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US-Taiwan partnerships: Q&A with Arati Shroff, deputy chief of Economic Section at AIT

Judy Lin and Rodney Chan, DIGITIMES, Taipei 0

Bloomberg has warned that the world is "dangerously dependent" on supply of semiconductors from Taiwan - an assertion echoed by attempts that many governments have made to avoid placing all eggs in one basket. The US has already made moves towards boosting semiconductor manufacturing on American soil - a significant example being TSMC's project to build an advanced-node fab in Arizona. But this project highlights the fact the US is still "depending" on Taiwan - in one way or another - for semiconductor supply, at least in the foreseeable future.

Arati Shroff, deputy chief of the Economic Section at the American Institute in Taiwan (AIT) - the de facto US representative office in Taiwan - told Digitimes in a recent interview that the US and Taiwan share many common values and both can cooperate in many ways apart from semiconductor supply.

Q: The US is keen on setting up domestic semiconductor supply chains and has convinced TSMC to set up a fab in Arizona. However, the supply chain is very complicated, involving multiple players. How would the US persuade other suppliers who are concerned about cost-effectiveness and manpower supply to follow in TSMC's steps?

A: This deal with TSMC really fits into a broader strategy that here at AIT I have been working on with our director (Brent) Christensen and my team. It really started even before the COVID pandemic. Here at AIT we recognize it is so important to secure supply chains, whether for semiconductor or medical supplies, across the whole spectrum. The TSMC deal is just one part of that holistic strategy that we have been working on for almost two years now.

We recognize the strategic nature of Taiwan, and how valuable it is. Not just in terms of its technical expertise, but really in terms of shared values, including democracy, respect on human rights and freedom of speech. And let's not forget economic values, such as respect of intellectual property, and encouragement on innovation and entrepreneurship. Our view is that the shift of supply chains - along with acts of securing them and making them more resilient - is based on these concepts of shared values. Well before the COVID pandemic, we took a deep look to see how we're going to further bridge the ties between the US, Taiwan and specifically the supply chains.

So we launched a series of initiatives. We met with a lot of Taiwanese companies and heard their thoughts out. Many of them are very interested in investing in the US, and they recognize the value in investing in the US. The US is a dynamic market, and its ICT industry is growing leaps and bounds. And the US has a lot to offer in terms of investment. It's where your investments are going to be secure and safe. There is the big talent pool, one of the best in the world to offer. Therefore, I can feel confident that university and educational networks of the US is a big attractive point for many Taiwanese companies my team engaged with when they talked about why and how they want to restructure their supply chains.

They also want to be close to their end customers, and COVID, which has moved schooling online, has underscored how much people rely on the technologies from Taiwan, whether it's semiconductor or non-semiconductor, PCs, screens, motherboards, servers. We kicked-off our supply chain strategy in 2019, and COVID really brought to the fore why these issues are so important. The initial focus might have been ICT and semiconductor, but the medical industry has become very relevant and important.

We issued a statement with Taiwan last September and talked a lot about why we need to partner with other economies to restructure supply chains. After that, TAITRA (Taiwan External Trade Development Council) organized with us an Indo-Pacific Business Forum last November. Many of your leading ICT industry players were there not just to talk about semiconductors, but actually how they're moving up on the value chain. We launched this campaign initiative that we came up with TAITRA, and continue to galvanize support from the Indo-Pacific Business Forum. And of course, we had this amazing announcement from TSMC that they are going to invest in Arizona. Everyone is very excited, not only for that stand-alone investment, but also for the ecosystem that it is going to bring around to the United States. That is going to restore cutting-edge technology to the United States, and Taiwan is really excited about the US-Taiwan partnership to continue to grow.

In terms of attracting semiconductor and other investments to the US, we have so many mechanisms we've launched with Taiwan. One of them our team has worked tirelessly on since last year was the Economic Prosperity Partnership Dialogue. It shows the US-Taiwan partnership is so dynamic and vibrant. Not just across one or two industries, it really spreads across the whole span that we care about in the 21st and 22nd century. We kicked-off six lines of efforts: one is specifically on supply chains, about supply-chain resilience, security, and how we work out the nuts and bolts to make supply chains work for all of us that share the same values. That's been a very active group. We've hosted meetings with Taiwanese authorities and companies. One most recent meeting was in February where we specifically talked about the semiconductor industry and how we can continue to have synergies, including the investments to the US, as well as other aspects.

We also have a track for infrastructure finance. Funding and financing for supply chains are critical. That is something Taiwanese companies talked to me a lot during last year's roadshows. How do we bring financing not just for supply chains to the US, but also for the ones to Southeast Asia? Many Taiwanese companies are small and medium enterprises, but who is going to fund their supply chain shifts overseas? So that's what this line of effort is about.

The third line is related to 5G security and the digital economy. We are excited to work with Taiwan on positive models of 5G to drive innovations, but free from coercion and free from the threats of authoritarian governments. This line focuses on Taiwan's expertise in 5G and what the US and other partners can do to secure 5G networks. And digital economy is also closely related to semiconductor, whether it is AI, AI chips, edge computing on chips, etc. We also have a Digital Economy Forum with Taiwan which has been going on for years to solidify cooperation across issues like cyber-security.

The fourth one is securing investments - the so-called "Investment Screening Initiative." There are certain governments that try to obfuscate the funding by taking over the ownership of companies and later on people found out that they didn't know what was going on in the first place. We want to ensure not only the US but our partners too, are able to have secure investment screening mechanisms.

The other initiatives include women's economic empowerment, which is very important and is also under the Economic Prosperity Partnership Dialogue with Taiwan.

And finally, it's cooperation on science and technology. At the end of last year, we signed a legally binding agreement with Taiwan on science and technology, which is critical when it comes to innovation. Why is it so important for the US and Taiwan to work together now more than ever? It's because of challenges in research integrity and research security. Innovation might be developed, but we want to make sure it's not stolen or taken away. We also want to make sure it's a global marketplace to connect and get funding. Although it is still at the initial stages, we are going to do a lot more under that framework on science and technology under the Economic Prosperity Partnership Dialogue.

I want to make the point that the cooperation with Taiwan, no matter it's semiconductor supply chain, ICT, 5G or cyber-security, is not just a recent development. It really spans a decade of efforts to see what we can do more to recognize the importance of the two economies and further investment ties.

The Select USA summit slated for June 7-11 is a fantastic chance for Taiwanese companies across the spectrum of semiconductor industry that want to go to the US but still face challenges. We are there to partner with them to see how we can make their investment smoother; how we can connect them with the willing states, whether it's Arizona or others across the country; and how we can get those local economic development organizations to link up with Taiwanese semiconductor firms that want to come to the US but not sure how to. Companies which are interested are welcome to contact my team, and we can put them in touch with the Department of Commerce, to attend the Select USA summit.

Q: The direction of the US policy towards attracting investments is very clear. But are there incentives such as tax breaks, or special budgets for the initiatives to attract investments?

A: We all know that the US is a competitive market, very eager to attract the best investments. There are always tools and tactics to do it. We have this major executive order that the Biden administration announced in February. We are very excited to be able to plug in to this process. Supply chain is the first move of the administration and what the executive order tries to do is very much related to your question. It covers specifically across four sectors, including semiconductor, batteries, medical supply chains, and critical minerals (rare earth).

That will help us ensure resilience in critical supply chains and help us deal with future challenges. After the initial results of the 100-day review come out, there will be a much longer one-year review. We will touch upon a broad range of areas such as semiconductor, ICT, telecom, defense, medical industry, etc., pulling in a lot of players.

Another thing I would like to mention is the Chips Act, which is part of our 2020 National Defense Authorization Act (NDAA) that our Congress has passed and authorized during the previous administration. Supports for these initiatives really span across administrations. President Biden has already said that he will work with the Congress to make sure the Chips Act can be funded, and that probably will unleash part of the things you are referring to. I am sure the companies are eager to see incentives and policy tools. But this Chips Act really authorizes the Congress to supercharge chip manufacturing in the US. Even though the US is incredibly important in the semiconductor industry, we recognize we have fallen behind in terms of producing semiconductors onshore. The Chips Act has bipartisan support, and you know in a democracy, when both parties agree, that will be far more effective. In the Chips Act, the administration has laid out R&D initiatives as well as a subsidy program for domestic semiconductor manufacturers. The Congress and various agencies in the US are working very hard to draft more of that, and to figure out the funding.

Q: Many ICT companies have expressed interest in manufacturing components for electrical vehicles (EV). What are the advantages that the US can offer to attract them to produce in America? For example, Tesla already has a Gigafactory in Shanghai. How could the US persuade them to run more operations back in the states, rather than in China?

A: The EV industry is such a dynamic one, and we are paying enormous attention to it for many reasons. In terms of environmental protection, the Biden administration has stressed the importance of climate change. EV is one of those industries that is taking off that we want to keep track of closely. My team has been doing roadshows listening to the opinions of the Taiwanese industries since a year and a half ago. A lot of Taiwanese companies are talking about EV. Some of them have already worked with Tesla or are eager to get involved with it. I have a lot of optimism and hope: the way the Taiwanese companies operate are so nimble and so quick, and they master so much know-how in terms of manufacturing. I am confident that the Taiwanese companies will innovate and figure out a way to work with, whether it's Tesla or another competitor.

We have seen some of those landmark announcements. Taiwanese companies have already created tie-ups or partnerships with US companies to invest in the US, or to accelerate those that are already in place. That is very promising because that shows their interest in diversifying and bringing back that critical supply chain to the US.

Of course, they are also recognizing that there are so many US companies that are their end-customers. So many Taiwanese industry leaders told me it makes a lot of sense to shorten that supply chain, rather than producing it far, far away, where you could be at the risk of natural disasters, global pandemic, and other hostile and unexpected threats. It has accelerated the announcements of some of the tie-ups between Taiwanese companies and their US partners. I feel it will continue to do so. In this year's Select USA Summit, we do have a dynamic EV session. We are excited to work with Taiwanese companies specifically on how we bring that cutting-edge technology and develop that within the US. The other thing is the executive order that I mentioned. There is a specific focus is on the critical batteries in relations to EVs. The US has announced to cut greenhouse gas emissions by half, below its 2005 emissions, by 2030. And it pledges to create an emission-free power sector by 2035.

Q: Taiwan is very isolated in terms of free-trade agreements, not having the access to the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, bilateral trade agreements are just as important for Taiwan. What are the hurdles that Taiwan still needs to overcome in order to accelerate the signing of a bilateral trade agreement with the US?

A: Taiwan is our ninth largest trading partner, but we also do tons of investments. That shows how intertwined our two economies really are. But again, circling back to your first question, it is not just about trade. It's also about investment. No matter it's trade or investment, it has created long lasting bonds and synergies. Taiwan is the top 30 foreign investors to the US, and the US is Taiwan's second largest foreign investor. So we've got very strong trade and investment ties.

In terms of how Taiwan engages with the world, it is reflective of how we at AIT along with the US government have been expanding relationship with Taiwan. Trade is a very important part, but it is just one of the many important areas that are going to drive the 21st century economy. We have very good trade track with Taiwan, but we are also building multiple other tracks with Taiwan to make sure we upgrade our relationship. You probably have noticed that our new Trade Representative, Katherine Tai, who is already in office, has made public remarks about her vision of reforming WTO into a relevant force for good in the 21st century economy. Again, with Taiwan, we have a lot of shared values, whether it's environment, labor practices and intellectual property rights. By working together, we can continue to pursue these channels. We have a Trade and Investment Framework Agreement (TIFA) with Taiwan, and we will continue to have close discussions to cooperate under TIFA.

Arati Shroff

Arati Shroff, deputy chief of the Economic Section at the American Institute in Taiwan (AIT)
Photo: Michael Lee, Digitimes, May 2021

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