Taiwan Semiconductor Manufacturing Co. is planning a multiyear support package for the Japanese government which has announced that it will build its first chip plant in Japan.
Koichi Hagiuda, Minister of Economy and Trade, announced the plan in a news conference Friday, declaring that Tokyo will begin by securing several billion dollars' worth of subsidies in the fiscal 2021 supplementary budget to be formed after the Oct. 31 general election.
Semiconductors are the brains behind every industry, he said. Development of a stable supply of chips is important from a national security standpoint. As Japan looks to subsidize up to half the cost of TSMC's new factory, the government faces the challenge of striking the right balance between economic security and fair competition.
The world's leading chipmaker announced Thursday that it will build its first Japanese plant, responding to years of call by the Ministry of Economy, Trade and Industry to open up shop.
The move is expected to strengthen Japan's domestic supply of chips, a key component in everything from smartphones to cars. But large-scale subsidies to TSMC - part of a larger effort to shore up Japanese manufacturing - could run afoul of World Trade Organization rules.
We expect our country's semiconductor industry to become more self-reliant and indispensable, making a major contribution to our economic security, Japanese Prime Minister Fumio Kishida told reporters Thursday evening regarding TSMC's announcement. He said support for large private sector investments, including TSMC's estimated 1 billion yen project in Japan, which will be included in an upcoming economic stimulus package.
At the heart of this push is a planned framework to support manufacturers with strong production and technological capabilities that pose no security concerns. Participating companies will be required to prioritize Japanese shipments in exchange for a subsidy through the New Energy and Industrial Technology Development Organization, which they will need to repay should they exit Japan or otherwise fail to hold up their end of the bargain
TSMC's planned factory in Kumamoto Prefecture is expected to be the first beneficiary of this framework. Kishida looks to craft needed legislation to officially launch the initiative.
These moves come as a global semiconductor shortage forces production cuts across such industries as automobiles, medical devices and home appliances. Japanese manufacturers rely heavily on TSMC, whose plants are concentrated in Taiwan. As Beijing moves up military pressure targeting the island there is worry that shipments could eventually be affected.
With semiconductors increasingly critical for a functioning society, the Japanese government is looking to play a more active role in securing the country's chips supply instead of relying on market forces.
Yet massive subsidies risk distorting the market. The U.S. Senate approved legislation in June promoting domestic chipmaking for $52 billion. The measure's fate in the House is unclear.
Since excessive government assistance undermines fair trade, the WTO categorizes import-promoting subsidies as well as subsidies granted as automatic violations or red box supports in exchange for the use of domestic materials and parts. Japan's planned subsidy to TSMC is widely seen to fall into the amber box - a category of supports whose legality is judged case by case.
For example, South Korea and other chip producing countries could lodge complaints that they lost exports to Japan because of cheap chips made in unsubsidized factories. Cheap chip exports from Japan could also trigger trade disputes.
Only a handful of specific amberbox supports have been deemed illegal so far, since it can be difficult to prove that a complainant's industries were hurt by a specific subsidy. Neither the U.S. and the European Union have filed complaints against China's large-scale subsidies to its chipmakers, despite considering them a growing issue in recent years.