Inexperienced mild for €43bn EU chip regulation as large increase for the bloc’s semiconductor trade

EU member states on Tuesday reached a tentative agreement on a €43 billion plan to boost domestic production of semiconductor chips – essential components in everything from phones to cars to refrigerators.

The EU chip law proposed by the Commission last February aims to double the Union’s global market share in semiconductors from 10% to 20% by 2030.

The law also aims to strengthen the resilience of Europe’s semiconductor supply chain, which is highly dependent on a limited number of foreign suppliers.

“Chips are essential for all our digital and digitized products”, called Margrethe Vestager, Danish politician and Executive Vice-President for a Europe fit for the digital age. Vestager said she believes the agreement will help “secure the supply of innovative semiconductors in Europe” and make the European chip industry more competitive.

Three pillars

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The Commission has proposed three main pillars to implement the law. The first – the Chips for Europe initiative – aims to support “large-scale technological capacity building” and “bridging the gap” between research and industry. The initiative is supported by combined investments from the Union, Member States and the private sector, including €6.2 billion in public funds.

The second pillar will create incentives for public and private investments in production facilities for chip manufacturers and their suppliers. This will add to the total public investment in the sector, which is estimated at €43 billion.

The third pillar is a monitoring and crisis response system to anticipate supply shortages. The EU Member States and the Commission will develop a joint coordination programme to encourage collaboration, monitor supply, gauge demand and trigger a “crisis phase” if necessary.

Thierry Breton, EU Commissioner for the Internal Market, said the chips law will allow mobilizing “significant public funds” and a supportive regulatory framework to “make these three pillars a reality”.

Secure future supply

Semiconductor chips are the building blocks of digital products. The demand for them is expected will double between 2022 and 2030, with the industry projected to reach a global market value of $1 trillion over the same period.

But were several important technology sectors in the EU Suffer of supply shortages for semiconductor chips, in part because they rely on only a few suppliers and countries, notably Asia for supply and the US for design.

TIts dependency means Europe’s chip reserves could lie in some industries, such as autos leak in just a few weeks in the event of disruptions. have bottlenecks too LEDs to price increases for electronics, longer delivery times for consumer goods and a decline in manufacturing capacity.

A typical electric vehicle is built from 1,500 to 3,000 semiconductors, making the industry particularly vulnerable to chip shortages.

With this in mind, and as Europe seeks to scale up more sustainable but chip-intensive technologies such as electric vehicles, securing the future supply of semiconductor chips for the block has become a top priority – hence the chip law.

Ebba Busch, Sweden’s Minister for Energy, Economy and Industry, said she believes the law will “ensure the EU’s resilience in turbulent times” and turn the “EU’s dependency into leadership, vulnerability into sovereignty and spending into investment”.

Since the proposal for the chip law was announced, investments of 90 to 100 billion euros have already been made, including for projects such as e.g Intel’s Huge 17 billion euro chip factory planned for Magdeburg, Germany. NAfter making its way through EU legislature, the law is expected to further boost investment and create the skills and knowledge base necessary to meet the bloc’s ambitious goals.

However, many others regions have their own semiconductor strategies that risk undermining the EU’s vision. The US has its $52 billion CHIPS for America Act and South Korea has pledged hundreds of billions of dollars to boost its chip sector.

To secure its market share, the block should play to its chipmaking strengths, said Christopher Cytera, a research fellow at the Center for European Policy Analysis Reuters. For example a Dutch company ASML is the sole supplier of Extreme Ultraviolet Lithography (EUV) machines, and Siemens of Germany develops EDA software used in integrated circuit design.

Both companies and many others like them appear to be eligible for funding under the European Chips Act now needs to be finalized and approved before being formally adopted by both Council and Parliament.

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