22 March 2024 · 3 min read
Author: Matilde Castleberry
On March 4, 2024, the Semiconductor Industry Group SEMI Europe published a Position Paper addressing The European Commission, Parliament and Council on the priorities of the European Economic Security Strategy.
After the European economic risks and fragilities were exposed by geopolitical tensions stemming from both the COVID-19 pandemic and the escalation of the Russian invasion of Ukraine in 2022, Europe decided to take action. In January 2024 the European Commission revised and developed a number of regulations targeting exports, imports, and Foreign Direct Investments (FDIs).
These measures do not explicitly mention their targets but promise to be applied to ‘countries of concern’ - such as China. During the State of the Union speech in September 2023 and the later during EU-China summit in December of the same year, Ursula Von der Leyen emphasised that the aim is not decoupling, rather ‘de-risking’. However these new regulations will affect all those industries that are deeply intertwined in complex Global Supply chains as signalled by some industry associations.
In publishing its Position Paper, SEMI Europe expressed its concerns over these new regulations and how they will affect the semiconductor industry, on behalf of the 3,000+ member companies and 300+ European companies it represents.
Do we really have to sacrifice the industry’s attractiveness to reach economic Security?
One of the main points expressed in the paper revolves around the common framework that Europe wants to establish for achieving economic security which is based on: Promoting - Protecting - Partnering. While the ‘protective’ stand is clearly expressed by the regulations, it is unclear how promotion and partnering will be addressed. SEMI stressed the importance of openness and cooperation for the semiconductor industry, given its complex Value Chain spreading globally.
SEMI calls for a positive approach that fosters Free trade agreements, high level industrial partnerships, and most importantly, that does not hamper FDIs, crucial for a highly capital intensive sector as the semiconductor one. In contrast, the European legislative proposal that aims to revise the current FDI screening regulation could deter foreign investors, most specifically in the case of greenfields investments. These investments are considered to be the most fruitful in enhancing European competitiveness, given that they finance the establishment of new production facilities from zero, and SEMI therefore posits that they are not worth risking for any potential benefit of additional screening mechanisms.
Equally important are Outbound Investments, which facilitate the international investment flow granting access to new markets and allowing the expansion of production capacities. According to SEMI Europe, the new set of regulations on outbound investments lack clarity on how they will affect intra-company investments, with a consequent risk for the agility of European industries to freely choose and enact the best investment strategies.
While SEMI agrees with the European Commission's position that the application of dual-use export controls should be agreed between all EU member states, it highlights its concern that the Wassenaar Agreement has been compromised by geopolitical developments in its capacity to define and determine multilaterally agreed export controls. It underscores the necessity for a new forum capable of delivering a unified and coordinated approach to address potential unilateral actions by third countries.
The strongest message that emerges from the position paper published by SEMI is the necessity to have a higher degree of dialogue between industry and policy makers in order to avoid the creation of sets of rules that aim to be beneficial but end up being harmful for certain crucial sectors given their highly complex physical and financial structure. A regulation targeting import and exports cannot be carried out without considering the entirety of the businesses it will affect. Sacrificing attractiveness and agility within the semiconductor industry will not bring economic security, rather further stagnation and a serious threat to the 2030 objectives of the European Chips Act (ECA).
If you wish to learn more about the Semiconductor Value Chain and the geopolitical tensions revolving around it, check out our eight episodes Series entitled ‘Global Chips: From crisis to strategies’, and subscribe to our newsletter here to keep updated on the latest developments of the semiconductor industry.
