How iCET offers US and India a perfect platform to decouple China from semiconductor supply chain

The first-ever meeting of the India-United States (US) Initiative on Critical and Emerging Technologies (iCET), held on the 31 January in Washington D.C., provided an indicative roadmap for future technology cooperation and diplomacy between the two states. The White House Fact Sheet, which was released post the meeting, included the various new bilateral initiatives and domain-specific cooperation between the two governments, domestic industries and academia. One area that was given primacy at the meeting was establishing a resilient semiconductor supply chain. On the heels of the Covid-19 pandemic, which led to a global chip shortage, the aspect of building robustness into the highly complex value chain of semiconductors became the talk of the town. This, coupled with China’s ambition to supplant itself as an emerging power in such a critical technology domain, enhanced the focus on this field. Semiconductors and chips were no more only a private sector affair but a state and government-focused technology sector. It is against this backdrop that increased techno-nationalism eventually came to the fore in the case of the semiconductor ecosystem. With semiconductor technology remaining an integral part of the ongoing tech war between the US and China, there have been increased efforts at revamping the current structure of the global supply chain. As a growing semiconductor power, China has sought to reduce intrinsic dependencies and eliminate bottlenecks in its pursuit of improving its position in the value chain. The US, a major semiconductor powerhouse, has tried various mechanisms, such as export control measures and domestic industrial policies, to stymie its rival’s rise. Last year, the US Congress and President Biden signed the CHIPS Act, which sought to reduce US’s manufacturing dependencies on Taiwan as well as prevent American firms from doing business with Chinese semiconductor companies. High-tech sanctions in the field of semiconductors have effectively kickstarted the efforts of decoupling from China. However, questions remain on how much effect these policies will have on stopping China’s rise, considering it has been the fastest-growing domestic industry in the last few years. The dependency on the Chinese market also has effectively pushed away even allies like South Korea from the decoupling process. With multilateral efforts such as the Quad’s Semiconductor Supply Chain Initiative and the Chip4 Alliance not yielding the desired results, there are doubts about the effectiveness of silicon diplomacy. However, with the iCET being a bilateral effort between two technologically competent countries, there is renewed hope for the decoupling efforts. The iCET has the potential to bring major structural reforms in the global semiconductor ecosystem and effectively secure this critical technology from its strategic rivals. This can be done through the following: Restructuring of Trade Policy The semiconductor focus of the iCET has sought the establishment of a task force in charge of advising both entities. The recent fact sheet details how the task force conceived under the iCET will be responsible for providing policy recommendations to both the Department of Commerce (of the US) and the Indian Semiconductor Mission (of India) to facilitate easier access and trade in semiconductor products and services.   Liberalised trade policies have always played a crucial role in building powerful semiconductor ecosystems, as witnessed during the development of the East Asian tiger economies (such as Taiwan, Japan and South Korea) in the 1960s and 70s. However, both the US and India have taken a more protectionist approach towards trade in semiconductor-related products. The anti-dumping policies against Japanese electronic goods in the 1980s to the domestic manufacturing incentivisation of last year’s CHIPS Act are a testament to the US’s outlook on the subject. India’s refusal to join the revamped Information Technology Agreement (ITA) in 2015 to protect the domestic industry against the removal of import tariffs on electronic goods showcases the country’s stand on the subject as well.   However, as the iCET seeks to strengthen India’s role within the global semiconductor value chain and provide inputs to the US-India Commercial Dialogue, there is an opportunity for both countries to restructure their semiconductor trade policy. Easier flow of semiconductor goods (including critical manufacturing equipment), removal of export control restrictions and  effortless movement of human capital across the two countries can build a strong trade network for the global industry. It is imperative that both countries use the iCET to introduce liberal trade regimes for the semiconductor supply chain, thereby increasing global engagement as well as reducing existing dependencies.   Bilateral private sector engagement The iCET has also focused on leveraging complementary strengths in the semiconductor domain. As per the fact sheet, both countries intend to promote the development of a skilled workforce that will support global semiconductor supply chains and encourage the development of joint ventures and technology partnerships. The initiative intends to execute this through a joint task force between the US Semiconductor Industry Association (SIA) and the India Electronics Semiconductor Association (IESA). This means that the two governments could facilitate and improve engagement between the private sector of both countries. A bilateral private-sector engagement in the semiconductor field would do wonders for both India and the US. For the US to build a global talent pool in the field of semiconductors, Indian engineers remain essential contributors. Collaboration between private sector firms in both countries will ensure a steady supply of talented chip designers and architects. India remains a source of relatively cheap labour who can be upskilled to work in US semiconductor manufacturing, assembly and packaging plants. This would create a skilled workforce across the two countries, which can be utilised at will. For India, there is a requirement for immense capital investment to improve its domestic semiconductor infrastructure. Currently, the country still lacks a commercial fabrication facility and is relatively weak in the Outsourced Assembly and Test (OSAT) domain as well. Improved bilateral private-sector commitment can ensure the development of a semiconductor design, manufacturing, and fabrication ecosystem in India. American firms have already outsourced some of their operations (such as design centres) to India, considering the availability of skilled engineers in the country. However, a strong bilateral engagement, backed by the government of both sides, can help improve the efficiency of such firms in the manufacturing and assembly phase while building a robust semiconductor infrastructure ecosystem in the country. The iCET has laid the groundwork for a new age of technology diplomacy between countries. For the semiconductor value chain, there is a need to create alternative semiconductor ecosystems which can build the resilience needed for the global supply chain. With intrinsic bottlenecks and excessive dependencies being caused due to the current nature of the supply chain, it is a long process to fill the existing gaps. Previously, multilateral efforts have been proposed to secure the global semiconductor supply chain and start the decoupling process from China. However, it remains a long shot considering the need to obtain consensus across multiple entities. With iCET offering a bilateral alternative to the existing arrangements, there is a possibility of this initiative yielding the desired results. Both the US and India are currently viewing China as a strategic and technological rival. The efforts to decouple from China, especially in a critical technology domain such as semiconductors, can and should begin at the earliest. The iCET can offer a perfect platform to do so. The author is an IIC-UChicago Fellow and a Consultant at the Ministry of Electronics and Information Technology (MeitY), Government of India. Views expressed are personal. Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.