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Friday, December 8th, 2023

Biden administration adds national security protections to CHIPS incentives program

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Through elaboration of certain provisions, the U.S. Department of Commerce placed guardrails on the CHIPS and Science act last week, barring associated funds from expanding semiconductor manufacturing in or jointly researching with foreign countries of concern.

“One of the Biden-Harris Administration’s top priorities – made possible by the CHIPS and Science Act – is to expand the technological leadership of the U.S. and our allies and partners,” Secretary of Commerce Gina Raimondo said. “These guardrails will protect our national security and help the United States stay ahead for decades to come. CHIPS for America is fundamentally a national security initiative and these guardrails will help ensure companies receiving U.S. Government funds do not undermine our national security as we continue to coordinate with our allies and partners to strengthen global supply chains and enhance our collective security.”

The revamped rule will apply restrictions for 10 years. During that time, expanding material semiconductor manufacturing capacity abroad in countries of concern is a no-go, and so is working with concerning entities on joint research or technology licensing efforts. Expansion in this case includes construction, modification or improvements, and even modest transactions would trigger a response. Recipients can maintain existing facilities, but increasing a facility’s production capacity by more than five percent or adding on other physical space would be a violation.

If violated, new stipulations would allow the Department of Commerce to demand back the entirety of provided funding. Supply chain resilience is the stated goal, but so is security, with semiconductors freshly added to a critical to national security list, placing them under tighter restrictions.

In terms of joint research and technology licensing prospects, foreign entities of concern include those owned or controlled by foreign countries of concern, those on the Bureau of Industry and Security (BIS) Entity List and Treasury Department’s Chinese Military-Industrial Complex Companies (NS-CMIC) list, and more. Certain activities related to international standards – such as patent licensing – will be exempted.

The rule was first proposed in March 2023, after which the department took on a period of public comment. Suggestions were reviewed and incorporated where deemed appropriate.