US-Japan Chip Talks Begin Anew

WHEN it comes to helping the United States keep a competitive edge in a key technology, a ``managed trade'' policy works. Or does it? That's the issue for US and Japanese negotiators in a set of talks that began last week aimed at resolving what may be the hottest trade issue between the two nations this year: affirmative action for US computer chips.

The US wants to renew a 1986 pact in which Japan made an unusual pledge to guide its companies to ``buy American'' in order to give foreign firms a 20 percent share of the Japanese semiconductor market by July 1991.

Japan has so far failed to reach that goal, but US chipmakers are pleased enough with their increasing business in Japan that they asked the Bush administration for a little more ``managed trade'' on their behalf.

``Many people feel that without a goal, it would be impossible to make progress in the Japanese market,'' says Roger Malthus, Tokyo representative of the US Semiconductor Industry Association. The history of other trade tactics, he adds, ``shows that nothing happens.''

Japan, however, wants to contain the idea of setting market share for foreign firms, and rejected the US request at the opening talks on Feb. 14. Instead, it offered to continue holding get-acquainted meetings between Japanese buyers and American sellers in specific chip markets.

Many of those meetings have been resulted in successful partnerships being established in the ever more costly business of designing and manufacturing complex computer components.

In taking a hard stand, Japan hopes it can eventually appeal to free-trade advocates in the White House who oppose managed trade or a government-run industrial policy. ``It won't be easy,'' says a senior official with Japan's Ministry of International Trade and Industry.

One difficult irony for the US in the 1986 pact, and its possible renewal, is that it is asking the Japanese government to intervene in the market, a practice which the US has fought in other trade talks.

But such a step was justified in the pact to help end dumping of Japanese chips on the US market and to revive the sliding US chip industry. Also, the US sought to break the tight and customary relationships between Japanese firms that keep foreign firms out.

Japan never officially agreed to the 20 percent goal in the 1986 pact but rather made the commitment in an informal side-letter. In 1987, however, after the US alleged that Japan was failing to comply, Japan was slapped with $300 million in penalty tariffs on its electronic products. Only then did Japan unofficially begin to open its market with a ``result-oriented'' goal.

Japan has entered the new talks reluctantly, and has demanded that the US lift punitive duties, which have been reduced to $187 million on Japanese lap-top personal computers. If forced to renew a market-share goal, it wants only a two- to three-year accord, not another five-year one.

The two sides differ on just how much market share has been achieved by US firms, with Japan claiming 17.8 percent and the US 13.1 percent. Either one is shy of the 20 percent goal. And it is far below the estimated 40 percent market share that the US firms are able to command worldwide.

The US semiconductor industry, in seeking to hold Japan to the 20 percent, worries that US access has only come in the past couple of years, after two decades in which Japan effectively kept foreign participation to below 10 percent in the chip market.

Many US semiconductor firms have improved their quality after being criticized in the early 1980s by Japanese firms, says Norman Neureiter, Tokyo representative for Texas Instruments Inc. ``I don't think external pressure is the only factor now'' in Japanese purchases.

Still, says Glen Blazer, vice president of Advanced Micro Devices, in a few areas that rely on chips, such as autos and electronic switching systems, the US firms have made little progress in selling to the Japanese.