SEMI Joins Debate Over China Trade

Electronic News, April 17, 2000 by Jeff Chappell

As the controversy over normalized trade between the United States and China continued to heat up last week on Capitol Hill, Semiconductor Equipment and Materials International (SEMI) endorsed permanent normal trade relations (PNTR) status for China.

SEMI and the capital equipment companies it represents see not only a chance to expand markets, but like other proponents of normalized trade, it says PNTR would bring about desired cultural changes within the communist nation.

China has sought to join the World Trade Organization (WTO), and before that the General Agreement on Tariffs and Trade, for the past 14 years. It hopes to join the WTO later this year, but still must reach trade agreements with several member countries. Last November, China signed just such an agreement with the United States. President Clinton is trying to persuade Congress to grant China PNTR statuscurrently China has a temporary normalized status that Congress reviews every year. PNTR would ease China's way into the WTO.

PNTR with China would guarantee the reduction of tariffs on goods imported into China and in turn would give Chinese goods imported in the United States the low tariffs granted to more than 100 other nations throughout the world. SEMI and others in the world of capital equipment think China has the potential to become an explosive growth marketin essence the next Taiwanwithin the next decade.

The market for capital equipment in China is about $1 billion and should grow to $4 billion over the next five years, according to SEMI. By 2010, analysts predict China will be the second largest market for semiconductors.

Jennifer Connell Dowling, director of public policy for SEMI, noted that PNTR status would provide a permanent means for lifting Chinese tariffs. "Tariffs on our equipment, especially lithography equipment, were up 35 to 40 percent," she said. "China has suspended those, but when you have a suspension, that suspension can be lifted. This insures that all those tariffs will go to zero by 2005."

David Lam, the founder of Lam Research Corp. and now chairman of the board for Tru-Si Technology, a packaging technology start-up, agreed that China is a market poised for a booma very big boom. "I think (PNTR) is a very significant benefit, particularly for the capital equipment industry," the Hong Kong native said. "The question we ask ourselves is, who is the next biggest spender? I tend to think it would be China after its entry into the WTO."

Lam theorized that once markets in China open up, that country will become the world's largest market not only for consumer products but for capital equipment as well. "I think that will start about the middle of this decade a[broken (vertical) bar] in my opinion, purchases will be bigger than we have seen before," he said.

U.S. companies will miss out on that market boom if Congress doesn't grant China PNTR status, suggested Mihir Parikh, Asyst Technologies Inc. chairman and chief executive officer. "I think it's critically important that we have open trade around the world. We can't have political situations get in the way of open trade a[broken (vertical) bar] China is going to be in high-tech, with or without us," he said.

Sleeping with the Enemy?

While some opponents to PNTR with China, particularly organized labor, say American workers will lose jobs, others add that China has long been home to questionable, if not downright illegal business practices such as counterfeit or pirated software, not to mention human rights abuses. But proponents of PNTR counter that normalized trade will promote improvements in these areas.

PNTR will put a two-way mechanism in place that will protect distribution and intellectual property rights, according to SEMI's Dowling. "We don't believe that China will suddenly become a saint in terms of its business dealings, but it will at least bring them into the global network of trading nations," she said, adding that no country has a perfect record in this area.

"You aren't going to solve problems of piracy by isolating them a[broken (vertical) bar] You have to bring them into the world community," Parikh said. "Protection and respect goes hand in hand. It is critically important that we open normal trade relations with China so they can gain respect," he added.

Lam agreed that PNTR and China's entrance into the WTO would have a beneficial impact on that country's economic and social policies.

"The WTO accelerates economic reform," Lam said. While reform has slowly come about in China over the last 20 years, particularly in the realm of private sector business, there are other areas that still need considerable progress, such as China's banking industry and state-owned enterprises, he said. Lam added that China is wrestling with reform, trying to avoid the social instability that can occur with sudden change, such as what happened in the former Soviet Union.

"I think the WTO would allow products to go to China that will stimulate both economic growth and reform," Lam said.