In the wake of the shortage of semiconductors that has long affected large swathes of the European economy, the European Commission has now published a raft of proposals to prevent similar shortfalls in the future. Unfortunately, several of the proposals risk leading to more unequal competition and a less business-friendly environment due to increased political control, says Göran Grén, head of the Corporate Law Department at the Confederation of Swedish Enterprise.
The problem of lack of access to semiconductors is well-documented. It has resulted in many factories around the world having to reduce production or temporarily close down completely – even in Sweden. The auto sector has been hard hit, something that anyone who has ordered a new car recently can testify to. The same applies, for example, to the telecom and machinery industries. Semiconductors are a key input and are a basic component for a large number of products and are also necessary in manufacturing processes.
It is therefore logical and welcome for the European Commission to present legislation that focuses on how access to semiconductors can be improved in the future, and how such activities can be strengthened within the EU, particularly in terms of research and development.
However, Grén argues that the proposals unfortunately focus on the wrong areas.
– A substantial proportion of the proposals are based on unpicking state aid regulations, so that large amounts of common EU funds and money from member states can be provided as investment support for new production facilities in Europe. At the same time, production is to be controlled – in the event of a shortage, the European Commission will be able to go in and decide which orders to prioritise, Grén notes.
It is already possible to provide state aid for various investments that are important to society. What is included in the new proposals?
– Partly it’s the amount of state aid – up to 100 per cent of a funding gap can be covered, i.e., the difference between costs and revenues that a project is expected to generate. What’s also new is that aid is only given to the first plant of its kind in Europe. Being a runner-up is therefore not an option – we believe that this may cause a race that is unfavourable for member states that spend money responsibly and that carefully structure projects based on quality criteria, says Stefan Sagebro, state aid expert at Swedish Enterprise.
– Another concern is more long-term: that these facilities may not be competitive in the global market in which they operate. They do not benefit from the European Commission being able to step in and control production in the event of a crisis, so that some customers may see their orders cancelled. It may also be necessary to provide operating aid for such facilities in the future if they are to survive, which in the long run can be very costly and distort competition, Sagebro adds.
The Commission’s proposals will now be reviewed by the European Parliament and member states. However, part of the act will have immediate effect, and there is a recommendation for member states to start collecting information from relevant companies to identify the availability and shortage of semiconductors. This information must then be sent to a new expert body that is to be established.
– This information gathering will be an additional burden placed on already over-burdened businesses. There is also a risk that business-sensitive information that could harm businesses or their customers goes astray, says Cemille Üstün, Director EU Single Market at Swedish Enterprise.
The new act has not been subject to an impact assessment. Now, however, the Commission is inviting all relevant actors to provide information on the demand for semiconductors and how they see this changing, as well as information about research and development conducted in the sector, and current challenges related to the supply of semiconductors. The consultation is open until March 20 and can be found here.
– We believe that in the long run, supply and demand for semiconductors will be evened out. Major private and public investments have been announced around the world. The best way to address future crises will therefore continue to be open borders and increased market-driven diversification to create efficient and robust value chains. This, together with increased investment in research and development in areas where the EU is strong, is the right way forward, concludes Grén.