The EU Chips Act was established in response to three problems currently facing the EU regarding chips:

1. There is a severe shortage of semiconductor chips, because of the accelerating digital transition, increased demand for semiconductors and the concentration of production in Asia (Taiwan and South Korea)
2. There is a security supply risk in the EU, due to limited capabilities in manufacturing in the EU, insufficient expertise, high entry costs for new facilities and geopolitical tensions
3. Dependency on non-EU countries can have a detrimental effect across industries because the technology is central to competitiveness, security, safety, data protection and the energetic performance of digital systems

Europe has not increased its investment in the semiconductor industry for years, while in countries such as South Korea, China and Taiwan it increased significantly. Its market share has decreased from 11,7% in 2005 to 7.2% in 2020. Demand for chips might double by 2030. This reflects the growing importance of semiconductors for European industry and society. The current situation has put the EU in a vulnerable position. The EU Chips Act should address vulnerabilities and provide a roadmap towards 2030.

The Act features five strategic objectives:

1. Strengthen research and technology leadership
2. Build and reinforce own capacity to innovate in the design, manufacturing and packaging of advanced chips
3. Put in place an adequate framework to increase substantially its production capacity by 2030
4. Address the acute skills shortage
5. Develop an in-depth understanding of the global semiconductor supply chains to monitor their functioning, understand future trends, anticipate disruptions and take appropriate measures

The proposed Act will take the form of regulation and is built around three pillars

1st pillar: the Chips for Europe Initiative

This initiative will support large-scale infrastructure building whereby industry, research and governments will work together on a voluntary basis. From this, cross-border and openly accessible research, development and innovation infrastructure should result. In terms of funding, it uses the Horizon Europe programme as the Digital Europe programme

The Initiative has five operational objectives:

• Building advanced large-scale design capacities for integrated semiconductor technologies;
• Enhancing existing and developing new advanced pilot lines;
• Building advanced technology and engineering capacities for accelerating the innovative development of quantum chips;
• Creating a network of competence centres across the EU; and
• Set up a Chips Fund activities to facilitate access to debt financing and equity by start-ups, scale-ups and SMEs and other companies in the semiconductor value chain

To coordinate the various initiatives, a Chips Joint Undertaking is being developed, a reform of the already existing Key Digital Technologies Joint Undertaking. The CJU will have significant oversight of the expected budgetary increase.

The European Commission also proposes a European Chips Infrastructure Consortium. The consortium will have to coordinate the legal relationships between the private and public stakeholders and will be a platform for private players that are interested in EU support.

2nd pillar: Security of Supply

The second pillar makes a proposal to ensure the security of supply. It includes measures to attract investment, new advanced manufacturing facilities in the EU and facilities for advanced packaging, testing and assembly of chips. The European Commission wants to focus mainly on first-of-a-kind facilities. This could take the form of Integrated Production Facilities (facilities that design and produce components for their own market) or Open EU Foundries (factories that design and produce for other companies).

3rd pillar: Preparedness and Monitoring

The third pillar focuses on the creation of a coordination mechanism between EU Member States and the Commission to monitor supply chains and proactively respond to shortages. Consultation for this purpose will be through a European Semiconductor Expert Group. Among other things, early warning indicators of potential bottlenecks and shortages will be established. In addition to other internal measures, the EU will also enter into international partnerships with like-minded partners. This aims to achieve better coordination and reduce conflicting objectives. The European Semiconductor Board is another body that will ensure central coordination and become an exchange platform. In consultation with the Semiconductor Board, the Commission can trigger an emergency status if a supply chain disruption will take place.

Geographical tensions

EU countries have diverse interests in chips. Some countries have important manufacturing infrastructure, others are more end-users, but several also want to stress the importance of a strong R&D community. The Act is designed so that larger countries with more financial resources are not significantly favoured. This is regulated through so-called spill-over effects. These effects can take different forms

Investments

In total, more than €43 billion of policy-driven investment will support the Chips Act until 2030, which will be broadly matched by long-term private investment. The bulk of it - 30 billion euros - will go to building European mega-factories for the latest generation of small and low-energy chips. 11 billion euros would go to research and development of ever-higher-performance chips. The Leuven research centre Imec will have a central role in this. Moreover, the 43 billion is a mix of European and national grants. The state aid regime will be adjusted to facilitate the establishment of foreign group market leaders on European territory.

Next steps

The Council has adopted its position ('general approach') on the proposed regulation

The European Parliament and Member States will need to discuss the Commission's proposals on a European Chips Act according to the ordinary legislative procedure. If adopted, the Regulation will be directly applicable across the EU.