Japan Offers to Raise Prices of Chips If U.S. Drops ‘Dumping’ Cases

Japan has offered to raise prices on all the memory chips it exports and to boost purchases of U.S. semiconductors by 25% next year if the United States will drop all semiconductor “dumping” cases, U.S. trade officials told The Times.

The offer by the Japanese government was effectively rejected Friday when the Commerce Department, as expected, filed its own anti-dumping complaint against Japanese semiconductors--the first such government-initiated action since 1981.

However, trade officials said they objected to the details of Japan’s offer rather than the principle of setting prices in this and other markets. They said the offer represented a basis for continuing the negotiations in January.

Trade economists said the arrangement would amount to a cartel in which the U.S. and Japanese governments set semiconductor prices for all markets except Japan. A pricing floor would be set under all so-called memory chips exported from Japan to the United States and elsewhere.

Way to Prevent Dumping

“It sounds like a combination of public relations and a price-fixing cartel,” said economist Robert Crandall of the Brookings Institution.

A former Reagan Administration trade deputy familiar with the proposal said: “If the two industries sat down together and worked this out, they’d all be thrown in jail. This affects chips going all over the world.”

However, a top U.S. trade negotiator, in confirming details of the proposal by representatives of Japan’s Ministry of International Trade and Industry, said U.S. bargainers viewed it as a way to prevent dumping.

As proposed by Japan, the floor price would be the average cost of production for Japan’s 11 semiconductor makers plus a negotiated margin of profit, he said. One definition of dumping a product is selling it for less than it costs to make, a tactic sometimes used to put competitors out of business.

“Obviously, any kind of mechanism to control prices goes against the free market,” this negotiator said. “To that extent, it bothers us. We’re not uncomfortable with the notion of ensuring that dumping does not occur.”

This official said the plan was rejected during two days of talks this week in Washington between Japanese trade negotiators and the office of the U.S. Trade Representative, partly because the United States insisted that the same pricing floor be set in Japan as in export markets.

Bigger Hike Sought

He said the government also wants a “much bigger” increase than the offered 25% hike in Japan’s purchases of U.S. chips. He also said that the government wants the program to last “three or four years” rather than the one year proposed by Japan and that it finds “unacceptable” Japan’s condition that all dumping cases be dropped.

“We’re clearly disappointed,” he said, “but we are viewing it as their opening gambit.”

Trade experts noted a host of potential problems with parts of Japan’s offer, including the prospect of cheaper chips within the Japanese market than elsewhere. Such a two-tiered pricing structure would create an opportunity for a “gray market” in chips while letting Japanese producers of computers, cars, videocassette recorders and other devices use cheaper chips than competitors elsewhere.

It would help the U.S. and Japanese semiconductor industries, both of which have been hurt by plummeting prices and weak demand. But the U.S. industry can’t afford to set prices too high for customers such as computer firms, many of which have their own financial problems.

The offer to set a pricing floor at the cost of production would appear to be an admission that Japanese producers are currently dumping, the U.S. trade official said. He said, however, that “they still maintain they are not dumping.”

Trade lawyers drew parallels between the Japanese proposal and the trigger-price mechanism on imported steel that was established in 1978. In that program, the United States established a floor under steel prices that was equal to the cost of steel production in Japan, plus freight charges and a profit margin. If prices fell below that mark, a government dumping investigation was automatically triggered.

In this case, the Japanese want an agreement in advance that the U.S. won’t initiate any new dumping cases on its own and will somehow “resolve” those already filed by private companies.

‘Widespread Cheating’

Crandall, who held a government post in which he helped administer the steel program, said there was “widespread cheating” by importers and their U.S. customers. He said a price floor on semiconductors, in which most of the cost of production is in research and development, would be even harder to maintain.

The proposal was aimed at settling a so-called 301 trade complaint filed last June by the Semiconductor Industry Assn., a major U.S. trade group based in San Jose, broadly accusing the Japanese industry of unfair trade practices--principally dumping memory chips in this market and limiting U.S. access to Japan’s market.

Since then, three separate dumping complaints have been filed, all aimed at a category of semiconductors known as memory chips that are the main circuitry component in computers.

Earlier this week, the Commerce Department tentatively ruled that six Japanese companies had dumped a type of chip known as the 64,000-character DRAM, for dynamic random access memory, as claimed by Micron Technology of Boise, Ida. Another case, filed by three leading Silicon Valley chip makers, is pending on EPROM chips, for eraseable, programmable, read-only memory.

The proposal by the Japanese government in the 301 case would affect both DRAM and EPROM types of chips, trade officials said. Together, those types of chips--the categories in which Japan dominates--will account for about $2.4 billion of the total 1985 world semiconductor market of about $24 billion.

Broader Than Expected

The complaint filed Friday by Commerce Secretary Malcolm Baldrige was broader than expected and was aimed at more powerful and contemporary products than the 64K device, which is being replaced in the market by a 256,000-character device. It covers DRAM chips of 256K capacity “and above,” meaning the 1-million-character, or 1-megabit, chip.

That is significant, analysts said, because the Japanese already dominate the 64K and 256K markets, so a dumping penalty against those products would hold limited benefits for the U.S. industry.

Baldrige noted Friday that prices on the 256K DRAM chip have dropped sharply, forcing five U.S. firms to abandon the market. He said the industry’s losses on that product alone will amount to $900 million.

“The seriousness of the problem . . . is reflected in the fact that we are self-initiating this case, something the U.S. government has never done before outside the context of an established program, such as the steel trigger-price mechanism.”