In Cooler Trade War, Chips Keep Symbolic Value : Japan Seeks End to Punitive ’87 Tariffs; U.S. Makers Want the Penalty Stiffened

In the cooling trade war with Japan, the high-technology front is heating up again.

The transpacific bickering about the 1986 computer chip trade agreement has been redoubled. From the West come well-worn complaints that Japan isn’t living up to its end of the bargain, and from the East, plaintive rejoinders that U.S. chip makers are exaggerating the terms of the pact.

The buzzwords of the debate have been trade sanctions and market share, but the heart of the matter, as ever, is symbolism.

The Japanese want the United States to remove sanctions imposed in 1987 in connection with the trade agreement--tariffs on some of its high-technology imports. The financial impact is next to nothing, but the symbolism of “lost face” is a nagging thorn to a proud country whose culture turns on symbolism.

For their part, U.S. chip-making interests want to ensure that during the Bush Administration computer chip technology remains, as it was during much of the Reagan years, a symbol--the industry at which America draws the line against waning world leadership and hostile trade environments.

The computer chip trade group, the Semiconductor Industry Assn., has made the tiny chips, or semiconductors, a standard bearer of sorts for the entire U.S. high-technology industry. Through its intense and successful lobbying in Washington, the SIA has helped sway to high-technology’s advantage many important foreign and domestic policy decisions. This has been crucial to the way the industry does business at home and abroad, and has also meant federal support and money for significant joint research and development consortia.

Now the chip lobby wants to make sure that the semiconductor retains its cachet with the current Administration. “The question is, ‘Does this Administration think high-technology is an important area for pressure on Japan?’ Semiconductors are a paradigm for all high-tech,” said one electronics industry lobbyist.

The first significant answer to the question will come soon. By the end of May, the U.S. Trade Representative’s Office is scheduled to confer priority status to some foreign trade cases when it draws up the “Super 301” list, referring to a category of the laws governing unfair trade complaints. The SIA has asked that Japan’s chip-trading practices be on that list.

The so-called Super 301 category was mandated by last year’s trade bill. The priority cases on the list will be handled on an expedited schedule and with additional leverage: a controversial mandatory retaliation clause that applies in cases of failed negotiation.

The SIA is lobbying the new Congress, hoping to have reaffirmed its support there by the time the Bush Administration teams are in place in the relevant agencies--especially the Trade Representative’s Office and the Department of Commerce--to be able to overwhelm any resistance the White House may have to putting Japan’s chip-trading practices on the Super 301 list.

“I think it will be on the list,” said one former trade official close to the case. “When push comes to shove, they will put semiconductors on the list. If they don’t, they’ll have problems with the Hill. Congress is looking over the Administration’s shoulder to see how it implements this trade bill. If the Administration wimps out, they will hear about it.”

There have been indications that the new Administration is serious about the semiconductor trade situation. In the short time since being confirmed, both Commerce Secretary Robert A. Mosbacher and U.S. Trade Representative Carla A. Hills have taken tough stances on the semiconductor trade agreement, echoing the industry’s declarations that Japan has not been living up to its commitments.

However, they have tempered those stances by indicating that President Bush, as Mosbacher said, “is quite willing to lift the sanctions that President Reagan imposed,” if the Japanese show sufficient compliance.

As part of the 1986 pact, Japan agreed to stop dumping chips--that is, selling them for less than fair-market value. And it pledged to help U.S. companies gain a greater share of sales in the Japanese market for chips--now the largest single slice of the $45-billion worldwide market.

But in March, 1987, when data showed that neither part of the agreement was working, Reagan imposed 100% tariffs on $300 million worth of Japanese imports. Although the Reagan Cabinet was divided on the issue of imposing the sanctions--the harshest trade action taken by the United States against Japan since World War II--Congress’ support of the chip industry tipped the balance.

In subsequent months, as dumping eased, Reagan lifted $135 million worth of the sanctions. The remaining tariffs on $165 million worth of products a year represent the amount of money U.S. chip firms are calculated to have lost by being unfairly barred from Japanese markets.

Agreement in ‘Side Letter’

During the negotiations, the two countries agreed that Japan would, by the end of the five-year term of the trade agreement, open up its markets to allow foreign chip manufacturers a 20% share of sales. At the time, U.S. chip makers controlled about 20% of markets in Europe and about 8% of the Japanese market. This agreement was made in a “side letter” that both sides agreed to keep secret, lest it be construed as illegal international market-fixing.

But in recent weeks, as the bickering over the trade agreement and the remaining sanctions has intensified, Japan trade officials have denied that the side letter was anything more than typical negotiation correspondence.

Earlier this month, the Electronic Industries Assn. of Japan called the SIA’s assertions “unfounded” and said the U.S. companies--and not trade barriers--were to blame for the market share situation. And Japan’s minister of international trade and industry, Hiroshi Mitsuzaka, denied there was an agreement calling on the Japanese government to help boost foreign companies sales to 20% of the Japanese market.

U.S. trade officials have begun to address the market share numbers openly. Hills used the 20% figure in testimony to Congress, and Mosbacher has said that Japan will be unable to meet the 20% goal by 1991 unless it dramatically accelerates its efforts. The SIA says that in recent months U.S. companies’ share of the Japanese market has slipped back from previous gains to about 10%. Mosbacher has suggested that a more appropriate level of U.S. semiconductor sales would be between 15% and 20% by the end of this year.

Despite such statements, Administration trade officials are said to be privately cautious about adding chip trade to the Super 301 list, for fear of imperiling the existing agreement. Japanese officials have warned that placing semiconductors on the list would undo the progress already achieved under the 1986 accord.

Yet U.S. chip makers are adamant that the federal government continue to apply pressure on Japan to comply, possibly imposing addition sanctions on Japan.

When first imposed, the sanctions were a blow to Japan--if only on a psychological level. Then-Prime Minister Yasuhiro Nakasone seemed wounded by the action of his friend Ronald Reagan. As the dumping came to a relatively swift halt, part of the sanctions were lifted.

But as the months wore on, it became apparent that the sanctions themselves were having no financial impact on the Japanese electronics businesses at which they had been aimed. Though ostensibly still in effect, the 100% tariffs are not being collected because Japanese producers have found ways to skirt them, most U.S. trade officials acknowledge.

That does not seem to deter high-tech interests from pressing for the leverage for sanctions that is built in to the Super 301 provisions. “The only time we saw compliance” with the trade agreement, SIA spokeswoman Jeanne Alford said, “was after the sanctions were applied at the end of April, 1987.”