The European Chips Act Enters Into Force by the European Union’s Regulation

The European Chips Act (“Act”) entered into force on 21 September 2023. It puts in place a comprehensive set of measures to ensure the European Union’s (“Union”) security of supply, resilience, and technological leadership in semiconductor technologies and applications.

The Act will strengthen manufacturing activities in the Union, stimulate the European design ecosystem, and support scale-up and innovation across the whole value chain. Through the Act, the Union aims to reach its target of doubling its current global market share to 20% in 2030.

• Three Pillars of the European Chips Act

The first pillar - the Chips for Europe Initiative - reinforces Europe's technological leadership, by facilitating the transfer of knowledge from the lab to the fab, bridging the gap between research and innovation and industrial activities, and promoting the industrialization of innovative technologies by European businesses.

The second pillar creates a framework to ensure the security of supply by attracting investments and enhancing production capacities in semiconductor manufacturing. To this end, it sets out a framework for Integrated Production Facilities and Open EU Foundries that are “first-of-a-kind” in the Union and contribute to the security of supply and to a resilient ecosystem in the Union's interest.

In its third pillar, the Act has established a coordination mechanism between the Member States and the Commission for strengthening collaboration with and across Member States, monitoring the supply of semiconductors, estimating demand, anticipating shortages, and, if necessary, triggering the activation of a crisis stage.

• Next Steps

The Regulation on the Chips Joint Undertaking (JU) entered into force on the same day, allowing the start of the implementation of the main part of the Chips for Europe Initiative. With the entry into force of the Act, the work of the newly established European Semiconductor Board will also formally start, which will be the key platform for coordination between the Commission, Member States, and stakeholders.

• Background

A common European strategy for the semiconductor sector was first announced by Commission President Ursula von der Leyen in her 2021 State of the Union speech. In February 2022, together with the Act, the Commission published a targeted stakeholder survey in order to gather detailed information on chip and wafer demand, to better understand how the shortage of chips was affecting European industry. In February 2022 the Commission proposed the Act. In April 2023 a political agreement was reached between the European Parliament and the Union’s Member States on the Act.

1. What is Europe's current situation in the chip market?

Europe has many strengths and some weaknesses in the semiconductor value chain. The semiconductor sector is characterized by intense R&D activity, with first-class companies reinvesting more than 15% of their revenues into research in next-generation technologies. Moreover, Europe is very well positioned in terms of the materials and equipment needed to run large chip manufacturing plants, with many companies playing essential roles along the supply chain.

Despite these strengths, Europe has an overall global semiconductors production market share of less than 10% and is heavily dependent on third-country suppliers. In case of severe disruption of the global supply chain, there is a risk that European industrial sectors could run out in a short amount of time, bringing European industries to a standstill.

2. How will the Act address current problems?

In the short term, the European Semiconductor Board will serve as a coordination mechanism between the Member States and the Commission for mapping and monitoring the Union's semiconductor value chain as well as preventing and responding to semiconductor crises with ad-hoc emergency measures, including information requests, priority-rated orders, and common purchasing.

In the medium term, the Chips Act will strengthen manufacturing activities in the Union and support the scale-up and innovation of the whole value chain, addressing the security of supply and a more resilient ecosystem.

And, in the long term, it will maintain Europe's technological leadership while preparing the required technological capabilities that would support the transfer of knowledge from the lab to the fab and position Europe as a technology leader in innovative downstream markets.

3. What investments are needed?

There are various ways to achieve the objectives of the strategy. Huge investments are required to achieve this ambition. This will require the pooling of investment from the Union, Member States, and significant contributions from private investors.

The strategy underlying the European Chips Act will mobilize more than €43 billion euros of policy-driven investments. This includes € 11.15 billion of public investment to be directly provided under the Chips for Europe Initiative to finance technology leadership in research, design, and manufacturing capacities up to 2030.

These investments will complement existing actions in research & innovation in semiconductors such as those from Horizon Europe and the Digital Europe programs as well as additional support already envisaged by Member States (e.g., specific measures in recovery and resilience plans, national or regional funds, etc.).

4. What is being done at the international level?

By improving its supply chain security and through its capacity to design and produce powerful and resource-efficient semiconductors, the EU is contributing to the rebalancing of the semiconductors global supply chain.

Europe will aim at building balanced semiconductor partnerships with like-minded countries. The aim of these partnerships would be to cooperate on initiatives of mutual interest and ensure continuity of supply in times of crisis.

You can find further information here and read the Q&A about the topic from here.

Kind regards,

Zumbul Attorneys-at-Law

info@zumbul.av.tr