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New TSMC plant tests Japan’s ability to design ‘good’ state subsidies

  • October 22, 2021
  • , Nikkei Asia , 5:22 a.m.
  • English Press

RYOHEI YASOSHIMA, Nikkei staff writer

 

TOKYO — Industrial subsidies are back in favor in Tokyo as Japan prepares a multibillion-dollar support package for Taiwan Semiconductor Manufacturing Co.’s first plant in the country.

 

Japan is poised to fund up to half the cost of the new plant, which is expected to break ground next year.

 

For some observers of Japanese industrial policy, this generous welcome may seem out of character for Japan, which has joined the U.S. and the European Union in recent years in criticizing Chinese state aid for industry. Tokyo’s courtship of TSMC, the world’s top contract chipmaker, comes at a time when the U.S. and the EU are also moving to boost chip production on home soil.

 

“Creating a stable chip supply chain is important, including from a national security perspective,” Minister of Economy, Trade and Industry Koichi Hagiuda said.

 

Though the U.S. and the EU said in a joint September statement that they aim to avoid a “subsidy race,” both sides’ policies amount to competition in practice. The EU last month announced plans to strengthen the bloc’s semiconductor sector through a European Chips Act.

Subsidy-fueled Chinese competition had united Tokyo, Washington and Brussels in opposition to Beijing. During the Trump administration, they held a series of trilateral meetings in response to a steel glut and the rapid growth of Chinese chipmakers.

 

In an internal document compiled ahead of a Japan-U. S. summit in 2017, the Japanese government suggested it could identify illegal subsidies and other Chinese violations of World Trade Organization rules in order to bring a large-scale dispute against Beijing with Washington.

 

The Ministry of Economy, Trade and Industry (METI) warned in a 2019 white paper that Chinese chipmakers, flush with investment by state funds and the China Development Bank, were snapping up overseas players. The following year Japan, the U.S. and the EU called in a joint statement for expanding the list of WHO prohibited subsidies.

 

But now Japan, the U.S. and the EU are preparing massive subsidies of their own for their semiconductor sectors. While these moves arguably represent a response to the changes wrought by the coronavirus pandemic, some experts warn of potential repercussions.

 

“Depending on the impact of its subsides on other countries, Japan could have a case brought against it at the WTO,” said Toshiaki Takigawa, a professor emeritus of Kansai University in Japan. “Maybe government thinks it will be safe because every country is planning on subsidies, so it can say, ‘Look who’s talking.'”

 

METI is now hammering out the details of the aid for the TSMC plant. There is no indication at this point that it would cross any of the WTO’s red lines, such as export subsidies.

 

“This is not the kind of subsidy that violates WTO rules,” one METI official said. “If this doesn’t fly, we won’t be able to provide regular subsidies either.”

 

Since the signing of the General Agreement on Tariffs and Trade in 1947, countries have struggled with where to draw the line between “good” subsidies that foster industry and “bad” subsidies that undermine free trade.

 

Yet even good subsidies can turn sour if they end up causing a supply glut and global collapse in chip prices. METI in its 2019 white paper warned that government support could prime the pump for private-sector funding, “causing overproduction as a result of a huge amount of capital flowing into a particular industry.”

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