TOKYO - Japan has decided to levy punitive
import tariffs on computer memory chips made by
South Korea's Hynix Semiconductors Inc, providing
the latest - and most symbolic - illustration of
how life is getting difficult for once-dominant
Japanese chips.
Acting on cries for help
from domestic companies struggling with
increasingly tough foreign competition, Japan has
decided to slap
countervailing tariffs of
27.2% on Hynix's dynamic random access memory
(DRAM) chips. The decision was formally endorsed
at a regular meeting of Prime Minister Junichiro
Koizumi's cabinet on Tuesday, and the tariffs were
to become effective on Friday and remain in place
for five years.
It will mark the first
time that Japan has applied punitive tariffs of
that kind for any imports. It will also be the
first case of Japan slapping punitive import
duties on high-technology products. Countervailing
duties are punitive tariffs that an importing
country imposes on an exporter that receives
government subsidies.
In making a
preliminary decision to levy punitive tariffs, the
Japanese government said in October that it had
notified South Korea that it might slap 27.2%
countervailing tariffs on DRAM chips made by
Hynix, one of the world's leading memory-chip
makers. The Japanese notification to South Korea
came after more than a year of investigations into
allegations from two domestic companies - Elpida
Memory Inc and Micron Japan Ltd, a unit of
US-based Micron Technology Inc - that Hynix
exports are being subsidized by unfair loans from
banks backed by the South Korean government.
The two companies claimed that imports of
subsidized Hynix DRAM chips were being sold at
unfairly low prices and were thereby hurting the
Japanese chip industry. According to data from the
South Korean Foreign Ministry, Hynix's share of
the Japanese DRAM market was 15.9% in 2004,
trailing Samsung Electronics' 38.3% and Elpida's
18.6%. Before making the preliminary decision
final, the Japanese government has allowed its
South Korean counterpart and Hynix time to counter
or disprove the Japanese allegations against the
Korean chip maker in writing. But the preliminary
decision has not been reversed.
Hynix
nearly collapsed under huge mountains of debt
several years ago. It was saved twice - in 2001
and 2002 - by its creditor banks, which were
majority-owned by the Korean government. The South
Korean Ministry of Commerce, Industry and Energy
has said in a statement, "The Japanese ruling is
unreasonable and disappointing, as it is based on
unilateral calls by Japanese semiconductor firms
and has no legal basis." Hynix has also said in a
statement, "It is unfair for the Japanese
government to regard the debt-restructuring plan
as a government subsidy, because it is obvious
that we raised funds to pay back the debt and gain
creditor control."
Japanese computer-chip
makers now live in a totally different world from
just a decade or so ago. Japanese semiconductors
once dominated the world market, grabbing a
combined global market share of more than 50% in
the second half of the 1980s. Japanese products
were proudly vaunted as Hinomaru chips (Hinomaru
is the name given to the Japanese "rising sun"
flag). But today, their global market share has
plunged to about 20%. South Korean companies,
including Samsung Electronics as well as Hynix,
have emerged as key high-tech rivals to
once-dominant Japanese companies, such as Toshiba
in computer chips and Sony in consumer
electronics.
Legal battles over
chips The Japanese decision to levy
countervailing tariffs on Hynix products followed
the imposition of such tariffs by the United
States, in 2003, and the European Union, in 2004.
The US tariff rates are 44% and the EU ones are
35%. South Korea has filed a complaint with the
World Trade Organization (WTO), the Geneva-based
referee on trade disputes, against the US and EU
measures, and is expected to take the case of
Japan's punitive tariffs to the WTO as well.
But the trade body's highest court, the
Appellate Body, overturned an earlier ruling by a
WTO dispute-settlement panel and handed down a
verdict in favor of the US last June, emboldening
Japan. In the case of the EU tariffs, however, the
WTO ruled soon afterward that the 25-nation
grouping should reconsider its measures as it had
incorrectly calculated the material injury caused
to its own products by the subsidies.
Elpida was formed in 1999 as a joint
venture between electronics giants NEC and
Hitachi. On the same day the Koizumi cabinet
formally approved the punitive tariffs on Hynix,
Elpida announced that it posted a 95% fall in
quarterly net profit, hit by a slide in
memory-chip prices. The company also cut its
outlook by more than expected to a full-year loss.
For the year to March, Elpida reversed its net
forecast to a loss in the range of 2 billion to 6
billion yen (US$17.4 million to $52.1 million)
from a previous forecast of a profit of 5 billion
to 10 billion yen.
Elpida is Japan's only
exclusive maker of DRAM chips, which are widely
used in personal computers, as major Japanese
electronics makers have pulled the plug on the
DRAM business in recent years in the face of
falling prices and intensifying competition in the
sector. Hynix has been in a neck-and-neck race
with Micron Technology of the US for the No 2 slot
in the global DRAM chip market by sales. Another
South Korean chip maker, Samsung Electronics, has
kept the position of market leader since 1993.
Hynix is also locked in legal disputes
with Toshiba over patents on NAND flash memory
chips used in digital cameras and MP3 players.
Toshiba filed a lawsuit with the Tokyo District
Court in November 2004 against Hynix, seeking an
unspecified amount of damages for violations of
NAND-related patents and an injunction against the
sale of the "infringed products". At the time
Toshiba also filed a similar suit with a US court
against Hynix and its US subsidiaries over their
alleged infringements on patents related to NAND
chips as well as DRAM chips.
NAND
chips: Another bone of contention More
recently, Toshiba filed a complaint with the US
International Trade Commission (ITC) over alleged
patent infringements by Hynix last September,
seeking a ban on imports and sales of NAND chips
made by the Korean firm. In a tit-for-tat move,
Hynix lodged a similar complaint with the ITC in
late October, claiming the Japanese company
violated Hynix's NAND-related patents and seeking
a ban on imports and sales of Toshiba products.
The ITC announced in early November a decision to
investigate the allegations made by Toshiba
against Hynix.
Unlike DRAM chips, NAND
chips can retain data even when electric power is
turned off. The NAND chip market is also being
driven by booming demand for tiny portable music
players such as Apple Computer's iPod nano.
Market-research firm iSuppli said last
year it expected the global NAND market to grow
42% in revenue terms in 2005 to reach $9.42
billion, compared with single-digit growth for the
overall chip industry. Toshiba also expects global
NAND chip sales to double in 2008 from the 2005
level. Thanks to robust demand and tight supply,
prices of NAND chips have been stronger in recent
months than previously expected.
Toshiba
is the world's second-largest maker of NAND chips,
after Samsung. Hynix and other DRAM chip makers
also have entered or are entering the fast-growing
and lucrative market for NAND chips. Driven by
robust sales of NAND chips and the products they
power, Samsung is said to be even closing the gap
on Intel, the overall semiconductor-industry
leader.
Meanwhile, Japan's countervailing
tariffs on Hynix's DRAM chips are expected to have
little, if any, negative impact on the Korean
maker as it has taken steps to weather punitive
tariffs in its major export markets, such as the
US and the EU as well as Japan. When the WTO's
final ruling on the dispute with the US was
announced, a Hynix official said the continued
imposition of extra duties would not be a problem
for the company once plants in Taiwan and China
would go into operation late last year and early
this year.
In response to the news of the
Japanese decision against its products, Hynix said
it expects "little substantial damage" to its
business, adding that it will increase exports of
chips not covered by the tariffs, such as NAND
flash memory chips. It also plants to use overseas
manufacturing bases. Hynix makes DRAM chips in the
US, has a manufacturing relationship with a
company in Taiwan and also plans
production at a new plant in China this year.
Still, the Japanese trade sanctions
against Hynix come at an awkward time for
relations between Tokyo and Seoul. Bilateral
relations have plunged to their lowest point in
decades because of Koizumi's repeated visits to
Yasukuni Shrine, the territorial dispute over
islets called Takeshima in Japan and Tokdo in
South Korea, and the fracas over Japanese
textbooks authored by right-wing scholars for use
at high schools.
Japan and South Korea
launched negotiations on concluding a free-trade
agreement (FTA) at the end of 2003. But the
negotiations have been stalled in the past year
amid strained relations between the two Asian
neighbors. They failed to meet the original goal
of striking an FTA by the end of last year. South
Korea demanded that Japan agree to eliminate its
import quotas on 17 categories of marine products,
including laver (an edible seaweed), mackerel,
horse mackerel and squid for a bilateral FTA.
Japan is the only industrialized country to impose
import quotas on marine products.
Separately, Seoul lodged a complaint with
the WTO against Tokyo in December 2004 demanding
an abolition of a Japanese import quota on laver.
The two countries reached a settlement to the
laver trade spat just last week, with Tokyo
pledging to quintuple its import quota on Korean
laver by 2015 and Seoul agreeing to withdraw its
WTO complaint in return.
Further
industry consolidation ahead? Japanese
makers were once in the driver's seat in the
overall semiconductor market in terms of sales and
became the target for fiery protectionism in the
United States. Excessive dependence on Japanese
computer chips even raised national-security
concerns in the US; but their horsepower has
significantly weakened in recent years.
According to research firm Dataquest,
three Japanese makers - NEC, Toshiba and Hitachi -
topped the ranking list of semiconductor makers by
sales in 1988, when Japanese makers were in their
heyday. But Japanese makers began to be displaced
by US, European and Korean rivals soon afterward.
In 2004, Intel, Samsung and Texas Instruments of
the US were ranked the world's No 1, No 2 and No
3, respectively. Among the top 10 semiconductor
makers that year were three Japanese companies:
Renesas Technology, a joint venture between
Hitachi and Mitsubishi Electric; Toshiba; and NEC
Electronics, which was spun off from NEC in 2003.
Last year saw Japanese chip makers sink
further on the ranking. According to a preliminary
report released early last month by US
market-research firm iSuppli, Intel, Samsung and
Texas Instruments retained their No 1, No 2, and
No 3 positions by semiconductor sales in 2005,
respectively. The three companies all saw their
sales outpace the growth in the world
semiconductor market, which increased 4.4% from
2004 to $237.3 billion. Among other Japanese
companies, Renesas Technology slipped from the No
5 to the No 7 position in the ranking, and NEC
Electronics fell from No 8 to No 10.
Although Toshiba moved up to the No 4
position from the previous year's No 7, backed by
booming sales of NAND chips, the Japanese maker is
also expected to face tougher competition this
year and beyond. In late November, Intel and
Micron Technology announced plans to form a
company to make NAND chips, jointly pledging up to
$5.2 billion to create a rival to the Asian
companies that now dominate the market. The joint
venture gets significant support from Apple
Computer Inc. The computer maker, which needs huge
numbers of NAND chips for its music players, will
pay $250 million each to Intel and Micron for a
share of the new venture's output.
While
fiercely competing on the global marketplace,
Samsung and Sony also work together, such as at a
state-of-the art plant in South Korea that makes
the liquid crystal displays (LCDs) used in
hot-selling flat-panel televisions. The unlikely
alliance shows just how tangled the connections
have become among consumer-electronics companies
as competition in the industry intensifies. The
same trend can be seen among Japanese electronics
makers themselves, which have traditionally prided
themselves on doing as much themselves as
possible, from the design of their gadgets to the
technology used for them.
This month,
Hitachi, Toshiba and Renesas Technology announced
they will decide in six months whether to build
Japan's first factory to make customized chips to
compete against foreign rivals. The three
Tokyo-based companies said they will create a
holding company this month to plan the venture.
The factory would make system LSI (large-scale
integration) chips with a circuitry width of 65
nanometers (billionths of a meter) or less, the
smallest commercially produced. A former vice
president at NEC Electronics will take the helm of
the venture. NEC Electronics is not participating
in the venture. Most advanced semiconductor plants
use 90-nanometer circuitry. Intel recently
announced plans for a $3.5 billion, 45-nanometer
semiconductor factory in Israel.
Hitachi
has said it will ask NEC Electronics, Matsushita
Electric Industrial Co and others to join the new
company in a bid eventually to build a joint
chip-production plant. These companies are willing
to share a massive investment in computer-chip
production equipment to revive the domestic
semiconductor industry.
Separately,
Toshiba and NEC Electronics said in November that
they had started discussing a comprehensive
alliance in their semiconductor operations. NEC
Electronics had warned in late October it would
fall deep into the red this fiscal year after
falling sales and prices for a range of its chip
products. Matsushita Electric Industrial has
formed a manufacturing technology-development
alliance with Renesas Technology. Toshiba and Sony
have also forged a similar alliance.
Joint
production is seen as one way chip makers can pool
resources and cut costs. The goal is to produce
smaller, faster chips that consume less power.
This would in turn allow electronics makers to
make smaller products. The Japanese Ministry of
Economy, Trade and Industry (METI) has apparently
played a leading role behind the scenes in
promoting the industry consolidation. Despite the
recent moves toward consolidating the
semiconductor industry, however, many industry
experts agree that further industry realignments
are inevitable if Japanese makers are to weather
increasingly tough competition from US and Korean
rivals. Whatever happens, Japan's chip makers seem
to have no chance of going back to the "good old
days".
'Aggressive legalism' The
latest Japanese decision against Hynix products
may also raise a question among some people: Does
it represent a significant shift in Japan's trade
policy and portend a rise in protectionism in the
world's second-largest economy?
Japan has
pursued what is called "aggressive legalism" among
trade experts in the past decade, after its
grueling auto trade war with the United States in
the mid-1990s. The tenacious US demand - and
Japan's rejection - for Tokyo to set numerical
targets for imports of US auto parts brought the
two countries to the brink of an unprecedented
tit-for-tat trade war. The US decided to slap a
prohibitively high tariff of 100% on imported
Japanese luxury vehicles under Section 301 of the
Trade Act of 1974, and Japan filed a complaint
with the WTO against the US measure. It was the
first time Japan had taken a trade dispute with
the US to the WTO. Unilateral trade measures like
the ones under the Section 301 were declared
illegal by the WTO later.
In the
mid-1990s, Japan began clearly to say no to what
it deemed unjust US demands that contravened
international trade rules, and also began to refer
the US to the WTO over WTO-incompatible laws and
trade measures. This marked a significant
departure from the postwar Japanese trade policy.
Previously, Japan had typically conceded in the
face of the threat of US sanctions.
Japan
has since filed complaints with the WTO against
the US over such trade measures and laws as the
anti-dumping duties on hot-rolled steel imports,
the Antidumping Act of 1916 and the so-called Byrd
Amendment, and has won in all cases. Last
September, Japan joined the EU and Canada in
taking the WTO-sanctioned step of imposing extra
import tariffs on US steel and other products in
retaliation for a failure by the US to rescind the
Byrd Amendment, which was declared in violation of
international rules by the WTO. It was the first
time that Japan had taken such a WTO-sanctioned
retaliatory trade measure against any trading
partner. (The Byrd Amendment directed the US
government to distribute collected anti-dumping
and anti-subsidy duties to the US companies that
had brought the cases.)
There is another
pending case at the WTO involving Japan and the US
over the latter's controversial "zeroing" practice
of calculating anti-dumping duties. In the current
Doha Round of global trade talks under the
auspices of the WTO, Japan is a key member of a
group dubbed "AD [anti-dumping] friends" calling
for stricter rules against abuse of anti-dumping
duties by WTO members, especially the US. Japan's
aggressive legalism on trade was encouraged by the
fact that the WTO succeeded the General Agreement
on Tariffs and Trade (GATT) in January 1995 as a
more powerful global watchdog on commerce with
stronger dispute-settlement functions
In
stark contrast with Japan's much touted
"aggressive legalism" on the export front,
however, Japan has been highly cautious about
resorting to import measures under the so-called
trade-remedy laws, such as "safeguard" import
restrictions, anti-dumping duties and
countervailing tariffs. That is because Japan has
feared being criticized by targeted trading
partners as protectionist or at least as
ungenerous in light of its persistently colossal
trade surplus with the rest of the world. Japan
has also racked up a trade surplus of about $20
billion annually with South Korea.
Still,
the relative decline of Japan's economic power
since the "bubble economy" bust of the late 1980s
not only has frothed up protectionist pressure
from weak domestic industries, but also has
relieved the country of some of the moral shackles
that had made aggressive legalism difficult to
pursue.
"Safeguard" import restrictions
have been imposed only once. Japan imposed such
restrictions for the first time in early 2001,
albeit on a temporary basis, on three Chinese
agricultural products - stone leeks, shiitake
mushrooms and igusa rushes, the straw used for
tatami mats. This invited an angry retaliation
from China, which slapped punitive 100% import
duties on three Japanese industrial products -
automobiles, air conditioners and mobile phones.
Japan lifted the import restrictions after the two
countries agreed on an "orderly trade" in the
three farm products in question.
Anti-dumping duties have been imposed only
three times. Japan slapped such duties on
ferrosilicon manganese from China in 1993, cotton
yarns from Pakistan in 1995 and discontinuous
polyester fibers from China and Taiwan in 2002.
Countervailing tariffs have never been levied.
Domestic cotton-yarn makers applied for government
protection from Pakistani imports in 1982 through
countervailing tariffs, but withdrew the
application later. Domestic ferrosilicon producers
also filed an application for countervailing
tariffs against Brazilian imports in 1984, but
withdrew the request later.
Hisane
Masaki is a Tokyo-based journalist,
commentator and scholar on international politics
and economics. Masaki's e-mail address isyiu45535@nifty.com.
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