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Taxes, not labor costs, drive IC production offshore, says SIA

Posted: 25 Apr 2005 ?? ?Print Version ?Bookmark and Share

Keywords:wafer? fab? semiconductor?

The U.S. needs a coordinated strategy to reduce the cost differential created by foreign government tax and incentive policies in order to keep chip manufacturing in the domestic market, according to the top executive at the Semiconductor Industry Association (SIA).

SIA President George Scalise also said that lower tax rates and incentives that reduce the cost of capital in other countries - and not lower labor rates - are the principal reasons why most new wafer fabs currently being built are outside the U.S.

Scalise's sentiments echo recent complaints by Intel Corp. Company CEO Craig Barrett recently said that current legislation "demotivates" Intel from making further investments in the state of Arizona. Still, Intel filed an updated preliminary development plan with Chandler city authorities on Feb. 18, that if approved, would allow Intel to upgrade its existing building and build up to "three computer chip plants" in the region.

Meanwhile, although U.S. semiconductor manufacturers still have 47 percent of the worldwide microchip market, only 20 percent of new, state-of-the-art production facilities now under construction are in the U.S.

"A dramatic shift in semiconductor manufacturing is now under way," Scalise said during testimony before the US-China Economic and Security Review Commission in Palo Alto, Calif. "Approximately two-thirds of the 300-mm wafer fabrication facilities now under construction worldwide are in Asia, with a significant portion of those facilities in China. Chinese government policies - not lower labor costs - are the principal factor in a differential of more than $1 billion in the 10-year cost of building and operating a 300mm wafer fab in the U.S. versus China."

There are other issues as well. "Even an 80 percent differential in wage rates between China and the U.S. is not a major factor in plant location decisions because semiconductor wafer fabrication facilities are capital- and technology-intensive," he said.

"Government incentives such as favorable tax treatment and other assistance programs account for approximately 90 percent of the cost differential," he said. "Like it or not, the reality is that government incentives play a major role in where investment takes place. Given the critical importance of semiconductors in driving U.S. economic growth and ensuring our national security, maintaining a competitive semiconductor manufacturing capability and a supporting ecosystem must be an important priority for America's federal and state governments."

Scalise recommended a number of specific actions that Congress should take to change policies that discourage investment in capital-intensive manufacturing facilities in the U.S.:

  • Providing federal tax holidays to match the tax holidays offered by overseas competitors.
  • Making the R&D tax credit permanent and enacting enhancements to make it more effective.
  • Allowing companies to expense high-tech manufacturing equipment in order to improve cash flow and stimulate investment in new equipment.
  • Re-examining international taxation rules and considering alternatives to the current rules on taxing foreign-source income.
  • Enacting significant tax rate reductions to make manufacturing costs in the U.S. more competitive with costs in other countries.
  • - Mark LaPedus

    EE Times





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