Commerce Releases CHIPS Act Strategy
On September 6, 2022, the U.S. Department of Commerce ("Commerce") released its implementation strategy for the Creating Helpful Incentives to Produce Semiconductors ("CHIPS") for America Fund, outlining how Commerce will implement and disburse over $50 billion in funding authorized under the recently enacted CHIPS Act.
In July, Congress passed the CHIPS Act with bipartisan support, and President Biden signed it into law shortly thereafter. Supporters hailed the CHIPS Act as enhancing U.S. competitiveness in an industry that is critical to numerous commercial and defense applications. CHIPS will provide over $50 billion for American semiconductor research, development, manufacturing, and workforce development, including $39 billion in manufacturing incentives and $2 billion for the legacy chips used in automobiles and defense systems. It allocates $13 billion for research and development ("R&D") and workforce development funding or incentives, and $500 million for international information communications technology security and semiconductor supply chain activities. It also provides a 25 percent investment tax credit for capital expenses for manufacturing of semiconductors and related equipment.
Recipients of CHIPS funds are subject to various requirements, including a prohibition on using funds for stock buybacks and a restriction on entering into certain transactions in China or another "foreign country of concern" for a period of 10 years after receiving CHIPS funding. The latter restriction is backed by a funding-clawback authority and a notification regime—establishing something akin to a "reverse CFIUS" for participants.
Because the statute provides Commerce broad discretion on implementation, the agency's new strategy and additional forthcoming guidance will warrant close study by industry participants. In its strategy paper, Commerce identified three initiatives that the CHIPS for America Fund will support:
- First, Commerce will use approximately $28 billion in funding to expand domestic production of leading-edge logic and memory chips. Applications will be scrutinized by a new CHIPS Program Office ("CPO"), which will also provide advance feedback on draft applications.
- Second, Commerce will use approximately $10 billion in funding to expand manufacturing capacity in the United States for mature and current-generation chips, new and specialty technologies, and suppliers to industry, including for semiconductors used in automobiles, medical devices, and defense systems.
- Third, Commerce will invest $11 billion through a CHIPS R&D program in initiatives such as a National Semiconductor Technology Center and a National Advanced Packaging Manufacturing Program.
The strategy indicates that Commerce will release a funding announcement by February 2023 articulating more specific criteria for applicants. In the interim, Commerce has identified certain CPO evaluation factors. These include encouraging proposals that leverage private capital and use creative financing structures, as well as prioritizing performance-based proposals that use state and local incentive packages.
With bipartisan support for and interest in these initiatives, Commerce will likely continue to prioritize CHIPS implementation as one of the marquee initiatives of the Biden administration, along with enhancing export controls and administering new technology supply-chain import restrictions.
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