Commerce released a Notice of Proposed Rulemaking for the guardrails intended to ensure technology and innovation funded by the CHIPS and Science Act is not used for malign purposes by adversaries.
The proposed rule offers additional details on national security measures applicable to the CHIPS Incentives Program included in the CHIPS and Science Act, limiting recipients of funding from investing in the expansion of semiconductor manufacturing in foreign countries of concern: People’s Republic of China (PRC), Russia, Iran, and North Korea.
Secretary of Commerce Gina Raimondo. “CHIPS for America is fundamentally a national security initiative and these guardrails will help ensure malign actors do not have access to the cutting-edge technology that can be used against America and our allies. We will also continue coordinating with our allies and partners to ensure this program advances our shared goals, strengthens global supply chains, and enhances our collective security.”
The funding provided by the bipartisan CHIPS and Science Act included clear guardrails to strengthen national security:
- The statute prohibits recipients of CHIPS incentives funds from using the funds in other countries.
- The statute significantly restricts recipients of CHIPS incentives funds from investing in most semiconductor manufacturing in foreign countries of concern for 10 years after the date of award.
- The statute limits recipients of CHIPS incentives funds from engaging in joint research or technology licensing efforts with a foreign entity of concern that relates to a technology or product that raises national security concerns.
Today’s proposed rule outlines additional details on and definitions for these national security guardrails. The proposed rule will:
- Establish Standards to Restrict Advanced Facility Expansion in Foreign Countries of Concern: The statute prohibits significant transactions involving the material expansion of semiconductor manufacturing capacity for leading-edge and advanced facilities in foreign countries of concern for 10 years from the date of award.
- Proposed rule defines significant transactions as $100,000 and defines material expansion as increasing a facility's production capacity by five percent. These thresholds are intended to capture even modest transactions attempting to expand manufacturing capacity. If a CHIPS Incentives Program funding recipient engages in transactions violating these restrictions, the Department can claw back the entire funding award.
- Limit the Expansion of Legacy Facilities in Foreign Countries of Concern: The proposed probibits recipients from adding new production lines or expanding a facility's production capacity beyond 10 percent. Recipients may only build new legacy facilities if the output of those facilities “predominantly serves” the domestic market of the foreign country of concern where the legacy chips are produced. The proposed rule specifies that predominantly serving a market means at least 85% of the legacy facility’s output is incorporated into final products that are consumed in the foreign country of concern where they are produced. The proposed rule also notes that if any recipient plans to expand legacy chip facilities under these exceptions, they will be required to notify the Department so the Department can confirm compliance with national security guardrails.
- Classify Semiconductors as Critical to National Security: the proposed rule classifies a list of semiconductors as critical to national security – defining these chips as not considered to be a legacy chip and therefore subject to tighter restrictions. Includi current-generation and mature-node chips used for quantum computing, in radiation-intensive environments, and for other specialized military capabilities. This list of semiconductor chips was developed in consultation with the Department of Defense and U.S. Intelligence Community.
- Reinforce October 7th Export Controls: In October 2022, the Department’s Bureau of Industry and Security (BIS) implemented export controls to prevent the PRC from purchasing and manufacturing advanced chips that would enhance their military capabilities. Today’s proposed rule will reinforce these controls by aligning prohibited technology thresholds for memory chips between export controls and CHIPS national security guardrails. Today’s proposed rule applies a more restrictive threshold for logic chips than is used for export controls.
- Joint Research and Technology Licensing Efforts with Foreign Entities of Concern: The statute restricts recipients from engaging in joint research or technology licensing efforts with a foreign entity of concern that relates to a technology or product that raises national security concerns. In addition to the foreign entities of concern outlined in the statute, the proposed rule also adds entities from the BIS Entity List, the Treasury Department’s Chinese Military-Industrial Complex Companies (NS-CMIC) list, and the Federal Communications Commission’s Secure and Trusted Communications Networks Act list of equipment and services posing national security risks. The proposed rule also details the technology, products, and semiconductors that raise national security concerns or are critical to national security, consistent with U.S. export controls and as developed in consultation with the Department of Defense and U.S. Intelligence Community.
The Department is seeking public comment on the Notice of Proposed Rulemaking and will accept comment for 60 days. Industry, partners and allies, and other interested parties are encouraged to submit comment to inform the final rule to be published later this year.
Advanced Manufacturing Investment Credit
The proposed rule aligns with the national security guardrails included in the U.S. Department of the Treasury’s Notice of Proposed Rulemaking also issued today, which details the Advanced Manufacturing Investment Credit (Investment Tax Credit) administered by the Internal Revenue Service.
The Investment Tax Credit is a federal income tax credit for qualifying investments in facilities manufacturing semiconductors or semiconductor manufacturing equipment, and a critical component of the suite of incentives provided by the CHIPS and Science Act.
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