U.S. Enacts Final Regulations to Prevent Chip Funds from Going to China

By Better Today On Sep 22, 2023

TL/DR –

The Biden administration has issued final rules to protect US national security by prohibiting chip companies, aiming for federal funding, from carrying out certain operations and research in China. These rules come as the administration prepares to distribute over $52 billion in federal grants and tax credits to bolster the US chip industry, aiming to prevent beneficiaries from passing technological or business benefits to China. The regulations will restrict firms that receive federal money from using it to build chip factories outside the US, significantly expanding semiconductor manufacturing in countries like China, Iran, Russia, and North Korea, and conducting certain joint research projects in these countries for 10 years after receiving an award.

Biden Administration Finalizes Rules to Safeguard US National Security in Chip Industry

The Biden administration has issued final regulations barring chip firms seeking new federal funding from conducting certain business expansions and research in China. This move is aimed at protecting US national security.

As the administration readies to distribute over $52 billion in federal grants and significant tax credits to enhance the US chip industry, these rules intend to prevent the transfer of technology or business expertise to China from grant beneficiaries.

These final restrictions ban the use of federal funds by firms to build chip factories outside the United States, and limit significant semiconductor manufacturing expansion in “foreign countries of concern” — including China, Iran, Russia, and North Korea — for a decade after receiving an award.

If a company breaches these measures, the government could retract the firm’s entire award, warned the Commerce Department. “These guardrails will protect our national security and help the United States maintain a lead for decades to come,” stated Gina M. Raimondo, the secretary of commerce.

The regulations faced intense lobbying from the chip industry, which generates about a third of its revenue from China. The industry expressed concerns that overly strict measures might disrupt supply chains and hinder global competitiveness.

Key principles of the rule, such as the 10-year ban on new investments in China, were part of the bipartisan legislation that authorized sector funding. Still, the task of detailing the rule provisions fell to Commerce Department officials.

In its final rules, the department seemed to consider the viewpoints of chip makers and others. The rules showed several changes advocated by chip makers, such as removing a specific dollar limit for transactions that would increase chip manufacturing capacity in “countries of concern”.

Whether these changes will provoke a backlash from Republicans on Capitol Hill, who have criticized the Biden administration’s approach towards Beijing, remains to be seen.

Commerce Department officials stated in an interview that while they received various industry requests to relax guidelines, they maintained or even strengthened some provisions to protect national security.