The National Security Guardrails for CHIPS have been established by the U.S. Department of Commerce in an effort to prevent manufacturing subsidies for semiconductor manufacturing from being diverted into nations considered to be national security threats. The CHIPS and Science Act, originally published in March of 2023 is an incentive to enhance global supply chain resilience.
Secretary of Commerce Gina Raimondo stated that CHIPS for America is intended to be a national security initiative and that it was important to ensure that funds allocated do not undermine that security. She went on to say that the U.S. would continue to work with our allies and partners in the expansion of semiconductor manufacturing to strengthen global supply chains and build a collective security.
Specific Provisions for CHIPS Recipients
The guardrails to strengthen national security include the following:
- It is prohibited to use funds from the CHIPS program to construct, modify, or improve a semiconductor facility outside of the U.S.
- Recipients of funds cannot invest in foreign semiconductor manufacturing for a period of ten years from receiving funds from the program
- Limitations on specified joint research or technologies licensing with foreign entities. These limitations restricts transactions with entities owned or controlled by countries identified by the Bureau of Industry and Security’s (BIS) Entity List or by the Treasury Department’s Chinese Military-Industrial Complex Companies List (NS-CMIC).
- Empowers the Department of Commerce to withdraw funds from parties that violate these provisions.
This final rule includes the addition of cleanroom or other physical space as manufacturing capacity and limits any expansion of a foreign facility’s production capacity to five percent. It also stablishes a process for notifying the Department of any plans to expand manufacture of legacy chip in foreign countries (also known as mature node chips) that could raise national security concerns.
The statute also classifies a list of semiconductors as critical to national security and places higher restrictions on them. This includes chips used for quantum computing, devices capable of operating in environments with high levels of radiation, and any semiconductors deemed critical to U.S. national security needs.
CVG Strategy Export Compliance Management Programs
Managing an Export Compliance Program is an important subject for businesses engaged in sales of items that are intended for international sales or could result in international sales. Failure to comply with regulations can result in criminal prosecution including imprisonment and fines. It can also result in civil penalties and disbarment from export activities.
CVG Strategy can help you in understanding the ITAR and EAR, and help you establish a coherent and effective export compliance system. We can perform export control classifications, perform audits, assist in filings for export licenses and educate your team. Regardless of whether your business falls under EAR or ITAR, CVG Strategy has the expertise to help.