Reed Smith Client Alerts

On February 28, 2023, the U.S Department of Commerce, CHIPS Program Office (Commerce) released the first of three expected Notices of Funding Opportunities (NOFO) under the CHIPS and Science Act of 2022, which is intended to develop the domestic semiconductor supply chain, provide jobs and restore the country’s leadership in semiconductor manufacturing, and advance U.S. national and economic security.

The first NOFO seeks applicants for direct funding (e.g., grants, cooperative agreements), loans, and loan guarantees for projects to expand, construct, or modernize commercial facilities for the fabrication of current-generation, non-node, and leading-edge semiconductors. Specifically, this covers front-end wafer fabrication and back-end packaging. In late spring, Commerce will also release a second NOFO for semiconductor materials and equipment. This will be followed in the fall by the third NOFO for research and development facilities.

Foreign investment considerations

Commerce plans to evaluate applications with a primary focus on how projects advance U.S. national and economic security. Although foreign companies seeking to invest in the United States can apply for manufacturing incentives, the following limitations apply:

  • Foreign entities of concern are ineligible. In addition to expected restrictions like ineligibility for sanctioned entities, applicants owned by, controlled by, or subject to the jurisdiction or direction of the governments of China, Russia, North Korea, and Iran are also included as foreign entities of concern.
  • Funding applications will involve a foreign investment review, including information about the applicant’s parent or affiliated entities. Even if a foreign entity of concern is not the applicant, the funding application will still be denied if the foreign entity of concern’s control, access to information, or other mechanisms poses an undue risk to U.S. national security. “Control” includes direct or indirect investment that provides the foreign entity of concern with (1) membership or observer rights on, or the ability to nominate a person to, a company’s governing board; (2) any involvement (other than through voting shares) in the company’s substantive decision-making; or (3) the right to be consulted about technology licensing to third parties when any of these conditions could affect the proposed project. Applicants with Chinese investors may face more scrutiny given the number of state-owned entities in China and the current geopolitical climate.