Tue. Jul 5th, 2022

Europe has followed the US in setting out plans for a massive increase in semiconductor manufacturing, as Brussels attempts to secure supplies of the chips that drive the global economy.

Unveiling a € 43bn investment plan, the European Commission said it wanted to use state aid to promote research and production of higher technology chips used in computers, smartphones, vehicles and other products.

The coronavirus pandemic had “painfully exposed the vulnerability” of Europe’s supply chains, said commission president Ursula von der Leyen, with production lines for cars and other goods hit by shortages.

The Chips Act aims to double the EU share of the semiconductor market from 10 to 20 per cent by 2030, which would require quadrupling production.

The EU is following plans by President Joe Biden’s US administration for a $ 52bn package to subsidize semiconductor manufacturing. Other governments are also trying to improve semiconductor supply chains.

Under the plan announced on Tuesday, the European Commission and national governments would spend € 11bn to build three pilot facilities for any company to use. Member states and businesses were expected to invest a further € 32bn by 2030.

French industry commissioner Thierry Breton has convinced colleagues to adapt EU state aid rules to allow big subsidies for cutting-edge factories.

The Act would require companies receiving subsidies to prioritize European customers in times of supply shortage. The EU could also widen the measure to all businesses if the US or other countries applied such controls.

Intel, the US chipmaker, plans to invest € 20bn to build two chip fabrication plants, known as fabs, expected to be in Germany, as well as support facilities such as packaging and research, which would require further investment.

France, Italy and the Netherlands are also in the running for different activities.

Digital Europe, which represents technology companies, said it was “unclear” if all the money for the EU plans would be forthcoming.

Cecilia Bonefeld-Dahl, director-general, said: “The EU attracted just 3 per cent of global investment for chip factories in 2020 and a lot of work is needed to push this figure upwards.”

Some EU countries fear that bigger states will outbid them for chip investment. It could start a “race to the bottom”, warned one EU diplomat, with pressure to permit such aid in other industries.

Acknowledging concerns over a “subsidy race”, Margrethe Vestager, the EU competition commissioner, said the semiconductor industry was a special case. A “rarely used” procedure in the EU founding treaty could create a “bespoke approach” for new plants, she said.

Large semiconductor plants, or “fabs”, have huge price tags and “would not exist in Europe if we did not do something”, Vestager said.

Companies said aid would need to match the 40 per cent of construction costs offered by international competitors such as South Korea.

Greg Slater, Intel’s regulatory affairs director, told the Financial Times that state aid to support cutting edge manufacturing was “essential to Europe’s ecosystem”.

He said Intel would look closely at the export control proposals.

“The devil is in the details. The US has that authority. What really matters is what is defined as a crisis and how far will [Europe] go with that authority. It just depends on how they implement it, ”Slater said.

Member states and the European parliament must still approve the plans.

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