Semiconductor-Related Legislation in the USA

Semiconductor-Related Legislation in the USA

USA - Semiconductor Legislation

According to the US Congressional Research Service, congressional efforts related to semiconductors have largely focused on R&D. Two bills that Congress is currently considering would offer various incentives, including grants and tax credits, to induce investment in U.S.-based semiconductor manufacturing equipment and fabrication facilities, as well as authorizing funds for R&D activities.

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (S. 3933/H.R. 7178) would, among other things:

- establish an investment tax credit for U.S.-based semiconductor manufacturing equipment and manufacturing facilities;

- authorize more than $15 billion for semiconductor R&D, workforce training, and related activities;

- authorize matching funds for state and local semiconductor programs;

- authorize funding to bolster DOD assured access efforts; and

- direct the Department of Commerce to assess the capabilities of the U.S. industrial base to support semiconductor design and manufacturing, and U.S. interdependencies with such capabilities in other countries.

The American Foundries Act of 2020 (S. 4130) would, among other things:

- authorize at least $25 billion for semiconductor-related R&D, construction of facilities, and acquisition of equipment and intellectual property;

- authorize incentives for the creation, expansion, or modernization of microelectronics manufacturing or advanced R&D facilities to meet the needs of the DOD and intelligence agencies for assured and secure microelectronics; and

- require the development of a plan to coordinate with foreign government partners on establishing common microelectronics export control and foreign direct investment screening measures to align with national and multilateral security priorities.

The semiconductor industry’s trade group, SIA, has endorsed both bills. Others have raised questions about the high level of federal support for a single industry, arguing against establishing an industrial policy for semiconductors or any other industry.

A number of provisions in the Creating Helpful Incentives to Produce Semiconductors for America Act and the American Foundries Act of 2020 have been incorporated into the House and Senate versions of the FY2021 National Defense Authorization Act (NDAA).

The House version of the NDAA (H.R. 6395) would, among other things:

- authorize a semiconductor grant program to support construction, expansion, and modernization of semiconductor fabrication, assembly, testing, packaging, and advanced R&D facilities in the United States, providing up to $3 billion per grant;

- direct DOD to lead a multi-agency effort to incentivize the formation of a consortium of U.S. companies to ensure DOD and intelligence agencies have access to secure microelectronics;

- require an assessment of the capabilities of the U.S. industrial base to support semiconductor design and manufacturing, and U.S. interdependencies with such capabilities in other countries;

- establish and authorize funding for a Multilateral Semiconductor Security Fund to build safe and secure semiconductor supply chains;

- require the establishment of a Manufacturing USA institute focused on semiconductor manufacturing R&D; establish and authorize $914 million in FY2021 for a semiconductor technology center to conduct research and prototyping of advanced semiconductor technology; and

- authorize an additional $350 million for semiconductor-related R&D in FY2021. H.R. 6395 was passed by the House on July 21, 2020.

The Senate version of the FY2021 NDAA, the National Defense Authorization Act for Fiscal Year 2021 (S. 4049), includes provisions similar to those of H.R. 6395 described above, though it does not include the provision that would direct DOD to incentivize the creation of a consortium to ensure DOD and intelligence agencies have access to secure microelectronics.

S. 4049 would also require DOD to certify that covered printed circuit boards are manufactured and assembled in the United States or certain nations for all future DOD contracts.

In addition, the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act incorporates many of the provisions in S. 3933 and H.R. 7178.

Some policymakers assert that continued U.S. leadership in semiconductor technology, design, and fabrication is important to the U.S. economy and national security. In addition, others believe that these functions must not be interrupted by trade disputes or military conflict. In this regard, Congress may opt to consider how best to maintain continued U.S. semiconductor competitiveness, address ongoing discriminatory trade barriers and practices of concern, and ensure access to protected and secure sources of certain chips. The CHIPS for America Act and the American Foundries Act (AFA) of 2020 present approaches to addressing these concerns.

One key policy question is: What is the appropriate role for the federal government in seeking to ensure the U.S. position in semiconductors (or other industries)? For many years, Congress has debated the utility and fairness of policies that single out a technology, company, or industry for targeted government assistance. Advocates of such policies generally justify federal action based on the presumed benefits of attaining or retaining U.S. technology leadership, job creation, and economic growth, and furthering other policy objectives (e.g., fostering domestic manufacturing, furthering energy independence, or reducing carbon emission reductions).

Opponents often characterize such policies as “industrial policy,” “picking winners and losers,” or “corporate welfare,” arguing that the federal government should not attempt to supplant market forces and decisions, and that such attempts are in any case unlikely to be effective; that government policies should be agnostic with respect to technology, company, and industry, not favoring one over another; that federal funding should not subsidize profitable companies; and that funding associated with such policies may be used to provide political rewards for favored constituents.

These criticisms have been of less concern in the context of the federal government’s role in fostering technologies, products, and industries deemed central to U.S. national security. These defense-focused efforts have been less controversial, in part, because national defense is a constitutionally mandated function of the federal government and because, in the absence of government action, the technologies, products, and industries needed for national security would not exist.

Congress may seek to assess the effectiveness of current U.S. authorities and global rules and approaches in addressing Chinese government direction, control, and subsidization of Chinese semiconductor activities and forcing foreign technology transfer. Such an assessment could evaluate whether new authorities and efforts are needed, including with regard to trade concerns such as state control of companies, subsidies, technology transfer, and other potential discriminatory practices.

Congress may want to evaluate U.S.-China technology ties that contribute to the development of China’s indigenous semiconductor industry. These areas include China’s investment in U.S. technology firms with niche and emerging capabilities; use of greenfield operations in the United States; imports of U.S. semiconductor equipment, tools, and software; licensing of U.S. technology; partnerships and joint ventures with U.S. firms; access to overseas foundries; hiring of foreign talent; and participation in open source technology platforms.

Congress may also seek to address the full life-cycle of semiconductor capabilities developed with the support of U.S. government R&D investments in an effort to mitigate potential China-related risks. In particular, Congress might look for ways to further protect the integrity and use rights of commercial capabilities developed with the support of U.S. government investments.

These issues may loom larger if, as some Members have proposed, there is a substantial increase in federal support for development of semiconductor technologies intended for exploitation by the private sector. Congress may hold hearings and seek studies and analysis on these topics as it moves forward in its consideration of the legislation before it.