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On Tuesday, August 9, President Biden signed the CHIPS and Science Act of 2022 (HR 4346) (“the CHIPS Act”). The law’s goal is to “strengthen American manufacturing, supply chains, and national security, and to invest in research and development, science and technology, and the workforce of the future.” for “the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence.”1
The CHIPS Act was originally part of the United States Senate Innovation and Competition Act (“USICA”) and the United States Creating Opportunities for Manufacturing, Preeminence in Technology, and Opportunity Act of 2022. economic strength (“COMPETES Act”), which we discussed in more detail in our previous newsletters.2 The Senate and House embarked on a months-long process to reconcile USICA and the COMPETES Act, but earlier this summer a bipartisan effort began to create CHIPS law separate from the broader proposed legislation by the House and the Senate regarding competition in China.
What’s in the CHIPS Act?
Key provisions of the CHIPS Act include the following:
- $52.7 billion over five years to fund grants, loans, loan guarantees and other programs related to incentive-based semiconductor manufacturing in the United States. This includes $39 billion in manufacturing incentives through a “financial relief package” for the semiconductor industry, $11 billion for labor and research programs and development administered by the Department of Commerce, $2 billion to establish a national network for microelectronics research and development, $500 million for international information and communications technology security and chain activities semiconductor supply chain, and $200 million to develop the US semiconductor workforce.
- A 25% investment tax credit for capital expenditures for manufacturing semiconductors and tools to create semiconductors in the United States. The credit will be available for facilities whose construction begins on or before December 31, 2026.
- A ban on recipients of CHIPS Act funding and the investment tax credit from expanding semiconductor manufacturing in China and other countries of concern for ten years, excluding manufacturing legacy chips. The Secretary of Commerce, in coordination with the Secretary of Defense and the Director of National Intelligence, will be required to regularly review, with input from industry, which technologies are subject to the expansion ban. Recipients of CHIPS funding are required to notify the Department of Commerce of relevant transactions in China, which will be subject to agency review and possible mitigation, similar to the CFIUS process.
- Authorization of nearly $170 billion for US government research and development initiatives over five years, an increase of more than $80 billion in base federal government authority. These new initiatives include “establishing[ing] a directorate of technology, innovation and partnerships at the National Science Foundation (NSF) to focus on areas such as semiconductors and advanced computing, advanced communication technologies, advanced energy technologies , quantum information technologies and biotechnology.3 The Directorate will be authorized to make financial grants to private entities and other institutions for research and technological development in key areas.
While the America COMPETES Act and USICA dealt more broadly with competition with China, the CHIPS Act focused on the semiconductor manufacturing aspect of that competition, which enjoys broad bipartisan support in Congress. Other key provisions that have been omitted from the larger set include:
- The reinstatement of Section 301 rights exclusions on China;
- The requirement that the U.S. Trade Representative accept new Section 301 exclusion requests;
- A renewal of the Generalized System of Preferences (GSP) program and the Miscellaneous Tariff Bill (MTB);
- A ban on “de minimis” tariff treatment for goods originating in China; and
The Critical National Capabilities Defense Act, which would have allowed the federal government to screen U.S. overseas investments in countries of concern, including China, in certain sectors flagged as critical to U.S. national security.
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For a more detailed overview of the CHIPS Act, please see the section-by-section summary published by the US Senate.
2 See America COMPETES Act passed in the United States House, Mayer Brown US-China Trade Monthly Newsletter (February 2022), https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2022/02/us-china-trade-monthly-february-2022 .pdf.
3 The White House, Fact Sheet: CHIPS and the Science Act will cut costs, create jobs, strengthen supply chains and counter China (August 9, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create- jobs-strengthening-supply-chains-and-countering-china/.
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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.
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