FIRRMA

With (most of) the election results in from the U.S. midterms, the expected Democratic takeover of the House and the Republican’s maintaining control of the Senate is now a reality. The day of the election, DC insiders expected that the House would go to the Democrats by a margin of +/- 20, with the Republicans gaining 2-3 seats in the Senate. Not a bad prediction, which is a far cry from what the same insiders called in advance of the 2016 Presidential election.What does that mean for our members and the tech sector in general? Will there be an ease of trade tensions or less of a chance of tighter export controls? Some believe that with the midterm elections over, President Trump will have some room to take a less aggressive stance against China, setting up a “win” that he can carry into 2020. With the recent more aggressive stance by North Korea against the U.S. regarding its nuclear program, China may well have some leverage at the trade table … and the U.S. may want to make a deal that provides a path for a “win” on both fronts. Indeed, there are the makings of a potential win-win leading into the G20 meeting in Argentina when President Xi Jinping and President Trump are scheduled to meet on Dec. 1.One can see a scenario where there is a meeting of the minds and some degree of lessening tariffs; that does not mean that the effort to enhance export controls will go away. The need for tighter restrictions on export controls is driven to a great degree by the U.S. Department of Defense (DoD) and is a follow on from the previous FIRRMA legislation and attempts to curb the loss of U.S. technology critical to global competitiveness and national security. This issue will not go away anytime soon, and cases like the recent one involving Jinhua only add fuel to the fire. In addition, given how these cases can be leveraged at the negotiating table, they will continue to surface.SEMI’s approach has been to educate governments, lawmakers and administration officials on the strategic importance of the globally connected and highly complex semiconductor supply chain, and how some of the approaches will not achieve the attended goals. This approach helps to ensure that when and if it comes time to make decisions based on merit, the principals are informed. It also helps SEMI and its members develop and maintain important relationships and positions SEMI as an industry leader and spokesperson, making it a more effective advocate. As an example, on Nov 8th SEMI released its Global Trade Principles with the intention of providing a framework to all governments to guide various trade talks. It also helps to inform member companies and others from the broader tech sector of our industry position(s) so we are able to speak with one voice. These principles are aligned with our fundamental advocacy pillars of promoting free trade and market access, respect for IP, cybersecurity and national security.Will the fact that power is now split between the two chambers of Congress help or hurt? Will the House focus on investigations limit the ability to move productive legislation? Besides taking time, it may well put them at increasingly worse odds with the Senate and the President (if that is possible), creating deadlock. Some argue that if nothing moves, no harm can be done. Some also say that it may drive the President to take independent and more aggressive actions in order to demonstrate (his) effectiveness to his base. There is another view: that with the Democrats, the President may be able to lead in the advancement of legislation that will show he can get things done when others couldn’t in areas that benefit the greater good…some of which may impact our industry…such as investments in education and infrastructure development. This would be a way that he could pull in some of the votes from the middle that he has lost in his first two years in office. They say “politics makes for strange bedfellows”; one never knows what might happen in this case.Regardless of what happens, some things will not change: the global nature of our business and the needs of our members to have access to markets…and to be able to safely and efficiently leverage their technologies in the way they see fit in order to grow their business. SEMI will continue to advance the interests in what is an extremely challenging and dynamic global policy environment today. As ruling parties and representatives change around the globe, we will continue to build new relationships and educate lawmakers so they are able to make informed decisions that benefit our members. Mike Russo is VP of Public Policy and Talent Advocacy at SEMI.

Hope springs eternal. And it was with collective open arms that many U.S. businesses welcomed the recent talks between U.S. and Chinese officials to resolve their trade differences and downplay the specter of a full-blown trade war. Treasury Secretary Steven Mnuchin went so far to say that trade war with China was “on hold.”Hope and optimism soon fizzled. On May 29th, the White House released a statement contradicting Sec. Mnuchin, announcing that the Trump Administration would indeed move forward with a 25 percent tariff on $50 billion worth of goods imported from China. Besides focusing on goods that the U.S. has deemed are tied to “Made in China 2025” – the Chinese initiative to produce more advanced manufacturing goods domestically – the Administration also announced stiffer investment restrictions and enhanced export controls related to the acquisition of industrially significant technology. The final tariff list will be published by June 15th, and the proposed list of investment restrictions and export controls will be announced by June 30th.Tariffs and New Focus on Export ControlsAll of this comes as the White House and Capitol Hill have heated up their activity in recent months to curb commerce with China through tariffs and investment restrictions.The Section 301 investigation, a key component of this push, has zeroed in on China’s trade practices related to intellectual property violations. Following a months-long inquiry, the Office of the U.S. Trade Representative (USTR) determined in March 2018 that China’s forced transfer of technology and intellectual property has discriminated against U.S. firms. The finding prompted President Trump to respond with a number of remedial actions including a proposed 25 percent tariff on $50 billion worth of U.S. imports from China.More than 100 lines of the proposed tariff list directly impact the semiconductor supply chain, hitting fundamental components of the semiconductor manufacturing process. SEMI has fought back, strongly urging the removal of these tariff lines from the proposed tariff list. At a bare minimum, the tariffs against China will cost the U.S. tens of millions annually in additional taxes, create lost revenue as a result of reduced exports, threaten thousands of high-paying U.S. jobs, stifle innovation and curb U.S. technological leadership – all while not directly addressing U.S. concerns with China.These tariffs, plus the new focus on export controls, is particularly troubling for the semiconductor supply chain. The recent move comes on the heels of other trade actions, including tariffs on steel, aluminum, and solar cells that will not only limit trade and opportunities for U.S. economic growth, but also will introduce significant uncertainty for U.S. businesses. CFIUS Reform Moves Ahead, But Concerns RemainAt the same time, other government efforts that could encumber investment continue. Both the Senate Banking and House Financial Services Committees unanimously passed the Foreign Investment Risk Review Modernization Act (FIRRMA). The legislation aims to upgrade the Committee on Foreign Investment in the United States (CFIUS) – the interagency body that reviews inbound foreign investment for national security concerns. With such rare bipartisan agreement on a major bill, it is expected to be passed by both chambers and signed into law later this year.The current version of the bill is certainly an improvement on earlier drafts. The legislation no longer contains problematic language that would have given CFIUS the authority to review joint ventures between U.S. and foreign companies. The language would have, for the first time ever, expanded CFIUS’s jurisdiction to include outbound foreign investment. Given the semiconductor industry’s deep reliance on expansive global supply chains, this language was particularly concerning to our industry.However, broad concerns remain about how CFIUS functions. In recent months, CFIUS has been used seemingly to evaluate transactions based on economic security, rather than the Congressional intent of national security. Should this trend continued, we worry that this could curb otherwise acceptable investments, stifling innovation and limiting growth, especially in the semiconductor industry.SEMI Educates Lawmakers on Industry ImpactsWith tensions likely continue to rise and efforts to wall off commerce with China ongoing, SEMI is engaging with policymakers to educate them on how these restrictions will potentially undermine the long-term health of the semiconductor industry. SEMI will continue to meet with policymakers about the critical importance of trade and investment to the continued success of the semiconductor industry. 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].