US national security review of the semiconductor manufacturing supply chain presents critical opportunities for industry

On March 15, 2021, the US Commerce Department’s Bureau of Industry and Security (BIS) invited input from members of the semiconductor industry and other interested parties in connection with a review of the US semiconductor manufacturing supply chain.^[1]  The review was launched under President Joe Biden’s February 24 Executive Order (EO 14017) to conduct a comprehensive assessment of, and identify ways to strengthen, key US industries deemed essential to US economic and national security, including semiconductors, advanced batteries, critical minerals, and pharmaceuticals. The review also supports the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act) that was passed by Congress in December as part of the National Defense Authorization Act of 2021. 

The BIS review presents a critical window for companies that design, produce, package, and test semiconductors – as well as suppliers of goods and materials to the industry and downstream customers such as the automotive industry.  By raising with BIS the supply chain, workforce, trade, and other issues impacting their businesses, companies and their investors can help shape federal government policymaking on semiconductors for at least the next four years. 

Due to the deadlines established by EO 14017 and the CHIPS for America Act, however, this window is closing fast, with comments due no later than April 5, 2021.  Companies that have been impacted by recent disruptions in the semiconductor supply chain and those wishing to have input into potential US government programs to support the industry and its supply chain will need to act quickly to take advantage of this opportunity.

Background

Recent headlines about the slowdown in US automotive manufacturing due to a shortage of the semiconductor chips that are ubiquitous and essential in modern vehicles have underscored the pivotal role that semiconductors play in the US and global economies.  Coupled with concerns about the US semiconductor industry being overtaken by that of China, this shortage has prompted renewed action by US policymakers to identify ways to strengthen the US industry and workforce.  The latest BIS national security review is one consequence of this renewed focus.

Specifically, EO 14017 directs BIS to report to the President within 100 days on risks in the US semiconductor manufacturing and advanced packaging^[2] supply chains and to provide policy recommendations to address these risks.

Additionally, Section 9904 of the CHIPS for America Act requires BIS (and other relevant sections of the Commerce Department) to assess the capabilities of the US microelectronics industry to support US national defense needs, taking into consideration the global nature and interdependence of the supply chain with respect to manufacture, design, and end use. The Commerce Department must submit a report to Congress that includes a list of critical technology areas impacted by potential disruptions in the production of microelectronics and an assessment of gaps and vulnerabilities in the microelectronics supply chain.

The scope of requested comments

In order to implement these mandates, BIS is particularly interested in information from the semiconductor industry and other interested parties (such as key downstream customers like aerospace, automotive, industrial equipment, and consumer electronics companies).  In particular, BIS is seeking comments on the following topics:

• Critical and essential goods and materials underlying the semiconductor manufacturing and advanced packaging supply chain
• Manufacturing and other capabilities necessary to produce semiconductors, such as electronic design automation software and advanced integrated circuit packaging techniques and capabilities
• Workforce skills and personnel necessary to sustain a competitive US semiconductor ecosystem, including the domestic education and manufacturing workforce skills needed for semiconductor manufacturing, any skills gaps in the current workforce, and any opportunities to meet future workforce needs
• Factors (including defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced labor risks) that could disrupt the semiconductor supply chain or reduce its ability to meet US needs. Potential examples include gaps in domestic design and manufacturing capabilities and capacity, gaps in education and training, areas of overreliance on single source suppliers, and other industry bottlenecks and chokepoints and
• Potential consequences of the failure to sustain or develop the US semiconductor supply chain on downstream industries such as food and agriculture, energy, transportation, information and communications technology and services (ICTS), aerospace, artificial intelligence, quantum and supercomputers, 5G, and election security.

BIS is also seeking policy recommendations and suggested executive, legislative, and regulatory actions to ensure a resilient supply chain for semiconductors.  Examples include reshoring, nearshoring, or developing domestic suppliers, cooperation with allies to identify or develop alternative supply chains, building redundancy into supply chains, and ways to address risks due to vulnerabilities in digital products or climate change. Companies may want to consider commenting on the adverse effects that recent regulatory actions involving Chinese companies have had on their ability to manufacture microcircuits and other electronic products.

Conclusion

In sum, the BIS request for comments presents a unique opportunity for interested companies and investors to present their “asks” for changes and improvements to US policies, laws, and regulations impacting the entire semiconductor supply chain and downstream consumers of semiconductors.  Based on EO 14017, the CHIPS for America Act, and the BIS request for comments, virtually every possibility appears to be on the table for consideration.  Given the significance of this legislative and policy moment, interested parties should act quickly to provide their views by the April 5 deadline.

Please contact the authors should you have any questions about this latest US government action or would like assistance in preparing and submitting comments.