Semiconductor Trade Management Electronics Industry Assoc' of Japan

1
Semiconductor Trade Management Electronics
Industry Assoc. of Japan

• Industrial Policy and International Competition
• Professor Vanessa Strauss-Kahn

September 19, 2003
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Should STA 2 Be Extended Beyond 1996?
The U.S. and Japan have pursued different goals
in the semiconductor industry

• Both the U.S. and Japan protected their embryonic
  semiconductor industries
• By the mid-1970s Japan established superior
  efficiency in manufacturing
• The U.S. has continued to lead the way in new
  product development
• Both comparative advantages were at least partly
  derived from government actions

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Should STA 2 Be Extended Beyond 1996?
Government decisions have influenced the current
state of affairs

• Lacking U.S. advantage in basic scientific
  research, MITI elects to focus on
  manufacturingto achieve superior performance and
  quality
• MITI encourages huge conglomerates to participate
  in the semiconductor industry
• Large-scale production leads to efficient
  manufacturing

• Anti-trust action led to a proliferation of small
  companies
• Government heavily funds basic scientific
  research
• U.S. companies establish premier position in
  innovation in chip design

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Should STA 2 Be Extended Beyond 1996?
Eventually, U.S. concerns surfaced

• Objection to traditional Japanese business
  culture (keiretsu)
• Even though there were no explicit tariffs nor
  quotas
• Concern over loss of positive externalities
  associated with own production of silicon chips
• High tech, national security
• U.S. failure to break into Japanese chip market
• Suspicion about dumping on the part of Japanese
  producers

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Should STA 2 Be Extended Beyond 1996?
U.S. proposed trade management

• U.S. felt Japan was using unfair and informal
  means to create a closed economy
• Lacking hard evidence, the US resorted to a
  results-orientated remedy in the form of
  voluntary import expansion (VIE)
• Decision was taken unilaterally, outside of GATT
  and WTO jurisdiction

6
Should STA 2 Be Extended Beyond 1996?
U.S. proposed trade management

• U.S. felt Japan was using unfair and informal
  means to create a closed economy
• Lacking hard evidence, the US resorted to a
  results-orientated remedy in the form of
  voluntary import expansion (VIE)
• Decision was taken unilaterally, outside of GATT
  and WTO jurisdiction

. . . So, under threat of trade suits, Japan
submits to the conditions of STA 1
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Should STA 2 Be Extended Beyond 1996?
Japanese companies were subject to a number of
terms under STA 1 in 1986

• Pricing floors for exports only
• Monitoring chip sales abroad to prevent dumping
• Non-binding commitment to reach foreign market
  share benchmark of 20 in Japan

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Should STA 2 Be Extended Beyond 1996?
STA I produced ambiguous results

• Foreign market share in Japanese market climbed
  to 14
• Price floor on exports benefited Japanese
  producers to the tune of 4 million
• U.S. computer industry paid for it

Supply
Price
Demand
Quantity
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Should STA 2 Be Extended Beyond 1996?
STA I produced ambiguous results

• Foreign market share in Japanese market climbed
  to 14
• Price floor on exports benefited Japanese
  producers to the tune of 4 million
• U.S. computer industry paid for it

Supply
Price
Price
Demand
Quantity
Unfair trade management ultimately penalized the
American consumer.
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Should STA 2 Be Extended Beyond 1996?
Current industry situation

• STA I 1 superceded by STA 2
• No price floor and streamlined anti-dumping
  procedures
• Clarified market share issue in Japan
• 30 of Japanese market held by foreign companies
• 20 of total held by US companies manufacturing
  microprocessors
• U.S. is once more leading chip manufacturer
• 49 global market share

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Should STA 2 Be Extended Beyond 1996?
Current industry situation

• STA 1 superceded by STA 2
• No price floor and streamlined anti-dumping
  procedures
• Clarified market share issue in Japan
• 30 of Japanese market held by foreign companies
• 20 of total held by US companies manufacturing
  microprocessors
• U.S. is once more leading chip manufacturer
• 49 global market share

Why is further agreement necessary?
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Should STA 2 Be Extended Beyond 1996?
Steps taken against Japan were groundless and
ineffective

• U.S. felt Japan was using unfair and informal
  means to create a closed economyBecause Japans
  share of imports is low versus OECD average?
  Does that imply that the U.S. is closed relative
  to Canada? In fact, evidence suggests that
  Japans import share is not too low.
• Lacking hard evidence, the US resorted to a
  results-orientated remedy in the form of
  voluntary import expansion (VIE)Only markets
  can dictate what market shares and imports will
  be. Results-oriented remedy ignored economic
  principles.
• Decision was taken unilaterally, outside of GATT
  and WTO jurisdiction Japan is a member of WTO
  and will not succumb to unilateral threats.
• There is a danger that extending the
  semiconductor agreement could cause the U.S. to
  be held to the same standard of market openness
  as it expects of Japan. If other countries
  decide that America is closed, they could
  retaliate by imposing tariffs and duties - Bryan
  Johnson

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Should STA 2 Be Extended Beyond 1996?
Summary of key facts

• Japanese efficiency was the result of a strategic
  decision to focus on manufacturing
• U.S. simply chose another area of focus
• U.S. policy only served to punish its own
  business and companies
• Even if the agreement were legitimate, market
  conditions have changed drastically
• U.S. should not act unilaterally