07/08/96 CHIPS: THE FIGHT CLINTON CAN'T WIN

CHIPS: THE FIGHT CLINTON CAN'T WIN

This is one trade fight a lot of Clintonites wish they had sidestepped. When executives in the semiconductor industry last year urged the Clinton Administration to press Japan to renew a bilateral chip accord, then-U.S. Trade Representative Mickey Kantor was all for it. The 1991 pact, which expires on July 31, was widely viewed in the U.S. as an exemplary agreement--albeit one with room for improvement. Besides, the Clintonites didn't want to say no to Silicon Valley CEOs whose support is vital to the President in California.
But now, the whole thing threatens to backfire on the Administration. On June 21, the two nations' chief negotiators, USTR Chief Counsel Ira Shapiro and tough-guy Vice-Minister of Trade Yoshihiro Sakamoto, ended talks without reaching a deal. One reason: Tokyo appears to be dead set against extending the accord. If Japan doesn't ease its opposition, the Administration will have to choose between walking away or settling for a nonbinding industry-to-industry pact. Either way, the Clintonites will look like losers. In a bid to avoid that fate, Clinton was expected to deliver a tough message to Prime Minister Ryutaro Hashimoto in Lyons, France, on June 27: It's time to stop stalling and start dealing.
NO SHOW OF GRATITUDE. The White House is dismayed that the President's amicable visit to Tokyo in April yielded no breakthroughs in disputes over chips--or film or insurance or landing rights for U.S. airlines, for that matter. ``We thought we left Tokyo with a shared understanding that credibility about the alliance depended on progress on the economic side,'' gripes a White House official. Others complain that Hashimoto isn't showing any gratitude for the jump his approval ratings took in polls after Clinton's visit. Hashimoto ``owes us,'' says one trade hand.
U.S. Ambassador to Japan Walter F. Mondale is fuming, U.S. officials say, over his June 23 meeting with Sakamoto's boss, Shumpei Tsukahara, head of the International Trade & Industry Ministry (MITI). Tsukahara told Mondale that extending the semiconductor accord was a nonstarter and that Clinton shouldn't even raise the issue in talks with Hashimoto.
On the surface, it's hard to see why the U.S. is making such a fuss. Since the inception of the '91 agreement, the foreign share of Japan's semiconductor market has more than doubled, to 30% (chart)--well above the 20% target of the accord--with U.S. producers accounting for about two-thirds of that. A number of collaborations have sprung up between U.S. chipmakers and Japanese companies to tailor semiconductors for specific products. ``There's no compelling need for an agreement anymore,'' says Michael Smith, who negotiated the first U.S.-Japan chip accord in 1986.
But many American companies worry that without an ongoing obligation for both governments to monitor foreign sales, Japanese purchasers won't buck pressure from local suppliers to buy Japanese chips. ``The fear is people will revert to their insular ways, and our market share will drop,'' says a U.S. high-tech executive.
SMELLS A RAT. Whatever happens, any new accord will be far less stringent than the old one. The follow-up agreement Washington is pushing for contains no specific market-share target and no requirement that Tokyo lean on Japanese users to buy foreign chips. In a deft tactical move, MITI has lined up European support for an alternative: scrapping the accord and replacing it with some sort of multilateral forum.
The Japanese are wary of the U.S. proposal, especially its reference to ``continued improvement in market access'' as a goal. ``It's a disguised attempt to lock in a 30% market share,'' says Stanton D. Anderson, a Washington lawyer who represents the Electronic Industries Association of Japan.
But Clinton, still seeking election support from Silicon Valley execs, shows no sign of backing down. Some U.S. officials concede it might have been wise just to let the Japan chips accord expire. Now, it's too late for that, and the U.S. is stuck in a spat it will find hard to get out of gracefully.
By Amy Borrus in Washington