U.S.-Japan Semiconductor Pact Now a Symbol of Mistrust

A U.S.-Japan semiconductor agreement once hailed as a prime example of successful trade negotiations is rapidly becoming a symbol of mistrust and acrimony in ongoing trade talks between the two countries.

The current talks on imports of U.S. automobiles, auto parts, telecommunication services, insurance, medical technology and conflicts over intellectual property rights are supposed to reach a first set of agreements in time for a scheduled Feb. 11 summit in Washington between Prime Minister Morihiro Hosokawa and President Clinton.

But negotiations are virtually deadlocked over the question of whether Washington is demanding market share “targets.”

The talks are “going nowhere fast,” U.S. Undersecretary of State Joan E. Spero said here Tuesday.

On the surface, the debate is over semantics, but at a deeper level it is about trust.

The key U.S. demand is that Japan agree to various numerical goals that would reflect progress in further opening of Japan’s market. But U.S. officials strenuously deny that these proposed numbers would be “targets.”

Tokyo officials say they feel burned by the U.S. interpretation of the semiconductor agreement, first reached in 1986 and extended in 1991, which includes reference to a 20% foreign market share target.

The agreement has been credited with helping the foreign share of Japan’s semiconductor market grow significantly, reaching 20.2% in the fourth quarter of 1992.

Since then, however, foreign market share, primarily held by U.S. firms, has slipped slightly--provoking sharp U.S. criticism and a call by U.S. Trade Representative Mickey Kantor for “emergency” talks to ensure that Japan lives up to its “commitment.”

The 1991 version of the semiconductor agreement says: “The government of Japan recognizes that the U.S. semiconductor industry expects that the foreign market share will grow to more than 20% of the Japanese market by the end of 1992 and considers that this can be realized. The government of Japan welcomes the realization of this expectation. The two governments agree that the above statements constitute neither a guarantee, a ceiling nor a floor on the foreign market share.”

In the Japanese view, despite this careful wording, the United States has repeatedly and improperly portrayed the agreement as a promise to ensure foreign semiconductor manufacturers a 20% share in Japan’s market.

U.S. officials insist that they are now seeking something fundamentally different, but they have had great difficulty in convincing the Japanese.

“What the Japanese have been trying to do, very successfully . . . is to position this whole negotiation as a negotiation about another series of semiconductor agreements,” said a U.S. official who spoke on condition of anonymity.

This viewpoint “is absolutely wrong,” but Japanese negotiators “have successfully positioned this with their own press and somehow with the Japanese public,” the official said. “What we have, I believe, is a situation where the Japanese bureaucracy does not want to negotiate with us.”

U.S. officials have repeatedly blamed the powerful Japanese bureaucracy for the deadlock in the talks. But there seems little reason to believe that top political leaders view numerical targets as acceptable.

In the latest expression of Japanese determination to resist, Foreign Minister Tsutomu Hata said Tuesday that Washington’s request for Japan to raise its import levels of manufactured goods to the range of other advanced nations is misplaced.

“There are no causal relations” between trade barriers and the share of foreign products in a particular market, Hata said.

U.S. frustration over such views lies at the root of the Clinton Administration’s results-oriented approach to trade talks.

The idea is that when previous agreements stressed only market-opening measures, without specific numerical goals, they mostly proved disappointing, so this time agreements should be reached that provide quantitative ways to measure progress.

Hanging in the background is the unspoken but implicit threat that if progress is insufficient, Washington could impose retaliatory trade measures.

When asked about the possibility of sanctions against Japan if goals are not met, U.S. officials routinely decline to comment--while pointedly refusing to rule out that possibility.