May 1983

The recent controversies over trade sanctions and export controls have focused attention on the Export Administration Act, whose renewal is now before Congress. Technology and East-West Trade: An Update, discusses a range of legislative proposals in terms of four key policy perspectives:

• national security: making Soviet acquisition of militarily relevant Western technology as difficult and costly as possible;

• foreign policy: safeguarding the President's flexibility in using export controls to advance U.S. foreign policy interests;

• efficiency: making the licensing system more predictable, consistent, and efficient to enable U.S. exporters to plan ahead and to increase compliance; and

• trade promotion: reducing trade restrictions, especially foreign policy controls.

Some of these views are mutually compatible. For example, it is perfectly possible to strengthen national security controls while promoting flexibility in foreign policy controls. Some combinations, however, are inherently in conflict. The conflict between national security and export promotion is obvious, but there are others. For example, the very existence of foreign policy controls over exports introduces an element of unpredictability into export licensing, which works against both efficiency and trade promotion. The tables on the reverse summarize the policy perspectives and legislative options.

The perceived importance of national security controls has risen, as evidence has accumulated that the Soviets have a coordinated and effective program to obtain and exploit Western technology for military purposes. Soviet efforts include both legal and illegal transfers. More effective administration and enforcement of existing controls may be more productive than controlling additional items or categories.

pact on West-West trade, which far exceeds East-West trade in importance to the United States.

The embargoes on grain and oil and gas technology dramatically illustrate the difficulties of a policy of trade leverage against the Soviet Union. The sanctions did hurt vulnerable sectors of the Soviet economy, but probably not enough to make a real economic difference. In fact, although such calculations are highly uncertain, the sanctions may have done more damage to the U.S. economy than the Soviet economy. Nor did they change Soviet behavior. The Soviet Union may even have benefited from the public display of Western disunity following the imposition of the pipeline sanctions, which were applied to preexisting contracts of U.S. subsidiaries and licensees based overseas.

While U.S. trade with the U.S.S.R. is small and likely to remain so, it is important for particular sectors (e.g., grain) and firms (e.g., Caterpillar). Retroactive and extraterritorial controls may have an adverse im

Moreover, tight U.S. export controls require the cooperation of our Allies to have a real effect on the U.S.S.R. Allied cooperation works reasonably well only where there is agreement on what should be controlled. Despite their agreement to conduct policy studies on East-West trade, there is little evidence that the West European countries and Japan will endorse the Reagan administration's position. Their future trade relations with the U.S.S.R. will be shaped more by their own domestic imperatives and worldwide economic forces than by U.S. concerns.

Although the principal issues remain much the same. the stakes in East-West trade have escalated since 1979, when Congress passed the Export Administration Act. Congress was unwilling then to make consistent choices between the goals of national security and export promotion. The result was ambiguous legislation, which has allowed Presidents Carter and Reagan to pursue their own policies, in each case giving foreign policy considerations priority over U.S. export trade. This report is an update of a more comprehensive OTA report published in 1979.

Copies of the OTA report, "Technology and East-West Trade: An Update," are available from the U.S. Government Printing Office. The GPO stock number is 052-003-00908-1: the price is $4.75. Copies of the report for congressional use are available by calling 4-8996.

For many years to come, energy need not constrain economic growth in the United States. OTA projects that over the next two decades, investments in new manufacturing processes, a shift to less energy-intensive products, and technical innovation will lead to substantially increased energy efficiency. At the same time, these improvements will increase industrial profitability and competitiveness. As a result, OTA projects that the rate of industrial production can grow considerably faster than the rate of energy use needed for that production.

Corporate investment decisionmaking appears to recognize this link between productivity and energy efficiency. All corporate projects are evaluated in terms of product demand, competition, cost of capital, cost of labor, energy and materials, and Government policy. Energy-related projects are only part of an overall strategy to improve profitability and enhance a corporation's competitive position. OTA has found that corporate capital projects directed solely at improving energy efficiency are not given special status, although energy cost is an important consideration in investment decisions.

OIA examined the four most energy-intensive industries in the U.S. manufacturing sector: paper, petroleum refining, chemicals, and steel. Historical energy use was analyzed, new technologies identified that could improve energy efficiency, and future energy demand projected. In the paper industry, energy use has risen slightly since 1972, but the industry is now more energy self-sufficient. In 1981, the pulp and paper industry generated half of its energy needs from wood residues.

From now through 2000, projections for the petroleum refining industry show a decline in product output, but continued improvement in energy efficiency, although only slightly. Efficiency gains will be offset by a shift to high-sulfur, heavier crude oil feedstock, and a need for additional processing of raw materials to meet market demand for high-octane, unleaded gasoline.

Projections for the chemicals industry indicate an increase in energy efficiency through a combination of technological improvements to existing process equipment, technical innovation in developing new processes, and a shift from commodity chemicals, such as chlorine, to less energy-intensive specialty chemicals, such as pharmaceuticals.

June 1983

Industrial Energy Use

As the steel industry rebuilds to meet foreign competition, production will grow slowly, and will show a large reduction in energy intensity due to greater use of two new processes: the replacement of ingot casting by continuous casting, and the substitution of electric arc furnaces for the blast furnace/basic oxygen furnace combination of traditional steelmaking.

OTA examined four policy options for their effects on industrial energy use. Two options were directed specifically at energy conservation investments, while the remaining two were aimed at stimulating all investment.

OTA's findings suggest that the most effective Government policies to promote the efficient use of energy are not those specifically targeted to energy use, but those that improve the economic outlook and investment climate by lowering interest rates and expanding demand for goods and services. Specifically, OTA concludes that:

• Reduction in capital costs would be the most effective means of stimulating investments that increase energy efficiency. It would also enhance the effect of the recently enacted accelerated cost recovery system (ACRS).

• ACRS depreciation is a positive stimulus to investment, and thus to energy conservation. But, this effect is only significant when industry is profitable and growing.

• Energy investment tax credits at a 10-percent level have little direct influence on capital allocation decisions in large American firms, and thus have little or no effect on energy conservation. However, energy investment tax credits aimed at thirdparty financing of energy production, such as cogeneration of steam and electricity, would be effective.

• A tax on premium fuels would stimulate investment in energy-efficient processes and products but would also have negative effects. For example, a premium fuels tax would increase the chemicals industry's vulnerability to foreign competition and adversely affect product sales of the petroleum refining industry.

Copies of the full OTA report, "Industrial Energy Use," are available from the U.S. Government Printing Office. The GPO stock number is 052-003-00915-3; the price is $6.00. Copies of the report for congressional use are available by calling 4-8996. Summaries of the report are available at no charge from the Office of Technology Assessment.

August 1983

The United States could greatly expand its role in world forest products trade over the next decade and become a net exporter of solid wood and paper products before 1990. For the past 30 years, the United States typically has imported more forest products than it has exported. However, because exports have grown faster than imports, the trade deficit has narrowed. This trend is likely to continue.

Global demand for a wide range of forest products is growing rapidly, and the best trade opportunities for U.S. producers appear to be in the paper markets of other industrialized nations, particularly Western Europe and Japan. In contrast to many basic U.S. industries, the forest products industry has distinct advantages over its foreign competitors. It is the most productive and among the most efficient in the world, benefiting from a vast and highly productive domestic forest resource.

To capitalize on international trade opportunities, the forest products industry and the Federal Government probably will have to make concerted efforts to promote exports. Although responsibility for developing foreign markets rests primarily with the private sector, Government action could assist in overcoming trade barriers which currently inhibit the competitiveness of U.S. wood products in foreign markets.

Past Government and private sector concerns regarding a possible domestic timber shortfall no longer seem justified. Future timber needs, especially for housing but also for other products, probably have been overestimated. The effects of intensive timber management and the ability of wood utilization technology to stretch the wood resource, have probably been underestimated.

If current trends toward more intensive forest management continue, domestic needs for wood probably can be met without dramatic price increases. To achieve the full economic potential of U.S. forestlands, however, some changes in policy would be needed, as would an estimated investment of $10 billion to $15 billion in intensive timber management over the next 35 to 50 years.

Although both the Government and private sectors are now investing in intensive timber management, it is unlikely that current trends would lead to full utilization of U.S. forests. Although the Federal Government does provide financial and technical assistance to nonindustrial private landowners, who own nearly 60 percent of the Nation's commercial timberland, this as

sistance is often limited by budget constraints and is not necessarily targeted to lands most capable of providing increased timber supplies. Greater emphasis on small-scale forestry research, technical assistance, education, and information programs, combined with more accurate channeling of such assistance to the most suitable recipients, could stimulate private forest productivity.

Under the guidance of the National Forest Management Act of 1976, the U.S. Forest Service periodically prepares programs for and assessments of the Nation's renewable resources. These programs, however, provide little analysis of policies and programs not administered specifically by the U.S. Forest Service, although there are many Federal, State, and local agencies which influence timber supply from public and private lands. The need for increased investments in forest productivity and research and development will be easier to establish with national timber production goals to serve as a guide.

Formulation of forest policy requires up-to-date information about forest acreage, inventories, and growth trends, and realistic assumptions about future demands for forest products. Improvements in the current system for estimating prospective timber supplies and demands are needed if decisionmakers are to have adequate information for design and funding of timber management programs, private landowner assistance, and research needs.

Existing and emerging technologies enable a broad range of wood products to be manufactured from currently underutilized hardwood species and from waste wood material. Expanded research in basic wood chemistry and engineering properties, and research on utilization of hardwoods and waste wood, could increase wood's long-term competitive position relative to other materials, as well as the competitiveness of the U.S. forest products industry. Increased research on hardwood and waste wood utilization could also extend U.S. wood supplies.

Commercial timber production is only one of the many uses for U.S. forestland. Broad-scale intensive forest management may result in increased soil loss, altered wildlife habitat, reduced water quality, and lower soil productivity. The environmental impacts of intensive forestry are not well understood, and further research on its effects will be needed if the practice becomes more widespread.

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