The EU has announced its new industrial policy, moving from being the guardian of open markets with fair and undistorted competition to being the enforcer of common economic objectives. It has been forced to do so by external shocks and geopolitical pressures. The global supply chains have become insecure, the technological leaders of the contemporary world have overtaken Europe, plus they have stopped playing by the rules of the free market and competition. The EU is therefore called upon to become Much more than a Market, to simplify its regulation and decision-making, and to invest massively in its future competitiveness.

However, these certainly desirable calls for a radical increase in the EU’s technological and industrial potential raise the question of whether the EU is really empowered to do so and whether this can be achieved through a concerted effort, with all Member States and for the benefit of all Member States. The implementation of the objectives may be subject to EU coordination and support, as mandated by Article 173 Treaty on the Functioning of the European Union (TFEU) on industrial competitiveness, but in practice will depend on projects and measures that are initiated and funded by the Member States. If the EU helps them to do this mainly by allowing their projects to be supported financially from their national budgets under Article 107 TFEU, it is not certain whether this will lead to greater cohesion or, on the contrary, to a deeper division of the EU into a technological center and a lagging periphery dependent on it.

To make these considerations more concrete, we can look to the example of the chip industry and the EU Chips Act, i.e. Regulation 2023/1781, which is a kind of flagship of the new EU industrial policy that is supposed to lead to a secure supply of chips on the basis of the massive development of this high-tech sector. The regulation was adopted at a time when we are witnessing that more than one Member State would like to position itself as the Silicon Valley of Europe. Semiconductors, however, represent a sector which, due to its technological, investment, and sub-supply intensity, is structured in clusters led by large companies that are already heavily concentrated in Europe in several countries of the “old EU” (Germany, France, the Netherlands, Belgium, Italy). It is neither realistic nor desirable for all EU countries or regions to have “their” chip factories, although the same is obviously not true for their more and less sophisticated suppliers and other sub-suppliers in the international value chain.

It will be important to see whether the EU’s unifying role will come to fruition in these conditions and to identify all the instruments and measures that the EU can use to counterbalance the existing advantages of selected Member States, and the companies located in them. In an ideal scenario, it should promote the EU-synergistic effect of their actions and strengthen the participation and position of the countries of Central and South-Eastern Europe, as well as the candidate countries as future EU members. In short, let us reflect on whether the EU Chips Act can and will be able to ensure an almost-federal development and functioning of this sector, or whether we will see its increasing concentration in the most prepared and subsidy-generous Member States.

The approved text of the EU Chips Act looks promising. It is a binding, directly applicable piece of EU law creating a structure for research and development in the field of chips, the security of supply mechanism (based on a network of selected integrated production facilities and open EU foundries), and not least providing for the prevention and management of semiconductor crises (including binding priority rated orders to factories in the network and potential for common purchasing).  The Commission is a key player at the center of a network of new coordination and initiation bodies and fora. It either chairs them outright or is an indispensable member, sometimes even adopting decisions and implementing acts itself. The only power it has missed out on, contrary to the original proposal, is the so-called activation of the crisis stage. This sectoral emergency has to be decided by the EU Council by majority vote, but on the basis of a proposal from the Commission, which, thanks to its powers of monitoring, information gathering, and the consultative framework around it, will be the meeting place for all the relevant and urgent information from the sector.

In addition to this distinctly supranational mechanism for overseeing and coordinating activities in the sector, the EU Chips Act uses an all-EU-inclusive vocabulary. The phrases “Union” or “EU-wide” are used 38 times, “join” and “jointly” 36 times, “involvement” (meaning different actors) 10 times, or “more / several member states” 6 times, “cross-border” 3 times, which in itself is evidence of the emphasis on common and inclusive solutions rather than national-autonomous ones. Thus, the network of competence centers is to be Union-focused, the supported virtual design platforms are to be available throughout the Union, and access to new pilot lines is to be open to a wide range of users from the EU semiconductor ecosystem. The European Chips Infrastructure Consortia are to be composed of entities from at least three Member States with the aim of achieving a broad representation throughout the Union and therefore remain open to new members… The EU’s goodwill and the legal prerequisites for its enforcement are therefore not lacking in the text of the EU Chips Act.

But where the EU remains weak and the Member States retain their greatest strength stems not so much from the provisions of the Regulation, but from the fact that Member States have to provide most of the resources to build up the R&D and manufacturing capacity of the EU chip industry through their own investment incentives (public aid included) and to enhance the attractiveness of their business environment and R&I base to potential private investors. Indeed, the so-called Chips for Europe initiative will spend only €3.3 billion from the Horizon Europe and Digital Europe program to implement the objectives of Pillar I of the EU Chips Act (promoting research and innovation activities along the entire EU semiconductor value chain). In total, the EU Chips Act is expected to mobilize more than € 43 billion of public and private investments up to 2030. Therefore, unlike the US, where the Chips and Science Act allocated $53 billion in federal incentives for domestic semiconductor manufacturing and research and development, the EU itself looks like a financially weak central player.

If experience advises “Follow the money!” and if in the future it remains the case that the EU itself will support the activities envisaged by the EU Chips Act only by reallocating money within existing programs and budget allocations and will not create a special extra-budgetary source of funding, or will not enact new budget sources of its own, then it will be the Member States who, through their initiative, financial generosity and administrative friendliness, will “decide” on the successes and failures of what actually happens in chip research, development and manufacturing. Their role in attracting and motivating private investors, as well as the research and management talents, remains crucial in determining whether the EU’s chip capacity will actually grow. If they fail to do so, the EU Commission’s strong initiation, coordination, and steering powers described above will have little to coordinate and steer, and the EU Chips Act will remain a theoretically perfect, but practically unrealized, plan. However, even this desirable activity by Member States must be kept in check by the Commission, lest it divide the EU into the technologically advanced and rich on the one hand and the underdeveloped and less wealthy on the other. It will therefore depend on the extent to which the projects implemented under the EU Chips Act are truly EU-wide, i.e. cross-border and inclusive.

If the positive EU effect of the Chips Act is not to become a mere formality, the European Commission must demonstrate unrelenting consistency and proactivity in the use of the above powers. Equally, it will depend on the activism of weaker or peripheral Member States, who must push to ensure that stronger Member States (with the newly backed chip corporate champions at their back) do not overly influence the Commission in how impartial and unyielding it will be in pushing for solutions that benefit the Union as a whole and all its members. Only in this way, with the current division of competences between the EU and the Member States and with the current size of the common EU budget, is it possible to achieve a “chip revolution in the EU” that is not limited to a few Member States and that unites rather than divides the EU.

Václav Šmejkal: Associate Professor of European Law, Charles University, Faculty of Law, Prague and Senior researcher at Skoda Auto University Research Center, Mladá Boleslav, Czechia. Contact: smejkalv@prf.cuni.cz