US says it will limit government subsidies for semiconductor chips

The US Department of Commerce said late Friday that it would limit government subsidies for semiconductor manufacturing and prevent firms from using the funding to “surface their profits.”

On Thursday, the US House of Representatives finally approved a bill that provides $52 billion (nearly Rs. 4 million) in government funding to boost semiconductor manufacturing and research. President Joe Biden is expected to sign the legislation early next week.

On Friday, the Department of Commerce said the award to chip companies would be “no more than is necessary to secure a project here in the United States” and added that it would discourage “state and local subsidy competition.”

Congressional Progressive Group Chair Pramila Jayapal said the group backed the legislation after lengthy negotiations with Commerce Secretary Gina Raimondo after the group raised concerns that chip companies would use the funding to buy back shares or pay dividends.

A caucus spokeswoman said Friday that “progressives were able to vote on the bill yesterday, confident that the ministry would ensure that the funding could not be used for corporate self-enrichment.”

Commerce said applicants must provide detailed financial information and projections for proposed projects and capital investment plans: “The Department will take a close look at them and ensure companies don’t add to their models to demand too much incentive.”

A spokesman for the Department of Commerce declined to comment, other than posting online.

The department promised to “give preference to companies that commit to invest in the development of the domestic semiconductor industry in the future … and not engage in share buybacks.”

The legislation does not prohibit share buybacks by publicly funded companies, but it does prohibit the use of grant funds for share buybacks.

Funded companies will be barred for 10 years from “engaging in significant transactions in China or other countries of concern relating to any advanced semiconductor manufacturing facility or significant expansion of obsolete semiconductor manufacturing facilities destined for export to the United States and other countries”.

© Thomson Reuters 2022