Discussion paper
DP387 The US-Japan Semiconductor Agreement
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.
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