European Union: Commission Proposes EU Chips Act to Achieve More Resilient Supply Chain for Semiconductors

european-union:-commission-proposes-eu-chips-act-to-achieve-more-resilient-supply-chain-for-semiconductors

On February 8, 2022, the European Commission published a proposal for a regulation establishing a framework of measures to strengthen Europe’s semiconductor ecosystem. The regulation, known as the “Chips Act,” would address the expected rise in demand for semiconductors needed for almost all products with modern computing technology, such as phones, laptops, cars, and other smart devices. The shortage experienced during the COVID-19 pandemic, when international supply chains were interrupted, revealed the European Union’s (EU’s) dependence on foreign chip imports for these kinds of products. As an immediate step, a European Semiconductor Expert Group would be set up to foster the implementation of the Chips Act and serve as a platform for the EU member states to coordinate national efforts.

An EU regulation has general application. It is binding in its entirety and directly applicable in the EU member states. (Consolidated Version of the Treaty on the Functioning of the European Union (TFEU) art. 288, para. 2.)

Background to the Measures

The European Commission in its communication accompanying the proposal for a regulation posits that “there is no ‘digital’ without chips.” The communication delineates the alarming dependence of European factories on the semiconductor supply chain, which became conspicuous during the pandemic when global trade routes, in particular to Asia, were temporarily blocked. (Communication at 1.) The proposal references initiatives from leading economies in other parts of the world — for example, from the United States, China, Japan, and South Korea — “that are keen to secure their supply in the most advanced chips.” (Proposal at 12.)

To become more independent of global markets, the EU aims to raise Europe’s market share in the chip-producing industry from the current 10% to 20% by 2030. The overall value of the global chip market is expected to rise from about US$550 billion in 2021 to US$1trillion by 2030. (Communication at 1–6.)

Proposed Measures

In the proposal for the EU Chips Act, three main “pillars” are set up: a Chips for Europe Initiative, a framework to support important market actors, and a coordination mechanism between the member states and the European Commission for monitoring and crisis response. (Proposal art. 1.)

The Chips for Europe Initiative would consist of five components:

  • Design capacities for integrated semiconductor technologies.
  • Pilot lines for preparing innovative production, as well as testing and experimentation facilities.
  • Advanced technology and engineering capacities for accelerating the development of quantum chips.
  • A network of Competence Centers and skills development.
  • “Chips Fund” activities for access to capital by start-ups, scale-ups, and SMEs. (Proposal arts. 4, 5.)

The primary implementation of the Chips for Europe Initiative would be entrusted to the Chips Joint Undertaking, which would be established in accordance with another proposal complementing the EU Chips Act proposal.

The goal of the regulations in the second pillar (“Security of Supply”) is to make it easier for EU member states to support companies in the semiconductor industry. Any business undertaking would be able to apply to the European Commission to be recognized as an “Integrated Production Facility” or an “Open EU Foundrie.” (Arts. 10, 11.) The Commission would award this designation to manufacturing companies that are “first-of-a-kind facilit[ies]” in the EU with a “clear positive impact on the Union’s semiconductor value chain.” Once the companies were recognized as such, member states would be able to provide them with administrative assistance and public subsidies. (Art. 13, para. 2, art. 14.) This new rule is an exception to the general prohibition on public subsidies under EU law, which aims to avoid distortion of competition within the European single market. (TFEU arts. 107, 108.)

Lastly, the EU wants to improve its monitoring and crisis response (pillar three). Under the proposal, member states would be asked to improve their dialogue with the private sector so that problems and disruptions in supply chains could be reported to the European Commission early on. (Proposal art. 15, paras. 1–4.) A European Semiconductor Board consisting of representatives of the member states and chaired by the European Commission would subsequently discuss how to react. (Art. 15, para. 5, art. 24.) If there were “concrete, serious, and reliable evidence of a semiconductor crisis,” the European Commission would activate the “crisis stage.” (Art. 18, para. 2.) During this stage, it would request information directly from representatives of the relevant industry, who would be obliged to respond to the European Commission. (Art. 20.) The EU Commission could order Integrated Production Facilities and EU Foundries to produce crisis-relevant goods. In addition, producers that received public support in exchange for improving the national supply stability could be asked to prioritize the production of those goods needed most. (Art. 21.) Upon request of at least two member states, the European Commission could decide to act as a “central purchasing body” on behalf of the member states in question to secure the delivery of semiconductors. (Art. 22.)

Recommendation to Member States

In addition to the EU Chips Act, the Commission issued a recommendation to member states on a common Union toolbox. In the recommendation, the Commission announced the establishment of the European Semiconductor Expert Group. This platform can already be used by the EU member states to coordinate national measures against chip shortages among themselves and with the Commission. In addition, the Expert Group would work on the implementation of the proposed EU Chips Act. Once this was achieved, the Expert Group would be replaced by the European Semiconductor Board. (Recommendation at 2.)

Prepared by Friederike Loebbert, Law Library intern, under the supervision of Jenny Gesley, Foreign Law Specialist