Department of Commerce Devises Rules Under CHIPS Act

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Yuka Hayashi and Asa Fitch, US Charts New Course in Chip Industry; 'We are not writing blank checks,' said Commerce Secretary Gina Raimondo. Wall Street Journal, Mar 1, 2023, at page A2.
https://www.wsj.com/articles/chi ... s-attached-6e72fd67

Quote:

"Some of the conditions listed Tuesday, such as limits on stock buybacks, expansion in China and the use of union workers, have been known for months because they were part of the legislation. * * * Yet, an extensive list of requirements [set by Department of Commerce yesterday] , particularly the rules on profit-sharing and workforce, had some economists raising questions."

"In an interview, Ms [Commerce Secretary Gina] Raimondo framed the Chips Act is a national security initiative. The US buys more than 90% of its advanced chips from Taiwan, she said, calling that 'a national security vulnerability that is untenable.' "

Note:
(a) Following CHIPS Act (enacted by Congress), US Department of Commerce sets rules, which become part of Code of Federal Regulations (CFR).
(b) Attached is the print version, which is about 60% of the online one.
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WASHINGTON—The Commerce Department on Tuesday kicked off the application process for semiconductor manufacturing subsidies under the $53 billion Chips Act, along with conditions aimed at advancing some of the Biden administration’s priorities.

The program serves as a test of Washington’s ability to invigorate and chart a future course for the semiconductor industry that was forged in the U.S. but in recent years has moved much of its manufacturing overseas.

The Commerce Department said it would impose requirements to help ensure that billions of dollars in taxpayer funding is spent wisely and that the funding will meet national security goals to counter the technology advances by China.

Some of the terms also reflected the administration’s social and economic priorities, such as diverse workforce and the use of union labor.

Companies receiving incentives will be required to share part of their profits with the government and limit stock buybacks and dividends. Companies are also expected to use union workers, as well as U.S.-made iron and steel for the construction of facilities, while providing affordable child care for workers.

In a move that could limit their business potential for one of the world’s largest chip markets, the government puts tough limits on the expansion of companies’ operations in China for a decade.

“In giving out the funding, we’ll be implementing a number of safeguards to ensure companies that receive funding are holding up their end of the bargain,” Commerce Secretary Gina Raimondo said at a press briefing. “We are not writing blank checks.”

The Chips Act is the latest example of Washington’s efforts to bolster the domestic economy and industries with taxpayer funds and directives, a reversal of a free trade policy that for decades encouraged U.S. businesses to pursue efficiency by moving production overseas where costs are lower. The other programs include the Inflation Reduction Act, which allocated nearly $400 billion for the shift to clean energy.

“The U.S. is moving very solidly into an aggressive and outward facing industrial policy,” said Todd Tucker, director of industrial policy and trade at Roosevelt Institute, a think tank. “It’s also doing it in a way that is an attempt to reconcile the need to onshore the supply chains with the broader economic and social agenda of the Biden administration.”

The Chips Act was approved by Congress and signed by President Biden last year as chip shortages exacerbated by the pandemic and supply chain snags hobbled auto makers, appliance makers and other manufacturers reliant on semiconductors. Lawmakers were also spurred by increasing tensions with China, which is investing heavily in its semiconductor industry and its military.

The program includes manufacturing incentives totaling $39 billion to be given to companies to help invest in domestic semiconductor manufacturing. More than $13 billion will fund research and development, as well as workforce advancement.

The government aims to target the funds to create at least two manufacturing clusters for leading-edge chips by 2030. Top candidates for receiving funds for advanced chip-making plants to anchor such hubs are Taiwan Semiconductor Manufacturing Co., Intel Corp., and South Korea’s Samsung Electronics Co., the three companies that currently mass-produce such chips. They have already unveiled plans to build facilities in states including Arizona, Texas and Ohio.

Some of the conditions listed Tuesday, such as limits on stock buybacks, expansion in China and the use of union workers, have been known for months because they were part of the legislation. Such conditions didn’t prevent companies from expressing interest in applying for funds. Yet, an extensive list of requirements, particularly the rules on profit-sharing and workforce, had some economists raising questions.

“There appear to be even more restrictions, or more conditions, in this funding than what the law demands,” said Scott Lincicome, a trade and economics expert at Cato Institute, a libertarian policy group. He noted that rules on child care and “Buy America” requirements will raise the costs for the participants and could slow down the projects

The Pentagon will have secure access to leading-edge semiconductors manufactured at facilities receiving funding from the Chips Act, Ms. Raimondo said, ensuring the industry can supply the military with the advanced chips it needs for modern weapons systems.

In an interview, Ms. Raimondo framed the Chips Act is a national security initiative. The U.S. buys more than 90% of its advanced chips from Taiwan, she said, calling that “a national security vulnerability that is untenable.”  

The condition that has raised most concerns among industry executives is the program’s impact on their operations in China, a huge source of profits for many companies.

The Commerce Department said recipients of funds must agree not to engage in “certain significant transactions” involving expanding chip manufacturing capacity in China, or “countries of concern,” for 10 years. Applicants will also be asked to return the full amount of an award if they knowingly engage in any joint research or technology licensing effort with a foreign country that raises national security concern.

Industry executives have been closely watching how the Commerce Department will define the limit on expansions in China, particularly which types of advanced chips will be covered by the prohibition. The department said it would soon release further information on the China-related rules.