United States pressures China with decoupling,
using semiconductor incentives as “carrots”…
What is Korea’s choice?
pressures China with decoupling,
semiconductor incentives as “carrots”…
What is Korea’s
Samsung Electronics, expects
subsidies of as much as KRW 3.4 tln…
Tough terms plunging industry
United States demands
applicant companies to
“explain contribution to U.S.
Demands commitment to supply
semiconductors for military purposes
Receipt of subsidies means “participation
in U.S. checking of China”…
Government official: “Implication
to national security must be considered”
As the United States announces
the procedure for paying subsidies to semiconductor invested companies in
accordance with the CHIPS Act, the calculations of Korean companies that are
caught in between U.S. and Chinese competition over semiconductors has become more
With Samsung Electronics and
SK Hynix expected to apply for subsidies to the U.S. government, the United
States has made it clear that it will provide subsidies to companies that
cooperate with the stable supply of military-purpose semiconductors, and
decoupling with China, the greatest competitor.
On February 28 (local time),
the U.S. Department of Commerce explained the procedure for applying for
subsidies for semiconductor production as per the CHIPS Act, and said that although
there are no limits to the subsidies, in most cases, they shall be 5-15% of
total facility investment amount of the relevant project.
The Department stated that the
total assistance amount which includes subsidies and loans shall not exceed 35%
of the total facility investment amount, and requested that the applicant
companies attract private investment to the maximum extent.
If a simple calculation was to
be made by assuming that Samsung Electronics will apply for subsidies, the
amount of direct subsidies that it could receive in relation to the Taylor Foundry
Plant in Texas, U.S.A., through an investment of USD 17 bln, would amount to a
range of USD 850 mln - 2.55 bln.
When including loans and
guarantees, the subsidy amount could increase to as much as USD 5.95 bln.
The domestic semiconductor
industry, although showing a prudent attitude towards applying for subsidies so
far, is in a dilemma due to the strict terms.
The U.S. Department of
Commerce announced that the most important criteria to be evaluated would be
how much a project of a company building semiconductor facilities in the U.S.
would contribute to U.S. economic and national security interests.
The original intent in
enacting the law stemmed from a stark awareness that the U.S. could no longer
depend on other countries for semiconductors, which are important for security.
Such a position of the U.S. government is not unexpected, but on this day the
Department of Commerce stated this more specifically than before.
“Semiconductors are an
essential component of the modern defense system, and a secure design and
stable supply are essential for national security,” stated the Department of
Commerce. It announced that it shall take into account how much production
there is by projects proposed by companies of semiconductors that are necessary
for U.S. government agencies including the Department of Defense, and major
The Department of Commerce
elucidated that “The Department of Commerce wants a project that can adapt
commercial production, testing and packaging models into small-quantity batch production
of components necessary for national security…and a project through which
commercial technology can be applied to support national security affairs.”
In addition, the Department of
Commerce announced that “The U.S. government wants an applicant that is willing
to provide semiconductor facilities that can be used for testing, conversion,
production and purposes potentially integrated with national security programs.”
This can be interpreted as meaning that it will provide subsidies as a priority
to companies that will cooperate in the development and supply of
semiconductors for military purposes.
It appears that the United
States seems to regard semiconductor factories as strategic facilities that can
be a target of the enemy.
The Department of Commerce revealed
that it shall look into whether the applicant company can protect the
production facilities from the danger of “the enemy stealing, preventing usage,
fabricating or destroying sensitive information necessary for economic and
It emphasized that the ability
to technology that is critical for national security or the target of export
controls from cyber attacks and other threats, as well as spy activity, is of
the utmost importance. This appears to be taking into consideration
technological theft by China.
In addition, the Department of
Commerce stated it shall investigate each company’s plan for managing risk
factors regarding the supply network, and verify whether companies can procure
materials, equipment and parts that are required for semiconductor production despite
difficult circumstances, and whether they can continue to operate facilities
when they are blocked from facilities and human resources outside of the U.S.
for a certain period of time.
Whether semiconductors can be
supplied to the U.S. without fail, amidst geopolitical crises or emergency
situations such as Covid-19, are to be important factors of consideration.
Each company need not fulfill
all of these conditions, but since the Department of Commerce has emphasized
that they are priorities, companies shall feel a need to cooperate to a certain
The Department of Commerce
asked companies applying for subsidies to state within 30 pages how they were
going to assist in attaining U.S. economic and national security goals.
It has announced that, in
order to prevent subsidies from ending up in China’s hands, if a company that
receives subsidies conducts joint research with China and/or pursues a
technology license for a technology or product that could be a security concern
for the U.S., the total amount of the subsidy must be returned.
Companies must establish an
agreement with the Department of Commerce saying they shall not expand their
semiconductor production capability in China for 10 years after extension of a
In addition, companies are not
allowed to use their subsidies to purchase telecommunications and video
surveillance equipment of Chinese companies such as Huawei and ZTE. This is
because the 2019 National Defense Authorization Act stipulates that federal
subsidies cannot be used to purchase equipment of such companies.
This guardrails provision of
the CHIPS Act must be viewed in line with U.S. export controls that were
announced on October 7 of last year regarding semiconductors to China.
Export controls are the “sticks”
that force decoupling with China in the high tech, semiconductor industry,
while semiconductor subsidies are the “carrots” that encourage voluntary
participation for restructuring of the U.S.-led supply network.
Therefore, the receipt of
subsidies by semiconductor companies is not only a simple economic issue of how
much Samsung Electronics and SK Hynix will receive, but is expected to result
in cooperation by Korea with the U.S. on checking the semiconductor industry in
relation to China.
Whether to apply or not is a
matter to be decided upon by each company, but the potential diplomatic and
security repercussions could be considerable.
“When determining whether an
application will be made for semiconductor subsidies, and the amount and other
terms, it is necessary to consider business aspects such as the profits of each
company, but also national interest and security concerns as well,” remarked a
Korean government official.