S. Korea asks US to give more leeway on chip expansion in China

South Korea has asked the United States to reconsider details of the guardrail provision of its CHIPS Act, to ease the regulations limiting Korean chipmakers from expanding their production capacity in China.

In the comment unveiled by the US Federal Register on Tuesday, the Korean government has requested the US Commerce Department to review and clarify the guardrail provision, which limits the beneficiaries of its semiconductor boost program from expanding their production capacity in China and other “countries of concern.”

“The ROK believes that the ‘guardrail provisions’ should not be implemented in a manner that imposes an unreasonable burden on companies investing in the United States,” the statement reads. ROK refers to South Korea’s official name, Republic of Korea.

“In this vein, the ROK requests the US Government to review the proposed rule’s current definition of ‘material expansion,’ ‘legacy semiconductor,’ and other key terms.”

In the comment, Seoul also requested Washington to further clarify the scope of restricted activities under the “Technology Clawback,” which the Commerce Department will claw back the entire funding award when a funding recipient violates the restrictions.

“The ROK requests the US to actively consider its opinion when finalizing the detailed rules on the guardrail provisions,” the government said in the comment, adding that it seeks to continue to work closely with the US government in regards to the CHIPS Act and other semiconductor-related issues.

In March, the US Commerce Department released the details for the guardrails for its CHIPS for America Incentive Program to restrict recipients of its support funds from expansion of both advanced and legacy facilities in the foreign countries of concern by up to 5 percent. The countries include China, Russia, Iran and North Korea.

In detail, the guardrail proposal prohibits “significant transactions involving the material expansion of semiconductor manufacturing capacity for leading edge and advanced facilities,” in those countries of concern for 10 years, according to the Commerce Department. It also defines “material expansion” as increasing a facility's production capacity by 5 percent.

For facilities in China producing legacy chips, adding new production lines or expanding a facility's production capacity is allowed up to 10 percent. Legacy chips, as the US defines them, are logic chips produced with 28-nanometer technology or larger, with less than 128-layer NAND flash and over 18nm DRAM -- the older, and less critical chips.

The release of the guardrail proposal has prompted concerns for Korea’s leading chipmakers such as Samsung Electronics and SK hynix, which seek to receive US subsidies for their envisioned chip manufacturing facilities in the US, and operates key production plants in China.

Samsung, the world’s No. 1 chip manufacturer by revenue, operates chip plants in the Chinese city of Xian, which produce 40 percent of its total NAND flash chips.

SK hynix, the No. 3 memory chipmaker, has manufacturing plant in Wuxi, responsible for producing almost half the company’s DRAM production.

Meanwhile, a US representative has called for US government to come up with a measure to prevent Korean chipmakers from “backfilling” Micron Technology orders in China. Beijing recently announced Micron failed its network security probe, and that, it was banning key infrastructure companies from buying from the US-based chipmaker.

In a statement on Tuesday, Mike Gallagher, the chair of the US House of Representatives' committee said the Commerce Department should ensure "no US export licenses granted to foreign semiconductor memory firms operating in (China) are used to backfill Micron, and our South Korean allies, who have experienced exactly this kind of CCP (Chinese Communist Party) economic coercion firsthand in recent years, should likewise act to prevent backfilling.”

He also urged the department to put trade curbs on Chinese memory chipmaker Changxin Memory Technologies in a retaliatory measure.

Separately from the US representative, the White House has been reported to have requested the Korean government to hold back from filling China’s chip shortfalls, before China concluded the security probe on Micron in April.

While neither the US nor the Korean government confirmed the report by the Financial Times, South Korea’s Industry Vice Minister Jang Young-jin on Monday said that the issue “was not something about which the government can tell (companies) what to do, companies should decide for themselves,” on whether to increase sales in China to fill in the gap of Micron.

“I believe Samsung Electronics and SK hynix run their businesses globally so they will consider all options to make a decision,” Jang told reporters.