DOCUMENT RESUME

05429 - BC835819] J Fo kt

U.S. Statistics on International Technology Tra fer: Need forAdditional Measures. ID-78-24; 8-191298. arch 27, 1978.Released March 30, 1978. 4 pp. 4 appendices (9 pp.).

Report to Rep. Clemant J. Zablocki, Chairman, ouse Committee onInternational Relations: International Security and ScientificAffairs Subcommittee; by Elmer B. Staats, Comptroller General.

Issue rea: International Economic and ilitary Programs: U.S.Comparative Advantage in Trade and Technology (08).

Contact: International Div.Budget Function: International Affairs: Foreign Economic and

Financial Assistance (151).Organization Concerned; Department of Commerce.Congressional Relevance: House Committee on International

Relations: International Security and Scientific AffairsSutcommittee. Rep. Clement J. Zablocki.

The United States measures technology transfers throughannual statistics on payments and receipts from royalty andlicensing fees. Because payments arising frcm a single licensingagreement typically continue f a number of years, the paymentsand receipts in any one year reflect not only agreementsinitiated in that year but compensation paid on technologytransferred in earlier years. Payments currently received arebased cn early years in which the United States had a largetechnology lead, and their magnitude ay obscure current trends.Findings/Conclusions: Statistics of technology transfer on ayear-of-origin basis are an essential tocl for policy analysisof uch factors as ep]oyment consequences and internationalcompetitive posiion. Staistics by year of origin would alsohelp in undertaading to what extent U.S. firms are takingadvantage f technology eveloped by others. The Department ofCommerce objected to previous GAO proposals that it collect dataon licensing and royalty fees in a manner which identifiesyearly transfers, stating that it involved too uch paperwork.The additional paperwork appears to be minor and should beweighed against benefits. Even if year-of-origin data wereattained, knowledge of technology transfer would be limitedbedause of the inadequacy of money payments as a measure. Japannot only represents technology payments in cumulative andfear-of-origin forms but has published quarterly and annuallistings of all transfer agreements. The U.S. teatmert of suchagreements as "business confidential" information may be open toquestion. Recomaendations: The Secretary of Commerce shouldcompile statistics of international transfer of technology on ayear-of-origin basis in addition to the current cu.ulative form.(HTW)

RESTRICTED _- a ! '-:r ,- L tr ;d the General

AcpOunting Office exe pt 0 t.e basis of spOcific approval

REPORT BY THE

Comptroller GeneralOF THE UNITED STATES

U.S. Statistics On InternationalTechnology Transfer--Need ForAdditional Measures

Present U.S. statistics show cumulative pay-ments and receipts, but statistics showingyear-of-origin payments and receipts, addi-tional to the cumulative, are necessary forpolicy analysis.

This report was requested by the Chairmanof the Subcommittee (cn International Secu-rity and Scientific Affairs of the Committeeon International Relations, House of Repre-sentatives.

ID-78-24MARCH 27, 1978

COMPTROLLER GENERAL OF THE UNITED STATESWASHINGTON. D.C. Zo8

B-191298

The Honorable Clement J. ZablockiChairman, Subcommittee on International

Security and Scientific AffairsCommittee on International RelationsHouse of Representatives

Dear Mr. Chairman:

This is in reply to your letter of December 29, 1977,requesting a report on work the General Accounting Officehas done which describes the way the United States, Japan,and Germany measure international technology transfers.

Currently, the United States measures technologytransfers through annual statistics on payments anc receiptsfrom royalty and licensing fees. Because payments arisingfrom a single licensing agreement typically continue fora number of years (on average, 10 years) the payments andreceipts for royalty and licensing fees in any one year re-flect not only agreements newly initiated in that year butalso compensation pid on technology transferred in earlieryears. In effect, the annual figures become 10-year movingtotals. Inasmuch as the United States in earlier years hada tremendous technology lead over other nations, payments itcurrently receives from earlier transfer are exceptionallylarge. They are so large, in fact, as to lead one to be-lieve they may obscure current trends.

Indicative of the scale of the difference that can arisebetween cumulative statistics and year-of-origin statisticsis th'e record in Japan. On the basis of cumulative statis-tics, Japan is nearly the opposite of the United States. In1971, Japan was an 8-fold net importer of technology, whereasthe United States was a 10-fold net exporter. However, in1972 Japan began compiling its technology transfer statisticson a year-of-origin basis as well as the cumulative basis.The year-of-origin statistics showed that Japan became anr. ::--ter in 1973.

Statistics of technology transfer on a year-of-originbasis are an essential tool for policy analysis. With theCongress considering additional controls over the export of

B-191298

technology, we believe policy considerations make it essen-tial to know whether actual inflow and outflow presentlyapproximate the cumulative statistics or whether the statis-tics on a current basis are sharply in contrast. If currentinflow approximates outflow, one might broadly presume thatthe employment consequences of outflow might be approximatelybalanced by the employment gains from inflows and, further,that the disadvantages and advantages in international com-petitiveness might be roughly balanced.

Statistics of technology transfer by year of originwould also help policymakers understand the extent to whichU.S. firms are taking advantage of the technology developedby others. When a nation such as the United States has beenfar ahead for many years, it is easy to develop a "not in-vented here" syndrome and cease to be as alert to whatothers are doing as they are of U.S. developments. Suchan attitude becomes increasingly troublesome in view ofstrong indicators of sharply rising foreign technologicalbreakthroughs. The increasing number f U.S. patentsawarded to Japan constitutes the major element in therising proportion of U.S. patents awarded to foreigners.(See app. I.)

In 1976 and again in 1977 GAO proposed that the Depart-ment of Commerce collect data on licensing and royalty feesin a manner which identifies yearly transfers while continu-ing, of course, to present the cumulative information.(See app. II.) The Department in both instances informallyadvised us that it objected on the basis that additionalpaperwork woald be required. Nevertheless, we continue tobelieve that the additioral paperwork should be measuredagainst the benefits. We recommend that the Secretary ofCommerce compile statistics of international transfer oftechnology on a year-of-origin basis in addition to thecumulative form in which such statistics are currentlypublished.

It would appear to us that the additional paperworkwould be minor considering that the Department gets itsdata for cumulative statistics from corporations andindividuals with investments in foreign affiliates orreceipts and payments from foreign sources above a givendollar amount. Data on current transfers would beobtained from the same corporations, which would seem toinvolve only an additional entry on forms currently in use.

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B-191298

The Department goes o great length to distinguishtransfers of technology between Pffiliated and unaffiliatedcorporations. However, for econcmic analysis, it is farmore important in our judgmen to disti uish between year-of-origin changes and what is, in effect, a 10-year "movingtotal."

It must be pointed out that, even if year-of-origindata were to be attained, our knowledge as to what is happen-ing in technology transfer would still be limited. This isbecause money payments, although the best overall measur'.,are not an adequate measure. Pricing of technology is dif-ficult for a number of reasons. Normally, technology is pro-duced for a firm's own use rather than for sale. Since thesale is something of a by-product, how to charge for it isa question. (It is now thought that much of U.S. licensingto Japan in the 1950s and early 1960s was underpriced.)Further, technology is likely to be a unique product, andunique products are more difficult to price than substitutableones.

Additionally, payments do not fully reflect technologytransferreS becau e when transfers occur between affiliatedcorporat>ns there is opportunity to adjust prices to enhanceafter-tax returns of whichever is to be the favored corpora-tion, usually the parent company. Cross-licensing arrange-ments, which typically do not involve licensing fees, are notincluded in such figures. However, when the concern isbalance between outflow and inflow, crosslicensing is not adifficulty, for ordinarily it is entered into only when twofirms believe they have comparable amounts to gain from shar-ing with one another.

Japan not only represents technology payments incumulative and yrar-of-origin forms, but also until recentlyhas published, on a quarLerly and annual basis, listings ofall transfer agreements giving the name of the licensor,licensee, and country and brief description of the technologytransferred. The United States treats specific technologyagreements as "business confidential" information, underno circumstances to be revealed to the public. If Americancorporations have been able to live with supplying suchinformation to the Japanese Government for publication,one cannot help wondering if the consequences of revealingsuch information to the American Government for publicationwould be as dire as typically believed.

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B-191298

The Japanese Government summarizes such individualcorporate data annually, showing the number of agreementsenterod into by country and by product lines. (See app.III for information for 1950-67.) As is apparent, the unitof information for such material is the individual con-tracts. The United States presents its data more broadly,especially with respect to payments. Receipts are shown bydollar value for "petroleum," "trade," and three broadclasses of manufacturing. Payments are shown by dollarvalue for only two categories, "manufacturing" and "other."(For the U.S. style of presentation of these statistics, seeapp. IV.)

Awareness of individual agreements and .O:blgationsof them by product lines enhances understand: of trans-fer movements. To know what is really happening in thisfield, however, requires persons with such intimate knowl-edge of the particular industry as to be able to assess thesignificance of individual agreements. Such (3ntracts coveritems not only of immec:ate importance but also ongoing im-portance, such as, for example, the transistor. Otherscover technology that has only temporary significance. As-sessment of technology transferred can be done only byhighly trained industrial engineers, economists, and market-ing experts. It is necessarily judgmental, and to date suchassessments have been attempted only occasionally and forparticular products. They have not been prepared on aregular, ongoing basis.

You also requested any information we might have alreadydeveloped on German statistical measures of technology trans-fer. Unfortunately, we have not developed any such informa-tion in our work and can, therefore, not be responsive inthis area.

As arranged with your office, unless you publiclyannounce its contents earlier, we plan no further distribu-tion of this report until 3 days from the date of the report.At that time we will send copies to interested parties andmake copies available to others upon request.

SicL y yours

Comptroller Generalof the United States

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APPENDIX I APPENDIX I

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"COPY"

UNITED STATES GENERAL ACCOUNTING OFFICEWASHINGTON, D.C. 20548

INTORNATIONAL DIVISION JUL 16 1976

The HonorableThe Secretary of Commerce

Attention: Dr. John W. KendrickChief Economist

Dear Mr. Secretary:

I am writing you with respect to the way the U.S.Government compiles its statistics on technology transfer.Currently, such statistics appear only in balance-of-paymentform which means that we do not distinguish between paymentsfor technology currently transferred and technology trans-ferred in earlier years but on which payments are continuingto be made. The cumulative figures appear to make the UnitedStates a major net exporter. Statistics for recent yearsshow payment for export of technology some 10 times paymentfor import of technology.

We believe for public policy purposes, both in theCongress as well as in the Executive Branch, there would beadvantage in knowing the current U.S. situation as well asthe cumulative. Possible policy formulations could be quitedifferent depending upon whether the United States is cur-rently a net exporter or net importer of technology.

Although no one has yet developed a precise measure ofthe impact of technological developments on the economy, weknow enough to be confident that technology makes a majorcontribution to economic performance. Certainly observersare unanimous in the case of postwar Japan that technologi-cal advances--in major part through transfer--represent abasic factor in Japan's brilliant postwar economic per-formance.

Beginning in 1972, Japan has published its statisticsof technology transfer on a current basis as well as cumula-tively and the results are strikingly different. On theusual balance-of-payment basis, Japan is an 8-fold net im-porter. On a current basis, Japan in 1973 became a netexporter. Receipts were 1.26 payments.

2

APPENDIX II APPENDIX II

We hope you share these views on the importance ofknowing current as well as cumulative trends, and that U.S.sta' tics on technology transfer which the Bureau ofEc Ic Analysis compiles can be expanded to show suchini ation. W- would be pleased to discuss the matterwith you or your staff if you should so desire. Shouldyou have any questions, please contact Eleanor M. Hadley,Assistant Director, on 275-5889.

Sincerely yours,

J. K. Fasick~¢ Director

3

APPENDIX II APPENDIX II

"COPY"

UNITED STATES GENEFAL ACCOUNTING OFFICEWASHiNMI AD.C.C 20548

iTERNATIONAL DIVISION JUN 27 1977

The HonorableThe Secretary of Commerce

Attention: Dr. Courtenay M. SlaterChief Economist

Dear Madame Secretary:

I am writing you with respect to the way the U.S.Government compiles its statistics on technology transfer.Currently, such statistics appear only in balance-of-paymentform which means that we do not distinguish between paymentsfor technology currently transferred and technology trans-ferred in earlier years but on which payments are continuingto be made. The cumulative figures appear to make the UnitedStates a major net exporter. Statistics for recent yearsshow payment for export of technology some 10 times paymentfor import of technology.

We believe for public policy purposes, both in theCongress as well as in the Executive Branch, there would beadvantage in knowing the current U.S. situation as well asthe cumulative. Possible policy formulations could be quitedifferent depending upon whether the United States is cur-rently a net exporter or net importer of technology.

Although no one has yet developed a precise measure ofthe impact of technological developments on the economy, weknow enough to be confident that technology makes a majorcontribution to economic performance. Certainly observesare unanimous in the case of postwar Japan that technologi-cal advances--in major part through transfer--represent abasic factor in Japan's brilliant postwar economic per-formance.

Beginning in 1972, Japan has published its statisticsof technology transfer on a current basis as well as cumula-tively and the results are strikingly different. On theusual balance-of-payment basis, Japan is an 8-fold net im-porter. On a current basis, Japan in 1973 became a netexporter. Receipts were 1.26 payments.

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APPENDIX II APPENDIX II

We hope you share these views on the importance ofknowing current as well as cumulative trends, and thatU.S. statistics on technology transfer which the Bureau ofEconomic Analysis compiles can be expanded to show such in-formation.

We submitted this proposal to your predecessor withoutsuccess. However, as growing interest on the Hill and cur-rent items in the news indicates, it becomes of increasingimportance that we know what the facts are. The paperworkargument does not seem convincing. What we re suggestingcould be accomplished by one extra space on the forms firmsare currently obliged to submit.

We would be pleased to discuss the matter with you oryour staff if you should so desire. Should you have anyquestions, please contact Eleanor Hadley, Assistant Director,on 377-5550.

Sincerely yours,

· FasickDirector

5

APPENDIX III APPENDIX III

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APPENDIX IV APPENDIX V

DIRECT INVESTMENT PAYMENTS OFFEES AND ROYALTIES, 1974-76

(Millions of dollars)

1974 1975 1976

All areas -- 160 287 274Manufacturing-------------- 200 217 209Other---------------------- -40 70 65

Canada -------------------------- 46 139 135Manufacturing------------------ 1 40 36Other -------------------------- 45 99 99

Europe--------------------------- 174 159 150Manufacturing------------------ 198 166 167Other-------------------------- -24 -7 -17

United Kingdom----------------- 17 26 3Manufacturing---------------- 17 13 8Other------------------------ (*) 14 -5

Switzerland-------------------- 154 115 129Manufacturing ------------ 158 116 130Other------------------------ -4 -1 -1

Other Europe------------------- 3 18 18Manufacturing---------------- 23 38 30Other------ --------------- -20 -20 -12

Japan---------------------------- -47 -26 -36Manufacturing------------------ (*) 8 4Other--------------- --------- -47 -33 -40

Other------ -------------------- -13 14 25Manufacturing------------------ 1 3 2Other-------------------------- -14 11 23

*Less than $500,000 (+).

Source: "Survey of Current Business," Oct. 1977.

(990516)

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