EU Commission Proposes European Chips Act: Focus on Technological Innovation & Supply Chains

The European Commission, the executive arm of the EU, announced a new European Chips Act (The Act) on February 8^th, 2022, that will enable 15 billion euros in additional public and private investments until 2030. This is on top of 30 billion euros of public investments that had previously been planned from various sources.

The European Chips Act Package

The European Chips Act contains a set of measures aimed at strengthening various aspects of the European semiconductor supply chain, collectively referred to as the European Chips Act package, which have been addressed in the following documents:

– The Proposal for a Regulation establishing a framework of measures for strengthening Europe’s semiconductor ecosystem, which shall establish a framework for strengthening Europe’s semiconductor ecosystem under the three pillars of the “Chips for Europe

Initiative”, ” First-of-a-kind Integrated Production Facilities and Open EU Foundries” and a” Coordination Mechanism for Monitoring and Crisis Response”

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– The Commission’s Recommendation on a common Union toolbox to address semiconductor shortages and an EU mechanism for monitoring the semiconductor ecosystem. The so-called “Toolbox” will establish a coordinated Union response to the current shortage of chips, proposing that Member States work together with the Commission through the framework of the European Semiconductor Expert Group, which will coordinate response measures and function as a platform for monitoring the semiconductor value chain.; and

– The Proposal for a Council Regulation amending Regulation (EU) 2021/2085 establishing Joint Undertakings under Horizon Europe. This will provide implementation to The Chips for Europe Initiative via projects from Digital Europe (EU funding initiative focused on bringing digital technology to businesses, citizens and public administrations) and Horizon Europe (the EU’s key funding programme for research and innovation).

The Act also looks to build on the European Alliance on Processors and Semiconductor Technologies, launched in July 2021 and aims to “identify current gaps in the production of microchips and the technology developments needed for companies to thrive”

Securing the Future Chip Supply & Ensuring EU Competitiveness

As semiconductor chips are essential to digital products, namely smartphones, modern cars, critical applications and infrastructures for healthcare, energy, communications etc., chips are therefore of paramount importance to the modern digital economy as well as the future. The aim of the European Chips Act is to reinforce the EU’s capabilities in semiconductors, ensuring future competitiveness and to maintain its technological leadership and the security of supplies.

The EU is home to a number of world-leading R&D organizations, universities and research institutes pioneering the production of some of the world’s most advanced chips, with many EU companies also playing essential roles along the supply chain for semiconductor chips.

However, despite the aforementioned strengths, Europe has an overall global semiconductors production market share of less than 10% and is therefore heavily dependent on third-country suppliers. As an example, in case of severe disruption of the global supply chain, Europe’s chips’ reserves could run out in a few weeks for certain sectors, bringing many European industries to a standstill.

In essence, the Act is a move in which sees the EU strive for digital sovereignty as well as encouraging further innovation in the semiconductor arena.

Easing of State Aid Rules

A notable aspect of this announcement outlined by Commission President Ursula von der Leyen, was that the bloc will ease its state aid rules, which aim to prevent illegal and unfair subsidies granted by EU countries to companies, for innovative chip semiconductor plants.
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Approval for such funding would be based on a rarely used provision in the EU treaty and that aid must be proportionate, have a pan-European impact and not be more than necessary. In practice, for a new project to receive public funding while respecting state aid rules, it would have to meet a “first of a kind” test. This would mean showing that an equivalent facility does not exist already or is about to exist.

Conclusion

Commission President von der Leyen has also set an ambitious goal for this new initiative, namely “to have, in 2030, 20% of the global market share of chips production.” Quite astonishing as currently, Europe has only 9%.

The latest proposals have yet to be discussed and approved by European member states and lawmakers. However, they come at a time when the EU is looking to step up its role in the world of tech. Moving forward, the proposed Regulation will thus be discussed by the European Parliament and the Council, with the Commission assisting the co-legislators to reach an agreement in the near future.