By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
REP. MARTIN OLAV Sabo (D-Minn.) is helping mount a push to stop the U.S. government from buying a Japanese supercomputer rather than one built by Minnesota-based Cray Research Inc. And while this bit of homespun protectionism may play well in Eagan, where Cray headquarters are located, there's a looming problem: The effort by Sabo and others apparently violates a trade pact signed by the United States and Japan in 1990.
The developing dispute stems from the National Science Foundation's decision to spend $35 million on a new supercomputer built by a Japanese manufacturer, NEC Inc. In so doing the NSF turned its back on Cray; moreover, with at least nine contracts--worth hundreds of millions of dollars in supercomputer sales--coming up for bid around the world this year, industry analysts and observers are beginning to voice concern that the tactics being advanced in Congress on behalf of an American manufacturer could subject U.S. companies to a backlash in the world market.
Cray officials maintain that the Japanese company's winning bid constitutes "dumping"--selling the computer at a loss in order to gain a foothold in the potentially lucrative American market. Cray Director of Market Research and Competitive Analysis Earl Joseph, who says his company has not yet filed an official complaint with the U.S. Department of Commerce, confirms that the company did bring the situation to the attention of Sabo and Rep. David Obey (D-Wisc.), whose district is also home to a Cray facility.
Yet instead of following the process for dealing with dumping complaints outlined in a 1990 pact negotiated with the Japanese under the auspices of the World Trade Organization, the congressmen settled on a different tack. The two, both members of the House Committee on Appropriations, attached an amendment to the NSF's proposed 1997 budget that would prohibit the agency from using federal funds to pay the salary of any employees "who approve a contract for the purchase, lease, or acquisition in any manner of supercomputing equipment" if the Commerce department determines that the offer is "at any other than fair value."
That provision "certainly would be a violation of our obligation" under the WTO treaty, says former Deputy U.S. Trade Representative Michael B. Smith, who adds that he believes there is no conclusive evidence to support the allegations of dumping made against NEC. At least one other member of the appropriations committee, Rep. Jim Kolbe (R-Ariz.), has pointed out that Sabo and Obey's amendment directly violates the WTO agreement, calling it a "serious breach of our free trade... that virtually begs our trading partner, in this case Japan, to retaliate." The bill has passed the House and is headed for the Senate.
Yet in the opinion of many industry analysts, the Sabo-Obey amendment could do more harm than good with respect to preserving Cray's share of the finite supercomputer market. If the United States is perceived as adhering to its trade agreements only when those measures serve American interests and despite a superior foreign-made product, the analysts say, the result could be a backlash in the world market against all U.S. computer manufacturers. Indeed, Japan--which has about 130 Cray installations, according to Business Week--has already intimated on several occasions that it may retaliate in some fashion.
Cray, which has been described as ailing and was recently purchased by the Mountain View, California-based Silicon Graphics, reportedly came to the table in this instance with no new products, according to the Nikkei Weekly, an English-language Japanese publication. NEC, by contrast, offered two new models that demonstrated significant advances in chip technology--which, according to a National Center for Atmospheric Research representative, could substantially cut manufacturing costs.
Yet Cray officials stand by their claim that NEC is engaging in dumping and wholeheartedly support the Sabo-Obey amendment, maintaining that WTO procedures are too slow and unwieldy to be effective in this case. "They may get a lot more computers in before the tariffs take effect," Joseph said, adding that the Japanese make no secret of their desire to put Cray out of business for good. "When I talk to my Japanese counterparts, they say they're at war. They say, 'We're going to put you out of business.' In this case here, we're not asking for protectionism. We have the better product."
Supercomputer buyers around the world, though, appear to disagree with Joseph's assessment. Cray has lost contracts to Japanese companies in Europe and Canada, including a bid submitted last year to the European Centre for Mid-Range Weather Forecasting--an agency that once bought exclusively from Cray.
"The Japanese are hungry," Smith said of the changing market, "and the Cray people have been helped [by the U.S. government] for over a decade. They've probably gotten lazy."