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Proposed Rule2023-05869

Preventing the Improper Use of CHIPS Act Funding

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Published

March 23, 2023

Issuing agencies

Commerce DepartmentNational Institute of Standards and Technology

Abstract

The CHIPS Act (the Act) established an incentives program to reestablish and sustain U.S. leadership across the semiconductor supply chain. To ensure that funding provided through this program does not directly or indirectly benefit foreign countries of concern, the Act includes certain limitations on funding recipients, such as prohibiting engagement in certain significant transactions involving the material expansion of semiconductor manufacturing capacity in foreign countries of concern and prohibiting certain joint research or technology licensing efforts with foreign entities of concern. The Department of Commerce (Department) is issuing, and requesting public comments on, a proposed rule to set forth terms related to these limitations and procedures for funding recipients to notify the Secretary of Commerce (Secretary) of any planned significant transactions that may be prohibited.

Full Text

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<title>Federal Register, Volume 88 Issue 56 (Thursday, March 23, 2023)</title>
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[Federal Register Volume 88, Number 56 (Thursday, March 23, 2023)]
[Proposed Rules]
[Pages 17439-17450]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-05869]

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DEPARTMENT OF COMMERCE

National Institute of Standards and Technology

15 CFR Part 231

[Docket Number: 230313-0074]
RIN 0693-AB70

Preventing the Improper Use of CHIPS Act Funding

AGENCY: CHIPS Program Office, National Institute of Standards and
Technology, Department of Commerce.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The CHIPS Act (the Act) established an incentives program to
reestablish and sustain U.S. leadership across the semiconductor supply
chain. To ensure that funding provided through this program does not
directly or indirectly benefit foreign countries of concern, the Act
includes certain limitations on funding recipients, such as prohibiting
engagement in certain significant transactions involving the material
expansion of semiconductor manufacturing capacity in foreign countries
of concern and prohibiting certain joint research or technology
licensing efforts with foreign entities of concern. The Department of
Commerce (Department) is issuing, and requesting public comments on, a
proposed rule to set forth terms related to these limitations and
procedures for funding recipients to notify the Secretary of Commerce
(Secretary) of any planned significant transactions that may be
prohibited.

DATES: To be assured of consideration, written comments must be
received on or before May 22, 2023.

ADDRESSES: You may submit comments, identified by docket number NIST-
2023-0001 or RIN 0693-AB70, through any of the following:
<bullet> Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
You can find this proposed rule by searching for its <a href="http://regulations.gov">regulations.gov</a>
docket number NIST-2023-0001.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#c1a6b4a0b3a5b3a0a8adb281a2a9a8b1b2efa6aeb7">[email&#160;protected]</a>. Include RIN 0693-AB70 in the
subject line of the message.
The Department will consider all comments received before the close
of the comment period. Filers should name their files using the name of
the person or entity submitting the comments except where comments are
intended to be anonymous.
The Department will accept anonymous comments or comments
containing business confidential information (BCI). Anyone submitting
business confidential information should clearly identify the business
confidential portion at the time of submission, file a statement
justifying nondisclosure and referring to the specific legal authority
claimed, and provide a non-confidential submission that summarizes the
BCI in sufficient detail to permit a reasonable understanding of the
substance of the information by the public. For anyone seeking to
submit comments with BCI, the file name of the business confidential
information must be clearly marked ``BUSINESS CONFIDENTIAL'' and it
must be indicated on top of that page. The corresponding non-
confidential version of those comments must be clearly marked
``PUBLIC.'' The file name of the non-confidential version should begin
with the character ``P.'' The ``BC'' and ``P'' should be followed by
the name of the person or entity submitting the comments. Any
submissions with file names that do not begin with a ``BC'' will be
part of the public record and will generally be made publicly available
through <a href="https://www.regulations.gov">https://www.regulations.gov</a>.

FOR FURTHER INFORMATION CONTACT: Sam Marullo, Director, CHIPS Policy at
(202) 482-3844 or <a href="/cdn-cgi/l/email-protection#81e0f2eae2e9e8f1f2c1e2e9e8f1f2afe6eef7">[email&#160;protected]</a>. Please direct media inquiries to
the CHIPS Press Team at <a href="/cdn-cgi/l/email-protection#19696b7c6a6a597a7170696a377e766f">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Background

Semiconductors are essential components of electronic devices that
enable telecommunications and grid infrastructure, run critical
business and government information technology and operational
technology systems, and are necessary to a vast array of products, from
automobiles to fighter jets. Recognizing the criticality of supply
chain security and resilience for semiconductors and related products,
the President signed the Executive Order on America's Supply Chains \1\
shortly after taking office in February 24, 2021. This Executive order,
among other things, directed several Departments to undertake
assessments of critical supply chains; several of the resulting reports
address microelectronics and related subcomponent supply chains.\2\ The
resulting June 2021 White House Report on Building Resilient Supply
Chains, Revitalizing American Manufacturing, and Fostering Broad-Based
Growth \3\

[[Page 17440]]

highlighted the insufficient domestic manufacturing capacity for
semiconductors. The White House Report noted that the United States
lacks advanced semiconductor manufacturing capabilities and is
dependent on geographically concentrated and in some cases potentially
unreliable sources of supply. It recommended dedicated funding to
advance semiconductor manufacturing, and research and development to
support critical manufacturing, industrial, and defense applications.
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\1\ <a href="https://www.govinfo.gov/content/pkg/FR-2021-03-01/pdf/2021-04280.pdf">https://www.govinfo.gov/content/pkg/FR-2021-03-01/pdf/2021-04280.pdf</a>.
\2\ The White House, The Biden-Harris Plan to Revitalize
American Manufacturing and Secure Critical Supply Chains in 2022
(February 24, 2022), available at <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/the-biden-harris-plan-to-revitalize-american-manufacturing-and-secure-critical-supply-chains-in-2022/">https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/the-biden-harris-plan-to-revitalize-american-manufacturing-and-secure-critical-supply-chains-in-2022/</a>.
\3\ Building Resilient Supply Chains, Revitalizing American
Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews
under Executive Order 14017 (June 2021), available at <a href="https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf">https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf</a>.
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In August 2022, the Congress passed the CHIPS Act of 2022,\4\ which
amended Title XCIX of the William M. (Mac) Thornberry National Defense
Authorization Act for Fiscal Year 2021, 15 U.S.C. 4651 et seq., also
known as the Creating Helpful Incentives to Produce Semiconductors
(CHIPS) for America Act. Together, these statutory provisions
(collectively, the CHIPS Act or Act), establish a semiconductor
incentives program (CHIPS Incentives Program) that will provide
funding, including via grants, cooperative agreements, loans, loan
guarantees, and other transactions, to support investments in the
construction, expansion, and modernization of facilities in the United
States for the fabrication, assembly, testing, advanced packaging,
production, or research and development of semiconductors, materials
used to manufacture semiconductors, or semiconductor manufacturing
equipment.
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\4\ CHIPS Act of 2022 (Division A of Pub. L. 117-167).
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The CHIPS Incentives Program aims to strengthen the security and
resilience of the semiconductor supply chain by mitigating gaps and
vulnerabilities. It aims to ensure a supply of secure semiconductors
essential for national security and to support critical manufacturing
industries. It also aims to strengthen the resilience and leadership of
the United States in semiconductor technology, which is vital to
national security and future economic competitiveness of the United
States.
The CHIPS Incentives Program is administered by the CHIPS Program
Office (CPO) within the National Institute of Standards and Technology
(NIST) of the United States Department of Commerce. CPO is separately
issuing Notices of Funding Opportunity (NOFO) that lay out the
procedures by which interested organizations may apply for CHIPS
Incentives Program funds, and criteria under which applications will be
evaluated.
To protect national security and the resiliency of supply chains,
CHIPS Incentives Program funds may not be provided to a foreign entity
of concern, such as an entity that is owned by, controlled by, or
subject to the jurisdiction or direction of a country that is engaged
in conduct that is detrimental to the national security of the United
States. This proposed rule incudes a detailed explanation of what is
meant by foreign entities of concern, as well as a definition of
``owned by, controlled by, or subject to the jurisdiction or direction
of.''
In further support of U.S. national security interests, CHIPS
Incentives Program recipients (funding recipients) are required by the
Act to enter into an agreement (required agreement) with the Department
restricting engagement by the funding recipient or its affiliates in
any significant transaction involving the material expansion of
semiconductor manufacturing capacity in foreign countries of concern.
In recognition that some potential applicants for CHIPS Incentives may
have existing facilities in foreign countries of concern, and to
minimize potential supply chain disruptions, the Act includes
exceptions for certain transactions involving older (legacy)
semiconductor manufacturing in a foreign country of concern.
A funding recipient must notify the Secretary of any planned
significant transactions of the funding recipient or its affiliates
involving the material expansion of semiconductor manufacturing
capacity in a foreign country of concern, including in cases where it
believes the transaction is allowed under the exceptions in 15 U.S.C.
4652(a)(6)(C)(ii). Terms related to this notification requirement are
defined in Subpart A of this rule. The Secretary will provide direct
notice to the funding recipient that a review of a transaction is being
conducted and, later, that the Secretary has reached an initial
determination regarding whether the transaction is prohibited. Funding
recipients may submit additional information or request that the
initial determination be reconsidered, after which the Secretary will
provide a final determination. In making determinations, the Secretary
will consult with the Director of National Intelligence and the
Secretary of Defense.
The Secretary will initiate review of transactions by funding
recipients through self-reported notifications; the Secretary also may
initiate a review of non-notified transactions, including based on
information provided by other government agencies or information from
other sources.
Failure by a funding recipient (or its affiliate) to comply with
this restriction on semiconductor manufacturing capacity expansion in
foreign countries of concern may result in recovery of the full amount
of Federal financial assistance provided to the funding recipient
(referred to in the Act as the ``Expansion Clawback.'')
The Act also prohibits funding recipients from knowingly engaging
in any joint research or technology licensing effort with a foreign
entity of concern that relates to a technology or product that raises
national security concerns as determined by the Secretary and
communicated to the funding recipient before engaging in such joint
research or technology licensing. A funding recipient's required
agreement will include a commitment that the funding recipient and its
affiliates will not conduct prohibited joint research or technology
licensing. Failure to comply with this restriction may also result in
recovery of the full amount of Federal assistance (referred to in the
Act as the ``Technology Clawback.'')

Discussion of Proposed Rule

This proposed rule defines terms used in the Act (including terms
that will be used in required agreements with funding recipients),
identifies the types of transactions that are prohibited under the
Expansion Clawback and Technology Clawback sections of the Act, and
provides a description of the process for notification of transactions
to the Secretary.

A. Definitions

This section provides background and explanation for the way that
specific terms used in the Act relating to these prohibitions are
defined. Some key terms used in the Expansion Clawback section of the
Act are not defined in the Act; however, the definitions of these terms
in the proposed rule will affect which business transactions are
exceptions to the Expansion Clawback prohibition. The Department has
carefully considered each of these terms and is proposing definitions
in this proposed rule that are consistent with the intent of the
overall CHIPS Incentives Program and the Act. This section discusses
the definitions and factors considered in developing these definitions.
The Expansion Clawback section of the Act (15 U.S.C. 4652(a)(6))
states that funding recipients may not engage in any significant
transaction involving the material expansion of semiconductor
manufacturing capacity in a foreign country of concern. Consistent with
the Act, the proposed rule extends this prohibition to the funding
recipient's affiliates, to ensure the purpose of the

[[Page 17441]]

prohibition is not circumvented. The proposed rule defines terms such
as ``affiliate,'' ``significant transaction,'' ``material expansion,''
and ``semiconductor manufacturing.''
In addition, the Expansion Clawback section of the Act spells out
exceptions to the prohibition on semiconductor manufacturing capacity
expansions, which apply to existing facilities manufacturing legacy
semiconductors and for significant transactions involving semiconductor
manufacturing capacity expansion for new facilities producing legacy
semiconductors that predominately serve the market of a foreign country
of concern. The proposed rule defines key terms for these exceptions,
including ``legacy semiconductors,'' ``predominately serves the
market,'' and ``existing facilities.''
The proposed rule defines ``affiliate'' to include the funding
recipient's parent company or parent companies (i.e., entities that
directly or indirectly own a majority of the funding recipient's voting
interest), the funding recipient's majority-owned subsidiaries, and
entities that are majority owned by a parent company or any majority-
owned subsidiary of a parent company. This proposed rule defines the
term ``significant transaction'' to mean a transaction whose value
exceeds $100,000, or series of transactions which in the aggregate
during the applicable term of a required agreement are valued at
$100,000 or more. This monetary value was chosen in order to provide a
clear and quantitative standard that captures even modest expansions by
funding recipients of semiconductor manufacturing capacity in foreign
countries of concern.
The term ``material expansion'' is defined in the proposed
regulations to include the construction of new facilities and the
addition of new semiconductor manufacturing capacity and uses a
quantitative measure of 5 percent of existing capacity to provide clear
and predictable scoping. This definition is meant to allow for funding
recipients that have existing facilities in a foreign country of
concern to continue to operate and maintain their competitiveness by
allowing for technological upgrades, as long as overall semiconductor
manufacturing capacity is not increased by more than 5 percent.
``Semiconductor manufacturing'' is proposed to be defined as
semiconductor fabrication and/or packaging and includes both front-end
fabrication as well as back-end manufacturing (assembly, testing, and
packaging of semiconductors). The term ``legacy semiconductor'' is
defined in the Act as it pertains to logic semiconductors, but not as
it pertains to other types of semiconductors (e.g., memory), or for
packaging of semiconductors. With regard to memory semiconductors, the
proposed definition was drafted to be harmonious with current export
control levels. With regard to packaging, the proposed definition was
drafted to exclude semiconductors packaged utilizing 3D integration,
which is considered advanced packaging. In addition, the Act provides
that semiconductors ``critical to national security'' are not
considered legacy semiconductors, regardless of the production
technology used. A list of these ``semiconductors critical to national
security,'' as determined with input from the Secretary of Defense and
the Director of National Intelligence, is included in this proposed
rule.
The proposed rule defines ``predominately serves the market'' by
referring to where the final products incorporating the legacy
semiconductors are used or consumed. This definition is designed to
ensure that exceptions under 15 U.S.C. 4652(a)(6)(C)(ii) are limited to
legacy semiconductors that remain in the market of the country in which
they are manufactured, rather than semiconductors that are incorporated
into secondary products and for export and use internationally.
The proposed rule defines ``existing facility,'' as excluding
facilities that undergo ``significant renovations'' after the required
agreement. Therefore, transactions that significantly renovate an
existing facility (i.e., add an additional line or otherwise increase
semiconductor manufacturing capacity by 10 percent or more) will not
fall under the exception for existing facilities or equipment for
manufacturing legacy semiconductors in 15 U.S.C. 4652(a)(6)(C)(ii)(I).
The second prohibition (the Technology Clawback section of the Act
(15 U.S.C. 4652(a)(5)(C)) bans funding recipients from engaging in
joint research or technology licensing efforts with foreign entities of
concern that relate to a technology or product that raises national
security concerns. The proposed rule extends this prohibition to the
funding recipient's affiliates, to ensure the purpose of the
prohibition is not circumvented. Definitions included in this proposed
rule in this regard include ``joint research,'' ``technology
licensing'' and ``technology or product raising national security
concerns.'' This proposed rule defines ``a technology or product that
raises national security concerns'' as (a) semiconductors critical to
national security and (b) electronics-related products and technologies
controlled by the Department in the Export Administration Regulations
for national security or regional stability reasons.
The Department recognizes that some funding recipients may have
pre-existing contracts or other arrangements which commit them to joint
research or technology licensing with foreign entities of concern that
relate to a technology or product that raises national security
concerns. CPO invites comments from interested parties on the extent
and nature of these pre-existing arrangements, the ability of funding
recipients to abandon them with or without penalty, and the feasibility
and impact of exempting joint research or technology licensing done
pursuant to an agreement which predates this rule.
Statutory definitions of several terms, e.g., ``person,'' ``foreign
entity,'' ``foreign country of concern,'' and ``foreign entity of
concern,'' are incorporated into the regulations in subpart A,
Definitions, Sec. Sec. 231.101 through 231.124. The definitions of
several terms, such as ``person'' are not expanded upon. ``Foreign
entity,'' is defined per the statute and is understood to include not
only an entity incorporated in a foreign country, but also to include
any person owned by, controlled by, or subject to the jurisdiction or
direction of a foreign entity, including any wholly owned U.S.
subsidiaries. The term ``foreign entity of concern'' was defined in the
Act with reference to specific categories of entities. However, with
authority provided in the Act (15 U.S.C. 4651(8)(E)) the Secretary
proposes to designate three additional categories of entities that are
determined to be engaged in conduct detrimental to the national
security or foreign policy of the United States: entities included on
the Bureau of Industry and Security's Entity List, entities included on
the Department of the Treasury's list of Non-Specially Designated
Nationals (SDN) Chinese Military-Industrial Complex Companies (NS-CMIC
List), and entities identified in the Federal Communications
Commission's list of Equipment and Services Covered By section 2(a) of
the Secure and Trusted Communications Networks Act of 2019 as providing
covered equipment or services.
Finally, the proposed rule uses the term ``funding recipient''
rather than ``covered entity.'' A funding recipient in these proposed
regulations is a subset of covered entities as defined in the Act at 15
U.S.C. 4651. Whereas covered entities in the Act are those eligible to
apply for financial assistance from the

[[Page 17442]]

Department, funding recipients are those that have been awarded and
receive the financial assistance.

B. General

This subpart primarily tracks the statutory language contained in
the Expansion Clawback and Technology Clawback sections of the Act.
Additionally, this subpart provides that funding recipients are
required to maintain records related to significant transactions in a
manner consistent with the recordkeeping practices used in their
ordinary course of business. This requirement applies to the 10-year
duration of the required agreement and for a period of seven years
after any significant transaction.

C. Notification and Review

While this proposed rule sets out definitions and parameters for
which types of transactions by funding recipients will be prohibited,
and which types qualify for an exception, in accordance with the Act,
funding recipients are required to notify the Secretary of any planned
significant transaction involving the material expansion of
semiconductor manufacturing capacity in a foreign country of concern
(including those that may meet the criteria of one of the exceptions).
This subpart provides details on the process by which funding
recipients shall notify the Secretary of planned significant
transactions, the specific information regarding the transaction that
must be included, and the way in which transactions will be considered
by the Secretary, including potential mitigations. This subpart also
describes the process for review of actions that may violate the
prohibition on certain joint research or technology licensing, and the
recovery of Federal funds in the case of violations.

D. Other Provisions

In recognition of the fact that semiconductor and semiconductor
manufacturing technology evolve and mature over time, the CHIPS Act
requires the Secretary of Commerce to regularly assess which additional
technology should be considered for inclusion in the meaning of the
term ``legacy semiconductor.'' The Act requires the Secretary to
identify additional semiconductor technology that will be considered
``legacy'' not later than August 9, 2024, and at least every two years
thereafter for a period of eight years. This portion of the proposed
rule tracks this requirement; given the rapid cadence of technology
adoption and relatively limited duration of market relevance of memory
technology nodes, the Secretary may decide to reevaluate the
technologies that are considered ``legacy semiconductors'' in this
regard on a more frequent basis. The Secretary will provide an
opportunity for public input and comment for any proposed updates.
Lastly, this subpart notes that any false or fraudulent information
or statements knowingly or willingly provided to the Secretary by
funding recipients may result in fines and/or imprisonment in
accordance with the False Statements Accountability Act of 1996.

Classification

Executive Order 13132

This proposed rule does not contain policies with federalism
implications as that term is defined in section 1(a) of Executive Order
13132, dated August 4, 1999 (64 FR 43255 (August 10, 1999)).

Executive Order 12866

The Office of Management and Budget (OMB) has determined that this
proposed rule is significant as defined by Section 3(f)(1) for purposes
of Executive Order 12866.

Regulatory Impact

Background
This notice of proposed rulemaking (NPRM) implements certain
provisions of the CHIPS Act related to the clawback of funds provided
under the CHIPS Incentives Program. The Act established a program in
the Department to provide Federal financial assistance totaling $39
billion to incentivize investment in facilities and equipment in the
United States for the fabrication, assembly, testing, advanced
packaging, production, or research and development of semiconductors.
Entities choosing to pursue funding through the CHIPS Incentives
Program will undergo a rigorous application and selection process. The
first Notice of Funding Opportunity (NOFO) for this Program seeks
applications for funding projects for the construction, expansion, or
modernization of commercial facilities for the front- and back-end
fabrication of leading-edge, current-generation and mature-node
semiconductors, and explains the requirements and expectations for
funding applicants and recipients. Applications for funding are
voluntary and are separate from this proposed rule. The costs of
applying for funding are not considered here.
Among the conditions of funding, all funding recipients will be
required to enter into an agreement with the Department prohibiting
them from engaging in significant transactions involving the material
expansion of semiconductor manufacturing capacity in a foreign country
of concern. In addition, funding recipients will be prohibited from
engaging in joint research or technology licensing efforts with foreign
entities of concern that relate to a technology or product that raises
national security concerns. Violations of either of these prohibitions
may result in recovery of up to the full amount of Federal funding
provided. This proposed rule implements these prohibitions in the Act,
called the ``Expansion Clawback'' and ``Technology Clawback.'' Because
these prohibitions are an integral part of the CHIPS Incentives
Program, the impact of this proposed rule is considered in conjunction
with the broader impacts of the program as a whole.
Regulated Entities
CHIPS Incentives Program funding recipients constitute the sole
population of entities potentially directly impacted by this proposed
regulation. It is unknown exactly how many entities will seek and be
granted funding or the specific amount of the awards. Business
statistics on domestic semiconductor manufacturing provide some
information about the number of U.S. businesses potentially affected by
this rule. According to the most recent data available from the U.S.
Census Bureau, in 2019, there were a total of 723 establishments in the
United States involved in ``semiconductor and related device
manufacturing'' (North American Industry Classification System (NAICS)
333413) and a total of 150 establishments involved in the manufacturing
of machinery used to make semiconductors (NAICS 333242).\5\ It is
anticipated that only a fraction of such establishments are likely to
apply for and receive funding through this program. Furthermore, only a
few companies currently maintain productive capacity in foreign
countries of concern and produce semiconductors that fall within the
thresholds contemplated in the proposed regulation.\6\ Therefore, only
a small subset of establishments would potentially be subject to the
prohibitions on expansion of manufacturing capacity and joint research
and, in the case of

[[Page 17443]]

violations, the potential clawback of funds.
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\5\ U.S. Census Bureau, Department of Commerce, 2019 SUSB Annual
Data Tables by Establishment Industry (February 2022), available at
<a href="https://www.census.gov/data/tables/2019/econ/susb/2019-susb-annual.html">https://www.census.gov/data/tables/2019/econ/susb/2019-susb-annual.html</a>.
\6\ SEMI, World Fab Forecast (2022). These few companies
referred to companies that have productive capacity in countries of
concern and are not headquartered in countries of concern.
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Potential Impact on Investments
The proposed rule would limit funding recipients' ability to invest
in new semiconductor manufacturing capacity in countries of concern.
This limitation is intended to ensure that Federal funding is used, as
intended by the CHIPS Act, to incentivize investment in semiconductor
facilities and equipment in the United States. At this time, it is
unknown how the investments in countries of concern by those that are
not funding recipients will be affected.
Although the provisions in this proposed rule would prohibit
funding recipients from establishing most new manufacturing capacity in
countries of concern, recipients with existing facilities in countries
of concern would be able to continue current operations. The proposed
rule would also allow recipients to upgrade technology at existing
foreign facilities (in compliance with export controls) if overall
production capacity is not increased. In addition, recipients could
modestly expand capacity at existing facilities producing mature
(legacy) technology. Finally, this proposed rule would allow recipients
to make new investments in manufacturing capacity in countries of
concerns in the limited circumstance in which such production of
legacy-level semiconductors would ``predominately serve the market of
the foreign country of concern.'' These provisions ensure minimal
disruptions to revenues, for the foreseeable future, to firms that
currently have productive capacity in countries of concern. It is
estimated that less than ten firms may be impacted.\7\
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\7\ SEMI, World Fab Forecast (2022). These firms refer to those
with productive capacity in countries of concern, are headquartered
outside of countries of concern.
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This regulatory impact analysis does not consider the private costs
to funding recipients of limiting their investments in countries of
concern. In pursuing program funding, applicants are expected to weigh
the private costs and benefits of the conditions for funding outlined
by the provisions in this proposed rule. CHIPS Incentives Program
funding is intended to complement, not replace, private investment and
other sources of funding. Using $39 billion in financial assistance,
the CHIPS Incentives Program is designed to restore U.S. leadership in
semiconductor manufacturing and innovation. Through the first funding
opportunity, released February 28, 2023, the CHIPS Incentives Program
aims to (1) to build at least two new large-scale cluster of leading-
edge logic fabs, (2) to be home to multiple high-volume advanced
packaging facilities, (3) to produce high-volume leading-edge dynamic
random-access memory (DRAM) chips on economically competitive terms,
and (4) to increase its production capacity for the current-generation
and mature node chips that are most vital to U.S. economic and national
security. To achieve these aims, the CHIPS Incentives Program funding
awards are designed to catalyze private investment in the United
States.
By restricting funding recipients' ability to invest in new
semiconductor manufacturing capacity in countries of concern, the
proposed rule would also likely catalyze investment outside countries
of concern.
In particular, the demand for leading-edge, current, and mature
semiconductors are estimated to increase significantly in the next
decade, from approximately $600 billion per year in 2022 to
approximately $1 trillion revenue per year within the next 10 years.\8\
An increase in global productive capacity for a wide variety of
semiconductors will be needed to supply the increased chip demand. The
restriction on expanding manufacturing capacity in countries of concern
is likely to increase the need for additional capacity to be built
outside countries of concern.
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\8\ Gartner, Semiconductor Revenue Forecast (January 2023);
McKinsey & Company, The Semiconductor Decade: A Trillion-Dollar
Industry (April 2022), available at <a href="https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry">https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry</a>.
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Anticipated Transfers of Funds
Participants in the incentives program that violate the
prohibitions face the potential ``clawback'' of Federal funding. For
purposes of this analysis, any recovery of funding resulting from
entities engaging in activities prohibited by this proposed regulation
is considered to be a transfer of funds of an equal amount of the
funding award (plus interest) back to the government. This recovery of
funds could have negative implications for the award recipients'
financial condition and, for public companies, could affect their stock
valuation. The recovery of funds might also affect award recipients'
willingness or ability to continue constructing semiconductor
facilities and equipment in the United States.
The potential clawback of funds is designed to serve as a
significant deterrent to violations. The Department, therefore, expects
that few, if any, funding recipients will violate the prohibitions laid
out in this proposed rule. Damage to corporate reputation resulting
from violating an agreement with the U.S. government, while not readily
quantifiable, would also be a significant deterrent to violations.
Thus, the likelihood of violations that result in a recovery of funding
is small and the impact of the transfer is expected to be minimal
across all incentives program participants. Furthermore, even in the
unlikely event that a violation occurs and clawbacks become necessary,
the impacted chipmakers are highly unlikely to abandon their finished
or ongoing investments in the United States.
Two reasons make this outcome unlikely: First, because of the high
fixed costs associated with chip production, companies are likely to
either continue producing in facilities that are already built or
finish building ongoing investment projects. Second, semiconductor
production capacity is only likely to be built with a high degree of
confidence of customer demand, usually with advanced purchases of wafer
capacity prior to completion of the facility construction. Abandoning a
finished or ongoing project could jeopardize customer relationships and
ongoing revenue. The incentives associated with CHIPS are expected to
incentivize applicants to locate their productive capacity within the
United States. Once those decisions are made, and projects are under-
way, there would likely be significant costs to reverse such decisions.
Anticipated Reporting and Recordkeeping Costs
This proposed rule establishes a notification requirement for
funding recipients who are planning certain transactions in foreign
countries of concern. This notification requirement applies to
recipients pursuing transactions that would: (1) expand existing
capacity for manufacture of legacy semiconductors; or (2) provide new
capacity for legacy semiconductors that primarily serve the market of
the foreign country of concern.
The Department estimates that there are not more than a handful of
potential CHIPS Incentives Program applicants with existing facilities
in foreign countries of concern that may seek to expand manufacturing
capacity under the provisions of this proposed rule, and therefore
expects few notifications. However, for purposes of this analysis, the
Department has conservatively assumed a maximum of 10 notifications per
year. The proposed notifications would require general information
about

[[Page 17444]]

planned transaction, such as the names, location and ownership of the
parties involved; information about the manufacturing facility such as
current and proposed semiconductor production technology to determine
if it meets the ``legacy'' requirement; current and proposed
manufacturing capacity to determine if the ``existing facility''
definition is met; and information about the markets or end users for
the semiconductors to be manufactured in the case of new capacity.
Because the funding recipients would have initiated and planned these
transactions, the basic information required in the notification would
be known and readily available, and the notification process itself is
not expected to be burdensome. The Department estimates that it would
take recipients two hours to provide each notification, or a total of
20 hours per year for all recipients.
Anticipated Administrative (Government) Costs
Once received, notifications would be evaluated by the Department
as to whether the transactions meet one of the permissible criteria.
This analysis will be performed by Department staff, including an
anticipated initial review and, if necessary, consultation with
industry and technology experts, as well as with the funding recipient.
As the number of notifications that will be submitted each year is
expected to be small, the staffing requirements for review and analysis
of the notifications is also expected to be small. Assuming
conservatively 10 notifications per year, two senior analysts and two
licensing officers/electronics engineers could handle notifications
with a fraction of their annual time. The total estimated cost would be
approximately $110,000 per year (10 notifications * 4 staff at a GS-14
salary ($137/hr) \9\ * 20 hours each to review for each notification).
---------------------------------------------------------------------------

\9\ This value takes the 2022 hourly wage rate $68.55 for GS-14
step 5 employees in the Washington, DC region and multiplies by two
to account for overhead and benefits. Wage information is available
at <a href="https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2022/DCB.pdf">https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2022/DCB.pdf</a>.
---------------------------------------------------------------------------

The Federal Government may also incur costs for monitoring and
enforcement efforts. Because the program is designed to deter
violations, we expect that enforcement actions will rarely be needed.
In those cases where the Federal Government will ultimately need to
take enforcement action, the government will incur additional costs;
however, the extent of those costs is currently unknown. Moreover,
investments in semiconductor manufacturing are widely monitored and
reported in the trade press. New or expanded semiconductor
manufacturing capacity requires installation of expensive capital
equipment and several years to bring into operation. It is unlikely
that such expansions would go unnoticed. Therefore, to the extent that
monitoring is required, we would expect that the Government would incur
limited costs. The Department requests comments from the public on the
anticipated monitoring and enforcement costs.
Anticipated Benefits
The provisions in this proposed rule reinforce the benefits of the
CHIPS Incentives Program by ensuring that funding goes toward
increasing domestic manufacturing capacity and by discouraging
investments in foreign countries of concern that would raise national
security concerns. The domestic investments will advance U.S. economic
and national security, enhance global supply chain resilience, and
cement U.S. leadership in designing and building important
semiconductor technologies. In particular, these investments will help
address areas where the United States has fallen behind in
semiconductor manufacturing. For example, although the United States
remains a global leader in chip design and research and development
(R&D), it has fallen behind in manufacturing and today accounts for
only roughly 10 percent of commercial global production.\10\
---------------------------------------------------------------------------

\10\ The White House, ``Building Resilient Supply Chains,
Revitalizing American Manufacturing, and Fostering Broad-Based
Growth: 100-Day Reviews under Executive Order 14017,'' June 2021, 9,
<a href="https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf">https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf</a>.
---------------------------------------------------------------------------

The CHIPS Incentives Program is expected to catalyze long-term
economically sustainable growth in the domestic semiconductor industry
in support of U.S. economic and national security. The Program is also
expected to facilitate private investments in large-scale U.S.-based
production and R&D, as well as throughout the supply chain, attracting
both existing and new private investors to the U.S. semiconductor
ecosystem and encouraging innovative approaches to funding industry
growth. These are investments in facilities and equipment in the United
States that would not occur otherwise.
The $39 billion of Federal funding is intended to serve as a
catalyst to galvanize private, state, and local investment in the
semiconductor industry. It is expected that this funding will lay the
groundwork for long-term growth and economic sustainability in the
domestic semiconductor industry and promote the secure and resilient
supply chains on which the sector relies. The industry, it is
anticipated, will then produce, at scale, leading-edge logic and memory
chips critical to the national security and U.S. economic
competitiveness. The funding is further expected to support current-
generation and mature-node technologies essential for economic and
national security. The funding is also expected to lead to development
of a robust and skilled workforce and a diverse base of suppliers for
semiconductor production. The funding will support research and
development that is expected to drive innovation in design, materials,
and processes that will accelerate the industries of the future.
Further, it is anticipated that the funding will support the broader
U.S. economy, creating good jobs accessible to all, and supporting and
growing local economies and communities.
Regulatory Alternatives
There is little flexibility for regulatory alternatives regarding
the provisions implemented by this proposed regulation. The CHIPS Act
clearly spells out the framework for administering the prohibitions on
expansions of semiconductor manufacturing capacity in foreign countries
of concern. The statute details the types of transactions that are not
prohibited (i.e., certain types of transactions involving legacy
semiconductors), and lays out a notification requirement, a timeline
for review, and the potential for mitigation. The statute also requires
imposing the joint research and technology licensing prohibition.
The Act does allow for certain flexibility to determine which
transactions qualify as ``significant'', what is meant by ``material
expansion'' of ``semiconductor manufacturing capacity'', and what
constitutes a ``legacy semiconductor''. For example, the proposed
definition of ``significant transaction'' includes a minimum threshold
of $100,000, such that transactions involving lower monetary values
would not be prohibited. Likewise, the proposed definition of
``material expansion'' refers to increases in capacity of at least 5
percent to identify expansions that would be prohibited. The proposed
definition of ``predominately serves the market'' would allow for
expansions where at least 85% of a facility's output by value serves a
foreign market. The way in which these terms, and others, are defined
thus will have an impact on which transactions may be permissible,
which, in turn, could affect investment choices of funding recipients.
The

[[Page 17445]]

Department seeks comment on these proposed definitions and how the
interpretation of terms in this proposed rule would impact industry
members, including, in particular, those with existing facilities in a
foreign country of concern.
Conclusion
This proposed rule, which implements the CHIPS Act's provisions for
recovery of funding for violating the prohibitions on certain expansion
of semiconductor manufacturing and certain joint research or technology
licensing is expected to provide significant deterrence against
potential violations and to reinforce CHIPS Act objectives to
incentivize investment in semiconductor facilities and equipment in the
United States. Together with the Act's infusion of funding into
semiconductor manufacturing, the proposed rule is expected to provide
substantial national security and economic benefits. As a result, the
overall benefits of this proposed rule are expected to significantly
outweigh any negative impact from the prohibitions on expansions of
capacity in foreign countries of concern. The Department requests
comments on any aspect of this impact assessment.

Administrative Procedure Act

Pursuant to 5 U.S.C. 553(a)(2), the provisions of the
Administrative Procedure Act requiring notice of proposed rulemaking
and the opportunity for public participation are inapplicable to this
proposed rule because this rule, which places certain limitations on
funding recipients, relates to ``public property, loans, grants,
benefits, or contracts.'' \11\ However, because the Department is
interested in receiving public input to help inform the actions within
this rulemaking, this proposed rule includes a 60-day period for public
comment.
---------------------------------------------------------------------------

\11\ In addition, the provisions of this rule implementing the
Expansion Clawback provisions of the Act are exempt from the
rulemaking provisions of the Administrative Procedure Act pursuant
to 15 U.S.C. 4652(a)(6)(A)(iii).
---------------------------------------------------------------------------

The CHIPS Program Office seeks broad input from all interested
stakeholders on this proposed rule, including information on
limitations and procedures for funding recipients to notify the
Secretary of any planned significant transactions that may be
prohibited. Specifically, the CHIPS Program Office requests information
regarding the definitions of ``significant transaction,'' ``material
expansion,'' ``semiconductor manufacturing,'' ``legacy
semiconductors,'' ``predominately serves the market,'' ``a technology
or product that raises national security concerns,'' and ``existing
facilities.'' Commenters are encouraged to address any of the specific
definitions, any other parts of this proposed rule, or the proposed
rule more generally. To properly submit comments on this rule, please
follow the submission instructions in the ADDRESSES section above.

Regulatory Flexibility Act

The Chief Counsel for Regulation has certified to the Chief Counsel
for Advocacy of the Small Business Administration under the provisions
of the Regulatory Flexibility Act, 5 U.S.C. 605(b), that the proposed
rule if adopted, would not have a significant economic impact on a
substantial number of small entities as that term is defined in the
Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA). A summary of
the factual basis for this certification is below.
The first prohibition in this proposed rule (described in the
Expansion Clawback section of the Act) applies to significant
transactions involving the material expansion of semiconductor
manufacturing capacity in foreign countries of concern (15 U.S.C.
4652(a)(6)(C)(i)). There are two industry sectors identified by their
classification under the North American Industry Classification System
(NAICS) that are potentially impacted: Semiconductor and related device
manufacturing (NAICS 334413) and semiconductor machinery manufacturing
(NAICS 333242). According to the most recent data from the Bureau of
the Census (2019 SUSB Annual Data Tables by Establishment Industry,
U.S. Census Bureau, February 2022), in 2019 there were a total of 723
establishments in the United States involved in ``semiconductor and
related device manufacturing'' (NAICS 333413). Note that this industry
category includes an unknown number of manufacturers of ``related
devices'' such as solar cells, fuel cells and light emitting diodes
that are not impacted by the prohibitions in this proposed rule. It is
likely that many of the small entities in this NAICS fall into this
``related devices'' category, as semiconductor device manufacturing is
a highly complex, highly capital-intensive industry beyond the
technical and financial capability of most small businesses.
Of these 723 firms in the semiconductor and related devices NAICS
segment, 655 (90 percent) were small businesses with fewer than 500
employees; over a third (251) had five or fewer employees. There were
68 establishments with 500 or more employees. Total employment in the
sector was 97,617, of which larger establishments with 500 or more
employees accounted for over 80 percent. The total number of
establishments in 2019 involved in manufacturing the machinery that is
used to make semiconductors (NAICS 333242) was 150, of which 125 had
500 or fewer employees.
While small entities may qualify for and receive incentive awards
under the program (either individually or as part of a group), they are
not likely to engage in the types of transactions that are addressed in
this proposed rule. Specifically, they will not likely engage in any
significant transaction involving the material expansion of
semiconductor manufacturing capacity in foreign countries of concern
(15 U.S.C. 4652(a)(6)(C)(i)). Of the entities chosen to receive CHIPS
Incentives Program awards, the expansion prohibition only applies to
those that either plan to expand an existing semiconductor
manufacturing facility in a foreign country of concern or plan to
establish such a facility in a country of concern. Technology upgrades
of existing facilities (that do not expand semiconductor manufacturing
capacity) are not affected, and there is an exception for semiconductor
manufacturing capacity expansions of existing facilities involving
manufacture of legacy semiconductors. To the extent that there are
semiconductor manufacturers participating in the CHIPS program that are
small businesses, they would likely fall into this ``legacy
semiconductor'' category. Leading-edge semiconductor manufacturing
targeted by this prohibition (because of its importance to national
security) is an exceedingly complex and capital-intensive industry that
is dominated by large multinational firms.
The second prohibition codified in this proposed rule (described in
the Technology Clawback section of the Act) prevents award recipients
from entering into joint research or technology licensing efforts with
foreign entities of concern that relate to a technology or product that
raises national security concerns (15 U.S.C. 4652(a)(5)(C)). This
prohibition has been largely harmonized with existing oversight and
restrictions on these types of transactions imposed by the Export
Administration Regulations (15 CFR parts 730 through 744). Therefore,
the (additional) economic impact of this prohibition will be negligible
for both large and small entities.
Based on the above, the Department does not anticipate that this
proposed

[[Page 17446]]

rule will have a significant economic impact on a substantial number of
small entities as that term is defined in the Regulatory Flexibility
Act, 5 U.S.C. 601 et seq. As a result, an initial regulatory
flexibility analysis is not required, and none has been prepared.

Paperwork Reduction Act

This proposed rule contains a new collection-of-information
requirement subject to review and approval by OMB under the Paperwork
Reduction Act. This rule creates new requirements by establishing a
notification requirement for funding recipients that plan to engage in
any significant transaction involving the material expansion of
semiconductor manufacturing capacity in a foreign country of concern
that may be permitted if certain conditions are met. Public reporting
burden for this notification is estimated to average 20 hours (10
respondents * 2 hours per response), including the time for reviewing
instructions, searching existing data sources, gathering the data
needed, and completing and reviewing the collection of information. The
total estimated cost is $110,000 (10 notifications * 4 staff @GS-14
salary ($137/hr) * 20 hours each to review for each notification). The
$137 per hour cost estimate for this information collection is
consistent with the GS-scale salary data for a GS-14 step 5. The
information requested in these notifications is related to business
transactions that are being proposed or planned by funding recipients.
Since it is the funding recipients themselves that are initiating these
transactions, the information requested on them will be known to them
and readily available.
We are soliciting comments from the public (as well as affected
agencies) concerning our information collection and recordkeeping
requirements. These comments will help us:
(1) Evaluate whether the information collection is necessary for
the proper performance of our agency's functions, including whether the
information will have practical utility.
(2) Evaluate the accuracy of our estimate of the burden of the
information collection, including the validity of the methodology and
assumptions used.
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the information collection on those who
are to respond (such as through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g., permitting electronic
submission of responses).
Comments on these or any other aspects of the collection of
information can be submitted via <a href="http://www.regulations.gov">www.regulations.gov</a>.

List of Subjects in 15 CFR Part 231

Business and industry, Computer technology, Exports, Foreign trade,
Government contracts, Grant programs, Investments (U.S. investments
abroad), National defense, Research, Science and technology,
Semiconductor chip products.

0
For the reasons stated in the preamble, and under the authority of 15
U.S.C. 4651, et seq., the National Institute of Standards and
Technology proposes to revise 15 CFR chapter II, subchapter C, to read
as follows:

Subchapter C--CHIPS Program

PART 231--CLAWBACKS OF CHIPS FUNDING

Sec.
Subpart A--Definitions
231.101 Affiliate.
231.102 Applicable term.
231.103 Existing facility.
231.104 Foreign country of concern.
231.105 Foreign entity.
231.106 Foreign entity of concern.
231.107 Funding recipient.
231.108 Joint research.
231.109 Knowingly.
231.110 Legacy semiconductor.
231.111 Material expansion.
231.112 Owned by, controlled by, or subject to the jurisdiction or
direction of.
231.113 Person.
231.114 Predominately serves the market.
231.115 Required agreement.
231.116 Secretary.
231.117 Semiconductor.
231.118 Semiconductor manufacturing.
231.119 Semiconductor manufacturing capacity.
231.120 Semiconductors critical to national security.
231.121 Significant transaction.
231.122 Significant renovations.
231.123 Technology licensing.
231.124 Technology or product that raises national security
concerns.
Subpart B--General
231.201 Scope.
231.202 Prohibition on certain expansion transactions.
231.203 Prohibition on certain joint research or technology
licensing.
231.204 Retention of records.
Subpart C--Notification, Review, and Recovery
231.301 Procedures for notifying the Secretary of transactions.
231.302 Contents of notifications; certifications.
231.303 Response to notifications.
231.304 Initiation of review.
231.305 Procedures for review.
231.306 Mitigation of national security risks.
231.307 Review of actions that may violate the prohibition on
certain joint research or technology licensing.
231.308 Recovery and other remedies.
Subpart D--Other Provisions
231.401 Amendment.
231.402 Submission of false information.

Authority: 15 U.S.C. 4651, et seq.

PART 231--CLAWBACKS OF CHIPS FUNDING

Subpart A--Definitions

Sec. 231.101 Affiliate

Affiliate means:
(a) Any subsidiary of the funding recipient, i.e., any entity in
which the funding recipient directly or indirectly holds at least 50
percent of the outstanding voting interest;
(b) Any parent entity of the funding recipient, i.e., any entity
that directly or indirectly holds at least 50 percent of the
outstanding voting interest in the funding recipient; or
(c) Any entity in which the funding recipient's parent entity or
parent entities directly or indirectly hold at least 50 percent of the
outstanding voting interest.

Sec. 231.102 Applicable term.

For both the prohibition on certain expansion transactions and the
prohibition on certain joint research or licensing transactions, the
applicable term shall be the 10 years following the date of the award
of Federal financial assistance, unless otherwise specified in the
required agreement.

Sec. 231.103 Existing facility.

Existing facility means any facility built, equipped, and operating
at the semiconductor manufacturing capacity level for which it was
designed prior to entering into the required agreement. Existing
facilities must be documented in the required agreement. Existing
facilities shall be defined by their semiconductor manufacturing
capacity at the time of the required agreement; a facility that
undergoes significant renovations after the required agreement is
entered into shall no longer qualify as an ``existing facility.''

Sec. 231.104 Foreign country of concern.

The term foreign country of concern means:
(a) A country that is a covered nation (as defined in 10 U.S.C.
4872(d)); and
(b) Any country that the Secretary, in consultation with the
Secretary of Defense, the Secretary of State, and the

[[Page 17447]]

Director of National Intelligence, determines to be engaged in conduct
that is detrimental to the national security or foreign policy of the
United States.

Sec. 231.105 Foreign entity.

Foreign entity, as used in this part:
(a) Means--
(1) A government of a foreign country or a foreign political party;
(2) A natural person who is not a lawful permanent resident of the
United States, citizen of the United States, or any other protected
individual (as such term is defined in 18 U.S.C. 1324b(a)(3)); or
(3) A partnership, association, corporation, organization, or other
combination of persons organized under the laws of or having its
principal place of business in a foreign country; and
(b) Includes--
(1) Any person owned by, controlled by, or subject to the
jurisdiction or direction of an entity listed in paragraph (a) of this
section;
(2) Any person, wherever located, who acts as an agent,
representative, or employee of an entity listed in paragraph (a) of
this section;
(3) Any person who acts in any other capacity at the order,
request, or under the direction or control of an entity listed in
paragraph (a) of this section, or of a person whose activities are
directly or indirectly supervised, directed, controlled, financed, or
subsidized in whole or in majority part by an entity listed in
paragraph (a) of this section;
(4) Any person who directly or indirectly through any contract,
arrangement, understanding, relationship, or otherwise, owns 25 percent
or more of the equity interests of an entity listed in paragraph (a) of
this section;
(5) Any person with significant responsibility to control, manage,
or direct an entity listed in paragraph (a) of this section;
(6) Any person, wherever located, who is a citizen or resident of a
country controlled by an entity listed in paragraph (a) of this
section; or
(7) Any corporation, partnership, association, or other
organization organized under the laws of a country controlled by an
entity listed in paragraph (a) of this section.

Sec. 231.106 Foreign entity of concern.

Foreign entity of concern means any foreign entity that is--
(a) Designated as a foreign terrorist organization by the Secretary
of State under 8 U.S.C. 1189;
(b) Included on the Department of Treasury's list of Specially
Designated Nationals and Blocked Persons (SDN List), or for which one
or more individuals or entities included on the SDN list, individually
or in the aggregate, directly or indirectly, hold at least 50 percent
of the outstanding voting interest;
(c) Owned by, controlled by, or subject to the jurisdiction or
direction of a government of a foreign country that is a covered nation
(as defined in 10 U.S.C. 4872(d));
(d) Alleged by the Attorney General to have been involved in
activities for which a conviction was obtained under--
(1) The Espionage Act, 18 U.S.C. 792 et seq.;
(2) 18 U.S.C. 951;
(3) The Economic Espionage Act of 1996, 18 U.S.C. 1831 et seq.;
(4) The Arms Export Control Act, 22 U.S.C. 2751 et seq.;
(5) The Atomic Energy Act, 42 U.S.C. 2274, 2275, 2276, 2277, or
2284;
(6) The Export Control Reform Act of 2018, 50 U.S.C. 4801 et seq.;
(7) The International Economic Emergency Powers Act, 50 U.S.C. 1701
et seq.; or
(8) 18 U.S.C. 1030.
(b) Included on the Bureau of Industry and Security's Entity List
(15 CFR part 744, supplement no. 4);
(c) Included on the Department of the Treasury's list of Non-SDN
Chinese Military-Industrial Complex Companies (NS-CMIC List), or for
which one or more individuals or entities included on the NS-CMIC list,
individually or in the aggregate, directly or indirectly, hold at least
50 percent of the outstanding voting interest;
(d) Identified in the Federal Communications Commission's list of
Equipment and Services Covered By section 2(a) of the Secure and
Trusted Communications Networks Act of 2019 as providing covered
equipment or services; or
(e) Determined by the Secretary, in consultation with the Secretary
of Defense and the Director of National Intelligence, to be engaged in
unauthorized conduct that is detrimental to the national security or
foreign policy of the United States under this chapter.

Sec. 231.107 Funding recipient.

Funding recipient means any entity receiving a Federal financial
assistance award under 15 U.S.C. 4652 that enters into a required
agreement.

Sec. 231.108 Joint research.

Joint research means any research and development activity as
defined at 15 U.S.C. 638(e)(5) that is jointly undertaken by two or
more persons, including any research and development activities
undertaken as part of a joint venture, as defined at 15 U.S.C.
4301(a)(6).

Sec. 231.109 Knowingly.

Knowingly means acting with knowledge that a circumstance exists or
is substantially certain to occur, or with an awareness of a high
probability of its existence or future occurrence. Such awareness can
be inferred from evidence of the conscious disregard of facts known to
a person or of a person's willful avoidance of facts.

Sec. 231.110 Legacy semiconductor.

(a) Legacy semiconductor means:
(1) A digital or analog logic semiconductor that is of the 28-
nanometer generation or older (i.e., has a gate length of 28 nanometers
or more for a planar transistor);
(2) A memory semiconductor with a half-pitch greater than 18
nanometers for Dynamic Random Access Memory (DRAM) or less than 128
layers for Not AND (NAND) flash that does not utilize emerging memory
technologies, such as transition metal oxides, phase-change memory,
perovskites, or ferromagnetics relevant to advanced memory fabrication;
or
(3) A semiconductor identified by the Secretary in a public notice
issued under 15 U.S.C. 4652(a)(6)(A)(ii).
(b) Notwithstanding paragraph (a) of this section, the following
are not legacy semiconductors:
(1) Semiconductors critical to national security, as defined in
Sec. 231.120;
(2) A semiconductor with a post-planar transistor architecture
(such as fin-shaped field field-effect transistor (FinFET) or gate all
around field-effect transistor); and
(3) For the purposes of packaging facilities, semiconductors
packaged utilizing three-dimensional (3D) integration.

Sec. 231.111 Material expansion.

Material expansion means the addition of physical space or
equipment that has the purpose or effect of increasing semiconductor
manufacturing capacity of a facility by more than five percent or a
series of such expansions which, in the aggregate during the applicable
term of a required agreement, increase the semiconductor manufacturing
capacity of a facility by more than five percent of the existing
capacity when the required agreement was entered into.

[[Page 17448]]

Sec. 231.112 Owned by, controlled by, or subject to the jurisdiction
or direction of.

(a) A person is owned by, controlled by, or subject to the
jurisdiction or direction of an entity where at least 25 percent of the
person's outstanding voting interest is held directly or indirectly by
that entity.
(b) A person is owned by, controlled by, or subject to the
jurisdiction or direction of a government of a foreign country or of a
foreign political party where:
(1) The person is a citizen, national, or resident of the foreign
country located in the foreign country;
(2) The person is organized under the laws of or has its principal
place of business in the foreign country; or
(3) At least 25 percent of the person's outstanding voting interest
is held directly or indirectly by the government of a foreign country
or a foreign political party.

Sec. 231.113 Person.

The term person includes an individual, partnership, association,
corporation, organization, or any other combination of individuals.

Sec. 231.114 Predominately serves the market.

Predominately serves the market means that 85 percent of the output
of the semiconductor manufacturing facility (e.g., wafers,
semiconductor devices, or packages) by value is incorporated into final
products (i.e., not an intermediate product that is used as factor
inputs for producing other goods) that are used or consumed in that
market.

Sec. 231.115 Required agreement.

Required agreement means the agreement required under 15 U.S.C.
4652(a)(6)(C) that is entered into by a funding recipient on or before
the date on which the Secretary awards Federal financial assistance
under 15 U.S.C. 4652. The required agreement shall include, inter alia,
provisions describing the prohibitions on certain joint research or
technology licensing in Sec. 231.202 and on certain joint research or
technology licensing in Sec. 231.203.

Sec. 231.116 Secretary.

Secretary means the Secretary of Commerce or the Secretary's
designees.

Sec. 231.117 Semiconductor.

Semiconductor means an integrated electronic device or system most
commonly manufactured using materials such as, but not limited to,
silicon, silicon carbide, or III-V compounds, and processes such as,
but not limited to, lithography, deposition, and etching. Such devices
and systems include but are not limited to analog and digital
electronics, power electronics, and photonics, for memory, processing,
sensing, actuation, and communications applications.

Sec. 231.118 Semiconductor manufacturing.

Semiconductor manufacturing means semiconductor fabrication or
semiconductor packaging. Semiconductor fabrication includes the process
of forming devices like transistors, poly capacitors, non-metal
resistors, and diodes, as well as interconnects between such devices,
on a wafer of semiconductor material. Semiconductor packaging means the
process of enclosing a semiconductor in a protective container
(package) and providing external power and signal connectivity for the
assembled integrated circuit.

Sec. 231.119 Semiconductor manufacturing capacity.

Semiconductor manufacturing capacity means the productive capacity
of a semiconductor facility. In the case of a semiconductor fabrication
facility, semiconductor manufacturing capacity is measured in wafer
starts per month. In the case of a packaging facility, semiconductor
manufacturing capacity is measured in packages per month.

Sec. 231.120 Semiconductors critical to national security.

Semiconductors critical to national security means:
(a) Compound semiconductors;
(b) Semiconductor utilizing nanomaterials, including 1D and 2D
carbon allotropes such as graphene and carbon nanotubes;
(c) Wide-bandgap/ultra-wide bandgap semiconductors;
(d) Radiation-hardened by process (RHBP) semiconductors;
(e) Fully depleted silicon on insulator (FD-SOI) semiconductors;
(f) Silicon photonic semiconductors;
(g) Semiconductors designed for quantum information systems; and
(h) Semiconductors designed for operation in cryogenic environments
(at or below 77 Kelvin).

Sec. 231.121 Significant transaction

Significant transaction means:
(a) Any investment, whether proposed, pending, or completed, that
is valued at $100,000 or more, including:
(1) A merger, acquisition, or takeover, including:
(i) The acquisition of an ownership interest in an entity;
(ii) A consolidation;
(iii) The formation of a joint venture; or
(iv) A long-term lease or concession arrangement under which a
lessee (or equivalent) makes substantially all business decisions
concerning the operation of a leased entity (or equivalent), as if it
were the owner; or
(2) Any other investment, including any capital expenditures or the
formation of a subsidiary; or
(b) A series of transactions described in paragraph (a) of this
section, which, in the aggregate during the applicable term of a
required agreement, are valued at $100,000 or more.

Sec. 231.122 Significant renovations.

Significant renovations means any set of changes to a facility
that, in the aggregate during the applicable term of the required
agreement, increase semiconductor manufacturing capacity (as defined in
Sec. 231.119) by adding an additional line or otherwise increase
semiconductor manufacturing capacity by 10 percent or more.

Sec. 231.123 Technology licensing.

A contractual agreement in which one party's patents, trade
secrets, or know-how are sold or made available to another party.

Sec. 231.124 Technology or product that raises national security
concerns.

A technology or product that raises national security concerns
means:
(a) Any semiconductors critical to national security; or
(b) Any item listed in Category 3 of the Commerce Control List
(supplement no. 1 to part 774 of the Export Administration Regulations,
15 CFR part 774) that is controlled for National Security (``NS'')
reasons, as described in 15 CFR 742.4, or Regional Stability (``RS'')
reasons, as described in 15 CFR 742.6

Subpart B--General

Sec. 231.201 Scope.

This subpart sets forth the provisions to be used in the required
agreements (defined in Sec. 231.115), the processes for notifying the
Secretary of a significant transaction, and the process for review by
the Secretary of a transaction or an action that may violate the
prohibition on certain joint research or technology licensing.

Sec. 231.202 Prohibition on certain expansion transactions.

(a) During the 10-year period beginning on the date of the award of
Federal financial assistance under 15 U.S.C. 4652, the funding
recipient and its affiliates may not engage in any significant
transaction involving the material expansion of semiconductor

[[Page 17449]]

manufacturing capacity in a foreign country of concern. This
prohibition does not apply to--
(1) A funding recipient's existing facilities or equipment for
manufacturing legacy semiconductors that exist on the date of the
award; or
(2) Significant transactions involving material expansion of
semiconductor manufacturing capacity that--
(i) Produces legacy semiconductors; and
(ii) Predominately serves the market of a foreign country of
concern.
(b) No later than the date of the award of Federal financial
assistance award under 15 U.S.C. 4652, the funding recipient shall
enter into a required agreement that contains this prohibition and is
otherwise consistent with this part.

Sec. 231.203 Prohibition on certain joint research or technology
licensing.

During the applicable term of a Federal financial assistance award
under 15 U.S.C. 4652, neither a funding recipient nor its affiliates
may knowingly engage in any joint research or technology licensing with
a foreign entity of concern that relates to a technology or product
that raises national security concerns.

Sec. 231.204 Retention of records.

(a) During the 10-year period beginning on the date of the Federal
financial assistance award under 15 U.S.C. 4652 and for a period of
seven years following any significant transaction, a funding recipient
or its affiliate planning or engaging in any significant transaction
shall maintain records related to the significant transaction in a
manner consistent with the recordkeeping practices used in their
ordinary course of business for such transactions.
(b) Any funding recipient or its affiliate that is notified that a
transaction is being reviewed under Sec. 231.305 shall immediately
take steps to retain all records relating to such transaction.

Subpart C--Notification, Review, and Recovery

Sec. 231.301 Procedures for notifying the Secretary of transactions.

During the term of the required agreement the funding recipient
shall submit a notification to the Secretary (notification) regarding
any planned significant transactions of the funding recipient or its
affiliate involving the material expansion of semiconductor
manufacturing capacity in a foreign country of concern, as set forth in
Sec. 231.202, including any transaction it believes to qualify as an
exception to the prohibition under 15 U.S.C. 4652(a)(6)(C)(ii). A
notification must include the information set forth in Sec. 231.302
and be submitted to <a href="/cdn-cgi/l/email-protection#6907061d000f000a081d0006071a290a0100191a470e061f">[email&#160;protected]</a>.

Sec. 231.302 Contents of notifications; certifications.

The funding recipient submitting a notification shall provide the
information set out in this section, which must be accurate and
complete. The notification shall be certified by the funding
recipient's Chief Executive Officer, President, or equivalent, and
shall contain the following information about the parties and the
transaction:
(a) The funding recipient and any affiliate that is party to the
transaction, including for each a primary point of contact, telephone
number, and email address.
(b) The identity and location(s) of all other parties to the
transaction.
(c) Information, including organizational chart(s), on the
ownership structure of parties to the transactions.
(d) A description of any other significant foreign involvement,
e.g., through financing, in the transaction.
(e) The name(s) and location(s) of any entity in a foreign country
of concern where or at which semiconductor manufacturing capacity may
be materially expanded by the transaction.
(f) A description of the transaction, including the specific types
of semiconductors currently produced at the facility planned for
expansion, the current production technology node (or equivalent
information) on production technology in current use and semiconductor
manufacturing capacity, as well as the specific types of semiconductors
planned for manufacture, the planned production technology node, and
planned semiconductor manufacturing capacity.
(g) If the transaction involves the material expansion of
semiconductor manufacturing capacity that produces legacy
semiconductors which will predominately serve the market of a foreign
country of concern, provide documentation as to where the final
products incorporating the legacy semiconductors are to be used or
consumed, including the percent of semiconductor manufacturing capacity
or percent of sales revenue that will be accounted for by use or
consumption of the final goods in the foreign country of concern.
(h) If applicable, a statement explaining how the transaction meets
the requirements, set forth in 15 U.S.C. 4652(a)(6)(C)(ii), for an
exception to the prohibition on significant transactions that involve
the material expansion of semiconductor manufacturing capacity,
including details on the calculations for semiconductor manufacturing
capacity and/or sales revenue by the market in which the final goods
will be consumed.

Sec. 231.303 Response to notifications.

After receiving a notification pursuant to Sec. 231.301, the
Secretary may:
(a) Reject the notification, and, if so, inform the funding
recipient promptly in writing, if:
(1) The notification does not meet the requirements of Sec.
231.302; or
(2) The notification contains apparently false or misleading
information; or
(b) Initiate a review under Sec. 231.304, and, if so, inform the
funding recipient promptly in writing.

Sec. 231.304 Initiation of review.

(a) The Secretary may initiate review of a transaction:
(1) After receiving a notification pursuant to Sec. 231.301; or
(2) Where the Secretary believes that a transaction may be
prohibited. Information may be submitted to the Department, including
by persons other than a funding recipient, via <a href="/cdn-cgi/l/email-protection#cba5a4bfa2ada2a8aabfa2a4a5b88ba8a3a2bbb8e5aca4bd">[email&#160;protected]</a>.
(b) Upon receipt of a notification submitted pursuant to Sec.
231.301, the Secretary will review the notification for completeness
and may request additional information from the funding recipient. Once
a notification is deemed complete, the Secretary will initiate a review
of the transaction, notify the funding recipient in writing following
the initiation of review, and consult with the Secretary of Defense and
the Director of National Intelligence.
(c) Where the Secretary initiates review of under paragraph (a)(2)
of this section, the Secretary will notify the funding recipient in
writing following the initiation of review and consult with the
Secretary of Defense and the Director of National Intelligence.

Sec. 231.305 Procedures for review.

(a) If the Secretary finds that additional information is
necessary, the Secretary will ask the funding recipient in writing to
supply the supplemental information, and the funding recipient shall
promptly provide any supplemental information the Secretary requests.
The Secretary will determine whether the supplemental information is
complete and notify the funding recipient. The running of the time
period for a determination will be suspended from the date on which the
request for supplemental information is

[[Page 17450]]

sent to the funding recipient until the Secretary receives the
supplemental information and finds the notification to be complete.
(b) Not later than 90 days after a notification is deemed complete,
or after the Secretary initiates a review under Sec. 231.304(a)(2),
the Secretary will provide the funding recipient with an initial
determination as to whether the transaction would be a violation of
Sec. 231.202. The initial determination may include a determination
that the funding recipient or its affiliate has violated Sec. 231.202
by engaging in a prohibited significant transaction.
(c) If the Secretary's initial determination is that the
transaction would violate Sec. 231.202 or that the funding recipient
or its affiliate has violated Sec. 231.202 by engaging in a prohibited
significant transaction, then:
(1) The Secretary will provide the funding recipient with an
explanation of the initial determination. The funding recipient may
respond within 14 days, including by submitting additional information
or requesting that the initial determination be reconsidered.
(2) The Secretary will request tangible evidence from the funding
recipient in the form of a signed letter by the funding recipient's
Chief Executive Officer, President, or equivalent, certifying that the
transaction has been ceased or abandoned. Such a letter must certify,
under the penalties provided in the False Statements Accountability Act
of 1996, as amended (18 U.S.C. 1001), that the information in the
letter is accurate and complete in all material respects.
(3) If the funding recipient requests that the initial
determination be reconsidered, the Secretary will provide a final
determination. If the funding recipient does not request that the
initial determination be reconsidered within 14 days, the initial
determination will become a final determination.
(4) Unless the Secretary provides a final determination that the
transaction does not violate Sec. 231.202, the funding recipient must
cease or abandon the transaction (or, if applicable, ensure that its
affiliate ceases or abandons the transaction) and must submit the
evidence requested pursuant to paragraph (d)(1) of this section
electronically to <a href="/cdn-cgi/l/email-protection#94fafbe0fdf2fdf7f5e0fdfbfae7d4f7fcfde4e7baf3fbe2">[email&#160;protected]</a> within 45 days of the initial
determination under paragraph (c) of this section.
(d) Unless recovery is waived pursuant to Sec. 231.306, a
violation of Sec. 231.202 for engaging in a prohibited significant
transaction or failing to cease or abandon a planned significant
transaction that the Secretary has determined would be in violation of
Sec. 231.202 will result in the recovery of the full amount of the
Federal financial assistance provided to the funding recipient under 15
U.S.C. 4652, which will be a debt owed to the U.S. Government.
(e) The running of any deadline or time limitation for the
Secretary will be suspended during a lapse in appropriations.

Sec. 231.306 Mitigation of national security risks.

If the Secretary, in consultation with the Secretary of Defense and
the Director of National Intelligence, determines that a funding
recipient or its affiliate is planning to undertake or has undertaken a
significant transaction that is in violation of Sec. 231.202, the
Secretary may seek to take measures in connection with the transaction
to mitigate the risk to national security. Such measures may include
the negotiation of an agreement with the funding recipient to mitigate
the risk to national security in connection with the transaction. The
Secretary also may decide to waive the recovery of funds.

Sec. 231.307 Review of actions that may violate the prohibition on
certain joint research or technology licensing.

(a) The Secretary will notify a funding recipient in writing of any
action the Secretary suspects may be a violation of the prohibition on
certain joint research or technology licensing in Sec. 231.203 and may
request additional information from the funding recipient, which the
funding recipient must provide promptly (generally within three
business days) to the Secretary.
(b) The Secretary may make an initial determination as to whether
the funding recipient or its affiliate violated Sec. 231.203. If the
Secretary's initial determination is that the funding recipient or its
affiliate has violated Sec. 231.203, the Secretary will provide the
funding recipient with that initial determination, an explanation of
the initial determination, and an opportunity of 14 days to respond to
the initial determination, including by submitting additional
information or requesting that the initial determination be
reconsidered.
(c) If the funding recipient requests that the initial
determination be reconsidered, the Secretary will provide a final
determination. If the funding recipient does not request that the
initial determination be reconsidered within 14 days, the initial
determination will become a final determination.
(d) If the Secretary makes a final determination that an action
violated Sec. 231.203, the funding recipient will be required to
refund the full amount of the Federal financial assistance provided to
the funding recipient under 15 U.S.C. 4652 which for all purposes will
be a debt owed to the U.S. Government.

Sec. 231.308 Recovery and other remedies.

(a) Interest on a debt under Sec. 231.305 or Sec. 231.307 will be
calculated from the date on which the Federal financial assistance
under 15 U.S.C. 4652 was awarded.
(b) The Secretary may take action to collect a debt under Sec.
231.305 or Sec. 231.307 if such debt is not paid within the time
prescribed by the Secretary. In addition or instead, the matter may be
referred to the Department of Justice for appropriate action.
(c) If the Secretary makes an initial determination that the
funding recipient or its affiliate has violated Sec. 231.202 or Sec.
231.203, the Secretary may suspend Federal financial assistance under 2
CFR 200.339.
(d) The recoveries and remedies available under this section are
without prejudice to other available remedies, including civil or
criminal penalties.

Subpart D--Other Provisions

Sec. 231.401 Amendment.

Not later than August 9, 2024, and not less frequently than once
every two years thereafter for the eight-year period after the last
award of Federal financial assistance under 15 U.S.C. 4652 is made, the
Secretary, after public notice and an opportunity for comment, if
applicable and necessary, shall issue a public notice identifying any
additional semiconductors included in the meaning of the term ``legacy
semiconductor'' (see Sec. 231.110(a)(3)).

Sec. 231.402 Submission of false information.

Section 1001 of title 18 of the United States Code, as amended,
shall apply to all information provided to the Secretary under 15
U.S.C. 4652 or under the regulations found in this part.

Alicia Chambers,
NIST Executive Secretariat.
[FR Doc. 2023-05869 Filed 3-21-23; 11:15 am]
BILLING CODE 3510-13-P

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