G/SCM/Q2/USA/88  
20 October 2022  
(22-7881) Page: 1/3 
Committee on Subsidies and Countervailing Measures  Original: English  
 
 
SUBSIDIES  
 
QUESTIONS FROM CHINA TO THE UNITED STATES  
PURSUANT TO ARTICLE 25.8 OF THE AGREEMENT  
The following communication, dated and received on 20 October 2022, is being circulated at the 
request of the delegation of China.  
 
 
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China would like to submit the following questions to the US regarding the compliance of certain 
provisions of the CHIPS Act of 2022  with the GATT and the ASCM under Article 25.8 of the ASCM.  
Question 1:  
The specific requirements under Se c. 103 (b)(5) of the CHIPS Act could be implemented in a manner 
that is inconsistent with U.S. obligations under the GATT and the ASCM. What would the 
United  States do to ensure its measures ' consistency with its obligations?  
1.1 Provisions under concern  
CHIPS Act of 2022  Sec. 103 Semiconductor Incentives, subparagraph (b) Semiconductor Program, 
item (5): by inserting after subsection (a)(5) the following:  
"(6) EXPANSION CLAWBACK  
(C) REQUIRED AGREEMENT .— 
(i) IN GENERAL. —On or before the date on which the Secretary awards Federal financial 
assistance to a covered entity under this section, the covered entity shall enter into an 
agreement with the Secretary specifying that, during the 10 -year period beginning on the 
date of the award, subject to clause (ii), the covered entity may not engage in any significant 
transaction, as defined in the agreement, involving the material expansion of semiconductor 
manufacturing capacity in the People 's Republic of China or any other foreign country of 
concern.  
(ii) EXCEPTIONS .—The prohibition in the agreement required under clause (i) shall not apply 
to— 
(I) existing facilities or equipment of a covered entity for manufacturing legacy 
semiconductors; or   
(II) significant transactions involving the material expansion of semiconductor 
manufacturing capacity that — G/SCM/Q2/USA/88  
 
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  (aa) produces legacy semiconductors; and  
(bb) predominately serves the market of a foreign country of concern.  
(iii) AFFILIATED GROUP .—For the pu rpose of applying the requirements in an agreement 
required under clause (i), a covered entity shall include the covered entity receiving financial 
assistance under this section, as well as any member of the covered entity 's affiliated group 
under section 1504(a) of the Internal Revenue Code of 1986, without regard to section 
1504(b)(3) of such Code. " 
1.2 Likelihood of the MFN Violation  
Sec. 103 explicitly requires a covered entity to disengage certain business activities with specified 
WTO members in order to get the benefit under the program. If implemented, this discriminatory 
requirement would very likely lead to treatment towards certain semiconductor products destined 
for those specified WTO members less favorable than similar products destined fo r other 
WTO members. This would lead to a violation of the U.S. obligation under the GATT Art. I.  
1.3 Likelihood of Violation of the General Elimination of Quantitative Restrictions  
Sec. 103, if implemented, would amount to a quantitative restriction of the exportation of certain 
semiconductor products. This would be in violation of the U.S. obligation under the GATT Art. XI.  
1.4 Likelihood of Causing Adverse Effects and Serious Prej udices  
Sec. 103, if implemented, as part of the Sec.  103 Semiconductor Incentives could cause adverse 
effects to the interest of other Members, in particular causing serious prejudice by displacing or 
impeding the exports of a like product of another Membe r from a third country market. This would 
lead to a violation of ASCM Art. 5 and Art. 6.  
Question 2:  
The requirements set out for the "critical manufacturing industry " under Sec. 103(a)(3) of the 
CHIPS  Act and the considerations specified in Sec. 103(a)(6), when implemented, would make the 
incentives prohibited subsidies under the ASCM. What would the United States do to ensure its 
measures ' consistency with its obligations?  
2.1 Provisions under concern  
Item (1):  Sec. 103. S emiconductor Incentives . 
(a) DEFINITIONS  
[…] 
(3) by inserting after paragraph (4), the following:  
"(5) The term 'critical manufacturing industry '— 
(A) means  an industry, industry group, or a set of related industries or related industry 
groups—  
[…] 
(I) manufacture primary products and parts, the sum of which account for not less than 
5 percent of the manufacturing value added by industry gross domestic product of the 
United States ; and  G/SCM/Q2/USA/88  
 
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  (II) employ individuals for primary products and parts manufactu ring activities that, 
combined, account for not less than 5 percent of manufacturing employment in the 
United  States ; and […]" 
Item (2): Sec. 103. Semiconductor Incentives,  […] (6) by adding at the end the following:  
"(e) Additional assistance for mature technology nodes  
[...] 
(4) Considerations  
In addition to the considerations described in subsection (a)(2)(C), in granting Federal 
financial assistance under this subsection, the Secretary may consider whether a 
covered entity produces or supplies equipment or materials used in the fabrication, 
assembly, testing, or packaging of semiconductors at mature technology nodes that are 
necessary to support a critical manufacturing industry ." 
2.2 Likelihood of Constituting Prohibited Subsidies  
The specific domestic content requirements of "critical manufacturing industry " in Sec. 103(a)(3), 
would make any incentives provided in consideration of  these criteria domestic -content contingent 
subsidy. According to Article 3.1(b) of the ASCM, "subsidies contingent, whether solely or as one of 
several other conditions, upon the use of domestic over imported goods " is a form of prohibited 
subsidy.  
 
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