South Korea asks the United States to relax chip law guardrails and allow semiconductor production in China to increase by 10%

The South Korean government has recently targeted the United States' Chip and Science Act (CHIPS Act, hereinafter referred to as the Chip Act) subsidy standards, requiring the United States to relax the "guardrail clause" restrictions and expand the upper limit for subsidized semiconductor companies to expand production capacity in China.

Korean media such as Seoul Economy and Digital Times quoted official U.S. announcements as stating that the Korean government has made formal comments on the implementation details of the guardrail provisions of the Chip Act announced by the U.S. Department of Commerce on March 21, 2023, stating that the implementation of the guardrail provisions should not prevent companies investing in the United States. Bearing unreasonable burdens, we hope that the U.S. government will re-discuss the definition of key terms such as "material expansion" and "legacy" in the regulations.

According to the guardrail clause, companies that receive U.S. semiconductor subsidies must not expand their advanced semiconductor process production capacity in China by more than 5% in the next 10 years, while the South Korean government requires that they be allowed to increase production by at least 10%.

Relevant diplomatic sources pointed out that the request for another discussion on the specific expansion definition is in the hope of expanding the upper limit of production expansion of advanced process semiconductors. South Korea's position is that at least 10% expansion of production should be allowed. The semiconductor industry generally believes that considering that Samsung Electronics' semiconductor production in China has increased by more than 100% in the past 10 years, limiting the expansion ratio to less than 5% is excessive.

The request to re-discuss the definition of mature process semiconductors also takes into account the speed of technology development and hopes to relax the standards. Currently, the U.S. Department of Commerce regards 28-nanometer process digital or analog logic semiconductors, 18-nanometer DRAM, and 128-layer NAND Flash as the boundaries between mature and advanced process semiconductors.

The Korea Semiconductor Industry Association (KSIA) also submitted a submission requesting that the scope of the "technology clawback" clause be narrowed. According to the terms, subsidy recipients must return the subsidy if they conduct joint research and development or technology licensing (sign a patent use contract) with a "Foreign Entity of Concern (FEoC)".

However, the current definition of FEoC is too broad and vague. All Chinese and Chinese businesses can be included in FEoC, which is equivalent to prohibiting internal operations such as transactions between the head office and Chinese branches. The definition of FEoC should be narrowed to export control. Business operators on the list, etc.

In addition, patent use contracts need to be excluded from the definition of "joint research and development" in technology recovery clauses, because preventing companies from signing patent use contracts with FEoC will impact the daily business transactions required by the semiconductor ecosystem, and will instead make it difficult for those who receive semiconductor subsidies. The industry is at a disadvantage.

South Korean diplomatic sources said that in order to respond to the needs of Korean companies as much as possible, they will continue to negotiate with the US government on detailed regulations.