Semiconductor Priorities for the US-EU Trade and Technology Council
SIA strongly supports the establishment of the US-EU Trade and Technology Council (TTC) to coordinate and strengthen bilateral cooperation on critical technologies, digital issues, and supply chains.
Semiconductors are the foundation of everything digital in the world today – from transportation to AI to 5G to quantum computing and beyond. With deeply intertwined supply chains, our industry has strong transatlantic ties with our counterparts in Europe, ties that contribute to our shared strategic relationship. We collaborate in a broad array of areas, including on relevant policy matters, research, and environmental initiatives. Additionally, the US and the EU combined represent 21% of the world’s semiconductor manufacturing capacity in 2020, and 30% of the world’s demand for semiconductor chips. The US and EU have historically been leading trade partners in semiconductors. In 2020, total two-way semiconductor trade between the US and the EU totaled $4.8 billion. With the global ship shortage we are currently facing, trans-Atlantic cooperation is as important as ever.
Below are SIA’s top priorities for the US-EU TTC, including priorities aimed at supply chain resilience, export controls, state-owned enterprises (SOEs), and other trade issues that impact the semiconductor industry. We look forward to working with both the US and EU governments to create and maintain an open semiconductor ecosystem that promotes industry growth and innovation.
- Ensure Industry Participation Through Structured and Transparent Engagement Mechanisms
We encourage the US-EU TTC to establish structured and transparent mechanisms that facilitate engagement with relevant industry participants, including the semiconductor industry, to provide updates on the status of TTC engagement and opportunity for industry and other stakeholders to lend their expertise and perspectives to the dialogue. For example, the US and EU could establish a formal industry-government dialogue as part of the TTC.
- Coordinate on Semiconductor Incentives Policies with the Goal of Promoting Transatlantic Semiconductor Supply Chain Resilience
While geographic specialization has served the global semiconductor industry and its consumers well, it has also created potential vulnerabilities in the global value chain, as several factors have emerged that could put the successful continuation of this global model at risk. Both the US and EU share similar concerns that the semiconductor supply chain is particularly vulnerable to geographic concentration in parts of East Asia. In response, both governments have proposed semiconductor incentives policies to ameliorate these vulnerabilities with plans to invest heavily in high-risk gaps in the supply chains and to establish a more geographically diverse supplier base.
The US and EU should work together and with like-minded partners to strengthen our collective supply chain resiliency, including through the close coordination and exchange of information on government policies and incentives policies related to semiconductors. As a recent SIA-BCG report demonstrates, there is no one company or country that can achieve self-sufficiency in semiconductors, and the US and EU cannot address our respective supply chain vulnerabilities in isolation. As we make investments to expand domestic production capacity and redouble down on R&D, the US and EU must work together to analyze the combined strengths and weaknesses in the semiconductor industry to form a basis for smart policy making, ensure each region’s respective incentive programs are open to the most globally innovative companies, and promote information sharing and transparency regarding each region’s incentive programs.
- Promote Transatlantic Research and Development Collaboration
Accelerating innovations in technologies and manufacturing processes will be critical to strengthening supply chain resiliency. Some of the most critical recent advancements in semiconductor technology were the result of several decades of global R&D collaboration. International collaboration has allowed multinational companies, universities, and research institutions to collaborate and pool resources. Together, they undertake pre-commercial research to pursue scientific breakthroughs that lead to major leaps in semiconductor manufacturing. A significant portion of the R&D investment by the semiconductor industry is in fundamental research into science breakthroughs, invested many years ahead of a potential commercial application. Semiconductor firms and institutions, such as universities and government-funded advanced science labs, typically collaborate on this pre-competitive research to share the costs of research and avoid duplication of effort.
The semiconductor industry has created or is a core contributor to a number of organizations that bring together global companies, universities and research institutions to support international collaboration in R&D. Three of the world’s leading global semiconductor research institutions are located in the EU. The Interuniversity MicroElectronics Centre (IMEC) in Belgium is an international innovation hub in nanoelectronics, semiconductors and other digital technologies. CAE-LETI in France is one of the world’s largest research institutes for applied research in microelectronics and nanotechnology. Finally, the Fraunhofer-Gesellschaft in Germany is one of the world’s leading application-oriented research organization, with its largest institute dedicated to microelectronic and information technology system solutions and services. All three institutions have vast global networks of partners including governments, universities, and corporations. In addition, the CHIPS Act calls for the creation of a National Semiconductor Technology Center (NSTC) and an advanced packaging research institute, providing more opportunities for US-EU collaboration. The TTC should provide a venue in which these and new collaborations can be strengthened and leveraged deliberately to address supply chain vulnerabilities.
- Strengthen Rules for SOEs and Distortive Industrial Subsidies to Ensure Fair Competition Based on Market Considerations
The US and EU should develop a shared position on strengthened trade policy disciplines related to state-owned enterprises (SOEs) and other distortive subsidies (e.g. government equity infusion). SOE activities and industrial subsidies guided or aided by government influence, rather than by commercial considerations, can cause harmful market and investment distortions. When private companies are competing directly against a government, the playing field is certainly not level. While SOE’s are not major consumers of semiconductors in the US and EU, they are important players in other markets, particularly in China. While the US welcomes fair competition from abroad, in too many circumstances, unfair foreign subsidies have adversely impacted US manufacturing and more broadly, US competitiveness. In particular, the efforts by the Chinese government to provide substantial equity infusions to develop its domestic semiconductor capabilities have the potential to seriously distort semiconductor markets.
The US and EU should reassert a leadership role in trade policy and governance globally, with a focus on addressing discriminatory and market-distorting practices that are inadequately addressed by existing trade rules. SIA encourages the US-EU TTC to develop a shared position of SOE and government assistance disciplines that align with the US-Japan-EU trilateral work to strengthen WTO subsidy rules and the GAMS Guidelines and Best Practices for Regional Support. A shared position of strong SOE and government assistance disciplines in the US-EU TTC will send an important message to our other trading partners with large SOEs in the electronics sector that governments cannot use SOEs to discriminate against US and EU companies.
- Ensure Coordinated and Targeted Export Control Mechanism that Considers the Impact on the US-EU Industrial and Innovation Base
As the US and EU consider export control policy, both sides should ensure multilateral and trans-Atlantic alignment on targeted semiconductor export control policies are tied to direct and tangible national security risks. Any export controls proposed should be evaluated for their impact on the US and EU industrial and innovation base, which is important for both regions’ economic resiliency and national security.
In addition, multilateral export controls are much more effective than unilateral controls. In fact, controls are ineffective if sensitive technologies are available from non-US sources and could lead to a fragmentation of the ecosystem and global supply chains. An effective multilateral effort should include agreement on: 1) common licensing policies and standards; 2) adoption of equivalent end-user approach; 3) common understanding on extraterritorial application of export controls; and 4) harmonized definitions of common terms.
The US and EU need to strengthen existing multilateral institutions, such as through the Wassenaar Arrangement, and where necessary, explore alternative plurilateral approaches to ensure export controls are effective and narrowly focused on technologies that pose direct and tangible national security risks, applied for the purposes of national security, avoid inadvertent damage to American industry, and do not cause disproportionate or unintended harm to the industrial base of US allies. Collaborative approaches to export controls should include collaboration on export licensing policies and implementation, so that export control burdens are shared amongst partner countries and undercutting is avoided where partners share common policy objectives. This mechanism should also include means of information sharing amongst partners in order to share concerns.
- Promote Further Expansion of Global Trade and Policy Alignment in ICT Products
The US and EU have long been strong supporters of the International Trade Agreement (ITA) signed in 1996 and its expansion in 2015 that have eliminated tariffs on a wide swath of ICT products, as access to global markets and the free flow of commercial goods is essential to our semiconductor industry. The global ICT industry considers the ITA to be one of the most successful WTO agreements because it has contributed enormously to promoting jobs, lowering consumer prices, and driving economic growth and innovation. Between 1996 and 2015, world exports of ICT products covered by the ITA tripled to $1.7 trillion. The 2015 expansion rendered annual global tariff savings of $13.8 billion – without accounting for increased economic activity.
However, fast technological innovation has continued in the ICT industry after the signature of the 2015 ITA-Expansion Agreement. As a result, there currently are ICT products, manufacturing equipment, and materials which fall outside the scope of the ITA and its expansion, including lithium batteries, 3D printing, charging stations for electric vehicles, patient monitoring systems, as well as flat panel displays, all indispensable components of myriads devices which are critical to our telecommunication, healthcare, connectivity, transport infrastructure, and means to address climate change.
The US and EU should use their combined negotiating strength to generate momentum toward launching ITA3 negotiations and to promote further expansion of ITA geographic membership. Eliminating tariffs on new and innovative tech products under the ITA would increase the affordability and accessibility of products critical to tackling key global challenges like climate change, the digital divide, and COVID-19.
Moreover, it is crucial that the US and EU align on general standards and security aspects to incentivize the research, development, and adoption of new technologies. A certain degree of convergence of policies by the US and EU can trigger practical global standards, guarantee ethical principles, and allow for faster to market offers of ICT products and broader adoption of new technologies such as AI and quantum computing.
- Leverage Existing Institutions to Assert Joint US and EU Leadership on Semiconductor Trade
Finally, the US and EU should leverage and ensure alignment with existing multilateral institutions to address semiconductor related policy issues. For example, the US and EU semiconductor industries have a close working relationship as evidenced by long standing membership in the World Semiconductor Council (WSC) and Government/Authorities Meeting on Semiconductors (GAMS) – respectively industry and government bodies that further cooperation on policy matters related to the worldwide semiconductor industry.
Together with the US-EU TTC, the US and EU have a unique opportunity to promote sound semiconductor policies across the world through existing multilateral institutions.
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