European Chips Act Unveiled
Also — Ukraine, Nuclear, Big Tech, Poland, Brexit
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Commission Vows to Make EU Chips Great Again
On 8 February, the College of Commissioners adopted a proposal for a European Chips Act, which aims to increase the EU’s share in the global semiconductor market from 10 to 20 per cent by 2030.
The proposal aims to build on Europe’s strengths in research and equipment manufacturing while addressing weaknesses in production capacity. “This will allow public support for European ‘first of a kind' production facilities”, said Ursula von der Leyen. This is the first time the EU ventures this deeply into industrial policy and is willing to reconsider its historical stance on State aid.
CHIP CRUNCH • With the recent chip crunch in mind, a Communication spells out the strategy and rationale behind the initiative. But the real meat is in a proposed Regulation, to be adopted by Parliament and the Council following the ordinary legislative procedure. It lays down the funding mechanisms and framework of measures to strengthen the EU’s semiconductor ecosystem. An accompanying Recommendation to the Member States sets out a toolbox for monitoring and mitigating disruptions in chip supply.
“OPEN STRATEGIC AUTONOMY'' • The COVID-19 crisis has disrupted global supply chains and led to shortages of certain critical products in Europe, including semiconductors — also called chips. It has wreaked havoc in many sectors, from healthcare to car manufacturing.
Against this backdrop, the Commission has embraced the concept of “open strategic autonomy” — a blurry concept resulting from the combination of years of French lobbying for “strategic autonomy” and the insistence of free-market-leaning Member States that “open” be added to the term to tame the French excesses. One of the main ideas behind the concept is to pursue active industrial policies to tackle strategic industrial dependencies in key sectors, like semi-conductors which are an essential component of electronic devices in, amongst others, cars, planes, and computers.
NEW POWERS • The Chips Act would provide the European Commission with a new right of market intervention, reflecting the growing geopoliticisation of value chains, which fits into the “weaponisation of trade policy”. The Act would require companies receiving subsidies to prioritise European customers during supply shortages. The EU could also widen the measure to all businesses if the US or other countries applied such controls.
FINANCING • The Commission claims the EU Chips Act will mobilise more than 43 billion euros of public and private investments. The figure is intended to match the 52 billion dollars offered by the US’s Build Back Better (BBB) plan. There will be nowhere near as much public money available to set up large manufacturing facilities in Europe. Competition Commissioner Margrethe Vestager avoided the 43 billion figure in her press conference — stressing that the actual amount of investment by the Member States “remains to be seen”.
POTEMKIN FINANCE • In December 2021, The Economist pondered “why bullshit rules in Brussels”, and ridiculed the EU’s tendency to announce flagship investments while repackaging ”existing commitments, loan guarantees and heroic assumptions about the ability of the club to “crowd in” private investment, rather than actual new spending”.
Whether the Chips Act can be used as another example of elegant repackaging of EU funds remains to be seen. Bloomberg’s Jillian Deutsch was quick to point out that approximately 15% of the 43 billion announced will directly come from the EU’s budget. The Commission expects the Member States to contribute roughly 50% to hit the 11 billion euro tag earmarked for the “Chips for Europe Initiative”.
INDUSTRIAL POLICY • A “mega fab” is a cutting-edge chip factory that produces the latest generations of chips — of down to 5 nanometers and less. The three biggest chip manufacturers — TSMC, Samsung and Intel — have announced plans to build factories in Asia and the US but not yet in the EU.
The Old Continent has a lot of catching up to do. “The EU attracted just 3% of global investment for chip factories in 2020”, stressed Cecilia Bonefeld-Dahl, director-general of Digital Europe, a lobby group representing 35000 companies. “A lot of work is needed to push this figure upwards. To achieve the target of 20% of global chip production by 2030, bolder efforts need to be made”, she added.
The EU’s industrial policies have a track record of failing to deliver. The Commission already presented a similar microchips plan in 2013 with the objective of doubling Europe’s chip production to 20% of global production by 2020. This target has not been reached.
STATE AID • The Commission’s plan to attract private investments relies on relaxing stringent State aid rules, which prohibit Member States from giving distortive tax breaks and subsidies to companies in an effort to avoid costly subsidy races between the EU’s Member States. Internal Market Commissioner, Thierry Breton, has pushed for official language to signal a change of philosophy on State aid — is not music to the ears of all in the College of Commissioners.
The EU’s antitrust tsar, Margrethe Vestager, is adamant that the Commission is not tweaking State aid rules but relying on existing carve-outs for “Important Projects of Common European Interest” (IPCEI) and Treaty provisions on “first of a kind production facilities”. Vestager wants to reassure market-friendly Member States who need to hear that the Commission will make sure the subsidies are “targeted and proportionate”.
IPCEIs have “emerged as the state aid tool of choice to support the European Commission’s industrial goals, including on semiconductors and hydrogen”, note Niclas Poitiers and Pauline Weil in a blog post for Bruegel, a think tank. However, the lack of governance structure, and the “uncoordinated national approaches facilitated by the framework create risks for fair competition in the EU”, the blog post adds.
EU Diplomats and Member States Try to Align Responses to Ukraine Crisis
While a Russian invasion appears ever more likely – the US says it could happen “any day now” – diplomatic efforts continue apace in Kiev. European leaders are flocking to Ukraine’s capital to discuss the fate of the country, as well as the position to take towards Russia.
BORRELL SPEAKS FOR THE UNION • In a statement on Thursday, High Representative Josep Borrell presented a single European response to Russia's "security concerns", which prefers bilateral engagement with Member States.
The EU is a major partner of Ukraine, linked through the Eastern Partnership and through association and free trade agreements. Indeed, the Russian-Ukrainian conflict stems partly from Ukraine’s desire to tighten its bonds with Europe. The shift in Ukrainian politics following the 2014 ‘Maidan’ revolution convinced Russia that it was in danger of losing its influence in the country. This prompted Russia’s military intervention in the Donbas – which did not give it control over the rest of Ukraine, however. At the heart of the current crisis is President Vladimir Putin's demand that Ukraine remain outside of NATO. Yet, on Monday 14 February, the Ukrainian ambassador to the UK reiterated that Kiev was not ready to accept this.
The EU's ability to influence events in the region remains limited. Member States are divided on how to respond to the risk of a Russian invasion. So far, it is mainly the Member States’ individual leaders who are making Europe's voice heard – notably Emmanuel Macron and Olaf Scholz. However, the EU as an institution has its own leverage: if new economic sanctions against Russia are agreed, they will probably be coordinated by the EU, as was the case in 2014. Moreover, any effort to diversify gas supplies is also likely to take place at the European level.
MACRON IN KIEV • In an echo of Nicolas Sarkozy’s famous trip to Georgia in 2008, the French President Emmanuel Macron visited Ukraine this week as part of France's efforts to revive the Russian-Ukrainian dialogue. Although the foreign policies of the Member States are notoriously disparate, not a single objection has yet been raised to the EU’s approach during the crisis – not even by those Member States which are traditionally closer to Russia.
The Ukrainian authorities welcomed Macron's visit, as well as the absence of any reference to the Minsk agreements. Moscow argues that they oblige Ukraine to hold direct dialogues with the separatists – which Kiev refuses to do.
Ukraine also welcomed the fact that there was no mention of any renunciation of its Euro-Atlantic aspirations, thereby ruling out the risk of "Finlandisation" of the country, which had caused a stir this week.
On Thursday, a meeting was also held in Berlin between diplomats of the so-called ‘Normandy format’ (Ukraine, Russia, France, and Germany). Although the discussions lasted all day, no joint statement was issued at the end of the talks, which will therefore continue.
SCHOLZ IN KIEV • Chancellor Olaf Scholz is in Ukraine today where he was received by President Volodymyr Zelensky. He will then travel to Moscow to meet with President Putin, in the hope of finding a way out of the crisis.
The German Foreign Minister, Annalena Baerbock, was in Ukraine last week – for the second time in a fortnight. She has not yet been received by President Zelensky, however. This could be a deliberate snub – Berlin's support for Ukraine is perceived as timid in Kiev.
Ukrainian accusations of German half-heartedness focus on the Nord Stream 2 pipeline. However, public statements this week reiterated that these accusations were unfounded. The Germans argue that, under the terms of the German-American declaration of July 2021, this pipeline represents leverage vis-à-vis Russia – and that it is not a finished project. Statements by the new government suggest that if Germany were to impose economic sanctions against Russia "all options [would be] on the table".
Another point of contention is the lack of arms deliveries from Germany to Ukraine, which is currently being blocked by several partners of the new federal ‘traffic light’ coalition. In fact, Annalena Baerbock appeared to be focused above all on the political priorities of her domestic allies, who include the Greens — by referring to the energy transition and feminist diplomacy.
Macron Surfs Nuclear Wave as France Announces New Investments
During a visit to the General Electric site in Belfort on 10 February, Emmanuel Macron announced the return of nuclear power in France — a decision that can only be implemented after his potential re-election in April 2022.
MACRON’S PLAN • As the decarbonisation of the French economy is "the project of the century", President Macron intends to rely on a multi-faceted strategy involving the massive development of renewable capacities and the construction of nuclear power plants. On the latter aspect, Macron specified his announcements from November, describing his 2030 recovery plan to "reinvent nuclear power".
First, where possible, the lifespan of existing nuclear reactors will be extended beyond 50 years. Second, the President announced the construction of six new EPR2 (the reactor type employed in Flamanville). Construction on the first site is supposed to start in 2028 and the first two reactors should be commissioned by 2035. The President also asked the French nuclear company Electricité de France to launch a study for eight additional EPRs after 2050. Third, as part of France 2030, the government is launching a call for projects for the construction of Small Modular Reactors (SMR) or "mini power plants" with the ambitious objective of building a first prototype by 2030. Finally, Macron intends to make use of the atom’s competitive advantage: to produce low-carbon hydrogen.
To support these objectives, the French President wants to draw up a new Multiannual Energy Plan in 2023 following a public consultation on energy policy. To steer this new nuclear plan, he further wants to create an inter-ministerial directorate dedicated to coordinate administrative procedures and to ensure that builders respect the costs and deadlines of the construction sites. Furthermore, Macron also mentioned a new regulation to replace the ARENH (Regulated Access to Historic Nuclear Energy), which is currently being discussed with the European Commission.
TAXONOMY • This historic relaunch comes a few days after the publication of the Taxonomy Regulation, in which the European Commission finally decided to classify nuclear energy as "sustainable". President Macron stressed the importance of this decision which "will facilitate the financing of these projects". However, this delegated act still has to pass the silent procedure in the Council and the European Parliament.
GEOPOLITICAL COMPLICATIONS • These announcements are also part of a particular geopolitical context. As the situation in Ukraine becomes increasingly tense and gas and electricity prices continue to rise, the EU's dependence on Russian gas becomes increasingly obvious. Germany has come under fire from the US for its continuation of the pipeline project Nord Stream 2, which would deepen the aforementioned dependence. In response, the US is accelerating its deliveries of liquefied natural gas to Europe. At the same time, climate activists are increasing their push for a decarbonization of the economy. IPCC Chairman Hoesung Lee said on Monday, at the opening of negotiations on a new report on the impacts of global warming, that "the stakes have never been higher".
Within the European Union, the divisions are more visible than ever: while the Netherlands is also considering the construction of new power plants, and Sweden is gradually joining the camp of the defenders of the atom, Austria, Luxembourg and Germany don’t budge on their rejection of nuclear technology.
The Techlash Diaries — a Week in the EU for Big Tech
We have decided to compile miscellaneous pieces of information on the struggles of being a big technology company in the EU these days: The Techlash Diaries. This week, Meta — Facebook and Instagram’s parent company —claimed that it might leave the EU because of the block’s data privacy rules. Google is under fire (again) from France’s privacy watchdog. And Google is being sued in Sweden for 2,1 billion euros.
META OUT OF EU • In its annual report (10-K) to the Securities and Exchange Commission (SEC), Meta said it might pull Facebook and Instagram out of the EU if Ireland’s Data Protection Authority bans it from transferring its EU customers’ data to the US.
Denying that the statement was a threat to data protection authorities, Meta said the brief reflected the “simple reality” that it relied on EU-US data transfers to provide its services. Meta’s statement is the latest chapter in a long legal drama concerning the vastly different data protection regimes in the EU and the US.
Citing privacy concerns, the Court of Justice of the EU has struck down the agreements negotiated between the Commission and the US government allowing data transfers between the US and the EU — in 2015 and again in 2020. As a result, American companies have to undertake certain data protection safeguards in contracts — using so-called “standard contractual clauses” — which Data Protection Authorities must assess on a case-by-case basis.
Meta’s statement caused a political uproar in Europe, which is due to unveil its landmark digital regulations (DMA and DSA) in the coming months. "After being hacked I've lived without Facebook and Twitter for four years and life has been fantastic," German Economy Minister Robert Habeck told reporters at an event alongside French Economy Minister Bruno Le Maire in Paris. "I can confirm that life is very good without Facebook and that we would live very well without Facebook," added Le Maire — who often posts selfies of himself jogging or having coffee.
GOOGLE ANALYTICS IN FRANCE • The French privacy watchdog, CNIL, indicated that Alphabet’s Google Analytics’ service breached EU data protection law, after a complaint by None of Your Business (NOYB), a privacy-focused NGO.
French websites using Google Analytics were reported to the French Data Protection agency, who took up the complaints. Transfers to the United States “are currently not sufficiently regulated”, CNIL notes. Indeed, in the absence of an adequacy decision after the CJEU struck down the last one in 2020, “the transfer of data can only take place if appropriate guarantees are provided for this flow in particular”, which is not the case according to France’s privacy watchdog.
Alphabet was given one month to comply with the ruling — for instance by transferring only anonymised data — or CNIL would order the French websites to stop using its service.
GOOGLE SUED IN SWEDEN • Price Runner, a price comparison website, has announced that it is suing Google for 2,1 billion euros for breaching competition law. The case relies on the Google Shopping’ decision, which found that Google’s practice of self-preferencing its own price comparison service was an abuse of dominant position. Price Runner will mainly have to prove that it suffered damage (lost profits), and that was caused by Google.
This is the first “follow-on” action brought after the General Court’s 2021 Google Shopping decision upholding the Commission’s 2,4 billion euros fine. Google has announced it will appeal to the CJEU. Keen followers will have to wait a few more years to know how salty Google’s final bill will be.
The Polish Saga (cont’d) —Turów, Conditionality, and Antitrust
The Polish government is unhappy with the Commission's decision to withhold EU funds to pay for the fine imposed in the case concerning the Turów mine at the Czech border. The Court of Justice of the EU (CJEU) is about to rule on the legality of the conditionality mechanism. And the General Court (GC) for the first time links competition law with rule of law.
THE TUROW FINE • For months, Poland simply refused to pay the CJUE-imposed fine for refusing to close the border lignite mine of Turów. But on 3 February, the Polish Prime Minister Mateusz Morawiecki agreed to pay Prague 45 million euros and to finance measures aimed at preventing the mine from negatively affecting Czech residents. In return, Petr Fiala, the Czech Prime Minister, promised to withdraw Czechia’s lawsuit from the CJEU, which would allow Poland to continue exploiting the mine.
On 8 February, the Commission announced that it would deduct the unpaid fine owed by Poland from EU funds after the delay expired on 18 January. Approximately 15 million euros will be deducted. The Polish government announced it would appeal the decision.
The 15 million owed to the Commission for Turów mine look like petty cash when compared to the sums involved in the rule of law conditionality regulation saga.
CONDITIONALITY REGULATION • Under the Rule of law conditionality regulation (2020/2092), the Commission is allowed to withhold EU funds from backsliding Member States that do not respect the rule of law as defined by the regulation. A net recipient of EU funds, Poland could lose out on as much as 130 billion euros over the seven-year-budget for 2021-2027.
While the Regulation was adopted in December 2020, the Commission has refrained from using the tool before the Court of Justice of the EU ruled on its legality. Instead, the Commission sent letters to Hungary and Poland, which referred the regulation to the EU’s highest court. The Commission has still not disbursed Next Generation EU funds to Hungary and Poland, citing rule of law and corruption concerns. Poland expects to receive 36 billion euros under the NGEU programme.
Tomorrow, on 16 February, the EU’s supreme judges in Luxembourg will issue their judgement on the legality of the regulation in a highly anticipated decision. On 2 December 2021, Advocate General Manuel Campos Sánchez-Bordona delivered a — non-binding — Opinion supporting the regulation’s legality.
On the same day — 16 February — the Polish Constitutional Court will also issue a ruling on the rule of law conditionality mechanism. The judgement, on the regulation’s legal basis, will be livestreamed, notes EU Law Live.
ANTITRUST & RoL • The General Court of the EU annulled, in Case T-791/19 (Sped-Pro v Commission) a decision by the Commission, which rejected an antitrust complaint against a company controlled by the Polish State. Most notably, the “General Court examines for the first time the impact of systemic or generalised deficiencies in the rule of law in a Member State on determining the competition authority that is best placed to examine a complaint”, the press release reads.
EU funds are increasingly conditional on recipient Member States respecting rule of law provisions contained in the EU Treaties. Tying competition law proceedings to such provisions to tackle systemic deficiencies is a first. The Luxembourg judges contend that the Commission should have examined “evidence which, according to the applicant, taken together, is capable of showing that there were substantial grounds to believe that it ran a real risk of a breach of its rights should its case have to be examined by the [Polish] authorities”.
Brussels Refers London to Luxembourg in First Post-Brexit Case
The Commission has referred the United Kingdom to the Court of Justice of the European Union (CJEU) over a judgement of the UK Supreme Court, dated 19 February 2020.
CONTEXT • Article 87 of the Withdrawal Agreement signed between the EU and the UK states that “the Commission may, within four years after the end of the transition period, initiate proceedings before the Court of Justice, if it considers that the UK has failed to fulfil an obligation under the Treaties before the end of that period”, the Commission stresses. The transition period ended on 31 December 2020.
THE CASE • The Commission challenges the UK Supreme Court’s judgement, “allowing enforcement of an arbitral award ordering Romania to pay compensation to investors, despite a Commission decision having found that the compensation infringed EU State aid rules”, the press release reads. The Commission considers that the judgement breaches the principle of sincere cooperation set out in EU law, by ruling on a question that was already being investigated by EU courts. The EU’s executive arm also considers that the UK Supreme Court misapplied EU law and failed to refer the matter to the CJEU.
DEADLOCK • The Commission’s move will do little to help to de-escalate tensions between Brussels and London, with negotiations over the Northern Ireland Protocol in a deadlock and renewed threats of triggering Article 16 — which allows either side to suspend the Protocol in case of “serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”. The CJEU is also competent to decide on cases related to the implementation of the Northern Ireland Protocol.
BREXIT RELATED? • Brexiteers may be keen to see the move as political. “Easy as it might be to view this action in those terms, the truth is perhaps much more mundane, namely, genuine concerns not to set a precedent or be seen to be taking a soft approach in relation to any course of action that might undermine the fundamental legal order of the EU”, notes Dr. Totis Kotsonis, a partner at Pinsent Mason, a law firm.
What we’ve been reading this week
Does Europe need a Health Union? wonders Bruegel’s Anne Bucher.
For Carnegie Europe, Judy Dempsey asks : Do the Europeans Trust France?.
In Foreign Affairs, Michael Beckley looks at How Fear of China Is Forging a New World Order.
Sinem Adar and Friedrich Püttmann write for The German Institute for International and Security Affairs (SWP) on Making EU-Turkey Cooperation on Migration Sustainable.
For Bruegel, Monika Grzegorczyk, Niclas Poitiers, Pauline Weil and Guntram Wolff assess the The risks for Russia and Europe of new sanctions.
Thanks to those who helped put this edition together — Marine Sévilla, Philipp Steinbrecher, Eloïse Couffon, Ambroise Simon, Maxence de La Rochère, Leon Holly, Rogier Prins, Agnès de Fortanier and Thomas Harbor. See you next week!