For the world to see India’s potential as a semiconductor powerhouse, we need targeted trade policies

India faces a difficult task: to show its commitment to developing the semiconductor industry. Industrial policies with capital can attract investment and potential bids, but supportive trade policies and a conducive business environment can ensure projects are completed and deliver results. In the long term, this approach may attract more international semiconductor companies. India can move closer to its goals by adopting the following policy recommendations.

For starters, India needs to change its approach to foreign trade policy and make it more accommodating to the tech sector. The government can then focus on developing a comprehensive trade policy that is suitable or tailored to the semiconductor industry itself.

Mercantilist and distorting business practices that undermine the principles of market-based competitiveness in industry must be eliminated. This may include exorbitant subsidies granted to the domestic sector which could discourage foreign companies from investing in the country.

Additionally, government commitment is needed to engage in international forums and multilateral trade groupings that can advance the growth of the semiconductor industry. Some policy instruments that India may consider include:

The World Semiconductor Council (WSC)

The WSC is an international forum bringing together semiconductor leaders and technical experts to address global issues affecting the industry. Currently, the organization includes the semiconductor industry associations of Japan, South Korea, the United States, Europe, China, and Taiwan. Established in 1996, the WSC promotes international cooperation in the semiconductor industry to facilitate the long-term growth of the industry.

India is expected to join the Council to make its voice heard among the semiconductor powerhouses. The Council is a strong supporter of free trade and is guided by the principles of fairness, respect for market principles and consistency with WTO rules. The WSC also recognizes the importance of open markets without discrimination and believes that the competitiveness of companies and their products should be the primary determinant of industrial success and international trade.

Any aspiring member (a country or region where the association is located) must meet one of two criteria for tariff elimination. First, all tariffs have been eliminated. Second, a commitment to quickly eliminate all tariffs on semiconductors or to suspend those tariffs pending their formal elimination. India’s engagement can bring confidence to investors and potential partners to build the national ecosystem. It would also expand India’s access to free trade with respect to the semiconductor industry.

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The expansion of the Information Technology Agreement (ITA) of 2015

In 1996, the World Trade Organization’s Information Technology Agreement (ITA) was the main tariff reduction agreement related to high technology and information technology products. The rapid evolution of the digital revolution has led the WTO to rethink the overall scope of the agreement itself. This launched the ATI-II negotiations in 2015 and resulted in the addition of over 200 technology products.

India was a signatory to the original 1996 agreement, but withdrew from the expansion agreement, which would have imposed duty-free treatment on the expanded list of technology products, including semi-finished products and components. -Critical conductors. At the time, New Delhi argued that the deal would impact the domestic electronics manufacturing sector and create overreliance on imported electronics. The government had introduced the “Make in India” policy to improve domestic manufacturing in various sectors. This has effectively prevented Indian companies from accessing critical semiconductor products at zero-duty structures.

It is in India’s interest to become an official signatory of the expanded ITA. This would allow the domestic sector to have access to zero-duty products related to the semiconductor industry. It would also help startups and domestic manufacturers to improve their export volume. The wide range of technological products offered by ITA can ensure that strategic sectors such as semiconductors would be at the forefront of India’s international trade.

India has traditionally stayed away from trade blocs and agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), citing the need to protect its economic sectors nationals. But for supply chains to work effectively, the technology domain requires multi-stakeholder cooperation. It is imperative to have a free movement of goods and services in the semiconductor and high technology sector. India will benefit domestically and can play a greater role in the global value chain if it joins some of these multilateral groupings that generate industry-specific benefits.

Multilateralism – imperative in the current geopolitical climate

To ensure a seamless transfer of semiconductor technology, there should be a single point of concentration for the Indian government, perhaps through the establishment of industry technology alliances. A “trust bubble” approach can help India engage with like-minded states through a multilateral or plurilateral platform. This can help improve information sharing mechanisms in specific high-tech industries, including semiconductors.

These technology sharing agreements can occur between alliance partners through existing groupings like the Quad. For example, the “Quad Supply Chain Initiative,” announced at the group’s first in-person summit, can be expanded to include trade secret protections that will easily facilitate technology transfer agreements. In the information age, technological alliances may become the future of diplomacy. With supply chains facing bottlenecks, spreading semiconductor technology across multiple states through technology transfer agreements can reduce existing vulnerabilities. India can play its part in facilitating technology transfers to its domestic industry – to build the resilience of the global value chain and its own ecosystem.

Ultimately, convincing international markets to see India’s potential as a powerhouse in semiconductors hinges on transparently sharing technologies and functional systems related to high-tech sectors.

READ ALSO | Industrial policies alone cannot deliver the desired results in the technology sector. Just look at the mistakes of the United States and China

This article is adapted from an article titled “Harnessing Trade Policy for India’s Semiconductor Growth” written by Arjun Gargeyas and Pranay Kotasthane and published by the Hinrich Foundation.

Arjun Gargeyas is a research analyst at the Takshashila Institution. The opinions expressed in this article are those of the author and do not represent the position of this publication.

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