European Chips Act: towards European autonomy for semiconductors | Allen & Overy LLP
The European Commission (Commission) plans to pass a European chip law (the law) in 2022. The aim is for the European Union (EU) to double its market share in semiconductors (also known as chips or microchips) by 10%. at least 20% by 2030.
The Commission also intends the EU to produce better quality chips as the majority of advanced microchips are currently produced in Asia. The Commission is clear that the EU will need to coordinate its research, chip design, production capacity and industrial cooperation to achieve this goal.
Chips are essential to a wide range of technological advancements and digital transformations. There is currently a global chip shortage that is impacting the supply of a variety of products such as internet routers, game consoles, and vehicles. Therefore, the Commission aims to reduce the EU’s dependence on suppliers based in third countries. However, the Commission sees the law more broadly as supporting the EU’s global position in the race for global technological and industrial leadership.
The law in outline
The law is expected to cover three key areas:
- design a European semiconductor research strategy to take advantage of the existing research partnership in Europe (the KDT Joint Undertaking) and the research capacity of the EU;
- create a collective plan to improve European production capacity by monitoring EU industrial supply chains, anticipating possible future disruptions and ensuring the resilience of the entire EU supply chain . In particular, the law aims to support the development of manufacturing plants – “mega fabs” – capable of producing the most advanced semiconductors (around 2 nm and less) and the most energy efficient in large quantities; and
- forming a framework for international cooperation and partnership.
The European Chips Act will support the work of the Industrial Alliance for Processors and Semiconductor Technologies (the Alliance) which was formed in July 2021. The Alliance aims to bring together industry, consumers and research and technology organizations to identify issues and opportunities across the semiconductor industry. The Alliance will have two main lines of action: strengthening the EU’s electronics design ecosystem and building the necessary manufacturing capacity.
In addition, the Commission plans to create a European fund dedicated to semiconductors.
It is clear that the intention of the Commission is to integrate and build on national efforts at EU Member State level to prevent national public subsidies from fragmenting the single market. This could create substantial opportunities for companies active in the semiconductor industry, as resources at EU level are tapped. The law will accompany equivalent initiatives globally in countries such as the United States and China and continued efforts at the member state level. In fact, on December 20, 2021, the German government announced that it would support investments of more than 10 billion euros in the country’s microchip industry through 32 industrial projects. We will closely monitor developments ahead of the law’s publication in early 2022.