BRUSSELS—A European Union proposal to increase microchip production could unleash tens of billions of dollars in funding for research and new production facilities, part of the bloc’s economywide effort to boost its commercial independence.

The European Commission, the EU’s executive arm, introduced legislation Tuesday to make available about $49 billion in public and private funding for the chip-making industry. The proposal would also give the Commission power, under some circumstances, to demand that companies give priority to specific products where there is a shortage.

EU officials have previously said the proposal, known as the European Chips Act, is meant to bolster the bloc’s position in the global market for semiconductors. While the EU is an important supplier of the materials and machines needed to make semiconductors, it is well behind Asia and the U.S. in fabricating most kinds of chips.

The effort to increase semiconductor production in Europe comes amid a global supply crunch that has over the past year affected a range of products, from cars to smartphones and home appliances. The U.S. and China have also proposed significant funding for the semiconductor industry in a bid to increase domestic production.

Europe and the U.S. were bigger players in the global semiconductor market in the 1990s, but both have since fallen far behind countries in East Asia, where most production is now concentrated. European officials have said they want to double the bloc’s market share of semiconductors to 20% by 2030.

The European proposal is valued at about $49 billion, putting it close to the $52 billion announced in U.S. legislation meant to expand American microchip production. European officials had previously said they expected the Chips Act to provide funding on a similar scale to the money planned by the U.S.

The EU provides substantial funding for research and development in many fields but often fails to capitalize on and profit from those efforts with commercially successful products.

Some critics of the Chips Act say it risks following past, failed efforts to “pick winners” or replicating other industrial subsidies efforts globally that end up bidding taxpayer money to attract facilities from one region to another, rather than establishing new plants that otherwise wouldn’t get built.

Glenn O’Donnell,

research director at Forrester, said it is important to build out global manufacturing capacity in the semiconductor industry now because demand for the chips is only going to grow over the coming years.

“The pandemic came along and exposed a weakness in the technology supply chain,” Mr. O’Donnell said. He said more capacity is needed because “we see nothing but a continued, rapid increase in demand.”

Write to Kim Mackrael at [email protected] and Daniel Michaels at [email protected]

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