The Clintonites' New Quagmire: Subsidies For High Tech

In contrast to the Administration's foreign and domestic policy stumbles, President Clinton's technology policy is a hit with most business leaders. The White House has impressed them with an ambitious set of research and development subsidies aimed at boosting industrial competitiveness. Initiatives range from developing superefficient clean-burning cars to jump-starting the U.S. flat-panel industry, and more is on the way. The Administration wants to spur innovation in the hidebound construction industry and aid development of "green" technologies.

But now, even this bright light could flicker because of a tough dilemma: How to ensure that subsidies benefit Americans, not their chief economic rivals, Europe and Japan. For example, should Uncle Sam help U.S.-based companies develop products that might be manufactured overseas? And does it make sense to support R&D of foreign companies with U.S. plants? "It's a burning issue that comes up in every one of our technology programs," says a White House science official. A bad decision could lose Clinton his high-tech supporters--and cost business the global markets the policy is supposed to snare.

OVERREACHING? The issue is coming to a head, with Congress the battleground. The House and Senate have passed different versions of the National Competitiveness Act, which authorizes $1.9 billion for technology support, including a doubling for the Commerce Dept.'s Advanced Technology Program, to $400 million. The bills differ in how they protect U.S. interests. The Senate simply requires that the "principal economic benefits accrue to the U.S." But a more restrictive House measure, promoted by Energy & Commerce Committee Chairman John D. Dingell (D-Mich.), demands that most products developed with federal aid be produced in the U.S.

Executives complain that the House version is rigid and overreaches by using high-tech handouts to correct trade abuses: One provision bars U.S. subsidiaries of foreign companies from Uncle Sam's largesse if the parent countries have closed procedures for setting technical standards, a common ploy to favor native manufacturers. Not only would that cost the U.S. jobs, fumes IBM policy spokesman Mark Holcomb, "but we run the risk of retaliation." Holcomb fears companies would lose more from being kicked out of European technology subsidy programs than they'd gain from participating in Clinton's projects.

Indeed, the Dingell-backed amendment could sour much of U.S. industry on its high-tech venture with government. "If it stays in, we will oppose the whole bill," warns William G. Morin, tech-policy chief of the National Association of Manufacturers.

Not surprisingly, the Administration wants Dingell to back off. But Clinton dares not push too hard for fear of losing the powerful chairman's support for health-care reform. And so far, Dingell vows to stand firm. He has been on the warpath ever since the U.S. Advanced Battery Consortium, a government-business partnership, awarded $38.1 million to the U.S. subsidiary of a French company. Now, he insists that limiting participation in federal technology programs to true-blue American companies is nothing short of a patriotic duty.

The debate over how to define U.S. interests should be settled this summer as House and Senate conferees hash out differences between their bills. But the underlying issue won't go away. The Administration's top economic and technology hands are still searching for a solution that satisfies U.S. companies, Congress, foreign rivals, and American taxpayers. If they don't find one, the President's technology plan could alienate the very industries it's trying to advance.

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