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.
- Funding will be accompanied by requirements that enable the government to identify and mitigate national security risks related to foreign entity of concern investment that arises after the application is approved. If Commerce uses an approach similar to that used by the Committee on Foreign Investment in the United States (CFIUS), these mitigation measures could include prohibitions or limits on the transfer of intellectual property or requirements for the applicant to establish an internal mechanism to ensure compliance, including the appointment of government-approved security officers.
Potential applicants with foreign owners or investors should evaluate the foreign investment limitations associated with the manufacturing incentives when considering whether to apply for funding. Similarly, foreign companies should consider these limitations when considering investing in the U.S. semiconductor industry.
Additional considerations related to federal funding
The NOFO sets out a five-part application process and requires applicants to address six program priority areas. Specifically, in addition to considering U.S. national and economic security implications, applications will be evaluated for financial strength, workforce development, commercial viability, technical feasibility/readiness, and attempts to encourage inclusive economic growth. Awards may take the form of grants, cooperative agreements, federal loans, and federal guarantees of third-party loans.
Total awards, which may include a combination of direct funding and loans, are not expected to exceed 35 percent of project capital expenditures. Awards are intended to complement private investment sources. Therefore, applicants are encouraged to participate in cost sharing by demonstrating the capital they will contribute. In addition, applicants will be required to show that the funding they have requested will incentivize investments in equipment and facilities in the United States that would not happen without the incentives. Furthermore, applicants are required to have been offered an incentive from a local or state government – though the incentive can be contingent on a federal award. In addition, applicants and are encouraged to claim the Advanced Manufacturing Investment Credit administered by the Internal Revenue Service and U.S. Department of Treasury.
The NOFO advises that statements of interest from prospective applicants will be accepted on a rolling basis beginning February 28, 2023, and must be received at least 21 days prior to submitting a pre-application. Pre-applications and full applications commence thereafter: pre-applications (which are optional) and full applications for leading-edge facilities will be accepted on a rolling basis beginning March 31, 2023. For current-generation, mature-node, and back-end production facilities, pre-applications (which are recommended) will be accepted on a rolling basis beginning May 1, 2023, and full applications will be accepted on a rolling basis beginning June 26, 2023.
Potential applicants are encouraged to familiarize themselves with the existing NOFO and Fact Sheets available on the CHIPS website. Should you have any questions that must be resolved before the application deadline, Reed Smith has a team of national security and government contracts attorneys, including the authors of this article, who are tracking implementation of the CHIPS and Science Act of 2022 (see International Trade & National Security practice and Government Contracts & Grants).
Client Alert 2023-066