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Rule2023-20471

Preventing the Improper Use of CHIPS Act Funding

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Published

September 25, 2023

Effective

November 24, 2023

Issuing agencies

Commerce DepartmentNational Institute of Standards and Technology

Abstract

The CHIPS and Science Act of 2022, which amended Title XCIX of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (collectively, the CHIPS Act or Act) established an incentives program to reestablish and sustain U.S. leadership across the semiconductor supply chain. The Department of Commerce, through the National Institute of Standards and Technology, is issuing this final rule to implement conditions in the Act that seek to prevent funding provided through the program from being used to directly or indirectly benefit foreign countries of concern. The rule defines terms related to these conditions, describes the types of activities that are prohibited by those conditions, and sets forth procedures for notifying the Secretary of Commerce (Secretary) of non-compliance and the process by which the Secretary will enforce these provisions.

Full Text

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<title>Federal Register, Volume 88 Issue 184 (Monday, September 25, 2023)</title>
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[Federal Register Volume 88, Number 184 (Monday, September 25, 2023)]
[Rules and Regulations]
[Pages 65600-65620]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20471]

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DEPARTMENT OF COMMERCE

National Institute of Standards and Technology

15 CFR Part 231

[Docket Number: 230915-0220]
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: Final rule.

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SUMMARY: The CHIPS and Science Act of 2022, which amended Title XCIX of
the William M. (Mac) Thornberry National Defense Authorization Act for
Fiscal Year 2021 (collectively, the CHIPS Act or Act) established an
incentives program to reestablish and sustain U.S. leadership across
the semiconductor supply chain. The Department of Commerce, through the
National Institute of Standards and Technology, is issuing this final
rule to implement conditions in the Act that seek to prevent funding
provided through the program from being used to directly or indirectly
benefit foreign countries of concern. The rule defines terms related to
these conditions, describes the types of activities that are prohibited
by those conditions, and sets forth procedures for notifying the
Secretary of Commerce (Secretary) of non-compliance and the process by
which the Secretary will enforce these provisions.

DATES: This final rule is effective November 24, 2023.

FOR FURTHER INFORMATION CONTACT: Sam Marullo at (202) 482-3844 or
<a href="/cdn-cgi/l/email-protection#1170627a72797861625172797861623f767e67">[email&#160;protected]</a>. Please direct media inquiries to the CHIPS Press
Team at <a href="/cdn-cgi/l/email-protection#4030322533330023282930336e272f36">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION: On March 23, 2023, the National Institute of
Standards and Technology published and requested public comment on a
proposed rule that defined terms used in the Act (including terms that
will be used in required agreements with covered entities), identified
the types of transactions that are prohibited under the Expansion
Clawback and Technology Clawback sections of the Act, and provided a
description of the proposed process for notification of certain
transactions to the Secretary (88 FR 17439). This final rule includes
final definitions of terms, describes the types of conditions that will
apply to expansion, joint research, and technology licensing
activities, establishes a process for notifying the Secretary of
potentially impermissible activities, and articulates processes by
which the Secretary will enforce these provisions.

Background

The CHIPS Act, 15 U.S.C. 4651 et seq, established a semiconductor
incentives program (CHIPS Incentives Program) to provide funding via
grants, cooperative agreements, loans, loan guarantees, and other
transactions, to incentivize investments in facilities and equipment 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. The CHIPS Incentives Program is administered
by the CHIPS Program Office (CPO) within the National Institute of
Standards and Technology (NIST) of the Department.
To protect national security and the resiliency of supply chains,
CHIPS 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 listed in 10 U.S.C. 4872(d). In
addition, the Act establishes guardrails, including the Expansion
Clawback (15 U.S.C. 4652(a)(6)) and the Technology Clawback (15 U.S.C.
4652(a)(5)(C)), to prevent the beneficiaries of CHIPS funds from
supporting the semiconductor manufacturing and technology development
of foreign countries of concern. To effectuate these conditions, and to
prevent their circumvention, covered entities are required to enter
into a binding agreement with the Department.
This final rule codifies the Expansion Clawback in Subpart B,
including exceptions to the prohibition on semiconductor manufacturing
capacity expansions that apply to existing facilities that manufacture
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.
This final rule requires covered entities to fulfill certain
obligations ahead of taking certain actions. A covered entity must
notify the Secretary of any planned significant transaction by the
covered entity or a member of its affiliated group involving the
material expansion of semiconductor manufacturing capacity in a foreign
country of concern, including in cases where it believes the
transaction may be

[[Page 65601]]

allowed under the exceptions. Terms related to this notification
requirement are defined in Subpart A of this final rule, and procedures
for submission and review of these notifications are detailed in
Subpart C. Failure by a covered entity or member of its affiliated
group to comply with the conditions of the Expansion Clawback may
result in recovery of the full amount of Federal financial assistance
provided to the covered entity.
This final rule also defines terms used in and further explains the
Act's Technology Clawback, which prohibits the covered entity 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 covered entity before the covered
entity engages in such joint research or technology licensing. A
covered entity's required agreement will include a commitment that the
covered entity will not conduct such prohibited joint research or
technology licensing. The Technology Clawback does not apply to joint
research or technology licensing that is ongoing prior to the Secretary
communicating to the covered entity the technologies or products that
raise national security concerns, which is being done through this
final rule. To effectuate this safe harbor, the required agreement will
memorialize any ongoing joint research or technology licensing with
foreign entities of concern that relates to technology or products that
raise national security concerns. Failure to comply with this condition
may also result in recovery of up to the full amount of Federal
financial assistance. This final rule serves as the Secretary's
communication to covered entities of the categories of technologies and
products that raise national security concerns. The Secretary retains
discretion to not provide an award to an applicant if the applicant's
ongoing joint research or technology licensing activities are
inconsistent with the goals of the Act. Subpart C articulates the
process by which the Secretary will evaluate any possible violations of
the Technology Clawback and provide notice to the covered entity.
In addition, to address the risk of circumvention of the Technology
Clawback, while accommodating commenters' request for flexibility, CPO
is clarifying in the final rule that it will impose additional
conditions, as appropriate, in the funding agreement that are in
addition to the Technology Clawback. The final rule provides that the
Secretary may take appropriate remedial measures, including requiring
mitigation agreements or recovering up to the full amount of the
Federal financial assistance provided to a covered entity, if any
entity that is a related entity of the covered entity engages in joint
research or technology licensing that would violate the Technology
Clawback if engaged in by the covered entity. The Secretary has
discretion to impose lesser remedial measures, as appropriate. For
purposes of this final rule, a related entity is any entity that
directly, or indirectly through one or more intermediaries, controls or
is controlled by, or is under common control with, the covered entity.
This approach is necessary to prevent enterprises from circumventing
the conditions that Congress required to avoid semiconductor technology
transfer to foreign entities of concern.

Discussion of Comments

CPO received 27 comment submissions in response to the proposed
rule. Comments were received from industry and trade associations,
multinational semiconductor companies and companies in related
industries, individuals, a law firm, a union, a foreign government, and
one anonymous commenter. Three submissions included business
proprietary information, along with a public summary. Commenters
generally expressed support for the goals and objectives of the CHIPS
Act, including the national security guardrails provisions that are the
subject of this final rule. Many comments raised specific concerns
about the potential negative business effects of certain definitions
set forth in the proposed rule and provided detailed suggestions for
alternatives. Other submissions were more general in nature and did not
provide specific comments on the proposed rule itself. All submissions
were carefully reviewed, and CPO thanks the public for its engagement.
CPO's responses to comments within the scope of this rulemaking have
been grouped by the regulatory section to which they pertain and are
summarized below.

A. Comments Related to Subpart A--Definitions

231.101 Affiliate
Comment #1: Several commenters noted that the definition of
``affiliate'' in the proposed rule differed from the definition of
``affiliated group'' included in the statute at 15 U.S.C.
4652(a)(6)(C)(iii). This resulted in an inconsistency between the
threshold percentage to be used for identifying affiliates based on
voting interest under the proposed rule (50 percent) and the threshold
under the Act for identifying members of the affiliate group (80
percent).
Response: CPO is removing the defined term ``affiliate'' from the
final rule to avoid confusion. CPO addresses the operation of the
Expansion Clawback and the Technology Clawback in light of this change
in each of those sections below.
231.102 Applicable Term
Three submissions included comments on the definition of
``applicable term.'' The commenters argued that the statute specifies
different applicable terms for the Expansion Clawback (a period of ten
years following the date of the award) and the Technology Clawback (for
the applicable term of the award), whereas the proposed rule harmonized
the term of both clawbacks at ten years from the date of the award.
Commenters questioned whether CPO had the authority to set this term
for the purposes of the Technology Clawback. They suggested that this
discrepancy be remedied by differentiating that there are two
applicable terms, one for the Expansion Clawback and one for the
Technology Clawback.
Response: In the proposed rule, CPO sought to align the applicable
terms of the Expansion Clawback and Technology Clawback at ten years
for consistency and ease of monitoring and compliance. However, CPO
recognizes that there may be instances where the term of an award is
shorter than the ten years articulated in the Expansion Clawback, and
there may be instances where the term of the award exceeds the ten-year
time period in the Expansion Clawback. As the term of the award will
depend upon the particular award, CPO is removing the definition of
applicable term from the rule and will instead articulate the
applicable term of a particular award in the relevant award documents.
231.103 Existing Facility
Comment #1: Several comments were received regarding the meaning of
``existing facility,'' specifically regarding the phrase ``operating at
the semiconductor manufacturing capacity level for which it was
designed,'' and the phrase ``semiconductor manufacturing capacity at
the time the required agreement is signed.'' The comments noted that
these phrases can capture two different measurements of ``manufacturing
capacity,'' as most

[[Page 65602]]

facilities do not always run at their full designed capacity.
Specifically, due to market conditions, ramping up activities, and
other factors, there could be a significant gap between the planned or
designed capacity of a facility and its actual output at the time a
funding agreement is signed. Production also fluctuates from one
quarter to another based on market conditions and product demand. Other
comments noted that facilities may be awaiting the installation of one
or more pieces of new or replacement equipment which should be
considered part of the semiconductor manufacturing capacity level for
which the facility was designed. Commenters suggested revising the
definition of ``existing facility'' to account for the full design
capacity at the time the facility was planned.
Response: CPO agrees that additional clarity is warranted. The
final rule clarifies that certain facilities that are undergoing
construction, expansion, or modernization may be considered existing
facilities under specified conditions, and that the baseline
manufacturing capacity of the existing facilities at the date of the
award will be addressed in the covered entity's required agreement.
231.106 Foreign Entity of Concern
Comment #1: Some commenters expressed concern that it would be
difficult for them to determine whether a foreign entity falls into one
of the categories considered ``foreign entities of concern.'' They
prefer limiting the definition to specific lists of foreign entities of
concern that they can readily check. Another commenter thought that
using existing government lists is reasonable but will be gamed,
because ``China can easily create small, not genuinely independent R&D
entities that are challenging to track.'' Further, the commenter notes,
the ``draft regulations effectively require the [U.S. government] to
devote more resources than at present, to maintain these lists properly
as new PRC entities appear.''
Response: The criteria for ``foreign entities of concern'' were
articulated in the Act. CPO recognizes that, for some of the criteria,
in particular the criteria related to foreign entities that have been
alleged by the Attorney General to have been involved in certain
activities for which a conviction was obtained, there may not be a
consolidated, readily available list. And there are other criteria that
require the evaluation of standards to determine whether a particular
entity is a foreign entity of concern. Nevertheless, CPO expects that
covered entities can exercise appropriate diligence to determine
whether a potential joint research or technology licensing partner
would fall within the categories articulated in the Act and this rule.
Comment #2: Several commenters consider the proposed definition of
``foreign entities of concern'' too broad and noted that it would
include many Chinese citizens and companies. They suggested excluding
from this definition any foreign entity that is an affiliate or
employee of a funding recipient or limiting it to entities included on
certain U.S. Government lists, such as the Bureau of Industry and
Security's Entity List.
Response: CPO declines to make this change. The Act articulates the
criteria for a foreign entity of concern, and, as noted above, CPO
expects that covered entities can exercise appropriate diligence to
identify entities that fall within the criteria articulated in Act. CPO
also notes that preventing all activities, including joint research and
technology licensing, with related corporate entities operating in
foreign countries of concern, would conflict with the current business
practices of the semiconductor industry in a manner that is
inconsistent with the goals of the Act to develop a viable supply of
secure and trusted semiconductors for the United States. Rather than
amending the definition of ``foreign entity of concern,'' the final
rule includes exceptions in the definitions of ``joint research'' and
``technology licensing'' that exempt employees of the covered entity
and related entities from the scope of the Technology Clawback.
231.108 Joint Research
Numerous comments were received regarding the definition of ``joint
research.'' In general, commenters noted that there were several types
of activities that could be captured by the proposed definition, the
restriction of which would disrupt normal business activities without a
significant benefit to national security.
Comment #1: Commenters noted that some entities that would meet the
definition of ``foreign entities of concern'' are members of
international standards development organizations. Commenters noted
that failing to include an exception in the joint research prohibition
for international collaborative efforts in standards organizations
would weaken opportunities for U.S. leadership in the global
semiconductor sector, which requires that U.S. entities have a seat at
the table for standard setting discussions.
Response: CPO agrees with the comments about international
standards organizations, and the final rule includes an exception from
the Technology Clawback for joint research related to standards.
Comment #2: Multiple comments noted the need to clarify that intra-
company research and development activities should not be considered
joint research.
Response: The final rule excludes from the definition of joint
research any research and development conducted exclusively between
employees of a covered entity or between entities that are related
entities of the covered entity.
Comment #3: Commenters requested an exemption for any joint
research and development related to warranty, service, and customer
support performed by a covered entity.
Response: CPO agrees this type of activity does not pose a risk to
national security, and the final rule now excludes from the definition
of joint research warranty, service, and customer support performed by
the covered entity or by any entity that is a related entity of the
covered entity.
Comment #4: Some comments noted that it is common business practice
in the global semiconductor industry for companies to outsource
fabrication and/or packaging, which requires them to share design files
and other technology related to specific products.
Response: CPO understands that outsourced manufacturing, including
packaging, is widely used and has therefore added an exception in the
definition of joint research for research, development, or engineering
involving drawings, designs, or related specifications for products to
be purchased and sold between two or more persons.
Comment #5: Some commenters requested an exemption for joint
research, development, and engineering related to manufacturing
processes for existing products.
Response: The intent behind this rule is to prohibit investments
that could threaten national security while not unduly disrupting
existing supply chains. Some manufacturing processes for existing
products are sensitive and would raise national security concerns if
transferred to a foreign entity of concern. However, prohibiting other
work would be disruptive to existing supply chains and would not reduce
national security risks. Outsourced assembly, test, and packaging
providers (OSATs) within foreign countries of concern are commonly used
within the industry today, cannot easily be substituted, and present
limited

[[Page 65603]]

national security risk because they operate on already fabricated
semiconductors. Therefore, CPO has narrowed the requested exemption to
work necessary solely to enable use of assembly, test, or packaging
services for integrated circuits.
Comment #6: Some commenters requested that the rule allow for
collaborations between semiconductor equipment manufacturers and other
upstream suppliers. Commenters argue that chemicals and materials
necessary for manufacturing must be tested and evaluated for use on
specific manufacturing equipment.
Response: Noting that the Technology Clawback only applies to
technologies or products that raise national security concerns and
involve foreign entities of concern, CPO finds that the collaborations
mentioned by these commenters may result in advancing the military
capability of foreign countries of concern, including the ability to
produce advanced semiconductors that are a force multiplier for
military modernization. Therefore, CPO declines to allow for an
exception for such collaborations.
Comment #7: Some commenters requested that there be an exception
for joint research involving fundamental research and publicly
available or published information.
Response: CPO believes that these types of activities between
covered entities and foreign entities of concern pose risks through the
potential transfer of technology that raises national security
concerns. While the underlying technology or information is publicly
available, additional advancements in the technology or its use may be
made through joint research and development to the benefit of the
foreign entity of concern.
Comment #8: One commenter noted that, based on the definitions of
``joint research'' and ``technology licensing,'' the Technology
Clawback prohibition would extend to items that are not subject to the
jurisdiction of the Export Administration Regulations. They suggest
limiting the technology subject to the joint research and technology
licensing prohibition to that technology ``subject to the EAR,'' as
defined in 15 CFR 734.3.''
Response: The Technology Clawback is intended to be broader in
reach than the Export Administration Regulations. The Act creates a
financial assistance program the goal of which is to incentivize
investment in facilities and equipment in the United States to provide
a secure supply of semiconductors for national security and critical
infrastructure, and to support the technology leadership of the United
States. The goals of the Act are more expansive than just mitigating
national security threats posed by the export of technology. Further,
recipients of CHIPS funds may have operations outside the United
States, which would not necessarily be subject to the restrictions of
the Export Administration Regulations. It would be inconsistent with
the goals of the Act for recipients of CHIPS funds to engage in joint
research or technology licensing that was not in the national security
interests of the United States, even if that activity was not
prohibited by the Export Administration Regulations.
Comment #9: One commenter representing multiple semiconductor
companies indicated that it is common practice to ``design-in'' devices
into the customers' end products. They note that ``[t]hese discussions
can involve technical matters; exchange of data including product
features, product reliability, and product limitations; and
consideration of alternative semiconductor products to optimize the end
system's performance and cost.'' They believe these standard commercial
exchanges could erroneously be captured under the definition of joint
research, and request that there be an exception for ``[d]isclosures of
a process or assembly design kit, complex design intellectual property,
foundational design intellectual property, or other technical
information provided by a funding recipient or its affiliates to its
customer solely for the design of integrated circuits to be
manufactured by the funding recipient.''
Response: CPO declines to allow for this exception to the
definition of joint research. The prohibition is limited to
semiconductor technologies and products that raise national security
concerns and to interactions with foreign entities of concern. CPO
believes this activity may result in advancing the military capability
of foreign countries of concern, including the ability to produce
advanced military products incorporating semiconductors. However, CPO
is including an exception under Technology Licensing to allow for
discloses of technical information to a customer solely for the design
of integrated circuits to be manufactured by the funding recipient for
that customer.
231.110 Legacy Semiconductor
Comment #1: Several commenters noted that the proposed definition
of legacy semiconductor excluded all semiconductors packaged utilizing
3D integration. Commenters also stated that some types of 3D packaging,
such as stacking two legacy dies on top of each other using wire bonds,
flip-chip, and bump connections are decades old and should be
considered legacy. They note that ``these techniques do not create the
high bandwidth or functional density needed for advanced computing, AI,
or communication applications.''
Response: CPO agrees. The final rule clarifies that only
semiconductors utilizing advanced 3D integration packaging such as by
directly attaching one or more die or wafer, through silicon vias
(TSV), or through mold vias (TMV) are not considered to be legacy
semiconductors.
Comment #2: Two commenters suggested that the definition's
reference to 28-nanometer generation or older should be modified by
deleting the reference to gate length and substituting a phrase
regarding technologies using the planar transistor architecture that
should be considered as the same 28nm generation technology. They
asserted the statute and the proposed rule define legacy semiconductor
to include ``28-nanometer generation or older'' technologies without
further elaboration on the many derivative technologies of the same
technology generation. Therefore, ``legacy semiconductor'' should cover
all planar transistors of the same technology generation to be
consistent with the essential policy objectives of the export control
rules that became effective on October 7, 2022.
Response: CPO declines to make this change. The proposed rule
adequately captured the meaning of the term ``28-nanometer
generation,'' which is consistent with the language of the Act. CPO
acknowledges that, for more recent generations of semiconductors, gate
length can become disconnected from node size. However, the result of
this disconnection is that gate length is longer than node size for
some highly advanced nodes. By setting the gate length threshold at
28nm, CPO will accurately capture legacy semiconductors. In addition,
allowing improvements to the base 28nm generation architecture to be
considered as legacy semiconductors could undermine the policy purpose
of the prohibition. For example, a company could use (or create) a
derivation of their existing 28nm technology for use in a foreign
country of concern, thereby enabling precisely the kind of material
expansion of semiconductor manufacturing capacity the Act seeks to
constrain.
Comment #3: Commenters suggested that the definition of ``legacy
semiconductor'' be expanded to include more advanced memory technology.

[[Page 65604]]

Response: CPO declines to make the suggested change and retains the
existing definition in the final rule. The Act requires that the
threshold for memory technology be set relative to the 28nm generation
for logic chips. CPO finds the inclusion of more advanced memory
technology would be counter to this directive. Moreover, the parameters
for legacy memory in the final rule are consistent with current export
control levels for memory chips. CPO further notes that the Act
requires the Secretary to reassess technology levels on a regular
basis, and at least every two years.
231.111 Material Expansion
Comment #1: Multiple commenters noted that semiconductor
fabrication facilities must regularly make equipment and efficiency
upgrades and productivity improvements within existing cleanroom space
to maintain competitiveness, and these should not be considered
``material expansions'' (even though they may increase capacity
incrementally). They asserted that the definition of ``material
expansion'' in the proposed rule would cause these ordinary efficiency
and productivity improvements to existing production lines to violate
the Expansion Clawback. They recommend deletion of references to
``equipment'' and adopting a more focused, clearer definition for
``material expansion'' as the ``building new cleanroom space that does
not exist on the date of the Federal financial assistance award which
has the purpose or effect of increasing semiconductor manufacturing
capacity of a facility by more than five percent.'' They note that
cleanroom space is a more accurate measure of ``material expansion''
because the size of cleanroom space is tailored to a certain range of
planned production capacity.
Response: CPO agrees with these comments to the extent they
reference improvements to technology and equipment instead of
semiconductor manufacturing capacity. In the final rule, CPO has
modified the definition of material expansion to refer to the addition
of cleanroom or other physical space. Cleanroom space is indicative of
a facility's production capacity, and in contrast to wafer starts per
month or a similar metric, does not ordinarily fluctuate over time or
change with ordinary course of business equipment upgrades. Therefore,
addition of cleanroom space as a metric better captures the concept of
material expansion and is substantially easier to monitor, helping to
prevent evasion of the restriction.
Comment #2: Some commenters requested that the threshold for
material expansion should be adjusted upwards to allow for continued
necessary technological upgrades to existing facilities. They believe
that the five percent threshold for material expansion will have the
practical effect of capping a facility's current capacity for 10 years.
They suggest expanding thresholds to account for expected fluctuations
in output and preexisting plans.
Response: CPO declines to adjust the material expansion threshold.
The Act requires that covered entities agree not to engage in any
material expansions of semiconductor production capacity in foreign
countries of concern. Raising the five percent threshold for allowable
material expansions would undermine this objective. The existing five
percent disregard is sufficient to allow for ordinary course-of-
business upgrades to facilities and production lines.
231.112 Owned by, Controlled by, or Subject to the Jurisdiction or
Direction of
Several commenters expressed concern that this definition could be
interpreted to mean that a covered entity would be prohibited from
sharing technology with all Chinese citizens in all parts of the world.
They noted that because the term ``foreign entity of concern'' is used
in the prohibition on certain joint research or technology licensing,
even very routine and necessary business activity could be blocked.
Additionally, one commenter argued that the 25 percent voting
interest threshold inadequately addresses the methods of influence-
beyond mere voting-that are employed by and available to foreign
countries of concern against entities in the semiconductor industry.
Finally, one commenter noted that the proposed regulations seek to
include all Chinese citizens and companies ``subject to the
jurisdiction'' of the government of China to fall within the scope of a
``foreign entity of concern.''
Response: In the final rule, CPO has modified the definition to
provide greater specificity and has incorporated a definition of
``owned by, controlled by, or subject to the jurisdiction, or direction
of'' into the definition of ``foreign entity of concern'' to clarify
that the scope of the terms are limited to defining foreign entities of
concern. As a consequence, the separate definition of ``owned by,
controlled by, or subject to the jurisdiction, or direction of'' has
been removed from the final rule. To address the concern of some
commenters regarding the broad scope of the definition, CPO clarified
that it is limited to countries that are listed in 10 U.S.C. 4872(d),
and applies to citizens, nationals or residents of those countries
while they are in any of the countries listed in 10 U.S.C. 4872(d). For
example, the term would include an Iranian national working in Russia,
but would not include a Chinese national lawfully working in the United
States or the Republic of Korea.
To address the concern that foreign entities of concern could
circumvent the restrictions of the rule by establishing entities for
which multiple foreign entities of concern each have ownership below
the 25 percent threshold, the rule clarifies that, where at least 25
percent of the person's outstanding voting interest is held directly or
indirectly by any combination of persons who would otherwise be foreign
entities of concern themselves, that person is also a foreign entity of
concern.
CPO also made modifications to the definitions of joint research
and technology licensing to allow for those activities to continue
among employees of the covered entity and among related entities, even
if the definition of foreign entity of concern would be implicated.
231.113 Person
Comment: One submission suggested that the definition of ``person''
should only include owners or those who have control over or receive
profits from semiconductor manufacturing in foreign countries of
concern. They asserted that this flexibility should also apply to
service agreements and suppliers to those agreements that have no
ownership or control over the prohibited activity.
Response: This final rule retains the definition of person that was
established in the Act. CPO believes this definition best aligns with
the national security goals of the Act.
231.114 Predominately Serves the Market
Comment #1: Several commenters disagreed with the proposed
definition of ``predominately serves the market'' as meaning that at
least 85 percent of the output by value must be used or consumed in the
market of the foreign country of concern. Commenters argued that
``predominately'' implies a 50 percent threshold or at most a 70
percent threshold, and provided examples in which federal departments
and agencies had interpreted ``predominately'' to mean 50 percent or
more. On the other hand, another commenter expressed support for the 85
percent threshold: ``85 percent of output

[[Page 65605]]

serving the host market is a somewhat arbitrary level but the idea is
sound. On top of risks from China making advanced chips, a flood of
low-end chip exports will eventually emerge, similar to steel, phones,
and so on. This may be unavoidable but the US should not speed the
outcome.''
Response: CPO is maintaining the 85 percent threshold in its
consideration of whether certain production of legacy semiconductors
``predominately serves the market'' in a foreign country of concern.
This percentage appropriately disincentivizes certain production of
legacy semiconductors in foreign countries of concern by a covered
entity unless that entity's output will predominately serve those
countries' domestic markets. A lower threshold could result in U.S.
financing indirectly supporting additional production of legacy
semiconductors in foreign countries of concern, including in ways that
would potentially destabilize global semiconductor markets. This could
undermine the ability of the United States to develop commercially
viable semiconductor industries, thereby forcing the U.S. military and
critical infrastructure businesses to rely on semiconductors produced
by foreign countries of concern. This is a key national security risk
that the CHIPS Act was intended to address.
The Act does not define ``predominantly'' (or ``predominantly
serves the market''). While there may be some instances where the term
``predominate'' has been interpreted to mean 50 percent, that does not
mean it can only be interpreted to mean 50 percent. Indeed, in section
102 of the Dodd-Frank Act, Public Law 111-203, Congress defined the
term ``predominantly engaged'' to align with an 85 percent or more
threshold. And while other agencies have construed ``predominantly'' to
mean 50 percent or more, that was in different contexts, and does not
dictate that ``predominantly'' can only mean a bare majority. There is
no indication that Congress used predominate here to imply a bare
majority, and based upon CPO's understanding of the semiconductor
industry and the goals of the Act, CPO believes that an 85 percent
threshold is appropriate for determining when a semiconductor
manufacturing facility predominantly serves the market of a foreign
country of concern.
Comment #2: Commenters noted that semiconductor manufacturers often
lack full visibility into the ultimate end users of their products.
They noted that semiconductor companies ``do not sell products directly
to consumers but to companies such as original equipment manufacturers
(OEMs) and other device integrators and are often sold and re-sold
through a long chain of distributors. This makes it difficult, if not
impossible, to follow each product to its ultimate user.'' They
requested that the regulations should adjust the tracking requirements
for semiconductor manufacturers to reflect their practical limitations
in determining the end-use of their products and limit tracking to
documents obtained in the ordinary course of business, such as
``ordered by'' ``sold to'' or ``shipped to'' information.
One commenter suggested an alternative method to calculate the 85
percent threshold. They suggested using a simpler metric based on the
ratio of units an entity manufactures in a foreign country of concern
to the units shipped into a foreign country of concern. They asserted
that this ratio illustrates the extent to which a manufacturer is
reliant on production in foreign countries of concern to supply
customers elsewhere; manufacturers that ship an equal or greater number
of units into foreign countries of concern than the number of units
they produce in foreign countries of concern are not reliant on supply
manufactured in foreign countries of concern.
Another commenter requested that there be a safe harbor for the
calculation of ``predominately serves the market'' so that companies
that believe, in good faith, they meet the threshold would not be
subject to the Expansion Clawback.
Response: CPO declines to interpret ``serves the market'' to refer
to the location to which the semiconductors are first shipped or to
create a safe harbor. Doing so would undermine the Act's goals of
ensuring that CHIPS Act-funded innovation does not fuel expansion of
the semiconductor industries in foreign countries of concern.
Semiconductors are often purchased by an initial customer and then
integrated into technology that is sold in other products. Focusing
solely on the initial sale would not address circumstances where that
initial customer is then selling goods with those semiconductors in
different markets. Because the goal of this prong of the exception to
the Expansion Clawback is to allow the continued expansion of
semiconductor manufacturing capacity by facilities in foreign countries
of concern that produce products for use in foreign counties of
concern, it is imperative that focus be on the country where the
semiconductor is ultimately used, not just the location of the
middleman purchasing the semiconductors in the first instance.
CPO recognizes that this definition may require covered entities to
implement new mechanisms to track where their products are ultimately
incorporated and sold in final products. CPO believes that companies
can develop those capabilities to meet the final rule's requirements.
231.115 Required Agreement
Comment: Several commenters noted the need for flexibility in the
required agreement to address unique circumstances such as the sale or
transfer of a facility from one party to another, or for how to deal
with facilities that are planned, under construction or otherwise not
operating at the capacity for which they are designed at the time of
the agreement.
Response: CPO agrees that additional flexibility in the required
agreement would support the policy goals of the CHIPS Program. The
final rule amends the proposed definition of ``required agreement'' to
allow for the Secretary and covered entity to amend the required
agreement by mutual consent, consistent with law. In addition, the
revised definition clarifies that the required agreement will
memorialize the covered entity's existing facilities (including
capacity) in foreign countries of concern, as well as any ongoing joint
research or technology licensing with a foreign entity of concern that
relates to a technology or product that raises national security
concerns. In addition, the required agreement will address any
additional restrictions that are necessary to prevent circumvention of
the Technology Clawback.
231.118 Semiconductor Manufacturing
Comment #1: Commenters suggested defining semiconductor
manufacturing to include the earlier stages of the manufacturing
process such as creating polysilicon ingots and making wafers. They
note that polysilicon and related materials are the semiconductor in
semiconductor chips and a very necessary part of a complete and
resilient U.S. semiconductor supply chain and that ``the proposed rule,
however narrowly focused on enforcement, appears to broadly affect
eligibility for the CHIPS Sec. 48D credit.'' Other commentors
suggested clarifying that upstream suppliers are not considered to be
semiconductor manufacturers (and therefore are not subject to the
prohibition on expansions of semiconductor manufacturing capacity).
Response: CPO agrees that additional clarity would be appropriate.
The final rule clarifies that semiconductor wafer production is
included within the

[[Page 65606]]

definition of semiconductor manufacturing, along with semiconductor
device fabrication and packaging, and is therefore subject to the
Expansion Clawback. Semiconductor wafer production includes the
processes of wafer slicing, polishing, cleaning, epitaxial deposition,
and metrology. Suppliers further upstream, such as those supplying
polysilicon and other raw materials, are not included within the scope
of semiconductor manufacturing for the purposes of this rule and are
therefore also not subject to the Expansion Clawback.
231.119 Semiconductor Manufacturing Capacity
Comment #1: Multiple commenters suggested that for fabrication
facilities that produce wafers designed for a wafer-to-wafer bonding
structure, productive capacity should be measured in wafers stacked in
order to align the metric with the facility's actual output, and to
account for the fact that the number of stacked wafers produced at
these facilities is far smaller than the number of wafers started
because wafers are stacked and combined during production.
Response: CPO agrees with this suggestion and in the final rule
notes that for semiconductor fabrication facilities for wafers designed
for wafer-to-wafer bonding structure, semiconductor manufacturing
capacity is measured in stacked wafers per year. The semiconductor
manufacturing capacity of such facilities will be documented in the
covered entity's required agreement.
Comment #2: Commenters suggested measuring semiconductor
manufacturing capacity on an annual basis, rather than wafer starts per
month to smooth the measurement of capacity and avoid undue focus on a
single month where capacity may be higher or lower.
Response: CPO agrees with this suggestion and has modified the
definition in the final rule to measure semiconductor manufacturing
capacity in wafers per year.
231.120 Semiconductors Critical to National Security
Comment #1: Multiple commenters argued that the list of
semiconductors critical to national security in the proposed rule is
overly broad and includes some products that are widely used in
commercial applications (such as silicon carbide semiconductors and FD-
SOI semiconductors). They noted that exports of some of these products
are not controlled for national security or regional stability reasons
under the Export Administration Regulations. They recommended that the
list be fully harmonized with current export controls and not include
general purpose commodities not designed for a particular application.
They also asserted that such alignment with existing restrictions would
``reduce administrative and compliance burdens and . . . achieve the
objectives of regulatory harmonization as stated in the proposal's
preamble.'' One commenter also suggested that the compound and wide-
bandgap/ultra-wide bandgap semiconductor categories on the list should
be ``narrowed to exclude products that reduce carbon emissions because
they enhance rather than threaten U.S. national security''
(specifically, SiC power semiconductors).
Response: CPO acknowledges that there are commercial applications
in which compound and fully depleted silicon on insulator (FD-SOI)
semiconductors are increasingly used. However, the performance
advantages offered by compound semiconductors over silicon
semiconductors, such as wider bandgap, lower operating voltages, and
higher electron mobility are vital to many sophisticated military
applications.
Moreover, the governments of some foreign countries of concern have
identified compound semiconductors as a strategic emerging industry.
They have set ambitious goals for acquisition and development of
compound semiconductor technology and strive to become global leaders
in the industry. CPO notes that while exports of certain semiconductors
are not subject to national security or regional stability export
controls, joint research or technology licensing involving these
products with foreign entities of concern can nevertheless pose a
significant risk to national security. Recipients of CHIPS Act funds
should not further that risk. Therefore, CPO declines to remove
compound and wide and ultra-wide bandgap semiconductors from the list
of semiconductors critical to national security.
Regarding FD-SOI semiconductors, based on public comments, CPO has
removed from the list of semiconductors critical to national security
those FD-SOI semiconductors that relate to semiconductor packaging
operations with respect to semiconductors of a 28-nanometer generation
or older. This is consistent with the definition of legacy
semiconductors.
Comment #2: One comment was received regarding inclusion of
radiation hardened semiconductors on the list of semiconductors
critical to national security. The commenter thought that additional
clarification was needed, because in some cases ``the integrated
circuits produced from the standard commercial process technology have
become naturally more radiation resistant'' and ``radiation hardening
can also occur during design.'' The commenter suggests that Commerce
work with industry to clarify the coverage for radiation hardened
semiconductors.
Response: As the commenter also noted, ``Radiation-hardened by
process'' has ``traditionally meant that special steps were taken in
the process technology to enhance the radiation resilience of the
products, such as introducing different substrate materials.'' CPO
clarifies that semiconductors that are specially designed or processed
to be resistant to radiation are considered semiconductors critical to
national security.
231.121 Significant Transaction
Comments: One commenter requested that there be flexibility in the
definition of ``significant transaction,'' which it believes will
``better comport with the actual language of the statute which requires
a determination of the appropriate restriction on a case-by-case
basis.'' The commenter suggested including a statement that the
Department will have flexibility on a case-by-case basis to deviate
from the definition of ``significant transaction'' to accommodate the
unique needs and investments of a funding recipient and its
affiliates.'' Other commenters argued the $100,000 threshold (in
aggregate over the applicable term of the required agreement) for
significant transactions was too low, given the high capital costs
associated with semiconductor manufacturing.
Response: After further evaluation, CPO is removing the proposed
definition from the final rule. The Act contemplates that what
constitutes a significant transaction will be defined in the required
agreement. CPO acknowledges that different thresholds for significant
transactions may be appropriate for different applicants. CPO
anticipates issuing further guidance on this issue.
231.122 Significant Renovations
Comment #1: Commenters noted that the term ``significant
renovations'' was not included in the CHIPS Act. Specifically, they
object to inclusion of the phrase ``a facility that undergoes
significant renovations after the required agreement is entered into
shall

[[Page 65607]]

no longer qualify as an `existing facility.' '' Commenters noted that
this phrase, when combined with the proposed rule's definition of
``significant renovations'' as ``any set of changes to a facility that,
in the aggregate during the applicable term of the required agreement,
increase semiconductor manufacturing capacity . . . by adding an
additional line or otherwise increase semiconductor manufacturing
capacity by 10 percent or more,'' limits the ability to expand capacity
for legacy semiconductor manufacturing to ten percent above existing
capacity. The comments assert that the proposed rule would
substantially narrow the exemption for existing legacy facilities and
would limit the ability of companies to protect and maintain past
investments in these existing facilities.
Response: CPO declines to remove the concept of significant
renovations from the final rule. The concept of significant renovations
clarifies how the two exceptions to the Expansion Clawback interact.
Section 4652(a)(6)(C)(ii)(I) exempts ``existing facilities or equipment
of a covered entity for manufacturing semiconductors'' and Sec.
4652(a)(6)(C)(ii)(II) exempts ``significant transactions involving the
material expansion of semiconductor manufacturing capacity that
produces legacy semiconductors [] and predominantly serves the market
of a foreign county of concern.'' Thus, subclause (I) provides a
categorical exception for existing facilities while subclause (II)
provides an exception regardless of whether the facility is existing or
new, provided that it produces legacy semiconductors and predominantly
serves the market of a foreign country of concern. Under this
structure, the categorical exception in subclause (I) would not be
available when the facility is no longer an ``existing facility'' due
to significant renovations, but a covered entity could still avail
itself of the exception provided by subclause (II). Without the concept
of significant renovations, covered entities could evade the expansion
prohibition simply by significantly expanding an existing facility
rather than constructing a new facility.
CPO also believes that limiting capacity expansion for existing
legacy facilities to ten percent is appropriate and upholds the
national security goals of the Act. The final rule permits a five
percent increase in semiconductor manufacturing capacity for ordinary
course of business investments and facility improvements for all
existing facilities. A larger exemption would undermine the national
security goals of the Act by permitting the construction of additional
legacy semiconductor manufacturing capacity in foreign countries of
concern, potentially allowing for technology transfer or investments
that could potentially destabilize global semiconductor markets, thus
undermining the ability of the United States to develop commercially
viable semiconductor industries.
Comment #2: Commenters suggested revising the definition of
``significant renovations'' to limit it to new cleanroom construction
or the addition of a manufacturing line that is not part of the legacy
facility's designed capacity level. Alternatively, they suggest
significant renovations could be defined as an increase in the square
footage of an existing facility by a specified percentage.
Response: CPO agrees that ``significant renovations'' can be better
defined by reference to new cleanroom construction or the addition of a
manufacturing line. The final rule defines significant renovations as
building new cleanroom space, adding a production line, or other
physical space to an existing facility that, in the aggregate during
the applicable term of the required agreement, increases semiconductor
manufacturing capacity by 10 percent or more.
Comment #3: Some commenters suggested increasing the percentage
threshold for capacity expansion upward from 10 percent to 15 percent
or 25 percent, to maintain the Department's objectives of only allowing
modestly expanded capacity, while ensuring that existing facilities can
be reasonably maintained over the course of the 10-year period.
Response: CPO declines to raise the threshold for defining
significant renovations beyond 10 percent. As explained above, greater
expansion of legacy semiconductor manufacturing capacity in a foreign
country of concern may lead to increased domestic dependencies and
supply chain vulnerabilities, which could jeopardize national security.
Comment #4: Commenters suggested that the final rule allow for a
waiver for expansion of legacy facilities on a case-by-case basis.
Response: As mentioned above in the discussion of the definition of
``required agreement,'' the final rule permits modifications to the
required agreement between a covered entity and the Secretary upon
mutual consent. The definition of ``existing facility'' in this final
rule has been modified slightly to reflect this capability.
231.123 Technology Licensing
Broadly speaking, the comments on the definition of technology
licensing were similar to or combined with those on the definition of
joint research; both types of activities are subject to the Technology
Clawback provision. One commenter summarized concerns by noting that
``the emphasis should be on agreements involving the transfer of
critical technology or know-how and make it clear that customary
business discussions that may include general technical information are
outside the reach of the rule.''
Comment #1: Numerous commenters emphasized the need to exempt
patent-related activities from the definition of ``technology
licensing.'' They observed that by including patents alongside trade
secrets and know-how, the proposed language made a wholesale change to
the way American companies conduct patent licensing, patent litigation,
standard essential patent licensing, and standards-setting activities
in China. Patents are public documents and should not be considered
alongside trade secrets and ``know-how. They asserted that not
excluding patents would impede ordinary business transactions that are
essential to the semiconductor ecosystem and the protection and
monetization of intellectual property. Commenters noted that patents
are published documents, and therefore, the invention in a patent is
already available and could be known to foreign entities of concern.
Commenters also recommended that the definition of ``technology
licensing'' exclude the affiliate transfers of patent agreements; not
doing so may restrict funding recipients from entering into
intracompany intellectual property license and transfer agreements with
their affiliates, or vice versa. This has potentially wide-reaching
impact for companies that utilize the well-accepted corporate practice
of holding and managing intellectual property in a single entity to
enable their global research and development efforts.
Response: CPO agrees that patent licensing should not be subject to
the Technology Clawback because patents are, by definition, already
public documents. In the final rule, patents have been excluded from
the scope of technology licensing.
Comment #2: Numerous comments stressed the need to allow for
participation in international collaborative efforts such as standards
organizations. Many entities that would meet the definition of foreign
entity of concern are members of international

[[Page 65608]]

standards setting organizations in the semiconductor space. Restricting
which companies may participate in standards organizations puts U.S.-
based standards development organizations at a disadvantage.
Response: CPO agrees and has addressed this issue in the discussion
related to the definitions of ``joint research'' and ``technology
licensing.''
Comment #3: Some commenters thought that general sales of products
may be captured under the proposed technology licensing definition.
They say that the prohibition on technology licensing ``with a foreign
entity of concern that relates to a technology or product that raises
national security concerns,'' when combined with the definition of
``technology licensing'' could be interpreted to prohibit the sale of
semiconductor products because each product is sold with an explicit or
implied license to use the intellectual property underlying the
product.
Response: CPO clarifies that the prohibition on technology
licensing is not intended to apply to sales of semiconductor products.
The final rule includes an exception to the definition of technology
licensing for intellectual property licenses relating to the use of a
product that is sold by a covered entity or a related entity.
Comment # 4: Commenters noted that some companies outsource
fabrication and/or packaging operations to foundries and outsourced
semiconductor and test companies (OSATs), and in doing so they may make
available intellectual property (such as a design file) to
manufacturing partners. The commenter believes, based on the proposed
rule, such activities could be construed as transferring know-how to a
foreign entity of concern. They request that the rule be clarified to
specify that information, such as design files for fabrication and
packaging as part of an outsourced manufacturing agreement, is not
covered by the Technology Clawback.
Response: CPO clarifies that the Technology Clawback is not meant
to prevent the outsourcing of manufacturing or packaging of
semiconductors, and the final rule allows for an exception in the
``technology licensing'' definition.
Comment #5: Some commenters thought that the proposed technology
licensing definition could restrict funding recipients from entering
into intracompany intellectual property license and transfer agreements
with their affiliates. They noted that ``this has potentially wide-
reaching impact for companies that utilize the well-accepted corporate
practice of holding and managing intellectual property in a single
entity to enable their global R&D efforts.''
Response: CPO agrees that the technology licensing definition
should not capture transactions conducted exclusively between employees
of a covered entity or among entities that are related entities of the
covered entity. The definition in the final rule has been modified to
include this exception.

B. Comments Related to Subpart B--General

231.202 Prohibition on Certain Expansion Transactions
Comment #1: One commenter noted that the period subject to this
prohibition (a ten-year period beginning with the date of the incentive
award) and the analogous prohibition in Treasury's Advanced
Manufacturing Investment Tax Credit rule (ten years from when eligible
property is placed into service) can differ and may result in the
combined restrictive period lasting longer than ten years; they suggest
that the terms be harmonized to the ten year period of the award.
Response: CPO declines to make this change. The applicable term of
the Expansion Clawback is articulated in the Act.
Comment #2: Several commenters noted that the definition of
``affiliate'' in the proposed rule differed from the definition of
``affiliated group'' included in the Expansion Clawback, resulting in a
different threshold percentage for affiliates based on voting interest
(50 percent in the proposed rule versus 80 percent in the Expansion
Clawback).
Response: As noted above, CPO has removed the definition of
``affiliate'' from the proposed rule. However, CPO remains focused on
ensuring that beneficiaries of CHIPS funds do not act in a manner that
would be contrary to the national security goals of the Act. The
Expansion Clawback in the Act refers to the term ``affiliated group,''
as is defined in 26 U.S.C. 1504, which generally establishes an 80
percent ownership of stock or voting power threshold. The Act further
provides that if any member of a covered entity's affiliated group
engages in an impermissible significant transaction that results in the
material expansion of semiconductor capacity, the Secretary may require
an appropriate mitigation agreement or recoup the full amount of the
Federal financial assistance award. CPO believes that applying the
Expansion Clawback to members of a covered entity's affiliated group,
would adequately avoid circumvention of the Clawback and meet the
national security goals of the Act.
CPO, notes, however, that entities related to a covered entity but
outside the scope of the affiliated group, as defined in the Act, may
nonetheless be relevant to application of the Expansion Clawback.
First, transactions between the covered entity and the related entities
remain subject to the Expansion Clawback. Second, under applicable
legal principles, such as the law of agency or single enterprise
liability, the actions of such a related entity may be imputed to the
covered entity or a member of its affiliated group for purposes of
determining whether the covered entity or its affiliated group member
engaged in a prohibited transaction.
231.203 Prohibition on Certain Joint Research or Technology Licensing
Comments: Several commenters indicated that the Technology Clawback
should apply prospectively only. They argue this approach is consistent
with the statutory language of the Act, which states that the
Technology Clawback only becomes operative if national security
concerns with specific joint research or a technology license are
``communicated to the covered entity before engaging in such joint
research or technology licensing.'' One commenter suggested that the
rule should clarify that companies holding a U.S. export license would
not be prohibited or disqualified from applying for or receiving CHIPS
Act funding, and would not be subject to the Technology Clawback
provision, for engaging in technology licensing transactions that would
be otherwise permitted by the export license.
However, another commenter noted that while the prohibition should
not be applied retroactively, ``there may be attempts by funding
recipients to escape CHIPS restrictions with quick new investments,
claiming plans and activities that predate implementing regulations.
The final rules should discourage this as sharply as possible. The same
applies to any rush of late-appearing joint research.''
Response: The final rule clarifies that the Technology Clawback
does not apply to joint research and technology licensing activities
with a foreign entity of concern related to technology or products that
raise national security concerns that are ongoing prior to the
Secretary communicating that such technology or products raise national
security concerns. Through this final rule, the Secretary is
communicating to all covered entities those technologies and products
that raise national security

[[Page 65609]]

concerns. To ensure that this safe harbor is not used to circumvent the
prohibitions in the rule, covered entities will be required to document
those grandfathered joint research and technology licensing activities
in the required agreement, and only those activities will fall within
the safe harbor. The safe harbor does not preclude the Secretary from
requiring the cessation of joint research or technology licensing with
a foreign entity of concern as a condition of receiving Federal
financial assistance. Any such terms will be memorialized in the
required agreement.
Comment #2: Several commenters believed that use of the term
``relates to'' in the prohibition of certain joint research or
technology licensing in the proposed rule lacks clarity and should be
defined. Another commenter suggested defining ``relates to'' as
``required for development of production'' (as defined in the Export
Administration Regulations) of items that raise national security
concerns.
Response: The term ``relates to'' is in the Act, and although CPO
is not specifically defining it in the rule, a reasonable
interpretation is any joint research or technology licensing that would
require an export license or involves the items included on the list of
semiconductors critical to national security.
Comment #3: Some commenters objected to the proposed rule's
inclusion of a covered entity's affiliates within the scope of the
Technology Clawback because the covered entity's affiliates are not
mentioned in the Act's Technology Clawback provision. Some commenters
noted that the Secretary was constrained from applying the Technology
Clawback to affiliates because only the Expansion Clawback included
reference to the affiliated group.
Response: As noted above, CPO has removed the term ``affiliates''
as a defined term in the final rule. This change clarifies that
Technology Clawback as articulated in the proposed rule applies to the
covered entity, and not to affiliates of the covered entity.
However, CPO remains concerned that the joint research and
technology licensing conditions of the Technology Clawback could be
circumvented by relatively commonplace corporate arrangements. If the
Secretary could recoup funds only if the distinct legal entity that is
a party to a CHIPS incentives award engaged in a prohibited joint
research or licensing transaction, a corporation could capture the
benefit of the CHIPS award by having a subsidiary receive the award,
while it engages in prohibited joint research or licensing itself or
through another subsidiary. That concern is particularly acute because,
as some commenters highlighted, complex corporate structures and
intracompany licensing arrangements are common in the semiconductor
industry. Thus CPO believes that merely restricting the activities of
the covered entity is not sufficient to prevent, for example, a parent
company--which could be the ultimate beneficiary of the CHIPS Act
funds--from engaging in joint research and technology licensing that
would be prohibited under the Technology Clawback.
At the same time, CPO is cognizant of the complex corporate
relationships and ongoing business activities of the semiconductor
industry. CPO is also mindful that a number of commenters requested
flexibility in the application of the Technology Clawback, such as the
ability to enter into mitigation agreements or other mitigation
measures that would stop short of recouping the entire Federal
financial award. The Act, however, directs that where a covered entity
engages in prohibited joint research or technology licensing activity
such that the Technology Clawback is triggered, the Secretary ``shall
recover the full amount of an award.''
To address the risk of circumvention while accommodating further
flexibility, CPO is clarifying in the final rule that it may impose
additional conditions in the funding agreement that are in addition to
the Technology Clawback. The final rule provides that if any entity
related to the covered entity engages in joint research or technology
licensing that would violate the Technology Clawback if engaged in by
the covered entity, the Secretary may take appropriate remedial
measures, including requiring mitigation agreements or recovering up to
the full amount of the Federal financial assistance provided to a
covered entity. The Secretary has discretion to impose lesser remedial
measures, as appropriate. For purposes of this final rule, a related
entity is any entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the covered entity. This approach is necessary to prevent
enterprises from circumventing the conditions that Congress required to
avoid semiconductor technology transfer to foreign entities of concern.
CPO notes that the Secretary will impose further requirements, as
appropriate, in the individual funding agreements, including additional
conditions on certain joint research or technology licensing, to ensure
that the prohibitions in the Act are achieved. This is consistent with
the Act, which authorizes the Secretary to enter into agreements under
the statute ``on such terms as the Secretary considers appropriate.''
231.204 Retention of Records
Comment: Public comments noted that the proposed rule's record
retention requirements for all ``significant transactions'' is overly
broad and burdensome, due in part to the $100,000 threshold for
``significant transactions.'' Most comments suggest a revision to limit
record retention to transactions involving the ``material expansion''
of semiconductor manufacturing capacity in a foreign country of
concern, instead of all transactions.
Response: CPO agrees that the records retention requirement should
only apply to transactions that involve the material expansion of
semiconductor manufacturing capacity in a foreign country of concern,
and has modified the record retention requirement accordingly in the
final rule.

C. Comments Related to Subpart C--Notification, Review, and Recovery

231.304 Initiation of Review
Comment: One commenter suggested that there be a 10-day time limit
for the Secretary to review a notification for completeness and to
request additional information from the covered entity.
Response: CPO declines to make this change. The amount of material
produced in response to a notification may be substantial. The
Secretary may need more than 10 days to adequately review it for
completeness. To provide additional clarity and to reduce uncertainty,
CPO has included additional details in the final rule about the process
for initiating, conducting, and completing a review under the Expansion
Clawback. The final rule now more clearly sets out the process by which
the covered entity must notify the Secretary of a potentially
prohibited activity, the Secretary's ability to request additional
information to complete a review of a potentially prohibited activity,
the Secretary's timeline for issuing an initial determination, the
covered entity's ability and timeline to seek reconsideration of the
initial determination, and the Secretary's timeline for making a final
determination. The final rule clarifies that the Secretary can initiate
a review based upon any information available to the Secretary, without
first needing to be notified by the covered entity.

[[Page 65610]]

231.307 Review of Actions That May Violate the Prohibition on Certain
Joint Research or Technology Licensing
Comment: One commenter suggested that there be a mitigation process
for possible violations of the prohibition on joint research technology
licensing that would allow for the Secretary to take measures to
mitigate the risk to national security, comparable to the mitigation
process for violations of the material expansion prohibition.
Response: CPO declines to develop a mitigation process for
violations of the prohibition on joint research and technology
licensing, as the Act compels the Secretary to recover the full amount
of the Federal financial assistance if the Technology Clawback is
triggered. However, the final rule contemplates additional conditions
that will be imposed, as appropriate, on the covered entity, as well as
related entities, to avoid circumvention of the Technology Clawback.
The final rule provides that the Secretary has discretion to adopt
appropriate measures in response to violations of the additional
conditions, which could include a mitigation agreement, recovery of
some of the Federal financial award or recovery of the entire Federal
financial award.

D. Other Comments

In addition to comments that addressed specific definitions and
provisions in the proposed rule, some comments were submitted that
relate to broader issues, such as enforcement of the rule and its
relationship to the Treasury Department's rule authorizing the Advanced
Manufacturing Investment Tax Credit, which includes a similar
prohibition on significant transactions involving the material
expansion of semiconductor manufacturing capacity in a foreign country
of concern for those entities claiming the credit.
Comment #1: Commerce and Treasury should work together closely to
create rules and processes for Expansion Clawback and Recapture that
apply the same definitions, criteria, review process, and enforcement
protocol.
Response: Commerce and Treasury worked closely together and
harmonized definitions to the maximum extent possible and will continue
to do so after the final rules take effect.
Comment #2: Commerce and Treasury should create one, jointly
staffed, fully empowered interagency tribunal to review and redress
potentially improper uses of CHIPS Act benefits as this would be an
extremely efficient and consistent way to ensure compliance. This
mechanism would conserve the resources of both agencies, would ensure
consistency of statutory application, and would provide greater
predictability for the affected companies.
Response: CPO will take this comment into consideration as it
develops mechanisms to enforce compliance and redress improper use of
CHIPS Act benefits.
Comment #3: Commerce and Treasury should recognize differences
between the statutory provisions governing the Funding Program and the
Investment Tax Credit. The regulatory scheme implementing the different
provisions of the Act should allow for differences between the Legacy
Exception and the Investment Tax Credit Legacy Exception in light of
the differences in the statutory provisions for each program.
Response: CPO recognizes that there are differences in statutory
requirements for the Advanced Manufacturing Investment Credit and the
semiconductor incentives program, and that any implementing rules and
guidance will reflect those differences. While the two regimes are
aligned, there may be differences in how specific objectives are
pursued.

Changes From the Proposed Rule

Sections have been renumbered throughout to reflect modifications
to the proposed rule.

Changes in Subpart A (Definitions)

The final rule does not include the term ``Affiliate,'' which
appeared in proposed Sec. 231.101.
The final rule does not include the term ``Applicable Term,'' which
appeared in proposed Sec. 231.102.
In Sec. 231.101 of the final rule, the definition of ``Existing
Facility'' has been changed to specify that only facilities built,
equipped, and operating prior to entering into the required agreement
will be considered existing facilities; at the discretion of the
Secretary, a facility that is undergoing construction, expansion, or
modernization at the time of entering into the required agreement may
be memorialized in the required agreement at the semiconductor
manufacturing capacity for which it is designed or any lower capacity.
In Sec. 231.102 of the final rule, minor modifications were made
to the definition of ``Foreign Country of Concern.''
In Sec. 231.103 of the final rule, minor modifications were made
to the definition of ``Foreign Entity.''
In Sec. 231.104 of the final rule, the definition of ``Foreign
Entity of Concern'' was modified; the prior definition of ``owned by,
controlled by, or subject to the jurisdiction or direction'' was
modified and directly incorporated into the definition of foreign
entity of concern. In addition, proposed Sec. 231.106(g) is deleted
because, after further evaluation, CPO was concerned that there may be
bases by which the Federal Communications Commission may (or can be
compelled) to add entities to the list of equipment and services
required by the Secure and Trusted Communications Networks Act of 2019,
not all of which may align with the national security goals of the Act.
Minor technical corrections were also made.
The final rule does not include the term ``Funding Recipient,''
which appeared in proposed Sec. 231.107. The term was omitted to
better reflect the Act's use of the term covered entity.
In Sec. 231.105 of the final rule, the term ``Joint Research'' was
modified to clarify that the following types of activities are not
considered joint research: standards-related activities; research and
development conducted exclusively between employees of a covered entity
or between entities that are related entities of the covered entity;
research, development, or engineering related to a manufacturing
process for an existing product solely to enable use of foundry,
assembly, test, or packaging services for integrated circuits;
research, development, or engineering involving two or more entities to
establish or apply a drawing, design, or related specification for a
product to be purchased and sold between or among such entities; and
warranty, service, and customer support performed by a covered entity
or an entity that is a related entity of a covered entity. Research and
development is also defined separately in the final rule.
In Sec. 231.110 of the final rule, the definition of ``Legacy
Semiconductor'' was modified to include additional categories. For the
purposes of a semiconductor wafer facility, the definition includes a
silicon wafer measuring 8 inches (or 200 millimeters) or smaller in
diameter and a compound wafer measuring 6 inches (or 150 millimeters)
or smaller in diameter. For the purposes of a semiconductor fabrication
facility, the definition includes 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); 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)

[[Page 65611]]

flash that does not utilize emerging memory technologies, such as
transition metal oxides, phase-change memory, perovskites, or
ferromagnetics relevant to advanced memory fabrication; and a
semiconductor identified by the Secretary in a public notice issued
under 15 U.S.C. 4652(a)(6)(A)(ii). For the purposes of a semiconductor
packaging facility, the definition includes a semiconductor that does
not utilize advanced three-dimensional (3D) integration packaging. The
definition in the final rule excludes semiconductors critical to
national security, as defined in Sec. 231.118; a semiconductor with a
post-planar transistor architecture (such as fin-shaped field-effect
transistor (FinFET) or gate all around field-effect transistor); and a
semiconductor utilizing advanced three-dimensional (3D) integration
packaging, such as by directly attaching one or more die or wafer,
through silicon vias, through mold vias, or other advanced methods.
In Sec. 231.108 in the final rule, minor modifications were made
to the definition of ``Material Expansion.''
In Sec. 231.109 of the final rule, the definition of ``Members of
the Affiliated Group'' is added.
The final rule does not separately define ``Owned by, controlled
by, or subject to the jurisdiction or direction of,'' which was in
proposed Sec. 231.112. In the final rule, the definition has been
directly incorporated into the definition of foreign entity of concern,
and now clarifies that it applies to persons who are citizens,
nationals, or residents of a foreign country listed in 10 U.S.C.
4872(d) and who are located in a foreign country listed in 10 U.S.C.
4872(d). It has also been modified to include as a foreign entity of
concern, any person whose outstanding voting interest is at least 25
percent held directly or indirectly by persons that fall within
subsection (i)-(iii) of the definition. This change was to ensure that
foreign entities of concern could not circumvent the ownership
threshold by coordinating with other foreign entities of concern to
each have less than the 25 percent threshold.
In Sec. 231.112 of the final rule, the definition of ``Required
Agreement'' was modified to require that it memorialize the covered
entity's existing facilities in foreign countries of concern and the
covered entity's existing joint research and technology licensing
activities related to technology or products that raise national
security issues with foreign entities of concern; that it include
additional terms to mitigate national security risks, including as
contemplated in Sec. 231.204; and that the agreement may be amended by
mutual consent to address changes in the status or ownership of an
existing facility or any other circumstances that may arise.
In Sec. 231.113 of the final rule, a definition of ``Research and
Development'' is added. To ensure appropriate scope, the definition is
more general than how the term was used in the proposed definition of
joint research.
In Sec. 231.116 of the final rule, the definition of
``Semiconductor Manufacturing'' is clarified to specify that it
includes semiconductor wafer production, including the processes of
wafer slicing, polishing, cleaning, epitaxial deposition, and
metrology.
In Sec. 231.117 of the final rule, the definition of
``Semiconductor Manufacturing Capacity'' is modified to address wafer
production facilities, includes a capacity metric for semiconductor
fabrication facility for wafers designed for wafer-to-wafer bonding
structure, and is now measured on a yearly basis.
In Sec. 231.118 of the final rule, the definition of
``Semiconductors Critical to National Security'' is modified to make a
minor change to the description of FD-SOI semiconductors. The
definition was also changed to clarify that the Secretary can designate
additional categories of semiconductors critical to national security.
In the final rule, the term ``Significant transaction,'' which was
proposed Sec. 231.121 has been removed.
In Sec. 231.119 of the final rule, the definition of ``Significant
Renovations'' has been modified to emphasize that it is tied to the
building of new cleanroom space or adding a production line or other
physical space to an existing facility.
In Sec. 231.120 of the final rule, the definition of ``Technology
Licensing'' has been modified to clarify that it means an express or
implied contractual agreement in which the rights owned by, licensed to
or otherwise lawfully available to one party in any trade secrets or
knowhow are sold, licensed or otherwise made available to another
party. The definition also excludes licensing of patents, including
licenses related to standard essential patents or cross licensing
activities; licensing or transfer agreements conducted exclusively
between a covered entity and related entities, or between or among
entities that are related entities to the covered entity; removes
reference to patents; standards-related activity (as such term is
defined in 15 CFR part 772); agreements that grant patent rights only
with respect to ``published information'' and no proprietary
information is shared; implied or general intellectual property
licenses relating to the use of a product that is sold by a covered
entity or related entities; technology licensing related to a
manufacturing process for an existing product solely to enable use of
assembly, test, or packaging services for integrated circuits;
technology licensing involving two or more entities to establish or
apply a drawing, design, or related specification for a product to be
purchased and sold between or among such entities; warranty, service,
and customer support performed by a covered entity or an entity that is
a related entity of a covered entity; and disclosures of technical
information to a customer solely for the design of integrated circuits
to be manufactured by the funding recipient for that customer.
In Sec. 231.121 of the final rule, the definition of ``Technology
or Product That Raises National Security Concerns'' is modified to
clarify that the Secretary can designate additional technologies or
products that raise national security concerns. Minor technical
corrections were also made.

Changes in Subpart B--General

In Sec. 231.201 of the final rule, minor modifications were made
to reflect changes to other parts of subpart B.
In Sec. 231.202 of the final rule, the prohibition on certain
expansion transactions was modified to conform with changes to
definitions in the final rule, and to make other minor changes.
In Sec. 231.203 of the final rule, the prohibition on certain
joint research or technology licensing was modified to clarify that it
only applies to the covered entity, and that the prohibition does not
apply to joint research or technology licensing activities that relate
to products or technology that raise national security concerns that
were ongoing prior to the Secretary determining such products or
technology raised national security concerns. It also requires that
such joint research or licensing arrangements be memorialized in the
required agreement.
In Sec. 231.204 of the final rule, a new provision is added:
``Additional conditions on certain joint research or technology
licensing.'' This new provision establishes that the Secretary is
empowered to impose appropriate conditions on the covered entity to
mitigate the risk of circumvention of the Technology Clawback. Such
provisions would allow the Secretary to recover the entire Federal
financial award or impose lesser consequences, such as requiring a
mitigation agreement, if any related entity engages in joint research
or

[[Page 65612]]

technology licensing that would violate the Technology Clawback if
engaged in by the covered entity. For purposes of this condition, a
related entity is any entity that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under
common control with, the covered entity.
Sec. 231.205 of the final rule, ``Retention of Records,'' is
modified to clarify that the retention of records requirement applies
to records related to significant transactions involving the material
expansion of semiconductor manufacturing capacity in a foreign country
of concern, as well any records that relate to a transaction that is
being reviewed by the Secretary that are maintained by the covered
entity, a member of the affiliated group of the covered entity or by a
related entity.

Changes in Subpart C--Notification, Review, and Recovery

In Sec. 231.301 Procedures for notifying the Secretary of
significant transactions: was modified to clarify that notification
period aligns with the 10-year term of the Expansion Clawback. Minor
technical corrections were also made.
In Sec. 231.302 Contents of notifications; certifications: minor
technical corrections were made.
In Sec. 231.303 Response to notifications: changes were made to
clarify that the Secretary can request additional information if a
notice is deficient.
In Sec. 231.304 Initiation of review: significant changes were
made to clarify the process, standards, and timing of initiating a
review.
In Sec. 231.305 Procedures for review: significant changes were
made to clarify the process, standards, and timing of a review,
including the ability of a covered entity to seek reconsideration of an
initial determination.
In Sec. 231.306 Mitigation of national security risks: changes
were made to clarify that the Secretary has discretion to waive the
recovery of funds for violation of Sec. 231.302 in circumstances where
an appropriate mitigation agreement has been entered into and complied
with by the covered entity.
In Sec. 231.307 Review of actions that may violate the prohibition
on certain joint research or technology licensing: the section was
revised substantially to clarify the process, standards, and timing for
the Secretary's review of possible violations of the prohibitions on
certain joint research or technology licensing.
In Sec. 231.308 Recovery and other remedies: minor technical
corrections were made.

Changes in Subpart D--Other Provisions

In Sec. 231.401 Amendment: minor technical corrections were made.
In Sec. 231.402 Submission of false information: minor technical
changes are made.
A new section, Sec. 231.403, was added to include a severability
clause.

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
rule is significant as defined by Section 3(f)(1) for purposes of
Executive Order 12866. A detailed regulatory impact assessment was
published in the proposed rule and is not repeated in its entirety
here. No public comments were received regarding the impact assessment,
substantive portions of which are included below.
This rule limits the ability of covered entities to invest in new
semiconductor manufacturing capacity in foreign countries of concern.
This limitation is intended to ensure that federal funding is used
consistent with the goals of 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 foreign countries of concern
by those that are not covered entities will be affected.
Although the provisions in this rule prohibit covered entities from
establishing most new manufacturing capacity in foreign countries of
concern, covered entities with existing facilities in foreign countries
of concern would be able to continue current operations. The rule also
allows them to upgrade facilities and production lines at existing
foreign facilities (in compliance with export controls) if overall
production capacity is not increased. In addition, covered entities
could modestly expand capacity at existing facilities producing mature
(legacy) technology. Finally, this rule allows covered entities to make
new investments in manufacturing capacity in foreign 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 foreign countries of concern. It
is estimated that less than ten firms may be impacted.\1\
---------------------------------------------------------------------------

\1\ SEMI, World Fab Forecast (2022). These firms refer to those
with productive capacity in countries of concern, are headquartered
outside of countries of concern.
---------------------------------------------------------------------------

This regulatory impact analysis does not consider the private costs
to covered entities of limiting their investments in foreign 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 the ability of covered entities to invest in new
semiconductor manufacturing capacity in foreign countries of concern,
the proposed rule would also likely catalyze investment outside foreign
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.\2\
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 foreign countries of
concern is likely to increase the need for additional capacity

[[Page 65613]]

to be built outside foreign countries of concern.
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\2\ 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

Where the conditions in this final rule are violated, covered
entities face the potential ``clawback'' of federal funding. For
purposes of this analysis, the recovery of federal funding is
considered to be a transfer of funds and could be 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 intended to serve as a
significant deterrent to violating the conditions of an award. The
Department, therefore, expects that few, if any, covered entities 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
underway, there would likely be significant costs to reverse such
decisions.

Anticipated Reporting and Recordkeeping Costs

This rule establishes a notification requirement for covered
entities that 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 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
notifications would require general information about 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 covered
entities 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 will 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) \3\ * 20 hours each to review for each notification).
---------------------------------------------------------------------------

\3\ 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>.
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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.

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
promote 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, it
has fallen behind in manufacturing and today accounts for only roughly
10 percent of commercial global production.\4\
---------------------------------------------------------------------------

\4\ 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>.

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[[Page 65614]]

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 research and development, 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 Flexibility Act

The Chief Counsel for Regulation of the Department of Commerce
certified to the Chief Counsel for Advocacy of the Small Business
Administration during the proposed rule stage that this rule would not
have a significant economic impact on a substantial number of small
entities. The factual basis for this determination was published in the
proposed rule and is not repeated here. No comments were received
regarding the certification, and NIST has not received any new
information that would affect its determination. As a result, a final
regulatory flexibility analysis was not required, and none was
prepared.

Paperwork Reduction Act

Notwithstanding any other provision of law, no person is required
to respond to, nor is subject to a penalty for failure to comply with,
a collection of information, subject to the requirements of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless
that collection of information displays a currently valid OMB Control
Number.
The proposed rule published on March 23, 2023 (88 FR 17439)
discussed new requirements subject to the Paperwork Reduction Act. With
this rule, NIST is establishing a notification requirement for covered
entities planning 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. In the proposed rule, NIST estimated the burden to the public
for this notification will 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 with an estimated total cost is
$110,000. No comments were received regarding this this information
collection with the proposed rule.
With the publication of the final rule, NIST will be submitting a
request to OMB for new OMB control number 0693-0096, Information
Required from CHIPS Act Covered Entities Regarding Proposed Expansions
of Semiconductor Manufacturing Capacity in Foreign Countries of
Concern. The public may access this NIST request, including all
supporting materials, at <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a> and
inserting the proposed OMB control number or the name of the
collection.

List of Subjects in 15 CFR Part 231

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

0
Under the authority of 15 U.S.C. 4651, et seq., the National Institute
of Standards and Technology adds part 231, subchapter C, to 15 CFR
chapter II to read as follows:

SUBCHAPTER C--CHIPS PROGRAM

PART 231--CLAWBACKS OF CHIPS FUNDING

Sec.
Subpart A--Definitions
231.101 Existing facility.
231.102 Foreign country of concern.
231.103 Foreign entity.
231.104 Foreign entity of concern.
231.105 Joint research.
231.106 Knowingly.
231.107 Legacy semiconductor.
231.108 Material expansion.
231.109 Members of the affiliated group.
231.110 Person.
231.111 Predominately serves the market.
231.112 Required agreement.
231.113 Research and development.
231.114 Secretary.
231.115 Semiconductor.
231.116 Semiconductor manufacturing.
231.117 Semiconductor manufacturing capacity.
231.118 Semiconductors critical to national security.
231.119 Significant renovations.
231.120 Technology licensing.
231.121 Technology or product that raises national security
concerns.
Subpart B--General
231.201 Scope.
231.202 Prohibition on certain expansion transactions. (Expansion
Clawback)
231.203 Prohibition on certain joint research or technology
licensing. (Technology Clawback)
231.204 Additional conditions on certain joint research or
technology licensing.
231.205 Retention of records.
Subpart C--Notification, Review, and Recovery
231.301 Procedures for notifying the Secretary of significant
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.
231.403 Severability.

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

PART 231--CLAWBACKS OF CHIPS FUNDING

Subpart A--Definitions

Sec. 231.101 Existing facility.

Existing facility means:
(a) Any facility, the current status of which, including its
semiconductor manufacturing capacity, is

[[Page 65615]]

memorialized in the required agreement entered into by the covered
entity and the Secretary pursuant to 15 U.S.C. 4652(a)(6)(C) and based
on the Secretary's assessments of historical capacity measurements.
Only facilities built, equipped, and operating prior to entering into
the required agreement are considered to be existing facilities. A
facility that undergoes significant renovations not memorialized in the
required agreement shall no longer qualify as an existing facility.
(b) Notwithstanding paragraph (a) of this section, in the case of a
facility that is being equipped, expanded, or modernized at the time of
entering into the required agreement, the Secretary may, at their
discretion, memorialize the planned semiconductor manufacturing
capacity of that facility or any appropriate lower semiconductor
manufacturing capacity in the required agreement and deem such facility
an existing facility.

Sec. 231.102 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 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. 231.103 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 section 8 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. 231.104 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));
(1) A person is owned by, controlled by, or subject to the
jurisdiction or direction of a government of a foreign country listed
in 10 U.S.C. 4872(d) where:
(i) The person is:
(A) a citizen, national, or resident of a foreign country listed in
10 U.S.C. 4872(d); and
(B) located in a foreign country listed in 10 U.S.C. 4872(d);
(ii) The person is organized under the laws of or has its principal
place of business in a foreign country listed in 10 U.S.C. 4872(d);
(iii) 25 percent or more of the person's outstanding voting
interest, board seats, or equity interest is held directly or
indirectly by the government of a foreign country listed in 10 U.S.C.
4872(d); or
(iv) 25 percent or more of the person's outstanding voting
interest, board seats, or equity interest is held directly or
indirectly by any combination of the persons who fall within
subsections (i)-(iii);
(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.
(e) Included on the Bureau of Industry and Security's Entity List
(15 CFR part 744, supplement no. 4);
(f) 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; or
(g) 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. 231.105 Joint research.

(a) Joint research means any research and development activity that
is jointly undertaken by two or more parties, including any research
and development activities undertaken as part of a joint venture as
defined at 15 U.S.C. 4301(a)(6).
(b) Notwithstanding paragraph (a) of this section, the following is
not joint research:
(1) A standards-related activity (as such term is defined in 15 CFR
part 772);
(2) Research and development conducted exclusively between and
among employees of a covered entity or between and among entities that
are related entities to the covered entity;
(3) Research, development, or engineering related to a
manufacturing process for an existing product solely to enable use of
foundry, assembly, test, or packaging services for integrated circuits;

[[Page 65616]]

(4) Research, development, or engineering involving two or more
entities to establish or apply a drawing, design, or related
specification for a product to be purchased and sold between or among
such entities; and
(5) Warranty, service, and customer support performed by a covered
entity or an entity that is a related entity of a covered entity.

Sec. 231.106 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. 231.107 Legacy semiconductor.

(a) Legacy semiconductor means:
(1) For the purposes of a semiconductor wafer facility:
(i) A silicon wafer measuring 8 inches (or 200 millimeters) or
smaller in diameter; or
(ii) A compound wafer measuring 6 inches (or 150 millimeters) or
smaller in diameter.
(2) For the purposes of a semiconductor fabrication facility:
(i) 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);
(ii) 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
(iii) A semiconductor identified by the Secretary in a public
notice issued under 15 U.S.C. 4652(a)(6)(A)(ii).
(3) For the purposes of a semiconductor packaging facility, a
semiconductor that does not utilize advanced three-dimensional (3D)
integration packaging, under paragraph (b)(3) of this section.
(b) Notwithstanding paragraph (a) of this section, the following
are not legacy semiconductors:
(1) Semiconductors critical to national security, as defined in
Sec. 231.118;
(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) A semiconductor utilizing advanced three-dimensional (3D)
integration packaging, such as by directly attaching one or more die or
wafer, through silicon vias, through mold vias, or other advanced
methods.

Sec. 231.108 Material expansion.

Material expansion means the increase of the semiconductor
manufacturing capacity of an existing facility by more than five
percent of the capacity memorialized in the required agreement due to
the addition of a cleanroom, production line or other physical space,
or a series of such additions.

Sec. 231.109 Members of the affiliated group.

Members of the affiliated group includes any entity that is a
member of the covered entity's ``affiliated group,'' as that term is
defined under 26 U.S.C. 1504(a), without regard to 26 U.S.C.
1504(b)(3).

Sec. 231.110 Person.

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

Sec. 231.111 Predominately serves the market.

Predominately serves the market means that at least 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. 231.112 Required agreement.

(a) Required agreement means the agreement that is entered into by
a covered entity and the Secretary 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 expansion transactions and on certain joint
research or technology licensing.
(b) The required agreement shall memorialize:
(1) The covered entity's existing facilities in foreign countries
of concern; and
(2) Any ongoing joint research or technology licensing activities
with foreign entities of concern that relate to technology or products
that raise national security concerns as identified by the Secretary.
(c) The required agreement may include additional terms to mitigate
national security risks, including as contemplated in Sec. 231.204.
(d) To the extent consistent with the requirements of 15 U.S.C.
4652 and these regulations, the Secretary and the covered entity may
amend the required agreement by mutual consent.

Sec. 231.113 Research and development.

Research and development means theoretical analysis, exploration,
or experimentation; or the extension of investigative findings and
theories of a scientific or technical nature into practical
application, including the experimental production and testing of
models, devices, equipment, materials, and processes.

Sec. 231.114 Secretary.

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

Sec. 231.115 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. 231.116 Semiconductor manufacturing.

Semiconductor manufacturing means semiconductor wafer production,
semiconductor fabrication or semiconductor packaging. Semiconductor
wafer production includes the processes of wafer slicing, polishing,
cleaning, epitaxial deposition, and metrology. Semiconductor
fabrication includes the process of forming devices such as
transistors, poly capacitors, non-metal resistors, and diodes 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. 231.117 Semiconductor manufacturing capacity.

Semiconductor manufacturing capacity means the productive capacity
of a facility for semiconductor manufacturing. In the case of a wafer
production facility, semiconductor manufacturing capacity is measured
in wafers per year. In the case of a semiconductor fabrication
facility, semiconductor manufacturing capacity is measured in wafer
starts per year. In the case of a semiconductor fabrication

[[Page 65617]]

facility for wafers designed for wafer-to-wafer bonding structure,
semiconductor manufacturing capacity is measured in stacked wafers per
year. In the case of a packaging facility, semiconductor manufacturing
capacity is measured in packages per year.

Sec. 231.118 Semiconductors critical to national security.

Semiconductors critical to national security means:
(a) Semiconductors utilizing nanomaterials, including 1D and 2D
carbon allotropes such as graphene and carbon nanotubes;
(b) Compound and wide- and ultra-wide bandgap semiconductors;
(c) Radiation-hardened by process (RHBP) semiconductors;
(d) Fully depleted silicon on insulator (FD-SOI) semiconductors,
other than with regard to semiconductor packaging operations with
respect to such semiconductors of a 28-nonometerer generation or older;
(e) Silicon photonic semiconductors;
(f) Semiconductors designed for quantum information systems;
(g) Semiconductors designed for operation in cryogenic environments
(at or below 77 Kelvin); and
(h) Any other semiconductors that the Secretary, in consultation
with the Secretary of Defense and the Director of National
Intelligence, determines is critical to national security and issues a
public notice of that determination.

Sec. 231.119 Significant renovations.

Significant renovations means building new cleanroom space or
adding a production line or other physical space to an existing
facility that, in the aggregate during the applicable term of the
required agreement, increases semiconductor manufacturing capacity by
10 percent or more of the capacity memorialized in the required
agreement.

231.120 Technology licensing.

Technology licensing means:
(a) An express or implied contractual agreement in which the rights
owned by, licensed to or otherwise lawfully available to one party in
any trade secrets or knowhow are sold, licensed or otherwise made
available to another party.
(b) Notwithstanding paragraph (a) of this section, the following is
not technology licensing:
(1) Licensing of patents, including licenses related to standard
essential patents or cross licensing activities;
(2) Licensing or transfer agreements conducted exclusively between
a covered entity and related entities, or between or among related
entities of the covered entity;
(3) A standards-related activity (as such term is defined in 15 CFR
part 772);
(4) Agreements that grant patent rights only with respect to
``published information'' and no proprietary information is shared;
(5) An implied or general intellectual property license relating to
the use of a product that is sold by a covered entity or related
entities;
(6) Technology licensing related to a manufacturing process for an
existing product solely to enable use of assembly, test, or packaging
services for integrated circuits;
(7) Technology licensing involving two or more entities to
establish or apply a drawing, design, or related specification for a
product to be purchased and sold between or among such entities;
(8) Warranty, service, and customer support performed by a covered
entity or an entity that is a related entity of a covered entity; and
(9) Disclosures of technical information to a customer solely for
the design of integrated circuits to be manufactured by the funding
recipient for that customer.

Sec. 231.121 Technology or product that raises national security
concerns.

A technology or product that raises national security concerns
means:
(a) Any semiconductor critical to national security;
(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; and
(c) Any other technology or product that the Secretary determines
raises national security concerns.

Subpart B--General

Sec. 231.201 Scope.

This subpart sets forth the prohibitions to be implemented in the
required agreements, as well as record retention requirements related
to those prohibitions.

Sec. 231.202 Prohibition on certain expansion transactions.
(Expansion Clawback)

(a) During the 10-year period beginning on the date of the award of
Federal financial assistance under 15 U.S.C. 4652, the covered entity
and members of the affiliated group may not engage in any significant
transaction involving the material expansion of semiconductor
manufacturing capacity in a foreign country of concern; provided that
this prohibition will not apply to--
(1) Existing facilities or equipment of a covered entity or any
member of the affiliated group for manufacturing legacy semiconductors;
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 covered entity shall enter
into a required agreement that contains this prohibition and otherwise
implements the requirements of this part.

Sec. 231.203 Prohibition on certain joint research or technology
licensing. (Technology Clawback)

(a) During the applicable term of a Federal financial assistance
award under 15 U.S.C. 4652, a covered entity may not 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.
(b) Notwithstanding paragraph (a) of this section, this prohibition
will not apply to joint research or technology licensing that relate to
technology or products that raise national security concerns that were
ongoing prior to the Secretary's determination that such technology or
products raised national security concerns. Any such ongoing joint
research or technology licensing shall be memorialized in the required
agreement.

Sec. 231.204 Additional conditions on certain joint research or
technology licensing.

(a) In addition to the conditions of the Technology Clawback (Sec.
231.203), the Secretary will specify, in the required agreement with
the covered entity, any additional measures that covered entities must
take to mitigate the risk of circumvention of the Technology Clawback,
including measures that will allow the Secretary to recover up to the
full amount of the Federal financial assistance provided to the covered
entity, if, during the term applicable to the award, any related entity
engages in joint research or technology licensing that would violate
the Technology Clawback if engaged in by the covered entity.
(b) For purposes of this rule, a related entity is any entity that
directly, or

[[Page 65618]]

indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the covered entity.

Sec. 231.205 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 involving the
material expansion of semiconductor manufacturing capacity in a foreign
country of concern, a covered entity or member of the affiliated group
planning or engaging in any such significant transaction involving the
material expansion of semiconductor manufacturing capacity in a foreign
country of concern 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) A covered entity that is notified that a transaction is being
reviewed by the Secretary shall immediately take steps to retain all
records relating to such transaction, including if those records are
maintained by a member of the affiliated group or by related entities.

Subpart C--Notification, Review, and Recovery

Sec. 231.301 Procedures for notifying the Secretary of significant
transactions.

During the 10-year period beginning on the date of the Federal
financial assistance award under 15 U.S.C. 4652, the covered entity
shall submit a notification to the Secretary regarding any planned
significant transactions of the covered entity or members of the
affiliated group that may involve the material expansion of
semiconductor manufacturing capacity in a foreign country of concern,
regardless of whether the covered entity believes the transaction falls
within an exception in 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#d6b8b9a2bfb0bfb5b7a2bfb9b8a596b5bebfa6a5f8b1b9a0">[email&#160;protected]</a>.

Sec. 231.302 Contents of notifications; certifications.

The notification required by Sec. 231.301 shall be certified by
the covered entity's chief executive officer, president, or equivalent
corporate officer, and shall contain the following information about
the parties and the transaction, which must be accurate and complete:
(a) The covered entity and any member of the affiliated group 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) 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 covered entity asserts that the transaction involves the
material expansion of semiconductor manufacturing capacity that
produces legacy semiconductors that will predominately serve the market
of a foreign country of concern, 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, an explanation of 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.

The Secretary will review the notification provided pursuant to
Sec. 231.301 for completeness, and may:
(a) Reject the notification, and, if so, inform the covered entity
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;
(b) Request additional information from the covered entity to
complete the notification; or
(c) Accept the notification and initiate a review under Sec.
231.304, and, if so, inform the covered entity promptly in writing.

Sec. 231.304 Initiation of review.

(a) The Secretary may initiate a review of a transaction:
(1) After accepting a notification pursuant to Sec. 231.303(c); or
(2) Upon the Secretary's own initiative, where the Secretary
believes that a transaction may be prohibited. In determining whether
to initiate a review, the Secretary may consider all available
information, including information submitted by persons other than the
covered entity to <a href="/cdn-cgi/l/email-protection#761819021f101f1517021f19180536151e1f060558111900">[email&#160;protected]</a>.
(b) Where the Secretary initiates review of a transaction under
paragraph (a)(2) of this section, the Secretary will notify the covered
entity promptly in writing.
(c) The Secretary will consult with the Secretary of Defense and
the Director of National Intelligence upon the initiation of a review
of any transaction.

Sec. 231.305 Procedures for review.

(a) During the review, the Secretary may request additional
information from the covered entity. The covered entity shall promptly
provide any additional information. The Secretary will determine
whether the additional information is sufficient for the Secretary to
complete the review, and may seek additional information from the
covered entity if necessary. Where the Secretary has determined that
the additional information is sufficient to allow the Secretary to
complete the review, the Secretary will inform the covered entity in
writing. The time periods for any determinations by the Secretary under
this section will be tolled from the date on which the request for
additional information is sent to the covered entity until the
Secretary determines that the response is sufficient to complete the
review.
(b) Not later than 90 days after a notification is accepted by the
Secretary, or after the Secretary initiates a review under Sec.
231.304(a)(2), and subject to any tolling pursuant to Sec. paragraph
(a) of this section, the Secretary will provide the covered entity an
initial determination in writing as to whether the transaction would
violate Sec. 231.202. The initial determination may include a finding
that the covered entity or a member of the affiliated group has
violated Sec. 231.202.

[[Page 65619]]

(c) If the Secretary's initial determination is that the
transaction would violate Sec. 231.202 or that the covered entity or a
member of the affiliated group has violated Sec. 231.202 by engaging
in a prohibited significant transaction, then:
(1) The covered entity may within 14 days of receipt of the initial
determination request that the Secretary reevaluate the initial
determination, including by submitting additional information.
(2) If the covered entity does not make such a request within 14
days of receipt of the initial determination, the initial determination
will become final. If the covered entity recipient does request a
reconsideration of the initial determination, the Secretary will issue
the final determination within 60 days after the receipt by the
Secretary of the request for reconsideration.
(3) Upon the issuance of a final determination that a transaction
would violate Sec. 231.202 or that the covered entity or a member of
the affiliated group has violated Sec. 231.202 by engaging in a
prohibited significant transaction, the covered entity must cease or
abandon the transaction (or, if applicable, ensure that the member of
the affiliated group ceases or abandons the transaction), and the
covered entity's chief executive officer, president, or equivalent
corporate official, must provide a signed letter electronically to
<a href="/cdn-cgi/l/email-protection#0b65647f626d62686a7f626465784b6863627b78256c647d">[email&#160;protected]</a> within 45 days of the final determination
certifying that the transaction has ceased or been abandoned. Such
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.
(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 covered entity, which
amount 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 covered entity
or member of the affiliated group is planning to undertake or has
undertaken a significant transaction that violates or would violate
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 amendment to the required
agreement (a ``mitigation agreement'') with the covered entity to
mitigate the risk to national security in connection with the
transaction. The Secretary has discretion to waive, in whole or part,
recovery of the Federal financial assistance provided to the covered
entity for violation of Sec. 231.305(d) in circumstances where an
appropriate mitigation agreement has been entered into and complied
with by the covered entity. If a covered entity fails to comply with
the mitigation agreement or if other conditions in the mitigation
agreement are violated, the Secretary may recover the full amount of
the Federal financial assistance provided to the covered entity.

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

(a) The Secretary may initiate a review of any joint research or
technology licensing the Secretary believes may be prohibited by Sec.
231.203. In determining whether to initiate a review, the Secretary may
consider all available information, including information submitted by
persons other than a covered entity to <a href="/cdn-cgi/l/email-protection#caa4a5bea3aca3a9abbea3a5a4b98aa9a2a3bab9e4ada5bc">[email&#160;protected]</a>.
(b) If the Secretary opens an initial review, the Secretary will
notify the covered entity in writing and may request additional
information from the covered entity. The covered entity shall provide
the additional information to the Secretary within three business days,
or within a longer time frame if the covered entity requests in writing
and the Secretary grants that request in writing.
(c) The Secretary may make an initial determination as to whether
the covered entity violated Sec. 231.203.
(d) If the Secretary's initial determination is that the covered
entity did not violate Sec. 231.203, the Secretary shall inform the
covered entity in writing and close the review.
(e) If the Secretary's initial determination is that the covered
entity violated Sec. 231.203, the Secretary will provide that initial
determination to the covered entity in writing.
(1) The covered entity may within 14 days of receipt of the initial
determination request that the Secretary reevaluate the initial
determination, including by submitting additional information.
(2) If the covered entity does not make such a request within 14
days of receipt of the initial determination, the initial determination
will become final. If the covered entity does request a reconsideration
of the initial determination, the Secretary will issue the final
determination within 45 days of the initial determination.
If the Secretary makes a final determination that an action
violated Sec. 231.203, the Secretary will recover the full amount of
the Federal financial assistance provided to the covered entity, which
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 Secretary provides a final
notification that an action violated Sec. 231.202 or Sec. 231.203.
(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 the required agreement or mitigation
agreement. 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 Sec.
231.202 or Sec. 231.203 have been violated, the Secretary may suspend
Federal financial assistance.
(d) The recoveries and remedies available under this section are
without prejudice to other available remedies, including remedies
articulated in the required agreement or 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, will issue a public notice identifying any
additional semiconductors included in the meaning of the term ``legacy
semiconductor.''

Sec. 231.402 Submission of false information.

Section 1001 of 18 U.S.C., 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.

[[Page 65620]]

Sec. 231.403 Severability.

If any provision of this part or its application to any person,
act, or practice is held invalid, the remainder of the part or the
application of its provisions to any person, act, or practice shall not
be affected thereby.

Alicia Chambers,
NIST Executive Secretariat.
[FR Doc. 2023-20471 Filed 9-22-23; 8:45 am]
BILLING CODE 3510-13-P

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Indexed from Federal Register on September 25, 2023.

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