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The next step for Quad: A dialogue on high tech

Pranay Kotasthane and Rohan Seth / Hindustan Times Share:
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T-12 is the new G-7. We are not talking about your airport boarding gates. T-12, Tech-10, Democracy-10 are some proposed multilateral mechanisms to enable international cooperation in technology governance.

Cooperation, however, won’t be easy because there is significant dissonance even amongst democracies on issues such as competition in the digital economy, privacy, and data governance. The European Union (EU) prefers a regulation-heavy approach centred on protecting users’ data; the United States (US) prefers a less-restrictive approach allowing technology companies to gain scale; and India is considering data localisation measures. Such divergent outlooks run the risk of derailing collaboration.

From an Indian perspective, a more useful way of structuring these collaborations is to extend an existing politico-military arrangement such as the Quadrilateral Security Dialogue (Quad) to the technology sphere, starting with securing the semiconductor supply chain first.

Building a semiconductor supply chain as the first initiative matters for three reasons. One, the semiconductor industry underlies all critical technologies. Two, it is perhaps the most globalised high-value supply chain and no country can become entirely self-resilient. And three, all four countries have complementary strengths in the semiconductor supply chain.

The US is a dominant force in chip design — a stage responsible for specifying how transistors are placed inside a semiconductor chip. Four of the world’s top 10 fabless chip makers are American. Further, chips designing requires electronic design automation (EDA) tools, the market for which is quite concentrated because of high R&D requirements. Here again, all three major EDA players are located in the US.

The next primary stage in the process, semiconductor manufacturing, requires a high degree of precision and capital investment. True to their reputation, a few Japanese companies dominate the global market in crucial semiconductor manufacturing equipment and chemicals. These companies are renowned for their high-quality products, and their expertise is not easily replaceable.

Australia does not have a significant semiconductor industry but it is set to play a vital role in the high-tech electronics industry of the future. It is the world’s largest producer of lithium, an element used for making rechargeable batteries present in electric vehicles, phones, and laptops. Australia is also one of the world’s leading suppliers of Neodymium, used in powerful electromagnets that are critical for electric vehicles.

And India is one of the major global hubs for chip design. Annually, 3,000 chips are designed in India. Most top foreign semiconductor companies have established their design and R&D centres due to the availability of a large talent pool. India also has proven excellence with electronics end-product assembly. For instance, Foxconn recently announced its intent to invest in India while Samsung this year built the world’s largest mobile phone manufacturing plant on the outskirts of Delhi.

None of these countries can build a self-resilient semiconductor supply chain, but as a collective, the Quad is a force to reckon with. The missing ingredient is a foundry that can manufacture advanced chips below the 5-nanometer process node. Building such a foundry requires significant risk capital, between $12bn-$20bn. Here too, Quad countries can form a consortium to fund a semiconductor foundry in one of the four countries, de-risking the considerable upfront investment.

Realising the potential of the Quad also needs agreement on some trade issues. Encouraging movement of skilled professionals, building confidence in each other’s judicial settlement mechanisms, developing common standards, and allowing knowledge transfer on sophisticated technology issues are crucial for success. Our colleague, Nitin Pai, likens these initiatives to creating “bubbles of trust”.

Democratic states have come to the right conclusion that going it alone in the realm of high-tech geopolitics is unrewarding. India should use this change in thinking to expand its role in the global high-tech value chain. A Quad Silicon Dialogue can be one such start.

 

Pranay Kotasthane and Rohan Seth work on high-tech geopolitics at the Takshashila Institution. First published in Hindustan Times

 

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