Regulation (EU) 2023/1781 of the European Parliament and of the Council of 13 September 2023 establishing a framework of measures for strengthening Europe’s semiconductor ecosystem and amending Regulation (EU) 2021/694 (Chips Act) (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 173(3) and Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee (1),

Having regard to the opinion of the Committee of the Regions (2),

Acting in accordance with the ordinary legislative procedure (3),

Whereas:

(1) Semiconductors are at the core of any digital device and the Union’s digital transition: from smartphones and cars, through critical applications and infrastructures in health, energy, communications and automation to most other industry sectors. As semiconductors are central to the digital economy, they are powerful enablers for the sustainability and green transition, contributing thus to the objectives of the Commission communication of 11 December 2019 on ‘The European Green Deal’. While semiconductors are essential to the functioning of today’s economy and society as well as defence and security, the Union has witnessed unprecedented disruptions in their supply, the consequences of which are significant. The current disruptions have exposed long-lasting vulnerabilities in this respect, in particular a strong third-country dependency in manufacturing and design of chips. Member States are primarily responsible for maintaining a strong industrial, competitive, sustainable base in the Union promoting innovation across a full range of chips.

(2) A framework for increasing the Union’s resilience in the field of semiconductor technologies should be established, reinforcing the Union’s semiconductor ecosystem by reducing dependencies, enhancing digital sovereignty, stimulating investment, strengthening the capabilities, security, adaptability and resilience of the Union’s semiconductor supply chain, and increasing cooperation among the Member States, the Commission and international strategic partners.

(3) This framework pursues two general objectives. The first objective is to ensure the conditions necessary for the competitiveness and innovation capacity of the Union, to ensure the adjustment of the industry to structural changes due to fast innovation cycles and the need for sustainability, and to strengthen the Union-wide semiconductor ecosystem with pooled knowledge, expertise, resources and common strengths. The second objective, separate from and complementary to the first, is to improve the functioning of the internal market by laying down a uniform Union legal framework for increasing the Union’s long-term resilience and its ability to innovate and provide security of supply in the field of semiconductor technologies with a view to increasing robustness in order to counter disruptions.

(4) It is necessary to take measures to build capacity and strengthen the Union’s semiconductor ecosystem in accordance with Article 173(3) of the Treaty on the Functioning of the European Union (TFEU). Those measures should not entail the harmonisation of national laws and regulations. In this regard, the Union should reinforce the competitiveness and resilience of the semiconductor technological and industrial base, whilst strengthening the innovation capacity of its semiconductor ecosystem across the Union, reducing dependence on a limited number of third-country companies and geographies, and strengthening its capacity to design and produce, package, reuse and recycle advanced semiconductors. The Chips for Europe Initiative (the ‘Initiative’) established by this Regulation should support those aims by bridging the gap between the Union’s advanced research and innovation capabilities and their sustainable industrial exploitation. The Initiative should promote capacity building to enable design, production and systems integration in next-generation semiconductor technologies, and should enhance collaboration among key players across the Union, strengthening the Union’s semiconductor supply and value chains, serving key industrial sectors and creating new markets.

(5) Due to the ubiquity of semiconductors, the recent shortages have either directly or indirectly adversely affected businesses across the Union and induced strong economic repercussions. The economic and social impact has led to an increased consciousness of the public and of economic operators and a resulting pressure for Member States to address the strategic dependencies as regards semiconductors. At the same time, the semiconductor sector is characterised by interdependencies across the value chain, where no single geography dominates all steps of the value chain. This cross-border nature is further emphasised by the nature of semiconductor products as an enabler for downstream industries. While semiconductor manufacturing may be concentrated in some regions, user industries are spread out across the Union. Against this background, the security of supply of semiconductors and resilience of the semiconductor ecosystem can be best addressed through Union harmonising law on the basis of Article 114 TFEU. A single coherent regulatory framework harmonising certain conditions for operators to carry out specific projects that contribute to the security of supply and resilience of the Union’s semiconductor ecosystem is necessary. Additionally, a coordinated mechanism for monitoring, strategic mapping, crisis prevention and response should be established to address shortages of supply and prevent obstacles to the unity of the internal market, avoiding differences in response among Member States.

(6) Strengthening the Union’s critical infrastructure and security as well as its technological leadership requires both leading-edge and mature chips, in particular for future-proofing strategic sectors.

(7) The achievement of those objectives should be supported by a governance mechanism. At Union level, this Regulation should establish a European Semiconductor Board, composed of representatives of the Member States and chaired by the Commission, to facilitate a smooth, effective and harmonised implementation of this Regulation, cooperation and the exchange of information. The European Semiconductor Board should provide advice to and assist the Commission on specific questions, including the consistent implementation of this Regulation, facilitating cooperation among Member States and exchanging information on issues relating to this Regulation. The European Semiconductor Board should also advise the Commission on international cooperation related to semiconductors. The European Semiconductor Board should hold separate meetings for its tasks under the different chapters of this Regulation. The different meetings may include different compositions of the high-level representatives and the Commission may establish subgroups.

(8) Given the globalised nature of the semiconductor supply chain, international cooperation with third countries is an important element to achieve resilience of the Union’s semiconductor ecosystem. The actions taken under this Regulation should also enable the Union to play a stronger role, as a centre of excellence, in a better functioning global, interdependent semiconductor ecosystem. To that end, the European Semiconductor Board should advise the Commission on matters concerning coordinating those efforts and enhancing cooperation along the global semiconductor value chain between the Union and third countries, consider, where relevant, the views of the Industrial Alliance on Processors and Semiconductor Technologies and of other stakeholders.

(9) In accordance with international obligations and applicable procedural requirements the Union and Member States could engage, including diplomatically, with international strategic partners that have advantages in the semiconductor industry, with a view to seeking solutions to strengthen the security of supply and to address future supply-chain disruptions of semiconductors, such as those resulting from third-country export restrictions, and to identify the availability of raw materials and intermediate products. This may involve, where appropriate, coordination in relevant international fora, concluding investment and trade agreements or other diplomatic efforts in accordance with the applicable procedural requirements or engagement with relevant stakeholders.

(10) In order to build upon the commitment of meeting workforce needs across the semiconductor supply chain, the Commission should ensure synergies with existing Union programmes and it should support and encourage Member States in setting up initiatives which contribute to the exchange of academic knowledge, with international strategic partners.

(11) It is a clear objective of the Union to promote international cooperation and knowledge exchange on the basis of the Union’s interests, mutual benefits, international commitments, and, to the extent possible, reciprocity. Nevertheless, the infringement of intellectual property (IP) rights, the unauthorised disclosure of trade secrets, or the leakage of sensitive emerging technologies in the semiconductor sector could compromise the interests of the security of the Union. Against this background, the Commission is exploring concrete proposals to strengthen the Union’s investment and export control frameworks. In addition, the Union and the Member States should cooperate with strategic partners to strengthen the joint technological and industrial leadership in accordance with applicable procedural requirements.

(12) The semiconductor sector is characterised by very high development and innovation costs and very high costs for building state-of-the-art facilities for testing and validating to support the industrial production. This has direct impact on the competitiveness and innovation capacity of the Union industry, as well as on the security of the supply and the resilience of the Union’s semiconductor ecosystem. In light of the lessons learnt from recent shortages in the Union and worldwide and the rapid evolution of technology challenges and innovation cycles affecting the semiconductor value chain, it is necessary to reinforce the Union’s existing strengths, thus increasing its competitiveness, resilience, research and innovation capacity by setting up the Initiative.

(13) Member States are primarily responsible for sustaining a strong Union industrial, competitive, sustainable and innovative base. However, the nature and scale of the research and innovation challenges in semiconductors requires action to be taken collaboratively at Union level.

(14) In order to equip the Union with the semiconductor technology research and innovation capacities needed to maintain the leading role of its research and industrial investments at a leading edge, and bridge the current gap between research and development (R & D) and manufacturing, the Union and Member States should coordinate their efforts better and co-invest. The current challenges of the Union’s semiconductor ecosystem call for the achievement of large-scale capacity and require a collective effort by Member States, with the Union supporting the development and deployment of large-scale capacity. That collective effort includes providing financial resources in line with the ambition of the Initiative to support the development and widespread availability of innovative capacities and extensive digital infrastructures, comprising a virtual design platform, pilot lines, including for quantum chips, and the diffusion of knowledge, skills and competences for the benefit of the entire semiconductor ecosystem. To achieve this, the Union and Member States should take into consideration the twin green and digital transition goals. In this regard, semiconductor devices and manufacturing processes offer significant opportunities for decreasing the environmental, and, in particular, the carbon impact of industries, thereby contributing to the ambitions of, for instance, the Commission communication of 14 July 2021 entitled ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality’, the Recovery and Resilience Facility established by Regulation (EU) 2021/241 of the European Parliament and of the Council (4) and the communication of the Commission of 18 May 2022 entitled ‘REPowerEU plan’. The Initiative should throughout all components and actions, to the extent possible, mainstream and maximise the benefits of application of semiconductor technologies as powerful enablers for the sustainability transition that can lead to new products and more efficient, effective, clean and durable use of resources, including energy and materials necessary for production and the whole lifecycle use of semiconductors.

(15) In order to achieve its general objective, and address both the supply and demand side challenges of the current semiconductor ecosystem, the Initiative should include five operational objectives. First, to reinforce the Union’s design capacity, the Initiative should support actions to build a virtual design platform that is available across the Union. The virtual design platform should connect the communities of design houses, start-ups, SMEs and IP and tool suppliers and research and technology organisations to provide virtual prototype solutions based on co-development of technology.

(16) Second, to provide the basis for strengthening the security of supply and the Union’s semiconductor ecosystem, the Initiative should support enhancement of existing and development of new advanced pilot lines to enable development and deployment of cutting-edge semiconductor technologies and next-generation semiconductor technologies. The pilot lines should provide for the industry a facility to test, experiment and validate semiconductor technologies and system design concepts at the higher technology readiness levels beyond level 3 but under level 8, while reducing environmental impacts as much as possible. Investments from the Union, alongside with Member States and the private sector, in pilot lines is necessary to address the existing structural challenge and market failure where such facilities are not available in the Union hindering innovation potential and global competitiveness of the Union.

(17) Third, in order to accelerate the innovative development of quantum chips and associated semiconductor technologies, including those based on semiconductor material or integrated with photonics, conducive to the development of the semiconductor sector, the Initiative should support actions, including on design libraries for quantum chips, pilot lines for building quantum chips and facilities for testing and validating quantum chips produced by the pilot lines.

(18) Fourth, in order to promote the use of semiconductor technologies, to provide access to design and pilot line facilities, and to address skills gaps across the Union, the Initiative should provide Member States with the possibility to establish at least one competence centre on semiconductors in each Member State, by enhancing existing centres or creating new facilities. Access to publicly funded infrastructure, such as pilot and testing facilities, and to the competence centres, should be open to a wide range of users and should be granted on a transparent and non-discriminatory basis and on market terms (or cost plus reasonable margin basis) for large undertakings, while SMEs and academic institutes can benefit from preferential access or reduced prices. Such access, including for international research and commercial partners, can lead to broader cross-fertilisation and gains in know-how and excellence, while contributing to cost recovery.

(19) Fifth, the Commission should establish a dedicated semiconductor investment facility support, as part of the investment facilitation activities described collectively as the ‘Chips Fund’, proposing both equity and debt solutions, including a blending facility under the InvestEU Fund established by Regulation (EU) 2021/523 of the European Parliament and of the Council (5), in close cooperation with the European Investment Bank Group and together with other implementing partners such as national promotional banks and institutions. The Chips Fund activities should support the development of a dynamic and resilient semiconductor ecosystem by providing opportunities for increased availability of funds to support the growth of start-ups and SMEs as well as investments across the value chain, including for other companies in the semiconductor value chain. In this regard, support and clear guidance should be provided, in particular to SMEs, with the aim of assisting them in the application process. In this context, the European Innovation Council is expected to provide further dedicated support through grants and equity investments to high risk, market creating innovators.

(20) In order to overcome the limitations of the current fragmented public and private investment efforts, to facilitate integration, cross-fertilisation, and return on investment on the ongoing programmes and to pursue a common strategic Union vision on semiconductors as a means to realising the ambition of the Union and of Member States to ensure a leading role in the digital economy, the Initiative should facilitate better coordination and closer synergies between the existing funding programmes at Union and national levels, better coordination and collaboration with industry and key private sector stakeholders and additional joint investments with Member States. The implementation of the Initiative is designed to pool resources from the Union, Member States and third countries associated with the existing Union Programmes, as well as the private sector. The success of the Initiative can therefore only be built on a collective effort of Member States and the Union to support both the significant capital costs and the wide availability of virtual design, testing and piloting resources and diffusion of knowledge, skills and competences. Where appropriate, in view of the specificities of the actions concerned, the objectives of the Initiative, in particular the Chips Fund activities, should also be supported through a blending facility under the InvestEU Fund.

(21) Support from the Initiative should be used to address market failures or sub-optimal investment situations as a consequence of high capital intensity, high risk, and complex landscape of the semiconductor ecosystem in a proportionate cost-effective manner, and actions should not duplicate or crowd out private financing or distort competition in the internal market. Actions should have a clear added value throughout the Union.

(22) The primary implementation of the Initiative should be entrusted to the Chips Joint Undertaking established by Council Regulation (EU) 2021/2085 (6) (the ‘Chips Joint Undertaking’).