US Public Policy

Following through on his 2016 campaign promise, President Trump is implementing trade policies that buck conventional wisdom in Washington, D.C. and among U.S. businesses. Stiff tariffs and the dismantling of longstanding trade agreements – cornerstones of these new actions – will ripple through the semiconductor industry with particularly damaging effect. China, a chief target of criticism from President Trump, has again found itself in the crosshairs of the administration, with trade tensions rising to a fever pitch.The Trump Administration has long criticized China for what it considers unfair trade practices, often homing in on intellectual property. In August 2017, the Office of the U.S. Trade Representative (USTR), charged with developing and recommending U.S trade policy to the president, launched a Section 301 investigation into whether China’s practice of forced technology transfer has discriminated against U.S. firms. As the probe continues, it is becoming increasingly clear that the United States will impose tariffs on China based on its current findings. Reports suggest that the tariffs could come soon, hitting a range of products from consumer electronics to toys. Other measures could include tightening restrictions on the trade of dual-use goods – those with both commercial and military applications – curbing Chinese investment in the United States, and imposing strict limits on the number of visas issued to Chinese citizens. With China a major and intensifying force in the semiconductor supply chain, raising tariffs hangs like the Sword of Damocles over the U.S. and global economies. A tariff-ignited trade war with China could stifle innovation, undermine the long-term health of the semiconductor industry, and lead to unintended consequences such as higher consumer prices, lower productivity, job losses and, on a global scale, a brake on economic growth. Other recently announced U.S. trade actions could also cloud the future for semiconductor companies. The Trump administration, based on two separate Section 232 investigations claiming that overproduction of both steel and aluminum are a threat to U.S. national security, recently levied a series of tariffs and quotas on every country except Canada and Mexico. While these tariffs have yet to take effect, the mere prospect has angered U.S. trading partners – most notably Korea, the European Union and China. Several countries have threatened retaliatory action and others have taken their case to the World Trade Organization. Trade is oxygen to the semiconductor industry, which grew by nearly 30 percent last year and is expected to be valued at an estimated $1 trillion by 2030. Make no mistake: SEMI fully supports efforts to buttress intellectual property protections. However, the Trump administration’s unfolding trade policy could antagonize U.S. trade partners. For its part, SEMI is weighing in with USTR on these issues, underscoring the critical importance of trade to the semiconductor industry as we educate policymakers on trade barriers to industry growth and encourage unobstructed cross-border commerce to advance semiconductors and the emerging technologies they enable. On behalf of our members, we continue our work to increase global market access and lessen the regulatory burden on global trade. If you are interested in more information on trade, or how to be involved in SEMI’s public policy program, please contact Jay Chittooran, Public Policy Manager, at [email protected].

Foreign investment, which fuels technological innovation, productivity, and broad-based growth, is critical to the semiconductor industry’s long-term success. That stream of billions of dollars in investment, however, is at risk of narrowing as a result of the industry’s growing scrutiny by the Committee on Foreign Investment in the United States (CFIUS).Over the last two years, CFIUS, a government body formed to review sales and transfer of ownership of U.S. companies to foreign entities, has denied sales of Aixtron and Lattice Semiconductor to Chinese investors because of national security concerns. More recently, CFIUS rejected the sale of Xcerra to a Chinese company, and the Committee has reportedly become involved in Broadcom’s bid to take over Qualcomm.As highlighted recently, the Foreign Investment Risk Review Modernization Act (FIRRMA) was introduced by Sen. John Cornyn (R-TX) and Rep. Robert Pittenger (R-NC) in November to reform CFIUS, whose form and function have remained unchanged for over a decade. In the spirit of more effective governance that matches global trends, we welcome efforts to ensure that CFIUS better balances global commerce and national security. FIRRMA contains important reforms to drive new efficiencies within CFIUS to help alleviate its rising workload, including devoting badly needed resources to the committee. Among those reforms is the codification of regulations to ensure that a Senate-confirmed appointee with direct responsibility for investment reviews is installed in each CFIUS agency. Notably, however, FIRRMA fails to adequately address several existing problems with CFIUS and, in some cases, creates new ones. First, this legislation dramatically expands CFIUS’s authority, including allowing it to review any non-passive investment by a foreign investor in a U.S. critical technology or critical infrastructure company, even if the investor does not have control over the company. By defining businesses as a critical technology or critical infrastructure company, FIRRMA would subject companies, and not transactions, to review. This means that transactions from a critical technology company that involve non-critical technologies would be subject to unnecessary, time-consuming, and costly CFIUS review. Second, FIRRMA would require the committee to review joint ventures or any other common arrangements that involve sharing intellectual property with a non-U.S. partner. As a result, CFIUS, for the first time ever, would be charged with reviewing outbound international commercial activity. We believe that this is a serious flaw in the bill that would only duplicate the existing U.S. export control regime while adding another layer of regulatory burden. Third, FIRRMA would create different tracks for CFIUS scrutiny based on the origin of the investors. Countries of special concern, like China or Russia, would be subject to enhanced review while other countries with an approved CFIUS-like body, or that have a defense treaty with the United States, would be fully exempt from CFIUS review. This inherent bias seems to challenge the central tenet of U.S. investment policy – non-discrimination. Lastly, FIRRMA establishes provisions for expanded consultation and information sharing with allies. These provisions could lead, even if unintentionally, to needlessly divulging proprietary information and technology. Over the past year, there’s been greater focus on the stronger enforcement on foreign commerce and the protection of U.S. industries. FIRRMA fits squarely in this area. However, instead of creating sweeping barriers with economy-wide implications, a better approach would be to have higher fences around select items. This would help maintain the current investment stream that is vital nourishment for the semiconductor industry and the broader economy while also protecting national security. SEMI will continue working to open new markets while reducing the regulatory burden that can stifle cross-border trade and commerce. In addition, SEMI will continue to educate policymakers on the critical importance of unobstructed trade and investment in advancing semiconductors and the emerging technologies they enable. If you are interested in more information on foreign investment, CFIUS, or FIRRMA, or in how to be involved in SEMI’s public policy program, please contact Jay Chittooran, Manager, Public Policy, at [email protected].

The White House has released its fiscal year (FY) 2019 budget proposal just as Congress secured a two-year budget deal that will begin the process of wrapping up the rest of FY 2018 and set the government’s top line spending for FY 2019 as well. Included in both of these plans are funding levels for government agencies that are crucial to the basic research underpinning many of the building blocks for future innovation in the semiconductor industry. Funding for the National Science Foundation (NSF) and the National Institutes for Standards and Technology (NIST) are two of the biggest drivers for basic research in the U.S. government, with many other smaller agencies playing a role as well.In a bipartisan compromise, Congressional leaders agreed to a deal that would lift their self-imposed spending caps for FY 2018 and pump an additional $68 billion into non-defense discretionary spending for FY 2019. They now have until March 23 to approve a detailed spending plan for the rest of this fiscal year before moving on to complete the FY 2019 plan by the end of September. While the final spending levels for individual agencies have yet to be finalized for FY 2018, the additional funding bodes well for both NSF and NIST, which had seen cuts of between 2 percent and 9 percent in earlier drafts of spending bills.Meanwhile, the president’s FY 2019 budget plans to flat fund NSF for the next year, while making cuts to NIST of over 30 percent. Included in these cost reductions are proposals to eliminate the popular Hollings Manufacturing Extension Partnership, which provides assistance to small and medium-size manufacturers throughout the U.S. With the program providing funds to states with up to a 50 percent match, its elimination will face strong opposition from both parties in Congress. The president’s budget cuts also target the popular Advanced Research Projects Agency for Energy (ARPA-E) for elimination. Disbanding the agency would end multiple streams of funding for innovations in energy production and storage.While it is the responsibility of the president to submit his budget for the funding of the federal government, the power of the purse resides with Congress. The process of federal funding has been drawn out more than usual this year, with a short-term government shutdown even playing a small role. With the budget agreement now in place, the rest of the funding for FY 2018 should come by the upcoming deadline, with hopes that Congress can then quickly pivot to FY 2019. With the midterm elections coming in November, however, political implications will play an outsized roll in the process for the remainder of the year. SEMI strongly advocates for the position that funding of basic research is closely linked with our nation’s economic prosperity in the modern global economy. Effective research funding as a national priority should be bipartisan and must be backed up by a strong and united community of stakeholders and advocates in the business, research, and education communities. In addition, this funding must not only be robust but consistent and not subjected to the uncertainty of short-term stop gap budget measures. If you’d like to learn more about SEMI’s public policy program, please contact Jamie Girard at [email protected].