Europe wants to have its chips and eat them too

On the 8^th of February, the European Commission proposed the adoption of the European Chips Act. This Act does not hand out free Belgian “frites” (“chips” in British English) throughout the Union, though. Instead, it proposes a set of measures aimed at securing the European Union’s supply in the semiconductor sector. It now heads to the European Parliament and Council for review and amendments.

Microchips are used in almost every modern device. They are the essential building blocks of digital and digitised products. From smartphones to AI and 5G, they are also used in cars and military systems, they are effectively everywhere.   And they were put at the top of the political agenda following their recent and ongoing global shortage. There is no digital nor green transition without chips according to European Internal Market Commissioner Thierry Breton. Europe needs to be the leader in this market.

Commission President Ursula von der Leyen set out her vision for this European Chips Act last September in her State of the Union speech. She wanted the creation of a state-of-the-art European chip ecosystem, including manufacturing. She further wanted to link Europe’s world-class research, design and testing capabilities and stressed the need to coordinate EU and national investments along the value chain. The Commission granted her these three wishes and more.

This new law would help Europe achieve the 2030 digital decade targets and double Europe’s share of the global chip market to 20% by 2030. The Act would mobilise more than €43 billion of public and private investment and establish measures to prepare for, prevent, anticipate, and respond to disruptions in supply chains. Among the main components: the ”Chips for Europe” plan would pool together the resources of the Union, the Member States and associated third countries (such as South Korea, Singapore, and Taiwan), along with the private sector. Another €11 billion would be made available to strengthen research, development, and innovation.

The Commission has also published a stakeholder survey to gather information on current and future demand for chips and wafers. The results of the survey will be useful in understanding how the chip shortage is affecting European industry.

Various political groups, committees and their representatives, including Anna Cavazzini (the Chair of IMCO), have lined up in favour of this initiative. Intel gave it a big thumbs up. We are sure that the team at TSMC, the giant Taiwanese chips manufacturer and the company in the telescopic sight of the Commission, is ecstatic. But we need to look critically at such a proposal.

Much of the EU executive’s own funding in the “Chips for Europe initiative” is existing research funding that was already earmarked for the semiconductor sector. With the notable exception of Airbus and the GSM standard, the European Union is also not as good at  setting industrial policy in a ‘dirigiste’ way as it would like to be. Ten years ago, in 2013, the Commission presented a similar microchips plan with the same 20% market share goal. One can guess that this plan has not been highly successful nor has Europe managed to create a ‘mega factory’. Intel seems to be thinking about setting up one (or copy the Airbus model) but making chips on demand is something new for them. In any case, the US can easily outspend Europe as reflected in its recent $52 billion funding package, with US States pledging even more money to lure chips firms into their territories. Let’s not even talk about China.

Still, the European Chips Act is the EU’s most ambitious plan to launch long-term industrial policy to shore up its economic power and compete with rivals like the U.S. and China. Now this proposal will be discussed by the European Parliament and Member States. Member States will need to boost coordination efforts soon, in line with the recommendation, to understand the current state of the semiconductor value chain in the EU. If adopted, the Regulation will then be directly applicable throughout the EU.