European Central: European Union Ponders Relaxing Competition Law for Microchips
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China’s plan to integrate Taiwan closer into the country under the One China Policy has not gone unnoticed by the European Union. Taiwan is extremely important for the production of semiconductors, as the island has been dominating the market. There is also currently a high demand for semiconductors due to a shortage caused by the pandemic. This has led to the European Union realizing how important it is to not be dependent on Taiwan for semiconductors. The European Commission has announced its goal is to have 20 percent of the market by 2030, which is still significantly lower than what the EU used to produce. Back in the 1990s the EU was responsible for 40% of microchips. The problem facing members of the European Union however are the current rules of the single market.
The single market is considered a strong point of the European Union. At the same time, some of the regulations make it difficult in order for companies in the bloc to produce semiconductors. First, companies would need to construct facilities to produce semiconductors, but the cost to build one factory is 7-10 billion dollars. The problem is member states are restricted from helping support companies. The European Union has these restrictions in place. This has brought attention that competition laws in the European Union would need to be relaxed in order for European companies to be able to gain the capital to build semiconductor factories.
Margarethe Vestager, the EU competition chief is cautious about some expectations people may have in the European Union. She has made it clear the bloc is far from being able to be completely independent from other countries in order to have the number of microchips it needs. With globalization the economies of countries are becoming closely linked, but the European Union has to hope it can trust China. This however this is clearly not the case, as the situation between China and Taiwan has brought attention to the issue of semiconductor production as there are fears what will happen if China moves forward with integrating Taiwan more closely into the country. If the threat of the situation between China and Taiwan was not escalating as it currently is, it appears this would not receive as much attention. There would still be some discussion do to the European Union losing the majority of its market share of semiconductor production, however it would not be as urgent as it is due to a threat to the supply. Instead it would be addressing the EU’s continued struggle to compete in the technology sector.
While it is reasonable to be cautious about expectations and it is understandable that Vestager does not want people to get their hopes up, part of the problem appears to be that Vestager also seems set on not changing much about the single market. The problem is this makes it difficult to compete internationally against other companies from other countries, which is exactly the point of the regulations in the first place. If countries like China have a government willing to invest in the production of semiconductors, Vestager cannot expect EU countries to be able to compete if national governments of member states are not allowed to do the same.
Another factor to consider is that member states of the bloc drastically differ in size. While the single market can help companies from smaller nations, they do not have the domestic market that companies from larger member states may rely on. This would make it even more difficult for companies from smaller nations to have the capital needed to build semiconductors factories.
Besides semiconductors, another concern is the impact the pandemic has had on companies based in the European Union. The overwhelming majority of member states saw their economies shrink during 2020. However, single market restrictions would not allow national governments to help out companies financially, yet countries with a strong hand in their markets such as China can. The European Union and Margarethe Vestager needs to realize that while it is important for companies to remain innovative, the rules may need to change in order for them to do so. Another important aspect of the need for more semiconductor production is that a shortage is harming other industries.
During the past several months, European auto manufacturers have seen decreasing sales. This is not because the pandemic drove down demand but because car manufacturers are unable to obtain a sufficient number of semiconductors. Since July, car sales in Europe have been lower than 2020, despite signs of economic recovery and nations seeing increases in employment while decreases in unemployment. VW Group saw a 41.9 percent decrease in sales during October, but Renault has done the worse throughout the year and saw a 10.8 decrease in sales compared to 2020. Covid cases at semiconductor factories have created a supply shortage. At the same time, the pandemic has also shown how dependent European Union member states are on other countries. If the European Union is unable to increase production of semiconductors in the future then future shortages of semiconductors can continue to harm European companies. As it is the pandemic is not over and variances of Covid-19 continue to be discovered which may continue to hurt the supply chain.
