Enhancing the EU’s resilience – promoting chip manufacturing

Subject: Enhancing the EU’s resilience – promoting chip manufacturing

In February 2022, the Commission proposed a law on chips. One of its aims is to address the chips shortage. The Commission1 argued that ‘the current shortage is unlikely to phase out before 2023 or even 2024. As demand will further accelerate and production capacities take time to consolidate, shortages for chips will continue, and inflationary pressure will intensify’.

The proposal was supported by an analysis2 from May 2022. The Commission reiterated its assumption of chip shortages in June 2022. EUR 11 billion of public money is to be dedicated to supporting chip manufacturing.

However, according to market information3 from July 2022, the market is starting to experience a glut rather than a shortage of chips. As a result, the price of chips is expected to fall, and the share prices of global chip manufacturers have also fallen significantly4.

1. How does the added value of chip investment compare under the original assumptions and under the current market situation? Is the Commission working to recalculate investment priorities in terms of their effectiveness?

2. What is the increase in chip prices that is projected to result from the EU’s planned measures to make itself more resilient and regionally self-reliant?

3. On average, what is the expected benefit (added value) per euro spent on supporting chip manufacturing from the EU budget (including in terms of resilience)?

1 https://ec.europa.eu/newsroom/dae/redirection/document/83086

2 https://ec.europa.eu/newsroom/dae/redirection/document/86690

3 https://www.reuters.com/technology/computer-chips-face-toilet-paper-hoarding-moment-shortage-turns-glut-


4 https://www.economist.com/business/2022/07/10/after-a-turbocharged-boom-are-chipmakers-in-for-a-

supersize-bust

Answer given by Mr Breton on behalf of the European Commission

(14 December 2022)

The objective of the Chips Act (5) is to increase the resilience of EU’s semiconductor value chain and downstream industries, strengthening the EU’s position in a context of mutual dependencies rather than regional self-reliance. The Commission sees no reason why EU industry would end up paying higher chip prices.

Inducing investment in production capacity is part of a long-term strategy to address the EU’s critical gaps and strategic dependencies, rather than current shortages.

While the semiconductors market tends to be cyclical, it is overall growing at a fast pace, particularly driven by technologies (artificial intelligence, 5G/6G, edge-cloud computing).

The Chips Act aims to address such strategic dependencies and will bolster Europe’s competitiveness, resilience and help achieve both the digital and green transition. Therefore, while being alert to the market dynamics, the Commission believes that the investment priorities remain valid.

Under the Chips for Europe Initiative (6), the EU budget will be used to support research and development, and design and prototyping of advanced semiconductors, but not to directly support production facilities.

State aid to production facilities will be assessed directly under the Treaty on the Functioning of the European Union based on the principles set out in the European Chips Act Communication.

Recent studies (7) have shown that semiconductors generate threefold downstream value at assembly level and eightfold at system level, and that for each worker in the semiconductor industry, 5.7 jobs are supported in other sectors.

⋅1∙ https://ec.europa.eu/newsroom/dae/redirection/document/83086

⋅2∙ https://ec.europa.eu/newsroom/dae/redirection/document/86690

⋅3∙ https://www.reuters.com/technology/computer-chips-face-toilet-paper-hoarding-moment-shortage-turns-glut-2022-07-12/

⋅4∙ https://www.economist.com/business/2022/07/10/after-a-turbocharged-boom-are-chipmakers-in-for-a-supersize-bust

⋅5∙ https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en

⋅6∙ https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en

⋅7∙ Study from Oxford Economics and Semiconductors Industry Association:

https://www.semiconductors.org/wp-content/uploads/2021/05/SIA-Impact_May2021-FINAL-May-19-2021_2.pdf and the Study on the Electronics Ecosystem: Overview, Developments and Europe’s Position in the World (EU 2018-19) by Decision Etudes & Conseil: https://op.europa.eu/en/publication- detail/-/publication/8e442825-493f-11ea-b81b-01aa75ed71a1/language-en