Paul van Gerven
16 November 2021

Fearing erosion of the EU’s internal free market, several member states including the Netherlands resist the relaxation of state-aid rules that would allow governments to subsidize chip plants in Europe.

Six EU member states, including the Netherlands, are arguing against the relaxation of state-aid rules that are currently being considered by the European Commission. The amendments, among other things, would allow governments to subsidize semiconductor manufacturing facilities. The group is opposed to this; state funds shouldn’t be used to support “mass production or commercial activities,” according to a published letter.

The proposed policy change, involving the IPCEI instrument originally developed to address market failures, has opened a deep rift not only between member states but also within the Commission. Internal market commissioner Thierry Breton, supported by France and Germany, champions heavy state involvement to bolster Europe’s semiconductor manufacturing ecosystem. “Believing we could be satisfied with the partial control of such a strategic supply chain in the making is naive,” Breton said during a recent visit to the Silicon Saxony region near Dresden.

In the opposite corner stands antitrust commissioner Margrethe Vestager, who enjoys support from member states that favor a free-market approach. While Vestager shares Europe’s ambition “to produce some of the world’s most advanced chips, down to 2-nanometer nodes,” she stated that “self-sufficiency is an illusion,” citing a price tag of “between 240 to 330 billion euros.” The Dane also warned against a subsidy race. “In the current circumstances, it becomes tempting for companies to try to play out governments against each other.”

Subsidy race

The alliance of six clearly sides with Vestager. “Relaxation of our rules, as some suggest, is not the right way to tackle new challenges. It could easily lead to negative effects on competition, markets and growth on the single market as well as a harmful subsidy race that benefits few and hurts many. It will not strengthen the global competitiveness of European companies and will harm our level playing field at home,” the group writes.

The battle isn’t only ideological. Smaller economies, in particular, feel protected by the EU’s current strict state-aid rules – larger member states have deeper pockets and could provide their companies with more support. France and Germany say that they want more room to help European companies compete with their Chinese and US counterparts, but small states fear this would also affect competition within Europe’s borders. Previously, Breton assured that the EC will “provide a framework to avoid a race to national public subsidies fragmenting the single market.”

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Dutch prime minister Mark Rutte, EC president Ursula von der Leyen and EC commissioner Margrethe Vestager (from left to right) at ASML’s headquarters. Credit: Twitter

Photonics, AI and quantum

Ahead of the decision-making, Breton, Vestager, EC president Ursula von der Leyen and Dutch prime minister Mark Rutte visited ASML’s headquarters in Veldhoven last Monday. Von der Leyen reiterated the EU’s goal of doubling Europe’s global ‘market share’ in chip manufacturing to 20 percent by 2030. Additionally, she called for more coordination of research activities as well as matching those with the industry’s needs, and for boosting chip design activities. All these elements will come together in the European Chips Act, which will be proposed in the first part of next year, Von der Leyen said.

The Dutch government formally supports the EU’s semiconductor ambitions, including those for the leading edge. It co-signed a declaration “to set ambitious plans, from design of chips to advanced manufacturing progressing towards 2nm nodes.” It also has set aside 300 million euros to join the upcoming IPCEI Microelectronics II collaboration.

In a preliminary reaction to the Chips Act, however, the Dutch cabinet stressed that expansion of the European semiconductor ecosystem should focus in particular “on leading-edge and next-generation technology by preparing the semiconductor industry for the ground-breaking potential of photonics, AI and quantum technologies.”