EU opens door to more state aid for chip-makers

The European Union may ease restrictions on state aid for the semiconductor industry, following French calls for a more interventionist approach to overcoming the global supply crisis.  

The European Commission, the EU’s executive arm, may agree to a new approach to state-aid policy when it meets on Wednesday that could allow governments to subsidize cutting-edge chip plants in Europe, according to a draft of the policy paper seen by Bloomberg. 

Given the importance and difficulty of securing chip supplies, the commission “may envisage approving public support to fill possible funding gaps in the semiconductor ecosystem for the establishment in particular of European first-of-a-kind facilities,” according to the draft. 

The shortage of chips hampering European manufacturers this year has highlighted the limits of the bloc’s technological muscle. The supply-chain crisis has also opened up a bitter debate between larger member states led by France calling for more state intervention to help companies compete with the U.S. and China, and those who want to stick to the EU’s free-market approach. 

Thierry Breton, the commission’s internal market chief, last week labeled those opposed to more state involvement “naive.” EU antitrust chief Margrethe Vestager, one of the most high-profile proponents of constraining government interventions, has cautioned against large subsidies, saying “self-sufficiency is an illusion.”

‘Good for Europe’

The mention of “first-of-a-kind facilities” is a victory for the French, who have called for the bloc to build cutting-edge chips in the region. Those opposed to this development have been insisting that funds needed to be focused on less-advanced chips where shortages have affected manufacturing in Europe.

Commission President Ursula von der Leyen said on Monday that Europe needs to improve chip design and research, build up production capacity and create closer cooperation with the industry.

“Increased European production of chips is good for Europe, as this means less dependence on a few East Asian countries,” she said during her visit to the Eindhoven, Netherlands-based ASML Holding NV advanced semiconductor factory.

The EU will unveil its European Chips Act in the first half of next year as part of its strategy to boost semiconductor production. One of the goals will be to reach 20% of global market share by 2030. 

Internal Rift

France and Germany have been at the forefront of pushing for exemptions to support European companies against U.S. and Chinese rivals. But those opposed to the initiative say it would give an unfair advantage to larger member states that have more money to boost national companies. 

Critics also warn that easing state-aid rules could undercut Europe’s position at the World Trade Organization, where it’s pushing to reign in the massive subsidies that China supplies to its companies. 

Six member states including the Netherlands, Denmark and Ireland sent a letter to the commission last week, opposing government funding being used for mass production or commercial activities.

“Excessive and non-targeted use” of strategic funds for key industries would lead to “subsidy races and unfair competition within the EU,” according to the letter.