Chip makers hope to extend pact that gave them toehold in Japan


Tokyo - America's small band of surviving computer-chip makers feel they are getting their foot in the door here at last, after more than a decade of one of the most acrimonious of all the scores of Japan-U.S. trade disputes.

But the five-year government agreement that got them that far expires in July, and they want it extended so they can finish making their sales pitches.

Japanese and U.S. government delegations began talks last month on an extension. The United States hopes that by July the agreement will have been extended at least through the end of next year.

At stake is billions of dollars in market share -- and the ability of U.S. producers to stay alive in a technology that sets the parameters of what is possible in industries ranging from laptop computers to control systems for advanced weapons.

"More than anything else, what's happening is that the agreement and all the other pressure from Washington eventually got some of the U.S. companies a chance to sit down over time and work directly with their potential customers," said Gary Bonham, a spokesman for LSI Logic Corp. of Milpitas, Calif. "But we need the agreement for a while longer to build up to a minimum sustainable level in the Japanese market.

"For years, whenever we met with Japanese, it was with our counterparts -- people who make semiconductors, not people who use them -- and all we could do with them was argue about the rules of trade."

In the past two years -- after more than a decade of intense pressure from Washington -- big Japanese microchip users have begun not only to make individual purchases but also to take a few U.S. companies into their product-development meetings.

"That's really the key," Mr. Bonham said. "You can do serious business only if you work with the customer closely enough to understand what he wants to make next."

The turnaround has been visible in market-share figures tracked by international trade associations.

Foreign companies' share of the huge Japanese chip market went from 8 percent when the agreement went into effect in 1986 to more than 13.2 percent by the end of last year. More than 95 percent of that foreign share is held by U.S. companies.

Meanwhile, U.S. companies have a 36 percent share of the $58.4 billion world market for semiconductors, according to Dataquest, research company based in San Jose, Calif. Japanese companies have a 49 percent share of the world market.

The agreement was negotiated at a time of deepening acrimony. Japanese microchip makers were being accused of "dumping" -- selling huge quantities of chips in the United States and other major markets at far below production costs, to drive U.S. manufacturers out of the business -- while shutting competitors out of the gigantic Japanese market.

Japan's concentrated drive into microchips has been orchestrated since the mid-1970s by the powerful Ministry of International Trade and Industry. For more than four decades, MITI has set the national economic agenda that guided Japan from the ashes of World War II to the world's second-biggest economy.

MITI determined in the 1970s that microchips -- the tiny semiconductors with the immense memories that today make possible ever-smaller camcorders, digitally controlled machinery and pollution-control systems for cars -- would be a critical "technology driver" of the 1980s and 1990s. Japanese industries, MITI concluded, would set out to dominate that technology.

By the mid-1980s, many American chip makers found themselves faced with a choice between enduring tremendous losses or abandoning a key technology.

Most got out. As this year's negotiations began, the Semiconductor Industry Association, a U.S. trade group, listed seven companies still active enough to have public relations contacts.

The 1986 agreement dealt mainly with two main issues of the dispute -- dumping and access to the Japanese market.

"Dumping by Japanese producers has largely ceased," SIA acknowledged in April in a news release setting forth its position for talks that began this month on a U.S.-proposed extension of the agreement.

The system of government-set "fair market prices" that brought dumping under control can now be scrapped, SIA says, in favor of a requirement that Japanese companies quickly supply production-cost data to the U.S. government if dumping accusations ever arise in the future. Japanese newspapers have reported that Japanese negotiators are likely to resist this idea but do not oppose finding some way to keep dumping from arising anew as an issue.

Despite the inroads into the Japanese market of the past two years, U.S. makers still insist that they are only about halfway to the goals of the 1986 agreement.

Just what those goals are has been a point of contention ever since the agreement was signed.

The U.S. has argued that the Japanese acceded to a specific goal for foreign suppliers. That goal: 20 percent of the Japanese market by this July, when the agreement expires. That goal was set in a secret "side letter" to the main agreement.

The Japanese at first denied the existence of such a letter. Then, when an American published it, the Japanese still insisted that its wording did not specify a 20 percent goal.

SIA believes it has won backing of U.S. officials to use the current talks to get the 20 percent figure written into any extension. But Japanese officials have said they will resist.

Last month, Japanese newspapers began to report that Tokyo officials might be more flexible toward a 20 percent figure if it is stated as a "target" or "goal" rather than as a "quota."

In contrast with the acrimony and confrontational atmosphere of past semiconductor meetings, Japanese and U.S. semiconductor makers "are no longer poles apart," the Nikkei Industrial Daily reported in April.

"Both governments agree that some sort of official framework should remain in place beyond July to make sure that progress continues on the opening of Japan's market," the paper added.

"From our perspective," Mr. Bonham said, "if we can get to 20 percent, even a year or two later than the original agreement, that level will mean that some companies are part of the Japanese users' system of doing business. After that, it's up to us to show them year in and year out that we can provide the technology they need."

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