DP387 The US-Japan Semiconductor Agreement
Author(s): | Richard Baldwin |
Publication Date: | March 1990 |
Keyword(s): | Commercial Policy, Semiconductor Industry, Trade Agreements, Trade Restrictions |
JEL(s): | 421, 422, 442 |
Programme Areas: | International Trade and Regional Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=387 |
The semiconductor arrangement was intended to enhance free trade based on market principles. This paper argues that the arrangement had exactly the opposite effect. The arrangement has two parts: a price floor to prevent predatory pricing, and provisions to double U.S. market share in Japan to counter market closure. Given semiconductor production technology, the price floor forced a capacity reduction, a rise in world prices and a cartelization of the market. Since the observed dumping was probably not predatory pricing, the price floor restricted competition and free trade. The market closure probably exists and significantly harms non-Japanese producers. It is therefore an anti-competitive practice.