The U.S. Defense Department has successfully, albeit surreptitiously, swiped $3.5 billion from the Commerce Department’s CHIPS Act funding to subsidize Intel’s creation of a classified advanced semiconductor manufacturing facility called Secure Enclave. Although being specifically built for defense and intelligence state-of-the-art computer chip needs, the funding for Secure Enclave was not included in the original CHIPS Act law. The Commerce Department, unsurprisingly, objected to losing control of almost 10% of the CHIPS Act’s manufacturing grants when this funding was commandeered by the Defense Department for Secure Enclave.

Advocates for Secure Enclave argued that Trusted Foundry, a program in existence since 2004 where Defense Department inspectors certify commercial semiconductor sector manufacturing facilities, was not secure enough for some types of chips, including state-of-the-art ones. Nevertheless, the reaction to this budget allocation legerdemain has been widespread disapproval.

“I don’t know how this happened, but it should not have,” said Charles Wessner, an expert on global innovation policy at the Center for Strategic International Studies think tank.

“There should be no Secure Enclave in the CHIPS program,” said Rep. Zoe Lofgren, D-Calif., the ranking member of the House Science, Space, and Technology Committee, “and any secure program that might be necessary should be funded by the Department of Defense … not from CHIPS funding that should be focused on revitalizing our domestic chip capacity.”

Is this simply a bureaucratic schoolyard fight where the Defense Department steals some of the Commerce Department’s lunch money?

While it is impossible to fairly evaluate the merits of both what has been done and how it has been done without access to the classified briefings, some semiconductor industry and national security program context helps explain what exactly is going on.

Semiconductors are more valuable and critical today than oil during the industrial age. Natural gas, coal, wind, solar, geothermal and nuclear power are all alternative energy sources that in some instances can replace the power supplied by oil. In addition, multiple countries on different continents have large sources of oil. Neither of these two key factors apply to semiconductors. There are no alternatives to semiconductors, and as a practical matter there is no real alternative to Taiwan Semiconductor Manufacturing Co. in Taiwan.

TSMC now manufactures approximately 90% of all advanced semiconductors in the world. When Russia invaded Ukraine, and Western countries heavily sanctioned Moscow’s oil and gas industry, Western countries had the ability — albeit in some cases with great difficulty — to turn to alternative producers of oil and gas as well as alternative sources of energy. If China attacks or blockades Taiwan, it is currently impossible for the lost volume of TSMC’s advanced semiconductors to be made up elsewhere. TINA, an investment and political acronym for “there is no alternative,” now has a place in the national security discourse.

Adm. Phil Davidson, then-chief of U.S. Indo-Pacific Command, predicted China will attempt an attack on Taiwan by 2027. What is now known as the Davidson window provides additional context for Secure Enclave. Intel recently purchased from the semiconductor specialist ASML a high numerical aperture extreme ultraviolet wavelength semiconductor manufacturing system — its most advanced system. Intel expects that it will begin early production of some of the world’s most advanced computer chips from this system in the 2026-2027 time frame.

Congress’ notoriously erratic defense budget approval process means if Secure Enclave had not been funded by the CHIPS Act program, there likely would be no operational Secure Enclave until after the Davidson window had closed.

There is, though, another piece to this national security semiconductor puzzle: Trusted Foundry. A little-known agency within the Defense Department, the Defense Microelectronics Activity is the accrediting authority for the Trusted Foundry program, which ensures semiconductor components incorporated into military systems have not been compromised by foreign agents.

Several key weaknesses in the Trusted Foundry program provide context for why there may have been no desire to have this new secure advanced semiconductor manufacturing program simply folded into it.

Until Intel’s new extreme ultraviolet wavelength tool comes online in the Secure Enclave, the Defense Department can only buy chips from the trusted foundries, which are two generations behind what is available on the commercial state-of-the-art market. Part of the problem is that the Defense Department is not a large purchaser of microelectronics, so many semiconductor companies are unable to make a business case for participating in the Trusted Foundry program.

Insider threats are also a significant problem with this program, according to Mark Lewis, former acting deputy undersecretary of defense for research and engineering and former director of defense research and engineering for modernization. “We’ve seen a number of examples where the biggest threats that we face often are the insider threat. It’s the people inside the fence line, behind the guards, who we think we’ve cleared,” he said. “They’re the ones that pose the biggest threats to us.”

In light of these problems, the Trusted Foundry program has been deemed a failure and was supposed to be phased out, but that never happened. Defense Microelectronics Activity continued to run the Trusted Foundry program in a business-as-usual mode, with no announcement regarding its closure, no winding down of existing contracts, and no website notice of the Trusted Foundry program’s demise.

Instead, Defense Microelectronics Activity has focused on the next iteration of the Trusted Foundry program, which it calls the Trusted Foundry Access III program, by awarding contracts in 2023 “to ensure uninterrupted access to measurably secure, State-of-the-Art semiconductor foundry services over a 10-year period of performance.”

Pilfering funding from another department for one’s own is as old as bureaucracy itself. The semiconductor industry, national security and domestic political contexts to this particular interdepartmental commerce and defense bureaucratic wrangling indicate the national security stakes could not be higher.

André Brunel is an international technology attorney with Reiter, Brunel and Dunn. This commentary was adapted from his article published in the Journal of Business & Technology Law. The views and opinions expressed in this commentary are his and do not necessarily reflect the views or positions of the law firm or any clients it represents.

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