EU chips and Korea

Bark Tae-ho
The author is the president of Lee & Ko Global Commerce Institute and former minister of trade.

On February 8, the European Commission proposed an ambitious law called the European Chips Act aimed to boost Europe’s technological sovereignty, competitiveness and resilience in the digital transition. The commission handed out outlines on communications, regulations, and recommendations to member states to build a thriving semiconductor ecosystem in the EU bloc and better respond to future supply-chain disruptions. The act will follow EU legal procedure and will be enacted upon final agreement in the European Parliament.

The movement owes much to three factors. First, Europe has suffered dire shortages of chips since the outbreak of the Covid-19. Second, the bloc lacks major semiconductor production facilities as chipmaking is dominated by Korean and Taiwanese players. Third, the bloc could not be left out in the trend of government assistance in the U.S., China, Japan and South Korea to raise its semiconductor production, research and developments.

In December 2020, EU members signed a joint declaration called a “European Initiative on Processors and Semiconductor Technologies” to strengthen their own chip supply chain. In March 2021, the European Commission followed up with the 2030 Digital Compass, a strategy outline setting specific digital targets to be reached by the year. The goal is to raise the EU bloc’s share in advanced chip output to at least 20 percent. European companies have pledged a 6 billion-euro ($6.6 billion) investment annually in the semiconductor sector.

Europe has strengths in the semiconductor field with competitiveness in designing chips for electronics, radio frequency, sensors, and precision control largely used for auto and other manufacturing. Europe is a research hub for semiconductor miniaturization, essential for higher performance and energy efficiency. There are many outstanding manufacturers of equipment and materials for semiconductor production in the union. There are a number of multinational corporate players relying on chips for their mainstay solutions in factory automation and healthcare.

But the bloc must rely on imports as it produces only 10 percent of global chip output. It lacks chip manufacturing capabilities with high reliance on imports in the final stage of packaging and assembly. Industry experts project semiconductor demand to double from current levels by 2030. A stable supply of chips has become essential to Europe and other major jurisdictions as they affect industrial activity and the economy as well military and security.

The European Chips Act proposes to offer 43 billion euros through 2030 to strengthen the EU’s leadership in R&D, boost its development capacity in energy-efficient and sustainable advanced chips and achieve quadruple chip manufacturing capacity in the regional bloc. After setting special guidelines for public support as private funding in new chip facilities could be difficult, the act allowed government support in a facility of first of a kind in the bloc. The act also aims to institutionalize a chip council to keep watch on global supply situations and promptly respond to difficulties. Furthermore, the act proposed international partnerships with chipmaking countries like the United States, Japan, Korea and Taiwan. The EU already established the Trade and Technology Council (TTC) with the U.S. to strengthen cooperation on semiconductors and in other high-tech areas.

Korea must benchmark the key details in the European Chips Act. The government must also consider a chip council of companies, the government and experts to monitor the global chip supply status and devise effective countermeasures. The government needs to seek partnerships with major governments on semiconductors. It could seek to establish TTCs with the U.S. and the EU to share information on chips and cooperate for stable chip supply.

Korean companies need to seek stronger cooperation with the EU with strengths in chip-related technologies, materials and equipment. Since trade protectionism led by the U.S. is escalating, private-based international cooperation should be sought with top-caliber semiconductor research institutes in Europe. Companies also must consider expanding investment in the bloc under various incentives being prepared by the EU to expand its manufacturing capacity in the region.
Translation by the Korea JoongAng Daily staff.