Global Investment Is Key To The Semiconductor Ecosystem

In response to the European Commission’s (EC) proposed framework for screening foreign direct investments (FDI), SEMI, representing the global electronics manufacturing supply chain, offers three recommendations for consideration by EU policymakers:

To support the sophisticated global ecosystem of semiconductor manufacturers, the EU should remain open to global investment. More efforts should be made to form trade and investment agreements that support European businesses’ access to foreign markets.

The global micro- and nano-electronics (MNE) industry consists of organizations specializing in research, design, equipment, materials, semiconductor manufacturing, assembly and applications – a complex global ecosystem that contributes 2 trillion USD (SEMI data) to the world economy. With its production of smaller, faster, more reliable products with higher performance, the MNE industry is one of the world’s most capital- and research-intensive sectors. Today, a state-of-the-art semiconductor manufacturing fab can easily cost billions of euros and might require international investment to deliver cutting-edge solutions.

Europe’s MNE industry plays a pivotal role in this global value chain through its investments in emerging technologies such as autonomous driving, smart healthcare, artificial intelligence and industrial automation. The region’s MNE industry features leading electronics manufacturing equipment and materials businesses, world-class research and development (R&D) and educational institutions, and vital semiconductor manufacturing hubs that are home to multinationals headquartered both inside and outside of the EU.

In the proposed framework, the EU recognizes that FDI is an important engine of economic growth, jobs and innovation. Its work to maintain a climate of open investment and connect European businesses with leading innovators and investors around the world has laid the groundwork for the success of European industrial technologies sector. These efforts have set an example for rich cross-border business relations even in the face of rising protectionist practices around the world.

The proposed EC regulation aims to establish an EU-level framework for exchanging information related to a broad range of technologies between the EC and Member States, and to assess, investigate, authorize, condition, prohibit, or unwind FDI in certain technologies on the grounds of security or public order. EU policymakers should bear in mind that a new EU-level FDI screening mechanism must be implemented very carefully. Stakeholders must clearly understand how FDI can pose a threat to security and public order in the EU.

Only transparent and precise definitions of FDI, security and public order and a limited scope of targeted technologies can provide the regulatory certainty for the EU to remain an attractive destination for foreign investors and European investees alike. On the contrary, unclear regulations could sow insecurity amongst potential investors, leading to delays or cancellation of much-needed investments and choking access to finance in capital-intensive sectors such as MNE.

MNE is a key enabling technology and advances in semiconductors enable market adoption of game-changing technologies such as artificial intelligence. The EU should ensure that future regulations do not cause lock-in effects or limit the growth of key technologies in Europe.

In the interest of security and public order, the proposed EU regulation permits Member States and the EC to screen FDI in critical infrastructure such as energy, transportation, communications and critical technologies including semiconductors, artificial intelligence and cybersecurity.  While it might be easier to screen critical infrastructure and the large-scale public services it provides for potential threats in security and public order, applying the same FDI filter to critical technologies can be extremely challenging.

Semiconductors are embedded in virtually all smart devices and systems including computers, mobile phones, cars, and aircraft. The ubiquity of chips raises the prospect that FDI in European smart technologies – and the supply chain that develops them – could be subject to screening. This level of regulatory oversight is likely to hamper not only EU’s competitiveness in key enabling technologies such as MNE but also ever-evolving applications including artificial intelligence. Also, the proposed screening framework calls for the assessment of FDI risks to security or public order by determining if an investor is controlled by foreign governments through “significant funding.” In the context of FDI, differentiating between state and private actors in other countries can be extremely challenging or even impossible, and the term “significant funding” is not clearly defined. Under this light, SEMI recommends:

1. Defining a limited scope with clear conditions, explaining in quantitative and qualitative terms how FDI in key enabling technologies can threaten public order and security, and
2. Introducing criteria that identifies whether an FDI leads to market distortions in Europe because a government investment program is not aligned with EU state-aid rules.

FDI is a powerful tool to support economic growth and competitiveness. Many Member States already screen FDI on the grounds of security and public order. Future regulations should ensure that additional screening neither duplicates national and EU-level assessments nor hampers Member States’ competitiveness.

Under the proposed regulation, the EC could screen FDI at the Union level. However, because many Member States already have detailed screening procedures in place to protect national security and public order, the draft regulation could increase red tape by duplicating administrative processes and regulations at the national and EU levels. Policymakers should keep in mind that FDI must in principle remain a national competence, with each Member State establishing its own national policy aimed at attracting FDI and supporting its economic growth. Many Member States compete to increase their share of EU FDI in key technologies that underpin national economic growth. Likewise, international investors already subject each Member State to their own investment criteria before making significant FDI decisions. Any proposed regulation that pushes Member States to share national-level FDI information could dilute successful FDI policies of some Member States and hamper the EU’s overall competitiveness.