High Performance Microchip Supply - Under Secretary of Defense ...

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FINDINGS ___________________________________________________________________ changed: a Semiconductor Industry Association document, China’s Emerging Semiconductor Industry (October 2003), concluded There is almost no cost difference between locating a facility in the United States, Taiwan, or China with respect of building and equipping…Manufacturing costs [in China] are [only] 10% lower than in the United States while manufacturing cost in Taiwan are 7% lower. Almost all…accounted for by labor costs. This data… does not support the hypothesis that the concentration of new foundry investment in Taiwan and the current migration to China is due to lower construction and operating costs…Government policies are driving this… The true challenge posed by China’s promotion effort to the United States and U.S. semiconductor industry is that China’s growing “gravitational pull” will draw capital, talented people and ultimately, leading edge R & D and design functions away from the U.S . . . should this occur, the United States would confront the erosion of the basic institutional and human infrastructure necessary to sustain world leadership in [nano] electronics . . .. China has adopted aggressive policies to promote domestic manufacture of semiconductors. Income tax incentives include a five year tax holiday plus five years at half-tax for reinvested capital with the clock starting when profits start. It is providing free land for industrial parks. Until recently, China applied a 17% value-added tax (VAT) to imported chips, but not to those made in China. Agreements with the World Trade Organization on VAT may have negated the impact of the full 17% on imported chips however while amounts over 3-6% are still rebated for Chinese-made chips. Taiwan has adopted policies to encourage Taiwanese companies to keep “roots in Taiwan.” A “Statute for Upgrading Industries” allow authorities to support targeted industries. Taiwan’s tax law provides five-year tax holidays for semiconductors. (Taiwan’s major semiconductor companies have paid little taxes for years.) To help finance the significant costs required to build chip facilities or start up microelectronics-related companies, Taiwan has a number of 30 _________________________________________________________ DSB TASK FORCE ON
__________________________________________________________________ FINDINGS government subsidy funds and government-controlled banks. Further, the personal income tax laws allow employees at high-tech firms to receive stock as compensation virtually tax free. This policy enables Taiwanese companies to compete effectively for engineering talent in the worldwide market. It is effective in attracting new advanced-degree graduates from top U.S. universities to return to Taiwan. The SIA 2003 China report concludes: No U.S. policy exists with respect to the largely tax-free environment for semiconductor manufacturing and design firms in China/Taiwan. China is replicating Taiwanese policies which virtually exempt semiconductor firms from payment of corporate income tax. Such tax rules were a primary factor underlying massive semiconductor investments in Taiwan in the 1990s and are now being implemented in China . . . differences in national tax policies are becoming an important factor underlying location decisions in the semiconductor industry, and absent a U.S. policy response, such differences will increasingly determine where semiconductors are designed and produced. Japan has also promoted semiconductor production by allowing up to 88% depreciation of production equipment in the first year. The United States allows 20%. The Korean government has a history of supporting the semiconductor industry stretching back to the Korean governmentsponsored Korean Institute of Electronics Technology (KIET), which jump-started the industry in the 1980s. They have provided capital to a private company, Hynix, through government-controlled banks because it considers semiconductors to be a backbone industry that cannot be allowed to fail from market pressures. The capital flows have included debt forgiveness, extensions of maturities, and debtfor-equity swaps. Asian countries are not alone in using economic subsidies to attract new fabrication facilities of United States–based semiconductor companies. In February 2004, Advanced Micro HIGH PERFORMANCE MICROCHIP SUPPLY ___________________________________________ 31
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Page 8 and 9: TABLE OF CONTENTS__________________
Page 10 and 11: EXECUTIVE SUMMARY _________________
Page 22 and 23: INTRODUCTION ______________________
Page 34 and 35: FINDINGS __________________________
Page 62 and 63: RECOMMENDATIONS ___________________
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RECOMMENDATIONS ___________________
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TERMS OF REFERENCE ________________
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TERMS OF REFERENCE ________________
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DEPUTY SECRETARY OF DEFENSE MEMO __
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FUTURE TECHNOLOGY DEVELOPMENT _____
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RANDY GOODALL SEMATECH ____________
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TRUSTED FOUNDRY PROGRAM ___________
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TRUSTED FOUNDRY PROGRAM ___________
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COMPARISON OF ASIC AND FPGA SYSTEM
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DFAR SUPPLEMENT ___________________
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MINORITY REPORT ___________________
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ACRONYMS __________________________
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