International Cooperation in the Semiconductor Sector During a Period of Intensified Official Support



Alan Wm. Wolff | Peterson Institute of International Economics

Some Relevant History – seeking mutual understanding and cooperation and the absence of friction

Semiconductors, since they became commercialized in the 1970s, have had a special place in the global economy. Semiconductors made possible the dawning and growth of the information age. The two leading producers in that timeframe were Japan and the United States. They fueled Japan’s pre-eminence in consumer electronics. They were the foundation of Silicon Valley. Chips are high-value, low-weight, and bulk products that can travel physically across borders with ease. Trade in semiconductors was an imperative for both countries. While that period was an era characterized by trade friction between the United States and Japan, and semiconductor trade was no exception, nevertheless, the first joint public policy initiative by the governments of Japan and the United States at the request of their respective industries, was to remove all tariffs on semiconductors through a trilateral agreement.1 It was applied on an MFN basis.

The most important part of this story, however, as carried forward into the present, is the fact that the U.S. and Japan found common ground in an arrangement for semiconductors reached in Vancouver, Canada, in August 1996. The agreement was unprecedented in format. It envisaged the creation of two parallel venues, intergovernmental meetings (GAMS) and an industry council (ultimately, the WSC). Representatives of the European Commission,2 suspicious of what the US and Japan might agree to, were nearby in another hotel. To allay their concerns, I kept them currently informed.

I and my counterpart, the counsel for the Japanese industry, jointly drafted a charter for the industry council. I proposed a series of purposes, which were debated by the two associations and adopted. It was contemplated from the outset that other regions would join. This was not an arrangement for special status for either Japanese or American producers. It was to be inclusive and nondiscriminatory. The price for entry into membership was according duty-free trade to semiconductors. Market forces and fair trade were to determine competitive outcomes. The foundational principle was that “The competitiveness of companies and their products, not the intervention of governments and authorities, should be the principal determinant of industrial success and international trade.”

The European Electronic Component Manufacturers Association (EECA) and the Korea Semiconductor Industry Association (KSIA) became formal participants at a meeting in Hawaii in April 1997. The venue was then named the World Semiconductor Council, consisting of CEOs of semiconductor companies in the four regions, and staffed by a group of mid-level company executives, meeting three times a year in a configuration known as the Joint Steering Committee (JSTC).

Meetings of the WSC followed annually, with hosting shared on a rotating basis. The next meeting was in Carlsbad, California. At the Fiugi (Italy) meeting in 1999, the Charter was updated and Chinese Taipei became a member. The officials representing the five parties, the three governments (U.S, Japan, Korea) and two authorities (EU Commission and Chinese Taipei), present at a subsequent 1999 meeting in Brussels issued a new Joint Statement as their operational intergovernmental agreement.

A major objective of the WSC was to bring China into the Council, as it was a major market for chips and aspired to become a major producer as well. China joined the WSC in 2006 in San Francisco, and the same year joined the GAMS.3 The way had been smoothed five years earlier by China acceding to the WTO and the ITA at the same time. The industry also succeeded in 2006 in obtaining an agreement of the six GAMS members to eliminate the tariffs on multi-chip packages (MCPs) on an MFN basis.4

The WSC, with the support of the GAMS, worked for the expansion of duty-free treatment of later generations of chips in the Information Technology Agreement (ITA 2). The Council also addressed common issues to improve the environmental impact of semiconductor production, fought counterfeiting, supported customs facilitation efforts, and worked for the removal of other barriers, including when they took the form of regulations applicable to encryption. Antitrust rules were strictly adhered to, starting with the earliest meeting of the Japanese and American industry CEOs, when Bob Galvin, CEO of Motorola, had the former dean of the University of Chicago School of Law sit in on the meetings. 

The GAMS/WSC/JSTC structure has been maintained by generations of officials and industry executives. It is a one-of-a-kind structure, never replicated for other industries, designed to foster international cooperation in support of an industry critical to all six regions and globally.

During the last decade, JSTC and WSC’s attention turned as well to subsidies, known in group discussions as “regional support”. Government support in terms of financial outlays was not a major part of the competitive picture during when the GAMS and WSC were formed. There was no mention made of the subject in the WSC Charter. Subsidies for industries engaged in the use of emerging technologies were not unknown or by any means confined to this sector. As an example, a report on Conflict and Cooperation in National Competition for High-Technology Industry was issued the same year at the Vancouver meeting jointly by the U.S. National Academies, the Hamburg Institute for Economic Research and the Kiel Institute for World Economics recommended that it was inadvisable to have all R&D subsidies free from disciplines, without regard to whether the support was for basic or applied research.5 I chaired the U.S. delegation that prepared the report.

Subsidies are a particularly difficult issue to address in trade policy, as they are generally considered a matter of domestic policy, within the sovereignty of trading countries. There are also serious definitional as well as measurement problems. The JSTC was attempting, for their industrial sector, to begin fill a hole in the disciplines of the international trading system through which subsidies poured in copious quantities.

International Cooperation in the Semiconductor Sector

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