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Semiconductor Trade Group Airs Concerns

Seems like everything old is new again in the chip industry.

The World Semiconductor Council (WSC) met this week and issued strong recommendations on a broad range of policy objectives of importance to the global semiconductor industry.

At the seventh annual event in Nice, France, WSC membership called for China to open its market fully to all foreign semiconductor products, a condemnation of chip counterfeiting, and a recommendation that copyright levies not be applied to digital products.

At issue is China's policy of applying a 17 percent value added tax (VAT) on imports, while making domestic products eligible for a rebate. The move makes the effective VAT rate either 3 percent or 6 percent.

Semiconductor Industry Association (SIA) president George Scalise says all of the major semiconductor producing regions agree on the need to eliminate trade barriers, like discrimination against foreign products in China

"China made great strides in opening its market as part of its WTO accession but the discriminatory application of the value added tax negates the benefits it promised to provide when it joined the WTO," Scalise said in a statement. "The semiconductor industry is calling on China to honor its WTO commitments by eliminating the discriminatory value added tax on all semiconductors, which will also help China by lowering the cost of access to information technology goods for its consumers."

But breaking though the Chinese semiconductor wall is nothing new, according to In Stat/MDR Director and Principal Analyst Steve Cullen.

"This is a lot like what was going on in Japan 15, 20 years ago," Cullen told internetnews.com. "It's getting to be a big enough market that people are seeing a need to keep the doors open. The way these things usually work is that countries try to keep control over their own products and the interested parties are hoping to keep the pressure on. China's VAT could be viewed as a subsidy similar to what we saw in South Korea, but it is not a big deal at this time because only a small amount of semiconductors come out of China."

In the long-term though Cullen says that may shift. Already The Asia Pacific rim in general is seeing incredible growth in semiconductor consuming products.

According to reports form In Stat/MDR, about one-third of the worlds chips were consumed in North America and Brazil in 1998 and 1999. That made the Americas the largest consumers of semiconductors for things like PCs, radios and other electronics equipment. Currently, the tide has shifted to the Asia and the Pacific rim countries where slightly more than a third of the world's chips are being bought up. Conversely, Cullen says just under 20 percent is coming into the Americas.

"In the other two regional areas Europe and Japan, both are flat," he said.

Counterfeit Chips, Copyrights and Clean Emissions
Also important to the WSC is the rampant amount of counterfeiting IC's and other semiconductors. While the practice of copying software has become issue of late, the chip industry is no stranger to counterfeiting. Although law enforcement agencies don't track bogus chips, officials estimate between $400 million to $700 million worth of technology products are counterfeited each year.

The WSC says it will develop specific recommendations to address these problems by November, when the Governments/Authorities Meeting on Semiconductors takes place.

"Semiconductor makers must invest a tremendous amount in R&D, and the intellectual property that results is literally the lifeblood of the company -- that IP must be adequately protected in all markets," Scalise said.

Cullen says the problem may be due to overseas fabrication plants or "fabs," which have the designs to build the chips. In worst-case scenarios, thieves may copy the designs like the mask set or even steal the chips and slap on a different logo.

"It will probably get worse before it gets better," Cullen said. "In the old days there were tight couplings between manufacturers and customers with many custom chips being produced. I have heard of counterfeit DRAM but copying a Pentium 4 would be very difficult since it has such a complex design. Some of the simpler designs are easier to copy, such as a $1 amplifier chip that goes into an audio product.

The WSC also called for the World Trade Organization to provide for a liberal trading environment for digital products, and condemned the application by certain countries of levies on products capable of copying digital products -- regardless of whether copies are actually made.

"Protecting copyrighted material is vital to our industry, but indiscriminately charging those who buy equipment on the presumption that they will copy protected material just doesn't make sense," Scalise said. "Those imposing levies must guarantee accountability and transparency so that only those consumers who make copies pay, and the money collected compensates rights-holders."

The WSC also re-emphasized its strong support for sound environment, safety and health practices and said it will remain proactive in this area.

The companies represented by the members of the WSC have pledged to reduce PFC emissions by at least 10 percent by 2010 against the base year, even as semiconductor production is increasing. The WSC received the U.S. Environmental Protection Agency's (EPA'S) Climate Protection Award in 1998 for this project. The WSC is also moving forward with energy saving and chemical management projects.

The worldwide group is made up of the Board of the European Semiconductor Industry Association (EECA-ESIA), the Japan Electronics and Information Technology Industries Association (JEITA), the Korea Semiconductor Industry Association (KSIA), the U.S. Semiconductor Industry Association (SIA), and the Taiwan Semiconductor Industry Association (TSIA).