European ministers endorsed a mandate to initiate interinstitutional negotiations on the Chips Act during the Telecom Council meeting on Thursday (1 December).

The legislation is part of a broader EU effort to scale up Europe’s semiconductor capacity and introduce a mechanism to anticipate and manage supply crises. Chips are small but fundamental components for all electronic devices.

A global shortage has disrupted in the last years the manufacturing of various products, from PlayStations to cars, prompting the European Commission to present this proposal. The text adopted by the EU Council, and brokered by the Czech Presidency, introduced some significant changes.

“The EU has to reduce its overdependence on global semiconductor leaders in Asia and the USA and, with the Chips Act, it is taking matters into its own hands,” said Jozef Síkela, the Czech minister of industry and trade.

Mega fabs

Semiconductors are highly sophisticated technologies extremely lengthy and capital-intensive to develop. Therefore, this complex supply chain is characterised by a solid concentration of production capacity in Far-East Asia and design expertise in the United States.

To address these ‘strategic dependencies’, the Chips Act establishes a legal framework defining the conditions under which public funding can be provided to finance new facilities in Europe, the so-called mega fabs, by introducing the ‘first-of-a-kind’ concept.

In other words, these mega fabs would have to advance Europe’s technological capacity significantly. The definition of first-of-a-kind facilities was at the centre of the Council negotiations, as innovation requirement was extended to elements like computing power and energy efficiency.

The requirements these mega fabs will have to meet have also been tweaked, notably as they will need to produce positive spillover effects on the entire EU’s semiconductor value chain.

This obligation is a symptom of widespread concern among member states that these mega fabs would only benefit those with deeper pockets, able to subsidise these costly facilities. Indeed, the ‘spillover effect’ might take different forms, for instance, as a research centre or training programme.

When the Commission assesses the project for the mega fabs, it will have to consider aspects such as the financial sustainability of the business plan and the readiness of the hosting country to establish the facility.

The EU executive can revoke the first-of-a-kind any time the mega fab no longer meets the requirements, but only after consulting with the European Semiconductor Board, a body that will gather representatives from the national governments.

Moreover, in emergency cases of “overriding public interest”, the mega fabs could be established by derogating EU’s environmental procedures.

Funding

A fundamental part of the proposal is the Chips for Europe Initiative, a new programme dedicated to semiconductors.

The initiative will finance building advanced design capacities, new pilot lines for cutting-edge chips, building engineering and technology capacity, creating a network of competence centres (at least one per member state) and facilitating access to financing for SMEs in the semiconductor supply chain.

The initiative will be financed with €1.65 billion from Horizon Europe, the EU’s research programme, for Research & Innovation activities, and €1.25 billion from Digital Europe Programme for capacity-building.

The Digital Europe part was initially meant to receive €400 million relocated by Horizon Europe. To maintain the original budget allocation of €3.3 billion, the Czech presidency put forth a Council statement inviting the Commission to look for alternative solutions ahead of the EU’s budgetary discussions.

Crisis management

The Commission and EU countries will establish an early warning mechanism and map out potential choke points during a crisis.

In case of a crisis, the Commission could make priority orders to mega fabs for critical sectors like defence and healthcare, or common purchasing orders, on the model of the COVID-19 vaccines. In the Council, there were extensive discussions about whether the automotive sector should be deemed critical, but eventually, the idea was dropped as it would have broadened the scope excessively.

A crisis stage might be activated via a qualified majority in the Council upon request from the Commission. During crises, the EU executive could also place mandatory information requests, which the member states fined tuned to include safeguards in terms of proportionality and security interests.

Non-compliance with the information obligations and priority orders might lead to significant financial penalties, in the most severe cases, up to daily penalties equal to 1.5% of the daily global turnover.

Source: Euractiv.com