Disclosure of payment conditions for ‘national security first’
“Returning profits that exceed a certain standard
Provision of access to production and research facilities”
Domestic industry “only US investment risk is growing”
The US administration of Joe Biden ordered semiconductor companies investing in the US to return excess profits above a certain standard as a condition of receiving US government subsidies. He also decided to give priority to subsidies if semiconductor companies open their production and research facilities to the US government. Confidential information of semiconductor companies competing for cutting-edge technology may be exposed, so even in the United States, it is pointed out that it is ‘excessive market intervention’.
On the 28th of last month (local time), the US Department of Commerce disclosed standards for subsidies for semiconductors under the Semiconductor Science Act. The U.S. government plans to provide $39 billion (about 50 trillion won) to U.S.-invested semiconductor companies that have applied for subsidies based on this standard, and $13.2 billion (about 17 trillion won) to research and development (R&D).
The Ministry of Commerce announced that it would place the greatest importance on national security, presenting six subsidy conditions, including economy, national security, and commercial feasibility of the investment plan. In particular, it stated that it was “looking for companies that could be integrated into national security programs and that could provide access to experimental, conversion and production facilities.” It is interpreted as meaning that priority will be given to companies that disclose their semiconductor production and research facilities to the US government.
The Ministry of Commerce continued, “Companies receiving more than 150 million dollars (about 200 billion won) in semiconductor subsidies must share some of the profits that exceed expectations with the US government.” When companies apply for subsidies, they are required to submit expected profits, and from this, if profits exceed a certain standard, up to 75% of the subsidies will be returned.
Commerce Secretary Gina Ramondo said on the same day, “I will make sure that companies (receiving subsidies) open their books of account,” and that “there is no blank check for any company.”
Korean semiconductor companies, such as Samsung Electronics and SK Hynix, which are in the process of making or planning large-scale investments in the United States, are increasingly confused. It is said that with the new additional conditions for subsidy applications, they are looking at how much the burden will increase and the possibility of fulfillment. There is even an evaluation that ‘there are more losses than gains’, but it is difficult to break away from the semiconductor supply chain in the United States.
An official in the semiconductor industry expressed concern, “If semiconductor companies investing in the US make a profit, the US government will collect a lot of corporate tax anyway, but they said they would collect profits under various pretexts, so the compensation was reduced and only the risk increased.”
[美 반도체 보조금法 논란]
US policy to reclaim up to 75% of subsidies… Concern over ‘excessive intervention’ in the screening process for excess returns
Dominating semiconductor hegemony with money as a weapon… Korean company “can’t notice the US” sigh
While the US administration of Joe Biden has entered into a subsidy process worth 52.7 billion dollars (about 67 trillion won) for semiconductor companies investing in the United States, controversy is growing as additional conditions include redemption of excess profits and disclosure of semiconductor facilities. Although the intention was to win the competition for technological supremacy with China, the possibility of requesting the disclosure of accounting books including trade secrets and R&D expenses to Samsung Electronics and SK Hynix cannot be ruled out. In order to prevent oversupply, it also hinted at its intention to adjust production scale with major semiconductor producers such as Korea and Taiwan. Analysts say that the Biden administration has made it clear that it will bring semiconductor production leadership to the United States with “money” as a weapon.
On the 28th of last month (local time), the U.S. Department of Commerce announced a Notice of Support (NOFO) containing the standards for subsidy payment for the Semiconductor Science Act, stating that the purpose of subsidy was “for the sake of the U.S. economy and security.”
In particular, the Department of Commerce announced that it was “looking for support companies that can be integrated into national security programs and that can provide access to experimental, conversion, and production facilities.” It said that it would preferentially provide subsidies to semiconductor companies that help the US develop advanced weapons, but gave a clue that semiconductor production and research facilities should be disclosed to these companies.
In addition, if a semiconductor company that receives a subsidy of more than 150 million dollars (about 200 billion won) earns a profit that exceeds a certain standard, the US government will return some of it. You can take back up to 75% of the funds you donate. It also includes the content that the company will examine whether the plant can be operated for a long time through continued investment and upgrades.
Some point out that this is actually a request for corporate trade secrets. Semiconductor companies that compete fiercely in technology do not disclose their manufacturing facilities to the outside world for security of yield (ratio of quality products to input) improvement. There are also concerns that excessive intervention may occur in the process of reviewing excess profits, such as requiring detailed investment status and profitability indicators. The White House also asked semiconductor companies to submit inventory, demand, and sales information at the’Semiconductor Countermeasures Meeting’ in 2021.
There are also observations that the Biden administration may put pressure on major producers such as Korea and Taiwan to protect semiconductor companies that have invested in their country. Commerce Secretary Gina Lamondo told the Wall Street Journal (WSJ) that day, “We will accelerate policy discussions with our Asian and European allies to prevent oversupply.” “We must cooperate, not compete.” An industry insider said, “We cannot rule out the possibility that the US will push for a semiconductor import quota (restriction) on the grounds of subsidy transparency.”
The specific standards of the ‘guardrail’ (safety device) clause, which prevents companies receiving subsidies from investing in semiconductors or expanding factories in countries of concern such as China for up to 10 years, will also be released this month.
Domestic semiconductor companies such as Samsung Electronics and SK Hynix are in an atmosphere of embarrassment. These companies plan to decide whether to apply for the subsidy after carefully reviewing the detailed conditions.
Samsung Electronics’ concerns are particularly deep. Samsung announced in November 2021 that it would build a new $17 billion foundry (semiconductor consignment production) plant in Texas, and is currently working on the groundwork. In July of last year, it also submitted a plan to “establish 11 new factories over the next 20 years” to the US government.
There is also an analysis that it will be difficult to give up support from the US government as the semiconductor industry is at the bottom and the financial situation of each company is deteriorating. At the end of last year, Samsung Electronics’ separate cash, cash equivalents and short-term financial products amounted to 3.9217 trillion won, down 79% from the end of 2021. Above all, because of competition with Taiwan’s TSMC, it is inevitable for Samsung to establish a factory in the United States.
SK Hynix, which is pushing for investment in packaging factories in the US, has relatively room to spare, but it is in a position where it cannot be complacent. An industry insider said, “The relationship with the US is a problem,” and “(subsidies) can’t be blindly passed, and we have no choice but to notice (US).” An official from the Ministry of Trade, Industry and Energy said, “We are holding frequent discussions through communication channels with the United States. We will try to minimize the damage to our company,” he said.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.