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Trade Laws May Backfire on U.S. Firms

June 18, 1989|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — To members of Congress who are seeking to protect American manufacturers from what they regard as unfair competition from abroad, the massive trade law they enacted last year stands as a monument of hard-nosed realism.

But to a wide range of U.S. businesses that stand to suffer from its implementation, the act is only another sorry example of the law of unintended consequences.

A case in point: the heightened threat of 100% tariffs against an array of 54 Japanese imports in retaliation for Japan's failure to open its market in mobile radio and cellular telephone services and equipment to U.S. manufacturers.

Motorola, the lone U.S. manufacturer that was significantly damaged by Japan's closed telecommunications markets, prevailed upon the office of U.S. Trade Representative Carla A. Hills to retaliate under the terms of the 1988 trade act, which increased the likelihood that such tariffs would be imposed when circumstances warranted.

What Will Be Hit?

Hills' office has listed 54 Japanese products, ranging from high-tech computer equipment to cosmetics, that are under consideration for retaliatory tariffs. Its job now is to determine which products should be hit.

To users of each of those 54 products, the answer is clear: Not the ones we need. They argue that the tariffs would block their ability to buy the low-cost, high-quality parts that enable them to compete in international markets--against, primarily, the Japanese.

"We applaud the proposed action, but . . . ," said Robert N. Noyce, chief executive of Sematech, the new consortium of American semiconductor and computer companies that has joined to compete with Japan in the production of high-end microprocessors, semiconductors and other computer components.

It was a big "but." Sematech, which has sought government financing and partial shielding from antitrust laws, is far from averse to the idea of managed trade, if that would help it compete with Japan. But in Sematech's view, punitive tariffs that could block the import of high-tech Japanese equipment needed to produce even higher-tech semiconductors and computers would be counterproductive.

"The suggested sanctions against the Japanese will, in fact, harm the U.S. semiconductor industry by forcing American companies to pay tariff-inflated prices for certain semiconductor equipment," Noyce told the trade representative's office at a May 24 hearing.

"Since the Japanese have targeted that industry segment and have achieved dominating technological superiority in certain segments, the proposed tariffs would serve only to provide Japanese semiconductor suppliers with a competitive advantage," Noyce said.

He concluded: "We have to be careful of the unintended actions of such well-deserved and well-intentioned sanctions."

Sematech's predicament is an inevitable price of retaliation, said Lionel Olmer, a former Commerce Department trade official who has been doing battle with the Japanese for years.

"What always happens in these cases is that the same companies that are lobbying the U.S. government to be tough are also trying to make sure the retaliation doesn't jeopardize any of their suppliers or business interests," Olmer said in an interview. "But it's impossible not to jeopardize somebody's interest. There's no question about the law of unintended circumstances."

"You can't avoid goring someone's ox," added Kenneth S. Flamm, a specialist in trade and high-technology industries at the Brookings Institution. "It's a pit full of snakes we've descended into, and it's not clear who'll get bitten and who will survive."

In the case of the tariffs in retaliation for Japan's closed mobile radio and cellular telephone markets, the lobbying is going on mostly in public. It was concentrated in the May 24 hearing at the Office of the U.S. Trade Representative.

Another company testifying that day was Amdahl, one of the few remaining players in the competition with Japan to score first with the next generation of supercomputers.

Amdahl explained that its bread-and-butter product, the commercial Amdahl model 5590 mainframe computer, depends on Japanese suppliers for about half of its components. With the 100% tariffs proposed in the telecommunications case, Amdahl "will have no choice but to pay a penalty projected to be in the range of $40 million to $50 million annually," said Joseph Zemke, company spokesman, at the hearing.

That figure, Zemke said, amounts to about 25% of Amdahl's annual $200-million budget for research and development--the very lifeblood of its effort to develop a better supercomputer.

"A critical requirement for success in the highly competitive global data-processing marketplace is the unyielding need to constantly incorporate the finest technologies available worldwide," Zemke said.

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