© Reuters. FILE PHOTO: Flags of China and the US are displayed on a printed circuit board with semiconductor chips, in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

By David Shepardson

WASHINGTON (Reuters) – The US Commerce Department on Tuesday released proposed rules to prevent $52 billion in semiconductor manufacturing and research funding from being used by China and other countries deemed of concern.

The proposal limits recipients of US funding from investing in the expansion of semiconductor manufacturing in foreign countries of concern such as China and Russia, and limits recipients of incentive funds from engaging in joint research or technology licensing efforts with a foreign entity of concern.

It also classifies some semiconductors as critical to national security – defining these chips as not considered to be a legacy chip and therefore subject to tighter restrictions. This measure covers chips “including current-generation and mature-node chips used for quantum computing, in radiation-intensive environments, and for other specialized military capabilities.”

Commerce Secretary Gina Raimondo said “these guardrails will help ensure we stay ahead of adversaries for decades to come.”

The Commerce Department plans to begin accepting applications in late June for a $39-billion semiconductor manufacturing subsidy program. The law also creates a 25% investment tax credit for building chip plants, estimated to be worth $24 billion.

In October, the department issued new export controls to cut China off from certain semiconductor chips made anywhere in the world with US equipment, vastly expanding its reach in its bid to slow Beijing’s technological and military advances.

The rules built on restrictions sent in letters last year to top toolmakers KLA Corp. Lam Research Corp. (NASDAQ:) and Applied Materials Inc (NASDAQ:), effectively requiring them to halt shipments of equipment to wholly Chinese-owned factories producing advanced logic chips.

The Commerce Department said on Tuesday it would reinforce those controls by aligning prohibited technology thresholds for memory chips between export controls and CHIPS national security guardrails and include “a more restrictive threshold for logic chips than is used for export controls.”

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