EU May Ease State-Aid Rules To Help Fund New Chip Factories

The European Union is considering a significant change, after suggesting it may relax rules over state-aid funding, in an effort to bolster the building of new chip factories.

Amid an ongoing global shortage of chips, the European Union in March this year announced it wanted to produce at least 20 percent of the world’s cutting-edge semiconductors by the end of the decade, as part of its 2030 Digital Compass plan.

That EU plan emphasised Europe’s focus on the most advanced semiconductors, manufactured by only a few companies in the world, such as Taiwan’s TSMC and South Korea’s Samsung Electronics.

Chip Factories

But there are other players looking to help the EU achieve its ambitions.

Intel chief executive Pat Gelsinger in September said the chip giant planned to announce the locations of two major EU chip plants by the end of the year (Germany and France are the leading contenders) as it prepares to spend 80bn euros on the continent in the next decade.

Last month Italy was reportedly negotiating with Intel to convince it to build a 4 billion euro (£3.4bn) advanced chip packaging plant in that country.

But constructing new chip factories is a very expensive business, and in many parts of the world chip makers seek incentives or favourable tax rates from local officials to help fund the construction of new facilities.

In May for example, Pat Gelsinger said Intel was looking for 8 billion euros (£7bn) in public subsidies toward a planned semiconductor fabrication plant in Europe.

Temporary aid

Now on Thursday the European Union has extended its temporary financial support for companies hit hard during the Coronavirus pandemic.

“When the pandemic hit in March last year, our lives changed almost overnight,” said executive VP Margrethe Vestager in a news conference.

She then addressed the need to provide support to keep viable companies alive during the pandemic.

“That’s why the Commission put in place the Temporary Framework using the full flexibility of State aid rules,” said Vestager. “That happened within weeks. It enabled targeted and proportionate support to businesses in need, while putting in place safeguards to preserve the level playing field in the Single Market. Since then, in close cooperation with Member States, we adopted more than 670 decisions and approved over 3.1 trillion euros of State aid across the Union.”

And then she confirmed this support aid has been extended.

“Today, we have prolonged the application of the Temporary Framework for six months, until the end of June next year,” she said. “This reflects the feedback received from the majority of Member States.”

Chip shortage

Then Vestager directly addressed the global chip shortage, saying global bottlenecks have exposed the importance of this industry across a broad spectrum of the European economy.

“This is complicated by a very concentrated market with high barriers to enter, and a specific geopolitical context,” said Vestager. “This is the background against which the President in her State of the Union speech announced the European Chips Act.”

Vestager suggested the EU will relax state-aid rules to help fund new factories.

“In light of all these factors, the Commission will consider approving support to fill possible funding gaps in the semiconductor ecosystem, in particular for European first-of-a-kind facilities,” said Vestager. “That can be as regards the scale of chips or other parameters. This assessment will be based on the EU Treaty, which is what we always do, if there are no State aid guidelines that cover such measures.”

“There are strong safeguards to ensure such aid is necessary, appropriate and proportionate, and undue competition distortions are minimised,” said Vestager. “Benefits must be shared widely and without discrimination across the European economy.”

“And each case for the supply of semiconductors will be rigorously assessed based on their own respective merits,” she said. “So as to ensure that projects have a European nature and avoid a subsidy race within the Union and beyond.”

“Indeed, self-sufficiency is an illusion,” she said. “When you think about the scale of what is needed, it is clear that no country and no company can do it alone. But we cannot rely on one country or one company alone, either. That’s why the aim should be diversification among like-minded partners, to build resilient supply chains, and avoid single points of failure.”

“To conclude, competition policy remains a tool that serves the needs of European citizens – as consumers who benefit from lower prices, wider choice and higher quality; as workers who benefit from a vibrant labour market; and as business owners who benefit from innovative, diverse and reliable inputs, and a level playing field,” Vestager concluded.

The EU move comes after the US announced its Chips for America Act aimed at boosting America’s ability to compete with Chinese technology.

Reuters meanwhile reported that France had been pushing for the EU to allow subsidies with fewer restrictions.

However smaller nations (such as the Netherlands and Ireland) have reportedly argued that allowing excessive and non-targeted use of strategic funds would cause unfair competition within the bloc.