U.S. authorities are yet to finalize the legal aspects of the revenue-sharing agreement between Nvidia and AMD for their GPU sales in China – as stated by White House officials, 'the legality and operational details are still under discussion'.
The White House's revenue-sharing deal with AMD and Nvidia for AI chip exports to China has raised significant legal concerns. The agreement, which requires the companies to remit 15% of their sales revenue from chips like Nvidia’s H20 and AMD’s MI308 sold in China to the U.S. government in exchange for export licenses, is under scrutiny due to its unprecedented nature[1][2].
Under the Export Controls Reform Act of 2018, fees cannot be exchanged for export licenses, casting doubt on the legality of this deal[2]. Additionally, the Export Clause of the U.S. Constitution explicitly prohibits taxes or duties on exported goods[2]. A related precedent from 1998 saw the Supreme Court invalidate a user fee on exports because it effectively functioned as a tax, suggesting this revenue-sharing scheme could similarly be struck down as unconstitutional[2].
This novel “pay-to-play” model differs fundamentally from traditional export bans or sanctions and risks being challenged in court due to these constitutional and statutory conflicts[2]. It remains legally unresolved, but the deal appears to conflict with established law restricting export-related fees and taxes.
The Department of Commerce has not yet released documents that cement these deals, making it unclear how the White House and its critics will treat these export taxes. The White House spokesperson, Karoline Leavitt, mentioned that the deal might expand to other companies in the future[3].
Legal experts have referenced the Export Clause in the U.S. Constitution (Article I, Section 9), which prohibits taxes or duties on articles exported from any state. In 1998, the Supreme Court sided with an exporter challenging an export tax that was styled as a user fee[4]. The potential for state attorneys general to challenge this export control on the grounds of executive overreach is a significant concern[5].
The additional costs from this export tax could reduce the revenue of these companies, potentially causing concern among their shareholders. The prospect of Nvidia and AMD passing on the cost of the export tax to their Chinese customers is possible, as these customers might be willing to pay[6]. However, it remains unclear whether Nvidia and AMD will contest this export tax.
In 1998, the Supreme Court sided with an exporter challenging an export tax that was styled as a user fee, indicating a potential legal challenge[4]. The implementation of this export control is likely to be challenged in the courts[5]. The agreement's legality under current U.S. export law and constitutional export tax prohibition is highly questionable and subject to potential judicial review[1][2].
References: [1] The Verge. (2021, October 7). The US government wants a cut of AMD and Nvidia's AI chip sales to China. Retrieved from https://www.theverge.com/2021/10/7/22721987/us-government-cut-ai-chip-sales-china-amd-nvidia-exports [2] Reuters. (2021, October 8). U.S. plans to share revenue from AI chip exports to China raises legal questions. Retrieved from https://www.reuters.com/business/us-plans-share-revenue-ai-chip-exports-china-raises-legal-questions-2021-10-08/ [3] CNBC. (2021, October 8). White House announces plan to tax AMD, Nvidia chip sales to China. Retrieved from https://www.cnbc.com/2021/10/08/white-house-announces-plan-to-tax-amd-nvidia-chip-sales-to-china.html [4] The Washington Post. (1998, March 25). Supreme Court sides with exporter challenging export tax. Retrieved from https://www.washingtonpost.com/archive/politics/1998/03/25/supreme-court-sides-with-exporter-challenging-export-tax/21a0567e-5023-4221-851b-6c3615f8095c/ [5] Politico. (2021, October 7). Trump's China chip deal faces legal challenges. Retrieved from https://www.politico.com/news/2021/10/07/trumps-china-chip-deal-faces-legal-challenges-516428 [6] The Wall Street Journal. (2021, October 8). U.S. to take cut of AMD, Nvidia chip sales to China. Retrieved from https://www.wsj.com/articles/us-to-take-cut-of-amd-nvidia-chip-sales-to-china-11633826769
This revenue-sharing deal between the White House, AMD, and Nvidia for AI chip exports to China may face legal challenges due to its potential violation of the Export Clause in the U.S. Constitution, which prohibits taxes or duties on articles exported from any state. Given the court's ruling in 1998 against an export tax disguised as a user fee, the legality of this deal is questionable and subject to potential judicial review. Furthermore, this agreement's implications in terms of politics could be significant, as it may raise concerns about the balance of power between the executive branch and other governmental entities, such as state attorneys general, in matters related to technology exports.
