The European Union (EU) Chip Act

The EU Parliament and 27 member states reached a deal on the EU Chip Act last month. They said the new rules would aim to double the EU’s global market share in semiconductors from 10% to 20% by 2030.

“This agreement is of utmost importance for the green and digital transition while securing the EU’s resilience in turbulent times. The new rules represent a real revolution for Europe in the key sector of semiconductors. A swift implementation of today’s agreement will transform our dependency into market leadership, our vulnerability into sovereignty, and our expenditure into investment. The Chips Act puts Europe in the first line of cutting-edge technologies, which are essential for our green and digital transitions.” -- Ebba Busch, the Swedish energy minister.  

What’s in the EU Chips Act?

The Chips for Europe Initiative or EU Chip Act will mobilize €43 billion in public and private investments to secure the EU electronic supply chain, averting shortages of semiconductors in the future and promoting investment into the industry. The EU has already attracted close to 100 billion euros of public and private commitments for industrial deployment in the industry.

The three pillars of the Chips Act include:

• To support and build large-scale semiconductor technology capacity and innovation in the EU.  

• To ensure the security of the technology supply chain and resilience by attracting investments and providing the EU is self-sufficient.
• Prepare the EU for potential future supply crises by monitoring and responding in case of another supply chain crisis.

The legislation will also incentivize investments in manufacturing facilities and provide a framework for integrated production facilities to promote innovative technologies and establish skill development education centers.

The Background and Need for the EU Chip Act

In 2020, global semiconductor production reached almost one trillion units, with the EU holding 10% of the market share.  

The advent of digital transformation has made the chip industry increasingly important in various industrial value chains. This has created new opportunities for the chip industry in emerging markets, such as highly automated cars, cloud computing, the Internet of Things, connectivity, space exploration, defense, and supercomputers. As such, the European Commission expects microchip demand to double by 2030.

However, meeting this increasing demand poses a significant challenge, particularly in the current semiconductor supply crisis. The recent semiconductor shortages have resulted in factory closures across industries, highlighting the extreme dependence of the global semiconductor value chain on a few key manufacturers, such as TSMC.  

European officials wanted more semiconductors to be developed within the continent to mitigate the risks of a potential shortage or threats to national security in a complex geopolitical landscape.  

In her 2021 State of the Union address, Commission President Ursula von der Leyen unveiled Europe's chip strategy, which seeks to establish a state-of-the-art European chip ecosystem through collaborative efforts. This ecosystem will encompass all aspects of production and leverage the EU's world-class research, design, and testing capabilities.

What is Next?

The provisional agreement reached last month between the Council and the European Parliament must be finalized, endorsed, and formally adopted by both institutions. Once the Chips Act is adopted, the Council will pass an amendment of the Single Basic Act (SBA) for institutionalized partnerships under Horizon Europe to allow the establishment of the Chips Joint Undertaking, which builds upon and renames the existing Key Digital Technologies Joint Undertaking. The Council then adopts the SBA amendment following consultation with the Parliament.