressional delegation is split on the issue,
although all affected coastal representatives oppose
new leasing.
G. ENVIRONMENTAL AND MITIGATION OPTIONS.
In analyzing the three lease sales, the Task Force
identified and addressed six specific environmental
concerns: air quality; the risks of oil spills; the
impact of OCS activity on commercial fishing; the
effects of OCS activity on protected lands and
species; water quality; and socioeconomic impacts.
In all of these areas, the Task Force developed
recommendations for additional studies and control
measures, some of which it incorporated into its
final options. Certain of the recommendations are
related only to the proposed lease sales; others
warrant consideration at the present time or when
future leasing decisions are made in the three areas.
Appendix A contains a detailed discussion of the six
environmental concerns and the recommendations.
9
IV. OPTIONS
The options for the lease sales are presented below
as the Task Force presented them, attempting to
combine the options in a general philosophical
framework. The same general option could be selected
for each sale, or distinctions between the sales
could be drawn to distinguish between them. The
options presented by the Task Force are presented
first, followed by separate options developed by
White House staff and by individual members of the
Task Force independently. It should be noted that
the members of the Task Force agreed only to include
within the final report options that all members
could agree would be acceptable; thus some of the
options developed by staff may have been considered
and may be supported by individual members of the
Task Force. Supporting discussion of the pros and
cons of the various options is also presented.
Options applicable to the OCS program as a whole are
also presented.
Task Force Options for Sales
Option A
Sale 116 (Florida)
Cancel the sale and defer subsequent decision until
the additional oceanographic, ecological and
socioeconomic data identified by the NAS have been
collected.
As for existing leases, proceed with exploration and
development decisions under normal procedures.
Sales 95 (Southern California) and 91 (Northern
California)
A-1 -- Proceed with preparations for the lease
sales but defer final decisions until the additional
oceanographic (southern California) and socioeconomic
(southern and northern California) data identified by
the NAS have been collected.
A-2 -- Cancel the sales and defer subsequent
decisions until the additional oceanographic
(southern California) and socioeconomic data
(southern and northern California) identified by the
NAS have been collected.
10
Discussion
Under these options, leasing in both Florida and
California could occur as part of the 1992-1997 five-
year plan, which may be proposed by Secretary Lujan
as early as March. These are pro-petroleum industry
options which signal the Administration's continued
commitment to OCS development and affirm to the
greatest extent the Interior Secretary's discretion
over OCS decisions, consistent with current law.
They recognize that the OCS is a national resource
the development of which will not be unduly subject
to local citizens' views. They will likely meet with
strong criticism, however, particularly on the ground
that a decision to cancel the sales of the leases,
followed almost immediately by the inclusion of the
same leases in the next five-year program, smacks of
hypocrisy. This criticism can be partially rebutted
by responding to the environmental concerns
identified by the NAS and imposing additional
environmental restrictions on new leases.
Allowing exploration and development to proceed on
the Florida leases using normal procedures avoids any
interference with current lessees and any "takings"
problems that could arise.
Option B
Sale 116 (Florida)
Cancel the sale and exclude the area from
consideration for the 1992-1997 five-year program.
As for existing leases, proceed with exploration and
development decisions under normal procedures but
begin discussions with the state and existing lessees
regarding the state's purchase of the leases.
Sales 95 (Southern California) and 91 (Northern
California)
Defer decisions on the sales until the 1992-1997
five-year program, conducting additional
oceanographic (southern California) and socioeconomic
(southern and northern California) studies; if the
sales go forward, offer tracts only in limited
geographic areas (the Santa Maria and San Diego Outer
Basins off southern California and the Eel River
Basin off northern California).
11
Discussion
These are the middle-ground, compromise options.
Leasing could occur off California after 1992 (which,
given current Congressional moratoria and the time
required to complete the studies arising from the
NASS report, may be as soon as leasing could occur in
any event), but would be restricted to areas where
development would be less intrusive and to smaller
areas so that environmentally-sensitive features such
as the Channel Islands National Park and Marine
Sanctuary could be protected. Leasing off Florida
would be delayed for at least seven years until 1997.
The petroleum industry should find this an acceptable
option, as it does not preclude development. There
is less certainty that the environmental community
will accept it as a reasonable compromise. The
delays should allow the Interior Department to
complete the studies identified by the NAS, however,
and this can be used to rebut environmental concerns.
Beginning discussions with Florida regarding its
purchase of the existing leases imposes some burden
on it to protect its tourist industry and natural
resources, which is reasonable given that the state
has also allowed development in this area. This
could open the door to moves by the environmental
community to cancel the leases, however.
Option C
Sale 116 (Florida)
Cancel the sale and exclude the area from
consideration for both the 1992-1997 and 1997-2002
five-year programs.
As for existing leases, begin discussions with the
state and existing lessees regarding the state's
purchase of the leases and have Interior initiate
procedures that could lead to cancellation of the
existing leases (which would suspend further
exploration or development).
Sales 95 (Southern California) and 91 (Northern
California)
Cancel the sales (and the next scheduled sales in
both areas) and exclude the areas from consideration
for the 1992-1997 five-year program.
12
Discussion
These are the most restrictive, pro-environmental
options, precluding lease sales off Florida until at
least 2002 and off California until at least 1997.
They do not constitute the permanent ban on leasing
in the three areas which some environmentalists seek,
however. These options could alleviate pressures in
Congress for the creation of ocean sanctuaries or
permanent bans on leasing and could provide an
opening for legislation to open the ANWR to
development.
The move to cancel the existing leases off Florida
will be particularly welcomed by environmentalists
and will respond to one of the criticisms of the NAS,
namely that leasing always leads to future
development without any subsequent analysis of
environmental impacts. There are questions about the
ability of the Interior Department to cancel the
leases under currrent law, however, which requires a
finding of existing environmental harm.
These options are also the ones on which the FY 1991
budget is based, [including provision in the budget
for repurchase of the existing leases off Florida,
valued at the lesser of the amount of lease bonuses
paid (approximately $107.5 million) or the lease
bonus amount plus investment to date], so no adverse
impact would result if this course were chosen.
Other Options For Sales Not Identified by Task Force
A. Proceed with lease sales under existing OCS Lands
Act process. Pre-lease activities would be
reactivated at the point at which they were stopped
by the Presidential moratorium.
Discussion
This is one of the two extreme options. It would
essentially reject both the NAS study and the report
of the Task Force and proceed with "business as
usual." It could be perceived as a complete sell-
out to the petroleum industry and would likely be
severely criticized by the environmental community
and probably by the general public, particularly in
the two affected states.
B. Cancel the sales, excluding them at this time
from the 1992-1997 five-year program, and directing
that future decisions on lease sales in these areas
13
will be made only after the data identified as
deficient by the NAS have been identified and
collected; if the studies subsequently show that
leasing can be done in an environmentally acceptable
manner, add the tracts to the 1992-1997 five-year
program.
Discussion
This is a new option proposed by the Energy
Department. It allows decisive action on the sales
and the OCS program as a whole; it also acknowledges
that a more objective and scientific basis is needed
for decision-making. It avoids an arbitrary decision
to defer leasing or delete tracts from consideration
for leasing by holding the door open for later
inclusion of the leases in the 1992-1997 five-year
program; as such, it could thwart the efforts of
those who would use a cancellation decision as the
precedent for seeking further arbitrary bans on OCS
activities elsewhere.
C. Delay any decision on the sales until the NES is
finalized and submitted in December.
Discussion
This option alleviates the difficulties posed by
making these decisions in the vacuum created without
knowing how they and the future of the OCS program
relate to the NES. The delay also would likely be
greeted favorably by the environmental community; the
petroleum industry may be disconcerted, however, by
the perceived signal that further development is
being significantly slowed. Delaying the sales also
adversely impacts the time before which these
resources can be tapped (assuming that some
development goes forward).
D. Cancel the sales and impose a permanent ban on
lease sales in the three areas.
Discussion
This is the other extreme option, clearly the most-
environmentally-oriented action that could be Taken.
It would undoubtedly be used as "evidence" that no
OCS activities are environmentally prudent and as a
wedge by those seeking permanent bans on all offshore
drilling activities, even on existing leases.
14
Other Options Presented by Task Force
A. Establish air quality controls for the OCS areas
offshore California that are substantially equivalent
to those applied onshore.
Discussion
Although the real impact of any emissions from
offshore drilling or production platforms and the
vessels and helicopters that serve them may be
negligible, it is perceived as a substantial problem.
The perception is exacerbated by the fact that air
pollution is the single most dramatic environmental
problem in southern Caliofornia and that the
standards for offshore activities are not subject to
EPA control but to MMS oversight and have not always
been consistent. The MMS has efforts underway to
develop a new proposed rulemakking to achieve this
objective.
B. In Northern California, reevaluate the effects of
OCS activities on the commercial fishing industry and
institute measures to reduce conflicts between the
petroleum and fishing industries.
Discussion
The potential conflicts posed to the commercial
fishing industry in northern California were
repeatedly cited. This is a particular problem in
that region because of the heavy reliance of local
economies on fishing, the limited existing
infrastructure for which the commercial fishing and
petroleum industries would compete, and the
relatively small population base which could be
severely impacted by employment dislocations
resulting from changes in commercial activity.
C. Revise requirements for OCS oil spill contingency
plans to improve effectiveness (particularly for the
Everglades and Keys ecosystems) and develop improved
means of assessing the risks of oil spills.
Discussion
The unique aspects of the Everglades and the Florida
Keys, including the only tropical coral reef in the
continental U.S., justify revisions in planning and
response capabilities for that area. Additional
attention should also be given to northern California
due to its extremely narrow continental shelf and
15
normal high-sea conditions, which would make oil
spills difficult to contain with currently available
technology and likely to reach environmentally-
sensitive areas to the south, such as Redwoods
National Park or Point Reyes.
D. Direct Coast Guard to study feasibility of moving
tanker routes away from sensitive areas.
Discussion
Events of recent days should provide a sufficient
rationale for the need to study tanker routes to see
if travel further offshore and away from sensitive
areas is feasible.
Other Options Not Presented by Task Force
A. Direct the Secretary of the Interior to begin a
study that would lead to proposals for amendments to
the OCS Lands Act in order to restructure the
revenue-sharing and decision-making provisions of the
legislation so that state and local governments will
have a greater voice in the OCS program.
Discussion
The lack of financial benefits to the people most
affected by OCS activities and the limited
participatory role in the actual decision-making
process for OCS development have been noted as at
least partial sources of the controversies currently
surrounding these sales and the entire program.
Tasking Secretary Lujan to study these issues with a
goal of amending the underlying legislation could
have a positive impact on these sales, lessening some
of the furor. It would more conceivably be a method
to address concerns expressed by Congressmen and
others from areas in which OCS developpment is
favorabluy viewed on the whole but where additional
incentives may be needed to avoid repetitions of
current problems. It also is the logical and fair
approach to balancing more equitably federal and
local interests. The nature and extent of authority
given to state and local governments will need to be
carefully considered, however, with the goal being to
maintain the OCS program as a federal authority.
16
APPENDIX A
Air Quality. Offshore oil and gas drilling activities
produce the same types of emissions as onshore activities,
with the notable addition of emissions from support
vessels and helicopters. Meteorological conditions may
also exist which consistently drive offshore emissions
toward land. Despite this, the Task Force found that
emissions controls currently imposed by the MMS on
offshore drilling are less stringent than those imposed on
similar activities onshore. The effects of offshore
emissions are of greatest concern in southern California
due to the generally already poor air quality; there are
more limited concerns with respect to northern California
also. The Task Force specifically recommends that
offshore emissions controls be made more stringent for all
California activities.
Oil Spill Risks. The Task Force found that the risks
posed to coastal and marine resources by oil spills are
significant and that the environmental impact of a major
OCS spill would be severe. It concluded, however, that
the increased chances of a major oil spill caused by OCS
drilling activities in the three areas are small (in the
case of Florida and southern California, only a 1 percent
greater risk, and in the case of northern California an 8
percent greater risk) compared to the risk of a spill
caused by existing activity, such as non-OCS tanker and
barge traffic. The Task Force found that coastal and
marine resources warrant greater protection from possible
oil spills, whatever their source, than is currently
provided.
The Task Force makes two specific recommendations
regarding oil spill prevention and containment. It also
generally recommends that the federal government and the
petroleum and shipping industries act now to improve the
protection of coastal and marine resources, regardless of
whether the lease sales proceed. To accomplish this, the
Task Force makes several general recommendations:
(a) Oil produced from the OCS should be required to
be transported in pipelines where feasible and
environmentally preferable.
(b) Oil spill response effectiveness should be
analyzed more carefully as part of the pre-lease
evaluative process.
17
(c) OCS oil spill drills, governed by revised
regional guidelines and involving government and
industry, should be increased.
(d) Minimum standards for equipment and technology
to respond to OCS oil spills should be established,
along with mandatory response time requirements.
Commercial Fishing. Commercial fishing is a vital
economic activity in all three areas, especially off
southern and northern California. OCS activities pose a
variety of conflicts between the petroleum and fishing
industries, including competition for available space at
sea and for port space onshore. There are also concerns
about the loss or destruction of habitat due to the
effects of OCS activities and the significant risks posed
by oil spills. The Task Force recommends that the effects
of OCS activities off northern California be reevaluated
and that measures, including those described below, be
instituted to reduce conflicts between the petroleum and
fishing industries. The Task Force concluded that many of
these conflicts can be resolved or largely mitigated
through the recommended use of joint committees comprised
of representatives of the petroleum and fishing industries
in areas where OCS activities are planned. It also
recommends other actions, including increased controls in
biologically sensitive areas and improvements in planning
and activities for oil spill prevention, containment and
clean-up.
Protected Lands. Each of these three areas has unique
protected lands, most notably the mangrove-coral reef
system in the Everglades and Florida Keys. The Task Force
found that these sensitive and highly valuable areas now
receive only the same level of protection as that of
ordinary areas but that they warrant additional
consideration and heightened management. General
recommendations of the Task Force in this area include
deferring certain specific sensitive areas from
development or establishing requirements for the maximum
practicable protection and the mitigation of impacts
wherever practical, implemented either by the Interior
Secretary or MMS. The Task Force also makes a general
recommendation that federal managers of protected lands
prepare special oil spill contingency response plans which
provide for full coordination among the MMS, the Coast
Guard, the petroleum industry and state and local
governments.
Protected Species. Each of these three areas is inhabited
by species that have been placed under the protection of
federal statutes, most notably the manatees off Florida.
18
The Task Force concluded that existing protections are
sufficient to protect these species so that a delay in
leasing cannot be justified on this basis alone. It does
make a general recommendation, however, that additional
management attention be given to this issue.
Water Quality. OCS activities can have various impacts on
the water quality near rigs and platforms. Such activity
is currently regulated by EPA under the Clean Water Act
through the National Pollutant Discharge Elimination
System. The Task Force found that this regulation is
adequate in the three areas. It noted, however (as did
the NAS), that information on the long-term effects of
chronic discharges is lacking and makes a general
recommendation that the MMS institute a research program
to evaluate the effects of long-term OCS activity on the
marine environment. It also makes a general
recommendation that special mitigation programs be
required for drilling in sensitive environments to reduce
any potential adverse impacts.
Socioeconomic Impacts. OCS activities, though offshore,
have significant socioeconomic impacts onshore. The Task
Force found that these include the possibility of
increased conflicts over land use and greater demands on
infrastructure that could force changes in the character
of an area. Tourism and recreation can also be adversely
affected, although the Task Force found that this does not
appear to be a sufficient basis for delaying the lease
sales. The Task Force concluded that in these three areas
such conflicts can be substantially reduced through better
consultative relationships among the petroleum industry,
government (especially state and local governments) and
other affected parties in planning and coordinating the
onshore activities of OCS lessees. The Task Force makes a
general recommendation that the MMS and NOAA play a
mediative role between industry and government in
mitigating the adverse impacts of onshore development
caused by OCS activities and that local concerns and
ordinances relating to the siting of OCS onshore
facilities be taken note of in stipulating the conditions
for lease development. It also makes a general
recommendation that the consolidation of onshore
facilities be considered and notes the potential positive
impact on land use conflicts and infrastructure demands
that could result.
19
Both Governor Martinez and Senator Wilson are running
1990 gubernatorial campaigns on the issue of OCS
leasing. They have both staked out anti-OCS, pro-
environmental positions. The conventional wisdom
would seem to dictate that an early decision and
announcement to postpone or cancel the lease sales
would be helpful to their candidacies. Some have
argued that this might have an opposite and adverse
effect, however, by causing their campaigns to peak
ten months too early. In Governor Martinez' case,
there are few other issues on which he can run, and
resolving the issue too early in the year, it is
argued, may cause his campaign to collapse. In
Senator Wilson's case, an early decision could force
him to stake out another more aggressive position on
the environment, most likely attacking existing OCS
activities on the California coast. This could place
the Administration in a very difficult position. The
President will make campaign appearances for both
candidates in January and February.
There may also be political fallout in Texas,
Louisiana, Mississippi, Alabama and Alaska. A
"cancel" decision may leave those legislators and
Governors who have been supportive of the OCS program
vulnerable to environmentalists' attacks and demands
for a rollback of ongoing drilling and production
activity.
The value of a "cancel" decision may lie in using it
as leverage to open the Alaska National Wildlife
Refuge (ANWR) -- making a "cancel" decision now would
eliminate any leverage to salvage an ANWR vote in the
next session of Congress.
THE WHITE HOUSE
WASHINGTON
February 7, 1990
TO:
D. ALLAN BROMLEY
FROM:
STEPHEN G I. DANZANSKY
I hope you saw the attached lead editorial. It is a tribute to
your leadership under difficult conditions that the speech turned
out as well as it did.
Thanks.
It also legitimizes what cabinet government is all about. As I
said in your office last Thursday, it is not a tragedy if the
public gets wind of internal disagreements on major policy issues
as long as those differing views are communicated within the
structure provided for discussion and do not run contrary to
Presidential decision or directive. It is the back-biting, back
channel, ad hominem stuff we need to discourage.
Thanks also for joining us at yesterday's session with the
entrepreneurs from Lanxide. Your attentive ear and willingness
to put them in touch with the brass at Defense and NASA was
helpful. I will follow-up with Tom Murrin at Commerce and also
at Energy since they've done some exciting work with high
efficiency turbine engines.
ENVIRONMENTAL C
The Washington Post
1911
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cities manage to diminish smog levels for health
also true that sitting back and waiting for
reasons, they will similarly diminish greenhouse
compellingly clear proof would be dangerous. By
the time it appeared, it would be too late to do
warming. Above all, there's energy conservation. That's
anything about it for many decades. That's the
where the administration and the country need to
gist of the quarrel that's been going on inside the
work much harder. When deputy secretary Hen-
Bush administration for the past month. Presi-
son Moore presented the Energy Department's
dent Bush's speech this week to the Intergovern-
conservation plan last month, he correctly called
mental Panel on Climate Change was the product
conservation "the cleanest, cheapest, safest
of that long quarrel. The noise of the wrestling,
means of meeting our nation's growing energy
and the occasional crash of broken furniture,
needs.
1988
distracted attention from the message when Mr.
One reason for the ferocity of the political
CAMPAIGN
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combat over environmental policy is the en-
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THE
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not, and it is fighting over the right questions.
industry, But not always. If this country's con-
There is a way around the dilemma in which it
sumption of electricity continues upward at the
WARMING
has entangled itself. No case exists yet for the
present rapid rate, the construction of new pow-
kind of emergency action that would require
er plants and transmission lines is going to be
disruptive and hugely expensive changes in the
gigantically, expensive. Raising efficiency is es-
economy. But there are many indisputable rea-
sential for purely financial reasons: But each
sons for doing sensible things that, incidentally,
power plant not built will mean coal not burned
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THE WHITE HOUSE
Advison
WASHINGTON
November 1, 1989
MEMORANDUM FOR MICHAEL J. BOSKIN
ANDREW H. CARD, JR.
C. BOYDEN GRAY
STEPHEN DANZANSKY
ROBERT E. GRADY
LEHMANN K. LI
FROM:
THE FIRST ANNUAL AHAM REPORT OF THE
D. ALLAN BROMLEY
SUBJECT:
NATIONAL ADVISORY COMMITTEE ON SEMICONDUCTORS
I am enclosing herein the above mentioned report.
Unfortunately it was leaked to the New York Times and I also
enclose a copy of the resulting Times article.
Although we cannot change the content of this report of a
Presidentially appointed commission (established in last
year's trade act - see page vii) it is important that it be
transmitted appropriately to the President. Because the
recommendations are substantially more aggressive than is
usual in such reports, I would ask each of you to take a
look at the report, at the Commission's letter of
transmittal that they have bound into the report and at my
draft cover letter. Any comments or suggestions would be
most welcome before I send this on to Jim Cicconi.
Since I shall be away all next week at The Hague and since
the leak has generated substantial pressure to release of
this report, I would much appreciate your comments by COB
Friday -- and I realize that this is very short notice.
Enclosures
AT&T
Bell Laboratories
lan M. Ross
Crawfords Corner Road
President
Holmdel. NJ 07733
201 949-3242
October 30, 1989
Honorable D. Allan Bromley
Assistant to the President for
Science and Technology
The White House
Washington, D.C. 20506
Dear Allan:
I enclose the first annual NACS report. I would appreciate it if you will deliver it to
the President at your earliest convenience. The report contains my letter of transmittal
to the President. The Committee plans to transmit the report to the House and Senate
tomorrow, and to distribute copies to all Members of Congress by Wednesday. As we
discussed, I am scheduled to testify before the House Subcommittee on Transportation,
Aviation and Materials on November 8 and, in all probability, will include a summary
of the Committee recommendations in my testimony.
A suggestion has been made that representatives of NACS should meet with the
President prior to November 8. I would appreciate your advice on this, and if you
believe it to be a good idea, would you be willing to explore the possibility of
attempting to arrange such a meeting?
Thank you for your considerate assistance.
Sincerely
Jan
Attachment
New York Times
October 30, 1989
p. D-1
U.S. Aid
Sought for
The Government would provide
Tax Breaks
loan guarantees that would enable
the corporation to borrow money at
The 29-page report also calls for the
Electronics
low interest rates and invest in new
Government to play a stronger role in
consumer electronics technologies
insuring that American companies
and companies.
can participate in consumer electron-
The group issuing the report,
ics. For instance, it asks the Govern-
kay
ment to consider requiring products
known as the National Advisory Com-
sold in the United States to use a cer-
Report Could Help
mittee on Semiconductors, was
tain number of United States compo
created by last year's trade act to
nents. It also calls for the Govern
probate
Get Venture Capital
come up with policies to maintain a
ment to help American companies li-
industry. competitive American computer chip
cense the technology they need from
soldv
To Bolster Industry
The panel recommends that the in-
foreign companies that now control
vestment company would get initial
many of the key patents in consumer
S.
electronics.
equity funding from industry sources,
private and institutional investors,
The report also recommends
By ANDREW POLLACK
and state and local governments. The
numerous steps to lower capital costs
corporation would raise billions of
by making the research and develop-
Special to The New York Times
dollars in commercial debt, using
ment tax credit permanent, reinstat-
SAN FRANCISCO, Oct. 29 - In a
Federal, state and local government
ing the investment tax credit, reduc-
report that will be delivered to the
loan guarantees to insure a low inter-
ing taxes on capital gains and facili-
PAT
President this week, a national advi-
est rate.
tating the formation of industry con-
sory committee on semiconductors
sortiums. It also recommends steps
God
will recommend that the Government
Such an investment corporation
to improve education, protect Amer-
establish a multibillion-dollar ven-
would counteract a key advantage
ican patents and copyrights, and pro-
ture capital operation intended to
the Japanese have in their access to
mote access to foreign markets.
resurrect the American consumer
low-cost capital. Many American
Members of the advisory commit-
electronics industry.
companies have said they cannot af-
tee from industry were John A. Arm-
The report could give new impetus
ford the heavy long-term investments
strong, vice president for science and
to flagging efforts aimed at forming a
needed to get into the manufacture of
technology at I.B.M.; Norman Augus-
Government-industry initiative in
televisions, videocassette recorders
tine, chairman and chief executive of
high-definition television. The ad-
and other consumer products while
Martin Marietta; Robert W. Galvin,
vanced video product has become the
still showing a profit for their share-
chairman of Motorola; Jerry R. Jun-
focus of efforts to bring American
holders. Semn $200 7
kins, chairman, president and chief
companies back into the consumer
Financing for Sematech
300.0
executive of Texas Instruments;
electronics business, which they have
James C. Morgan, chairman and
all but abandoned to Japanese and
The report, which has not yet been
3Yr
chief executive of Applied Materials;
European companies.
released, also recommends that fi-
Charles E. Sporck, president and
The Bush Administration is divided
nancing for Sematech, the Govern-
chief executive of National Semicon-
on that issue, and it has recently
ment-backed semiconductor re-
ductor, and James G. Treybig, presi-
backed away from the idea of offer-
search consortium, be immediately
dent and chief executive of Tandem
ing support for any particular indus-
increased to $300 million a year from
Computers.
try. But members of Congress and
its current level of $200 million, and
Government members were: John
electronics industry representatives
by $800 million over the next three
A. Betti, Under Secretary of Defense
say the new report could help swing
years.
for Acquisition; Erich Bloch, director
momentum their way.
In his cover letter to the President,
of the National Science Foundation;
'Serious Consideration'
the committee's chairman, Ian M.
D. Allan Bromley, the President's sci-
Ross, the president of the American
ence adviser Robert O. Hunter Jr.,
"I think it's a report that will get
Telephone and Telegraph Company's
director of the Office of Energy Re-
serious consideration," said Repre-
Bell Laboratories, acknowledges that
sentative Mel Levine, Democrat of
search at the Department of Energy;
California and a leading proponent of
the recommendations may be contro-
and Thomas J. Murrin, Deputy Secre-
versial.
tary of Commerce. Executive direc-
a national policy on high-definition
"We have not shied away from con-
tor of the committee was William R.
television. "Hopefully, something like
troversy," Dr. Ross says. "In this re-
Bandy, a program manager for the
this will move the debate, both within
port we present necessary first steps
Defense
Advanced
Research
the Administration and beyond it."
toward a national semiconductor
Projects Agency.
Mr. Levine said he expected to in-
troduce a bill soon that would create a
strategy. We believe that the country
needs bold and innovative action."
Technology Corporation of America,
which would be similar to the semi-
The report never mentions high-
definition television, preferring to
conductor committee's proposed in-
focus on all of consumer electronics
vestment company. The major differ-
and avoid the criticisms from those
ence, he said, is that his proposed cor-
who say the importance of high-defi-
poration would get direct Federal fi-
nition television has been overblown.
nancing while the semiconductor
committee's proposed company ap-
The report documents a decline in
parently would not.
the competitiveness of the American
The semiconductor committee con-
semiconductor industry, which
sists of semiconductor and computer
makes the silicon chips that are the
industry leaders and high-level Gov-
heart of everything from computers
ernment officials. Its proposal calls
and telephones to robots and weap-
for an investment company that
ons. The report finds an equally seri-
would be known as the Consumer
ous decline in the American industry
Electronics Capital Corporation,
that produces the sophisticated ma-
which would be privately managed
chinery and raw materials used to
and run for a profit and would serve
make chips.
as a source of "low-cost, very patient
capital" for companies wishing to en-
ter the consumer electronics busi-
ness.
DRAFT
MEMORANDUM FOR THE PRESIDENT
FROM:
D. ALLAN BROMLEY
SUBJECT:
FIRST ANNUAL REPORT OF THE NATIONAL ADVISORY
COMMITTEE ON SEMICONDUCTORS
I am pleased to forward to you the above mentioned
report. The Commission was established by Public Law
100-418, as part of the National Advisory Committee on
Semiconductor Research and Development Act of 1988; it is
chaired by Ian M. Ross, President of the AT&T, Bell
Laboratories. Although I am, by statute, a member, I came
on board only in time to attend part of the final meeting of
the Commission prior to completion of this report.
As Mr. Ross emphasizes in his transmittal letter, the
U.S. semiconductor industry -- an industry of vital
importance to our economic competitiveness and our national
security -- is in serious trouble.
The Commission presents an incisive analysis of the
industry and the roots of this trouble. But beyond that it
proposes an aggressive approach to revitalizing the
industry, specifically through reestablishment of a
competitive U.S. consumer electronics industry that inter
alia would serve as a large volume domestic market for
semiconductors -- a volume sufficient to support and
maintain the packaging and other front line R&D essential to
maintenance of a competitive semiconductor industry.
Central to this proposal is the creation of a for
profit Consumer Electronics Capital Corporation to provide a
multi-billion dollar pool of patient, low-cost capital.
Initially it is proposed that this CECC be funded at the
mulit-hundred million dollar level through equity investments
from industry sources, private and institutional investors
and state and local governments. Subsequent major funding
would be in the form of commercial debt accompanied by
pledges of support from Federal, State and local
governments.
In addition, the Commission makes a number of
recommendations directed toward improving the business
environment for semiconductor manufacturers in the U.S.,
toward improving the essential flow of trained personnel,
and toward fostering cooperative development of basic
technologies applicable to this industry.
The problems outlined by the Commission are very real
and the time window available for their resolution is
relatively small. I believe that the report of the
Commission deserves serious study and consideration.
I have enclosed a draft letter that you might wish to
forward to Dr. Ian Ross of AT&T Bell Laboratories,
acknowledging receipt of the report.
DRAFT
Dear Dr. Ross:
Your report, A Strategic Industry at Risk, is an
effective and incisive analysis of the problem and
opportunities facing the U.S. semiconductor industry and I
should like to express to you and your associates my thanks
for the very obvious thought, analysis and effort that has
gone into its preparation.
I can assure you that your recommendations will be
given very serious consideration and I look forward to
working with you to rebuild this vital component of your
industrial base.
I shall ask my staff to arrange a time when I can meet
and discuss with you, and a few of the Commission members
whom you may with to being with you, some of the specific
recommendations in your report.
Sincerely,
Dr. Ian M. Ross
President
AT&T Bell Laboratories
Crawfords Corner Road
Room 31650
Holmdel, New Jersey 07733
Steve
fyi
File
9-1-89
(DER)
REGULATION, ECONOMICS AND LAW
Jen
(No. 169)
A - 5
The Canadian dollar finished the quarter at $00.835,
he must have been doing something right," comment-
virtually unchanged from the rate at the end of the
ed one person knowledgable on Wyngaarden's record.
first quarter. It rose markedly, however, against over-
Ratchford, who has been helping Bromley part-time
seas currencies.
as a consultant, is also a physicist and was one of the
first scientists to serve Congress on a full-time basis,
Science
working on the staff of the House Committee on
Science and Technology from 1970 to 1977. He recent-
BUSH TO NOMINATE FORMER NIH HEAD
ly completed a three-year term as chairman of the
TO SENIOR POST IN SCIENCE OFFICE
National Science Foundation's Advisory Committee on
President Bush is expected to nominate the former
International Programs.
director of the National Institutes of Health, James B.
Among other things, OSTP plays a role in negotiat-
Wyngaarden, as one of his senior science advisers,
ing bilateral science agreements and considering U.S.
according to informed administration, congressional
involvement in international scientific research
and science community sources.
projects.
Wyngaarden would be one of four associate direc-
Decker, also a physicist, will be nominated to head the
tors of the Office of Science and Technology Policy
physical sciences section of OSTP, sources said. Decker's
(OSTP), advising Bush's top science adviser, OSTP
office at Energy supports all of the basic research at the
Director Allan Bromley, on "life science" matters.
department, including high energy and nuclear physics,
Bush also is expected to nominate J. Thomas Ratch-
basic energy sciences, health and environmental re-
ford, associate executive officer at the American
search, magnetic fusion energy, and scientific comput-
Academy for the Advancement of Science, to be the
ing. During the Reagan administration, Decker chaired
OSTP associate director for international affairs.
two interagency committees concerning recommenda-
As associate director for the physical sciences, Bush
tions on access to supercomputers and U.S. leadership in
is expected to nominate James F. Decker, currently
the development of supercomputers.
deputy director of the Office of Energy Research at
International Trade
the Department of Energy.
The fourth associate position, to specialize in indus-
NATIONAL SEMICONDUCTOR COMMITTEE
trial technology, has not been chosen yet, according to
BACKS FEDERAL SUPPORT FOR HDTV EFFORT
sources.
However, a key job to be filled at the assistant
The National Advisory Committee on Semiconduc-
director level, with responsibility for environmental
tors Aug. 31 endorsed an industry-led, government
matters, is likely to be taken by Nancy Maynard, now
supported policy for development of an American high
associate chief of research for the laboratory for
definition television industry.
oceans at the Goddard Space Flight Center, sources
Commitment to such a strategy could be an impor-
said.
tant element in the United States re-entry into the
Bush and Bromley are seeking to rebuild OSTP, and
consumer electronics industry, the committee said
the naming of four associate directors itself will be
releasing a letter to President George Bush containing
significant because the authorized jobs went unfilled
its interim recommendations for a "broad-based, long-
during the Reagan administration as the office that
term and cooperative national effort to ensure our
employed 55 persons under President Kennedy shrank
continuing technological competitiveness."
to 10 employees under President Reagan. Bush this
The advisory committee was created by an act of
year proposed to increase it to 33 in fiscal 1990, and
Congress in 1988 to devise a national semiconductor
Bromley said he has a gentleman's agreement with
strategy and to recommend appropriate actions in
the Office of Management and Budget to get a 45-
support of such a strategy.
person complement during his second year.
In a July 21 letter to Bush, committee chairman Ian
Bromley's full complement of four associate direc-
M. Ross noted that the loss of a U.S. consumer elec-
tors will be designated to cover the areas of: physical
tronics industry has eroded the ability of American
science and engineering, life sciences, policy and in-
semiconductor manufacturers to compete effectively.
ternational affairs, and industrial technology.
HDTV can be a critical semiconductor technology
The four associate directors will require Senate
"driver," Ross said, because related equipment will
confirmation, and attention probably will focus on
utilize significant numbers of DRAMS, microproces-
Wyngaarden, who served for seven years as head of
sors, signal, video, and image processing chips.
NIH during the Reagan administration before resign-
In addition, the committee concluded, HDTV will
ing July 1 when it was clear Bush preferred to name
create important technological spillovers into critical
his own NIH director. During his tenure, Wyngaarden,
industries like computers, telecommunications, auto
a medical doctor specializing in metabolic diseases,
electronics and defense
started a program to combat scientific fraud and was
The committee's final recommendations are expect-
active in the effort to map all the genes of the human
ed to be completed by the end of the fiscal year.
body. He was criticized by some for letting medical
interests dominate development of biotechnology
Study Opposes Government Support
policy.
The Cato Institute Aug. 30 released a study opposing
"There will be a few interesting questions, but in
federal support for HDTV development, suggesting
general he has had a very tough job and he survived SO
that the market should determine the best system.
Copyright © 1989 by THE BUREAU OF NATIONAL AFFAIRS, INC., Washington, D.C. 20037
0148-8155/89/$00.50
THE WHITE HOUSE
WASHINGTON
DATE: 8/31/89
TO:
FROM:
STEVE DAVID Assistant DANZANSKY Q. to BATES the President 50/2
and Secretary to the Cabinet
Steve--I think we should invite him
to all our DPC/EPC meetings, and we should
get him involved in Working Groups where he
can contribute. Formal membership is
tricky, and I will talk to you further
about this. Good memo.
Justive - -
Lets be sune he's
invited to all EPC IDPC
CC: Justine D'Andrea
Steve L think
we should invite
THE WHITE HOUSE
washington
him to all
August 24, 1989
our DPC/ EPC
we should set
meeting and
MEMORANDUM FOR DAVID Q. BATES
him involved
FROM:
STEPHEN I. DANZANSKY
SUBJECT:
THE PRESIDENT'S SCIENCE ADVISOR where he
in Working Group.
Can contr. hute.
Formal membership is
I had confirmed lunch today with Allan tricky, Bromley (resume and enclosed), 2 will the talk
wanted to establish He's really terrific and a kindred spirit. fur
Technology recently Policy. Director of the Office of Science and theyou
Governor and he has both the confidence of the President and
office since a close working relationship with him his I
about
professionals. policy, boasting a staff increase from 2 to 30 plus
science force for the coordination and centralization request, of
significant will, upon approval of his budget become and the a
this
food
science deliberations and since the issues taken up in both as well
the process. EPC has equal reason to be a part of the DPC as
Allan He wants and needs to be plugged in to the policy
mem.
NSB
what the technology crosscut. I told him that I did have know a
he had current status was, but would check and try to not see that
equal status in each policy body.
8/3/
Boskin. Advisor I would ought think, to be given David, a that status the similar newly upgraded to that of Science CJuntry
as to but I see a distinct advantage to the Cabinet as there well
a problem, You might want to go to the Governor on this Darman if or is
our office by including him.
If he is as good as he appears, it would be
Chairmanship advantage to us to turn over the DPC Environment a distinct
person. to him rather than to be at the mercy Working of OPD's Group
to us on Likewise, as well. there are other issues which he can be a help staff
NSC the has NSC on Environment, I have discovered that meetings the reason with the
From PPC my recent conversations and sit-ins on
meetings Summit, etc.) is that Ms. Mazolli has Environment not
(Economic felt the need to be so active on the
well. It and would has not taken charge or direction from OCA convened
think the be a natural to move that one to Bromley very -- and I
Governor would support it wholeheartedly.
mewtile
Issue
OSTP
Nature
copus to Stue Dargenshy
89
9-1-89
(DER)
REGULATION, ECONOMICS AND LAW
Juantan (No. 169)
A - 5 -
science
The Canadian dollar finished the quarter at $00.835,
he must have been doing something right," comment-
virtually unchanged from the rate at the end of the
ed one person knowledgable on Wyngaarden's record.
first quarter. It rose markedly, however, against over-
Ratchford, who has been helping Bromley part-time
seas currencies.
as a consultant, is also a physicist and was one of the
first scientists to serve Congress on a full-time basis,
Science
working on the staff of the House Committee on
76
Science and Technology from 1970 to 1977. He recent-
BUSH TO NOMINATE FORMER NIH HEAD
ly completed a three-year term as chairman of the
TO SENIOR POST IN SCIENCE OFFICE
National Science Foundation's Advisory Committee on
the
President Bush is expected to nominate the former
International Programs.
in
director of the National Institutes of Health, James B.
Among other things, OSTP plays a role in negotiat-
the
Wyngaarden, as one of his senior science advisers,
ing bilateral science agreements and considering U.S.
according to informed administration, congressional
involvement in international scientific research
and science community sources.
projects.
a
Wyngaarden would be one of four associate direc-
Decker, also a physicist, will be nominated to head the
the
tors of the Office of Science and Technology Policy
physical sciences section of OSTP, sources said. Decker's
d.
(OSTP), advising Bush's top science adviser, OSTP
office at Energy supports all of the basic research at the
ses
Director Allan Bromley, on "life science" matters.
department, including high energy and nuclear physics,
Bush also is expected to nominate J. Thomas Ratch-
basic energy sciences, health and environmental re-
nd
ford, associate executive officer at the American
search, magnetic fusion energy, and scientific comput-
the
Academy for the Advancement of Science, to be the
ing. During the Reagan administration, Decker chaired
OSTP associate director for international affairs.
two interagency committees concerning recommenda-
As associate director for the physical sciences, Bush
tions on access to supercomputers and U.S. leadership in
is expected to nominate James F. Decker, currently
the development of supercomputers.
a
deputy director of the Office of Energy Research at
International Trade
the Department of Energy.
of
The fourth associate position, to specialize in indus-
NATIONAL SEMICONDUCTOR COMMITTEE
trial technology, has not been chosen yet, according to
BACKS FEDERAL SUPPORT FOR HDTV EFFORT
4.3
sources.
However, a key job to be filled at the assistant
The National Advisory Committee on Semiconduc-
to
director level, with responsibility for environmental
tors Aug. 31 endorsed an industry-led, government
matters, is likely to be taken by Nancy Maynard, now
supported policy for development of an American high
associate chief of research for the laboratory for
definition television industry.
fi-
oceans at the Goddard Space Flight Center, sources
Commitment to such a strategy could be an impor-
of
said.
tant element in the United States re-entry into the
Bush and Bromley are seeking to rebuild OSTP, and
consumer electronics industry, the committee said
to
the naming of four associate directors itself will be
releasing a letter to President George Bush containing
of
significant because the authorized jobs went unfilled
its interim recommendations for a "broad-based, long-
during the Reagan administration as the office that
term and cooperative national effort to ensure our
employed 55 persons under President Kennedy shrank
continuing technological competitiveness."
64
to 10 employees under President Reagan. Bush this
The advisory committee was created by an act of
the
year proposed to increase it to 33 in fiscal 1990, and
Congress in 1988 to devise a national semiconductor
Bromley said he has a gentleman's agreement with
strategy and to recommend appropriate actions in
39
the Office of Management and Budget to get a 45-
support of such a strategy.
il-
person complement during his second year.
In a July 21 letter to Bush, committee chairman Ian
Bromley's full complement of four associate direc-
M. Ross noted that the loss of a U.S. consumer elec-
ed,
tors will be designated to cover the areas of: physical
tronics industry has eroded the ability of American
of
science and engineering, life sciences, policy and in-
semiconductor manufacturers to compete effectively.
89
ternational affairs, and industrial technology.
HDTV can be a critical semiconductor technology
of
The four associate directors will require Senate
"driver," Ross said, because related equipment will
confirmation, and attention probably will focus on
utilize significant numbers of DRAMS, microproces-
Wyngaarden, who served for seven years as head of
sors, signal, video, and image processing chips.
NIH during the Reagan administration before resign-
In addition, the committee concluded, HDTV will
by
ing July 1 when it was clear Bush preferred to name
create important technological spillovers into critical
89
his own NIH director. During his tenure, Wyngaarden,
industries like computers, telecommunications, auto
of
a medical doctor specializing in metabolic diseases,
electronics and defense
started a program to combat scientific fraud and was
The committee's final recommendations are expect-
he
active in the effort to map all the genes of the human
ed to be completed by the end of the fiscal year.
all
body. He was criticized by some for letting medical
interests dominate development of biotechnology
Study Opposes Government Support
80
policy.
The Cato Institute Aug. 30 released a study opposing
"There will be a few interesting questions, but in
federal support for HDTV development, suggesting
on)
general he has had a very tough job and he survived SO
that the market should determine the best system.
Copyright © 1989 by THE BUREAU OF NATIONAL AFFAIRS, INC., Washington, D.C. 20037
0148-8155/89/$00.50
THE WHITE HOUSE
WASHINGTON
Date: 9-19-89
KEN YALE
TO:
LEHMANN LI
JUSTINE D'ANDREA
FROM:
STEPHEN
Deputy
and Director 1
Please Bromley
is included and at the table for the
working group and council meetings
requested in his letter.
THE WHITE HOUSE
WASHINGTON
September 15, 1989
Dear Steve:
My apologies for the long delay in responding to your letter
of August 24th, but unfortunately in the absence of my
senior associates I am finding that I am being literally
swamped by my attempts to keep the OSTP office functioning.
I thoroughly enjoyed our luncheon and was delighted to have
the opportunity to become acquainted and to talk with you
about some of our mutual interests on behalf of the
President.
You were good enough to send me a list of EPC and DPC
activities as of August 18th together with the invitation to
let you know which of those activities OSTP would wish to
contribute.
Let me begin by listing those EPC areas I feel we have very
important contributions to make. They are the following:
II - Commerce
A. Science and Technology
B. High definition television
III - Energy
Moving to the DPC issues, I would list as among the highest
priorities the following:
EDUCATION
HEALTH AND HUMAN SERVICES
2. AIDs
3. Food Safety
4. Infant Mortality
MANAGEMENT AND BUDGET
NATIONAL DRUG CONTROL
MANAGEMENT AND BUDGET
(Although the specific topics listed in your
memorandum are not those toward which we might make major
contributions, I suspect that as time goes on many topics
will appear on this agenda item to which we will have close
contact and in which we will have substantial interest.)
ENVIRONMENT
(Here again, the specific issues of wetlands, oil
leases and solid waste disposal are not among those having
greatest interest to OSTP, but again, I certainly
anticipate that as time goes on matters of the environment
in which we do have major interest will be appearing on the
DPC calendar.)
I would wish to emphasize once again how delighted I am to
have the opportunity to work with you and our colleagues on
the EPC and DPC on some of these very important issues.
There are a number of topics that I think we could
profitably discuss on an informal basis and I hope that you
might be able to join me for lunch some time in the near
future to make those discussions possible. I have asked my
office to contact yours to try and find a time that would be
mutually convenient.
With warmest best wishes,
Sincerely yours,
Ann
D. Allan Bromley
Assistant to the President
for
Science and Technology
The Honorable Stephen I. Danzansky
Deputy Assistant to the President and
Director of Cabinet Affairs
Room 231
Old Executive Office Building
17th and Pennsylvania Avenue, N.W.
Washington, D.C. 20506
SEMICONDUCTO
A
STRATEGIC
INDUSTRY
AT
RISK
A Report to the President
And the Congress
From the
National Advisory Committee on
Semiconductors
Advance Edition
November 1989
SEMICONDUCTORS
A
STRATEGIC
INDUSTRY
M N 0 C C D O E T S R I
AT
RISK
A Report to the President
And the Congress
From the
National Advisory Committee on
Semiconductors
Advance Edition
November 1989
Washington,D.C.
National Advisory Committee on Semiconductors
1555 Wilson Boulevard, Suite 500
Arlington, VA 22209
November 1, 1989
Honorable George Bush
President of the United States
White House
Washington, D.C.
Dear Mr. President:
The semiconductor industry in the United States is in serious trouble. If this vital
industry is allowed to wither away, the Nation will pay a price measured in millions of jobs
across the entire electronics field, technological leadership in many allied industries such as
telecommunications and computers, and the technical edge we depend on for national
security.
The reasons why the once-dominant U.S. semiconductor industry is deteriorating
are many. First and foremost is the fact that foreign producers enjoy advantages in ready
access to low-cost patient capital for long-term investment. Foreign producers also operate
in a business environment hospitable to cooperative ventures that are not general practice
here, and they find shelter in home government protection against competition from abroad.
But some blame for the semiconductor industry's poor health must also rest on the lack of
long-range foresight of top management of American companies, who failed to realize the
full consequences of retreating from key markets such as memories and consumer
electronics.
The National Advisory Committee on Semiconductors believes that continued
deterioration of America's semiconductor industry poses an unacceptable threat to U.S.
economic and national security. We believe that this situation deserves your urgent
attention. The Nation must act now, with the industry itself taking the lead and government
at all levels participating as a strong partner. We believe that the American people, once
fully apprised of the stakes involved for this country, will endorse the legislative and
executive actions necessary to restore the semiconductor industry to good health.
The Committee recognizes that some of its recommendations may be controversial.
We were charged by the Congress with "devising and promulgating a national
semiconductor strategy." We have not shied away from controversy. In this report we
present first steps toward a national semiconductor strategy. We believe that the country
needs bold and innovative action.
This report warns of a major threat to the United States, a threat that endangers
American industry, workers, and strategic self-sufficiency. That threat is immediate and
serious and warrants the attention of the highest councils of government. In this first
report, the National Advisory Committee on Semiconductors offers for your consideration
and early action initial recommendations to counter that threat and enable the U.S.
semiconductor industry to flourish. If this action succeeds, the whole Nation will benefit
through more jobs, the creation of new wealth, and strengthened national defense.
iii
Pursuant to Section 5142(c) of the National Advisory Committee on Semiconductor
Research and Development Act of 1988 (Public Law 100-418), therefore, I have the
privilege of transmitting to you the first annual report of the National Advisory Committee
on Semiconductors.
Respectfully,
Ian m Run
Ian M. Ross
Chairman
iv
CONTENTS
PREFACE
vii
EXECUTIVE SUMMARY
1
I. THE SEMICONDUCTOR INDUSTRY AND ITS VITAL
NATIONAL ROLE
5
II. THE DECLINE OF THE SEMICONDUCTOR INDUSTRY
7
III. MAJOR ROOT CAUSES OF THE SEMICONDUCTOR
INDUSTRY DECLINE
15
IV. RECOMMENDATIONS FOR INITIAL STEPS TOWARD A
NATIONAL SEMICONDUCTOR STRATEGY
20
V. NEXT STEPS
28
NATIONAL ADVISORY COMMITTEE ON SEMICONDUCTORS
MEMBERS, STAFF, AND WORKING GROUPS
BIBLIOGRAPHY
PREFACE
The 100th Congress established the National Advisory Committee on
Semiconductors as part of the National Advisory Committee on Semiconductor Research
and Development Act of 1988 (Public Law 100-418) to devise and promulgate a national
semiconductor strategy. The Congress acted in response to growing public awareness of
the importance of America's semiconductor industry to the national security and economic
destiny, the increasing and pervasive loss of world market share in key elements of the
industry, and the necessity of preserving this industry for the national good.
From the outset of the its deliberations, the Committee agreed on the seriousness of
the problems in the U.S. semiconductor industry. The Committee also recognized that this
situation must be urgently addressed. This report represents early findings of the
Committee, and is an effort to bring quickly to the President and the Congress suggestions
for action.
In undertaking its work, the Committee drew on a number of Federal studies of
issues affecting the U.S. semiconductor industry and national competitiveness in general.
In a number of areas, the Committee undertook additional studies to supplement the earlier
work. Finally, the Committee called on the expertise of the American electronics
community in the persons of Federal Government officials, industry executives,
researchers, and private-sector economists and scholars. The Committee is grateful to
these individuals for their help.
For development and analysis of the data and preparation of suggestions for
recommendations, the Committee formed three Ad Hoc Working Groups -- Business
Environment, Market, and Technology -- each headed by a Committee member and each
drawing its membership from experts in the electronics field. The Working Group
members provided the Committee with a broad and deep base of knowledge of the
problems facing the American semiconductor industry.
The enabling legislation requires the Committee to report on its planned activities
for the coming year. The Committee believes that this report contains early key
recommendations for the President and the Congress, but also believes that continued
development of recommendations is in order and that additional recommendations will be
forthcoming in subsequent reports. The Committee expects to continue its work
throughout fiscal years 1990 and 1991, releasing reports during this period as appropriate.
vii
EXECUTIVE
SUMMARY
The semiconductor industry is strategic to America. The industry is the foundation
of the information age, playing a crucial role in the consumer electronics sector, the
computer and telecommunications industry, and other industries that have a high electronic
content in their products. America's national security also depends on the semiconductor
industry. United States and North Atlantic Treaty Organization forces rely on the
technological advantage of advanced semiconductors to offset the numerical superiority of
potential adversaries.
The semiconductor industry, after an era of world leadership, is now in trouble. It
has lost its dominant position in the world market. This radical change has occurred in the
1980s despite the fact that American industry invented, developed, and dominated the
semiconductor market for three decades. Japanese companies, encouraged by their
government, have taken aggressive actions to establish a world-class semiconductor
industry that now clearly leads the world marketplace. The U.S. semiconductor industry
has been unable, for many reasons, to respond to this challenge.
It is imperative that U.S. industry, in cooperation with government, develop a
strategy to retain a strong semiconductor capability. Major U.S. electronics systems
industries, such as computers and telecommunications, depend on the timely availability of
leading-edge semiconductor devices. In order for U.S. semiconductor manufacturers to
produce leading-edge components they, in turn, need timely access to the latest state-of-the-
art semiconductor manufacturing equipment and materials. If the U.S. position in
semiconductor devices, equipment, and materials continues to deteriorate, the entire
domestic electronics products industry will be at the mercy of foreign suppliers. The loss
of control of this large segment of the economy puts millions of jobs and billions of dollars
of tax revenues in jeopardy.
A major result of losing semiconductor world market share is that U.S.
semiconductor manufacturers are not able to fund research and development (R&D) at the
level of their foreign competitors. Research and development spending at the top five
Japanese semiconductor firms is now twice as high as spending at their U.S. counterparts.
Unchallenged, this large difference will accelerate the U.S. loss of market share in the
future.
1
There is no single reason for the decline of the U.S. semiconductor industry. The
causes include changes in the business environment, shifts in the markets for electronic
products, and weaknesses in the approaches used by the semiconductor industry to
advance technology.
The business environment in the U.S. imposes fundamental disadvantages on
American semiconductor manufacturers. These include a high cost of capital, weaknesses
in the education of the work force, difficulties in enforcing U.S. intellectual property rights
abroad, and the ability of foreign competitors to benefit from closed markets and liberal
antitrust laws.
One underrated but key factor in the deterioration of U.S. semiconductor leadership
is the loss by U.S. producers of the consumer electronics industry. The shift to the Far
East of manufacturing for nearly all consumer electronic products, such as televisions,
video cassette recorders, and compact disc players, has had serious consequences because
almost all the electronic components used in these products are also made in the Far East.
In addition, because consumer electronics can drive technology applied to advanced
commercial and military systems, for example in component packaging, foreign domination
of the industry will put the United States at a greater disadvantage in the future.
As the U.S. position in the world semiconductor market has declined, so has its
leading position in technology. For years the Japanese semiconductor industry has
recognized the advantages of cooperation in the precompetitive phases of R&D. By
contrast, the U.S. industry is characterized by relationships that are mostly competitive.
Because U.S. firms have acted independently, each company is burdened with the full
costs of advancing every aspect of new technologies. In an era of rapidly increasing costs
of technology development, independent and duplicated efforts hinder competitiveness.
In the Committee's judgment, the United States is at a critical crossroad. The
decline of the U.S. semiconductor industry, coupled with the increasing costs of staying at
the leading-edge, limits the window of opportunity to establish an effective semiconductor
strategy. Unless the U.S. industry and government take coordinated, concerted, and
timely action, there will be a long-term deterioration of our industrial strength and military
security, and an erosion of our economic wealth.
Recommendations: Toward a National Semiconductor Strategy
Timely industry action, supported by government, is required to arrest the
deteriorating global position of the U.S. semiconductor industry. Industry and government
must cooperate, with each providing its special strengths and acting in its appropriate role.
The National Advisory Committee on Semiconductors has developed recommendations
that serve as initial steps towards the development of a comprehensive national
semiconductor strategy. These initial recommendations are:
1. Re-establish a fully competitive and supportive business environment in the
United States to enable the U.S. semiconductor industry to operate on an equal
footing with its major international competitors by:
a. Promoting capital formation;
b. Improving the education system;
2
c. Reforming trade law;
d. Protecting intellectual property; and
e. Improving the antitrust climate.
2. Expand the U.S. industry's global semiconductor market share by rebuilding a
strong U.S. position in the growing high-volume, high-technology electronic
systems market by:
a. Building a supportive business environment. There are several
inseperable actions that must be implemented as a unit to accomplish this:
Establishing a for-profit Consumer Electronics Capital
Corporation (CECC) to resurrect the U.S. consumer electronics
industry infrastructure by providing a multi-billion dollar pool of
very-patient, low-cost capital;
Urging the President to direct the appropriate agency to determine
those factors which reduce the likelihood of a successful U.S.
consumer electronics industry. Redress shall then be immediately
sought through cooperative agreements (with non-U.S.
corporations), consumer electronics technology licensing, local
technology content minimums, and local R&D and design (or any
combination of the preceeding); and,
Having the Federal Government encourage and purposefully
support the re-entry for the U.S. consumer electronics industry and
its potential to compete vigorously. Accordingly, the Office of the
U.S. Trade Representative shall ensure that access to the U.S.
consumer electronics market shall be contingent upon reciprocal
opportunity for U.S. companies to access foreign markets.
b. Providing expanded market opportunities by encouraging private
industry to accelerate the development of a nationwide broadband network
providing fiber-optic cable to the home, by modifying regulatory policy
where necessary and broadly experimenting with prototype and trials.
3. Enable the U.S. semiconductor industry to retain an enduring world-class,
competitive technology position with a healthy semiconductor manufacturing
equipment industry by:
a. Accelerating research and development in the U.S. semiconductor
materials and equipment industry by expanding the mission of
SEMATECH, the semiconductor manufacturing technology consortium, in
this area. SEMATECH's funding should be increased immediately by $100
million, half of which should be provided by the industry. Additional
funding of $800 million will be required over the next 3 years for these
programs fully to address the needs of this industry segment.
b. Sustaining the current Departments of Defense (DOD) and Energy
(DOE) funding of $200 million per year that was previously allocated to
3
very-high-speed integrated circuits and direct it toward maintaining long-
term industrial R&D efforts related to silicon technology and manufacturing
tools.
c. Ensuring that the DOE transfer synchrotron ring x-ray technology and
systems for microlithography to U.S. industry and aggressively pursue,
with DOD's Defense Advanced Research Projects Agency, and the
Department of Commerce programs in mask making, mask repair, aligners,
metrology, and small x-ray sources.
The Committee's full recommendations appear in Section IV.
4
I. The Semiconductor Industry and Its Vital National Role
The uncommonly important semiconductor industry starts from some of the most
common materials on Earth--sand, water, and aluminum. Through the application of
complex manufacturing processes, these raw materials are transformed into the most
intricate devices ever produced. Today, a single semiconductor integrated circuit chip can
contain millions of microscopic components that channel the flow of electrons, and they
can perform their tasks in a few billionths of a second. Before the next century, chips
containing billions of components will be made.
The transformation of sand into complex silicon integrated circuits requires
exceedingly high levels of scientific and engineering knowledge. The semiconductor
industry's technological know-how encompasses a broad range of fields in the physical
sciences such as physics, chemistry, electrical engineering, and materials science. The
needs of the industry stimulate fundamental advances in these fields, and the resulting gains
spill over to fill the Nation's reservoir of technological capability.
As chips become more complex, the costs of staying at the leading-edge escalate
rapidly. Chip makers are at the forefront of all U.S. industries in their annual investment
(as a percentage of total revenues) for research and development, and new plants and
facilities. Since 1980, the cost of a typical state-of-the-art facility for semiconductor
memory chips has risen eight-fold, from $25 million to $200 million. Over the next several
product generations, state-of-the-art manufacturing facilities are expected to cost between
$500 million and $750 million. Last year alone, the U.S. semiconductor industry spent
about $3 billion on R&D and another $3.5 billion in capital investment. Such spending
strains the resources of even very large companies.
Because more and more transistors can be packed on each chip, the cost per
electronic function has fallen by a factor of 100 over the past 15 years. The gains in
product performance have been commensurate with this extraordinary improvement in
productivity. Compare, for example, the world's first electronic computer, America's
ENIAC built in 1946, with an equivalent computer built today. ENIAC was room-sized,
weighed 2 tons, drew power equivalent to 100 lighthouses, and used unreliable vacuum
tube technology that frequently broke down. Today, American companies produce single
semiconductor chips that have 1,000 times the processing power, almost never break
down, draw no more energy than a night-light, weigh less than a gram, and cost 30,000
times less.
This tremendous improvement in productivity and performance has, in turn, opened
semiconductor markets to ever wider applications. Semiconductor components are used
ever more pervasively and intensively in almost all aspects of daily life. Today, chips drive
products that help us to defend America, make medical diagnoses with sophisticated
imaging equipment, navigate commercial aircraft, and warn when dangerous weather is
approaching as well as improve the quality of our everyday lives through a broad range of
consumer electronic products.
Today's $50 billion world chip industry leverages a $750-billion dollar global
market in electronics products and 2.6 million jobs in the United States. This is more than
double the number of jobs in the U.S. steel and auto industries combined. As products
such as TVs, computers, anti-lock brakes, microwave ovens, and phone systems improve
in performance and cost, demand for them increases. That increased demand prompts
producers of these products to seek further advances from chip technology, pushing the
industry forward toward further innovations. Such cycles of improved productivity and
performance, and expanding demand for the products that take advantage of the
5
improvements, create enormous economic and social gains. The benefits range from
saving lives through improved medical safety systems to communicating by voice and data
with any point in the world.
America's national security also depends on excellence in semiconductors. United
States and North Atlantic Treaty Organization forces rely on a technological advantage
ultimately traceable to semiconductors to offset the numerical superiority of our
adversaries, as a Department of Defense task force affirmed in 1987:
The superiority of U.S. defense systems of all types is directly
dependent upon superior electronics, a force multiplier which not only
enhances the performance of the weapons themselves, but also maximizes
the efficiency of their application through sophisticated intelligence and
command and control systems The United States has historically been the
technological leader in electronics. However U.S. defense will soon
depend on foreign sources for state-of-the-art technology in
semiconductors. The Task Force views this as an unacceptable situation. 1
Progress in the semiconductor industry advances the technical capabilities of
industries that are linked to chips in the production chain, from computers and
telecommunications to new materials, and indirectly advances many other industries. The
semiconductor industry promotes the development of ever purer chemicals and materials,
more powerful computer-aided engineering and design, and computer-integrated
manufacturing, all of which find broad application in other industries. In addition, the
products of the electronics industry are essential tools used to achieve the increased
productivity, lower cost, and higher quality that are required from all U.S. manufacturing.
Leadership in chips can result in leadership in many industries--a fact widely recognized by
our major international competitors.
Because the semiconductor industry is so vital to the national economy, it is
important to understand the structure of the industry and its position in world markets. The
semiconductor industry has two major business segments. The first consists of the
semiconductor manufacturers who actually produce semiconductor components (U.S.
annual revenues are approximately $20 billion). These companies turn simple raw
materials into finished wafers in expensive, ultra-clean manufacturing facilities. They also
provide the packaging, testing, sales, marketing, and product support that are essential for
success in the marketplace. The second segment of the industry includes the
semiconductor materials and equipment (SM&E) firms that produce both the raw materials
and the manufacturing equipment that go into the production of integrated circuits (U.S.
annual revenues are about $5 billion). Together, semiconductor manufacturing and SM&E
firms enable the entire U.S. electronics products industry, as illustrated by Figure 1.
The core of the electronic products industry is made up of SM&E companies.
These firms supply the common set of tools and materials, used by most manufacturers,
that enable efficient, low-cost, high-quality production. They supply both the equipment
for various stages of the manufacturing process (photolithography, materials processing,
chip handling, packaging, and testing) and the ultra-pure silicon, gases, chemicals, and
metals that are transformed into circuits. Loss of leadership in these technologies
undermines more than just semiconductors. Indeed, the SM&E industry advances²
manufacturing disciplines as diverse as machine tools, vacuum control, automated controls,
1 "Report of Defense Science Board Task Force on Defense Semiconductor Dependency," Feb. 1987, p.1.
6
and computer-aided design. Advances within the SM&E industry, therefore, spill over into
almost all aspects of the American manufacturing base.
Both the chip and SM&E industries have suffered declines in their world market
positions over the past decade, as is demonstrated in the next section.
FIGURE 1: SEMICONDUCTORS: THE ENABLING
INDUSTRY
Military
Source:
Data Processing
National Advisory
Consumer Products
Committee on Semiconductors.
Electronics Industry
Telecommunications
Unit Processes
Chip Producers
Computer Integrated Manufacturing
Advanced Equipment
SM&E
Advanced Materials
U.S. Manufacturing Base
Electro-Mechanical Systems
Software
Chemicals
Materials
II. The Decline of the Semiconductor Industry
Evidence of the Decline in the U.S. Semiconductor Manufacturing
The U.S. merchant semiconductor industry has lost its dominant world market
share in the past 10 years. 2 Leadership of the industry has largely shifted to Japan, as
shown in Figure 2. As a result, while United States semiconductor revenues nearly tripled
from 1981 to 1988, revenues for Japanese producers rose six-fold. In addition to the loss
of leading-edge semiconductor markets, the U.S. is continuing to lose market share in less
complex discrete devices, as shown in Figure 3. These devices are key to a wide range of
products from military equipment to consumer electronics.
Despite high investment rates relative to other U.S. industries, the U.S. chip
industry is being substantially outspent by its major Japanese competitors in R&D and the
gap is growing larger, as shown in Figure 4. In addition, Japanese firms have led U.S.
firms in capital spending since 1982, although the United States had greater semiconductor
sales until 1986. In 1988, Japanese capital spending was nearly $2 billion higher than that
of the United States.
2 Since U.S. captive semiconductor manufacturers do not disclose their financial position, data is presented
only for the U.S. merchant industry. Data for the Japanese semiconductor industry include all production.
Inclusion of U.S. captive production would slightly increase the market shares shown for the U.S. in
several figures, but would not change the trends described. Based on experience in the field, the Committee
believes the conclusions of this report apply equally well to merchant and captive chip producers.
7
FIGURE 2: WORLD
SEMICONDUCTOR
PRODUCTION BY REGION
70
Source: Dataquest.
60
United States
50
MARKET SHARE (%)
40
Japan
30
20
Europe
10
Rest of World
0
80
81
82
83
84
85
86
87
88 YEAR
FIGURE 3: WORLD DISCRETE
PRODUCTION BY REGION
60
Source: Dataquest.
Japan
50
MARKET SHARE (%)
40
United States
30
20
81
82
83
84
85
86
87
88 YEAR
FIGURE 4: WORLD
SEMICONDUCTOR R&D
SPENDING
2500
Source: Dataquest.
2000
Total of Top Five
Japanese Firms
R&D SPENDING ($ millions)
1500
1000
Total of Top Five
500
U.S. Merchant Firms
0
80
81
82
83
84
85
86
87
88
YEAR
The erosion of the U.S. position is equally apparent in key semiconductor product
markets. In 1970, when the first integrated circuit memory was being sold, Japan's market
share was zero. In 1988, the world Dynamic Random Access Memory (DRAM) market
share of Japanese producers was nearly 80 percent This market share loss by U.S.
merchant firms is shown in Figure 5. The loss of position in memory is particularly
disturbing because leading-edge memory drives technological advances in a broad range of
process and manufacturing areas. DRAMs not only act as a technology driver for chip
makers, but they are also an important driver for SM&E firms, as new equipment and
materials are often first developed for memory production.
The U.S. semiconductor industry's simultaneous loss of global technology and
market position results in lower revenues, further reducing R&D and capital spending and
leading to further decline in market share. It has already led to a change in the world
leadership among semiconductor producers, as illustrated by Figure 6. This figure shows
the change in the regional control of the market for metal-oxide-semiconductor (MOS)
devices, which is the largest and fastest growing segment of the semiconductor market.
Reversing this trend will not be easy. Indeed, the cumulative loss of world market
position by U.S. producers has had a serious effect on America's position relative to
Japan's in many important aspects of semiconductor technology. The United States is
holding its technological position in only a few areas, and gaining position nowhere. In
critical technologies such as computer-integrated manufacturing, production quality control,
and component packaging and testing, the United States has lost its technological
superiority. Because technological knowledge is cumulative, once technological leadership
is lost, it is very difficult to regain. The United States, therefore, has an ever-shortening
window of opportunity in which to regain technological leadership before it finds itself
behind the state-of-the-art.
9
FIGURE 5: WORLD
PRODUCTION OF DRAMS BY
REGION
100
Source: Dataquest,
PREL '88.
80
Japan
United States
MARKET SHARE (%)
60
40
20
Europe
Rest of World
0
70
72
74
76
78
80
82
84
86
88
YEAR
FIGURE 6: LEADING MOS PRODUCERS
REVENUES
($ millions)
1973
1978
1983
1988
Texas Inst.
65
Intel
283
NEC
786
NEC
3114
AMI
56
Texas Inst.
238
Intel
720
Toshiba
2546
Intel
41
NEC
183
Motorola
697
Intel
2328
Rockwell
40
Motorola
143
Hitachi
638
Hitachi
1885
Mostek
39
Hitachi
139
Texas Inst.
572
Fujitsu
1437
NEC
37
Mostek
125
Toshiba
458
Mitsubishi
1399
Hitachi
35
National
95
Fujitsu
406
Motorola
1399
RCA
35
Toshiba
88
Mostek
315
Texas Inst.
1271
National
21
AMD
71
National
280
Matsushita
882
Mil
20
AMI
71
Mitsubishi
247
Oki
841
Total
Market
591
2332
7951
26964
Source: Intel.
(Japanese Firms Italicized )
10
Evidence of the Decline of the U.S. SM&E Industry
Paralleling the loss in world market share for U.S. chip manufacturing has been a
serious loss of market share for U.S. SM&E firms. Because SM&E firms supply the
common tools and materials used by all chip manufacturers, weakness in semiconductor
equipment and materials leads to weakness in semiconductor component manufacturing,
and ultimately to weakness in electronic products markets.
Today's state-of-the-art silicon processing, driven principally by the manufacturing
requirements of semiconductor memory chips, is moving toward decreasing feature sizes.
Eighty-five percent of all leading-edge submicron manufacturing capacity is currently in the
Far East. The predominance of leading-edge chip manufacturing outside the United States
has very seriously undermined segments of the U.S. SM&E industry, largely because
major foreign chip producers prefer working with local sources of supply they can control.
These close working relationships spur equipment advances at foreign SM&E firms
working with chip producers at the leading-edge.
The U.S. SM&E producers of lithography equipment, test equipment, and
materials have seen their commanding market shares reduced, as shown by the examples in
Figure 7. The three equipment markets shown in this figure represent critical tools used in
chip manufacturing, and are representative of the declining U.S. share of most equipment
markets. In 1982, U.S. SM&E firms were dominant suppliers worldwide; today, Far
East firms are dominant, as shown in Figure 8. The only major U.S. SM&E survivors
have succeeded by establishing close customer relationships in Asia.
FIGURE 7: SELECTED U.S.
SEMICONDUCTOR
EQUIPMENT
100
Source: VLSI Research, Inc.
U.S. Resist
Processing
80
WORLD MARKET SHARE (%)
-
60
U.S. Integrated
Circuit Testers
40
U.S. Stepping
Aligners
20
0
79
80
81
82
83
84
85
86
87
88
YEAR
11
FIGURE 8: TOP 10 SEMICONDUCTOR
EQUIPMENT SUPPLIERS' WORLDWIDE SALES
($ millions)
1982
1988
Perkin Elmer
$162
Nikon
$521
Varian
100
Tokyo Electron (TEL)
508
Schlumberger
96
Advantest
385
Takeda Riken (Advantest)
84
Applied Materials
382
Applied Materials
84
General Signal
375
Eaton
80
Canon
290
Teradyne
79
Varian
211
Canon
78
Perkin Elmer
205
General Signal
77
Teradyne
190
Nikon
58
LTX
180
(Japanese Firms Italicized )
Source: VLSI Research, Inc.,
Electronic Business.
Maintaining a competitive position both in the United States and in the Far East is
difficult for most U.S. SM&E producers, partly because their industry is highly
fragmented and financially weak. While many Japanese SM&E firms are part of large,
diversified companies, Figure 9 shows that 88 percent of the 850 U.S. SM&E companies
had 1988 annual sales of less than $25 million. These companies face a difficult
competitive environment of escalating capital requirements and R&D costs, while at the
same time their major market is shifting to Asia.
Many U.S. SM&E firms still have excellent technology; the problem is that they
will not be able to sustain their competitive position over time. They are also small enough
to be attractive acquisitions for foreign conglomerates. Only recently, Materials Research
Corporation (MRC), a critical U.S. manufacturer of semiconductor equipment and
materials, accepted a tender offer from Sony. In addition, for several months Perkin Elmer
has sought to sell its semiconductor lithography division. These companies represent
important capabilities in the United States, and it would be damaging to the semiconductor
industry, and to U.S. manufacturing as a whole, if these skills continue to migrate abroad.
An example of the result of such a loss of U.S. capability is the sale of Monsanto's silicon
materials business to the West German firm Huels, dropping U.S.-owned silicon wafer
production from a 15 percent share of the world market to 1.8 percent. An initial analysis
indicates that up to $1.2 billion over the next 3 years is required to restore this industry's
health.³
The U.S. semiconductor manufacturing firms are already heavily dependent on
foreign sources of critical materials and equipment, as shown in Figure 10. Even the
largest and technologically strongest U.S. chip producers are at risk of failing to gain
timely access to the SM&E technologies they need to remain competitive. Unfortunately,
the prospect is for increased dependence and continued deterioration of the U.S. SM&E
3 Analysis performed by the Semiconductor Equipment and Materials International (SEMI).
12
FIGURE 9: U.S. SM&E
INDUSTRY SEGMENTED BY
ANNUAL SALES
Source: Semiconductor
5.5%
2.9%
Equipment
0.7%
and Materials
2.6%
International.
ANNUAL SALES
Less than $25M
88.3%
$25.1 50M
$50.1 75M
/
$75.1 100M
$100M +
FIGURE 10: U.S. DEPENDENCE ON CRITICAL
FOREIGN SEMICONDUCTOR EQUIPMENT AND
MATERIALS
EQUIPMENT
1988 PERCENT IMPORTED
Stepping Aligners
68
Resist Processing
69
Scanning Electron Microscopes
>80
Wafer Saws
75
Die Bonders
80
Tape Automated Bonders
81
Mold and Sealing Equipment
65
Molding Presses
75
Lead Trim and Form
80
MATERIALS
Silicon Wafers
97
Mask Blanks (share of U.S. market only)
91
Sputter Targets
96
Lead Frames
> >95
TAB Tapes
85
Molding Compounds
78
Ceramic Packages
96
Ceramic Multilayer Packages
84
Ceramic Substrates
97
Hybrid Packages
80
Bonding Wire
> >95
Source: SEMATECH.
13
industry as long as its major customers, the U.S. chip industry, is itself in relative decline.
The decline of the U.S. SM&E industry will likely be hastened by further inroads of Asian
SM&E manufacturers; an industry survey indicates that 75 percent of the next generation of
processing equipment purchased by U.S. companies will be produced in Japan.
The Committee believes that the continued decline of the U.S. semiconductor
manufacturing and SM&E industries is unacceptable. Neither segment of the
semiconductor industry can remain strong without the other. Manufacturers depend on
early access to advanced materials and equipment, and SM&E firms rely on the revenues
generated by sales to domestic chip manufacturers. America needs a domestic-based and
controlled semiconductor industry with a full complement of leading-edge activities from
R&D through production, and with production costs, quality, and performance second to
none. For the foreseeable future, neither imports nor foreign direct investment can ensure
that the United States receives the same level of military, technological, and economic
benefits that an American industry guarantees.
Consequences of the Decline
The economic, technological, and national security gains that flow from
semiconductors provide a rare combination of benefits for America. The United States was
able to capture those gains effectively so long as U.S. chip producers led the world and
conducted nearly all of their leading-edge R&D and manufacturing activities at home. As
the U.S. industry's competitive position and state-of-the-art domestic activities weaken, so
does America's ability to reap the lion's share of the available national gains.
This point is most obvious from the perspective of national security. The
qualitative edge in advanced weaponry that underlies America's strategic posture is put at
risk by depending on trade flows that can be disrupted in wartime, and on foreign-owned
capabilities, even if they are based in the United States.
Indeed, a recent publication⁴ by Sony chairman Akio Morita and former Japanese
minister Shintaro Ishihara, highlights the growing issue of Japan's pivotal role in
developing leading-edge military electronics technology that contributes to the U.S. -
Soviet balance of power. They argue that because Japan has such dramatically advanced
production skills, their semiconductors have achieved a level of sophistication unmatched
anywhere. As a result, they contend the United States could become almost totally
dependent on Japan to supply chips for its weapon systems. They go on to point out that if
the supply of advanced Japanese chips to the United States were interrupted, and if Japan
were to make these chips available to the Soviet Union instead, the balance of power would
change dramatically.
The absence of a strong domestic U.S. semiconductor industry would also give
leverage to foreign competitors to control the flow of economic gains from semiconductors
to the rest of the U.S. economy. Indeed, a scenario believed possible by many observers
in industry and government foresees the withering away of the U.S. semiconductor
materials and equipment industry in the face of cyclical downturns in U.S. semiconductor
production and increased Japanese competition. In this scenario, the fate of the U.S.
semiconductor industry--and, by extension, U.S. downstream industries--would soon be
in the hands of mostly Asian suppliers. In the scenario's denouement, Asia dominates the
U.S. downstream electronics industry and ultimately the global electronics landscape.
4 The Japan that Can Say "No", The New U.S.-Japan Relations Card, Akio Morita and Shintaro Ishihara.
14
Our major competitors have a demonstrated capability -- compelled either by policy
or their own strategy and organization -- to act in concert and exercise market power
sufficient to control access to technology and its price. Compelling examples include the
DRAM shortage, the inability of U.S. supercomputer companies to purchase the fastest
foreign chips, and the inability of most U.S. chip producers to gain timely access to the
most advanced foreign semiconductor manufacturing equipment and materials. In all of
these areas, U.S. industry has already lost control of its own destiny, and as a result U.S.
economic strength and national security is at risk.
Exploitation and realization of the economic gains that flow from semiconductors
depends upon the development of a cumulative, readily accessible, and leading-edge
knowledge base. In the absence of a viable domestic industry, these factors would reside
under foreign control. And they would reside there for a long period, because resurrecting
a leading-edge U.S. industry, once lost, would take an extraordinary, concerted investment
of time and resources. Neither imports nor foreign direct investment can relieve this
dependency. Because nearly all of the R&D will be done outside the United States,
imports can neither generate the kind of skill and knowledge base that a domestic-based
industry generates, nor substitute for the cumulative learning that domestic activities
provide. Nor, without taking substantial risks, can the Nation depend on foreign
producers operating within the United States to carry on sufficient state-of-the-art science,
engineering, and production and adequately to support the country's research base.
For all of these reasons, the Committee concludes that the United States can be
certain of enjoying the economic, technological, and national security benefits that flow
from semiconductors only if America's industry is at the leading-edge, with a full
complement of world-class activities from R&D through production here at home.
III. Major Root Causes of the Semiconductor Industry Decline
At the root of the U.S. semiconductor industry's loss of world position lie critical
factors that have worked to the advantage of Far East producers. These factors include
differences in the business environment that result in policies and practices, abroad and at
home, that are detrimental to the U.S. industry. In addition, the markets available for U.S.
semiconductors have shrunk as a result of shifts in the markets for electronic products.
Finally, basic technological problems exist for the industry.
The Business Environment
One fundamental cause of decline in the semiconductor industry results from
differences in policies and practices between the United States and its major international
competitors, differences that lend advantage to foreign producers. The most critical
differences are the access to low-cost capital, the ability and willingness of foreign
producers to benefit from trade practices such as closed markets and dumping, the failure
of U.S. schools adequately to train the work force, and the difficulty of enforcing U.S.
legal rights abroad.
For U.S. chip makers, one of the most serious disadvantages is a lack of access to
low-cost capital. This disadvantage is critical for U.S. chip firms because of the
semiconductor industry's increasing capital intensity. While there is some debate over the
precise values for the real cost of capital in the United States and Japan, there is agreement
that costs in Japan have been significantly lower. This differential was particularly
15
important during the early part of the 1980s when the Japanese semiconductor industry was
investing heavily to expand capacity. A lower cost of capital enables foreign competitors to
enjoy lower risk in making investment decisions, and consequently to operate with longer
time horizons and greater immunity to swings in the business cycle.
Foreign competitors also benefit from supportive industrial policies and practices in
their home markets. Policies range from closed domestic markets to subsidies and the
coordination of precompetitive research and development. Practices range from concerted
pricing behavior to captive customer and distribution arrangements (e.g., through increased
vertical integration and cross-ownership). Together, these factors have helped to create an
unstable market environment with unpredictable financial returns for U.S. chip firms. This
condition has discouraged the long-term investment perspective required for success in the
semiconductor industry. The instability in the market was, for example, directly
responsible for the dramatic decline in U.S. DRAM production.
These problems of the semiconductor industry are compounded by America's
ineffective efforts to stay at the forefront of education and training. In a world where
capital and technology move rapidly across national boundaries, a nation's competitive
performance will depend on the continued quality of its work force. This fact is especially
significant in advanced technology industries such as semiconductors. Successful firms
blend theoretical physics and practical manufacturing skills. While our educational system
has concentrated on educating talented students in theoretical disciplines, it has neglected
training for manufacturing. In addition, manufacturing industries have been slow to
communicate their needs to institutions of higher education. A revised education emphasis
is required to support the gains in productivity and quality in manufacturing needed to keep
the United States competitive. Companies that have recognized quality programs have
found they have had to implement extensive corporate training programs for their
employees at a cost that can, at times, rival their R&D budgets. Much of this training
should have been a part of a fundamental educational curriculum.
The advantages of active quality programs are demonstrated by success in the
marketplace. Asian companies were quick to recognize the importance of the customer's
perception of quality in electronic products, as well as for semiconductor components. The
U.S. firms that were late to understand that comprehensive quality programs are
fundamental to manufacturing at the leading-edge have found themselves at a serious
competitive disadvantage.
In addition, the Japanese have effectively used consensus and negotiation as a
methodology for solving technical problems. This approach works well because of the
relentless pace of technological change and the need for close cooperation between
suppliers and customers in the semiconductor industry. In contrast, American industry has
often been built on adversarial and contractual relationships. This approach slows reactions
to emerging technologies, consumes valuable resources, and ultimately delays products'
introduction to the market. In a rapidly changing market, such delays can mean the
difference between success and failure.
Finally, differences exist in the legal system and practices of chip producing
countries. In several key areas, notably intellectual property and antitrust, asymmetries
between domestic and foreign laws frustrate the ability of U.S. companies to take full
advantage of their competitive assets. Few countries in the Far East provide
comprehensive protection of intellectual property, making it easier for foreign producers to
reap the returns that would otherwise accrue to U.S. inventors. Similarly, foreign
producers often engage in cooperative and coordinated behavior that would not be
permitted under U.S. antitrust laws.
16
The Market
A fundamental problem facing U.S. chip makers is the migration of their customer
base to the Far East. More and more of the world's electronics systems are being produced
outside the United States, especially in Asia. In 1984, electronics systems produced in the
United States and Europe consumed 63 percent of all semiconductors; by 1989, their
combined share was only 47 percent, and Japan had supplanted the United States as the
world's largest market. Even more important has been the shift in the production of
consumer electronics products. At one time the United States held a dominant position in
the production of products such as radios, televisions and video cassette recorders, but one
by one U.S. market shares have been reduced dramatically. At the same time, the
electronic content of these products has increased dramatically. As shown in Figure 11,
consumer electronics products will consume more than $11 billion of semiconductors in
1989--more than 20 percent of the world's semiconductor production. Looking toward the
year 2000, Japanese sales of semiconductors for consumer products are projected to be
$13.5 billion greater than those of U.S. chip producers. If this projection is accurate,
consumer products could fund more than $1 billion dollars of R&D in Japan in excess of
that being funded in the United States. This difference in R&D funding attributable to the
consumer products market alone is equivalent to the total R&D spending of the top five
U.S. semiconductor firms in 1987.
FIGURE 11: WORLD
SEMICONDUCTOR SALES FOR
CONSUMER PRODUCTS
APPLICATIONS
20
Source: Berkeley Roundtable
on the International Economy.
/
U.S.
Rest of World
SEMICONDUCTOR SALES FOR
CONSUMER PRODUCTS ($ billions)
15
JAPAN
10
5
0
1989
2000
YEAR
Changes in the location of product manufacturing are important because the U.S.
chip industry is more successful selling into the U.S. market than into foreign markets.
Although losing market share, U.S. semiconductor manufacturers still control nearly 70
17
percent of the domestic chip market. In Japan however, in spite of intense efforts by both
U.S. manufacturers and governmental agencies, the United States has about a 10 percent
market share, as shown in Figure 12, with no growth through the 1980s. Thus, as product
manufacturing shifts to Asia, the total market available to U.S. chip producers is shrinking.
FIGURE 12: U.S. AND
JAPANESE MARKET SHARE IN
EACH OTHER'S HOME
MARKET
40
Sources: Semiconductor
Industry Assn., Dataquest.
30
Japanese Share
MARKET SHARE (%)
in U.S. Market
20
10
U.S. Share in
Japanese Market
0
78
80
82
84
86
88
YEAR
It should be noted that the Japanese share of the U.S. market has increased from 5
to 30 percent in the 1980s, as shown in Figure 12. There are two major reasons for the
increasing use of Asian manufactured components in the U.S. market. First is the decline
of U.S. market share in DRAMs. DRAMs now account for about 15 percent of the total
semiconductor market, but the U.S. market share has dropped to less than 20 percent.
Another reason for the decline in U.S. semiconductor market share at home is the use of
foreign components in products assembled in this country by foreign firms. Although
many Japanese companies assemble personal computers and consumer products in the
United States, the designs are usually done in Japan and call for Japanese components.
Although assembly jobs are created, the U.S. semiconductor industry is hurt by the
reduction in sales volume and by a corresponding reduction in R&D funding.
Participation in consumer electronics markets will be even more critical in the
future, as the newest consumer products increasingly use highly sophisticated chip
technologies and are effective drivers of chip scale-of-integration, packaging, and sub-
system assembly. Indeed, Far East producers are defining a new electronics market
segment: high-volume, high-technology products such as camcorders and compact disc
players, facsimile machines, laptop computers, optical disk mass storage systems, laser
printers, and portable telephones.
Such products constitute the fastest growing world markets for chips. American
electronics manufacturers currently participate only at the fringes of these critical new
18
markets. Developing a substantial new U.S. participation in these new consumer
electronics markets would address a number of problems facing U.S. chip firms. First,
increased U.S. presence in the manufacture of high-technology consumer products would
provide additional markets for U.S. semiconductor manufacturers. Second, the same chips
that would support a renewed U.S. consumer products industry could be marketed to
foreign consumer products producers. Given the small market share currently held by
U.S. firms, and the resistance to U.S.-sourced products outside of the domestic market,
this effort may not produce substantial revenues initially. It would provide a better match,
however, between the products U.S. semiconductor manufacturers sell and foreign
markets demand.
Technology
For semiconductor firms to stay at the leading-edge of technology, the industry
needs a long-term perspective, the patience to achieve high-quality through steady
incremental improvements, and an understanding that the technical knowledge required for
success is cumulative over many product generations. Very large, precompetitive
investments in people, technology, and facilities must be made years before products are
ready for market. Precompetitive investments are not related to specific products, they are
aimed at the development of the common tools and technologies that will be used later in a
variety of applications. With each succeeding technology generation, the precompetitive
costs are rising. Because major process generations must be started 5 years or more before
products are brought to market, and major product generations are introduced every 3
years, it is necessary for semiconductor firms to bear the costs of more than one
precompetitive effort at once. The process development costs for a single generation now
reach $150 million, and are escalating rapidly. These costs strain the financial resources of
even the largest firms in the industry. The Japanese semiconductor industry has recognized
this for some time, and has engaged in cooperative precompetitive research.
In the past, U.S. semiconductor firms have not supported cooperative research in
the early phases of process and materials development. They viewed their early research
efforts as proprietary, and did not share the results with competitors or with equipment and
material suppliers. This adversarial atmosphere created inefficiency, redundancy, and even
the misapplication of equipment, and it limited the financial resources applied to any single
effort to those that could be borne by a single firm. One opportunity for cooperative
precompetitive research efforts is x-ray lithography technology development, which is
critical to the production of future generations of advanced integrated circuits. This
development is expected to be extremely expensive and could greatly benefit from the
pooled resources of the semiconductor industry. The U.S. effort in x-rays lacks the
breadth, cooperation, and organization of the program in the Far East.
The U.S. semiconductor industry has been late to recognize the advantage of such
cooperative research efforts, and have only recently organized to pool their resources. One
result is SEMATECH, a government supported industry consortium dedicated to
improving semiconductor manufacturing technology. By bringing together semiconductor
manufacturers and SM&E firms prior to the competitive phase, it is hoped that some of the
adversarial nature of their relationship can be avoided. A more cooperative atmosphere
would reduce the costs for new equipment development at U.S. SM&E firms that have
been hard pressed to fund enough R&D to remain competitive with foreign firms. A better
working relationship would also remove risk from new product development, because
SM&E firms would have more insight into the emerging needs of semiconductor
manufacturers. Although a necessary effort, the $200-million-per-year SEMATECH
program is by no means sufficient to solve the semiconductor industry's problems.
19
IV. Recommendations for Initial Steps Toward a National
Semiconductor Strategy
Timely action by industry and government is urgently required to arrest the
deteriorating global position of the U.S. semiconductor industry and restore that industry to
competitive health. Industry and government must cooperate, with each providing its
special strengths and acting in its appropriate role. Because of the immediacy of the threat
and the extraordinary losses that will befall the Nation without prompt action, this first
Committee report offers recommendations for immediate consideration and early action.
The following recommendations respond to the issues outlined in the last section.
Taken together, they represent initial steps toward a national semiconductor strategy. They
aim to:
Expand the U.S. industry's global semiconductor market share.
Establish a fully competitive and supportive business environment in the United
States.
Enable industry to achieve an enduring, world-class, competitive technology
position with a healthy SM&E industry.
MARKET
1. REBUILDING THE U.S. CONSUMER ELECTRONIC INDUSTRY: An effective
way to expand the U.S. semiconductor industry's market share would be to reverse the
flow of the consumer electronics and equipment manufacturing (and company ownership)
to Asia, while simultaneously increasing significantly the likelihood of success in
rebuilding the U.S. consumer electronics industry. Accordingly, we recommend that the
following inseparable actions be implemented as a unit:
a. ESTABLISH A CONSUMER ELECTRONICS CAPITAL CORPORATION
(CECC): The CECC should be a for-profit, privately managed investment holding
corporation. Its mission should be to provide the momentum necessary to resurrect
the U.S. consumer electronics industry infrastructure by creating a multi-billion
dollar pool of low-cost, very patient capital. Its investments would be judged both
on their long-term profit potential and their strategic value to the mission. The key
objective should be the establishment of sustainable market share through the
introduction of innovative, high-quality consumer electronics products. In light of
the importance of establishing market share, profits should not be expected in the
short term. The CECC would be responsible for financial and investment decisions
and facilitating the development of independent operating companies; these
companies would be run by proven business executives.
Initial funding for CECC would be in the form of a multi-hundred-million-dollar
equity investment from industry sources, private and institutional investors, and
State and local governments. Subsequent major funding should be forms of
commercial debt, accompanied by pledges of support from Federal, State, and
local governments. The CECC would be subject to a maximum debt/equity ratio
in order to ensure that CECC bore some risk with respect to its debt. Multiple
secondary offerings are anticipated to attract private equity investments directly in
CECC's independent operating companies, gradually leading these companies to
total financial self-sufficiency.
20
CECC would fund operating companies in the consumer electronics industry
through equity investments. Emphasis should be on advanced technology
development and productization.
CECC would work with State and local governments in conjunction with its
operating companies with regard to the establishment, location, and support of
manufacturing facilities.
CECC would search out consumer electronics-related technologies developed in
United States laboratories, such as universities and the national laboratories.
CECC would function as a clearinghouse for consumer electronics R&D by
working with U.S. electronics and components manufacturers to select key
technologies and identify specific opportunities.
CECC would provide its operating companies with a range of support, the most
important being financial and managerial.
b. PROVIDE AN EQUITABLE INDUSTRY OPERATING ENVIRONMENT:
The President should direct the appropriate Federal agency to: (1) determine, under
applicable U.S. law, those factors that detract from the industrial operating
environment and the expectation for successful investment by private U.S.
investors in consumer electronics; and (2) seek redress of those factors. Such
redress of these factors could include but not be limited to the following:
Establishing cooperative agreements;
Initiating industry-led negotiations for the licensing of consumer electronics
technology to U.S. companies;
Formulating and evaluating implementation policy options for local technology
content; and
Conducting substantial local R&D and design work.
c. ENFORCE FAIR TRADE PRACTICES: By means of the following, the
Federal Government should encourage and purposefully support the entry and
potential for U.S. industry to compete vigorously:
The Office of the U.S. Trade Representative should ensure that access to the U.S.
consumer electronics market be contingent upon reciprocal opportunity for U.S.
companies to access foreign markets; and
The Department of Commerce should ensure and enforce timely application of
anti-dumping laws with commensurate penalties.
2. CHAMPIONING BY THE COMMERCE DEPARTMENT: The Department should be
empowered to champion the establishment and maintenance of a benevolent operating
environment for the U.S. consumer electronics industry and should coordinate the efforts
of other cooperating Federal agencies. Additionally the Department should chair a working
group of the Economic Policy Council concerning consumer electronics.
21
3. ESTABLISHING STANDARDS: The Federal Government (including the Federal
Communications Commission) should expedite the establishment of standards affecting the
introduction of consumer electronics technologies and should cooperate therein with U.S.
industry.
4. ACCELERATING FIBER OPTIC SERVICE: By changing and harmonizing
regulatory policy where necessary and broadly experimenting with prototype and trends,
the Nation should encourage private industry to accelerate the development of a nationwide
broadband network providing fiber optic services to the home. Such a network would
stimulate next -generation development of a broad range of semiconductor-intensive
consumer products (facsimile machines, digital photography, image compression, high
definition television, etc.) that would serve as a technology driver for high-volume, high-
technology consumer product manufacturing. Priority should be given to U.S.-produced
goods containing significant local technology content in prototype trials.
BUSINESS ENVIRONMENT
1. CAPITAL FORMATION: The single most important consideration for the current and
future health of the semiconductor industry is the availability, cost, and patience of capital.
Therefore the following actions are recommended:
a. MAKING THE R&D TAX CREDIT PERMANENT (Channeling capital): The
U.S. R&D (technically research and engineering, or R&E) tax credit has been
renewed for 1989, but remains temporary. Stimulation of corporate R&D, through
improving and making permanent the R&E credit, is essential to U.S.
competitiveness in high-technology industries. Legislation should be enacted to
make the R&E credit a permanent part of the Tax Code, ensuring that a wide base
of taxpayers is eligible for the credit, and allowing start-up ventures to claim the
credit, even before market sales. The size of the credit should be increased, and it
should be made applicable to all, not just incremental R&D.
b. REINSTATING THE INVESTMENT TAX CREDIT (Channeling capital): The
Tax Reform Act of 1986 eliminated the investment tax credit (ITC). Limitations on
the use of the ITC carry forward amplified the negative impact of ITC elimination.
The Congress should reinstate the ITC. Carry forward of the credit should be
permitted. The market for U.S.-built over foreign- built equipment could be
increased if tax credits favored U.S.-made equipment. The semiconductor
equipment industry together with the semiconductor industry should propose ways
to make the ITC favor the purchase of U.S.-made equipment.
C. REDUCING TAXES ON CAPITAL GAINS (Supply and cost of capital): The
1986 Tax Reform Act eliminated a long-standing policy of favoring capital gains
with lower tax rates. The Committee supports proposals now before the Congress
to reduce the taxation of capital gains. Special support is given to those aspects of
the proposals that provide extra benefits for longer term investments.
d. INCREASING PATIENT AND RISK-TOLERANT CAPITAL (Quality of
capital): There is widespread concern that American business management has an
excessive preoccupation with immediate profit, sacrificing longer term, more risky
opportunities that in other times may have been undertaken and formed the basis for
major technological and economic breakthroughs. Financial regulators should
review their regulations on investment advisers and pension funds and rules
governing private placements and public issuance of new securities, to identify
22
actions that discourage longer term investments and appropriate risk-taking, and to
correct such biases.
e. FACILITATING CONSORTIA (Channeling capital): Industry and government
have jointly funded SEMATECH. Other industry R&D consortia in
semiconductors (such as the Semiconductor Research Corporation (SRC) and the
Microelectronics and Computer Technology Corporation (MCTC)) have cleared
antitrust and other restrictions. Some of these efforts do not, however, qualify for
basic research tax credits. The Congress should enact and the Administration
should support legislation to extend the definition of organizations qualified as
eligible for the basic research credit to include a broad range of cooperative R&D
efforts in semiconductors and other high-technology fields.
f. IMPROVING SM&E DEPRECIATION RULES (Channeling capital): The
Congress revised the depreciation schedule for semiconductor equipment in the
1986 Tax Reform Act to reduce it to 5 years from 8 years. At the same time, it
mandated that the Treasury Department's Office of Depreciation Analysis review
this matter and make a recommendation to the Congress by 1992. At this time, the
Treasury Department has postponed an investigation on depreciation rates for
semiconductor equipment until 1991. As groundwork for a proposed acceleration
of depreciation schedules, the semiconductor industry should update the study of
economic depreciation lives, and include data on Japan, where there are much
shorter depreciation schedules assigned for most advanced semiconductor
equipment (1 to 3 years).
g. EASING THE BURDEN OF SECTION 482 (Quality of capital): Section 482
of the Tax Code requires that transfers of goods, services, and intangibles between
U.S. companies and related parties outside the United States be priced as if they
were market-based, arm's-length transactions between unaffiliated parties. A recent
Treasury Department White Paper made comprehensive recommendations that
included many modifications in current practices. These changes will result in
greater paperwork, difficulties in interpretation, and greater uncertainty in
intercompany relationships with especially onerous problems for semiconductor
firms where risk and intangibles are shared among different corporate entities. The
Treasury Department should revamp its entire approach to intercompany transfer
pricing to incorporate less onerous documentation and recordkeeping, greater
accommodation of accepted, proven business practices, and greater certainty and
less complexity in pricing transfers and allocating value.
h. REDUCING THE FEDERAL DEFICIT (Supply and cost of capital): The
continuing deficits reduce our national savings and investment, contributing to our
low rates of productivity growth. Although the shortfall of saving and investment
may be offset to some degree by inflows of foreign capital, these inflows entail
larger trade deficits and a reduced standard of living for Americans. The Congress
should place a high priority on continuing to keep the growth of Federal spending
below the growth of nominal gross national product. To the extent that changes in
the Tax Code are considered necessary, they should be revenue-neutral adjustments
used to tilt the tax structure away from consumption and toward increases in saving
and investment.
i. OPPOSING FOREIGN CAPITAL CONTROLS (Supply and cost of capital):
The net inflow of foreign capital into the United States has increased substantially
over the past 6 years. There is growing dependence on foreign capital to make up
23
for the shortfall of domestic savings. Disrupting these inflows could have
potentially disastrous consequences for the United States. However, foreign
purchases of U.S. corporate assets--especially in strategically sensitive industries
such as electronics--are creating concerns that the United States is mortgaging its
economic future. The recent increase of oversight authority to the interagency
Committee on Foreign Investment in the United States (CFIUS) goes at least part
way toward minimizing that concern. The CFIUS should comprehend the impact
on entire industries, rather than case by case. The Committee opposes all forms of
legislated restrictions on foreign capital flows, including reporting requirements for
foreign investment.
j. INCREASING PERSONAL SAVING INCENTIVES: (Supply and cost of
capital): Personal saving in the United States is lower than among its major
competitors, including Japan. Using the income tax system to favor personal
saving offers one means to increase personal saving. The Congress should
broaden individual retirement account (IRA) provisions, including removal of
restrictions on eligibility, increasing the allowed contributions, and expanding the
uses of IRA savings--for higher education, for example. The taxation on interest
from savings should be eliminated or reduced.
k. ELIMINATING DOUBLE TAXATION OF CORPORATE DIVIDENDS
(Channeling capital): In our income tax system, corporate dividends are taxed
twice--as corporate profits and when received as dividends. This double taxation
may discourage the use of equity financing and unduly encourage leveraging and
earnings retention. The Congress should integrate the corporate and individual
income taxes to eliminate this bias. Any move toward integration that results in the
loss of tax revenues should be accompanied by offsetting increases in consumption
taxes or reductions in Federal spending so as not to increase the Federal deficit.
1. OPPOSING LIMITS ON LEVERAGED BUYOUTS (Quality of capital): Media
coverage of large, leveraged buyouts (LBOs), in which new debt is issued to buy in
equity in order to take corporations private, has brought calls for public policy to
restrain such activity. Among the proposed "solutions" are limits on the tax
deductibility of interest payments, as well as other legislative and regulatory
restrictions. The Committee opposes ad hoc policies targeted at restricting LBOs
and other forms of corporate restructuring.
m. OPPOSING THE SPECULATION TAX (Quality of capital): There is some
support for a tax on short-term turnover of securities in financial markets.
Advocates assert that such a tax would not only raise funds to cut the deficit, but
would also discourage speculative turnover that can create instability, and does
shorten managerial horizons. The Committee opposes such a tax on the grounds
that it depresses stock prices and raises the cost of capital generally, and that the
asserted benefits for capital market behavior are unproven. Any scheme to tax
short-term investments should be considered only in the context of providing
additional resources to further reduce taxes on long-term investment to rates below
what they would be in the absence of the short-term tax.
2. EDUCATION: The semiconductor industry requires well-educated workers who can adapt to
new technologies and who are flexible enough to respond quickly to an increasingly sophisticated
workplace. Additionally, technical training, frequently at the advanced degree level, is the
lifeblood of the rapid evolution of new generations of products and processes required for world-
class competitive performance. Increasingly, additional emphasis must be placed on training
24
related to manufacturing engineering and on coursework supporting thrusts into advanced
applications of total quality control.
a. PRESCHOOL: Early childhood education offers the greatest potential for
improving the quality of our educational system. A nationwide, quality,
comprehensive preschool for economically disadvantaged, at risk, 4-year-old
children should be implemented. For every dollar invested in quality preschool, $7
are returned to society during the lifetime of the child in the form of increased
earnings, less crime, and less welfare.
b. PRIMARY/SECONDARY EDUCATION: To meet the needs for a literate work
force, teacher competency should be enhanced and educational standards raised. A
system of national teacher certification should be established that will supplement
the States' minimum competency measurements. Business should share
management skills with educators. Summer sessions taught by industry experts
would help to develop mathematics and science teachers.
C. DROPOUTS: The currently unemployed, uneducated, and unskilled must be
provided the literacy and skills to qualify for current and future jobs in the
workplace. Government should support literacy, mathematics, and science
education under the Job Training Partnership Act. The country should develop an
intensive, West German-type skills-training-employment alternative to high school.
d. HIGHER EDUCATION: The semiconductor, and other high-technology
industries will require increasing numbers and quality of technical personnel to meet
the standards established by international competition. Curricula stressing
manufacturing engineering and total quality concepts should be emphasized. The
Federal Government should increase immigrant permanent resident status visa
quotas, and relax labor certification rules for non-U.S. Ph.D. graduates of U.S.
universities.
e. WORKPLACE LITERACY: Most remedial programs are not available to
people who are on the job, yet 20 million to 30 million adults have basic literacy
problems. Alternatives should be explored to promote business and government
involvement in improving workplace literacy. Federal and State tax credits for
employee literacy training should be provided. A new title under the Job Training
Partnership Act should be created to deal with adult work force needs.
3. TRADE LAW REFORM:
a. NEW INITIATIVES: A senior U.S. Government interagency committee should
consider, in the context of trade remedies or actions undertaken to counter unfair
trade policies, whether additional governmental and/or private sector actions or
policies are necessary to complement the current statutory processes as a means of
promoting the competitiveness of the U.S. semiconductor industry.
b. MARKET ACCESS: Full access to foreign markets is critical. As the largest
semiconductor market in the world, Japan must take immediate and meaningful
steps to increase its purchases of U.S. semiconductor products. Specific sectors in
Japan's market should segregated for increased purchases, and the success of these
efforts should be measured in terms of increased market share. The Administration
should investigate the effectiveness of the sanctions currently in place to ensure
compliance with Japan's commitments under the Semiconductor Arrangement.
25
c. EXPORT CONTROLS: Export controls for both semiconductors and
semiconductor manufacturing equipment should be adjusted to maximize export
opportunities for U.S. producers to the highest degree possible consistent with
security needs.
d. ANTI-DUMPING LAW REFORM: Anti-dumping law should be strengthened
and made more effective by incorporating the principles being developed by the
Semiconductor Industry Association and the American Electronics Association.
Embodied principles should include accelerated processing of dumping cases, more
effective penalties to deter dumping, and alternative approaches for the use of
revenues collected from the dumping in third countries. The United States should
actively support the strengthening of the General Agreement on Tariffs and Trade
(GATT) anti-dumping code.
4. INTELLECTUAL PROPERTY:
a. SECTION 337: The U.S. Government should maintain that the GATT panel
report on Section 337 is legally faulty, and will not be accepted by the United
States. The Administration should maintain continued support and appropriate
enforcement in accordance with existing regulations and practices of Section 337,
while seeking broadly supported alternatives to resolve any valid conflicts between
Section 337 and GATT.
b. GRANTING OF FOREIGN PATENTS: Government and private initiatives
seeking more efficient patent-granting systems and harmonization of differences
between national patent systems should receive increased emphasis.
c. NEW INITIATIVES: The Administration should convene a group to study and
make recommendations within this Congressional term concerning clarification of
mask works regulations regarding application-specific integrated circuits (ASICs)
and new forms of protection such as design protection. National trade secret
legislation should be reviewed in light of possible GATT and other international
agreements to determine whether to urge accession by other countries to the Hague
litigation conventions.
d. USE OF CURRENT MECHANISMS: The U.S. semiconductor industry
should focus on protecting its intellectual property by availing itself of existing
means.
5. ANTITRUST: Legislation to facilitate production joint ventures, as the 1984 National
Cooperative Research Act (NCRA) facilitated R&D joint ventures such as the
Semiconductor Research Corporation and SEMATECH, would help to strengthen the U.S.
presence in strategic infrastructure electronics industry sectors and thereby bolster
American competitiveness. The Congress should amend the NCRA to expand the scope of
the legislation to include Production Joint Ventures. Under the expanded NCRA, the "rule
of reason" and not "per se" would apply to any court challenge to a Production Joint
Venture. In addition, providing notice had been given, liability would be limited to actual,
not treble, damages.
TECHNOLOGY
1. INCREASING R&D FOR EQUIPMENT AND MATERIALS: The U.S.
semiconductor and SM&E industries must identify means to increase significantly the level
of R&D activity dedicated to manufacturing tools, materials, and processes.
26
SEMATECH's mission should be expanded to include project management for these
development programs extending beyond 1993. SEMATECH's funding should be
increased immediately by $100 million, half of which would be provided by the developers
of such equipment materials and processes. Additional funding of $800 million would be
required over the next 3 years for these programs to fully address the needs of this industry
segment.
2. CONTINUING FUNDING FOR SILICON R&D: The Departments of Defense (DOD)
and Energy (DOE) should sustain the current $200 million per year funding previously
allocated to very high-speed integrated circuits to maintain long-term industrial R&D efforts
related to silicon technology and manufacturing tools.
3. ENHANCING X-RAY LITHOGRAPHY: The synchrotron ring x-ray technology that
has been developed in the national laboratories represents a unique capability and
opportunity for future advancement of a critical semiconductor manufacturing technology.
The DOE should ensure the transfer of synchrotron ring x-ray technology and systems for
microlithography, by having two corporations design and build prototype rings and by
funding the participation of national laboratory experts in these projects. In order to ensure
timely availability and rapid insertion of this critical technology, DOD's Defense Advanced
Research Projects Agency (DARPA), DOE, and the Department of Commerce programs in
mask making, mask repair, aligners, metrology and small x-ray sources must be pursued
aggressively as well.
4. ENHANCING ACADEMIC RESEARCH AND TEACHING: The DOD, DOE, and
the National Science Foundation should substantially enhance their funding of personnel,
equipment, and especially facilities in support of academic research and teaching associated
with silicon technology.
5. ESTABLISHING METROLOGY AND STANDARDS: The National Institute for
Standards and Technology should establish the sophisticated metrology and standards that
industry will need for manufacturing technology in the coming generations of advanced
semiconductors, including the x-ray era of microlithography. The new Technology
Administration Act of 1989 is an appropriate step in that direction.
6. ACCELERATING RESIDENCY: The Federal Government should evaluate and
implement procedures allowing foreign-born students receiving M.S. and Ph.D., and
equivalent degrees in natural science and engineering from U.S. academic institutions to
obtain permanent residency permits within 3 months after graduation, without departure
from the United States.
7. DOUBLING SCHOLARSHIPS AND FELLOWSHIPS: The Congress should double
the number of federally funded undergraduate scholarships and graduate fellowships for
natural science and engineering, and the real monetary value of these awards should be
made more competitive with starting salaries in industry.
27
V. Next Steps
The recommendations presented in this report represent the first critical steps towards a
national semiconductor strategy. Further developing and working to implement that
strategy is the goal of the next year of the Committee's activities. In fiscal year 1990, the
Committee intends to:
Establish the Consumer Electronics Capital Corporation:
a) Develop business plan;
b) Obtain seed capital;
c) Begin operation as implementation of the other unit actions permit;
d) Achieve major equity infusion;
Continue examination of issues pertaining to a national fiber optic network.
Future efforts by the Committee will be directed towards further development of
the business and government initiatives required to put this network in place;
Release a separate and more detailed report on the impact of the business
environment recommendations on the semiconductor industry;
Continue analysis of what is further needed to revitalize the semiconductor
manufacturing and equipment industry; and
Examine two new areas: the status of American industry involved in compound
semiconductors (those made from materials other than silicon), and the
implications for American industry of the development of photonics (integrated
electrical and optical devices), which many observers expect to constitute the next
major area of growth in electronics technology.
28
NATIONAL
ADVISORY
COMMITTEE
ON
SEMICONDUCTORS
MEMBERS
STAFF
WORKING
GROUPS
NATIONAL ADVISORY COMMITTEE ON SEMICONDUCTORS
Industry Members
Government Members
Chairman:
Dr. Ian M. Ross
Honorable Robert B. Costello*
President
Under Secretary of Defense
AT&T Bell Laboratories
for Acquisition
U.S. Department of Defense
Executive Director:
Dr. William R. Bandy
Honorable Erich Bloch
Program Manager
Director
Defense Advanced Research
National Science Foundation
Projects Agency
U.S. Department of Defense
Honorable D. Allan Bromley
Assistant to the President for
Dr. John A. Armstrong
Science and Technology Policy
Vice President for Science
Executive Office of the President
and Technology
IBM Corporation
Dr. Robert O. Hunter, Jr.
Director
Norman R. Augustine
Office of Energy Research
Chairman and CEO
U.S. Department of Energy
Martin Marietta Corporation
Honorable Thomas J. Murrin
Robert W. Galvin
Deputy Secretary
Chairman of the Board
U.S. Department of Commerce
Motorola, Inc.
Jerry R. Junkins
Chairman, President and CEO
Texas Instruments
* Participated in beginning phase
James C. Morgan
of NACS activities.
Chairman and CEO
Applied Materials, Inc.
Charles E. Sporck
President and CEO
National Semiconductor
Corporation
James G. Treybig
President and CEO
Tandem Computers, Inc.
CONTRIBUTING STAFF
Coordinating Director
Michael B. Marks
Office of Science and Technology Policy
David Beecham
Liaison
Office of Science and Technology Policy
Barbara Diering
Administrative Support
Editor
Joseph Foote
Research and Integration
Michael Borrus
David A. Longfellow
William W. Troutman
Economic Analysis
Robert B. Cohen
Legislative Analysis
W. Clark McFadden II
NACS PROJECT MANAGEMENT STAFF
Program Manager
Sammy R. Smith
Deputy Program Manager
Hazel B. Houston
Analyst
Brian A. Morsch
Office Manager
Debra L. Brewer
AD HOC MARKET WORKING GROUP
Chairman:
Charles E. Sporck
Michael B. Marks
President and CEO
Vice President Corporate Development
National Semiconductor Corporation
Science Applications International
Corporation
Norman R. Augustine
Chairman and CEO
Timothy Richards
Martin Marietta Corporation
Director, Information Industry Trade Policy
Office of U.S. Trade Representative
Dr. William R. Bandy
Executive Director
Larry Sumney
National Advisory Committee on
President
Semiconductors
Semiconductor Research Corporation
Michael Borrus
Jack Tramiel
Berkeley Roundtable on the International
Chairman of the Board
Economy
Atari Corporation
University of California
James G. Treybig
Dr. Robert B. Cohen
President and CEO
Visiting Scholar
Tandem Computer
Economic Policy Institute
Dr. Albert R. C. Westwood
Warren Davis
Vice President Research and Development
Vice President
Martin Marietta Corporation
Semiconductor Industry of America
John Zysman
Dr. Craig Fields
Berkeley Roundtable on the International
Director
Economy
Defense Advanced Research
University of California
Projects Agency
U.S. Department of Defense
Fred W. Horne
Vice President Corporate Strategic
Development
National Semiconductor Corporation
James McGroddy
Assistant General Manager Technology
Products
IBM Corporation
AD HOC ENVIRONMENT WORKING GROUP
Chairman:
Jerry R. Junkins, Board Chairman,
Emmett J. Murtha
President and CEO
Director of Licensing
Texas Instruments, Inc.
IBM Corporation
Dr. David Beecham
James H. Peterman
Industry Relations Director
Vice President, Semiconductor Group
AT&T Microelectronics
Manager Industry Affairs
Texas Instruments, Inc.
Vladimiro Catto
Vice President Corporate Staff
Marshall C. Phelps, Jr.
Texas Instruments, Inc.
Director Governmental Programs
IBM Corporation
Robert W. Galvin
Chairman of the Board
Dr. Perry D. Quick
Motorola, Inc.
Quick, Finan, & Associates, Inc.
James P. Gradoville
Robert A. Wagner
Manager International Trade Program
Vice President Corporate Staff
Motorola, Inc.
Manager Strategic Venture Projects
Texas Instruments, Inc.
AD HOC TECHNOLOGY WORKING GROUP
Chairman:
Dr. John A. Armstrong
Dr. Frank L. Huband , Director
Vice President for Science and Technology
Division of Electrical, Communications and
IBM Corporation
Systems Engineering
National Science Foundation
Dr. Michael J. Attardo
Vice President and President, General
Dr. Robert O. Hunter,
Technology Division
Director
IBM Corporation
Office of Energy Research
U.S. Department of Energy
Dr. William R. Bandy
Executive Director
Dr. James D. Meindl
National Advisory Committee on
Senior Vice President of Academic Affairs
Semiconductors
and Provost
Rensselaer Polytechnic Institute
Dr. Robert M. Burger
Vice President Research
James C. Morgan
Chairman and CEO
Semiconductor Research Corporation
Applied Materials, Inc.
Irwin Carroll
Director, Joint Development Programs
Dr. David B. Nelson
Applied Materials, Inc.
Executive Director
Office of Energy Research
Dr. James F. Decker
U.S. Department of Energy
Director of Energy Research
U.S. Department of Energy
BIBLIOGRAPHY
1. Jeanne Alford, Meeting the Global Challenge: Advanced Electronics Technology and the
American Semiconductor Industry, Semiconductor Industry Association, Cupertino, California,
1989
2. Norman R. Augustine, Chair, Report of the Defense Science Board Task Force on Defense
Semiconductor Dependency, Department of Defense, Washington, D.C., February, 1987
3. Michael G. Borrus, Competing for America's Stake in Microelectronics Control, Ballinger
Publishing Company, Cambridge, Massachusetts, 1988
4. W. Dale Compton and George E. Solomon, Cochairs, The Technological Dimensions of
International Competitiveness, National Academy of Engineering, Washington, D.C., 1988
5. Robert B. Costello, Bolstering Defense Industrial Competitiveness, Report to the Secretary of
Defense by the Under Secretary of Defense (Acquisition), Washington, D.C., July 1987
6. Robert B. Costello, Enhancing Defense Standardization, Report to the Secretary of Defense by
the Under Secretary of Defense (Acquisition), Washington, D.C., November 1988
7. Edward E. David, Chair, Report of the White House Science Council Panel on
Semiconductors, Office of Science and Technology Policy, Executive Office of the President,
Washington, D.C., 1987
8. Charles H. Herz, Chair, The Semiconductor Industry, Report of a Federal Interagency Staff
Working Group, National Science Foundation, Washington, D.C., 1987
9. William C. Hittinger, Chair, Foreign Production of Electronics Components and Army System
Vulnerabilities, National Academy Press, Washington, D.C., 1986
10. David Packard, Chair, A Quest for Excellence, Final Report to the President by the Blue
Ribbon Commission on Defense Management, Washington, D.C., June 1986
11. Clyde V. Prestowitz, Trading Places, Basic Books, Inc., New York, New York, 1988
12. David Russell, Chair, High Definition Television (HDTV): Economic Analysis of Impact,
American Electronics Association, Washington, D.C., 1988
13. David H. Staelin, Chair, The Decline of U.S. Consumer Electronics Manufacturing: History,
Hypotheses, and Remedies, Consumer Electronics Sector Working Group MIT Commission on
Industrial Productivity, Massachusetts Institute of Technology, Boston, Massachusetts, 1988
14. Sidney Topal, Consumer Electronics, HDTV, and the Competitiveness of the U.S. Economy,
Electronics Industry Association, Washington, D.C., 1989
15. John A. Young, Chair, Picking up the Pace: The Commercial Challenge to American
Innovation, Council on Competitiveness, Washington, D.C., September 1988
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