Japanese to Cut Chip Output to Avert Sanctions
In a last-minute attempt to forestall U.S. sanctions against Japan for its failure to uphold a trade agreement on semiconductors, the Ministry of International Trade and Industry (MITI) announced Monday that it was ordering Japanese semiconductor firms to make further cuts in production of some types of chips.
In addition, Hajime Tamura, minister of international trade and industry, sent letters to four U.S. Cabinet members enumerating steps that Japan has taken in recent days to respond to American charges that Japan has not lived up to the chip trade accord reached last July.
The Cabinet’s Economic Policy Council is to meet Thursday to consider imposing sanctions on Japanese electronic goods in retaliation for what industry executives, apparently supported by government-collected data, have called repeated violations of the anti-dumping provisions of the trade pact.
Some trade officials believe that an all-out public relations push by the Japanese could soften the U.S. government’s position, but Commerce Department officials say they are beyond the point of being swayed and that the decision is now up to the Cabinet council.
A Commerce Department spokeswoman, although not confirming that Secretary Malcolm Baldrige will press for sanctions, said the agency’s position is based on existing market conditions rather than assurances. In a report delivered to Cabinet-level officials last week, the Commerce Department is believed to have documented continuing violations of the agreement by the Japanese and failure to implement the accord’s condition calling for increased market access for U.S. companies in Japan.
U.S. industry officials remain convinced that sanctions will be imposed. “As far as we can tell, the government is united and should go ahead this week to impose sanctions,” said Alan W. Wolff, Washington attorney for the Semiconductor Industry Assn., the U.S. trade group based in San Jose, Calif.
No Time for Promises
“The time for promises is past . . . . It’s been eight months since the agreement was reached,” Wolff said. “Now is not a time for announcement of measures to be taken; now is a time to see effects on the marketplace.”
MITI said on Monday that it was asking for an 11% cut in production for the April-June period, which would reduce manufacturing levels of 256-kilobit dynamic random-access memory (D-RAM) chips by 32% from the October-December period, when prices plummeted to as low as $1.60 apiece in Japan. It would be the third production cutback in four months.
In addition, Tamura, minister of international trade and industry, sent letters to Baldrige, Secretary of State George P. Shultz, Treasury Secretary James A. Baker III and U.S. Trade Representative Clayton K. Yeutter in a final appeal against sanctions.
Except for a proposal for a joint U.S.-Japan study of third-country markets--those outside the United States and Japan--Tamura’s letter did not offer any new measures. Rather, it reiterated declarations that MITI was doing its best to see that dumping has ended in third-country markets and that Japanese companies increase purchases of U.S.-made semiconductors.
Dumping Prohibited
The bilateral trade accord, signed last Sept. 2, mandated an end to dumping--that is, selling below cost or below fair-market value--in the United States, a condition achieved primarily through a “fair-market value” pricing system imposed by the Commerce Department on Japanese-made chips sold in the United States.
As part of the agreement, the United States suspended two dumping cases and one unfair trade practices complaint against the Japanese. But enforcement of the agreement has proven very difficult and has become the most volatile point in worsening U.S.-Japan trade relations.
Masaji Yamamoto, deputy chief of MITI’s machinery and information industries bureau, confirmed that no meeting has been scheduled between U.S. and Japanese officials to review the semiconductor agreement before Thursday, when the Economic Policy Council is expected to meet.
Tamura, in his letter, urged the four U.S. Cabinet officials to make their decision Thursday “in a fair and objective manner.”
“Improved market access for foreign semiconductors cannot be achieved in a day,” Tamura said, noting that the market for semiconductors in Japan has been stagnant because of “the recessionary influence of the rapid appreciation of the yen.”
‘Gray Market’ Cited
In reiterating declarations that Japanese makers are not dumping products in third-country markets, Tamura said the dumping that Americans were complaining of was the product of a “gray market” involving small trading firms. Those firms buy chips at low prices in Japan and are able to undercut fair-market prices in the United States and the MITI-set price of at least $2 for exports to third countries. Sales at cheap prices by American and Korean firms in third countries also were to blame, he added.
However, production cuts ordered by MITI are now causing a “rapid decrease” in “gray exports” from Japan, he wrote.
Such decreases in availability will most certainly result in price increases, industry observers in both the United States and Japan believe. And all companies will gain the benefits of the price hikes, economists say.
Kenneth Flamm, a specialist in high-technology and trade issues at the Brookings Institution, a public policy think tank in Washington, said enforcement of the trade agreement’s provisions against dumping has been tantamount to U.S. support of a MITI-administered cartel on semiconductors. “It’ll be just like OPEC, setting prices and production quotas on oil,” Flamm said.
Blundering Charged
Flamm, who accused Commerce Department officials of “blundering and flailing about,” argued that sanctions against Japanese goods would be a mistake and that, “if we want to play hardball with Japan, it should be over the issue of market access.”
Indeed, U.S. officials are beginning to stress market access in their review of the trade pact’s success. Although U.S. trade officials set April 1 as the deadline to see evidence of increased purchases of U.S.-made chips by Japanese customers, it is believed that the lack of progress in that area as well will be considered in the Economic Policy Council’s deliberations on sanctions.
Japanese officials said U.S. chip makers with facilities in Japan will be included in the newly announced production cutbacks. Yamamoto said MITI would take the unprecedented step of handing major American firms in Japan a specific production quota for the April-June period rather than merely requesting a cutback.
He said that, although leading Japanese firms curbed production in the January-March period in line with MITI’s “administrative guidance,” Texas Instruments’ subsidiary in Japan appears to have increased its output.
U.S. Firm Blamed
The American firm has been cited, along with Samsung of South Korea, by Japanese newspapers as selling 256K D-RAMs in third-country markets for as little as $1.60, compared to MITI’s minimum export price of $2.
Yamamoto refused to confirm or deny that Texas Instruments was undercutting MITI’s attempt to curb cheap prices in third-country markets but said he had seen newspaper reports naming it as a major supplier, along with Japanese gray-marketers, of the cheap chips.
He admitted that Oki Electric Co. had violated the MITI export-price order by selling 5,000 256K D-RAMs in Hong Kong last Wednesday for $1.95 apiece but refused to call the sale “dumping.” The U.S. government, he said, holds no information about Oki’s production costs and, therefore, cannot charge that the one-time sale represents evidence of Japanese “dumping” in third countries.
Sam Jameson reported from Tokyo and Donna K. H. Walters from Los Angeles.
