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.