With the goal of countering China's tech ascendancy, the US Senate approves the US Innovation and Competition Act

The US Senate on Tuesday, June 8, approved comprehensive technology policy and funding legislation, by a vote of 68-32, aimed at combating the growing influence of China in critical technologies like artificial intelligence (AI) and quantum science while ensuring American leadership in setting international technological standards.

The United States Innovation and Competition Act of 2021 (S.1260) rebrands and incorporates legislation known as the Endless Frontier Act, a bipartisan bill originally introduced last year, and combines it with funding to incentivize semiconductor chips production, along with aggressive diplomatic, national security and trade measures targeting China’s rising economic, military and technological power.

Spearheaded by Senate Majority Leader Chuck Schumer (D-NY), with principal bipartisan co-sponsor Senator Todd Young (R-IN) and the original co-sponsorship of 12 other senators from both sides of the aisle, the sprawling, 1,445-page legislation includes amendments adopted in the Commerce Committee and on the Senate floor, as well as provisions developed by a diverse group of other committees, including Appropriations, Banking, Foreign Relations, HELP (Health, Education, Labor and Pensions), Homeland Security and Governmental Affairs, and Judiciary.

The White House has already issued a Statement of Administration Policy in support of the basic objectives of the legislation, stating that the bill “is aligned with the President’s vision to build a stronger, more inclusive innovation engine in the United States,” and that the administration will “look forward to working with the Congress on further improvements as this legislation progresses, including taking steps to fund these critical priorities.” President Biden on June 8 issued an additional statement hailing passage of the bill. “I look forward to working with the House of Representatives on this important bipartisan legislation, and I look forward to signing it into law as soon as possible,” the president said.

But the bill faces uncertain prospects in the House of Representatives. The House Science, Space and Technology Committee’s Research and Technology Subcommittee on May 13 approved a more modest and targeted bill, the National Science Foundation for the Future Act (HR 2225). Like the Senate bill, the House bill (which also boasts bipartisan support) would overhaul and increase funding for the National Science Foundation (NSF) to help it lead research efforts into critical technologies and applied sciences, such as AI, quantum computing and cybersecurity.

Both bills would establish new directorates at NSF – a Directorate for Technology and Innovation in the Senate version, a Directorate for Science and Engineering Solutions in the House proposal. But the funding structures in the two chambers’ respective bills differ. Further, the House bill does not incorporate the broader China-focused foreign policy provisions adopted by the Senate.

While the Senate was not able to get the measure passed before its original Memorial Day target deadline, the fact that it did ultimately pass with bipartisan support under a “regular order” process considering hundreds of amendments, is seen by Congressional observers as a hopeful sign that productive legislating on matters of great substance and import is possible even in the current polarized political atmosphere.

Key provisions of the United States Innovation and Competition Act of 2021

The bill is composed of major sections or Divisions organized by committee of jurisdiction:

Division A: CHIPS Act incentives and O-RAN 5G funding (Appropriations)

$52 billion in emergency supplemental appropriations would be made available over the next five years to support rapid implementation of the CHIPS for America Act (short for Creating Helpful Incentives to Produce Semiconductors), which was enacted earlier this year as part of the National Defense Authorization Act (NDAA).

The CHIPS Act included a range of federal investments and tax credits, supervised by the Commerce Department, to provide financial assistance to build, expand, or modernize commercial semiconductor fabrication, assembly, testing, advanced packaging, and R&D facilities. It provided support for the domestic microelectronics industry, including new R&D programs at the Defense Department, and authorized a multilateral semiconductor fund to support the adoption of a secure semiconductor supply chain and greater alignment of export control policies among partner countries. It also created a National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program, and additional R&D programs at Commerce to conduct research, prototyping, and workforce training in advanced semiconductor technology with private sector and interagency participation.

The emergency funding under the current legislation would include:

• $49.5 billion for a CHIPS for America Fund, including $39 billion for the incentive program, with $19 billion of that total allocated upfront in the first year of the program, and including $2 billion dedicated to legacy chip production essential to the auto industry, the military, and other critical industries. $10.5 billion would go to Commerce R&D programs over five years.
• $2 billion for a CHIPS for America Defense Fund over five years to support the needs of the Defense Department and the intelligence community.
• $500 million for a CHIPS for America International Technology Security and Innovation Fund to coordinate with foreign government partners in support of international information and communications technology security, trusted telecommunications technologies and semiconductor supply chains.

The O-RAN (Open Radio Access Network) technology provisions include funding for 5G trusted telecommunications, specifically advancing the Utilizing Strategic Allied (USA) Telecommunications Act, also enacted under the NDAA, including:

• $1.5 billion for the Public Wireless Supply Chain Innovation Fund to spur movement towards open-architecture, software-based technologies in the US mobile broadband market. The fund would be managed by the National Telecommunications and Information Administration (NTIA), with input from other agencies.
• The $500 million CHIPS for America International Technology Security and Innovation Fund referenced above would also support activities related to trusted international information and communications and other emerging technologies. 

Division B: Endless Frontier Act (Commerce, Science and Transportation)

Initially the centerpiece of Congress’s China tech competition initiative, the Endless Frontier Act seeks to safeguard US leadership in science and technology through R&D investments in key technology focus areas, such as AI and quantum computing. The legislation would authorize approximately $120 billion over five years to NSF, Commerce, the Energy Department and the National Aeronautics and Space Administration (NASA).

This is the division of the legislation that would create the new Directorate of Technology and Innovation at the NSF. The Directorate would include funding R&D at collaborative institutes, supporting academic technology transfer and intellectual property protection, establishing technology testbeds, and awarding scholarships and fellowships to build a skilled workforce. The Directorate would be authorized at $29 billion over the next five fiscal years.

The initial key technology focus areas include the following:

1. Artificial intelligence, machine learning, autonomy and other software advances;
2. High-performance computing, semiconductors, and advanced computer hardware;
3. Quantum information science and technology;
4. Robotics, automation, and advanced manufacturing;
5. Natural and anthropogenic disaster prevention or mitigation;
6. Advanced communications technology and immersive technology;
7. Biotechnology, medical technology, genomics, and synthetic biology;
8. Data storage, data management, distributed ledger technologies, and cybersecurity, including biometrics;
9. Advanced energy, batteries, and industrial efficiency; and
10. Advanced materials science, including composites and 2D materials.

The Endless Frontier Act would also authorize $52 billion over the same period for existing NSF activities, a 7 percent increase. The Commerce Department’s Manufacturing Extension Partnership would see its funding quadrupled to $2.4 billion over five years.

Regional economic development is a major priority of the Act, with the goal of decentralizing technology hubs away from the current concentration in a few regions by channeling funds to areas left behind by the tech revolution of the past few decades. Encouraging broader participation of populations underrepresented in STEM (science, technology, engineering and mathematics) education and careers is another key objective of the legislation. Funds would be awarded through a national competition overseen by the Department of Commerce, in which groups made of local governments, universities, nonprofits, investors, and others would make their pitch for funding.

Securing research from adversaries is an additional area of emphasis, including authorizing NSF’s research security office, and providing cybersecurity assistance for universities through the National Institute of Standards and Technology (NIST).

A supply chain resiliency program at Commerce would be established to work with the private sector. Funding and authorization of NASA programs would be provided. $100M would be authorized to establish the Telecommunications Workforce Training Grant Program Fund at the NTIA.

As part of the Endless Frontier Act, a $2.9 billion Test Bed program would be authorized from FY 2022 – FY 2026 under the auspices of the new Directorate for Technology and Innovation.

The Director of the NSF, in coordination with the Director of NIST, the Secretary of Energy and other federal agencies, would make awards, on a competitive basis, to institutions of higher education, nonprofit organizations, or consortia to establish and operate the test beds. These may include fabrication facilities and cyberinfrastructure, to advance the development, operation, integration, deployment and demonstration of new, innovative technologies in the key technology focus areas, including hardware or software.

• Applicants seeking grant awards would submit proposals to the Director, describing the technology or technologies that will be the focus of the test bed and the goals of the work to be done.
• The application process would include descriptions of how the applicants will assemble a workforce with the necessary operational skills, how they will ensure broad access to the test bed, and how they will collaborate with firms in the key technology focus areas, including through coordinated R&D and funding to ensure that work in the test bed will contribute to commercial viability leading to the creation of high-quality domestic jobs.
• Applicants would be required to demonstrate how they will encourage the participation of inventors and entrepreneurs and the development of new business.
• They would also have to demonstrate how they will increase participation by populations underrepresented in STEM and include collaboration from industry and labor organizations.
• How the test bed will operate after federal funding has ended is another criterion that applicants must demonstrate, as well as how it will disseminate lessons and other technical information to US entities or allied or partner country entities in the US.
• Applicants must demonstrate how they plan to take measures to prevent the inappropriate use of research results, data, and intellectual property.
• A recipient of an award under this section may use the funding for the purchase of equipment and for the support of students, faculty and staff, and postdoctoral researchers.
• In selecting award recipients, the Director will give priority to proposals that maximize the geographic diversity of test beds.

Also under the Endless Frontier Act division, the Regional Technology Hubs program would provide $10 billion in grant awards from FY2022 – 2026 in the key technological focus areas aimed at supporting regional economic development in small cities and rural areas, to diffuse innovation around the US while promoting domestic job creation and broad-based economic growth.

The Secretary of Commerce would award strategy development grants or cooperative agreements to eligible consortia to ensure that the regional technology hubs address the intersection of emerging technologies and either local and regional challenges, or national economic and social challenges. Grants would be awarded on the basis of encouraging new and constructive collaboration among the local, state and federal government levels, as well as academia, the private sector, economic development organizations, and labor organizations.

Eligible award recipients would include consortia that include institutions of higher education, state, local or Tribal governments or other political subdivisions within the states, economic development organizations, non-profit groups, labor organizations, venture capitalists and firms in relevant technological or innovation sectors.

The program would be overseen by the Assistant Secretary of Commerce for Economic Development in coordination with the Under Secretary of Commerce for Standards and Technology.

$16.9B in supplemental amounts would be provided to the Department of Energy, which oversees 17 national laboratories spread out across the country, over five years for R&D in the key technology focus areas.

More than 20 other pieces of legislation were folded into the Endless Frontier Act as amendments, including significant space legislation, the “Space Preservation and Conjunction Emergency Act of 2021” as well as measures relating to improving diversity and expanding educational opportunities for the next generation tech workforce.

Division C: Strategic Competition Act of 2021 (Foreign Relations)

This Division represents a bipartisan effort from the Senate Foreign Relations Committee intended to provide a strategic response to the People’s Republic of China (PRC) in the following ways:

• Increase US strategic focus on the Indo-Pacific, expand partnerships with regional allies and counter PRC and Chinese Communist Party (CCP) influence in international organizations.
• Confront Beijing’s political and economic influence and intellectual property theft.
• Authorize society measures and sanctions to pressure the PRC over human rights abuses.

Division D: Securing America's Future Act (Homeland Security and Governmental Affairs)

Title II of this Division is titled “Cyber and Artificial Intelligence.” Subtitle A, “Advancing American AI,” includes principles and policies for the use of AI in government, including recommended practices identified by the National Security Commission on Artificial Intelligence in its report entitled Key Considerations for the Responsible Development and Fielding of AI, as updated in April of this year. In addition, the AI policy provisions would be informed by principles articulated in Executive Order 13960 on promoting the use of trustworthy AI in government, as well as the input of the Privacy and Civil Liberties Oversight Board, various interagency councils and other governmental and non-governmental privacy, civil rights, and civil liberties experts. The bill’s sponsors say they hope the provision will help lock in the US competitive advantage over the Chinese government in this rapidly evolving field by leveraging American values, innovation and entrepreneurialism to advance this technology. Lawmakers maintain that the new partnerships created by this provision would allow the federal government to harness commercial breakthroughs to improve efficiency, enhancing economic competitiveness and national security.

Specifically for AI, Division D requires OMB and agency heads to inventory AI use cases and to share use cases across agencies. The language also requires the OMB Director along with relevant interagency councils (eg, CIO Council, Chief Data Officers Council) to identify and pilot four new use cases to apply artificial intelligence in support of interagency or intra-agency modernization initiatives that require linking multiple siloed data sources.

Provisions in the bill to strengthen the federal government’s capacity to prepare for and respond to cyberattacks, whether from international adversaries or criminal enterprises, include requiring regular National Risk Assessments and the creation of a Cyber Response and Recovery Fund. The legislation would also forbid the purchase of drones manufactured and sold by companies backed by the Chinese government.

Under the banner “Build America, Buy America,” the legislation modernizes requirements that US taxpayer dollars should be used to buy American-made manufactured products and materials as a way to protect and create jobs while advancing US competitiveness. This includes domestic content procurement preferences to discourage the use of Chinese- or Russian-made steel and other products that lawmakers say undercuts American manufacturers and workers. A central, publicly available website would be created to increase transparency when waivers are granted to Buy American requirements.

New security measures would be implemented to safeguard groundbreaking research from adversarial governments and others who seek to exploit security gaps.

Stepped-up investment in the federal workforce of the future would include establishing programs to grow federal expertise and interagency coordination on cybersecurity, as well as offering opportunities to reskill federal workers to better meet emerging and mission-critical workforce needs and stay competitive on the global stage.

This section includes the subtitle “Make PPE in America,” intended to address what the bill’s sponsors describe as an overreliance on companies in China and other countries for medical supplies by encouraging greater domestic production of personal protective equipment. It would require long-term contracts for domestically manufactured PPE, no shorter than three years in duration, to incentivize investment in the US and the re-shoring of manufacturing.

Finally, the legislation includes a section on federal grant application fraud, including failure to disclose the receipt of any outside compensation, including foreign compensation, by the individual seeking the grant.

Division E: Meeting the China Challenge Act of 2021 (Finance; Banking)

This Division includes sections relating to financial services, national security and export controls. It includes intensified use of existing sanctions authorities against Chinese violators on issues including human rights violations, forced labor, cyber espionage, illicit trade with North Korea, fentanyl production and distribution, and other issues. It would also provide for broad new mandatory sanctions on Chinese actors engaged in cyberattacks against the US, or in the theft of intellectual property from US firms.

In the financial services domain, provisions include the establishment of an interagency task force to address Chinese market manipulation in the US, expansion of study and strategy on money laundering by the PRC to include risks of contributing to corruption, and a statement of policy to encourage the development of a corporate code of conduct for countering malign influence in the private sector. The sponsors say these provisions are necessary to combat China’s use of anonymous shell companies and review exports of items that could be used to support human rights abuses.

It also mandates new Congressional reporting requirements on a range of issues, including on whether and to what extent Chinese state-owned enterprises engaged in malign behavior have recently received US taxpayer-funded assistance, to inform future policymaking. Various executive branch agencies would be required to report back to Congress on potential violations of antitrust and competition laws in the US by Chinese companies; on Chinese officials involved in human rights abuses; on the presence of Chinese entities in US capital markets; on currency matters; on the development in China of alternative cross-border payment systems and financial messaging services; on dual use technologies by Chinese governmental actors; on exposure of the US to the financial system of China; and on the importance of maintaining investment reciprocity with China.

Learn more about this development by contacting any of the authors.

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