Worldwide: National Defense Authorization Act Includes Provision Restricting US Government From Purchasing Chips Manufactured By Certain Chinese Companies

On December 8, Senators Chuck Schumer (D-NY) and John Cornyn (R-TX) announced they successfully included an amendment into the Fiscal Year 2023 National Defense Authorization Act ("NDAA") that restricts the US government from purchasing products or services that incorporate semiconductors made by certain Chinese chip manufacturers, including the Semiconductor Manufacturing International Corporation ("SMIC"), ChangXin Memory Technologies ("CXMT"), and Yangtze Memory Technologies Corp ("YMTC"), along with any of their successor and affiliate entities.¹ The restrictions enter into force five years from passage of the legislation, once funds from the CHIPS and Science Act are disbursed.² Senators Schumer and Cornyn describe these companies as ones with "known links to Chinese state security and intelligence apparatuses."³

The Secretaries of Defense, Commerce, Homeland Security, and Energy, along with the Director of National Intelligence, may issue waivers on the restrictions if they determine "the waiver is in the critical national security interests of the United States."⁴ Heads of other agencies may also seek temporary waivers in coordination with the Secretaries of Commerce and Defense, and the Director of National Intelligence.⁵ The legislation also requires the Federal Acquisition Regulatory Council to prescribe regulations implementing the prohibitions described above.

Besides the ban on semiconductor purchases from the identified companies, the legislation also requires the federal government to conduct a study on the US industry's and allied countries' capability of supplying the federal government with semiconductors.⁶ Additionally, the legislation establishes the Government Traceability and Diversification Initiative, which requires the government to trace and respond to vulnerabilities in the government's semiconductor supply chain.⁷ This initiative must include efforts to identify and mitigate semiconductor supply chain disruptions and a plan to inform federal semiconductor procurement, among other issues.⁸

The National Defense Authorization Act is annual "must pass" legislation that authorizes funding levels for US military activity and provides legal authorities for the US military and other critical defense priorities. The Fiscal Year 2023 NDAA was passed by both houses of Congress on a bipartisan basis on December 15, 2022, and it is widely expected that the President will sign it into law in the coming days. It includes the above-described provision on semiconductor procurement.

Footnotes

1. https://www.democrats.senate.gov/newsroom/press-releases/schumer-cornyn-wicker-announce-inclusion-of-amendment-to-limit-federal-use-of-chinese-made-semiconductor-chips-in-must-pass-defense-bill-legislation-will-strengthen-national-security-boost-us-chip-industry-and-create-domestic-manufacturing-jobs-by-eliminating-dangerous-chinese-chips-from-us-government-supply-chains; https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR7776EAS-RCP117-70.pdf, Sec. 5949.

2. Id.

3. https://www.democrats.senate.gov/newsroom/press-releases/schumer-cornyn-wicker-announce-inclusion-of-amendment-to-limit-federal-use-of-chinese-made-semiconductor-chips-in-must-pass-defense-bill-legislation-will-strengthen-national-security-boost-us-chip-industry-and-create-domestic-manufacturing-jobs-by-eliminating-dangerous-chinese-chips-from-us-government-supply-chains

4. https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR7776EAS-RCP117-70.pdf, Sec. 5949.

5. Id.

6. Id. at sec. 5949(e)

7. Id. at sec. 5949(f)

8. Id.