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In a bipartisan vote of 64-33, the Senate passed legislation
earlier today to fund domestic semiconductor manufacturing and
boost federal scientific research and development. The bill was
supported by 17 Republicans and opposed by just one Democrat.
The package’s successful passage marks a dramatic reversal
of fortunes for the legislation. Just a few weeks ago, it appeared
that the product of the conference committee’s work to resolve
differences between the Senate-passed U.S. Innovation and
Competition Act (USICA)(S. 1260) and the House-passed America Creating
Opportunities to Meaningfully Promote Excellence in Technology,
Education and Science (COMPETES Act)(H.R. 4521) might be abandoned altogether in
favor of the Democrats’ effort to enact other domestic
priorities by a simple majority vote through a process known as
reconciliation. However, when the ambitions of that package were
significantly curtailed, Senate Majority Leader Chuck Schumer
(D-NY) moved forward with a semiconductor manufacturing bill
focused solely on those incentives and not the various other titles
under negotiation by the conference committee. A group of Senators
led by Todd Young (R-IN) rallied bipartisan support for the
addition of a title dedicated to increasing and re-prioritizing
federal scientific research and development, which led to its
inclusion in the final package now known as
“Chips-Plus”.
The House is expected to take up the legislation later this week
and pass it before adjourning for the August recess. Speaker Nancy
Pelosi (D-CA) has expressed confidence that there are enough
votes across both parties for passage, especially after several senior House Republicans issued statements publicly backing
the bill last week. While a newly revived reconciliation deal could
undermine House Republican support for the Chips-Plus package,
final passage is still expected.
Despite the broad scope that the “Chips-Plus” name
implies, the bill still leaves out many provisions that were under
negotiation by the conference committee. This client alert provides
an overview of what made it into the final bill, how it may differ
from the earlier versions and what got left behind.
What’s in It?
Technically, the Chips-Plus package is three acts combined into
one larger bill: Division A is the “CHIPS Act of 2022”;
Division B is the “Research and Development, Competition and
Innovation Act”; and Division C is the “Supreme Court
Security Funding Act of 2022”. This alert reviews Divisions A
and B.
The Creating Helpful Incentives to Produce Semiconductors for
America Act (CHIPS Act) of 2022 appropriates over $52 billion over
five years in incentives to develop semiconductor manufacturing
capacity in the United States. The funding will be distributed
through several programs that were authorized in last year’s
CHIPS for America Act:
- DOC Manufacturing Incentives – The bill
includes $39 billion in financial assistance for building,
expanding or modernizing domestic semiconductor facilities and
equipment for fabrication, assembly, testing, advanced packaging,
research and development, including $2 billion specifically for
mature semiconductors. Within the incentive program, up to $6
billion may be used for the cost of direct loans and loan
guarantees. This program will be administered by the Department of
Commerce. The total amount and annual appropriations detailed in
the final Chips-Plus package for semiconductor manufacturing
incentives are the same as originally included in both the COMPETES
Act and USICA. However, the final package adopts eligibility
changes for these incentives that allow upstream producers of
semiconductor manufacturing equipment and materials to be eligible
for this funding in addition to the direct manufacturers. This
change was not included in USICA. - Guardrails and Oversight – Division A
also includes a new set of guardrails to ensure that entities that
receive the semiconductor incentive funding do not use the funding
to buy back their own stock, provide shareholders with dividend
payments or expand advanced semiconductor manufacturing
capabilities in foreign countries of concern like China. The DOC
will also be required to ensure that the funding is used to advance
opportunity and inclusion activities, a provision called for by Sens. Raphael Warnock (D-GA) and
Alex Padilla (D-CA) in March 2022. These guardrail and oversight
provisions were not included in either the America COMPETES Act or
USICA. - DOC Research and Development – The bill
includes $11 billion for various research and development efforts
to support the semiconductor ecosystem, including the National
Semiconductor Technology Center, the National Advance Packaging
Manufacturing Program, the Manufacturing USA Semiconductor
Institute and the Microelectronics Metrology Research and
Development Program. This funding will also be administered by the
Department of Commerce (DOC). This level of funding is roughly the
same as included in the original America COMPETES Act and USICA;
however, it is $200 million lower than originally appropriated,
which appears to have been reallocated to a separate workforce and
education fund. - CHIPS for America Workforce and Education Fund
– The bill appropriates $200 million for the National Science
Foundation (NSF) to meet the workforce goals of the CHIPS for
America Act. This specific fund was included in neither the America
COMPETES Act nor USICA. - CHIPS for America Defense Fund – As
included in both bills under consideration by the bipartisan
competition and innovation conference committee, the legislation
includes $2 billion in appropriations for the CHIPS for America
Defense Fund so that the Defense Department may carry out the
research, development, test and evaluation, workforce development
and other requirements unique to the intelligence community. - CHIPS for America International Technology Security and
Innovation Fund – To be administered by the
Department of State—in consultation with the U.S. Agency for
International Development, the Export-Import Bank and the U.S.
International Development Finance Corporation—the package
includes $500 million to provide for international information and
communications technology security and semiconductor supply
chains. - Public Wireless Supply Chain Innovation Fund
– The bill includes $1.5 billion in direct appropriations to
be managed by the National Telecommunications and Information
Administration for the expansion of open radio access networks,
commonly referred to as ORAN. While the House’s America
COMPETES Act required construction projects supported by this fund
to pay prevailing wages, this requirement was stripped out before
its final passage in that chamber and is not included in the final
package. - Advanced Manufacturing Investment Tax Credit
– Based on the Facilitating American-Built Semiconductors
(FABS) Act introduced by Sen. Ron Wyden (D-OR) and Rep. Michael
McCaul (R-TX), the package also includes a 25 percent investment
tax credit for semiconductor manufacturing facilities expenditures.
Only properties opened and operational after December 31, 2022, and
for which construction is started prior to January 1, 2027, are
eligible for this opportunity. The investment tax credit also
includes a “guardrail” provision that would lead the
recipient to forfeit the credit if that recipient engages in a
significant transaction involving the material expansion of
semiconductor manufacturing capacity of the recipient in China or
another foreign country of concern. Neither the America COMPETES
Act nor USICA included the FABS Act tax credit for semiconductor
manufacturing or design, which the Congressional Budget Office
expects to cost over $24 billion.
While the Research and Development, Competition and Innovation
Act found in Division B of the package is rooted in the science
titles of the America COMPETES Act and USICA, those bills had two
different approaches to boosting and re-prioritizing federal
support for scientific research and development. The final package
takes from both approaches and ultimately authorizes over $100
billion in funding for science funding at the NSF, National
Institute of Standards and Technology (NIST) and DOC, which is $52
billion above the baseline of authorized funding. Division B
represents nearly 900 of the bill’s over 1,000 pages, and below
is an overview of only several of the most prominent sections.
- NSF Directorate – The Act establishes an
NSF Directorate for Technology, Innovation and Partnerships, whose
mission is “to advance research and development, technology
deployment, and related solutions to address United States
societal, national, and geostrategic challenges, for the benefit
all Americans.” The bill authorizes $20 billion over five
years for the new Directorate. The directorate would be directed to
focus on key technologies, including artificial intelligence,
quantum, and synthetic biology, among others. An earlier iteration
of this idea was initially included in the Endless Frontier Act, a
bill first introduced last Congress by Sens. Todd Young (R-IN) and
Schumer and which served as the bipartisan engine for the overhaul
and dramatic increase in funding federal scientific research and
development. However, the Directorate was not in the America
COMPETES Act. Therefore, the Directorate in the final package more
closely resembles the provisions of USICA than COMPETES. - Regional Tech Hubs – $10 billion is
authorized for the development of at least 20 regional technology
and innovation hub programs to support domestic leadership in
sectors critical to national and economic security, to promote
regional economic development and resilience, especially within
rural and underserved communities, to expand advanced domestic
manufacturing, and to address the intersection of emerging
technologies and either regional or national challenges. Of the 20
hubs established, one-third must significantly benefit small and
rural communities, and one third must benefit states or territories
benefiting from the Established Program to Stimulate Competitive
Research (ESPCoR) of the NSF. Notably, the final package is closer
to the details of the program laid out in USICA, which also
authorized $10 billion for the hubs and required at least 20 such
hubs, while the America COMPETES Act was less generous and required
fewer hubs. - Department of Energy – The House
Committee on Science led on the development of the Department of
the Energy Science for the Future Act, which its leaders first
introduced in May of 2021 and passed the full House on a bipartisan
basis a month later. Its provisions were largely adopted in the
America COMPETES Act, but had no counterpart in the Senate-passed
USICA. As a result, the final title closely resembles the text
included in the COMPETES Act, which will authorize new and existing
research initiatives relating to basic energy science, biological
and environmental research, advance scientific computing research,
fusion energy research, high energy physics and nuclear
physics.
What’s Out?
Despite the significant amount of spending and new programs that
are included in the package, there is arguably even more that was
left out since the America COMPETES Act and USICA were each the
product of work done by many committees in both chambers.
- Trade Title – Arguably the most
contentious of all the titles being reviewed by the conference
committee, the entire trade title was left out of the final
Chips-Plus package. As a result, the currently expired Trade
Adjustment Assistance, Miscellaneous Tariff Bill and Generalized
System of Preferences programs will have to wait for another
legislative opportunity to be revived. In addition, products from
China that are subject to additional tariffs under Section 301 that
previously benefited from an expired tariff exclusion will continue
to face additional tariffs. Further, new proposals to remove de
minimis tariff treatment for goods coming from certain countries
and screen outbound investments will not become law as part of this
proposal. - Consumer Protection – Several bills that
sought to crack down on the sale of counterfeit goods online
included in the America COMPETES Act and USICA also fell out of the
final package:
- INFORM Consumers Act: Though the INFORM
Consumers Act gained bipartisan support as a standalone bill, its
text was only included in the America COMPETES Act. If passed, it
would require certain online platforms to verify their high-volume
third-party sellers and suspend those sellers from activity on the
platform if they fail to comply with the disclosure requirements in
the bill. Penalties for the platforms that fail to comply are
severe and include enforcement by the Federal Trade Commission
(FTC) and state attorneys general. - SHOP SAFE Act: The America COMPETES Act also
included language pulled from the SHOP SAFE Act which would make
e-commerce platforms with annual sales of $500,000 or more, or
those that received 10 notices identifying counterfeit goods that
implicate health and safety, liable for infringement of a
registered trademark by a third-party seller of goods if the seller
uses a counterfeit mark in connection with selling or advertising
goods on the platform. Like the INFORM Consumers Act, its language
was not included in the Senate-passed USICA. - Country of Origin Labeling Online Act:
Introduced in the 116th Congress, USICA included the key provisions
of the Country of Origin Labeling Online Act. This bill would
require country-of-origin labeling for a product to be clearly and
conspicuously stated in the website’s description of the
product and clear disclosure of the country in which the seller of
the product is located (and, if applicable, the country in which
any parent corporation of such seller is located) in the online
product listing.
- INFORM Consumers Act: Though the INFORM
- Supply Chain Resiliency Program –
Despite variations included in both the America COMPETES Act and
USICA, a federal supply chain resiliency program was not included
in the “Chips-Plus” proposal. Language in the America
COMPETES Act would have established an Office of Supply Chain
Resiliency and Crisis Response at the Department of Commerce to
promote U.S. leadership in critical industries and authorized a $45
billion fund for grants, loans and loan guarantees to support
on-shoring or near-shoring of critical industries. While USICA did
not authorize an on-shoring or near-shoring fund, it did establish
a program to map critical supply chains and identify gaps in those
supply chains. Ultimately, neither the $45 billion fund included in
the America COMPETES Act nor the narrower program included in USICA
were adopted in the final Chips-Plus package.
The above summary outlines the key components of the Chips-Plus
package. The full text of the legislation can be viewed here.
Akin Gump will host a webinar on Wednesday, August 3 at 12:00
p.m. ET to discuss the Chips-Plus legislation. Invitation to
follow.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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