Act three: Chips Act heads into negotiation phase

EU institutions are about to open negotiations on the Chips Act plan to boost homegrown design and manufacture of advanced semiconductors, after the European Parliament settled its position on the draft bill last week.

Following on from this, Parliament is ready to start discussions with EU governments to iron out the final details of the plan, which has the aim of mobilising €43 billion in public and private investment for research, development and manufacturing of advanced semiconductors.

The draft bill is set up in two documents: the overarching Chips Act which outlines a  strategy to bolster the homegrown semiconductor industry, and the regulation of the €3.3 billion Chips Act industrial partnership under Horizon Europe, which will coordinate investment in semiconductor research and innovation.

The bill is the EU’s response to global chip shortages that began in 2020 when disruptions caused by the COVID-19 pandemic hit supply chains. The shortages exposed how vulnerable supplies of what are vital components in products ranging from cars to fridges, to mobile phones are. Car manufacturers were forced to scale back production.

For the most part, these shortages were of commodity chips. But the squeeze that was put on manufacturing also forced a recognition of how far Europe has fallen behind in the development of more advanced chips that will underpin new technologies and industries of the future, such as artificial intelligence, 5G and 6G, Internet of Things and cloud computing.

Today, the EU’s share in global production of chips is below 10%, while the US and Asian countries lead the way. To change the status quo, the proposed legislation aims to increase market share to 20%.

But the EU is not the only one striving for leadership. Across the Atlantic, the US launched a similar scheme last year, the $52 billion CHIPS and Science Act, which includes $13.2 billion for R&D and workforce development. However, this saw some cuts earlier this month, with the National Science Foundation failing to secure a recommended $1.5 billion budget for 2023, meaning the funding will be considerably lower than expected.

The industry in the EU wants policymakers to hurry up with the negotiations, set up the framework and get the work started. The EU Council baton is currently at the hands of the Swedes who will steer the member states’ work on the draft legislation until July. But it’s unlikely they will be able to conclude the negotiations and close the file before handing over the reins to the Spanish presidency.

Few believe the institutions will reach a deal fast as they enter the fight over ways to finance the Chips Act in the coming weeks.

The big question is money

The plan is to mobilise €43 billion in public and private investments in the chips industry, across three ‘pillars’ of action: the public-private partnership Chips for Europe; a new framework for attracting investment; and a mechanism to monitor and coordinate supply in crisis situations.

For the research community, the first pillar will constitute the most important element. The Commission has proposed allocating €3.3 billion funding to the cause, including €1.65 billion from the Horizon Europe research programme and €1.25 billion from the Digital Europe programme.

To make sure that EU money goes where it was meant to go, member states are insisting the Horizon funding should flow into research and innovation, and funding from the Digital Europe should finance capacity-building activities.

But there’s been disagreement over how the money should be channelled. The Digital Europe element was initially meant to receive €400 million of unspent Horizon Europe money from previous years, but the member states refused to see this happen. Instead, they want the Commission to look for alternative sources ahead of the EU’s upcoming review of the seven-year budget.

The Commission has also proposed to divert part of the funding from the Horizon Europe's Cluster 3, the funding pot for big collaborative civil security projects, towards the Chips Act.

But the member states insist Horizon Europe funding for research shouldn’t be funnelled to other priorities.

These arguments over where the Chips Act money is to come from has reportedly led the Commission‘s digital policy directorate to accuse member states of trying to cause the demise of Europe‘s car manufacturing industry.

Parliament meanwhile is calling for new money to be allocated to the bill. That means not repurposing existing Horizon Europe funds, but rather revising the overall EU budget, as part of the review of the multiannual budget the Commission has promised.

“We are calling for fresh funding that reflects the strategic importance of Europe’s Chips sector. Europe’s partners and competitors are also investing heavily in their semiconductor facilities, skills and innovation,” said Eva Maydell, Parliament’s rapporteur on the public-private partnership. “We may not have the enormous financial firepower of the US, but the budget offered by the Commission and Council needs to reflect the seriousness of the challenge.”

But it’s not just about the money. MEP Dan Nica, rapporteur for the wider file, noted research leadership should be accompanied by a “business-friendly environment, a fast permitting process and investment in a skilled work force for the semiconductor sector.”

Beyond public subsidies, it’s about creating an environment where industry, experts and R&D community, big and small, can work together to grow Europe’s semiconductor industry. “We’ve made a number of changes to the original Commission proposal which make this law more practical and focused on supporting the sector to grow,” said Maydell.

Editor’s note: This article was updated 27 February to clarify how Horizon Europe money will be routed to the Chips Act.