In November 2021, Taiwan’s flagship company and the world’s largest manufacturer of semiconductor chips, Taiwan Semiconductor Manufacturing Company (TSMC), announced plans to build a plant in Japan. It will be built in the Kumamoto Prefecture to the south. With strong support from the Japanese government, the new USD 7 billion plant is slated to be TSMC’s first semiconductor factory in Japan. It will create about 1,500 high-tech jobs.
The Kumamoto plant is special for TSMC in many ways.
It is a deviation from the usual TSMC practice for its overseas plants. It is not solely owned by the TSMC, which typically seeks full ownership of its plants abroad. The Kumamoto foundry is a unique, joint venture formally known as Japan Advanced Semiconductor Manufacturing (JASM). The Sony Group, under the subsidiary of Sony Semiconductor Solutions Corporation, will invest around USD 500 millions into the plant, representing an equity stake of under 20 percent.
Before the construction of the 21.3 hectares plant (roughly the size of some 50 football fields) began in April 2022, the venture secured another heavyweight Japanese investor. In February 2022, the Japanese automobile parts maker Denso and a key supplier for Toyota, joined as a third investor. Foreseeing continuing increased demand for high-end chips in the global car industry, Denso will invest USD 350 million and take a minority stake of over 10 percent. With Denso’s investment, this project is now valued at over USD 8.5 billion.
The Promise of Kumamoto
Beyond the sizable financial investments from TSMC, Sony and Denso for a secure supply of chips when the world is recovering from a pandemic-related semiconductor shortage, the Kumamoto foundry is significant for another reason.
This Taiwan-Japan venture comes at a time when the host government of Japan is globally active in the business and human rights agenda. Japan is currently in the process of formulating official human rights due diligence guidelines for Japanese companies to proactively identify, prevent, mitigate and account for how to address their negative human rights impacts.
This means that, in addition to the narrative of how TSMC is providing Sony and Denso special access to its semiconductor technology via the foundry, there is another undercurrent. Through this foundry and at this special chapter in corporate responsibility development, TSMC must act as a conduit for business and human rights. It must do all that it can to bring and diffuse this specialist technical knowledge on human rights due diligence back to Taiwan. Beyond chips, this is the wider promise of Kumamoto for the future of Taiwanese businesses.
The Plant Where It Happens
The Kumamoto plant is expected to churn out chips that are key components to various industrial sectors by December 2024. The mainstay production will be 12-inch silicon wafers with the logic chips that power our modern, computing world. With Denso’s additional investment, the planned monthly capacity for the production of 12-inch wafers is increased from 45,000 to 55,000.
In joining the JASM, Denso secures a stable supply of the specific type of chips it needs for autonomous vehicles. Denso’s additional funding will allow the plant to target the production of chips crucial for the high-end automotive industry. These are the chips in the 10-nanometer class (12/16 nm) used for vehicles with advanced autonomous driving and driver-assistance technologies.
These chips will be made in parallel to the 22/28 nanometer process production, as originally planned by TSMC and Sony. The 22 and 28 nm are used in image sensor technology, a key part of Sony’s line of professional and consumer electronic products.
Announcing the TSMC-Sony cooperation in November 2021, the CEO of TSMC, Dr. CC Wei, emphasized the centrality of TSMC in modern life: “The digital transformation of more and more aspects of human lives is creating incredible opportunities for our customers, and they rely on our specialty processes that bridge digital life and real life.”
This sentiment was backed by Terushi Shimizu, President and CEO of the Sony Semiconductor Solutions Corporation, stressing in the same statement that Sony’s partnership with TSMC to build the Kumamoto plant was strategically important “not only for [Sony] but also for the overall industry.”
Construction begins at JASM (TSMC) plant in Kumamoto
Growing Expectations for Japanese Enterprises
While this joint venture between flagship Taiwanese and Japanese multinationals was being negotiated, the landscape of social expectations for Japanese business enterprises was also shifting in the broader context of ESG (environmental, social and governance) investments. These developments took place outside the immediate high-tech circle of semiconductors, automotive and computing, but their potential social responsibility impacts were far-reaching.
On 15 February 2022, the same day that Denso announced its decision to join the venture, Japan’s Minister of Economy, Trade and Industry Koichi Hagiuda publicly confirmed that the government has established a panel on human rights in corporate supply chains.
By the summer of 2022, the Japanese Government commits to publishing official operational guidelines on human rights due diligence for Japanese business enterprises. The guidance will help Japanese businesses to continue trading with the U.S., where goods that are produced, in whole or in part, using forced labor are barred from entry.
Sony and Denso, given their special prominence in the global economy as leading Japanese multinationals, will be expected to fully follow this specific guidance to give effect to human rights due diligence. The same expectation would extend to the whole of JASM, inclusive of TSMC.
The UN Guiding Principles on Business and Human Rights (UNGPs), Principle 14, is clear in that the “responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure.”
Business and Human Rights: Taiwan and Japan
In late-2020, both Japan and Taiwan released their own National Action Plans (NAP) on Business and Human Rights, to implement the UNGPs. The UNGP is an international non-binding instrument that sets out how both states and business enterprises should implement the framework for corporate responsibility to respect human rights. The two NAPs were announced only two months apart. Japan’s NAP was released in October 2020. Taiwan shortly followed and released its own plan on 10 December 2020, Human Rights Day.
Taiwan’s NAP (titled “Taiwan National Action Plan on Business & Human Rights: Implementation of the United Nations Guiding Principles on Business & Human Rights (UNGPs); 臺灣企業與人權國家行動計畫—落實「聯合國工商企業與人權指導原則」) directly refers to the non-binding UNGPs in its formal name. It points to the commitment of the Taiwanese Government toward its implementation (earlier analysis here), but it is not as substantively developed as Japan’s NAP.
This is seen in one central aspect – that of the government setting out its clear expectation of business enterprises in the NAP. The UN Working Group on Business and Human Rights, the expert body of the Human Rights Council that promotes the UNGPs, states unequivocally that “governments should specify their expectation towards business enterprises.”
Yet in the Taiwanese context, government expectation does not tread far from generalizations. It lacks the specificity in the language used to set out this expectation toward business enterprises; Taiwan’s NAP simply describes government expectations tersely as, “Taiwan government expects businesses to respect human rights in all their business activities.”
On this same point, the Japanese NAP is much more elaborate: “The Government expects Japanese enterprises, regardless of their size and sector of industry, to respect internationally recognized human rights and the principles concerning the fundamental rights set out in the ILO [International Labour Organization] Declaration; introduce the process of human rights due diligence based on the UNGPs and other related international standards; and engage in dialogue with stakeholders, including those that are part of supply chains. Furthermore, the Government expects Japanese business enterprises to resolve issues through effective grievance mechanisms.” (Japanese NAP, page 30)
Two-Way Lane for Knowledge Transfer
The JASM is billed as a unique venture between Japan and Taiwan, owing to their special bilateral ties. While much of the resonance of this uniqueness harks back to the time when Taiwan was under Japanese colonial rule, present-day Japan-Taiwan economic ties is one of the most significant investment corridors in the Asia-Pacific.
The transfer of capital between Japan and Taiwan is also backed by a vibrant people-to-people exchange of information and knowledge. Japan is the third most popular destination for Taiwanese students studying abroad, after the U.S. and Australia. Taiwan is also a very popular destination for Japanese visitors, globally ranking fourth after the U.S., China and South Korea.
Notably, the importance of knowledge transfer between Japan and Taiwan for the benefit of the global semiconductor industry was emphasized in the announcement of Denso’s participation in February 2022. The press statement highlighted: “JASM is not only an opportunity for TSMC to support growing market demand for specialty technologies, it enables us to leverage Japan’s top-notch semiconductor talent and contribute to the growth of the global semiconductor ecosystem.”
Business and Human Rights Challenges for Taiwan
The government of Japan recently announced in April 2022 that it will fund a project to be carried out by the UN Development Programme (UNDP) to tackle business-related human rights abuses. The project aims to equip governments and companies in 17 countries worldwide to act upon their duties and responsibilities to prevent negative human rights impacts in the context of business activities.
Simultaneously, this project will provide a clear benefit to Japanese companies. The same announcement states that “UNDP will support Japanese companies and their suppliers in managing human rights risks potentially associated with their operations. The companies will also benefit from this process, as businesses that demonstrate clean operations have clear advantages in placing their products on the market.”
These benefits, however, are not available to Taiwan. Taiwan is outside the UN system and not privy to the technical knowledge generated and shared through such projects. Nor can Taiwan — even with the funding it has — support an international development project under the UN that could bring up the human rights standards of Taiwanese companies and their suppliers that could give them a market access advantage.
Risks of Inaction
Nevertheless, Taiwan’s business enterprises do not have the option of not adapting to growing expectations of corporate responsibility to respect human rights. If they want to stay competitive, Taiwanese businesses must put the substance of human rights into form and action. This must be embedded in a due diligence process, beyond glossy corporate social responsibility reports that speak more of philanthropy.
Without doing this, Taiwanese businesses risk having their goods unable to enter markets where there are higher human rights expectations. This is most clearly seen in laws and policies that are already in place or planned that bar the import of goods believed to have been produced, in part or in whole, with forced labor.
While the international definition of forced labor — “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily” — may seem academic or even distant, the reality of a forced labor goods ban for Taiwan is already not far.
We have seen U.S. customs authorities prohibiting seafood caught onboard Da Wang (大旺), Yu Long No. 2 (漁隆2號) and Lien Yi Hsing No. 12 (連億興12號) from entry into U.S. port in the last two years. The cost was not only in economic terms for the Taiwanese companies that own the vessels. These bans exact a heavy price on the reputation of Taiwan’s fishery sector and Taiwan overall.
It is a steep learning slope. Taiwan’s government and companies must learn in a landscape where the same intergovernmental channels that exist for other countries, like for close ally Japan, are not available for Taiwan. Instead, the intergovernmental technical expertise dissemination function is substituted by other means, like transnational civil society cooperation that is crucial for activism and awareness-raising but different from UN technical assistance.
This means that, more than anything, Taiwan must be forward leaning. It must absorb technical lessons from other channels available to it. And on this point, TMSC — Taiwan’s flagship brand that embeds so much of the island’s pride and aspirations — has a pivotal role to play.
Taiwan: Hurry, Hurry
At this crucial junction of ever-growing attention on human rights abuses in business activities, Taiwan’s private sector cannot be siloed. It cannot wait and be reactive to the fast-paced developments in international expectations for business enterprises and human rights. “Otherwise, Taiwan risks potentially losing access to key strategic markets and tarnishing the liberal image that it projects globally — two of the most important factors for Taiwan’s survival,” says Chieh-Ting Yeh, the editor in chief of Ketagalan Media and also a watcher of Taiwan’s tech industry and soft power.
The TSMC, via this venture to build the Kumamoto foundry with Sony and Denso, is well positioned at a time when the host government is embarking on an active business and human rights agenda. The challenge is to learn, adapt and ultimately be an influential conduit to bring home and diffuse this knowledge.
The TSMC is a unicorn of an enterprise, at a unicorn of time and place, for it to lead and make the business case to all those still wavering on the fundamental importance of human rights due diligence in Taiwan. Convince those who are skeptical. Pull along those who may still be lingering on the changes needed for the future of Taiwan’s export-based economy.
There is simply no time to waste. We must hurry.
(Feature photo by Briáxis F. Mendes (孟必思), Wikicommons, CC BY-SA 4.0)
