Historic $280 billion investment in domestic semiconductor manufacturing and STEM R&D signed into law | Pillsbury Winthrop Shaw Pittman LLP

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The bill, passed in the Senate by a vote of 64 to 33 on July 27, 2022 and by a vote of 243 to 187 in the House of Representatives on July 28, 2022, represents a compromise between the Senate-passed United States Innovation and Competition Act of 2021 ( USICA) (S.1260) and the House-passed America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act Of 2022 (COMPETES) (HR 4521), both of which focus on increasing R&D and manufacturing in the United States States focused competitiveness with China, but with different legislative approaches. After negotiations broke down in the bicameral conference committee formed to iron out differences between the competing bills, many assumed that no legislative agreement would ultimately be reached.

The CHIPS Plus package, consisting of a streamlined version of the COMPETES Act and USICA, revived the legislative effort. The final package includes billions of dollars over five years to the Departments of Commerce, State and Defense in support of domestic semiconductor research and development and chip manufacturing, as well as various provisions providing research investment in semiconductor technology through the National Science Foundation (NSF). National Institute for Standards and Technology (NIST) and the Department of Energy (DOE).

In particular, the adopted version of the draft law lacks provisions that would have affected existing trade and customs policies. These items, along with others from the COMPETES Act and USICA that were not included in CHIPS Plus, could become available prior to the completion of the 117thth Congress later this year.

Overview of the most important CHIPS Plus regulations

semiconductor investment

The top provision of the bill — known as the Chips Act of 2022 — provides federal investment of $52.7 billion over five years to expand domestic semiconductor production. The measure will provide new federal dollars primarily to the Department of Commerce to fund and encourage chip manufacturing, testing, research and development activities that will make America more competitive with China. The money can be used to develop domestic manufacturing capabilities, conduct research and development, and strengthen the domestic semiconductor workforce. Funding under these programs is allocated by the Department of Commerce through grant and direct loan programs.

The largest incentive program for American companies is the “CHIPS for American Program,” which provides $39 billion over the next five fiscal years to incentivize domestic semiconductor plants and equipment, with $2 billion dedicated to legacy chip production to be provided. The legislation doesn’t provide a precise timeline for when the allocated funds will be available, but it’s likely that the Commerce Department will quickly select recipients to distribute the $24 billion allocated for fiscal 2022.

In addition to direct investment provisions, the bill also provides a substantial tax credit for advanced manufacturing investments. This provision provides a 25 percent investment tax credit for semiconductor manufacturing investments. The tax credit covers both the construction of facilities and the cost of special tools and equipment needed to manufacture semiconductors. The credit is available for properties commissioned after December 31, 2022 and construction beginning before January 1, 2027.

US semiconductor producers and manufacturers have much to gain directly from the CHIPS Plus package, with numerous downstream benefits also expected for chip manufacturing equipment, service and software suppliers, chip designers, EDA tool companies and a host of other US companies at the cutting edge of semiconductor technology.

This historic infusion of federal investment into the US semiconductor industry is expected to result in significant activity for domestic companies involved in all phases of semiconductor design, development and manufacturing.

STEM Research Investments

The CHIPS Plus package also offers a major five-year investment in public research and development to increase America’s competitiveness in the global supply chain in areas such as advanced manufacturing, next-generation communications, computing technologies and energy. These provisions focus on ensuring increased and equitable participation of underrepresented populations and regions in government-funded research projects. The bill authorizes significant funding increases for the National Science Foundation (NSF), National Institute of Standards and Technology (NIST), Department of Commerce (DOC) and Department of Energy (DOE) to engage in R&D activities and partnerships.

The most important provisions include:

  • Strategic Translation Studies: NSF’s Directorate of Technology, Innovation and Partnerships (TIP) approves a $20 billion investment over five years to accelerate the development of emerging technologies such as artificial intelligence, quantum computing, advanced manufacturing and 6G communications.
  • Expansion of EPSCoR funding: Directs the NSF to provide an increasing amount of funding in Key Research Accounts to universities in the Established Program to Stimulate Competitive Research (EPSCoR) program areas. The EPSCoR’s jurisdictions include 25 states and three territories, where institutions struggle to compete with larger states for federal research funding. Under this provision, the NSF must ensure that EPSCoR jurisdictions have at least 20 percent of available federal research funding by fiscal year 2029. This provision will also establish a pilot program whereby multi-institutional applications seeking funding greater than $1 million must be submitted in partnership with an emerging research institution or an entity serving a minority.
  • Regional innovation drivers: Provides $10 billion over five years to the Department of Commerce to establish regional innovation engines to advance multidisciplinary, collaborative, applied and translational research and technology development in key technology areas.
  • Support for small manufacturers: Approves $2 billion in funding from NIST to support small and medium-sized manufacturers by providing resources to foster workforce development, ensure domestic supply chain resilience, and scale up adoption of advanced technology upgrades (including cybersecurity upgrades ).
  • Foundation for Energy Security and Innovation: Approves spending of $40.5 million to establish an Energy Security and Innovation Foundation (FESI) at the DOE to foster partnerships with industry, start-ups and external funding organizations to support the creation, development and Support commercialization of technologies to address emerging energy challenges.

While many of the specific provisions of these and other programs require agency guidance for implementation, there will certainly be opportunities for partnerships between the research agencies and academic institutions, not-for-profit organizations and industry.

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