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Strategic dependencies tackled in the Industrial Strategy
This new document updates the 2020 Industrial Strategy. The former Strategy was published one day before WHO announced the COVID-19 as a pandemic. Since then, the European Commission has realised how dramatically dependent the EU was in a number of areas, including pharmaceutical ingredients and semiconductors. The new Strategy mentions the recent semiconductor shortage faced by the automotive industry. The European Commission acknowledges that “some disruptions caught Europe by surprise, showing the need for a better grasp of where its strategic dependencies lie […]”.
As a result, the European Commission carried out a thorough analysis of its dependencies. It analysed 5,200 products imported into the EU and identified 137 products in sensitive ecosystems for which the EU is highly dependent. These products include pharmaceutical ingredients and raw materials for energy intensive industries. About 50% of imports for these dependent products originate in China, followed by Vietnam and Brazil.
The Commission issued a report on strategic dependencies in 6 key areas, including semiconductors (see below) and cloud. It plans on launching an in-depth review of potential dependencies in other key areas, such as cybersecurity. In addition, the Commission’s Observatory of Critical Technologies permanently keeps an eye on current dependencies and risks of future dependencies.
The specific case of semiconductors
In its Report on strategic dependencies and capacities, also published on 5 May, the European Commission gives an overview of the situation in the semiconductor industry (pages 82-90). The Commission notes that Europe’s semiconductor footprint is small compared to other regions. The EU represents 23% of world GDP but accounts for only 10% of global revenues for semiconductor chips, only 6% for the computing and communication segments.
The Report mentions the major European companies: Infineon, NXP, ST and Bosch Semiconductors. These companies are global market leaders in automotive, industrial automation, security and healthcare. The Commission also observes that manufacturers of chips at leading-edge nodes (TSMC, Samsung, Intel) rely for their technology development on specific EUV photolithography machines produced by the Dutch company ASML.
However, overall Europe is strongly dependent on the US for general design tools and on Asia for advanced chip fabrication. Europe is particularly weak when it comes to semiconductors for data processing, communication, infrastructure and the many applications of AI. The Commission intends to reverse the trend by reducing critical dependencies in advanced technologies and process technology manufacturing at leading edge nodes.
Public money is needed. The Commission underlines that “a new fab with the latest technology (2nm in 2025/6) is challenging both technologically and economically (EUR 20 billion upfront and EUR 5 billion p.a. to operate) and is not in the reach of any individual EU supplier today.” China, the US, Japan and South Korea devote large amounts of public resources to strengthen their global presence.
EU initiatives to support the semiconductor industry
Member States agreed to consolidate and build on Europe’s position in area of proven expertise. They aim to establish advanced European chip design capabilities and production facilities for data processing and connectivity. Their efforts take the shape of a second Important Project of Common European Interest on cutting-edge semiconductors.
In addition, the European Commission will set up an industrial Alliance on processors and semiconductor technologies. In parallel, an Alliance for Industrial Data, Edge and Cloud will also be launched. These two alliances will be set up in Q2 2021.
The European Commission also wants public procurement to be used in a way that supports strategic sectors. The Commission will develop guidance on how to use public procurement effectively to strengthen the resilience of key ecosystems.
The budget for these actions will partly come from the EU Recovery and Resilience Facility. Horizon Europe, Digital Europe and InvestEU will also be used.
Protecting the semiconductor industry from problematic acquisitions
In its Report on strategic dependencies, the Commission observes that investment alone is not sufficient to support the European semiconductor industry. The EU and Member States also need to look at acquisition by foreign actors. They are now equipped with the adequate tools to screen foreign direct investment thanks to the recent EU FDI screening regulation.
Working with like-minded partners for semiconductors
The US review of its semiconductor supply chain (February 2021) shows that the US administration wants to work with partners and allies to ensure that they too have strong and resilient supply chains. The Commission stresses that this is an opportunity for the EU. This joint work could take place within the new EU-US Trade and Technology Council or in plurilateral settings with Japan, Korea or Taiwan.
Distortive foreign subsidies addressed in new regulation
The Commission proposes a new regulation to address potential distortive effects of foreign subsidies in the EU market. At the moment, subsidies granted by non-EU governments go largely unchecked, while subsidies granted by Member States are subject to close scrutiny. The proposed regulation puts in place tools to monitor non-EU subsidies and prevent them from harming the EU market.
This tool notably applies in cases of acquisition or public procurement. The acquirer or bidder will have to notify ex-ante financial contribution received from a non-EU government. This rule applies in case of large acquisitions or significant public procurement (250 million euros or more). After examination, the Commission has the power to prohibit the subsidised acquisition or the award of the public procurement contract.
For semiconductors, the EU will also monitor potential trade distortions through the public-industry Government Authorities Meeting on Semiconductors (GAMS). GAMS covers the six manufacturing regions: US, Taiwan, Korea, Japan, China and EU.
EU influence in setting standards
The EU wants to strengthen its leadership in standard-setting. For this purpose, the EU needs to ensure that is own standardisation system functions in an agile and efficient way. The Commission might amend the Standardisation Regulation.
The Commission will present a strategy on standardisation in Q3 2021. The EU wants to work openly with others on areas of mutual interest (e.g. US and Canada on ethical AI).
If you have any questions on these issues, please contact Camille Dornier - Policy Manager: camille.dornier@eurosmart.com
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