Deal reached on EU Chips Act

The “provisional political agreement” was struck by negotiators for the European Parliament and Council of Ministers. Both bodies have been scrutinising proposals for a new Chips Act since they were published by the European Commission in February 2022.

Specific details on the compromise reached are light, but a statement published by the Council confirmed that the core Commission ambition of increasing the EU’s share of the worldwide market for production of semiconductors to at least 20% by 2030 remains the focus of the initiative. The EU’s current share of the market is around 10%.

Semiconductors are vital components of many consumer electronic devices and devices relied on by businesses increasingly powered by and dependent on digital technologies. Currently in the EU, their production is most prominently associated with the automotive sector, but they are also used in the context of aerospace and defence, industry, healthcare, home appliances, audio-visual products, computing and telecoms.

The Council has said demand for semiconductors is due to double by 2030 and become a $1 trillion industry. This growth in demand is anticipated amidst the trend towards greater connectivity of everyday items and infrastructure – from smartphones, vehicles, and consumer electronics – and the associated need for increased data processing capacity and power.

Most of the world’s semiconductors are currently made by two companies based in Taiwan and South Korea. However, a global shortage of semiconductors – exacerbated by supply chain issues arising during the Covid-19 pandemic – prompted policymakers elsewhere to look at bolstering local production. The proposed EU Chips Act is an example of this, as is the US CHIPS and Science Act signed into US law by president Joe Biden last year.

A core component of the EU Chips Act proposals is large-scale technological capacity building. The proposals include channelling public funds towards innovative new semiconductor manufacturing facilities and envisage the creation of semiconductor hubs across the EU, as well as the piloting of new semiconductor technologies, improvements to design and engineering capabilities, and enhancing access to debt financing and equity for companies in the semiconductor value chain.

While there has now been provisional agreement on a compromise text, the proposals still need to be formally endorsed by both the Council and the Parliament.

In the UK, a new semiconductor strategy is due to be published shortly by the UK government. Laura Ayre of Pinsent Masons, who specialises in supporting businesses on supply chain resilience, said: “Publication of the UK strategy will be eagerly anticipated by UK manufacturers keen to hear how the UK government intends to address the risk of supply chain disruption for such a key product component. Action by the EU and US points to greater localisation of supply chains in the years ahead. UK industry would be advised to consider how this might impact on their existing supplier relationships and supply chain resilience and will be keen to see whether the UK government intends to continue this trend through delivery of its semiconductor strategy.”