The so-called Chip Act is a key agreement for the European Union, which is currently struggling with high dependence on external semiconductor suppliers. The agreement is intended to give the EU greater control over chip manufacturing, giving it greater security and autonomy in this key technology area. In the following text, we provide data representing the current market reality and summarise the ambitions that the EU Council and the European Parliament want to achieve with the agreement.

Why microchips?

On 18 April 2023, the Council of the EU and the European Parliament reached a preliminary political agreement on the Chip Act Regulation. The regulation aims to enhance the European semiconductor ecosystem, create conditions for the development of the industrial base in this area and reduce European dependence on foreign players.

Microchips or also semiconductors are an integral part of modern technologies that we use every day in our daily lives. However, chips are also an essential element of critical infrastructure and are of great importance for the future development of the economy (e.g. green energy, artificial intelligence, the Internet of things, etc.).

Europe is currently dependent on supplies of microchips from abroad. This has proved to be problematic in previous years, because as chip supply was disrupted, which naturally led to their shortage in many sectors of the economy, demonstrating Europe’s vulnerability in this area.

Microchips in data

Based on its research, the European Commission reports that the number of microchips produced worldwide in 2020 was 1 trillion, while the EU share in the global chip production was only 10%. Predictions suggest that demand for chips will probably double by 2030. Meeting this demand may thus be problematic given the recent chip supply crisis.

What are the terms of this agreement?

The Chip Act has three pillars. The first pillar should be the establishment of a “Chips for Europe” initiative to support the building of technological capacity in the EU. The second pillar concerns the creation of a framework to ensure the security of supply of chips for the internal market and to attract investment in this area. The last pillar relates to a system for monitoring potential crises in order to anticipate supply shortages and respond proactively in the event of a crisis.

The “Chips for Europe” initiative is expected to generate EUR 43 billion in public and private investment, with EUR 3.3 billion coming from the EU budget.

The existing Key Digital Technology Joint Undertaking, which provides support for industry-oriented research, will probably be partially amended and renamed the Chip Joint Undertaking. The activities of this venture (which is a public-private partnership) should then be part of the “Chips for Europe” initiative.

What will this lead to?

The agreement aims to double the European Union’s share of the global semiconductor market from the current 10% to at least 20% by 2030 and to strengthen Europe’s leadership in research and technology.

This agreement will strengthen European industry and bring investment in research and development as well as in the possible construction of factories. It will also create new opportunities for the companies themselves in Europe, as well as for employees and new talent. It will also strengthen competitiveness and self-sufficiency of the EU in this area.

Ensuring a sufficient supply of chips is also essential for the smooth functioning of most economic sectors and can contribute positively to the European Union’s green and digital transformation.

The EU Council and the European Parliament now need to formally adopt the agreement.

Author: Magdaléna Janigová