WHAT WE’RE WATCHING: CHIPS FUNDING GUIDANCE & GUARDRAILS

On February 28, the Commerce Department launched the first CHIPS funding opportunity for projects to construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-node semiconductors.

Timeline:

1. Beginning on February 28, 2023, statements of interest will be accepted on a rolling basis and must be submitted at least 28 days before filing a pre-application or full application.

2. Beginning on March 31, 2023, pre-applications (optional) and full applications for leading-edge facilities will be accepted on a rolling basis.

3. Beginning May 1, 2023, pre-applications (recommended) for current-generation, mature-node, and back-end production facilities will be accepted on a rolling basis.

4. Full applications for these categories will be accepted on a rolling basis beginning June 26, 2023.

National Security Guardrails: The Department will review applications for involvement of foreign entities of concern and will not approve any applications where a foreign entity of concern—through control, access to information, or other mechanisms—poses an undue risk to a project or U.S. national security interests.

1. Technology clawback: Applicants will have to return the full amount of an award if they “knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that raises national security concerns.”

2. Foreign country of concern expansion clawback: Successful applicants must agree not to engage in certain significant transactions involving expanding semiconductor manufacturing capacity in countries of concern for 10 years beginning on the date of the award.

WHAT WE’RE HEARING ON FEBRUARY 28: CHINA TECHNOLOGY THREATS & U.S. NATIONAL TECHNOLOGY STRATEGY

On February 28, the Senate Banking, Housing, and Urban Affairs Committee held a hearing focused primarily on the impact of U.S. and European sanctions on Russia and how policymakers might approach a China-focused sanctions strategy. Notably, Commerce Undersecretary for Industry and Security Alan Estevez was asked about the effectiveness of the US export controls system at keeping sensitive US technologies out of the hands of the Chinese Communist Party (CCP).

On the same day, the House Science, Space, and Technology Committee held a hearing on the benefits and approaches to establishing a National Science and Technology Strategy, as well as the importance of maintaining a leading edge over China in science and technology competition. Lawmakers and witnesses discussed policies for the United States to confront China’s alleged intellectual property (IP) theft, perceived data and research security threats created by Chinese companies and Chinese students, and China’s growing influence in international standard-setting bodies.

That night, the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party (“Select China Committee”) held a primetime kick off hearing. Several members raised concerns about the technological threat posed by China.

1. Chair Mike Gallagher (R-WI) warned that China could hold “potential espionage control over [TikTok’s] algorithm.” He warned of the “precedent a mitigation agreement could set when it comes to TikTok and other CCP-directed technology companies operating in the United States.”

2. Rep. Kathy Castor (D-FL) warned of China’s “digital dictatorship,” specifying a few Chinese technology companies and alleging these companies “work on behalf of the CCP to route surveillance technology across the globe” and could “gain access to any data these systems collect.” She urged Congress to develop strategies to address this “Orwellian state of affairs.”

3. Rep. Dusty Johnson (R-SD) raised concerns of Chinese investments in telecommunications infrastructure.

UPDATES ON U.S. MULTILATERAL CHIPS ALLIANCE

1. CHIPS 4: On February 16, the Chips 4 Alliance (U.S., South Korea, Japan, and Taiwan) discussed an early warning system to ensure a steady chip supply. The group did not discuss export controls, and no company was present at the meeting. Taiwan proposed for the countries to exchange information on different parts of the supply chain. Taiwan and South Korea are to focus on manufacturing, Japan on materials, and the U.S. on its role as a major market.

2. US-Japan-Netherlands Export Controls Agreement: On February 23, U.S. Commerce Secretary Gina Raimondo delivered a speech at Georgetown University outlining the CHIPS and Science Act and her long-term goals for the program. During the speech, Secretary Raimondo emphasized that the US cannot have an “untenable alliance” in which one or two companies dominate the semiconductor industry. Responding to a question on whether the U.S. has intentions to apply an extraterritorial rule on funds if Japan or Netherlands do not implement measures on export controls, Secretary Raimondo said, “we have the tools to do the extraterritorial controls and I thought about it,” but “that isn’t really the right way. We prefer not to do that.”

RECAP: OUTBOUND INVESTMENT EO

The White House is reportedly closing in on a new executive order aimed at restricting U.S. investments in Chinese technologies, particularly those that may support Chinese military and intelligence capabilities. According to Bloomberg, Biden officials are preparing to include the program in the President’s Fiscal Year 2024 budget request, expected in the coming days. Details shared with Congress over the last few days do not list specific categories of technologies, but the proposal is expected to cover certain kinds of advanced semiconductors, quantum computing and artificial intelligence and generally investments that “are of a nature that they are not presently captured by export controls, sanctions or other related authorities,” according to Bloomberg’s reports of the communications with Congress.

Secretary of Commerce Gina Raimondo confirmed that the U.S. will move cautiously to implement outbound investment restrictions on U.S. capital flows to China. “You certainly don’t want to do any type of thing that has an unintended consequence, that hurts folks,” she said, adding, “You don’t want to be overly broad. We want commerce, we want trade, we want global investment. Anything that’s overly broad hurts American workers and the economy.”