(Bloomberg) -- The European Union is gearing up to put potentially billions of euros in state aid toward massive, cutting-edge semiconductor production sites -- with strings attached.

One of the key goals of the EU’s upcoming Chips Act is to attract investment for the projects, so called “mega fabs.” To win funding, they must be first-of-a-kind in Europe, ensure the security of supply and commit to future investment in leading edge technology, Thierry Breton, the EU’s internal markets commissioner, told a group of reporters on Friday. The EU will publish its proposal on Feb. 8.

Breton wouldn’t specify how much money the EU will have to back its plan, which includes the mega fabs as well as other ideas to support research. But he said the Chips Act’s budget is “commensurate” with a U.S. proposal to put $52 billion toward the industry. 

The state aid won’t be free money. Breton wouldn’t go into detail about the measures during the briefing beyond saying the legislation will include “tools” to secure supply in times of crisis, “inspired” by the U.S.’s Defense Production Act. People familiar with the EU’s specific proposals said that in times of emergency, the EU could demand that a company prioritize the production of certain crisis-relevant products regardless of whether this would cause complications in supplying other orders. 

Brussels is also considering legally requiring companies to respond to requests for information about stocks, delivery schedules and production capacity if they receive public money, the people said, asking not to be identified because they weren’t authorized to speak to the press. The EU could also decide whether to implement an export control regime and is considering fining companies for providing incorrect information or failing to comply with the EU’s supply demands, according to the people familiar with the discussions. These proposals could change after discussions with other commission members this coming week.

Breton argued that the investment will reduce the EU’s dependency on the U.S. and Asia for semiconductors, a move that could better position the bloc in an increasingly geopolitical battle to secure the badly needed chips that are used in everything from cars to hair dryers to smartphones.

“If we can bring them something in innovation, in price, in speed, you are in a better position to monitor your dependencies in today’s world,” Breton said. “That’s the new geopolitics of supply chains.”

Negotiations could be tense, as EU money for the Chips Act has likely been allocated already to other projects, and a good chunk of the funding will come from EU countries’ recovery plans, officials said.

The EU is trying to become a bigger player in the global semiconductor industry, last year setting a target to supply 20% of the world’s chips by 2030. With demand increasing, Commission President Ursula von der Leyen said last week that production in the EU will need to quadruple.

Breton laid out other ideas including creating a new EU funding program, financed with EU countries, to support pilot lines that ramp up cutting edge research on an industrial scale and a design platform to bring producers and software companies together.

 

©2022 Bloomberg L.P.