Wednesday, December 1

Brussels open to exceptions to competition law for microchips manufactured in the EU

If it is not broke, do not fix it.

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

Since the early years of European integration, the executive has been a fervent defender of open markets and fair competition across the bloc, while repressing unfair and excessive government intervention and monopolistic and abusive behavior by large companies. Business.

Competition law enforcement is one of the few policy areas in which the Commission has exclusive powers, leaving Member States with no choice but to abide by decisions made in Brussels and refrain from distorting the free market.

But this long-standing way of working, enshrined in EU treaties, is being challenged by China’s economic rise, the global tech race, and the coronavirus pandemic – three factors that have exposed the industrial weaknesses and vulnerabilities of China. Europe.

Some capitals increasingly express their desire for an update that tunes and relaxes the competition rules in order to promote the rise of so-called European champions – powerful and huge EU-based multinationals that can stand up to industrial titans, mainly those of the United States and China, and prevent the bloc from being left behind on the world stage.

These calls gained new momentum in 2019 after Margrethe Vestager, European Commissioner for Competition, blocked a high profile merger between the French firm Alstom and the German Siemens, which would have created a railway company of unprecedented proportions.

Invoking the old book of competition law, Vestager argued that the measure would have eliminated rivals, slowed innovation, and resulted in higher prices and fewer choices for consumers.

His decision caused consternation in Paris and Berlin, who hoped that the ambitious project could have strengthened the EU’s position against companies backed by the Beijing state. French Economy Minister Bruno Le Maire called the measure an “economic error” and a “political error.”

The following year, France and Germany enlisted help from Poland and Italy to urge modernization of the rules governing mergers to cope with the changing nature of global competition.

‘Stuck in the 20th century’

In the face of political pressure, the antitrust czar stands firm. The document that starts the review process broadly defends the EU’s established powers with absolute conviction and simply hints at specific adjustments in key areas, including green technology and microchips.

‘Strict enforcement of competition is essential for businesses and consumers to reap the full benefits of our single market. It offers companies of all sizes a fair opportunity to compete, ”said Vestager in its opening statement.

The commissioner spoke with pride about the importance and effectiveness of the competition rules, which recently awarded her a court victory in a case involving a fine of 2.42 billion euros against Google.

The official defended the three main tools available to the executive to guarantee fair play – merger approvals, antitrust investigations and control of state aid – and advanced two new future instruments: the Digital Markets Law, a legislative proposal to curb the power of the great online. platforms, and a bill Examine acquisitions and grants made by foreign entities within the European market.

“You will not be surprised if you strongly believe that resilience is built on open and competitive markets,” said Vestager, praising the “flexibility to adapt” inherent in the framework, as evidenced by the temporary waivers granted to manage the economic consequences of the pandemic. .

His presentation was received by Monique Goyens, general director of the European Consumers Organization (BEUC), who asked Brussels to be more attentive when evaluating mergers.

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

The ongoing review will analyze 20 existing rules and guidelines, covering policy fields such as research, agriculture, fisheries, broadband, health and rail transportation, to determine whether they are still “fit for purpose” in today’s economy or require amendment.

Vestager’s statements on safety imply that only surgical changes will be made and that the main principles of the decades-old EU competition law will remain intact.

For the center-right European People’s Party (EPP), the Commission is erring on the side of caution and betting too heavily on inappropriate and outdated rules.

‘EU competition policy is still stagnant in the 20th century. Today, competition policy needs not only to have a European perspective, but a global one, ‘wrote German MEP Markus Feber. on behalf of his party.

“If we want European companies to be able to compete against their American or Asian competitors, the EU’s competition policy must be smarter to allow European champions to emerge.”

A major task for Vestager and his team will be to strike a new balance to ensure that state aid rules help Member States accelerate the digital and green twin transition without market distortions.

Brussels estimates this double effort It will require € 650 billion a year in public and private investment until 2030, a colossal amount that will inevitably involve a more practical and generous approach by governments.

Currently, around 96% of state aid granted by EU countries is exempt from Commission monitoring. Although small, the remaining fraction required by the green light from Brussels can make a big difference in practice: when a company or an industrial sector benefits from public aid, such as an injection of subsidies or a reduction in taxes, its rivals can be put in danger. a disadvantage.

The Commission only allows risk state aid when there are exceptional economic development justifications. Defining new exceptions to meet new challenges will be an essential part of the review, which occurs immediately after the implementation of the recovery fund of 750,000 million euros.

The EU’s race for tokens heats up

For starters, Vestager has already announced one particular sector in which the executive is willing to at least partially relax the strict regulation: semiconductors.

Microchips have become the most sought after vital component for economies wishing to succeed in the ever fierce global race for technological supremacy. A global shortage caused by the pandemic and supply chain disruptions has made chips a rare and precious item with geopolitical implications.

The market is currently dominated by Taiwan with near-monopoly comfort, followed by other Asian rivals such as South Korea, China and Singapore. And the EU have just 10% of the market share each, a shameful figure for the bloc, which used to dominate more than 40% in the 1990s. The Commission has now set a goal of capturing 20% ​​of the market by 2030.

But chip manufacturing is a very complex and expensive undertaking that involves a painstakingly precise production chain. The cost of building a new semiconductor manufacturing plant (so-called “factories”) from scratch can range from $ 4 to more than $ 10 billion.

These overwhelming factors raise huge barriers that companies struggle to overcome on their own. To tear down these walls, Brussels is developing a European chip law designed to boost national production and bring fresh public money to the sector.

“The Commission will consider approving support to fill potential funding gaps in the semiconductor ecosystem, in particular for pioneering European installations of its kind,” explained Vestager, adding that the benefits of this extraordinary state aid should be shared across the economy. of the EU. .

Support, he stressed, must be “necessary, adequate and proportionate.”

The EU regulation is a critical tool to improve the bloc’s competitiveness, said Markus J. Beyrer, CEO of BusinessEurope, an industry lobby group representing companies of all sizes.

“State aid policy must support good aid and investment in research and innovation projects that contribute to the advantage of the EU on a global stage,” Beyrer wrote in a statement.

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

The idea, born within the walls of the Elysee Palace, touches on several areas, among which are technology (the semiconductor race), industry (calls for European champions), energy (homegrown renewable resources versus to imported fossil fuels), defense (proposals for a true European Defense Union) and diplomacy (a politically assertive EU freed from the shadow of the United States).

But as advocates of strategic autonomy grow in number, so do its detractors. Margrethe Vestager, who comes 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’, clearly underlining the character of the EU as a free market.

On the other side of the table, Thierry Breton, former Atos CEO and current Internal Market Commissioner, regularly advocates for the EU to be more autonomous and reduce external dependencies.

‘The era of a conciliatory, if not naive, Europe has come of age. A virtuous ‘soft power’ is no longer enough in today’s world, ”said Breton, who was nominated for the position by President Macron. said last year. “The time has come for Europe to use its influence to maintain its worldview and defend its own interests”,

Vestager, who works closely with Breton on digital issues, surpasses him as executive vice president, a balance of power that was evident in Thursday’s announcement.

The revision of the competition law, with its unmistakable pro-market approach, marks a victory for Danish liberal thought. also favored by countries like Holland, Finland and Sweden, and a defeat for the interventionist camp, embodied by France and, more recently, Germany.

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

“When you think about the scale of what is needed, it is clear that no country or company can do it alone. But neither can we depend on one country or one single company.

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