Preventing the Improper Use of CHIPS Act Funding; Revised Definition of “Material Expansion”, 89572-89574 [2023-28627]

Agencies

• DEPARTMENT OF COMMERCE
• National Institute of Standards and Technology

[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Rules and Regulations]
[Pages 89572-89574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28627]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

National Institute of Standards and Technology

15 CFR Part 231

[Docket No. 231218-0308]
RIN 0693-AB70


Preventing the Improper Use of CHIPS Act Funding; Revised 
Definition of ``Material Expansion''

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Commerce (the Department), through the 
National Institute of Standards and Technology, is amending the 
definition of ``material expansion'' in the September 25, 2023 final 
rule, Preventing the Improper Use of CHIPS Act Funding, to clarify that 
the construction of new semiconductor manufacturing facilities falls 
within the scope of the rule.

DATES: This final rule is effective on December 28, 2023.

FOR FURTHER INFORMATION CONTACT: Vikram Viswanathan at (240) 309-9040 
or [email protected]. Please direct media inquiries to the CHIPS Press 
Team at [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The CHIPS Act, 15 U.S.C. 4651, et seq., established a semiconductor 
incentives program (CHIPS Incentives Program) to incentivize, through 
Federal funding, investments in the construction, expansion, and 
modernization of facilities and equipment in the United States for the 
fabrication, assembly, testing, advanced packaging, production, or 
research and development of semiconductors, materials used to 
manufacture semiconductors, or semiconductor manufacturing equipment. 
The CHIPS Incentives Program is administered by the CHIPS Program 
Office (CPO) within the National Institute of Standards and Technology 
(NIST) of the Department.
    On March 23, 2023, CPO published a proposed rule that requested 
comment on defined terms used in the Act (including terms that will be 
used in required agreements with covered entities), identified the 
types of transactions that are prohibited under the Expansion Clawback 
and Technology Clawback sections of the Act, and provided a description 
of the proposed process for notification of certain transactions to the 
Secretary (88

[[Page 89573]]

FR 17439). After considering extensive public comments, on September 
25, 2023, CPO published a final rule Preventing the Improper Use of 
CHIPS Act Funding (88 FR 65600). Among other issues, the final rule 
addressed the Expansion Clawback, which prohibits the covered entity 
and members of its affiliated group from engaging in any significant 
transaction involving the material expansion of semiconductor 
manufacturing capacity in a foreign country of concern. The final rule 
also addressed the exceptions to this general prohibition.
    The definition of ``material expansion,'' which is used both in the 
general prohibition and in one of the exceptions, focused on the 
expansion of ``existing'' semiconductor manufacturing facilities, which 
created confusion as to whether the construction of entirely new 
semiconductor fabrication facilities fell within the scope of the final 
rule. This update to the final rule clarifies that new facilities are 
included within the scope of the final rule.

Changes From the Final Rule

Definition of Material Expansion

    The final rule defines ``material expansion'' as an ``increase of 
the semiconductor manufacturing capacity of an existing facility by 
more than five percent of the capacity memorialized in the required 
agreement due to the addition of a cleanroom, production line or other 
physical space, or a series of such additions.'' 15 CFR 231.108.
    Defining material expansion in relation to ``an existing facility'' 
had the unintended effect of suggesting that the construction of new 
semiconductor facilities fell outside the scope of the Expansion 
Clawback. Such an interpretation would be inconsistent with the CHIPS 
Act and the general restrictions of the Expansion Clawback, which 
significantly limit the ability of covered entities to expand their 
semiconductor manufacturing capacity in foreign countries of concern. 
Indeed, CPO made clear in the proposed rule and in the preamble to the 
final rule that the restrictions of the Expansion Clawback were 
intended to apply to the construction of a new facility. In the 
preamble of the proposed rule, CPO noted that the term ``material 
expansion'' included ``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.'' 88 FR 17439, 17441 (emphasis added). 
Further, the definition in the proposed rule provides: ``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.'' Id. at 17447. This 
definition used the term ``facility'' generally, resulting in an 
interpretation that a facility may be either new or existing.
    Commenters also understood that the Expansion Clawback was intended 
to address the construction of new semiconductor facilities. CPO 
received 27 comment submissions, and a significant portion of those 
comments related to material expansion. Numerous commenters noted that 
the intent of the CHIPS Act was to allow existing facilities in a 
foreign country of concern to continue to operate so that ongoing 
operations would not be undermined and so funding recipients and could 
realize the value of their prior investments. Commenters did not raise 
significant concerns with placing restrictions on the construction of 
new facilities, and in some instances suggested that the definition of 
material expansion be modified to clarify that it was triggered by new 
construction (``material expansion means building new cleanroom space 
that does not exist on the date of the [award];'' material expansion 
should apply to ``building new clean room/physical space''). There was 
a general understanding that the Expansion Clawback was intended to 
address new construction.
    In the final rule, CPO provided explanations that reflect the 
intent for the Expansion Clawback to address the construction of new 
facilities. In response to comments on the definition of Significant 
Renovations, CPO noted that ``[w]ithout the concept of significant 
renovations, covered entities could evade the expansion prohibition 
simply by significantly expanding an existing facility rather than 
constructing a new facility.'' 88 FR 65600, 65607. This response 
assumes that the construction of new facilities was addressed by the 
Expansion Clawback, and that the concept of significant renovations was 
needed to prevent circumvention of that prohibition.
    In this rule, the modified definition of ``material expansion'' 
better reflects the intended scope of the Expansion Clawback.

Classification

Administrative Procedure Act (APA)

    Pursuant to 5 U.S.C. 553(a)(2), the provisions of the APA requiring 
notice of proposed rulemaking and the opportunity for public 
participation are inapplicable to this rule, which places certain 
limitations on funding recipients, because it relates to ``public 
property, loans, grants, benefits, or contracts.'' \1\ Additionally, 
although it was not required to do so, the Department, through the 
March 23, 2023, proposed rule, provided advance notice and opportunity 
for public comment on the definition of the term ``material 
expansion.''
---------------------------------------------------------------------------

    \1\ The provisions of this amendment implement the Expansion 
Clawback provisions of the Act and are also thus exempt from the 
rulemaking provisions of the APA pursuant to 15 U.S.C. 
4652(a)(6)(A)(iii).
---------------------------------------------------------------------------

    This final rule simply corrects an inadvertent omission in the 
definition of ``material expansion,'' thereby accurately reflecting the 
Department's explanation and discussion of public comments in the 
September 25, 2023, final rule. Additional advance notice and 
opportunity for comment would neither provide new information to the 
public nor inform any agency decision-making regarding the defined 
term. Finally, additional opportunity for public comment would be 
contrary to the public interest, under 5 U.S.C. 553(b)(B), because this 
rule provides clarity to applicants and awardees.

Executive Order 13132

    This rule does not contain policies with federalism implications as 
that term is defined in Executive Order 13132.

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
final rule is significant for purposes of Executive Order 12866.

Regulatory Flexibility Act

    Because a notice of proposed rulemaking and an opportunity for 
public comment are not required to be given for this rule by 5 U.S.C. 
553(a)(2), the analytical requirements of the Regulatory Flexibility 
Act, 5 U.S.C. 601, et seq., are not applicable. Accordingly, no 
regulatory flexibility analysis is required and none has been prepared.

Paperwork Reduction Act

    This action does not contain a collection of information 
requirement for the purposes of the Paperwork Reduction Act (44 U.S.C. 
3501, et seq.).

[[Page 89574]]

List of Subjects in 15 CFR Part 231

    Business and industry, Computer technology, Exports, Foreign Trade, 
Government contracts, Grant Programs, Investments (US investments 
abroad), National defense, Research, Science & Technology, and 
Semiconductor chip products.

    For reasons set out in the preamble, 15 CFR part 231 is amended as 
follows:

PART 231--CLAWBACKS OF CHIPS FUNDING

0
1. The authority citation for 15 CFR part 231 continues to read as 
follows:

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


0
2. Revise Sec.  231.108 to read as follows:


Sec.  231.108  Material expansion.

    Material expansion means:
    (1) with respect to an existing facility, the increase of the 
semiconductor manufacturing capacity of that facility by more than five 
percent of the capacity memorialized in the required agreement due to 
the addition of a cleanroom, production line or other physical space, 
or a series of such additions; or
    (2) any construction of a new facility for semiconductor 
manufacturing.

Tamiko Ford,
NIST Executive Secretariat.
[FR Doc. 2023-28627 Filed 12-27-23; 8:45 am]
BILLING CODE P