Abstract
“TheJapanese electronics giant NEC ... will largely undercut prices of other personal computers in order to conquer share in the Dutch market ...” The newspaper story tells about its interview with a NEC manager and of NEC’s experience in dumping and price-undercutting. Its financial resources are sufficient to undercut the prices of other manufacturers by 10%. A new factory will be built near Munich for 400,000 personal computers for the European market. “Such a company has the financial resources to be able to obtain higher market share by means of lower prices,” said the manager of NEC’s Dutch sales organisation.’ In this case the computer will be dumped, not from Japan, but as collections of parts, components and sub-assemblies, to be finally assembled in the EEC. Dumping of products by means of assembly in the market where the product is sold is not covered by any anti-dumping law. There is no line of defense. With a negligible added value in the selling market, all international law can be made void.
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Notes Chapter XI
Algemeen Dagblad, April 23, 1991.
It reminds one of the words of the Chairman and CEO of NEC during a quadrilateral conference of the industry federations of Europe (UNICE), Japan (Keidanren) and representatives from the United States and the Middle East in 1978 in Geneva. NEC’s Kobayashi told the stunned Europeans and Americans that industry “is like a baby” and had to be protected and cherished until it would be able to help itself. The President of Texas Instruments, Mike Shephard, expressed his opinion that this was protectionism and was not tolerable.
Krugman (1987), p. 293.
See Chapter V. Wall Street Journal, April 26, 1991: “While Japanese computer and electronics companies make some of the best equipment in the world, the way their domestic market uses that machinery is considered inefficient and underdeveloped. Hardware makers, most with incompatible equipment, dominate the business and the independent software sector is weak.” Jacob M. Schlesinger describes the Japanese ‘keyboard allergy’ in the Wall Street Journal of November 11, 1989
Porter (1990), p. 146 narrates how Brother has started to produce typewriters because it needed to load the capacity of its ancillary suppliers and because of the need of typewriters in a protected market.
Porter (1990), p. 403.
James (1989), pp. 12, 76; Reich (1985), p. 22; Hieronymi (1987) p. 51.
The source is one of the companies that are member of the European Components Manufacturers Association (EECA) and the example is used in notes and memoranda for the European Commission.
A different picture of a cost construction has been offered by the European computer manufacturers association Eurobit, of which some cost items may have been induced by political objectives to decrease the EEC customs tariffs on ICs, by which chips costs have been overestimated and added value underestimated. Eurobit’s calculation is the following:Materials Actives 62.3 Hardware 9.8 Passives 2.3 PCB 8.4 Other 2.1 TOTAL 84.9
Direct Labour 1.9 Overheads 3.9 Importation 7.4 Other 1.9 TOTAL 100 (Source: Eurobit)
This calculation cannot be realistic. An added value of only 5.8% (or if the category “Other” is also added value, 7.7%) is unique. Added value in electronics normally ranges from 15–25%. With an added value as indicated by the European association Eurobit, the importance of the information technology industry would be negligible. The emphasis put on costs of materials and imports is of importance to the debate between computer industry and semiconductor industry and the Japanese role in it. Japanese influence on this debate could easily be exerted and could even get propagandistic value. The importance of the computer manufacturer is not so much as a user of chips, but as a value-adding industry. This is, of course, the essence of any industry. The dilemma of the European computer industry is that in order to create added value, the industry needs to be leading innovation, while the costs of materials are less important. Dependence on integrated chips manufacturers may imply that the innovations of the computer manufacturer will be used by the integrated competitor. The more the computer manufacturer is behind, the more materials costs, i.e. the price of chips, are relevant to him.
Because the story of displays is practically identical to the memory case, the narration of the latter is sufficient for all sorts of major components in terms of value in relation to the total value of materials.
The integrated circuit content in a personal computer is 20%; in television 9%; in telephony 6.5%; in electronic data processing 5%; communications 4.5%. Source: European Electronic Components Manufacturers Association. The information industry has a share of 24% in the electronics industry. Source: Electronics International Corporation, Paris, 1991.
Krugman, with Baldwin (1990), pp. 199–225, p. 200.
Krugman, with Baldwin (1990), pp. 200, 207–8.
The data on the semiconductor market are derived from Dataquest 1991; the data on computers are from the Gartner Group, Inc. 1990.
Source: Dataquest 1991.
Krugman does not share this opinion: The Japanese firms are not, however, vertically integrated in the usual sense. Each buys most of its chips from other firms and in turn sells most of its chip output to outside customers.’ That does not apply to DRAMs (Dynamic Random Access Memories), which he has made the subject of his model in Krugman, with Baldwin (1990), pp. 205–206. Japanese manufacturers have, in some cases, specialised, probably on the basis of mutual agreements arising from the various R0026D cartels sponsored by MITI.
Financial Times June 21, 1991.
Financial Times, March 17, 1992: the first “Kilby” patent named after a co-inventor was applied for by TI in 1960 and accepted by the Japan Patent Office in 1989. Seven companies accepted TI’s patent claim, among which were Toshiba, Oki, Matsushita, NEC, Sharp and Ricoh. Fujitsu still contested it in court.
Prestowitz (1988), pp. 34–36.
Kojima (1972), p. 9.
As can be seen, leather articles belonged to the sensitive products. That explains the increase of duties by Japan on plastic ski boots. In April 1986, the leather and shoe quota were replaced by a tariff-quota system, which kept the leather imports per capita still at a level of less than 40% of the US level and shoe imports at less than 12% of the US level. Source: Belassa and Noland (1988), p. 55.
GAIT, Joint Working Group on Import Restrictions, L/5090, January 16, 1981.
Interdepartmental Council for Trade Policy, Interdepartementale Raad voor de Handelspolitiek, document: IRHP ‘69–29, 1969.
Ojimi, Yoshihisa, Vice Minister of MITI, in a speech delivered to OECD Industrial Committee, June 24, 1970 quoted by Abegglen and Stalk (1985), p. 71–72.
Kingery (1989) p. 472.
In 1978 the capitalization was Y64.7 billion ($325 million). Shareholders were Fujitsu, NEC, Hitachi Toshiba, Old, Mitsubishi and NTIS. The JECC rents the computers to customers and pays the computer firm 44 times the price. Soft loans have been obtained from the Japan Development Bank. Products with a Japanese content of less than 75% were not eligible for JECC financing. Foreign firms were excluded. Source: Sub-committee on Trade of the Committee on Ways and Means of the U.S. House of Representatives (1980), pp. 9, 10 and 23.
The Japan Times, December 18, 1981.
Weisz (1981).
Quoted by the Semiconductor Industry Association, in its paper (1983), p. 82.
The source is the Electronics Industry of Japan (EIAJ) with its annual reports “Electronics Industries in Japan”.
Scientific American, October 1982.
The source of this decision of the Cabinet Meeting of December 19, 1975: Monthly Report of the Electronics Industry, published by the Japan Electronic Industry Development Association, Vol 18, No 1, January 1976, as quoted by the Sub-committee on Trade of the Committee on Ways and Means of the U.S. House of Representatives (1980), pp. 66–67.
Denki, March 11, 1976.
Represented in the report of the Semiconductor Industry Association (1983), Attachment A-4.
GATT (1989), pp. 116–163.
GATT, document L/5479 and C/M/167.
Nihon Keizai Shimbun, December 25 and 26, 1984.
Sigurdson, (1986), p. 38. The participants contributed the other half of this amount.
Semiconductor Industry Association (1983), p. 23. The Sub-committee on Trade of the Committee on Ways and Means of the U.S. House of Representatives in its report (1980), p. 17, has calculated a support to the information industry of $955 million for the 1976–1979 period. In a MITI paper, a comparison was made between the Very High-Scale Integrated Circuit programme (19791984) of $300 million and the Japanese Very Large-Scale Integrated Circuit of $130 million (19761979). The American programme was a defense programme.
FhM/3, January 28, 1984, p. 19.
Electronics Week, September 24, 1984, p. 34.
Yamamura (1986), p.196.
Semiconductor Industry Association (1982), pp. 37, 104.
The Japan Times, November 25, 1981: “Semiconductor War Takes Vicious Turn”.
Seminar für Systemforschung, Universität München (1989).
Prestowitz (1988), p. 47.
The Japan Times, November 9, 1983.
It was decreased, partly as compensation for the increase of the duty on VCR, as required according to Article XXVIII of the General Agreement on Tariffs and Trade. Also partly because computer manufacturers thought that this duty was prohibitive for their business.
The Japan Times, November 9, 1982. The latter - for American makers, rather derogatory - part has not been quoted by negotiator Prestowitz in Prestowitz (1988), p. 53.
Henderson, Nancy: “Eliminating chip tariffs: Free Trade or Free Ride?”; Electronic Business, May 1, 1984.
Minoru Inaba in Electronics News, February 18, 1985.
GATT: Report of the Panel adopted on May 4, 1988 (L/6309)“, Geneva, June 1989, pp. 116–163, pp. 117–118. Kingery (1989), p. 474.
In an interview in Electronics Business, September 1, 1985. The quote from Hitachi’s memorandum comes from “Reply Brief of the Semiconductor Industry Association before the Section 301 Committee Office of the United States Trade Representative”, November 15, 1985.
Wall Street Journal, August 5, 1985. During unsatisfactory negotiations resulting in Americans imposition of 100% punitive customs duties on some electronics exports from Japan, the American delegation showed evidence of sales at prices 59.4% to 63.6% less than Fair Market Value. The residual anti-dumping duty imposed by the Commission of the European Community on Japanese DRAMs (Official Journal of the European Communities (EEC) No. 165/90 of January 23, 1990, No L 2026, Article 3) was comparable, i.e. 60%. The Commission of the EEC had found, however, up to more than 200%, according to the head of the investigation team, Dr Raimund Raith in “Action against Unfair Trade in Semiconductors by the European Communities”, paper presented at the European Semiconductor Industry Conference, May 29–31, 1991, Marbella, Spain.
The prices were reported by The Japan Times, March 13, 1986. The normal value was included in the Anti-Dumping Complaint on behalf of the European Electronic Component Manufacturers Association (EECA), February 26, 1987, Annex 7.
Semiconductor Industry Association 1987.
Electronics Weekly, September 10, 1986.
Semiconductor Industry Association (1990), p. 6.
Prestowitz (1988), p. 56.
Prestowitz (1988), p. 54.
GATT, Document L/6076, November 6, 1986.
Kingery (1989), pp.467–497; p. 476. Ironically, a DRAM investigation was opened by the EEC a year after the conclusion of the Semiconductor Arrangement. European industry involved had been on the verge of requesting a similar approach by the EEC towards Austria, where Siemens has an important DRAM factory.
Financial Times, January 12, 1990.
Appendix 1 to GATT: “Japan - Trade in Semi-conductors, Report by the Panel”, Document L/6309, March 24, 1988.
Mainichi Daily News, March 1, 1988 and Kostecki (1989), pp. 17–35, p.25. The tariffs were on desktop microcomputers, colour television sets and some types of power-driven hand-tools.
The Japan Times, April 15, 1987.
GATT: “Japan–Trade in Semi-conductors, Report by the Panel”, Document L/6309, March 24, 1988, pp. 8–15.
Letter to report of the Semiconductor Industry Association: “One Year of Experience…’(1987).
The first time a price hike took place was reported in The Japan Times, March 13, 1986. NEC had increased its export prices by 20% in December 1985. Hitachi planned to raise the price by 20% in April. In 1985 prices hit a rock bottom of Y310 to Y410 ($1.27 to $1.68), then recovered slightly and stayed at Y330 to Y410. All major manufacturers had revised their investment plans. With the exception of Toshiba and Mitsubishi, which would adjust their plans later, growth rates in production were reduced by about 12%, reported Nihon Keizai Shimbun, October 30, 1986.
Japan Economic Journal, June 20, 1987.
The Financial Times, September 19, 1989 reported that according to a Nikkei Shimbun survey, the price of the 1M DRAM chip had fallen from its peak of Y2,150 ($15.62) in early 1989 to Y1,800 ($13.08). For bulk orders prices are much lower. NEC cut its export prices by about 20% to Y1,300- Y1,400. With estimated manufacturing costs of Y650–Y750 ($4.73-$5.45) chip-making is still profitable. Japanese chips output rose 48% from 124 million in the second half of 1988 to 184 million in the first half of 1989. MITI expected output to hit 247 million, which will probably be a peak.
Seminar für Systemforschung (1989), concluded that, in view of the highly risky nature of that business with its huge trade cycles, such a hypothetical 26% profit rate was necessary for self-sustaining business. According to the computer manufacturers’ association Eurobit in its post-hearing comments on the amended draft undertaking, May 22, 1989, a rate of 6% to 8% would be sufficient.
It does not seem to be important what the target profit of semiconductor producers in the European Community should be, but the Regulation of the European Community regarding antidumping (2423/88 of July 11, 1988 ) requires that the anti-dumping measure should cover either the dumping margin or the price-undercutting, whichever is the lower. As the Japanese had been accused of below-cost supplies, a construction of costs had to be made and of the profit on the ICs in question in order to determine the dumping margin and the undercutting of the prices of the two producers in the Community, Siemens and Motorola.
New York Times, January 18, 1990.
The price figures are from Dataquest. The cost estimates are from Integrated Circuit Engineering Corporation. They are ex-factory costs plus 1% interest expenses, 21% General and Administrative and 14% Research and Development.
Wall Street Journal, January 17, 1990.
The Economist, February 3, 1990.
Semiconductor Industry Association (1990), p. 8.
Semiconductor Industry Association (1987), p. 5, Japan Economic Journal, April 24, 1989.
The SIA refers to findings by the Office of the United States Trade Representative, the Department of Commerce and the Department of Labor in the report of the Semiconductor Industry Association: “One Year of Experience Under the U.S.-Japan Semiconductor Agreement, First Annual Report to the President by the Semiconductor Industry Association”, September 1987, Annex A, p. 2.
Japan Economic Journal, October 7, 1989.
Electronic News June 15, 1987; Nikkei Telecom, February 3, 1988. For the difference between baby and cry baby see also note 2.
Electronics Business, August 5, 1991.
Covering letter by the President of the SIA to President Reagan of September 27, 1987, presenting the SIA’s first annual report on the semiconductor arrangement.
The spot market price of a 1M DRAM was $7 before the price undertaking between the European Commission and Japanese producers of $6.90. Sources: spot prices Dataquest. Information about the initial floor price of the undertaking Electronics Weekly, February 7, 1990. Because of this undertaking European and American prices went down in parallel and remained for a while, though marginally, below Japanese spot market price levels.
Tokyo Business Today, September 1990: Fujitsu Ltd. want to boost its computer sales, including mainframes, in Europe in competition with International Business Machines Corp. (IBM).
Wall Street Journal, June 19, 1991.
Wall Street Journal, November 14, 1990.
Financial Times, July 24, 1991. That is about 12% of personnel.
Wall Street Journal, July 26, 1991.
Financial Times, October 2, 1992; March 2, 1993.
Datamation, November 1, 1992.
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van Marion, M.F. (1993). Big Battle, Micro-Electronics. In: van Marion, M.F. (eds) Liberal Trade and Japan. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-642-46942-8_12
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