U.S. finalizes national security ‘guardrails’ for CHIPS funding

The U.S. Commerce Department on Friday announced the final rule to restrict semiconductor subsidy recipients from expanding their manufacturing capacity in China, following Seoul’s brisk diplomacy to minimize its potential impact on South Korean businesses.

The national security “guardrails” of the CHIPS and Science Act prohibits the material expansion of semiconductor manufacturing capacity for advanced facilities in “foreign countries of concern” for 10 years from the date of award, the department said in a press release.

The department defined material expansion as increasing a facility’s production capacity by “more than five percent.” The rule also prohibits the expansion of production capacity for legacy facilities beyond 10 percent.

The department removed an initially proposed $100,000 spending cap on investments in advanced capacity in China as chipmakers, including Samsung Electronics, have reportedly expressed concern over the impact of such restrictions on future business operations.

“One of the Biden-Harris Administration’s top priorities … is to expand the technological leadership of the U.S. and our allies and partners,” Secretary of Commerce Gina Raimondo was quoted as saying in a press release. “These guardrails will protect our national security and help the United States stay ahead for decades to come.”

South Korea’s Ministry of Trade, Industry and Energy expect that following the finalization of the guardrails, “normal” business activities of South Korean firms, which pose no security concerns, will be guaranteed.

“Going forward, we will continue cooperation with the U.S. government to strengthen global supply chains for semiconductors and guarantee our enterprises’ investment and business activities,” the ministry said in a press release.

The guardrails were first proposed in March to “ensure technology and innovation funded by the CHIPS and Science Act is not used for malign purposes by adversarial countries against the United States or its allies.”