The High Tech Brawl Over Free Trade

President Bush loves the idea of linking the economies of the U.S., Mexico, and Canada into a North American free-trade zone. And he detests the notion of the government picking winners and losers among industries. But to the White House's dismay, the two concepts are becoming inextricably linked as free-trade negotiations teeter toward conclusion.

The White House is now being asked to settle a dispute between big U.S. computer companies and the struggling American manufacturers of flat-panel displays for laptop computers--the hottest segment of the market. Computer makers want the pact to guarantee their freedom to assemble machines in Mexico and then import them to the U.S. duty-free. Fine, say the display makers, just as long as the finished machines contain enough North American parts. But if the Mexicans build computers almost entirely out of components that originated in Asia, the screenmakers contend, their industry--and ultimately all U.S. computer making--will be imperiled.

SNIPING. The Treasury and Commerce Depts. have taken up the U.S. screen industry's cause, even though, White House sources say, Chief Economist Michael J. Boskin has been warning of a "politically and economically foolish attempt at industrial policy." The result: sniping among Administration officials and confusion at the negotiating table. Meanwhile, computer companies such as IBM, Apple, and Hewlett-Packard, once staunch backers of a free-trade pact, are threatening to withdraw support.

But others see an inexorable hollowing of the U.S. computer industry. "U.S. computer makers can't become competitive by depending on their competitors--they are going to fly their plane right into the ground before they realize this," warns James M. Hurd, president of tiny Planar Systems Inc., a domestic screen manufacturer.

In fact, U.S. computer giants already have largely rejected American screenmakers' lagging technology in favor of that produced by sophisticated Japanese suppliers. IBM joined Toshiba in a 50-50 venture to make laptop screens in Japan. Compaq Computer, Dell, and AST Research are relying on Sharp's flat-panel screens. And Apple Computer is buying from Hosiden Electronics. That U.S. computer makers would trust their future to powerful, fiercely competitive electronics companies in Japan strikes more than a few observers as imprudent. "You'd think that U.S. systems makers would want to foster a domestic infrastructure to support productivity and innovation and have independent sources of supply," reasons Eric I. Garfinkel, a former Assistant Commerce Secretary.

Only the Japanese can supply the next generation of color, high-resolution screens, reply U.S. computer makers. Japanese companies invested $2 billion in research and development during 1991 to perfect the devilishly complex process of making active-matrix liquid-crystal displays. Besides, the computer makers point out, they are already required to pay a 62% duty on the import of such screens, although they can avoid the duty by building their computers abroad. Furthermore, "the purpose of the free-trade agreement ought to be to liberalize trade, not to erect new barriers," argues Richard Lehman, IBM's director on trade and investment.

TIME LIMIT. So far, no one is backing down. Computer makers threaten to withdraw support for the free-trade agreement, saying the rules protecting U.S. jobs are too stringent. That would only win votes among legislators worried that the pact isn't tough enough, some in the Administration figure. If the industry withdraws support, "I'll call a press conference for them, I'll hand out their press releases," promises a senior Administration trade official.

Time may be running out for the U.S. screenmakers. Sophis-ticated displays appear promi-nently on everyone's top-10 list of "critical technologies" for the future. But American computer manufacturers say they can't afford to wait for the U.S. industry to catch up. American screenmakers complain that they don't have enough orders to justify the huge investment required to step up output. And the Administration is moving like a glacier. Investment by Commerce and Defense in flat-panel technology is measured in tens of millions, while the cost of building a single plant to build active-matrix liquid-crystal displays runs from $200 million to $400 million.

Even trade officials agree that the free-trade talks are a clumsy way to settle a technology-policy dispute. But the effort may nevertheless prove worth the troubleif only the White House learns something about the potential and the rationale for government help in high-technology research and development.

So far, it has mostly been Congress earmarking what little funds are available for favored screenmaking projects. Many have now come to believe that itis past time for the White House to cast aside its priggish standards about the role of government in the economy and consider why it has been compiling all those critical technology lists in thefirst place.

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