Chipmakers worry about red tape as they build new US plants. Mark Kelly wants to help.

The Arizona senator says America's complex permitting process could be a significant issue for the semiconductor industry in the US the years ahead unless Congress acts.

Challenges are starting to pile up for chipmakers as they face slowing consumer demand and labor shortages. Sen. Mark Kelly (D-AZ) is pressing Washington for action on another concern he predicts could hamper the industry in the near future: government red tape.

The worry is that top manufacturers from Intel (INTC) to Micron (MU) are about to run headlong into America’s oft-criticized environmental review process as they embark on ambitious US plans in the years ahead.

It could present a headwind both for the industry as well as for the Biden administration’s efforts to compete with China in the crucial semiconductor space.

"Our national security literally depends on this kind of stuff," Kelly said during an interview this week in his Capitol Hill office.

UNITED STATES - JULY 27: Sen. Mark Kelly, D-Ariz., talks with reporters in the U.S. Capitol as the Senate voted to pass the CHIPS and Science Act of 2022 on Wednesday, July 27, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images)
Sen. Mark Kelly (D-AZ). (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)

The complex issues are emblematic of growing pains for a US advanced semiconductor sector that is literally starting from scratch.

In recent years, according to the Semiconductor Industry Association, 100% of the world’s most state-of-the-art semiconductors have been produced overseas. The US role in semiconductor manufacturing overall has also fallen from nearly 40% in 1990 to 12% in recent years.

'Building Chips in America Act'

These leading semiconductor companies are currently queued up for billions in government money to kick-start new advanced chip-manufacturing projects in the US, part of last year’s landmark CHIPS and Science Act that set aside over $50 billion for direct grants to the industry.

But if history is any guide, these projects could face complex permitting and legal challenges after the funding is secured.

That's where Kelly hopes his bill can help. He is leading a push this week for the Building Chips in America Act, with an aim to streamline the environmental review process for microchip projects by putting them under the purview of the Department of Commerce.

His goal is for faster reviews and more limited legal challenges without sacrificing environmental protections.

The bill is being cosponsored by a bipartisan array of senators, including Todd Young (R-IN), Bill Hagerty (R-TN), and Sherrod Brown (D-OH), along with five members of the House of Representatives.

Chip companies also appear eager for these changes. Al Thompson, Intel’s head of US government affairs, told Yahoo Finance in a statement that the bill is important legislation.

"The Building Chips in America Act will ensure these projects remain on track and on time by streamlining the review process" as the billions being invested by Intel and other companies begin to take hold, he said.

Intel is currently in the process of investing over $43.5 billion in US facilities, including a giant semiconductor hub outside Columbus, Ohio.

U.S. President Joe Biden walks with Intel CEO Pat Gelsinger as he attends the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, U.S., September 9, 2022. REUTERS/Joshua Roberts
President Joe Biden walks with Intel CEO Pat Gelsinger as they attends the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, in 2022. (REUTERS/Joshua Roberts) (Joshua Roberts / reuters)

TSMC's challenges in Arizona

One concrete example of the ongoing challenges facing the industry is playing out in Kelly's home state.

Taiwan Semiconductor Manufacturing Company (TSMC) has been building a flagship fabrication plant in Arizona since 2021. While the company appears to have largely cleared the environmental review hurdles for now, it announced this week a delay in the launch of full-scale production in Arizona to 2025 from 2024. The reason: a worker shortage.

Mark Liu, the company’s chairman, said in a conference call Thursday morning that the company faces the shortage as the project enters "a critical phase of handling and installing the most advanced and dedicated equipment."

The company also discussed plans to import workers from Taiwan to close the gap and offer training "for a short period of time."

TSMC also cut its outlook for annual revenue this week largely due to a slowdown in consumer demand. It was a clear warning for the chip industry of potentially choppy waters in the year ahead.

Apple's CEO Tim Cook greets U.S Senator Mark Kelly (D-AZ) during U.S. President Joe Biden's visit to TSMC AZ's first Fab (Semiconductor Fabrication Plant) in P1A (Phase 1A), in Phoenix, Arizona, U.S. December 6, 2022. REUTERS/Jonathan Ernst
Senator Kelly speaks with Apple CEO Tim Cook during a ceremony for Taiwan Semiconductor Manufacturing Company's semiconductor fabrication plant in Phoenix. Apple plans use the chips built at the plant once production begins. (REUTERS/Jonathan Ernst) (Jonathan Ernst / reuters)

Kelly underlined the temporary nature of these foreign workers during this week's conversation, saying he remains confident that the workforce in Arizona will be able to handle the fabrication plant once it is up and running.

He argues that existing provisions in the 2022 CHIPS law, which set aside billions for workforce training largely at universities and community colleges, will bear fruit but acknowledges it’s an ongoing challenge.

"It's a heavy lift for the community colleges, but they've been doing well so far," he said.

Can Kelly get his bill through Congress?

Kelly will have to navigate complicated politics currently playing out on Capitol Hill around China, the US military, and social issues if he hopes to get the permitting reform efforts done.

Kelly and his allies are currently attempting to get the bill attached to the annual National Defense Authorization Act. It’s a bill Congress must finish before the end of the fiscal year in September, with Senate Majority Leader Chuck Schumer saying he hopes to pass the Senate’s version before Congress leaves for its August recess in the coming days.

"We just had to put out some fires down there on the floor of the Senate here like 10 minutes ago," Kelly said during Thursday’s interview of his ongoing efforts, expressing optimism that a bill with his permitting reform ideas can get done.

But this year’s version of the usually drama-free military appropriations bill has been caught up in an unusual level of partisan fighting.

Republicans in the House injected controversial social issues like abortion into the conversation and the Senate debate has been marked by a worry that some senators could be looking to hold up the entire process over amendments around things like credit card fees.

The bottom line for Kelly and his efforts is that if the various standoffs continue, Schumer could seek to rush the bill through the Senate without considering a second wave of amendments, including Kelly's bill and other measures aimed at taking on China.

Kelly says getting his bill attached to the NDAA would be "the ideal situation." If not, he promises to pursue it as a standalone bill.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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