European Union: EU Presents Plan To Strengthen Europe's Semiconductor Industry

As the digital transformation continues in the EU, resilience in the supply and production of chips is not only a matter of industrial competitiveness but also a geostrategic priority. Semiconductors are at the very heart of the digital and data economy, as they are essential for computers and smartphones but also for cars, Internet of Things (IoT), AI and security and defence, to name a few.

Within this context, on 9 February 2022 the Commission presented the European Chips Act package, consisting of:

• A Commission Communication
• Proposal for a Regulation establishing a framework of measures for strengthening Europe's semiconductor ecosystem (Chips Act)
• Proposal for a Council Regulation amending Regulation (EU) 2021/2085 establishing the Joint Undertakings under Horizon Europe, to establish a Chips Joint Undertaking
• Commission Recommendation on a common EU toolbox to address semiconductor shortages and an EU mechanism for monitoring the semiconductor ecosystem

According to an in-depth analysis from the European Parliament, available here, "92 % of the world's fabrication capacity for cutting-edge chips is based in Taiwan, while only four of the world's top 35 semiconductor companies are based in Europe".

MAIN TAKEAWAYS OF THE EUROPEAN CHIPS ACT

The European Chips Act has the following main objectives:

• To create additional capacity and adequate technological capabilities in the semiconductor industry to accelerate and adjust to innovation
• To increase the Union's resilience and security of supply in the field of semiconductor technologies by supporting and coordinating investment in advanced semiconductor manufacturing and enabling coordinated monitoring and crisis response

Regarding funding, the Commission's strategy aims to mobilise more than ?43 billion euros of public and private investments. Up to 2030, ?11 billion of public investment from the EU and the Member States is expected to be dedicated to the Chips for Europe Initiative through different existing mechanisms such as Horizon Europe, Digital Europe Programme, Invest EU and the European Innovation Council.

The Regulation proposal is built upon three pillars:

1. THE CHIPS FOR EUROPE INITIATIVE:

To be mainly implemented through the Chips Joint Undertaking (proposal for a Council regulation previously mentioned). It comprises five components set out in Article 5:

• Design capacities for integrated semiconductor technologies
• Pilot lines for preparing innovative production, and testing and experimentation facilities
• Advanced technology and engineering capacities for quantum chips
• A network of competence centres and skills development
• 'Chips Fund' activities for access to debt financing and equity to start-ups, scale-ups, SMEs and other companies in the semiconductor value chain

To implement specific funding actions, the Regulation proposes to create the European Chips Infrastructure Consortium ('ECIC').

2. THE INTEGRATED PRODUCTION FACILITIES AND OPEN EU FOUNDRIES:

• Article 10 states that "Integrated Production Facilities are first-of-a-kind semiconductor design and manufacturing facilities, including front-end or back-end, or both, in the Union that contribute to the security of supply for the internal market".
• Article 11 states that "Open EU Foundries are first-of-a-kind semiconductor front-end or back-end, or both, manufacturing facilities in the Union that offer production capacity to unrelated undertakings and thereby contribute to the security of supply for the internal market".

3. A COORDINATION MECHANISM BETWEEN MEMBER STATES AND THE COMMISSION FOR MONITORING AND CRISIS RESPONSE:

• To monitor the semiconductor value chain, including disruptions and significant fluctuations in demand.
• To activate the crisis stage and the emergency toolbox.

INTERPLAY WITH EU COMPETITION LAW AND STATE AID

As announced in the Communication on a competition policy fit for new challenges, the Commission "may envisage approving public support to fill possible funding gaps in the semiconductor ecosystem for the establishment in particular of European first-of-a-kind facilities in the Union, based on Article 107(3) of the Treaty of Functioning of the European Union (TFEU)".

Indeed, Article 107(3) (c) of the TFEU states that "aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest" may be considered to be compatible with the internal market.

In this regard, the Regulation proposal indicates that support granted by Member States under the EU Chips Act must be in accordance with Union law "without prejudice to the competence of the Commission in the field of State aid under Article 107 and 108 of the Treaty, where relevant".

The Commission has outlined the key elements of the safeguard assessment to ensure any aid has an incentive effect, it is necessary, appropriate, proportionate, non-discriminatory, benefits are shared widely, and competitive distortions are minimised. More information about the specific aspects to be analysed in order to benefit from State aid on a case-by-case basis is available here.

NEXT STEPS

The Council of the EU and the European Parliament will discuss the Commission Chips Act proposal through the ordinary legislative procedure, a process that could take between 12 to 18 months. Since the text will be in the form of a Regulation, once adopted it will be directly applicable across the EU. MEP, Cristian Busoi (EPP) Chair of the Industry, Research and Energy Committee of the European Parliament welcomed the Commission's proposal.

Meanwhile, the Commission recommendation to Member States "to enable a rapid, effective and coordinated Union response to the current semiconductor shortage and to future similar cases" has immediate effect.