U.S. chip subsidy effort faces pushback over China issues

US Automotive Manufacturing

27/05/2021 19:56

By Stephen Nellis, David Shepardson and Michael Martina
    WASHINGTON, May 27 (Reuters) - A series of amendments for a
$190 billion U.S. Senate bill aimed at countering China's
technology challenge are in limbo after business groups
protested proposals intended to ensure that none of the money
finds its way to China or other U.S. rivals.
    New regulations or reviews of investments or deals in China
could disrupt U.S. businesses' future operations in that
country, which include semiconductors and medical equipment. The
bilateral trade deficit has run more than $100 billion a year
since 2002.
    Senators from both sides of the aisle want "guardrails,"
such as mandatory security disclosures and interagency reviews
to stop U.S. businesses from compromising national security by
outsourcing critical technologies to China.
    The Senate bill authorizes $120 billion for high-tech
research and another $54 billion to subsidize U.S. semiconductor
production. For chip factories, it makes no distinction between
foreign recipients and U.S.-based firms in determining who gets
funds for U.S. facilities.
    A key goal of the funding is to bring the world's most
advanced chip plants to the United States, and only Taiwan
Semiconductor Manufacturing Co  2330.TW  and Korea's Samsung
Electronics Co Ltd  005930.KS  have the technology to do that.  
    Florida Republican Senator Marco Rubio has proposed an
amendment requiring U.S. national security officials to screen
recipients and require disclosure of funding or support from
foreign entities, including the Chinese government or Chinese
state-owned enterprises.
    TSMC and Samsung both have operations in China. 
    Another amendment from Democratic Senator Bob Casey and
Republican Senator John Cornyn would require an interagency
review of any U.S. investments in China or a shortlist of
adversarial countries. That would mark a huge change for U.S.
law, which for decades has had provisions for screening inbound
investments, but not for outbound. 
    "If a company wants to offshore semiconductors to China, we
need to know about it," Casey said from the Senate floor on
Wednesday. "Yet, business interests, like the U.S. Chamber of
Commerce and the U.S.-China Business Council, are organizing
against this commonsense proposal."
    Casey took to task Republicans opposing the measure, saying
they talk tough on China, but they "cut and run" when it comes
to taking on big business.
    John Murphy, the U.S. Chamber's senior vice president for
international policy, said existing laws, such as the Export
Control Reform Act of 2018 (ECRA), could address the China
investment issue, and that the proposal needed more discussion
in the Senate before being added to such a sweeping package.
    "Congress and the administration should focus on using the
legal tools on which the paint is barely dry," he said,
referring to ECRA.
    One Senate aide cited fierce opposition to the Casey-Cornyn
amendment from businesses and some Republicans, including
Senator Mike Crapo, the ranking member on the Senate Finance
Committee, adding: "We're not confident that it's going to come
to a vote."
    Crapo declined to comment. 
    
    FUNDAMENTAL FLAW?
    Senate Majority Leader Chuck Schumer has sought to get the
U.S. Innovation and Competition Act passed this week, but
Republicans insist the bill is not ready.
    "There is an increasing consensus that the lack of
guardrails is the fundamental flaw of the bill," a Republican
House aide said of the Senate package.
    The House of Representatives is planning its own version of
a China bill and could add other provisions on chips funding as
well.
    Rubio's office said it was still working on getting his 
amendment incorporated. When he proposed his amendment for
counterintelligence screening last week, he noted the much
needed investments would "mean nothing if they are stolen by
foreign adversaries, including the Chinese Communist Party."
    Any restrictions on subsidies to foreign companies would
likely benefit Intel Corp  INTC.O , the long-time U.S. national
champion in chip-making that has promised to redouble its
efforts in the most advanced technologies and spend more than
$20 billion on new U.S. plants. 
    Intel last year moved to sell off its only chip factory in
China to SK Hynix  000660.KS . 
    Derek Scissors, of the conservative American Enterprise
Institute, who studies China and security issues, said companies
should be forced to make a choice.
    "If you receive federal government money, you cannot expand
your business in China from that point. The end. And if you
don't like that, don't take the federal money," Scissors said.

 (Reporting by Stephen Nellis, Michael Martina and David
Shepardson; Editing by Richard Chang)
 ((michael.martina@thomsonreuters.com;))