Inside the EU's Chips Act

Back in September 2021, EC President Ursula von der Leyen announced the EU Chips Act, a €43 billion investment scheme to increase domestic chip production in the wake of the global semiconductor shortage that has been gripping the world since late 2020.

It seemed at the time that she was looking to allow the EU's single market to counteract China's burgeoning economic dominance, and many of the top semiconductor suppliers were based out of East Asia, in countries such as Taiwan and South Korea - often thousands of miles away at a time where supply chain disruptions are common.

Read more: Von der Leyen puts focus firmly on China in State of the Union address

More recently, the Commission's Executive Vice President Margrethe Vestager mentioned the Chips Act in her opening speech for EU Industry Days under the guise of dealing with "strategic dependencies" - resources susceptible to chokeholds and reliant on partners outside the European single market.

The EU has laid out the plans to increase chip production within the bloc, in a bid to double its market share by 2030. This faced criticism by German think tank Stiftung Neue Verantwortung (SNV) which suggested it was "doomed to fail" and that legislation should be put in place to rebuild the EU's entire chip production sector.

Regardless, semiconductors remain an important part of the digital transition, being essential for the production of consumer electronics, electric vehicles and robotics.

By 2030, the EU wants to produce 20% of the world's semiconductors and set up a fabrication plant to produce 2-nanometre chips which to aid in "twin transitions" - digital and green - as it is known internally for the transport and tech sector, including pushes into AI and cloud-based software.

It was inspired by a similar move by US President Joe Biden to tackle the semiconductor shortage directly and ensure more chips are developed on US soil, which should see around $56 billion (a total investment exceeding $150 billion) in chip R&D until 2026.

Plans for gigafactories, such as the chip plant planned for Taylor, Texas, by South Korean tech giant Samsung have also begun to spring up.

It is worth noting that factories and fresh infrastructure to support chip development will take several years to conceptualise and build, further adding pressure to the time constraints of the project.

"The Chips Act is a major step in securing the EU's strategic autonomy for semiconductor manufacturing, and the Act is providing important public funding which should act as a catalyst for private funding which should support the strengthening of supply chains for chips", Giuseppina Bitondo, from the Commission's Department of Growth (DG Grow) said at an intervention during a panel on Strategic Dependencies at the 2022 EU Industry Days.

"The Act also outlines a government framework to ensure a more structured and coordinated monitoring of risks along the supply chains and an approach to tackle them", she added.

Read more: Looking beyond the semiconductor shortage

To Bitondo's credit, there has been some private investment into chipmaking in the bloc, most notably from Intel, who pledged a mammoth €80 billion in funding for European chipmaking over the next decade.

In a Communication outlining the Chips Act, the bloc admits the current supply of semiconductors is "global, complex, and, in some important segments, overly concentrated" remarking that two companies control most of the world's supply.

Brussels admits in the same document that rapid development into the scheme will be needed, lest the European market share in the semiconductor industry continue to dwindle.

The Commission believes these investments could have positive effects for all member states and claims it could help shield against similar future crises.

The chip shortage itself had several key causes, primarily a surge in demand for consumer electronics to cater for a mix of remote working and increased hobby adoption due to lockdowns, mixed with battered supply chains and trade decreases - all linked to the Covid-19 pandemic.

The concept of strategic dependencies has become a hot topic within Brussels of late. With the energy crisis towards the end of last year linked to Russia and Nord Stream 2, or concerns over raw material shortages, the chip shortage is far from the only challenge the EU is facing in this department.

But how should the EU tackle these challenges? Concerns have been raised that such dependencies could be used as political power tools.

"Dependencies have become 'strategic dependencies' and technologies have become 'sensitive technologies', while at the same time we see that global trade continues to grow and so it is important to find a balance between economic, political and security - to create a well-balanced approach", Rick Huisman, of the Netherlands' Ministry for Economic Affairs and Climate Policy, told the same panel at EU Industry Days. 

Read more: The vehicles of the future - what's making change possible?

"This is why autonomous and resilience in dealing with these dependencies has become such a major issue within the EU and is at the heart on what we consider proper policy".

He believes allowing for market competition will bolster innovation and that having as many avenues for supply will make supply chains more resilient.

The global chip market is currently worth around $550 billion, and will only grow further as reliance on technology become greater. Roughly 15% of this is spent on R&D research next-generation technologies.

The EU also has an advantage in chip manufacturing due to its well-established chemicals sector which can make the production of chips easier and more advanced. The supply of certain raw materials, such as silicon - often supplied from developing nations - could be a real concern, however.

In December 2020, 22 Member States signed a joint declaration on processor and semiconductor technologies, which could be considered the precursor to this bill.

The Commission itself recommends a "coordinated Union response to the current shortage" including efforts to monitor potential disruptions and weak points in the market and has set up an Expert Group to oversee implementation of the recommendation in a bid to cement the goals of the Chips Act and to oversee communication between the Commission and the Member States for the best course of action.

Realistically, significant investment and blocwide cooperation will be needed in order to meet the goals laid out by the EU Chips Act and both private and public investment will be needed to gather together the funds.

Read more: Acquisition of German chipmaker by Taiwanese rival fails

It could present an opportunity for the less-developed Member States to create jobs and bolster their economies while affecting the whole of the EU, but the plans laid out by the Chips Act could be considered a little too ambitious.

Back to Homepage

Back to Technology & Innovation

Back to Politics & Economics