Pentagon Is Told To Focus On Health Of Semiconductor Industry Or Risk Buying Chips From China

The Department of Defense and the federal intelligence community must take action within the next few months to address the potential loss of the U.S. semiconductor industrial base, says Sen. Joseph Lieberman (D-Conn.), ranking member of the Airland subcommittee of the Senate Armed Services Committee. The migration of production capacity to China along with research, design and engineering capabilities have "grave national security implications," says Lieberman in a new white paper on the subject. "We are being confronted by one of the greatest transfers of critical defense technologies ever organized by another government and the time for action is overdue."

The Chinese government's multitude of industrial policies, subsidies, incentives and trade restrictions are working successfully to attract the next generation of U.S. semiconductor fabs. Only two companies remain in the United States that are capable of producing chips critical to the success of the next generation of weapons and intelligence systems. "Informed elements of the intelligence community have made clear that relying on integrated circuits fabricated outside the U.S. (e.g. in China, Taiwan and Singapore) is not an acceptable national security option," says the white paper.

The situation requires immediate attention because within the next six to seven months, executives in the U.S. semiconductor industry will be making long-term decisions on where to base their next generation production facilities. "If DOD wants to address these problems then they have to get on top of them sooner rather than later," says a Lieberman legislative assistant.

DOD and federal intelligence agencies are entering a new period of weapons systems development and implementation that will push the boundaries of technology far beyond what has been required over the past 15 years. The shift to network centric warfare means DOD will be a first adopter of new processing technologies. The Global Information Grid will require a dense network of satellites, laser-based wireless communications devices and fiberoptic lines that will allow the transfer of 100 megabytes of data per second. Such a system will rely on advanced processors to make it robust, secure and reliable.

"The people in DOD who think about industrial issues -- and there aren't many left -- haven't had to think about [industrial base issues] since Sematech," says the Lieberman aide. "DOD is in the process of coming to a whole new paradigm of how it's going to operate without the capability of a robust industry" to support an entirely new information networking and processing system that links every warfighter and commander on and off the battlefield.

Lieberman recommends that the Pentagon "insist" that the U.S. Trade Representative immediately confront China on its use of a 14 percent rebate on a value-added tax (VAT) to customers who buy Chinese-made chips. This practice is illegal and represents "a very significant step towards ending U.S. production," says the Lieberman white paper.

Next, DOD should allow for semiconductor manufacturing companies to form joint production agreements under Title 15 of the U.S. code (sections 4301 through 4305). This exemption in the antitrust laws would allow companies to team together to reduce the risk of investing $3-billion or more in a new fabrication plant. "The Department could encourage this kind of venture and offer contracting opportunities to meet DOD's own chip-making needs, thus being an additional guarantor of demand," says the Lieberman white paper.

DOD should consider entering into contractual agreements with semiconductor companies, allowing them to build new production facilities to serve the military and its contractors. DOD, the National Security Agency, a consortium of defense contractors and IBM are currently negotiating one such arrangement, military sources have told Manufacturing & Technology News. "DOD and the intelligence agencies must pursue this avenue of creative government-industry cooperation and must do so soon, as time is not on the side of the U.S. industrial base or the U.S. government," says the Lieberman paper.

However, dedicated military fabs would only provide temporary relief and must be coupled with policies that ameliorate the potential for the permanent loss of the industry. "Such temporary solutions are not only unworkable over time if the U.S. wishes to retain the best capability that is required for defense and intelligence needs, but will be far more expensive than" relying on a robust commercial industry capable of serving the military market, says the paper.

The problem with dedicated military production is that as manufacturing heads offshore, the R&D and design capabilities follow. "The industry hasn't wanted to advertise this shift of production to China because they're nervous about it and the ramifications," says the Senate aide. "They clearly want significant continued federal R&D help but why is the federal government going to contribute R&D help to an industry located in China?"

DOD should work with industry to create a proposal of targeted tax incentives that reduce the financial burden of building new fabrication plants, Lieberman suggests. The military should fund incentives to train engineers skilled in semiconductor disciplines at American universities. It should increase research funding for microelectronics and consider creating another Sematech-like consortium and other cooperative R&D efforts with industry in critical research areas.

Lieberman suggests that DOD undertake a research effort into the "90-nanometer" generation of chips. If it does not, the U.S. risks "finding itself without a domestic manufacturing base as the research for that technology generation should be under way NOW," says the white paper.

It should support the proposed photomask industry consortium that is currently being discussed or risk the loss of another essential building-block industry. It should fund the Focus Research Center Program, which is backed by the Semiconductor Industry Association, but has been zeroed out by the Bush administration in its budget requests.

Finally, it should survey "all possible technologies that the Chinese government may be targeting for subsidies that would assist in the transfer of U.S. chipmaking and related fields to China and then develop a list of those subsidies that are in violation of GATT trade rules and seek USTR action," says the paper. "For those that are not in violation but nonetheless create a competitive 'edge' for China, the Department and the intelligence agencies will need to develop counter strategies. The focus should aim to strengthen the entire electronics and IT 'food chain' -- from semiconductor manufacturing equipment to semiconductors to computers and systems. This will require broad interagency coordination and cooperation. It would probably be necessary to form such a 'tiger team' immediately, and to provide that team with the authority and resources to act to stem the deterioration of our defense-critical on-shore infrastructure."

Granting China Most Favored Nation status was the work of bill clinton and, I regret to say, the Republicans in congress.

There's no way that China, any more than France and our other socialist "trading partners," will ever trade with us on a level playing field.

I'm afraid international trade is one of Bush's weak points. I doubt he will do anything to correct the situation.

China didn't develop the semiconductor. It was developed in the USA. Most of the R&D was funded by our tax dollars via university grants, NASA, etc. We funded the development. We developed the product. Now they're going to dump the product on the market? I say BULL$#!+!! When is someone going to stand up for American? We need to throw those thugs out of Washington D.C. Tariffs should be high on products developed with our tax dollars. We need to tell our thug law makers that we don't care to fund NASA, university research, etc. if it's not for our benefit. It's time to put the USA first!!!

cultured diamonds have been around for awhile but they have been way too expensive to scale up in volume. There is a new technology that does create real diamonds inexpensively. The significance of the technology is not that women will get finger diamonds on the cheap. Rather the significance of the technology is that it will enable the computer chip industry to make the next quantum leap in processing power. How important is this? Ask any high tech executive on the West Coast and they will tell you that the trend right now is that the center of gravity for high tech is shifting over to Asia.

Cheap, consistant diamonds produced for computer chips --and produced in the America would return the future of high tech to the USA.

So how hot does that make this technology? Its hotter than cigarette boats. Its not as hot as the A bomb research in WWII. But it is about on the same level with the human genome project of the late 90's that has made gene splicing technology into a major industry in the USA (and Maryland particularly) and the Semitech Project of the early 90's that restored US leadership in the computer chip making industry-- that was at that time slipping away to Asia.

Here's two links on the subject.

http://www.wired.com/wired/archive/11.09/diamond.html

http://science.slashdot.org/science/03/08/12/2112237.shtml?tid=126

How cleaver can you get? It never stop being amazed how we are getting are hats handed to us when it comes to the new intellgence war between us and the Chinese. They have stack up an impressive series of victories and the effects are clear. It was improable ten years ago that the chinese would be on the cusp of man space flight, but here we are and it is thanks to their predious thievery of our technology. What even more sad is that we are selling and have sold many technologies that fueling the Chinese race to superpowerdom. I wish those in Washington wake up to the sinking ship before the water is over our heads for we are head of the game now but that will not always be so.

There's no way that China, any more than France and our other socialist "trading partners," will ever trade with us on a level playing field

unless taxes and regulations are cut enough to balance the fact that those "partners" dump, subsidize and use slave labor

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