Japanese official: US subsidies for TSMC to build factories in Taiwan may violate WTO regulations

Recently, TSMC Chairman Liu Deyin told the Nikkei that TSMC will start building a $12 billion chip factory in Arizona next year. A working group of more than 300 existing employees and managers will be sent to the new factory. The new factory will start construction in 2021, with an investment of up to $12 billion, and the US government will bear a considerable part of the expenses.

However, on December 23, the Nihon Keizai Shimbun published an article by its editor Yasuhiko Ota, revealing that relevant Japanese government officials were quite dissatisfied with this and said: "Such a large-scale subsidy is almost equivalent to violating WTO regulations."

The article also pointed out that the US semiconductor strategy is unlikely to change under the Biden administration. The US Congress may begin to consider a chip bill to support the localization of semiconductors early next year.

TSMC (@wcctach)

The National Defense Authorization Act for Fiscal Year 2021 passed by the U.S. Congress this month also included a clause that would use the defense budget to support the research and development of semiconductor technology.

China also moved quickly. On the 4th, Semiconductor Manufacturing International Corporation announced plans to establish a new joint venture with a total investment of US$7.6 billion.

In order to contain China, the US government has included SMIC in the "Entity List", prohibiting the company from obtaining production equipment and design software from the "West". This move is bound to stimulate China, which has been forced into a dilemma, to accelerate the introduction of technology from abroad.

The trend of the US-China split in the field of technology seems to be unstoppable, so what strategy should Japan adopt? Cooperation with Taiwan, which is crucial in the field of economic security, is undoubtedly the key.

TSMC's factory in Arizona will set up a production line for the most advanced 5-nanometer chips. But in fact, the factory will not be put into production until 2024, when more advanced 2 to 3-nanometer chips will enter the mass production stage, and 5-nanometer chips will no longer be cutting-edge products.

The article believes that even if the other party is the United States, TSMC will not give up its own treasure, because the company's real idea is not to be held hostage by either the United States or China. In this case, there may be another idea, that is, to use Japan as a third option.

Japan's Ministry of Economy, Trade and Industry is privately coordinating with TSMC on building a factory in Japan.

In the supplementary budget case of the previous year, Japan has arranged 110 billion yen (about 1.06 billion US dollars) in subsidies in the name of the "post-5G era", and an additional 90 billion yen was added in the third supplementary budget case of this year. Although Japan has not yet received a satisfactory response from TSMC, the relevant person in charge of the Ministry of Economy, Trade and Industry said that "it has not given up yet."

"If we look to the future of the semiconductor industry, we will find that all the possibilities worth challenging lie in the field of basic science," said Hou Yongqing, senior vice president of TSMC's Eurasia business, in an interview with the Nihon Keizai Shimbun. He sees Japan as a research and development base for the next five to ten years, rather than a production base.

Hou Yongqing pointed out: "Materials and production equipment are Japan's strengths." But material manufacturers seem to be fleeing Japan, and they are constantly increasing their direct investment in Taiwan. Is Japan's "last bastion" in this field beginning to collapse?

With the acceleration of digitalization and the intensification of the US-China confrontation, the geopolitical landscape in the semiconductor field is changing every moment. Can we establish an irreplaceable position in the value chain?

Japan's national strategy is facing this challenge.