IBEW Spokesman Jim Spellane Speaks Out Against Sale of Electronic Manufacturing Equipment to Overseas Competitors

Dispute Looms Over U.S. Export of Chip-Making Equipment

BY JEFFREY KOSSEFF
c.2005 Newhouse News Service


WASHINGTON -- The application seems innocuous enough: asking the Export-Import Bank of the United States to help finance the export of $1.2 billion worth of U.S.-made equipment.

The bank is a federal agency charged with assisting in the export of U.S. products to other countries, so the request appears to meet its mission.

But the equipment is used to make semiconductors, and the destination is China.

The bank will consider the economic impact of the $1.2 billion financing application in the coming months. Until votes are placed on the bank board's meeting agendas, the bank cannot reveal the names of the U.S. exporters or the foreign companies buying the goods. It also will not identify whether the type of financing that was requested was a loan guarantee or a direct loan.

Critics say that even though such financing helps makers of manufacturing equipment, it also bolsters the migration of chip-making to other countries. The bank faces a tough choice: Should it help the equipment companies, even at the potential expense of domestic chip-makers?

The dilemma is a long-standing one for the bank.

"The bank has tried, at least while I was there, to walk a narrow line balancing the positive impact of the jobs associated with the exports against the potential negative impact on industries that compete with the foreign output that the exports will enable," said Rita M. Rodriguez, who served on the bank's board from October 1982 to March 1999.

Normally, the bank provides guarantees for repayment of commercial loans, but it also provides other types of financing, such as export credit insurance and direct loans. In the 2003 fiscal year, it financed $14.3 billion in U.S. exports.

In November, the bank's board of directors approved a loan guarantee for the sale of $652 million in U.S. equipment and services to Chartered Semiconductor Manufacturing Ltd. in Singapore for a silicon wafer fabrication facility there.

Chartered Semiconductor said the bank's support helped U.S. exporters of manufacturing equipment stay competitive.

"This financing package enabled Chartered to maximize its potential purchases from the U.S.," George Thomas, vice president and chief financial officer of Chartered Semiconductor, said in a written response to a reporter's question.

Applied Materials Inc., the Santa Clara, Calif., company that was among the equipment suppliers in the deal, said the financing helped create new export opportunities.

"They're real sales that maintain and create U.S. jobs," said David Miller, an Applied Materials spokesman. "Without the assistance, foreign competitors will be able to go in there. If we fail to provide it, somebody else will."

But some trade experts say it isn't that simple. Making it easier to set up chip plants in Asia, they say, indirectly hurts the chip industry in the United States.

"It is a very short-term gain to sell them the tools to make products that will displace American workers," said Peter Morici, a business professor at the University of Maryland and former chief economist at the U.S. International Trade Commission.

Labor advocates say such policies contribute to the broader problem of migration of manufacturing offshore.

"If the desire is to ship the equipment over, well, that's fine in the short term for the manufacturers of the equipment, but at some point the Asian countries will figure out how to make that themselves," said Jim Spellane, a spokesman for the International Brotherhood of Electrical Workers.

The semiconductor industry's trade association is neutral on the issue.

Now the bank is considering whether to help finance the $1.2 billion sale of U.S. semiconductor manufacturing equipment to a foundry in China.

The bank's staff is taking comments through next Thursday before its staff conducts an economic-impact analysis. Then the bank's board could vote on the application.

"The reason for the economic impact analysis is to see what kind of impact the sale of the equipment would have on the industry," said Phil Cogan, a bank spokesman.

In September 2001, the bank voted to bolster its economic analysis process when considering whether to finance the export of capital that could help a foreign company make goods that compete against the United States.

"Since 2001, ExIm Bank has made a concerted effort in my view to obtain additional public input for these types of transactions, and this recognizes that the agency doesn't have all the answers and may benefit from data and rationales provided by interested parties," said Dan Renberg, who served on the bank's board of directors from November 1999 to January 2003 and is now a partner at the Washington law firm Arent Fox PLLC.

Jan. 6, 2005