European Union: EU Emergency Response Update – Key Policy & Regulatory Developments No. 105

On 25 July 2023, the Council approved the Regulation establishing a framework of measures for strengthening Europe's semiconductor ecosystem (European Chips Act).

To recall, the Chips Act is part of the Commission's package of measures released in February 2022 (see here) aimed at ensuring the EU's security of supply and technological leadership in the field of semiconductors (see also Jones Day COVID-19 Update No. 76 of 9 February 2022; and Jones Day Commentary, EU Chips Act: The EU's Push for Semiconductor Autonomy, March 2022). (Micro-)chips or semiconductors are described as the "DNA of modern technology", with chip demand anticipated to double between 2022 and 2030, and the semiconductor industry's value expected to reach some $1 trillion by 2030 (see Council infographic on proposed Chips Act).

In announcing its adoption of the Chips Act, the Council stated its view that Europe is currently "too dependent on chips produced abroad, which became even more evident during the COVID-19 crisis. Industry and other strategic sectors such as health, defence and energy faced supply disruptions and shortages."

The Chips Act seeks to respond to these perceived critical dependencies and contains three main pillars:

(i) The Chips for Europe Initiative aims at supporting large-scale technological capacity building. Notably, the planned Joint Chips Undertaking (a public-private partnership involving the EU, Member States, and the private sector) will undertake the selection of centers of excellence as part of its work program. The Council also passed an amendment to the Regulation establishing joint undertakings under Horizon Europe on 25 July 2023 to enable the establishment of this Chips Joint Undertaking, which builds on and renames the existing key digital technologies joint undertaking.

(ii) A framework to ensure security of supply seeks to spur investment and enhance production capacities. In particular, "first-of-a-kind" facilities, including those producing equipment used in semiconductor manufacturing, are expected to reinforce the EU's security of supply and can benefit from fast-tracked permit granting procedures.

On the funding of "first-of-a-kind" facilities, Executive Vice-President and Competition Commissioner Margrethe Vestager earlier commented that these require large investments that private investors cannot fund on their own, such that the Commission believes that it may be justified to cover up to 100% of a proven funding gap with public resources. She specified the Commission's view that such funding does not require creating new, modified, or "bended" rules. Rather, the Commission must assess projects directly on the Treaty in seeking to avoid any competition distortions and to avoid a subsidy race in Europe and elsewhere.

(iii) A monitoring and crisis response coordination mechanism will seek to anticipate supply shortages and provide responses in case of crisis. For example, early warning indicators in Member States will be used to trigger an EU-wide shortage alert. Such mechanism will allow the Commission to implement emergency measures such as prioritizing the supply of products

particularly affected by a shortage, or carrying out common purchasing for Member States. These would be last-resort measures in the event of a crisis in the semiconductors sector.