Industry Aims to Protect Supply Chain, Innovation


It can be difficult for practitioners to keep up with government regulations, executive orders and request for comments. Add to that a change in administration when final rules can be published up until the next president's first day in office.

Most recently, Commerce requested comments on a licensing process for entities seeking pre-approval before engaging in or continuing to engage in transactions involving information and communications technology and services (ICTS).

To that request, industry sent Commerce back to the drawing board. The 18 comments were almost unanimous in urging the administration to rethink the whole idea.

In March, Commerce served subpoenas on "multiple Chinese companies that provide" ICTS in the U.S. (see The Export Practitioner, April 2021, page 20). In an interim final rule published the day before President Biden's inauguration, the department created a process where it could provide referrals on certain transactions, specifically those involving six types of technology and six countries identified as "foreign adversaries." The most recent comments related to that rule.

Separately, Bureau of Industry and Security (BIS) in March asked for information regarding risks in the semiconductor manufacturing and advanced packaging supply chains (see The Export Practitioner, April 2021, page 12). Biden previously ordered a 100-day supply chain review of four key products: semiconductors; critical minerals, including rare earth elements; pharmaceuticals and active ingredients; and high-capacity batteries, including electric-vehicle batteries.

While responses to a recent BIS request for comments on U.S. supply chains varied widely, many companies cited more "targeted" and "smarter" export controls as solutions to a semiconductor shortage and other business risks.

At a virtual CEO summit on the semiconductor shortage that the White House hosted April 12, participants emphasized the importance of improving transparency and demand forecasting, as well as encouraging additional manufacturing capacity in the U.S.

Industry Rejects Overbearing ICT Licensing Process

In its comments on the ICT supply chain, the Telecommunications Industry Association (TIA) cited the more recent supply chain review that President Biden launched in key sectors, including semiconductors. "TIA urges the administration and Commerce to not implement broad and overbearing regulations on the ICT industry that could adversely affect innovation in the name of supply chain security while undergoing this review," the organization wrote.

The Information Technology Industry Council (ITI) urged the administration to delay implementing the final rule before establishing a licensing process. "At present, the IFR provides the Secretary broad authority to review practically every single ICTS Transaction with any nexus to an identified "foreign adversary," and casts a cloud of uncertainty over all other ICTS transactions given the list of named foreign adversaries could change at any time," the group wrote.

IBM pulled no punches. "This rule remains massively broad in scope, was adopted after disregarding input from industry, and is entirely unclear in defining what [ICTS] constitute an unacceptable national security risk. This approach violates due process for U.S. businesses, which will have no meaningful notice of which transactions may be subject to government intervention. Moreover, given the enormous number of transactions that would be covered by the rule, it simply will not be administrable," the company wrote.

"Before a workable pre-clearance or licensing process can be established, Commerce should first tailor and clarify the scope of the Rule or elect to take an altogether different approach to effectively meet national security and economic goals," the National Association of Manufacturers commented.

Industry Argues for Smarter, Targeted Export Controls

"Both Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR) controls and licensing processes limit off-shore procurement and drive the industry to use less-advanced on-shore manufacturing processes," Boeing commented on the semiconductor supply chain review.

"Export licensing agencies and partner agencies should establish an overarching licensing policy and implement a consistent approach to enable risk-aware technology decisions to be made on programs that leverage the latest semiconductor processes and components," the company added.

Qualcomm commented that "the Federal Government can facilitate the development of a robust and resilient supply chain through maintaining strong patent and trade secret protections; targeted export controls; supporting major investments in R&D and manufacturing through grants and tax incentives; building a skilled workforce; coordinating with allies around the world; and promoting collaboration between the public and private sectors."

More specifically, the federal government should control emerging technologies consistent with the standards set forth in the Export Control Reform Act of 2018 (ECRA), the company added. "The imposition of unilateral U.S. export controls on the work that Qualcomm does in these technologies is likely to have little or no impact on the ability of non-U.S. companies to develop comparable technologies or commodities from such technologies, including in China," Qualcomm wrote.

HP urged the continued use of Buy America provisions and government procurement agreements. "Because the reshoring effort will take time and may not be competitive for every semiconductor product, we encourage collaboration with trusted allies and preservation of existing exemptions and waivers to the Buy America Act," it wrote.

"We encourage the Administration to continue allowing waivers to the Buy America Act that U.S. companies largely use to supply the USG: Commercial Off the Shelf (COTS) exemption for IT goods; and Trade Agreements Act (TAA) waivers," HP commented.

Intel also argued for smarter multilateral exports controls. "We recommend that the BIS generally avoid the imposition of unilateral export controls as these restriction place undue hardship on U.S. semiconductor companies, especially when similar items are available in foreign markets. The foreign availability of products and technology typically leads to the substitution of U.S.-origin products and technology for comparable non-U.S. origin items that are not similarly controlled," the company wrote.

Hitachi argued that "government policies and actions are one of the major risks to the semiconductor supply chain. From time to time, trade restrictions, prohibitions on exports, and unilateral sanctions against firms have caused disruptions in semiconductor availability. When the U.S. acts unilaterally, the response from some companies and countries has been to stockpile semiconductors, which creates artificial demand in specific industry sectors. At times, countries have also retaliated with their own export controls, crimping the supply chain further."

"When that happens, global semiconductor manufacturers may shift production to meet this artificial demand need, thus diverting production of other products needed in a different industry sector, creating a shortage, and negatively impacting trade and production on a global scale. Additionally, government regulations domestically can also impinge and disrupt the supply chain," Hitachi commented.

The Semiconductor Industry Association (SIA) echoed those sentiments. "Some of these export controls encompass the entire semiconductor supply chain, including EDA [electronic design automation] and manufacturing equipment that incorporates technology developed in the U.S."

"Given that U.S. companies are currently the only viable suppliers of EDA and critical equipment such as doping or metrology, these controls for now effectively block the impacted Chinese entities from sourcing semiconductors, even from non-U.S. suppliers. These rules have encouraged China to develop and seek alternatives, and although it may take some time to do so, the trend towards reduction of dependence on U.S. semiconductor suppliers and indigenization of the supply chain is beginning to take shape," SIA wrote.

CEOs Address Semiconductor Supply Chains

Summit participants also "discussed how the president's infrastructure investments in the American Jobs Plan strengthen America's competitiveness and national security by building the infrastructure of tomorrow and strengthening supply chain resilience - ensuring that the United States remains a global leader in critical technologies and the transition to a clean energy future," a White House readout said.

In remarks at the meeting, President Biden cited a letter from more than 60 bipartisan lawmakers, including 23 senators and 42 House members, on implementing legislation to support U.S. semiconductor manufacturing that was incorporated into the 2021 National Defense Authorization Act. The letter said the Chinese Communist Party (CCP) "aggressively plans to reorient and dominate the semiconductor supply chain," he noted.

The U.S. "must also work with our allies and strategic partners to out-scale the CCP in manufacturing capabilities for advanced semiconductors," the lawmakers wrote. "Further, we risk dependence on a strategic competitor for the advanced semiconductors that power our economy, military, and critical infrastructure," they added. Meeting participants included the CEOs of GlobalFoundries, Intel and Micron Technology, along with senior executives from NXP, Samsung and TSMC.

Conclusion

A major headache for the Biden administration is now to successfully increase domestic semiconductor manufacturing in light of the global shortage exacerbated by the coronavirus pandemic. Add to that, the security implications of relying on a supply chain stretching thousands of miles. Based on those factors, U.S. industry unanimously requested that the administration tread carefully when implementing regulations, since it may be burdensome to domestic manufacturers.
Volume/Number May 2021 - Vol 35, Num 5





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