U.S. and Japan Begin Talks on Semiconductor Chips

For years, Toyota Motor Co. disparaged foreign chip makers for their poor quality and relied on a small circle of Japanese suppliers for the bulk of its electronic components.

In 1989, the company changed its tune. Toyota’s purchases of American semiconductors next year will reach $35 million, up from just $5 million in 1989, the company says.

U.S. trade officials are convinced that the sudden change of heart was because of a 1986 agreement under which Japan agreed to help American manufacturers crack its tough domestic market. The U.S. share of the Japanese semiconductor market today is just under 14%, up from less than 10% in 1986.

So the U.S. semiconductor industry, now allied with computer companies, is pushing for a tough new agreement with Japan to replace the current one when it expires at the end of July.

Officials of Japan’s Ministry of International Trade and Industry, now in Washington negotiating the deal, are expected to go along with extending provisions in the agreement that call for stable prices and a mechanism to prevent Japanese makers from dumping when they have excess capacity.

But MITI is expected to reflect Japanese industry opposition to the inclusion of market-share targets in the new agreement.

U.S. semiconductor companies say an agreement without targets has no teeth. If Americans are to compete with Japan globally, they say, they must make greater inroads into Japan’s home market.

But U.S. market share in Japan is still far below Japan’s 29% share of the American market. And the U.S. share in Japan is far below the 20% level American semiconductor makers say would indicate that Japan’s market is truly open.

Although Japanese chips have made their way into the most sophisticated American weapons systems, U.S. semiconductors are barred from a wide range of Japanese products. Although American companies are far more competitive than Japan in communications, for example, “you won’t find a single foreign chip in a central office switch anywhere in Japan,” says Glen Balzer, vice president for Asia at Advanced Micro Devices.

Although Texas Instruments has been in Japan since 1968, with a large Japanese work force and extensive manufacturing facilities, its share of the Japanese market is half what it is in the rest of the world, says Norman Neuriter, president of Texas Instruments Asia Ltd.

In the past two years, Japanese companies have started to open up their bidding and design process, giving U.S. semiconductor companies an opportunity for the first time to have their chips designed into such future Japanese products as high-definition TVs. But U.S. chip makers fear that the open-door policy will end if Japan is not held to specific targets.