European Union: EU Emergency Response Update – Key Policy & Regulatory Developments No. 103

COMPETITION & STATE AID

On 8 June 2023, the Commission approved up to €8.1 billion of public support by fourteen Member States* for an IPCEI (Important Project of Common European Interest)** in microelectronics and communication technologies spanning the value chain (e.g. materials, tools, chip design, manufacturing processes). Known as the "IPCEI ME/CT", the project's envisaged €8.1 billion in public support is expected to unlock an additional €13.7 billion in private investments.In announcing the package, Executive Vice-President and Competition Commissioner Margrethe Vestager stated:

Such IPCEI initiatives are a component of the EU's ambitions for a leading role in the green and digital transition, including under the Green Deal Industrial Plan released in February 2023 (see also Jones Day COVID-19 Update No. 97 of 14 February 2023). This Plan notes, in particular, that industry faces numerous challenges, such as high inflation, post-COVID supply chains disruptions, spikes in energy costs and input prices, and labor shortages.

The IPCEI ME/CT follows and complements the first IPCEI to support research and innovation in the field of microelectronics, approved by the Commission in December 2018. It is the sixth IPCEI approved under EU State aid rules and third IPCEI approved on the basis of the 2021 IPCEI Communication.

In approving the IPCEI ME/CT, the Commission communicated its views, such as the following:

• The IPCEI directly contributes to achieving various key objectives for a greener, digital, resilient and sovereign economy, as set out in important EU initiatives (e.g., Europe's Digital Decade and European Green Deal).
• All 68 projects (from 56 companies) under the IPCEI are assessed as highly ambitious and as seeking to develop technologies surpassing what the market currently offers. These projects are anticipated to enable major advances, notably in the areas of, e.g., sensors, high performance processors, and microprocessors including artificial intelligence and communication means for secure data exchange.
• The IPCEI raises considerable technological and financial risks, and the Commission thus deems that public support is necessary to incentivize companies to undertake the investment.

The Commission anticipates that the first novel products resulting from the ICPEI may be introduced to the market as early as 2025, and completion of the overall project is planned for 2032. Some 8,700 direct jobs are expected to be created, in addition to numerous indirect ones.

Further information on the amount of aid to individual participants will be available in the Commission's decision's public version, once addressing confidentiality issues with Member States and third parties.

* Austria, Czechia, Finland, France, Germany, Greece, Ireland, Italy, Malta, the Netherlands, Poland, Romania, Slovakia and Spain.

** To recall, the IPCEI rules seek to enable Member States and industry to jointly invest in ambitious pan-European projects in a transparent and inclusive manner, where the market alone appears unable to deliver and particularly where the risks are deemed as too large for a single Member State or company to assume. On 25 November 2021, the Commission published a revised Communication on State aid rules for IPCEI, setting out criteria under which several Member States can support transnational projects of strategic significance for the EU under Article 107(3)(b) of the TFEU (see Jones Day COVID-19 Update No. 69 of 29 November 2021).

On 10 May 2023, the European Parliament issued a Resolution accompanying its approval of the European Commission's budgetary performance in 2021. The EU budget in 2021 rose by some 30% compared to 2020, largely due to money spent from the €800 billion NextGenerationEU recovery plan, adopted in December 2020 and aimed at Europe's green and digital transformation and countering the COVID-19 pandemic's impact. To recall, the core instrument of NextGenerationEU is the Recovery and Resilience Facility (RRF), established in February 2021, to support faster and more resilient Member State recovery.

The Resolution welcomes the RRF's initial contribution and its further potential with regard to preventing a strong economic downturn following the pandemic. However, it also expressed a number of concerns, including citing concerns raised by the European Court of Auditors (e.g., the Court's first assessment of the RRF (Oct. 2022)). The Resolution, in particular, draws attention to:

• The EU's limited options in verifying use of money from the RRF, whose implementation takes place "under time pressure", such that control requirements are "much lighter" than those for other EU programmes and relies more on national authorities, which in some cases are "too error-prone and unreliable". Still, in this respect, the Resolution welcomed the Commission's launch in 2022 of system audits on the Protection of Financial Interest of the EU in 16 Member States, as well as plans to cover all Member States by end-2023;
• Shortcomings in the Commission's assessment of national compliance with "milestones and targets" (conditional criteria for disbursing RRF payments to Member States), emphasizing their lack of clarity and comparable definitions. The Resolution further asks the Commission to refrain from assessing such compliance "on the basis of political negotiations".
• Negligible contribution of the RRF to cross-border cooperation, especially in light of the amount of EU funding involved. The Resolution notes, in particular, that the RRF plays a significant role in steering the EU towards energy-independence and accelerating the energy transition. The Resolution highlights the need for an independent energy supply for Europe and corresponding investments in cross-border networks, interconnectors and hydrogen projects. The Resolution calls for, in particular, available RRF loans to be made available for Member States seeking to invest in crossborder projects focused on European energy-independence and transforming the energy grid.