News Brief

CHIPS Act: U.S Bars Chipmakers Availing Incentives For Setting Up Domestic Fabs From Expanding In China For 10 Years

Swarajya Staff

Mar 05, 2023, 08:23 AM | Updated 12:47 PM IST

U,S China Chip war
U,S China Chip war

The United States Department of Commerce invited applications from leading semiconductor chipmakers to avail incentives for setting up domestic fabs under the CHIPS Act passed by Congress last year.

Under the act, U.S. will provide incentives for the construction, expansion, or modernisation of commercial facilities to fabricate leading-edge, current-generation, and mature-node semiconductors. It will also offer financial incentives for front-end wafer fabrication and back-end assembly, testing, and packaging.

The CHIPS Act signed into law in August 2022, aims to catalyse investments in domestic semiconductor manufacturing capacity. 

The act provides $50 billion to bolster U.S. semiconductor capacity by expanding domestic manufacturing and developing cutting-edge research of mature and advanced semiconductors.

While $39 billion will be towards accelerating and driving domestic chip production ($6 billion of which can cover direct loans and loan guarantees), the remaining $11 billion will be towards advanced semiconductor R&D.

“CHIPS funding will promote U.S. leadership in chipmaking, strengthen the semiconductor supply chain, and advance U.S. economic and national security. Achieving these goals requires a robust commitment to protecting taxpayer resources.” the U.S. Commerce Department said in a statement.

“Recipients will be required to enter into an agreement restricting their ability to expand semiconductor manufacturing capacity in foreign countries of concern for a period of 10 years after taking the money,” said Commerce Secretary Gina Raimondo.

Raimondo also said that CHIPS Act recipients cannot “knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that involves sensitive technologies or products.

Though she did not directly name any country, the condition was aimed at China.

The Commerce Department will set up a new ‘CHIPS Program Office to administer the $39 billion incentives on offer.

The Commerce Department said it would strongly prefer domestic semiconductor manufacturing proposals that have already activated significant private capital to increase the scale of investment available and ensure that CHIPS incentives complement private markets rather than crowd out.

The following are the key highlights of the incentive programs.

  • The incentives for setting up a domestic semiconductor manufacturing fab., including direct funding and the principal loan or loan guarantee amount, will be capped at 35% of project capital expenditure. 

  • Direct funding awards to the selected proposal of chipmakers will range between 5-15% of project capital expenditures.

  • Chipmakers who receive more than $150 million in direct funding will be required to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold.

  • Applicants for CHIPS funds need to have been offered a state or local government incentive to be eligible for funding.

  • CHIPS funding will be disbursed in tranches tied to project milestones in connection with capital expenditures, workforce development, and operational costs to ensure that companies make progress on their projects.

  • Chipmakers availing incentives would have to agree to other restrictions, including prohibiting using the money for share buybacks or dividend payments.

Also Read: White House Is Destroying China's Semiconductor Ambitions, One Policy Move At A Time

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