Industry optimistic about low, if not zero, tariff on electronics exports

The imposition of specific tariff on electronic manufacturing — which, for India, primarily means mobile devices, apart from servers, laptops, and personal computers (PCs) — is pegged on one key clause under Section 232 investigation by the US commerce department.

 

Section 232 of the Trade Expansion Act of 1962, administered by the US Department of Commerce, allows the President to restrict imports that threaten national security. The commerce department investigates potential threats, and if a threat is found, the President can impose tariffs or other trade restrictions.

 

Clause 4, which is relevant for India, says that the commerce department will investigate “the concentration of US semiconductor imports, including as embedded in downstream products (meaning mobiles, laptops etc.), from a small number of fabrication facilities and the associated risks, and similarly the concentration of United SME imports from a small number of foreign sources”.

 

Currently, these products are exempted by the US from any tariffs, which will continue even after August 1, and a final decision will be taken after the Section 232 probe report is submitted by the department with August 14 deadline.

 

Industry experts are cautiously optimistic that the exemption might continue, and even if tariff is imposed, it will effectively be small, as it would be imposed on the value of the semiconductor and not on the entire cost of the mobile phone. Semiconductors account for anything between 25 per cent and 40 per cent of the bill of material of a phone.

 

The Manufacturers' Association for Information Technology (MAIT) says while the 232 investigation could change the tariff landscape, any reversal is likely to be gradual and may include “carve-outs” for “key supply chain segments”.

 

Top executives, who export electronic products to the US, say one concern is that the US government does not have to give any explanation for a change in tariffs, even though it is a public investigation where various stakeholders have given their views. “They can merely impose tariffs, saying that they have done so to safeguard the security of the US,” says a senior executive.

 

The sobering news is that Cupertino-based Apple Inc, which assembles the iPhone in India, has already ensured that bulk of its semiconductor requirement came from non-Chinese sources. For instance, Apple Inc designs its latest A16 Bionic chips in the US and these are manufactured by TSMC in Taiwan. 

 

However, with the Taiwanese firm’s new plant coming up in Arizona in the US, it is ex­pe­cted that a substantial part of the chip production will shift in phases to America.

 

Apple Inc’s other requirement of microprocessors is met by US company Micron, which has facilities across the world — in Japan, Singapore, Taiwan, China, and India (upcoming).

 

That apart, SK Hynix, a South Korean company, is a supplier to Apple Inc, with facilities in both Japan and China, and NXP Semiconductors, a Dutch company, which is another supplier, has a more diverse global presence, with facilities in Germany, Japan, Thailand, Singapore, the Netherlands, and China.

 

The US Chambers of Commerce, in its reply on the public consultation, pointed out that one-third of the global semiconductor market is focused on smartphones, computers, and consumer electronics. But it sounded out People’s Republic of China, which “has the potential to adversely impact the commercial environment of the US semiconductor industry…”. The US Chambers of Commerce has said it is against a broad-based imposition of tariffs across countries but (for) a “strategic and targeted approach” to address national security risks. 

In a nutshell 

• Clause 4, which investigates the impact of semiconductors and those embedded in downstream products, is key to the tariff structure
• US Chambers of Commerce sounds out China for investigation
• It wants focused and targeted approach on tariffs, and not broad-based imposition
• MAIT expects that reversal of tariffs will be gradual and suggests “carve-outs” for key supply chains