Public Policy

Meeting Attended by More than 100 Tech Company RepresentativesOver the past decade, China has become a central market for the semiconductor industry. China is now home to more than 30 percent of semiconductor end users worldwide. All semiconductor companies, regardless of size, operate in China. The rise of China’s semiconductor market has been enabled by global commerce and a vast network of supply chains that span the globe.With China now a prominent player in the industry, it has become critically important for semiconductor companies to effectively engage with China. In order to help our member companies better understand the challenges and opportunities and navigate what can be a complex landscape, SEMI hosts annual trade compliance conferences in China for trade professionals. This year, SEMI, with CompTIA and U.S. Information Technology Office (USITO), hosted two global trade seminars in China, one in Shanghai on October 30th and the other in Beijing on November 1st.Over 120 representatives from more than two dozen technology companies attended the 2018 trade compliance seminars. Over the course of the two sessions, speakers from government, business, and law firms highlighted the most pressing trade issues in China. Speakers included thought leaders, trade practitioners and senior Chinese government officials.Sessions included a deep dive on China’s draft customs reform law, a panel discussion on U.S. export controls, and a briefing on how best to engage with China Customs and how China’s products are classified. Another well-received session focused on the status of China’s export control law, which has been in the drafting process for years.However, the overarching question for many attendees was U.S.-China economic relations, which are undergoing a sea change, with the U.S. having imposed or threatened tariffs on all imports from China – totaling more than $500 billion in goods – over the past six months. As a speaker noted during a session on the U.S.-China tensions and the surrounding broader geopolitical impacts, the environment is becoming increasingly complex and volatile. In fact, on the morning of the first session, Fujian Jinhua Integrated Circuit was added to the U.S. Commerce Department’s entity list, which effectively restricts exports to the company.As a result of the trade actions, ranging from tariffs to enhanced export controls, U.S. semiconductor companies are beginning to increase prices, reduce research and development (R D) budgets, restructure supply chains and take other mitigation actions that will ultimately slow innovation. Certain export controls and other regulations that prohibit U.S.-companies from conducting business with targeted companies will put the U.S. at a competitive disadvantage.In fact and as we speak, some companies with China-based operations have cancelled orders from U.S. companies and shifted to suppliers that are not subject to U.S. actions to reduce the associated risks of supply interruption and cost increases. Ultimately, U.S. trade policy could backfire, threatening jobs, curbing growth, cutting U.S. R D investments and compromising the competitiveness of U.S. firms.SEMI will begin planning next year’s Global Trade Seminar in the coming months. If you would like to be involved in the planning, or would simply like more information about the seminar, please contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

Last week, the Office of the U.S. Trade Representative (USTR), on instruction from President Trump, notified Congress that the administration intends to begin bilateral trade negotiations with Japan, the European Union (EU), and the United Kingdom.SEMI stands strong for free trade and open markets, and roundly supports efforts to increase market access and tap into more foreign economies, especially economies like Japan and the EU, both of which are central to the semiconductor industry. The semiconductor industry, which enables the $2 trillion electronics market, is built on global commerce. SEMI members rely on a vast network of supply chains that span the globe, bringing together components and tools made all around the world and assembled into a single sub-system that is then integrated into a larger tool used in the chipmaking process.These free trade agreements will reduce tariffs, which will result in cost savings and productivity gains, and allow SEMI members to expand and grow. But the benefits of modern free trade agreements extend well beyond tariff reduction. Indeed, these trade deals will establish and enhance global trade rules that enable companies to innovate and compete fairly on a level playing field. Trade agreements strengthen certainty and further business continuity.While the exact nature and negotiation timelines for the talks remain unclear, SEMI will engage the administration, urging it to maintain high standards in these agreements, such as: Maintain strong respect for intellectual property and trade secrets through robust safeguards and significant penalties for violators Remove tariffs and non-tariff barriers on semiconductor products as well as products that depend on semiconductors Simplify and harmonize the customs and trade facilitation processes Combat any attempts of forced technology transfer Prevent use of data localization measures and enable the free flow of cross-border data flows End discriminatory and/or burdensome regulatory practices Ensure standards in all forms are market-oriented Create rules for state-owned enterprises to ensure fair and non-discriminatory treatment of all companies According to Trade Promotion Authority (TPA), the U.S. law that guides trade votes in Congress, negotiations with each country can only begin 90 days after last week’s notification. During that period, there will be intensive consultation with Congress and stakeholders. This means, at the earliest, talks can start on January 14, 2019. (Bear in mind that discussions with the UK can only begin in earnest once the UK has formally left the European Union on March 29, 2019.)The Trump administration’s announcement comes after the U.S. imposed or threatened tariffs on imports on all trading partners, including the EU and China. All told, the U.S. has imposed tariffs on more than $300 billion worth of goods. SEMI has weighed in on the detrimental nature of tariffs, arguing that tariffs on China will ultimately do nothing to address the concerns with China’s trade practices. This sledgehammer approach will introduce significant uncertainty, impose greater costs, and potentially lead to a trade war, ultimately undercutting the ability of semiconductor companies to sell overseas, stifling innovation and curbing U.S. technological leadership.Elsewhere, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the multilateral trade deal that links 11 Asia-Pacific economies, is well on its way to taking force. Canada will be taking its final steps to ratify the deal, joining Mexico, Japan and Singapore. The deal, formerly known as the Trans-Pacific Partnership, should take effect by the first half of 2019.SEMI will continue tracking ongoing trade developments. Any SEMI members with questions should contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

Tensions between the U.S. and China have reached fever pitch as the Trump administration imposed higher tariffs on $200 billion of Chinese goods last Monday, adding to the $50 billion in goods hit with higher duties earlier this year. Bloomberg News reported that “the combined $250 billion in products facing levies is almost half the value of imports from China last year.”China countered by meting out stiffer tariffs on $60 billion in U.S. goods, on top of the $50 billion already levied, and canceling planned trade negotiations with the Trump administration.Days before the sharp escalation of the trade conflict, SEMI president and CEO Ajit Manocha joined SEMI China president Lung Chu in hosting a closed-door round table with 16 senior semiconductor industry executives in Shanghai. The goal: An update from the China semiconductor sector on its needs as the chip industry braces to weather the conflict. Manocha and Chu then met with influential China media outlets including Semiconductor Manufacturing, China Integrated Circuit, Silicon Semiconductor and IC Café to reiterate SEMI’s position on trade.“The basic principles of SEMI are free and fair trade, open markets, cooperation for mutual benefit, and protection of intellectual property rights,” Manocha told the reporters. “Tariffs and trade frictions are bound to harm the industry’s development.”Manocha highlighted efforts over the past few months by the SEMI advocacy team to educate U.S. policymakers on the impact of tariffs on the development of the semiconductor industry. Last month, the office of the U.S. Trade Representative (USTR) held a hearing in Washington, D.C. to solicit public comment on then-proposed tariffs on $200 billion of Chinese imports to the U.S. Testifying on behalf of the semiconductor industry, SEMI stressed that tariffs on more than 100 tariff lines covering items critical to semiconductor manufacturing “will harm companies in the semiconductor supply chain by increasing business costs, introducing uncertainty, and stifling innovation.” SEMI had testified twice before this year – the first time in May, opposing levies on $34 billion in Chinese goods, and the second in July to speak out against higher duties on $16 billion worth of Chinese products.SEMI China president Lung Chu made clear the consensus of China’s semiconductor sector: The trade war will profoundly impact the global semiconductor industry. He also stressed that SEMI, as a global industry organization linking the global electronic semiconductor industry chain, will continue to promote win-win cooperation between the U.S. and China.Manocha reaffirmed SEMI’s longstanding commitment to promote cooperation among nations and policies that foster industry growth.“For the growth of the semiconductor industry, SEMI is focused on four important factors, and we call them the 4 T’s, namely Tax, Technology, Talent, Trade,” Manocha told the media. “All are indispensable for the development of the industry.” SEMI president and CEO Ajit Manocha and SEMI China president Lung Chu host press conference in Shanghai.Because the semiconductor industry is international, with key features spread across a number of regions, cross-border cooperation is an eternal theme, Chu told the gathering. To maintain the vitality of China's semiconductor industry, the region must deepen its integration with the international semiconductor ecosphere. He acknowledged that there will be no quick answers to easing trade tensions between the U.S. and China but that SEMI would continue to press ahead in efforts to help improve relations. Despite the conflict, the industry remains optimistic about the growth of China’s semiconductor industry, he said."However, we need to face up to the fact that there is still a certain gap between the domestic semiconductor industry and that of international advanced level,” Lu said. “Therefore, international cooperation is the key to industry growth."Of the four cornerstones of the semiconductor industry – design, manufacturing, testing and equipment materials – China in recent years has narrowed the gap with its international counterparts in testing capabilities, Chu said. For China’s semiconductor industry to flower, the region must build strengths in design, manufacturing and materials too.“The semiconductor industry needs long-term investment, persistence and patience, and also needs win-win cooperation, continuous innovation and product applications across the entire industry,” Chu said. “Money is not the only incentive.”Manocha emphasized the theme of international cooperation, with the global semiconductor industry working in harmony.“The global semiconductor industry chain is inseparable, and each region has its own advantages,” Manocha said. “So, we will continue to work hard to create a win-win, inclusive global industrial atmosphere.”For its part, SEMI China is focused on becoming the best partner for China to realize its semiconductor dream by continuing to provide services that encourage international cooperation. That role will grow in importance with SEMI’s expansion into application areas such as smart manufacturing, smart transportation, smart data and smart automotive – all requiring tighter integration of the electronics industry supply chain.Cherry Sun is a marketing manager at SEMI China.

U.S. Government Imposes Tariffs on $200 Billion of Goods and China Retaliates on $60 Billion of GoodsEarlier this week, the U.S. Trade Representative (USTR) released a 10 percent tariff on $200 billion in imports from China, including more than 90 tariff lines central to the semiconductor industry.The 10 percent tariff will take effect on September 24, 2018, and rise to 25 percent on January 1. These tariff lines will cost SEMI’s 400 U.S. members tens of millions of dollars annually in additional duties. However, counting the products included in the previous rounds of tariffs, the total estimated impact exceeds $700 million annually. China has already announced that it will respond with tariffs on $60 billion worth of U.S. goods. In his notice, President Trump said the U.S. will impose tariffs on $267 billion worth of goods if China retaliates. The U.S. government removed 279 total tariff lines, including three lines that impact our industry: silicon carbide, tungsten, and network hubs used in the manufacturing process.As we’ve noted, intellectual property is critical to the semiconductor industry, and SEMI strongly supports efforts to better protect valuable IP. However, we believe that these tariffs will ultimately do nothing to address the concerns with China’s trade practices. This sledgehammer approach will introduce significant uncertainty, impose greater costs, and potentially lead to a trade war. This undue harm will ultimately undercut our companies’ ability to sell overseas, which will only stifle innovation and curb U.S. technological leadership.Product Exclusion Process – List 2USTR formally published the details for the product exclusion process for products subject to the List 2 China 301 tariffs (the $16 billion tariff list). If your company’s products are subject to tariffs, you can request an exclusion.In evaluating product exclusion requests, the USTR will consider whether a product is available from a source outside of China, whether the additional duties would cause severe economic harm to the requestor or other U.S. interests, and whether the product is strategically important or related to Chinese industrial programs (such as “Made in China 2025”).The request period ends on December 18, 2018, and approved exclusions will be effective for one year, applying retroactively to August 23, 2018. Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request.More information, including the process for submitting the product exclusion request and details what information should be included in your submission can be found here. Please let me know if your company plans on filing an exclusion. SEMI has prepared a document that includes guidelines for your exclusion filing, an explainer on how to submit, and links to official government info. SEMI is glad to assist your companies file exclusion requests for your products. SEMI will continue tracking ongoing trade developments. Any SEMI members with questions should contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

Last week, more than a dozen senior semiconductor executives traveled to Washington, DC for the first-ever Fall Washington Forum. The SEMI Washington Forum, a venue for SEMI members to educate lawmakers about the industry, focused on action against China, both in the form of tariffs and export controls.Our industry is global, and companies rely heavily on trade. In 2017, more than 90 percent of equipment made in the United States was exported. Because of this dynamic, the United States holds a nearly $9 billion trade surplus in this industry. SEMI supports trade policies that open foreign markets. In the meetings, the executives expressed deep concern that the tariffs would inflict deep damage to the U.S. economy, including to SEMI members. Estimates suggest that the Sec. 301 tariffs (and the Chinese retaliatory tariffs) will cost semiconductor companies more than $700 million annually, dramatically increasing the cost of doing business. These tariffs also threaten U.S. technological leadership. The United States has led innovation for decades. However, by pursuing policies that limit market access opportunities, company-led R D and innovation will slow, which, in turn, will curb further export potential. SEMI companies also stressed that because of the blunt application of these tariffs, this action will actually hurt U.S. companies as much as it hurts their Chinese competitors. Indeed, about 40 percent of imports in our sector from China are from U.S. or other non-Chinese companies. Further, the semiconductor industry relies on a vast network of supply chains, which have been built and qualified over the course of years. A fundamental revamp of supply chains is simply not feasible. This would be expensive, time-consuming, and resource-intensive. With a growing number of policy issues that are central to and could have significant impact for semiconductor companies, SEMI hosted its first ever Fall Washington Forum for members of its North American Advisory Board (NAAB). SEMI also invited several other industry executives. In total, 14 senior industry executives, including representatives from equipment manufacturers, component suppliers, and materials providers, attended the Fall ForumDuring the two days of meetings, SEMI met with several senior Administration officials to better the policies being enacted and considered as well as encourage all parties to not impose barriers to commerce, which would severely impact the semiconductor industry. SEMI also met with Members of Congress and their staffs on this issue. All told, attendees at the Fall Forum had more than 15 meetings with policymakers, reflecting the great impact of public policy on SEMI members companies. At a time when the stakes for the industry could not be higher, direct engagement with lawmakers is critical. The Washington Forum offers an incredible opportunity for members to better understand the impact of key public policy issues and gain firsthand experience in influencing policy and helping lawmakers better understand the industry.If you are interested in learning more about the SEMI Washington Forum or SEMI’s public policy program, please contact Jay Chittooran by email at [email protected].

In testimony today before a U.S. government interagency panel considering tariffs on $200 billion worth of Chinese goods, SEMI called for the removal of nearly 100 tariff lines, all of which cover items critical to the semiconductor manufacturing process, including materials and machines.Jonathan Davis, global vice president of advocacy at SEMI, explained in his testimony that while SEMI strongly supports efforts to better protect valuable intellectual property (IP), tariffs will not help address Chinese trade practices, and will ultimately have significant and unintended consequences. SEMI asserts that these tariffs will harm companies in the semiconductor supply chain by increasing business costs, introducing uncertainty, and stifling innovation. Collectively, SEMI estimates that this round of tariffs will cost its 400 U.S. members more than tens of millions annually in additional duties. All told, SEMI estimates that all U.S. and Chinese retaliatory tariffs will cost members nearly $700 million in annual duties. SEMI’s full written comments note that these tariffs, on top of those already in force and the retaliatory tariffs, will hamstring the industry. The tariffs seem to target U.S. firms for simply operating in China. Given that tools and materials are extremely complex, precise, and difficult to manufacture, it is unreasonable to believe that a constituent component can simply be replaced with a part from another source. Further, this U.S. government approach does not take into account that many items subject to these tariffs are not available, at sufficient quality and cost, from domestic sources, or even non-Chinese sources. We stand steadfast in our belief that this trade action will raise prices, put thousands of high-paying and high skill jobs at risk, and curb growth.Over the past four months, SEMI submitted written comments and offered testimony on the two previous rounds of tariffs, citing the damaging impact tariffs would have on the U.S. semiconductor industry. The first round of tariffs – on $34 billion worth of Chinese goods – took effect July 6, and the second round – targeting $16 billion in Chinese imports – will be imposed on August 23. The tariffs hit machines and tools central to the semiconductor industry, including equipment used to manufacture wafers, boules, and chips as well as test, inspection and sensing equipment. We urge SEMI members to review the $200 billion U.S. tariff list to determine the level, if any, of impact. We also strongly encourage members to review Chinese retaliatory lists as well. Any SEMI members with questions should contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

U.S.-China Trade War Heats UpThe U.S. Trade Representative (USTR) yesterday released a 25 percent tariff on $16 billion in imports from China, including 29 tariff lines that represent the heart of the semiconductor industry. These tariff lines include semiconductor products such as machines and spare parts used to make, wafers, flat panel displays, masks and chips, and will cost SEMI’s 400 U.S. members an estimated more than $500 million annually in additional duties.SEMI, along with hundreds of companies, including Lam Research and KLA-Tencor, submitted written comments, requesting the removal of tariff lines from the proposed list. SEMI also testified on behalf of the semiconductor industry, joining more than 80 other companies, including Applied Materials, in opposing the duties before an U.S. government interagency panel in late July.This trade action is on top of the already imposed $34 billion U.S. tariff list, which will cost SEMI’s U.S. members tens of millions of dollars annually. In the coming days, USTR will publish details on how U.S. companies can request the exclusion of products from the $16 billion tariff list, much as it did for the first round of $34 billion.In a swift retaliation, China announced a 25 percent tariff on $16 billion in U.S. exports, including products vital to semiconductor manufacturing such as chemicals, test equipment and other parts. Both U.S. and China tariffs will take effect on August 23.The new tariffs come as China considers tariffs on $60 billion of U.S. imports, and the U.S. weighs additional duties on $200 billion of Chinese imports – a wave that would inflict even deeper damage on the U.S. semiconductor industry. This latest round of U.S. tariffs would cover goods used in microelectronics manufacturing, including chemicals, glass products and spare parts. SEMI will testify against the $200 billion tariff list later this month. If your company expects to be impacted by the proposed tariffs on $200 billion worth of goods, please contact SEMI staff.SEMI stands firm in its belief that none of the tariffs address U.S. concerns over China’s trade practices. Instead, they harm companies in the semiconductor supply chain by increasing business costs, introducing uncertainty and stifling innovation. SEMI will continue to engage with policymakers as both the U.S. and China $16 billion tariff lists are implemented. We will also be evaluating the products covered by the $200 billion U.S. list and the $60 billion Chinese list as both are further considered. We encourage members to review these lists to determine impact on their companies. For more information, please contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

Two months after opposing $34 billion in U.S. trade tariffs on behalf of the U.S. semiconductor manufacturing industry, Jonathan Davis, global vice president of industry advocacy at SEMI, this week spoke out against an additional $16 billion in duties on Chinese goods. Testifying before the same U.S. interagency panel mulling the tariffs, Davis called for the removal of 29 tariff lines covering items critical to semiconductor manufacturing including machines and spare parts used to make, wafers, flat panel displays and masks.In his testimony to the panel, Davis stressed that while SEMI supports stronger protections against the theft of valuable intellectual property (IP), tariffs do little to address U.S. concerns over IP loss. Over the past month, SEMI has also submitted written comments and opposed the tariffs in public testimony. The panel includes representatives from the U.S. Trade Representative (USTR), Departments of Treasury, Commerce, State and Defense, and the Council of Economic Advisers.Also testifying, Joe Pon, corporate vice president at Applied Materials, explained that the proposed tariffs will harm small and midsized companies and other U.S. business interests. Describing the tariffs as a tax on exports of high-value U.S. goods, Pon said the duties give non-U.S. firms an unfair competitive advantage.In a parallel push to Davis’s testimony, SEMI, with more than 10 representatives from six member companies, met with 16 congressional offices this week to underscore the damage the tariffs would wreak on the U.S. semiconductor industry. The fallout would include higher operating costs, fewer exports and slower innovation. The tariffs would also curb industry growth and put thousands of high-paying, high-skill jobs at risk. SEMI pressed congressional leaders to reject the tariffs and support a push for congress to re-assert itself on trade policy.Tariffs to Cost U.S. SEMI Members More than $500 MillionSEMI estimates that the second list of proposed tariffs, covering about $16 billion in Chinese goods, will cost its 400 U.S. members more than $500 million annually in additional duties.The tariffs on $34 billion in Chinese goods, which took effect July 6, impact products such as test and inspection equipment as well as spare parts that enter the U.S. from China. That round of tariffs will cost SEMI member companies and estimated tens of millions of dollars annually. SEMI Public Policy Team Asks Members to Review Tariff ListLooking ahead, SEMI encourages members to review the newly released $200 billion tariff list, determine any impact to their businesses and share their findings with SEMI’s public policy team.The U.S. Trade Representative (USTR) has published the exclusion process for products subject to the China 301 tariffs. If your company’s products are subject to tariffs, you can request an exclusion.In evaluating product exclusion requests, the USTR will consider whether a product is available from a source outside of China, whether the additional duties would cause severe economic harm to the requestor or other U.S. interests, and whether the product is strategically important or related to Chinese industrial programs (such as “Made in China 2025”).The deadline for submitting product exclusion requests to USTR is October 9, 2018. Approved exclusions will be effective for one year upon approval and retroactive to July 6, 2018.More information including the process for submitting the product exclusion request can be found here.Any SEMI members with questions should contact Jay Chittooran, Public Policy Manager at SEMI, at [email protected].

Testifying before a U.S. interagency panel weighing trade tariffs against China, Jonathan Davis, global vice president of industry advocacy at SEMI, yesterday called for the removal of more than 100 products from the list of tariffs proposed by the Trump administration, stressing that an escalation of the U.S.-Sino dispute could trigger a full-blown trade war and hasten deep, unintended damage including higher consumer prices, an expanded U.S. trade deficit, and a slowdown in U.S. economic growth.Representing the electronics manufacturing supply chain, Davis threw the industry’s weight behind protections for valuable intellectual property but argued that “if implemented as proposed, these tariffs will potentially cost tens of millions annually in additional taxes and lost revenue owing to reduced exports, threaten thousands of high-paying U.S. jobs, and not solve U.S. concerns with China.” Davis said the undue harm will ultimately undercut the ability of U.S. chipmakers to sell overseas, stifling innovation and curbing U.S. technological leadership.In testimony at the hearing before the government panel that included representatives from the U.S. Trade Representative (USTR), Departments of Treasury, Commerce, State and Defense, and the Council of Economic Advisers, Davis explained that more than 100 lines – products defined for the purpose of setting import duties – of the proposed tariffs would hamstring the semiconductor supply chain. The tariff lines include fundamental components of the semiconductor manufacturing process that are oxygen for the chip industry. As part of his testimony, Davis also submitted comments on the impact of the tariffs.Charles Gray, general counsel at Teradyne, who also testified at the hearing, said the tariffs will threaten growth while penalizing U.S. companies with supply chains that touch China. Gray and Davis were among more than 100 industry leaders who provided more than 3,000 comments in the May 15-17 hearing to evaluate the impact and efficacy of the proposed tariffs.The hearing followed the Trump administration’s heated, longstanding criticism of China for what it considers unfair trade practices, focusing specifically on intellectual property violations. In recent months, the administration has begun implementing trade actions against China that will increase tariffs, restrict cross-border investment, and introduce significant uncertainty for U.S. businesses.The Section 301 investigation that determined China’s forced transfer of technology and intellectual property discriminated against U.S. firms prompted a proposed 25 percent tariff on $50 billion in U.S. imports from China – a punitive measure that would squarely hit the semiconductor manufacturing industry.SEMI continues to educate policymakers on the deep damage tariffs would exact on the long-term health of the semiconductor industry and the critical importance of balanced trade to the future of the semiconductor industry.For more information on trade or how to participate in SEMI’s public policy program, please contact Jay Chittooran, SEMI public policy manager, at [email protected].