Semiconductor Rule Finalized by Commerce

Oct. 10, 2023
By: Chaney A. Finn

We have been continuously reporting on steps the U.S. is taking to reduce dependency on China for critical commodities, such as semiconductors, or microchips, and the minerals used to produce these commodities. Dependency on foreign suppliers, especially potential adversaries like China, pose economic and national security threats since these chips are used in a variety of commercial and military applications.

The latest development in increasing domestic semiconductor production pertains to investment restrictions for funds granted to companies from the CHIPS and Science Act. Specifically, $39 billion of the federal assistance to the semiconductor industry will be prevented from going to China as the Commerce Department published its final rule in late September, implementing provisions of the CHIPS Act. Congress intended that the CHIPS Act incentivize domestic investment and production to become more competitive in the global market and eventually self-reliant, thus decreasing U.S.’s demand on Chinese semiconductors.

The final rule outlines two limitations for companies expanding semiconductor operations outside of the U.S. to strengthen critical supply chains and prevent government funds from undermining national security interests. The first being a limit of 5% growth of production expansion in a country of concern. Less advanced, or “legacy” chips are allowed up to 10% expansion, however Commerce’s approval is required in both instances before renovations can begin. Violation of this provision could result in revocation of the company’s semiconductor grant.

Secondly, Commerce clarified what types of chips that it considers critical to national security and subject to possible tighter restrictions in the future. Secretary of Commerce Gina Raimondo stated, "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."

Do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP, should you have any questions regarding semiconductors, supply chain management, or any other trade-related question.