Science and Engineering Indicators 2012

Comparison of Data Classification Systems Used

Industry and Trade Data and Terminology

The data and indicators reported here permit the tracing and analysis of broad patterns and trends that shed light on the broadening and shifting distribution of global knowledge- and technology-intensive capabilities. The industry-level production and trade data used in this chapter derive from a proprietary IHS Global Insight database that assembles data from the United Nations and the Organisation for Economic Co-operation and Development to cover 70 countries in a consistent way. IHS estimates some missing data for some of the developing countries.

Two measures of industry activity—value added and trade volume—are expressed in current dollars. Value added is the amount contributed by an economic entity—country, industry, or firm—to the value of a good or service. It excludes purchases of domestic and imported supplies as well as inputs from other countries, industries, or firms.

Value added is an imperfect measure. It is credited to countries or regions based on the reported location of the activity, but globalization and the fragmentation of supply chains mean that the precise location of an activity is often uncertain. Companies use different reporting and accounting conventions for crediting and allocating production performed by their subsidiaries or companies in foreign countries. Moreover, the value added of a company's activity is assigned to a single industry based on the largest share of the company's business. However, a company classified as manufacturing may include services, and a company classified in a service industry may include manufacturing or may directly serve a manufacturing company. Thus, value-added trends should be interpreted as broad and relatively internally consistent indicators of the changing distribution of where economic value is generated.

Data on exports and imports represent the market value of products in international trade. This measure is not comparable with the value-added measure of industry production. Exports and imports are credited to the country where the product was "substantially transformed" into final form, but for exports produced in multiple economies, the assigned country may not be the location with the highest value added.

Apparent Consumption of High-Technology Manufactured Goods

Production of HT goods feeds both domestic and foreign markets. A broad measure of domestic use is provided by adding domestic sales to imports and subtracting exports. However, use so defined encompasses two types of economic activity, consumption of final goods and capital investment for further production (intermediate goods). Available data series do not permit the examination of these two types of activity separately.

Patterns of the world's use of HT manufactures have changed considerably over the past decade. The U.S. share of domestic use, as defined above, fell from 30% in 2000 to 19% in 2010 (figure 6-A). The EU's share stayed broadly the same at 26%–27% over much of the decade before falling to 21% in 2010. The EU overtook the United States in 2003 to become the leading consumer of HT goods between 2003 and 2009. China's share surged from 5% in 2000 to 21% in 2010, overtaking the United States and reaching the EU's level. Japan's share declined from 17% in 2000 to 11% in 2010.

The Chinese trend underscores the difficulty of teasing out final consumption from use as intermediate goods. The strong rise in the Chinese trend is considered by many observers to reflect the rising flow of intermediate goods—often previously produced in China—from other Asian manufacturing centers into China, where they undergo further assembly before being exported to final consumers.

China's Progress in Supercomputers

The TOP500, an organization composed of computer scientists and industry specialists, has been tracking the world's fastest performing supercomputers since 1993. It provides an annual update with information, including the origin, performance, type of application, and technology of high-performance supercomputers. According to the November 2010 report, China was ranked for the first time as having the world's fastest supercomputer at the National Supercomputing Center in Tianjin. The Tianjin supercomputer uses existing component technology from the United States and other countries with energy-saving technology developed in China.* A second Chinese supercomputer was ranked third, giving China 2 slots in the top 10 supercomputers. The United States was ranked second, and had 4 other supercomputers in the top 10. In 2005, TOP500 had ranked the United States first, and 6 other U.S. supercomputers were ranked in the top 10. China's highest ranking in that year was 26th. The United States continues to dominate in the number of supercomputers ranked in the top 500 and in the number of high-performance supercomputers. China's share of high-performance supercomputers has increased rapidly, from 1% in 2008 to 9% in 2010 (figure 6-B).

Trends in Industries Not Classified as Services or Manufacturing

Agriculture, construction, mining, and utilities are not classified as either manufacturing or service industries and are not categorized by their level of technology or knowledge intensity. However, these industries depend on or use science and technology. For example, agriculture relies on breakthroughs in biotechnology, construction uses knowledge from materials science, mining depends on earth sciences, and utilities rely on advances in energy science.

The United States ranks second in construction, mining, and utilities, and third in agriculture as measured by share of global value added among the five major economies—United States, EU, Japan, China, and the Asia-8 (table 6-A). The U.S. share in construction fell from 29% in 2002 to 20% in 2008 and 16% in 2010, in part because of the recession and crisis in the housing sector. The U.S. share remained stable in agriculture and fell slightly in mining and utilities. The EU's share was steady in construction and utilities but fell substantially in mining and agriculture. Japan's share fell sharply in all of these industries. China had gains across all industries, and became the largest producer among the five economies in agriculture and mining. The Asia-8's shares were stable or grew slightly during the 2000s.

Tracing the Geography of the Value Chain of Products

Several studies have attempted to estimate more precisely the geographic contribution of the global value chain involved in the production of several electronic goods. These studies essentially show that the largest returns accrue to the firms and countries that harbor special design, engineering, and marketing expertise. Because value-added data are not readily available at the product or firm level, these studies estimate the cost of direct labor, inputs, design, marketing, and distribution and retail (table 6-B).

A study of Apple's iPad estimates that the United States receives 33% of the retail price of the iPad, almost all of it (30%) consisting of Apple's gross profit (figure 6-C). The estimated share for manufacture and assembly of components for the iPad is 23%, largely apportioned to South Korea with smaller distributions to Japan, Taiwan, the EU, and the United States.

China, the location of final assembly, receives an estimated 2% share of the iPad's price (figure 6-C). The study estimates that China's value added is very small because final assembly of these products requires only a few minutes and China's wages for assembly workers are very low compared to those in more developed countries.

Because final assembly of the iPad and other electronic goods manufactured by foreign multinationals yields little value for China, observers claim that bilateral trade statistics are misleading. The large U.S. trade deficit with China in electronic goods is due in part to crediting China for the entire shipping cost of these goods, even though much of the value of these goods derives from imported parts and components from other Asian countries, the EU, and the United States.

A study by Xing (2010) estimates that crediting exports to countries on the basis of their value-added contribution would lower the value of China's exports of Apple iPhones to the United States in 2009 from an estimated $2 billion to less than $100 million. The remaining $1.9 billion would be credited to countries that supply components to China—South Korea, Japan, Germany, and others.

Product Classification and Determination of Country of Origin of Trade Goods

Trade data are based on a classification of goods or services themselves, not the industry that produces them. Data on product trade are recorded at the exporting country's ports of exit and the importing country's ports of entry. Because many imported products are assessed an import duty and these duties vary by product category, a customs agent for the receiving country inspects or reviews the shipment to make the final determination of the proper product code and country of origin. The customs agent assigns a product trade code according to the Harmonized System.*

The value of products entering or exiting a country's ports may include the value of components, inputs, or services classified in different product categories or originating from countries other than the country of origin.

Data on international product trade assign products to a single country of origin. For goods manufactured with international components, the country of origin is determined by where the product was "substantially transformed" into its final form.

New U.S. Patent Law

The America Invents Act, Public Law 112-29, 125 Stat. 283, signed into law on September 16, 2011, is the most significant reform of U.S. patent law since 1952. The act aims to foster innovation and improve productivity by making the U.S. patent system more compatible with the systems in other countries. Supporters of the act believe it will reduce a growing backlog of U.S. patent applications, reverse a decline in U.S. patent quality, decrease the number of patents for frivolous inventions, and diminish the amount of expensive and time-consuming patent litigation. Economists and legal scholars who have studied the U.S. patent system have advocated reforms such as those in the new law (see Jaffe and Lerner [2006] and Burk and Lemley [2011])

The America Invents Act has three major provisions:

• First-to-file system. The law changes the primary standard for granting U.S. patent applications from the longstanding "first to invent" doctrine to "first to file." Under the new law, patents would go to the inventor that files an application first, and disputes about who was first to invent would be avoided. The goals of this provision are to harmonize the U.S. patenting system with most other national patent offices and to reduce litigation over disputes about when a product or idea was invented.
• Postgrant review. The law establishes an administrative postgrant review process similar to opposition proceedings in European patent offices. The process allows a third party to challenge the validity of a patent within 9 months of the patent's issuance. The aims of this provision are to provide an alternative to litigation, improve the quality of patents, and generate better decisions about alleged patent infringements.
• Budget and operations of the U.S. Patent and Trademark Office. The law gives the U.S. Patent and Trademark Office (USPTO) authority to set its own fees, which had previously been set by Congress. The purpose of this provision is to give USPTO greater budget autonomy and allow it to reduce its application backlog by hiring more examiners and modernizing its IT systems when the need arises.

Trends in Patents Granted in China, India, and Russia

The number of Chinese patent grants grew exponentially during the 2000s. Chinese patents granted to domestic residents rose more than 10-fold from 6,000 in 2002 to 65,000 in 2009 (table 6-C). During this period, the Chinese inventor share of Chinese patent grants increased from 28% to slightly more than 50%, suggesting that patent protection is becoming increasingly important for Chinese companies that sell to the large and growing Chinese consumer market. The bulk of applications by Chinese inventors have been in utility model and industrial designs, which are quicker, cheaper, and have a lower standard than invention patents. Observers have criticized Chinese utility and industrial design patents as low quality but innovation economists note that these types of patents have played an important role in fostering indigenous innovation in Japan, South Korea, and Taiwan.* Chinese patents granted to nonresident inventors have also risen rapidly, coinciding with the growing sales and interest of U.S. and other companies in the Chinese domestic market. The growth of patent grants by residents and nonresidents may also reflect the strengthening of China's patent protection during the 2000s (Zhao 2010).

India and Russia show divergent trends in patenting activity by domestic and foreign inventors. A minority of India's patents are granted to domestic investors, with their share falling from 40% in 2002 to 25% in 2006 (table 6-C). The rising share of patents granted to non-Indian inventors may reflect the strengthening of patent protection for pharmaceuticals and other goods by the Indian patent system during this period. Russian-based inventors dominate patents granted by their country with a share of 76%. This may reflect the orientation of many Russian companies to the domestic market.

Government Stimulus Funding for Clean Energy

A number of economies pledged an estimated $194 billion in late 2008 and early 2009 for clean energy and low carbon energy projects as part of their stimulus programs undertaken in response to the global economic recession (figure 6-D). Four of these economies, the United States, China, South Korea, and the EU, led stimulus funding of clean energy with a collective $168 billion in spending commitments. The United States had the largest amount with $67 billion in commitments for energy efficiency, renewable energy deployment, transportation, and smart grid technology. China announced $47 billion in funding for energy efficiency, clean vehicles, grid infrastructure, and other energy technologies. The EU and South Korea each committed $27–$28 billion in funding.

Progress was slow in 2009 with governments spending an estimated $20.3 billion (10%) of the total $194 billion in stimulus commitments. The pace accelerated in 2010 with 38% of the stimulus funding commitments (an estimated $74.5 billion) being spent, largely by the United States, China, Germany, and South Korea. Disbursement of stimulus spending commitments in 2009–10 is estimated at $94.8 billion. The majority of this funding has gone to energy efficiency, renewables, smart grid, and R&D. Energy efficiency has received an estimated $35.5 billion (37% share) followed by $20.2 billion (21%) allocated to renewables. R&D and the smart grid have each received $17–$18 billion.