While New Delhi must be mindful of export restrictions, the US-India semiconductor accord marks a major shift in the US’s high-technology strategy
In a significant milestone, the United States and India reached an agreement to establish a semiconductor plant in India that will cater to national security and defence. As a Quad member whose interests largely align with the US, India makes for a compelling partner in the face of China’s emergence as a major geostrategic threat and technological challenge.
More specifically, this latest agreement is the result of an initiative between Bharat Semi, 3rdiTech, and the United States Space Force (USSF). Critical materials essential for semiconductor development and manufacturing—such as infrared, gallium nitride, and silicon carbide—are central to the agreement. What makes this agreement stand out is its unique collaborative nature, involving a key branch of the US military, the USSF, and Indian industry.
India is already breaching critical technological thresholds in the semiconductor domain, as exemplified by Bharat Semi, one of the parties in the JV.
If implemented effectively, the agreement promises to bring considerable benefits to India’s domestic high-technology industry, aligning well with the Modi government’s National Semiconductor Mission. The aim of the joint venture (JV) is to establish a fabrication plant focused on achieving safe, secure, and resilient supply chains. This semi-conductor agreement will reduce India’s billion-dollar annual import of semiconductors for servicing its national security requirements and make the country a key hub in the semi-conductor supply chain. India is already breaching critical technological thresholds in the semiconductor domain, as exemplified by Bharat Semi, one of the parties in the JV. Bharat Semi has a fabrication facility that develops compound semiconductors incorporating materials like silicon carbide and gallium nitride, offering superior performance to traditional semiconductors involving high-voltage and high-temperature applications related to defence and green technologies.
The focus of the fabrication plant, as the US-India fact sheet states, will be on “sensing, communications, electronic power applications for national security, next generation telecommunications and green energy applications.” This fab facility, is not merely the first plant of its kind in India, it will be among the first multi-material fab plants to be established anywhere in the world. Consequently, chip manufacturing will receive a significant boost, bringing considerable reciprocal benefits to both countries in the area of defence.
Despite the landmark agreement, two caveats must be considered. Firstly, the collaboration between USSF, Bharat Semi and 3rdiTech is ultimately subject to US export control regulations. These regulations come in the form of the Export Control Reform Act (ECRA) of 2018, which seeks to protect US technology from being exported to countries that Washington considers inimical to its interests. The ECRA was passed by the US Congress to prevent the People’s Republic of China (PRC) from gaining access to restricted and foundational technologies covering semiconductors and cybersecurity that are vital to American national security. These restrictions also include technical capacities, related knowledge, and specifications that also cover JVs like the one India and the US have just concluded. Washington’s approach to technology-related export controls is defined in very broad terms.
The ECRA was passed by the US Congress to prevent the People’s Republic of China (PRC) from gaining access to restricted and foundational technologies covering semiconductors and cybersecurity that are vital to American national security.
This brings us to the second and corollary caveat, the ECRA not only controls items that have undergone production in the US, but the law also imposes controls on items exported from other countries that happen to use American technology that were earlier exported from the US, especially if the percentage of US origin technology exceeds 25 per cent. The latter is also known as the 25 per cent rule.
These export control restrictions underwent further tightening in early 2020 during the Trump Administration. While the primary target of high-technology restrictions, particularly regarding semiconductors, has been and remains the PRC, secondary targets can also fall under export control restrictions, giving the ECRA extraterritorial reach.
For instance, American companies exploited a loophole in the ECRA that allowed their overseas facilities or subsidiaries to sell to entities like the Chinese company Huawei. This loophole was plugged when further amendments were introduced that effectively gave the US Department of Commerce (DoC) more leeway in prohibiting export of items from oversees facilities that had no direct American technological content or inputs, but were based on American origin designs and blueprints. Among the primary targets of this restriction was the Taiwan Semiconductor Manufacturing Company (TSMC), which exported considerably to Huawei.
American companies exploited a loophole in the ECRA that allowed their overseas facilities or subsidiaries to sell to entities like the Chinese company Huawei.
While there is much to celebrate about the recently concluded semi-conductor fabrication agreement between India and the US, New Delhi will also need to be mindful of the need to align or harmonise its own export control regulations with that of the US. Otherwise, India risks running afoul of American export restrictions, which, as noted, can be defined expansively and may sow tension between Washington and New Delhi in the future. For now, the US-India semiconductor accord marks a substantive shift in the US’ high-technology strategy and promises to be a harbinger of many good things to come.
Ths commentary originally appeared in Business Standard.
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