As tech race heats up, Brussels hints at competition law exception to boost EU-made microchips

November 18, 2021 9News Nigeria Europe 0

If it ain’t broke, don’t fix it.

This was the main message on Thursday afternoon as the European Commission unveiled its initial review of EU competition law, a process aimed at ensuring the rules introduced more than 60 years ago can keep up with the great challenges of tomorrow.

Since the early years of European integration, the executive has been a zealous defender of open markets and fair competition across the bloc, while clamping down on unfair, excessive intervention from governments and abusive, monopolistic behaviour from large companies.

Enforcing competition law is one of the few policy areas where the Commission has exclusive powers, leaving member states no other choice but to abide by the decisions taken in Brussels and refrain from distorting the free market.

But this longstanding way of working, enshrined in the EU treaties, is being called into question by the economic rise of China, the global tech race and the coronavirus pandemic – three factors that have laid bare Europe’s industrial weaknesses and vulnerabilities.

Some capitals are now calling for the relaxation of competition rules in order to allow the emergence of so-called European champions: powerful EU-based multinationals that can stand up to industrial titans, mainly those from the US and China, and prevent the bloc from lagging behind on the world stage.

These calls gained new momentum in 2019 after Margrethe Vestager, the European Commissioner for competition, blocked a high-profile merger between French firm Alstom and German company Siemens that would have created a massive railway multinational.

Vestager argued the move would have squeezed out rivals, diminished innovations and resulted in higher prices and fewer choices for European consumers. Her decision caused consternation in Paris and Berlin, who hoped the ambitious project could have strengthened the EU’s hand against Beijing. French Economy Minister Bruno Le Maire called the move an “economic error” and “political mistake”.

‘Stuck in the 20th century’

In the face of political pressure, the antitrust czar is standing her ground. The document that launches the review process broadly defends the EU’s consolidated powers and simply hints at targeted adjustments in key areas, including green tech and microchips.

“Strong competition enforcement is fundamental for businesses and consumers to reap the full benefits of our single market. It gives businesses of all sizes a fair chance to compete,” Vestager said in her opening statement.

The Commissioner spoke proudly about the importance and effectiveness of competition rules, which recently handed her a judicial victory in a case involving a €2.42-billion fine against Google.

She defended the three main tools the executive has its disposal to ensure fair play –merger approvals, antitrust investigations and state aid control– and teased two future new instruments: the Digital Markets Act, a legislative proposal to rein in the power of big online platforms, and a draft law to scrutinise acquisitions and subsidies made by foreign entities inside the European market.

“It won’t surprise you that I firmly believe that resilience is based on open and competitive markets,” she said, underling the framework’s inherent “flexibility to adapt”.

Her presentation was welcomed by Monique Goyens, director-general of the European Consumer Organisation (BEUC), who called on Brussels to be more vigilant regarding mergers.

“The Commission must continue to resist extremely hard lobbying by big European companies to weaken merger control in the name of global competitiveness,” Goyens said in a statement.

The ongoing review will look into 20 existing rules and guidelines, covering policy fields such as research, agriculture, fisheries, broadband, healthcare and rail transport, to determine if they are still “fit for purpose” in today’s economy or require amendments.

Vestager’s play-it-safe statements imply that few big changes will be made and the main, decades-old tenets of EU competition law will remain intact.

For the centre-right European People’s Party (EPP), the Commission is erring on the side of caution and betting too big on inadequate and obsolete norms.

“The EU’s competition policy is still stuck in the 20th century. Nowadays, competition policy does not only need to have a European perspective, but a global one,” German MEP Markus Feber wrote on behalf of his party.

“If we want European companies to be able to compete against their US or Asian competitors, EU competition policy needs to get smarter in allowing European champions to emerge.”

An important task for Vestager and her team will be to strike a new balance to ensure that state aid rules allow member states to speed up the twin digital and green transition without market distortions.

Brussels estimates this dual effort will necessitate €650 billion per year in public and private investments until 2030, a colossal amount that will inevitably entail a more hands-on, generous approach from governments.

Today, around 96% of state aid granted by EU countries is exempted from the Commission’s vigilance. Although small, the remaining fraction that does require Brussels’ approval can make a huge difference in practice: when a company or an industry sector benefits from public help, like an injection of subsidies or a reduction of taxes, its rivals may be put at a disadvantage.

The Commission only allows risky state aid when there are exceptional justifications of economic development. Defining new exceptions to face new challenges will be an essential part of the review, which comes in the heels of the roll-out of the €750-billion recovery fund.

The EU race for chips heats up

As a start, Vestager has already announced one particular sector where the executive is willing to, at least, partly relax the strict rulebook: semiconductors.

Microchips have become the most sought-after, vital component for economies wishing to succeed in the ever-fierce global race for tech supremacy. A worldwide shortage caused by the pandemic and supply chains disruptions has turned chips into a scarce, precious item with geopolitical implications.

The market is currently dominated by Taiwan with almost-monopolistic comfort, followed by other Asian rivals, like South Korea, China and Singapore. The US and the EU have barely 10% of market share each, an embarrassing figure for the bloc, which used to command over 40% in the 1990s. The Commission has now set the target to capture 20% of the market by 2030.

But manufacturing chips is a highly complex and expensive undertaking involving a painstakingly precise production chain. The cost of building a new semiconductor fabrication plant (so-called “fabs”) from the ground up can range from $4 to more than $10 billion.

These daunting factors erect high barriers that companies struggle to overcome on their own. To break down these walls, Brussels is developing a European Chips Act designed to boost domestic production and bring fresh public money into the sector.

“The Commission will consider approving support to fill possible funding gaps in the semiconductor ecosystem, in particular for European first-of-a-kind facilities,” Vestager explained, adding that benefits from this extraordinary state aid must be shared across the whole EU economy.

The concentrated push to bankroll cutting-edge technology like microchips, batteries and cloud computing with EU and national funds comes as the political discussion centres on the goal of strategic autonomy, a loosely-defined concept that posits the bloc must become more self-sufficient, sovereign and independent.

The idea, born within the walls of the Élysée Palace, touches upon various areas, including technology (the semiconductors race), industry (calls for European champions), energy (homegrown renewable resources as opposed to imported fossil fuels), defence (proposals for a genuine European Defence Union) and diplomacy (a politically assertive EU freed from America’s shadow).

But as proponents of strategic autonomy grew in numbers, so did its detractors. Margrethe Vestager, who hails from a Danish liberal party, has never been seen as a big fan of the idea and often refers to it as “open strategic autonomy”, pointedly underlining the EU’s character as a free market.

On the other side of the table, Thierry Breton, former CEO of Atos and current Commissioner for internal market, routinely advocates for the EU to become more autonomous and cut down on external dependencies.

“Time has come for Europe to be able to use its influence to uphold its vision of the world and defend its own interests,” Breton, who was nominated for the post by President Macron, said last year.

Vestager, who works closely with Breton on digital topics, outranks him as Executive Vice-President. The review of competition law, with its unmistakable market-friendly approach, marks a victory for her liberal thinking, also favoured by countries like the Netherlands, Finland and Sweden, and a defeat for the interventionist side, embodied by France and, more recently, Germany.

“Self-sufficiency is an illusion,” Vestager said, speaking about semiconductors.

“When you think about the scale of what is needed, it is clear that no country and no company can do it alone. But we cannot rely on one country or one company alone, either.”

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