U.S.-Japan Competition & Trade in the Global Semiconductor Industry
Forging a Second
first STA was slated to expire on July 31, 1991. The Semiconductor
Industry Association (SIA) and the U.S. Government wanted it extended,
but the Electronic Industries Association of Japan (EIAJ) wanted it
buried. "When the time comes that this agreement expires, our
belief is that we will no longer need anything of this nature,"
said Tsuyoki Kawanishi, the senior executive vice president of the
Toshiba Corporation. Hisao Oka of Mitsubishi Electric and the head of
the Japanese semiconductor users committee made a similar comment that,
"A new agreement isn't necessary . . . except for political
the United States, free-trade proponents opposed the extension of the
agreement. They argued that it represented managed trade. "This
whole thing is nothing more than a government-supported cartel. The
semiconductor industry has relied on government protection rather than
develop international competitive strategies," said Bryan T.
Johnson, a policy analyst at the Heritage Foundation.
However, the Computer Systems Policy Project (CSPP) supported the U.S.
semiconductor industry's desire to extend the agreement. Robert Palmer,
vice president of manufacturing at Digital and a CSPP member said,
"Managed trade is the way of the world. No industrial nation can
afford to become totally dependent on another for integrated
the Bush administration opposed managed trade, it, along with Congress,
continued to exert pressure on Japan over various trade issues. But in
response to this pressure, many Japanese believed that they should stand
up to the United States. A book The
Japan That Can Say No, written by Shintaro Ishihara, an LDP member
of the Diet created a stir both in Japan and in the United States.
Various factions, in the United States and Japan began to position
themselves with regard to the agreement. With the approaching expiration
of STA, it was obvious to all that the expected 20% foreign share in
Japan's market could not materialize. Therefore, in spite of opposition,
the second agreement was signed in July 1991. At that time, the 20%
"expectation" was included in the formal agreement, with the
deadline for achieving this target extended from July 1991 to December
1992. The fair market values
(FMVs) were discontinued, and all remaining sanctions were eliminated.
an interagency review of the U.S.-Japan STA, The United States Trade
Representative (USTR) announced that Japanese must improve efforts to
open its market. In response, the U.S. and Japan semiconductor
industries signed an interim agreement on "emergency measures” to
provide greater access to Japan's chip market. That same year, VLSI
Research announced that the U.S. semiconductor equipment firms had
regained lost market share and achieved market share parity with Japan
firms. At the same time that these events were occurring, the
semiconductor boom began and the industry faced a sustained expansion.
In the fourth quarter of 1992, foreign share increased by 5.3 percentage
points and hit the 20% target.
1993, the combination of greater R&D efforts, new product
development, and increased capital expenditures helped U.S. firms grow
their share of Japan's market. SIA figures also showed that the United
States had surpassed Japan in worldwide market share, thereby
reasserting its worldwide leadership. Japan appeared anxious when its
share of world output dropped below the U.S. share for the first time
foreign share in Japan's market, however was not maintained and declined
throughout most of 1993. EIAJ and SIA leaders held a joint news
conference in Tokyo to reaffirm their commitment to expand access in
Japan for U.S. and other foreign firms. The U.S. producers accounted for
about three-quarters of the larger 20% total foreign share in Japan.
1994, a joint press conference was held in Washington D.C. with vice
president Al Gore, secretary of commerce Ron Brown, secretary of energy
Hazel O'Leary and other high-ranking officials, announcing an expanded
public-private partnership to bolster U.S. leadership in semiconductor
technology. Meanwhile, U.S. producers sold $43 billion in chips and
American semiconductor companies’ capital spending reached $9 billion,
about 20% of its 1994 revenue. The U.S. semiconductor industry
maintained its worldwide market share leadership of 43.3%, which was
headed toward $150 billion in 1995.
the first quarter of 1995, the foreign share of Japan's market declined
but in the fourth quarter rebounded to surpass 29%. For the total year
of 1994, the market share number exceeded 20% on an annualized basis for
the first time, and the U.S. market share in Japan more than doubled
from the 1986 level. On the eve of the expiration of the agreement, the
governments announced that foreign share was 30.6% (although in December
1996 the government announced that MITI had provided erroneous data, and
that actually the first Quarter 1996 figure had fallen by 2.7 percentage
points to 26.9%). Meanwhile, with Ryutaro Hashimoto serving as minister
of international trade and industry, MITI publicly declared that
"the agreement between the governments has ended its historic
mission." In contrast, however, Mickey Kantor of the USTR called
for the extension of the STA in October 1995.
Heading for a Third
in early 1996 the American and Japanese chip industries and their
governments seemed again to be on a collision course. Although the U.S.
government indicated that it was willing to drop the numerical access
goal feature of the STA, the U.S. government and semiconductor industry
had two important objectives to negotiate with Japan: 1) maintenance of
consistent and reliable data that would permit analytical discussion of
market access, and 2) a continuing framework that would permit
resolution of trade and access issues as they arose. Japan had two
primary demands. It wished to replace the bilateral agreement with a
multilateral process and it wanted no numerical targets or benchmarks.
USTR’s Kantor continued to stress the need to negotiate a new
agreement, and both sides seemed locked into public positions that could
only end in painful confrontation once again.
was the extension of the STA so compelling to the U.S. side? What were
likely the primary issues for both the U.S. and Japan? What strategies
and arguments could they use to reach a new agreement? With the
increasing participation of third countries in the worldwide
semiconductor market, should the new STA had included other players in
the world? Why? How?
C.1 WORLD MARKET SHARE OF U.S., JAPAN AND OTHER 1982-1995
C.2 FOREIGN FIRMS’
SHARE OF JAPANESE SEMICONDUCTOR MARKET 1973 - 1995
C.3 WORLD DRAM MARKET 1977 - 1995
C.4 LIST & RANKING OF THE WORLDS LARGEST SEMICONDUCTOR FIRMS 1995
U.S.-Japan Competition and Trade in the Global
The Final Round?
the days prior to the expiration of the second agreement, the trade
associations of both countries put forth proposals showing their vision
for how the agreement might continue. Not too surprisingly, these
visions differed radically and met with strong opposition from their
EIAJ fired the
first shot with a proposal submitted to the SIA for a three year
industry-level agreement that focused purely on industry cooperation. It
specifically rejected government involvement, instead suggesting the
formation of a World Semiconductor Council to foster industry
cooperation. The United States staunchly opposed this plan, and insisted
that government involvement was necessary. Said one U.S. industry
official, “World councils don’t solve problems. They fashion grand
statements once a year.”
SIA fired back with a proposal of its own. It wanted to maintain a
government role, ensure rapid response to unfair pricing allegations,
and encourage more market openness in Japan. SIA also wanted to maintain
provisions for measuring market share based on capital affiliation.
Otherwise, the Japanese could include imports from its foreign
subsidiaries when it measured semiconductor imports to Japan. As might
be expected, the Japanese opposed the SIA proposal. Meanwhile, the
European Union (EU) protested at not being part of the agreement and
threatened to cease work on a separate global agreement to eliminate
semiconductor, computer, and telecommunication equipment tariffs.
July 31, 1996 deadline set by U.S. president Clinton and Japanese prime
minister Hashimoto to reach agreement passed without a deal being
reached. But agreement was achieved at a meeting in Vancouver, Canada,
on August 2, 1996.
agreement consisted of two parts: a “governmental” part, or joint
statement between the two governments, and an “industry trade
association” part, which was a separate agreement between the SIA and
government agreement was called the “Joint Statement by the Government
of Japan and the Government of the United States Concerning
Semiconductors.” The statement contained no targets for market
penetration. The two governments recognized Article VI of the GATT and
reaffirmed that government measures should be consistent with WTO rules.
But the statement contains no explicit provisions to guard against
dumping or joint publication of market share categorized by capital
affiliation, which SIA had sought. The United States got the extension
of the agreement it had so badly wanted, but this time only for three
years, not five as in previous pacts.
part of the governmental statement was the formation of the Global
Government Forum (GGF) on semiconductors, whose purpose is to discuss
the future of the semiconductor industry and ways to further liberalize
trade and investment. The statement explicitly welcomed “the strong
expression of interest by Europe” (Joint Statement by the Government
of Japan and the Government of the United States Concerning
Semiconductors) to join and invited Europe and countries elsewhere to
attend the GGF annual forum. At a press conference, acting USTR
representative Charlene Barshefsky suggested that China, Taiwan, and
South Korea might be able to join.
other part of the pact was the agreement between the two national trade
associations called the “Agreement Between EIAJ and SIA on
International Cooperation Regarding Semiconductors.” The main feature
of this agreement was the formation of the Semiconductor Council, of
which SIA and EIAJ were founding members. The council’s purpose was to
“enhance mutual understanding, to address market access matters, to
promote cooperative industry activities, and to expand international
cooperation in the semiconductor sector in order to facilitate the
healthy growth of the industry from a long-term, global perspective”
(Agreement Between EIAJ an SIA on International Cooperation Regarding
Semiconductors). The council was to make quarterly reports to
governments and provide “analysis of semiconductor market and trade
flow data.” This process replaced government publication of market
share data, which the industry associations would now provide. The
Japanese and U.S. governments would review these data once a year. Other
governments were excluded from these consultations and were not allowed
to submit data unless their associations joined the council. But only
industry associations from countries where semiconductor tariffs had
been eliminated completely would be allowed to join. In effect, this
prohibited the European Union from joining the council, at least until
it eliminated all tariffs. The council would also conduct cooperative
activities in intellectual property, standardization, the environment,
and worker health and safety. The industry agreement was subject to
review in three years, and could be terminated by mutual agreement of
The End of the Saga?
it seems, at least for now, that another chapter in the tempestuous
history of U.S.-Japan trade relations in the semiconductor industry has
closed. But is this the end of the story? Japan, seeing how the United
States engineered a comeback in the 1980s, plans a comeback of its own.
The New York Times describes
this comeback as a series of consortiums and cooperative R&D
programs not seen since the project two decades ago that catapulted
Japan’s semiconductor industry into the front ranks of the world chip
makers. Will this become another source of conflict in the future? And
Japan, after 15 years of struggle and major changes in the worldwide semiconductor industry, open its market enough to satisfy the Americans?top