Citing Concerns Over Counterfeiting, House Panel Vows to Examine Decision on Semiconductor Chips

Republicans on the House Homeland Security Committee vowed Thursday to work to force the Treasury and Homeland Security departments to reverse a 2008 decision they say impedes the detection of counterfeit semiconductor chips sold to the United States.

Texas Republican Michael McCaul, chairman of the Oversight, Investigations and Management Subcommittee, said during a hearing that the panel will take action to get Customs and Border Protection to use its former policy of including serial numbers in the photos it sends to the manufacturers of legitimate semiconductor chips. The chips are used in medical equipment such as defibrillators and vehicle technology such as brake systems, as well as in missiles and jets for the military.

The serial numbers have been blocked in the photos DHS sends to private companies since a reinterpretation of the Trade Secrets Act determined the practice was a violation of the law, Brian Toohey, Semiconductor Industry Association president, told the committee. Without serial numbers, it is impossible to identify whether a chip is counterfeit, Toohey said.

“This is alarming, especially given the danger such chips so obviously present,” he said. “We’re desperate for help. We’re begging Treasury and DHS to let us stop these dangerous chips from coming in.”

The industry understands the need for protecting the rights of importers, but companies cannot identify the manufacturer of a chip based on the serial code, Toohey said. And although the policy is understandable for some products, semiconductor chips should not be lumped under the same rules as counterfeit handbags, he said.

“This is an issue of national security,” Toohey said. “In this particular instance, it doesn’t make sense to us why we would tie our hands.”

Besides changing the policy, he said, the government needs to increase prosecution of the dealers of the counterfeit products, tighten federal acquisition efforts to require the Defense Department purchase through authorized dealers and work more closely with international partners to crack down at the source.

Toohey said that his organization has found that the majority of the counterfeit chips are coming from China, where companies sift through electronic waste and repackage old technology to pass off as working semiconductors.

“The Chinese have a saying: Why invent it when you can steal it,” McCaul said in response. “And that’s what they do. . . . And now we have our own department tying the hands of the private sector to be able to identify what is counterfeit. We will take action, and that’s what this committee is all about.”

Rep. Jeff Duncan, R-S.C., raised concern with the fact that the departments changed the policy without the approval of Congress.

“We’ve got our priorities mixed up in this country, especially when it comes to espionage and protecting the power grid,” Duncan said.

Jennifer Scholtes can be reached at jscholtes@cq.com.