Summary
The value chain of semiconductors is deeply fragmented at the global level. For decades, governments of major countries worked on the design and implementation of their Digital Agendas, but chips and semiconductors were not central to almost any of these strategies.
However, the aftermath of the COVID-19 pandemic changed political priorities around the world. Except for a few relevant actors, some of which have a geopolitical meaning such as the Dutch company ASML, the share of the EU in chip manufacturing has steadily declined over the past few decades, dropping from 25% in 2000 to 8% in 2022.
In order to revert this situation, the EU has developed a full-fledged Semiconductor Strategy with the EU Chips Act at its centre. However, the role of EU Member States is critical for the success of the European semiconductor policy. There is neither a big central budget allocated by the EU (except €3 million for the Chip Research Joint Undertaking) nor control over all the projects by the European Commission (apart from its conformity with the EU State-Aid framework). Consequently, there seems to be a race between EU Member States to capture private investment from leading companies, which is creating an unlevel playing field and leading to inefficiencies.
In this paper, a set of policy recommendations are presented for the areas of design (licences and tools), manufacturing, equipment, talent and coordination efforts at the EU level.
Introduction
The value chain of semiconductors is deeply fragmented at the global level: private expenditure on Research and Development mostly comes from the US; Intellectual Property companies are based mainly in the UK and the US, high level chip design companies in the US and low level ones in India; as for materials and gases, silicon wafers mainly come from Japan with other elements being provided by a variety of companies from the US, Germany and France, amongst others; equipment like EUV machines comes from EU companies, most prominently the Dutch company ASML, although Japanese and US companies are relevant in other manufacturing processes; fabless companies are mainly from the US, while the most important and edge foundries are based in Taiwan and South Korea; finally, chip testing and packaging services are outsourced to jurisdictions like Malaysia and Taiwan.
For decades, governments of major countries have worked on the design and implementation of their Digital Agendas, but chips and semiconductors were not central in almost any of these strategies. However, the aftermath of the COVID-19 pandemic changed political priorities around the world regarding the approach to the semiconductor ecosystem: a succession of events during the confinements and the first months of the so-called ‘new normality’ produced a shock on the semiconductor supply-chain and several industrial sectors began to experience a scarcity of the chips needed for their final products. The scarcity was exacerbated by several natural catastrophes and other accidents that disrupted operations in chip manufacturing plants. By the end of the first semester of 2021 major economies, and the EU among them, started to be fully conscious of the need to count on trustworthy semiconductor supply-chains for the sake of their strategic autonomy.
The US Chips Act proposed in May 2021, and approved in August 2022 with few conceptual differences in the Congress and the Senate, was conceived as an instrument to incentivise the investment in semiconductor manufacturing through generous grants.
On 15 September 2021 the President of the European Commission took advantage of the State of the Union address to announce a forthcoming Chips Act for Europe. In February 2022 the European Commission presented the proposal for the European Chips Act. It took little more than a year for the legislative powers to reach a political agreement and it is foreseen that it will enter into force in the last semester of 2023. Except for a few relevant actors, some of which have a geopolitical aspect such as ASML, the share of the EU in chip manufacturing has steadily declined over the past few decades, dropping from 25% in 2000 to 8% in 2022. That is why the EU has set a strategic ambition to more than double its share of semiconductor manufacturing to 20% by 2030. At the centre of this effort is the EU Chips Act, which is based on three pillars, namely the Chips for Europe Initiative, a framework to ensure security of supply, and a monitoring crisis and response mechanism.
However, the role of EU Member States is critical for the success of the European semiconductor policy. There is neither a big central budget allocated by the EU (except €3 million for the Chip Research Joint Undertaking) nor control over all the projects by the European Commission (except the necessary approval within the state-aid framework). Therefore, national semiconductor strategies and pledges of grants and public investments by Member States need to be sketched to have a complete overview of European efforts to revitalise the ecosystem, particularly those in the four largest Member States.
Despite the EU drive towards strategic autonomy on semiconductors, the complexity of the semiconductor supply chain makes it impossible to achieve full self-reliance in the area, making the case for international cooperation with strategic partners. This has been the case with countries such as the US, Japan, South Korea and Taiwan. However, bilateral cooperation is not enough to build up a trustworthy and resilient supply chain, particularly if de-risking from countries of concern needs to be added to the formula. Multilateral forums are another scenario where the EU has pushed towards agreements in this area to reduce dependencies from countries of concern and reduce technology transfers to them. This has been one of the topics of discussion at the G7 meeting held in May 2023. An additional challenge to the EU’s strategic autonomy does not derive from third partners or from Member States’ coordination. It also derives from the very innards of each country and the role of sub-regional actors in the semiconductor ecosystem. Given the reality in countries such as Spain, of a geographical diversity with regionalised industrial clusters, it is strategic to make visible the role of the regions as industrial and governance entrepreneurs.
In this paper we delve into the details of these elements and put forward a set of policy recommendations in the areas of design (licences and tools), manufacturing, equipment, talent and coordination efforts at the EU level.
Image: A macro of a silicon wafer. Each square is a chip with microscopic transistors and circuits. Photo: Laura Ockel (@viazavier).
