EU hovers over US-Japan chip deal

Date: 25/07/1996

By Elizabeth Wise

THE EU is sitting like a vulture on the decaying body of a US-Japan agreement which, until the end of this month, guarantees foreign semiconductor manufacturers 20&percent; of the Japanese market.

Tokyo is not anxious to comply with US requests to renew the accord when it expires on 31 July. The Union, left out of lucrative bilateral chip deals for a decade, is encouraging Japan's reluctance.

As the deadline approaches, European Commission officials are watching the two countries' every move and are positioning themselves for the hard bargaining which is likely to take place at the eleventh hour.

“Wherever the meeting is between the US and the Japanese, we will be there too,” said an aide to Trade Commissioner Sir Leon Brittan. “Our contacts will pick up when their meetings pick up.”

Commission President Jacques Santer and Brittan have written to Japanese Prime Minister Ryutaro Hashimoto and Trade Minister Shunpei Tsukuhara “reminding them of their commitment not to do anything discriminatory and to include us in any agreement”, said the aide.

Japan does not exactly see eye to eye with the Union - rather than a trilateral arrangement, Tokyo believes foreigners have enough market share there already and would be happier if there were no agreement at all. But Tokyo has capitalised on European eagerness as a way of reinforcing its armour against Washington's lances.

“The EU has expressed its interest in participating so it is no longer a bilateral issue,” said Hashimoto last month in a near-taunt to the US ambassador in Tokyo.

Union officials seized upon a Japanese proposal for a 'global government forum' for regular discussions of trade liberalisation and industry policy. With the US and Japanese governments and the European Commission as charter members, it would be open to other chip-producing nations.

But Washington wants a bilateral deal sewn up before granting Europe a slice.

At the G7 summit in Lyon last month, Santer, Brittan, Hashimoto and Tsukuhara agreed to intergovernmental cooperation which negates the basis for the current

US-Japan deal, declaring: “Markets, not governments, shall determine market share and governments shall not intervene.”

Any government action, they said, should avoid discrimination on the basis of a product's origin and all cooperation should be on a multilateral basis, not focusing on one country's market.

The clock keeps ticking. US industry leaders still think a deal is possible next week, but their own efforts in talks with Japanese colleagues last weekend were not as productive as they had hoped.

US Trade Representative Charlene Barshefsky kept up the pressure during a meeting of trade ministers of Asia-Pacific Economic Cooperation (APEC) nations last week in New Zealand. She described her sideline meeting with Tsukuhara as “constructive”, but Japanese trade officials rankled at the US proposals, which they described as “managed trade” in contradiction of world trading rules.

As it is not an APEC member, the EU was left out of last week's meeting - but Commission officials are nevertheless making their voices heard. “A bilateral framework is not appropriate,” insists chief EU negotiator Mogens Peter Carl, who leads the day-to-day aspects of a drive which he says goes right to the “highest political levels in Europe”.

The stakes are high, but slipping. After 37&percent; growth last year, semiconductor sales are now predicted to rise by only 7.8&percent; in 1996. What was last year a burgeoning

115-billion-ecu market is this year the scene of slashed prices and falling demand.

But Japan's microchip market is still worth 35 billion ecu. Foreign producers now have nearly a third of it, up from 8.5&percent; a decade ago, with US firms holding about 19&percent; and Korean manufacturers about 9&percent;.

European chip-makers have about 1.5&percent; of the market, according to Carl, who says: “You would need a magnifying glass to see our market share in Japan.”