[Federal Register Volume 88, Number 56 (Thursday, March 23, 2023)]
[Proposed Rules]
[Pages 17439-17450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05869]


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DEPARTMENT OF COMMERCE

National Institute of Standards and Technology

15 CFR Part 231

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


Preventing the Improper Use of CHIPS Act Funding

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

ACTION: Proposed rule; request for public comment.

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

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

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

FOR FURTHER INFORMATION CONTACT: Sam Marullo, Director, CHIPS Policy at 
(202) 482-3844 or [email protected]. Please direct media inquiries to 
the CHIPS Press Team at [email protected].

SUPPLEMENTARY INFORMATION:

Background

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

[[Page 17440]]

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

Discussion of Proposed Rule

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

A. Definitions

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

[[Page 17441]]

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

[[Page 17442]]

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

B. General

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

C. Notification and Review

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

D. Other Provisions

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

Classification

Executive Order 13132

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

Executive Order 12866

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

Regulatory Impact

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

[[Page 17443]]

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

[[Page 17444]]

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

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

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

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

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

[[Page 17445]]

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

Administrative Procedure Act

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

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

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

Regulatory Flexibility Act

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

[[Page 17446]]

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

Paperwork Reduction Act

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

List of Subjects in 15 CFR Part 231

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


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

Subchapter C--CHIPS Program

PART 231--CLAWBACKS OF CHIPS FUNDING

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

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

PART 231--CLAWBACKS OF CHIPS FUNDING

Subpart A--Definitions


Sec.  231.101  Affiliate

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


Sec.  231.102  Applicable term.

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


Sec.  231.103  Existing facility.

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


Sec.  231.104  Foreign country of concern.

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

[[Page 17447]]

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


Sec.  231.105  Foreign entity.

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


Sec.  231.106  Foreign entity of concern.

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


Sec.  231.107  Funding recipient.

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


Sec.  231.108  Joint research.

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


Sec.  231.109  Knowingly.

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


Sec.  231.110  Legacy semiconductor.

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


Sec.  231.111  Material expansion.

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

[[Page 17448]]

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

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


Sec.  231.113  Person.

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


Sec.  231.114  Predominately serves the market.

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


Sec.  231.115  Required agreement.

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


Sec.  231.116  Secretary.

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


Sec.  231.117  Semiconductor.

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


Sec.  231.118  Semiconductor manufacturing.

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


Sec.  231.119  Semiconductor manufacturing capacity.

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


Sec.  231.120  Semiconductors critical to national security.

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


Sec.  231.121  Significant transaction

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


Sec.  231.122  Significant renovations.

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


Sec.  231.123  Technology licensing.

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


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

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

Subpart B--General


Sec.  231.201  Scope.

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


Sec.  231.202  Prohibition on certain expansion transactions.

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

[[Page 17449]]

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


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

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


Sec.  231.204  Retention of records.

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

Subpart C--Notification, Review, and Recovery


Sec.  231.301  Procedures for notifying the Secretary of transactions.

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


Sec.  231.302  Contents of notifications; certifications.

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


Sec.  231.303  Response to notifications.

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


Sec.  231.304  Initiation of review.

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


Sec.  231.305  Procedures for review.

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

[[Page 17450]]

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


Sec.  231.306  Mitigation of national security risks.

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


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

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


Sec.  231.308  Recovery and other remedies.

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

Subpart D--Other Provisions


Sec.  231.401  Amendment.

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


Sec.  231.402  Submission of false information.

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

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