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Commerce Should Better Align Chips Act Guardrails With Export Controls, Industry Says

The Commerce Department should amend several portions of its proposed guardrails on recipients of Chips Act funding, including measures that could prevent the U.S. chip industry from participating in international standards bodies or inhibit “routine” business activities, trade groups and technology companies said in comments released this week. Some said Commerce should also limit which companies qualify as “foreign entities of concern” and revise the rule’s proposed definition for “legacy semiconductor” to more closely align with export controls.

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The comments were made public about two months after the agency released the proposed rule, which was intended to restrict certain uses of American chips funding and align those limits with existing export restrictions (see 2303210026 and 2304050050). But some commenters, including several from South Korea, said the rule’s language is vague and could unnecessarily limit the chip industry.

The South Korean government cautioned Commerce against implementing the guardrails “in a manner that imposes an unreasonable burden on companies investing in the United States.” The Korean Semiconductor Industry Association said Commerce should include exceptions in the rule’s proposed “technology clawback” provision, which bans funding recipients from conducting certain joint research or “technology licensing efforts” with “foreign entities of concern.”

“Failing to include any exceptions” will “unnecessarily impede ordinary business transactions,” the association said. Funding recipients should be allowed to participate in “international collaborative efforts,” such as fundamental research, open source software and standard-setting organizations.

Several commenters said the proposed rule could restrict U.S. participation in standards bodies because of limits placed on “foreign entities of concern,” which includes parties on the Entity List, the Treasury Department’s Chinese Military-Industrial Complex Companies list and the Federal Communications Commission’s Secure and Trusted Communications Networks Act list. Some of those entities may be members of vital standards bodies, Miller & Chevalier said, and this “may require U.S. companies in some cases to engage with” them, the firm said.

Commerce should adapt existing regulations into the proposed guardrails, including a rule issued last year that allows U.S. companies to participate in standards bodies even if a member is on its Entity List (see 2209080038), Miller & Chevalier said. “Many entities that would meet the definition of [foreign entities of concern] are members of international standards setting organizations in the semiconductor space,” the firm said. “[R]estricting which companies may participate in standards organizations puts U.S.-based standards development organizations at a disadvantage.”

The Semiconductor Industry Association made similar points, asking the agency to “provide clarification regarding the transfer of know-how in standards development organizations” if that information is “ultimately being published or made available in research consortia settings.” If the U.S. doesn’t make exceptions for standards bodies, “the technology guardrail weakens opportunities for U.S. leadership in the global semiconductor sector,” SIA said, “which requires that U.S. entities have a seat at the table for standard setting discussions.”

Others urged Commerce to narrow the scope of its definition of foreign entity of concern. The Korean Semiconductor Industry Association called the definition “overly broad and vague,” saying it “would broadly include all Chinese citizens and companies” and could restrict funding recipients from “entering into intracompany intellectual property license and transfer agreements with their own subsidiaries located in the foreign country of concern.”

The group said foreign entities of concern should include only parties “that are specifically identified and designated, such as those added to the Entity List.” The definition also, “at the very least,” should “exclude a recipient’s subsidiaries,” KSIA said.

The U.S.-China Business Council said restrictions related to the proposed rule’s “covered business processes,” which can cause Commerce to revoke Chips Act funding, “are very broad and will unnecessarily constrict routine business activities that do not constitute technology transfer.” It also said the rule’s proposed list of semiconductors “critical to national security” -- and therefore subject to tight funding restrictions -- is “not well aligned with existing export control lists and may result in a compliance burden that is more restrictive than necessary.” Commerce should better align the list, which includes current generation and mature node chips used for quantum computing and certain military uses, “with existing restrictions to reduce administrative and compliance burdens.”

The council also said the Chips Act’s definitions for “legacy semiconductors” are “unclear and unworkable,” adding that they go beyond what’s currently subject to U.S. export licensing requirements. “The inclusion of assembly, testing, and packaging (ATP) represents an expansion of restrictions into a lower tech, lower value add, yet still very important aspect of semiconductor manufacturing that is built around countless preexisting investments,” USCBC said. Because China has a “comparative advantage” in ATP, restrictions on “American companies’ ability to interact with this element of the semiconductor ecosystem would have immediate negative effects on supply and capacity.”

Likewise, Taiwan Semiconductor Manufacturing Corp. suggested harmonizing the definition for legacy semiconductors with the chip restrictions against China released by the Bureau of Industry and Security in October (see 2210070049). The definition “should cover all planar transistors of the same technology generation,” TSMC said.

“Commerce and Treasury should consider amending the proposed rules to harmonize them with the current level of export restrictions,” the USCBC said, “thereby minimizing the disruptions to supply chains where facilities already exist.”