(LEAD) Chips Act incentives limit expansion of semiconductor manufacturing capacity in China by 5 pct

All News 11:00 March 22, 2023

(ATTN: ADDS Seoul ministry's release in last 3 paras, photo; RECASTS dateline)
By Byun Duk-kun

SEOUL/WASHINGTON, March 22 (Yonhap) -- The U.S. CHIPS and Science Act will limit to 5 percent the expansion of semiconductor manufacturing capacity in foreign countries of concern for companies that receive funds under the new act, the U.S. Department of Commerce has announced.

The proposed regulations provide some relief to South Korean manufacturers, namely Samsung Electronics Co. and SK hynix Inc. that currently have manufacturing facilities in China.

"The statute prohibits significant transactions involving the material expansion of semiconductor manufacturing capacity for leading-edge and advanced facilities in foreign countries of concern for 10 years from the date of award to stop recipients from constructing new or expanding existing leading-edge and advanced technology facilities in those countries," said a related regulation announced by the commerce department on Tuesday.

"Today's proposed rule defines significant transactions based on a monetary level of $100,000 and defines material expansion as increasing a facility's production capacity by five percent," it added.

The foreign countries of concern are China, Russia, Iran and North Korea, according to the regulations.

It was earlier feared that the CHIPS Act may limit the South Korean companies from producing new and more advanced semiconductors in China.

"It seems we may have avoided the worst case," a related company official said.

The act offers up to US$52.7 billion in subsidies to chipmakers that invest in new production facilities in the U.S., but prohibits "significant" expansion of manufacturing capacity of recipients in the named foreign countries of concern.

The proposed regulations allow the U.S. government to claw back the "entire funding" awarded to any recipient that violates the 10-year, 5-percent expansion limit.

Seoul's industry ministry said Wednesday that U.S. officials will visit South Korea this week for talks on details of the guardrails, as the two nations will continue close consultations before final regulations will be published later this year.

"Our companies will be able to maintain and expand, at least partially, manufacturing facilities in China. They will still be able to make technology updates to existing facilities," the ministry said in a release.

"The government will closely analyze details of the regulations through active communications with our industries. Based upon the results, we will have additional consultations with the U.S. during the 60 days of public comment," it added.