Keeping Semiconductor Leadership in the US
Issue:
American chipmakers do the majority of their high wage, high value added work here in the U.S., yet they face a serious challenge as foreign governments around the world work to attract semiconductor research and manufacturing investments. When foreign government policies are contrary to the WTO rules, the U.S. should seek their elimination. However many foreign initiatives, including research consortiums, workforce education programs, tax holidays, and tax incentives for individuals, are not necessarily inconsistent with WTO rules. Federal and state policy makers have a vital role to play in meeting this challenge by insuring that the U.S. remains an attractive location for chip manufacturing.
While overseas markets are larger and overseas labor is cheaper, because semiconductors are easily transported and because semiconductor production is capital intensive, the U.S. can compete in chip manufacturing. Government policies --- both here and abroad - are often the determining factor in plant locations decisions. By some estimates, there is a $1 billion 10-year cost difference between building and operating a fab in Asia versus the U.S., mostly due to taxes and incentives. As a result, two thirds of the world's new 300 mm fabs will be built in Asia.
Importance:
Semiconductors are the enabling technology of the information age, and chip technology advances have created new industries such as the internet, driven increased productivity in our economy, and enhanced national and homeland security. It is vital for that the U.S. maintain leadership in this critical field. Given the high cost and rapid technological obsolescence of a modern chip fabrication facility, the close proximity between a company's research facility and its leading edge manufacturing facility becomes increasingly important to avoid any technology transfer delays. If leading edge manufacturing moves offshore because foreign governments have created more attractive investment environments, over time R&D facilities for manufacturing processes are likely to follow.
SIA Position/Action:
America's federal and state governments need a coordinated strategy to keep high technology manufacturing in the U.S. This strategy should include:
- Invest in University and National Lab Research.
As semiconductors become ever denser, faster, and cheaper, they approach the physical limits that will prevent further progress with current chip making technologies. To allow semiconductor advances to continue to drive the economic productivity growth of recent years, and to improve the competitiveness of chip manufacturers working in close proximity to major R&D centers, the SIA urges Congress to appropriate $20 million to DOD in FY 2007 to match industry funding for the 33 universities working under the Focus Center Research Program (FCRP). SIA also urges Congress to increase NSF funding by 7 percent for FY2007, and to support the Administration's proposals for substantial increases for advances in nano-manufacturing at NIST.
- Workforce/Education/Immigration Policy.
America must have the most talented workforce in the world to maintain its leadership in semiconductors. SIA fully supports No Child Left Behind (NCLB)'s focus on high standards, greater accountability, and enhanced teacher quality, and urges Congress to increase appropriations for the NCLB's Math and Science Partnership program. SIA appreciates the recent 20,000 H-1b cap exemption for masters and PhD graduates from U.S. universities, and encourages Congress to pass longer term reforms to facilitate the transition to green cards along the lines of the reforms passed by the Senate last year.
- Competitive Federal Tax Policies.
The Federal government can correct many of its misguided policies that discourage investment in the U.S. The Federal government should enhance and make permanent the R&D tax credit, allow accelerated depreciation or expensing of semiconductor manufacturing and other high tech equipment, consider rate reductions and alternatives to current rules on taxing foreign source income.
- State and Local Government Policies.
State and local governments should increase their support for science and engineering at public universities, including contributing to their universities' participation in semiconductor research sponsored by national consortia such as the Focus Center Research Program. State and local governments must develop competitive tax policies that take into account the capital intensity of the semiconductor industry, and the tax incentives offered by foreign governments. Successful states have also emphasized prompt and flexible environmental permitting to respond to the short product life cycles in the chip industry, and are working to improve the math and science capabilities of their K-12 schools.
- Free and Fair Trade.
Because over 70 percent of U.S. sales are outside the U.S., free and fair trade is vital. SIA supports a strong World Trade Organization (WTO) and the market opening proposals of the Doha Development Agenda. However, these advances must not come at the expense of a reliable antidumping remedy. SIA had long supported China's entry into the WTO and the world trading system and continues to work with China as it implements its WTO commitments, particularly in the areas of intellectual property protection, standards and subsidies.
