Commerce Department Outlines Proposed National Security Guardrails for CHIPS for America Incentives Program

The U.S. Department of Commerce today released a Notice of Proposed Rulemaking for the guardrails included in the CHIPS Incentives Program to advance America’s technological and national security. The national security guardrails are intended to ensure technology and innovation funded by the CHIPS and Science Act is not used for malign purposes by adversarial countries against the United States or its allies and partners. The CHIPS and Science Act is part of President Biden’s Investing in America agenda for unleashing a manufacturing and innovation boom, driving U.S. competitiveness and strengthening economic and national security.

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. The statute identifies those countries as the People’s Republic of China (PRC), Russia, Iran, and North Korea. These guardrails will advance shared national security interests as the U.S. continues coordinating and collaborating with allies and partners to make global supply chains more resilient and diversified.

“The innovation and technology funded in the CHIPS Act is how we plan to expand the technological and national security advantages of America and our allies; these guardrails will help ensure we stay ahead of adversaries for decades to come,” said 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 to stop recipients from constructing new or expanding existing leading-edge and advanced technology facilities in those countries. Today’s proposed rule defines significant transactions based on a monetary level of $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 statute places limits on the expansion and new construction of legacy facilities in foreign countries of concern. The proposed rule limits the expansion of existing legacy facilities, prohibiting recipients from adding new production lines or expanding a facility's production capacity beyond 10 percent. The statute also dictates that 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: While the statute allows companies to expand production of legacy chips in foreign countries of concern in limited circumstances, today’s 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. This measure will cover chips that are critical to U.S. national security needs, including 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 U.S. 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.
• Details Restrictions on 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. The proposed rule defines a joint research effort as any research and development undertaken by two or more persons, and it defines technology licensing as an agreement to make patents, trade secrets, or know-how available to another party. 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. The Department of Commerce and the Department of the Treasury have been coordinating closely on CHIPS funding and the Investment Tax Credit to ensure these incentives are complementary and advance the Biden Administration’s economic and national security goals.

International Coordination with U.S Partners and Allies

The Department has appreciated extensive input and cooperation from U.S. partners and allies while developing this proposed rule, and it looks forward to further public comment. The Department will continue coordinating with international allies and partners to support a healthy global semiconductor ecosystem that drives innovation and is resilient to cybersecurity threats, natural disasters, pandemics, geopolitical conflict, and more. As semiconductors and technologies continue to evolve, the U.S. will work with allies and partners and develop coordinated strategies to ensure the latest technology cannot be used by entities of concern to undermine our collective economic and national security.
As the Department has been implementing the CHIPS and Science Act, it has remained in close contact with U.S. partners and allies, including through engagements with the Republic of Korea, Japan, India, and the United Kingdom, and through the Indo-Pacific Economic Framework, European Union-United States Trade and Technology Council, and North America Leaders’ Summit. The Department will continue coordinating closely with U.S. partners and allies to advance these shared goals, advance our collective security, and strengthen global supply chains.

About CHIPS for America

CHIPS for America is part of President Biden’s economic plan to invest in America, stimulate private sector investment, create good-paying jobs, make more in the United States, and revitalize communities left behind. CHIPS for America includes the CHIPS Program Office, responsible for manufacturing incentives, and the CHIPS Research and Development Office, responsible for R&D programs, that both sit within the National Institute of Standards and Technology (NIST) at the Department of Commerce. NIST promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life. NIST is uniquely positioned to successfully administer the CHIPS for America program because of the bureau’s strong relationships with U.S. industries, its deep understanding of the semiconductor ecosystem, and its reputation as fair and trusted. Visit https://www.chips.gov to learn more.