1985’s James Bond movie “A View to a Kill” already predicted the importance of microchips in our economy. They are said to be the steam engine of the 21st century. Moreover, they become even more relevant if you plan to develop a smart and digital transition. It is no surprise that the current scarcity crisis is posing a threat regarding the tech items we buy and in terms of national security, since semiconductors are fundamental for the operation of a PS5, as they are to a pacemaker or a weapon system.
The global semiconductor scenario. Why this proposal.
Currently, global semiconductor production is guided by Eastern Asia countries, especially Taiwan, China, South Korea, and Japan. In Europe, this sector is losing shares, falling from 20% to less than 10% of global production in 20 years. This situation, which alone may represent a security risk for the EU, is aggravated by the current semiconductor shortages. In 2020, this crisis was caused by crisscrossing factors, including the Covid-19 crisis, the mismatch between the supply and demand of semiconductors, and the US-China trade war. Many states are developing interventions to address the crisis. In 2021 the USA launched the “Chip for America Act,” planning to fund the sector with more than 52 billion dollars, while China planned a specular policy founded on similar spending to produce at least 70% of its semiconductor needs. India also approved 2021 a measure to increase internal semiconductor production, allocating 10 billion dollars.
The European Chips Act: the Commission’s proposal.
Relying on these premises, on 8 February, the European Commission proposed the so-called European Chip Act, which consists of a set of measures to improve the EU semiconductor environment all along the production chain and develop EU resilience facing semiconductor shortages and guarantee the strategic security of the EU. Announced during Von der Leyen’s 2021 State of the Union speech and part of the wider EC’s digital agenda, the European Chip Act aims to expand the European semiconductor production from the current 9% to 20% of the global production in 2030. The Commission hopes to mobilize a total investment of more than 43 billion euros from now to 2030. This will be enabled by a leverage effect guaranteed by about 15 billion euros investments, private and public, where the EIB and the private investors would play a central role. What is omitted in the Commission’s announcement is that the communitarian budget’s commitment for this policy would consist of just 3.3 billion euros. Resources that will also be partly transferred from already-existing Horizon Europe projects.
The Act comprehends three mechanisms which are the Chips for Europe Initiative, which will combine resources from the EU, the Member States, and the private sector, a framework to ensure the security of supply, and a coordination mechanism between the Member States and the Commission for monitoring the supply of semiconductors and anticipating the shortages.
The European Chips Act: a gamechanger?
The proposal is a strong commitment for the European Commission on the political level, much less in terms of resources. The idea to develop such an industrial policy represents a change in the Commission’s preferences from a free-market position to one that wants to be more present in the market, especially regarding some strategic sectors, such as semiconductors. This change also seems confirmed by Von der Leyen’s openness toward adopting less stringent state aid rules, allowing public support for the semiconductor sector in the Member States.
Daniel Gros, CEPS researcher and former IMF officer draws a critical analysis of the European Chips Act in his article. He stated the policy is at best irrelevant due to the scarcity of the resources allocated – which we can agree with – and warns about the possibility that this Act allows the Member States to play a vital role in allocating the funds. The Act plans to establish, in fact, an advisory board (the European Semiconductors Board), which includes the Commission and the Member States and will “provide advice to and assist the Commission in addressing preparedness and monitoring issues related to the security and resilience of the supply,” as we can read in the EC’s proposal. This would be a missed occasion to give the EC more power to plan and could result in a scenario that risks becoming an “intergovernmental funds-grabbing” or, at best, giving a too broad role to the Member States.
Gros also upholds that this policy is wrong in toto. Despite the USA and China are developing similar – but more ambitious – policies, that does not mean the EU has to follow the same protectionist path. In my opinion, this latter criticism considers just the economic perspective. He misses to analyze the EU’s almost-total dependence on Eastern Asia semiconductor producers and consider the delicate political situation in Eastern Asia, especially regarding Taiwan, the largest global semiconductor producer. The risk of an interruption in the supply chain for endless reasons, from accident to political crisis, is real. The project aims to develop a strategic European production in the semiconductor sector, keeping the EU safer in case of a crisis outbreak.
European Chips Act’s missing points
This measure – which is now under discussion at the Council – could be designed better. The European Commission’s role in the allocation of funds should be increased and the resources directly managed by the latter, in a vision of developing a communitarian and supranational approach. A second point that could be better-developed concerns international cooperation. The Act contains a brief reminder about the importance of developing partnerships regarding, for example, R&D, information, standardization, with like-minded partners, which is positive. However, the form is extremely vague and does not suggest a firm commitment, which in my opinion, is fundamental, especially regarding the transatlantic partners.
This policy and its international counterparts could undoubtedly signal the direction in which world politics is shifting. However, it also represents a timid but necessary step for the EU’s possibilities to stay relevant in the future and to assure its security, shortening the semiconductor supply chain.