Commission announces plans for EU tech sovereignty amid fears of competitiveness hit

The European Commission released a new technological sovereignty package on June 3, containing measures intended to increase European self-sufficiency in sectors such as AI, digital services, semiconductors and energy. But observers and industry groups are concerned that the possible impact on competitiveness has not been thought through.

“Tech sovereignty has remained strategically ambiguous in EU policy because the relationship between sovereignty and competitiveness remains unresolved,” Nicole Lemke, a researcher on AI systems, markets and governance at the Berlin-based thinktank Interface, told Science|Business. “It is unclear how the two goals relate to each other in the EU's vision.”

In areas such as digital and energy infrastructures, the unclear goals are compounded by a disagreement among EU governments on the level to which non-EU companies should be excluded from the single market.

“Some [states] want strict EU-only ownership and control requirements that would effectively exclude US hyperscalers,” she went on. “Others want interoperability with US providers preserved for competitiveness reasons. The tech sovereignty package has to find a way out of this all-or-nothing debate.”

The package contains four new initiatives: a legal framework aimed at encouraging semiconductor production inside the EU, known as a the Chips Act 2.0; a legal framework to strengthen the EU’s cloud computing and AI industries; a plan for digitalisation and AI use in the energy sector; and a strategy for encouraging open source software in European technology companies.

The tension between sovereignty and competitiveness is particularly pronounced for the Chips Act 2.0, an expansion of a 2023 legal framework that aims to increase European semiconductor production. However, in an industry with a highly complex supply chain, forcing companies to produce everything within the EU could hurt competitiveness rather than heighten it.

“Full sovereignty in the semiconductor space is simply not realistic,” Julia Hess, a researcher on global chip dynamics at Interface, told Science|Business. “The semiconductor value chain is extraordinarily complex, characterised by a transnational division of labour, diverse business models and multiple chip types.”

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Research from Interface shows that the semiconductor industry involves more than 1,000 process steps, more than 50 types of specialised equipment and about 300 types of chemicals. Many of the production and supplier markets operate in concentrated geographical areas such as Taiwan at monopoly or near-monopoly levels, making it almost impossible to procure everything within Europe. 

A few of these concentrated semiconductor supply chain monopolies, such as that around the Dutch photolithography specialist ASML, exist inside the EU, so regulating these could also hurt EU competitiveness. 

“Europe cannot regulate its way into semiconductor leadership,” said Erik Rein, president of the European Semiconductor Industry Association, in a reaction to the package. “The global semiconductor race will be won by those who innovate fastest, industrialise fastest and create the strongest market demand.”

Henna Virkkunen, the commissioner responsible for tech sovereignty, has been keen to point out that complete self-sufficiency is not the goal. “We are not planning to work in isolation and produce everything by ourselves in the future. It's not realistic and not necessary. But it's important to really identify the areas where we have risky dependencies,” she told a press conference.

When asked directly, Virkkunen would not say what percentage of global semiconductors produced in the EU would make the Tech Sovereignty Act a success. Instead, she said that the Commission was focusing on the quality of the chips rather than the quantity. 

Cloud and AI

The other legal framework included in the Commission package, the Cloud and AI Development Act, aims to increase the EU’s limited data centre capacity. According to the Commission, this makes the EU a less attractive destination for tech investment and could expose EU digital services to disruptions caused by third country actors.

Several initiatives are proposed to increase capacity, including the creation of a single EU-wide sovereignty framework intended to simplify and harmonise the deployment of data centres in the EU. The goal would be to triple EU data centre capacity in the next five to seven years.

But according to Lemke, data centres are far from the only industry that the package could affect. “Ultimately, we should not forget that compute infrastructure is just one lever among many to boost AI development in Europe,” she said. “Capital, data access, regulatory clarity and talent matter equally for European AI competitiveness.”

For Hess, it important to realise that different industries have different needs, and to acknowledge that sovereignty means different things in AI, cloud computing and chips. “Only through this nuanced, ecosystem-specific approach can the EU chart a realistic path forward,” she said.