Concern over semiconductor trade secrets should be addressed

The U.S. is demanding additional information that is a key part of trade secrets from chipmakers in return for subsidies under the Semiconductor Act. According to the details of the regulations released by the U.S. Commerce Department ahead of the subsidy program that will take effect on Friday, companies must provide dozens of different numbers and indicators including wafer yields (ratio of defect-free products that clear tests), profitability, costs, materials, and parts. The U.S. regulations thus require companies to disclose all trade information that has been managed by chipmakers as confidential and regarded as core indicators of the competitiveness of their semiconductor products.

The U.S. government had notified to semiconductor companies about the submission of such information as “review materials needed for subsidy payment” already, but the level of information is way too detailed. Companies seeking subsidies are required to record on spreadsheet files quarterly manufacturing capacity and operation ratios, outlook of profitability, types of materials and chemicals, and production costs. It is unprecedented that Korean companies have been obliged by a foreign country’s government to submit such sensitive numeric and managerial data. Some of such data are hard to calculate, and if such data is provided to rival companies, such information could seriously weaken the competitiveness of the company.

It is also worrisome that additional costs that companies have to shoulder are set to increase incrementally. Many of the conditions listed in the 97-page ‘Key guidelines on labor development’ report released separately by the U.S. Commerce Department are requirements that warrant significant investment of manpower and time by (Korean) companies. If excess profit is generated, the company in question should return 75 percent of the subsidy it received. Samsung Electronics and SK hynix are subject to the guardrail clause that restricts their investments in China as well. These requirements did not exist when the U.S. tried to attract foreign chip plants by proposing a reshuffle of the global chip supply network in a bid to counter China, and thus industry insiders call them Washington’s ‘overuse or abuse of power in the semiconductor sector.’

Analysts say chip production in the U.S. will take 25 percent more time and cost 50 percent more costs than in Asia. Due to soaring raw materials costs, Korean companies are shouldering snowballing costs for the construction of semiconductor plants that they are building in Texas and other locations. While benefits from U.S. investment is shrinking, these Korean companies face toxic regulations on subsidies that were originally meant to offset such losses.

Some chip industry insiders say, “It would be better off for Korean companies to not receive subsidies.” But South Korea cannot afford to disregard its bilateral relations with the U.S. as its key ally. Hence, it would be more practical for Seoul to secure measures to ease Washington’s review criteria for subsidies in collaboration with Taipei and Tokyo. While maintaining cooperative relations with Washington in the economy and national security, the Seoul government should confidently and strongly request Washington for corrective measures in areas and issues that, if not corrected, can be detrimental to their bilateral trust. The Seoul-Washington summit scheduled for late April is a crucial opportunity that the Seoul government cannot afford to miss out at all.