Doubling the region’s market share in semiconductors could prove challenging, with a number of major economies also moving to support their domestic industries
Council of the EU rubber-stamps chips regulation
On 25 July 2023, following the Council’s approval of the European Parliament's position, the EU formally adopted the Chips Act. This represents the final stage in the decision-making process. After being signed by the Presidents of both the European Parliament and the Council, the regulation will be published in the Official Journal of the European Union and will enter into force on the third day after its publication. Having consulted with the Parliament, the Council has also established the Chips Joint Undertaking, which creates the framework by which funding for the act is channelled from the EU budget – primarily from the Horizon Europe and Digital Europe programmes.
Strengthening Europe's semiconductor ecosystem
First announced in President Ursula von der Leyen’s 2021 State of the Union speech, the Chips Act aims to create the conditions for the development of a European industrial base in the field of semiconductors, attract investment, promote research and innovation, and prepare the EU for any future supply-side shocks. According to Héctor Gómez Hernández (Spain’s Minister for Industry, Trade and Tourism – Spain is the current holder of the Council presidency), the act will position Europe as a frontrunner in the global semiconductor race. With the development of AI, 5G and the IoT, demand and market opportunities for chips are expected to grow significantly. By mobilising €43bn in public and private investment (€3.3bn from the EU budget), it is aiming to double the bloc’s market share in semiconductors, from 10% now to at least 20% by 2030.
A key element in the push for digital sovereignty
Certain initiatives are already underway, with Intel planning the build of a new €17bn semiconductor manufacturing hub in Germany while spending €12bn to expand its current site in Ireland. In Commissioner Thierry Breton’s view, such commitments are the direct result of the EU’s (reemergent) industrial strategy. While the investment pledges are positive for the bloc, the COVID-19 pandemic revealed long-standing vulnerabilities in supply chains and laid bare Europe’s reliance on chips produced abroad, particularly in Asia. The Chips Act aims to reduce the EU’s external dependencies, improving its security of supply, resilience and technological sovereignty. However, there are concerns that €43bn will be insufficient to achieve that objective and assumes an unrealistic scenario whereby chip production in other markets remains static.
The EU is not alone in tackling chip shortages
While von der Leyen has framed the Chips Act as “make or break” for Europe’s future, a host of countries have now adopted policies to boost semiconductor manufacturing. For example, China is looking to achieve chip self-sufficiency by 2025, while both South Korea and Taiwan passed legislation in early 2023 that will offer tax breaks to domestic firms. The UK has also published a £1bn National Semiconductor Strategy, which aims to “double down” on design, research and advanced chip leadership. Though the UK’s investment is dwarfed by the $53bn (£42bn) that the US will provide in grants and other incentives under its own CHIPS Act, the UK Government is seeking to take a strategic approach, directing funds towards areas where the country has a competitive advantage.
