POSITION | EUROPEAN LEGISLATION | SEMICONDUCTOR
BDI Position European Chips Act German industry’s position on the European Commission’s proposal for strengthening Europe's semiconductor ecosystem (Chips Act) 2022/0032 (COD).
March 22th 2022 Executive Summary German industry welcomes the Chips Act as an important step to strengthen Europe as a global player in chip production. Semiconductors are essential for the future of European industry and the successful ecological and digital transformation of Europe as a business location. Becoming more independent in chip design and production is an integral part of a resilience-oriented European industrial policy. Technological competition is intensifying with increasing geopolitical tensions and high state and often opaque subsidies in semiconductor production from countries such as China, South Korea, Taiwan and the US. The semiconductor strategy must take these developments and the European needs of industry in Europe into account and, at the same time, must not lose sight of the global value chains to establish a level playing field. To ensure that, German industry espouses the following further amendments to the chips act proposal. We welcome the speed with which the Chips Act has been prepared and proposed, which is urgently needed given the current situation. Nevertheless, a distribution of the funds by 2030 is slow compared to the US chip law, which should be implemented by 2026. 11 bn. Euro of EU and national budgets for Pillar 1 “Chips for Europe Initiative” might not be enough to compete with other countries in the attempt to attract the full R&D semiconductor ecosystem. Regarding the total volume of investments, we are also critical of the redistribution of funds from the budgets of the EU states that have long been reserved. The EU should ensure that other – equally relevant – areas, such as cybersecurity, do not suffer any disadvantages as a result. Overall, the entire semiconductor value chain must be strengthened, so in addition to chips, material, process, and equipment expertise plays a fundamental role in enabling new semiconductor technologies. The potential 30 bn. Euro from national budgets for building up additional production capacity must also be secured as soon as possible. All in all, the EU should reveal their timeline and plan for establishing a European funding landscape and instruments (EU and national) in the coming weeks and months. Legend: positive
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Dr. Sophia Helmrich | Digitalisierung und Innovation | T: +49 30 2028-1402 | s.helmrich@bdi.eu | www.bdi.eu
BDI Position European Chips Act
Chapter II Pillar One: Chips for Europe Initiative Basically, this approach goes in the right direction. We welcome the approach of design capacities and the developing of pilot lines. The approach of integrating quantum chips is also exciting. Moreover, we support the promotion of the competence centers. We endorse the chips fund, but we recommend a clarification of the investment. We welcome that the ECIC is concepted as a private-public consortium, but the principles of EU competition policy in the implementation of ECIC should be strictly observed. If set up, the role of the ECIC compared to other existing public-private associations like INSIDE, Aeneas should be clarified. However, the focus on small structure sizes (< 2 nm and 10 nm FDSOI) for pilot lines should be aligned with the anticipated future needs of the customer industry. The strengths of the European semiconductor industry, especially in the area of significantly larger power semiconductors and sensors should not be left aside. It must be ensured that the Chips for Europe Initiative, more precisely the Chips JU, is still targeting Europe’s industry needs in an adequate manner. IP design in key verticals like Automotive, Automation, Machinery, Industrial, Telecommunication Infrastructure (6G), Health but also Smart Home – and the rapid industrialisation of it - must be focused upon as well. Moreover, specific chemicals and smart functional materials are the basis for chip technologies and manufacturing processes and should be included in R&D as well as mass production roadmaps, work programs and calls. Chapter III Pillar Two: Security of Supply The first-of-a-kind facilities instrument creates the necessary framework conditions for new semiconductor settlements, which can have catalytic effects. The framework covers EU Open Foundries and Integrated Production Facilities, which potentially allows for investments in a broad manner, not restricted to technologies and node sizes. This is key to attract manufacturing projects which benefit the EU market, but the financing needs to be clarified in more detail. Chapter IV Pillar Three: Monitoring and crisis response Basically, we view this pillar and the crisis monitoring mechanism rather critically and find it questionable in terms of regulatory policy and competition, as this mechanism is disproportionate and at the same time hardly effective, although in principle we support gaining more transparency along the chip supply chain. It is uncertain what a critical state is and to what extent market intervention will take place. There are many unanswered questions regarding the mandatory release of information, mandatory prioritisation, joint procurement and export controls. We take a very critical view of the state allocation or monopolisation of the purchase of chips, including the state's authority to define them. Chapter V: Governance The need for a specially created EU Semiconductor Board is not apparent in view of the broad committee landscape. In addition, questions of staffing and powers are unclear, which increases the risk of long-term market intervention. If implemented, close exchange with industry must be institutionalised, in particular, for funding instruments, funding programs, funding rules, and content of funding programs and calls.
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BDI Position European Chips Act
Table of Contents Executive Summary ............................................................................................................................ 1 Proposal for a Regulation establishing a framework of measures for strengthening Europe's semiconductor ecosystem (Chips Act) ............................................................................................. 4 Chapter II Pillar One: Chips for Europe Initiative .................................................................................. 4 Chapter III Pillar Two: Security of Supply .............................................................................................. 6 Chapter IV Pillar Three: Monitoring and crisis response ....................................................................... 7 Chapter V: Governance....................................................................................................................... 11 Impressum ......................................................................................................................................... 12
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BDI Position European Chips Act
Proposal for a Regulation establishing a framework of measures for strengthening Europe's semiconductor ecosystem (Chips Act) Chapter II Pillar One: Chips for Europe Initiative Article 3, Paragraph 2 – Establishment of the initiative Summary of Paragraph
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The Initiative shall be supported by funding from the Horizon Europe programme and the Digital Europe programme, for a maximum indicative amount of 1.65 bn. Euro and 1.65 bn. Euro, respectively.
The 1.65 bn. Euro from HEU for the Chips Act is a good investment in Europe's technological sovereignty. However, no further funds from the already small Horizon Europe budget of 95.4 bn. Euro (for a seven-year program period) should be used for other Commission programs.
Article 4, Paragraph 1 – Objectives of the initiative Summary of Paragraph
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The general objective of the Initiative is to support large-scale technological capacity building and innovation throughout the Union to enable development and deployment of cutting-edge and next generation semiconductor and quantum technologies.
Basically, this approach goes in the right direction. German industry appreciates the integration of key functionalities fostering sustainable energy, higher computing performance or breakthrough technologies such as neuromorphic and embedded artificial intelligence (AI) chips, integrated photonics, graphene and other 2D material-based technologies. In addition to small structure sizes (< 2 nm), the requirements of the user industries and the strengths of the European semiconductor industry, especially in the area of advanced analog mixed signal ICs, significantly larger power semiconductors, and sensors, should be considered. We recommend extending the definition of cutting edge in accordance with what is “cutting-edge in a specific sector”. This various strongly based on the applications - 40-16nm in Automotive and Industrial for example and 350 nm for sensor cells. A requirement analysis in the main user industries is necessary to avoid overcapacities and ensure targeted investments. Moreover, the entire semiconductor value chain must be strengthened, so in addition to chips, material and process expertise, including chemical raw and basic materials, as well as packaging and manufacturing equipment, play a fundamental role in enabling new semiconductor technologies and must be considered in the initiative.
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BDI Position European Chips Act
Article 4, Paragraph 2a and Article 5, Paragraph 1a – Design capacities Summary of Paragraphs
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The Initiative shall have large-scale design capacities for integrated semiconductor technologies. This will build a virtual design platform, use processor architectures and integrate vertical market sectors.
We welcome the approach of design capacities. Especially the promised clear IP rules and the use of SMEs for the virtual design platform. We recommend that the industry must be involved in the design of IP rules.
Article 4, Paragraph 2b and Article 5, Paragraph 1b – Pilot lines Summary of Paragraphs
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The Initiative shall have pilot lines for preparing innovative production, and testing and experimentation facilities, addressing leading edge nodes <2nm, Silicon on Isolator chips, and 3D heterogenous systems. Besides new design concepts for low energy, high computational performance and security should be established.
We welcome the developing of pilot lines. As mentioned above, significantly larger technology nodes for power semiconductors and sensors should also be addressed. Also, novel materials like SiC and GaN need to be included. Besides, we endorse the inclusion of sustainable and secure design concepts. Effects of further regulation must be considered at an early stage, in particular the Chemicals Strategy for Sustainability (CSS), so that intermediate products in the semiconductor ecosystem in the EU are cheap and readily available. Above all, the industry must be involved in the design process of common standards and norms.
Article 4 – Objectives, Paragraph 2c and Article 5, Paragraph 1c – Quantum chips Summary of Paragraphs
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The Initiative shall have advanced technology and engineering capacities for quantum chips.
We see the development of quantum chips as an important step for digital key technologies. However, we urge the European Commission for a technology-neutral approach. Hence the Commission should not only focus on quantum chips. However, the support by the Quantum technology flagship under Horizon Europe is not clearly outlined in the Act.
Article 4 – Objectives, Paragraph 2d and Article 5, Paragraph 1d and Article 8 – Competence centres & skills Summary of Paragraphs
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The Initiative reads that it may have a network of competence centres and skills development for the stakeholders, including end-user SMEs and start-ups.
We highly welcome the network of competence centres and the inclusion of end-user SMEs. The skills development could be more strongly designed. German industry is also calling for greater consideration of the shortage of skilled workers up to PhD level with regard to chip design and production. In particular, training needs must be promoted in a more targeted manner
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BDI Position European Chips Act
and the acquisition of foreign specialists (outside the EU) must be addressed in order to achieve the fastest possible implementation at EU level. Therefore, this should not be optional, but a must. In addition, the cross-border connection of semiconductor manufacturing companies with technical students from BSc to PhD levels within the Union should be facilitated. Article 4 – Objectives, Paragraph 2e and Article 5, Paragraph 1e – Chips Fund Summary of Paragraphs
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The Initiative shall have ‘Chips Fund’ activities for access to debt financing and equity to startups, scale-ups, SMEs and other companies in the semiconductor value chain by InvestEU and Accelerator programmes of the EIC.
We endorse the chips fund. The minimum investment of 2 bn. Euro is only mentioned in the EU Chips act communication. Only the InvestEU and EIC together of 425 Mio. Euro are mentioned directly in the act. We recommend a clarification of the finance volume in the act.
Article 7 – EU Chips Infrastructure Consortium Summary of Paragraph
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The Initiative for a European Chips Infrastructure Consortium (‘ECIC’) may be established as a public private consortium, that is specifically developed to simplify and structure the legal relationships between the private-public consortium members, including particularly RTOs, and provide a structural dialogue with the Commission for the implementation of the actions under the Initiative. This new legal instrument is voluntary.
We welcome that the ECIC is designed as a public-private consortium. Nonetheless, the principles of EU competition policy should be strictly observed in the implementation of the ECIC. If set up, the role of the ECIC compared to other existing public-private associations like INSIDE, Aeneas should be clarified. However, the benefits of establishing a large number of newly created committees are not yet clear to us. In addition, the participation of the Alliance on Processors and Semiconductor technologies should be clarified.
Chapter III Pillar Two: Security of Supply Article 10 and 11 – Integrated Production Facilities and Open EU Foundries Summary of Paragraphs
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Integrated Production Facilities and open EU Foundries, which are first-of-a-kind semiconductor design and manufacturing facilities, have priority access to the pilot lines. Besides, open EU Foundries must establish and maintain adequate and effective functional separation by working with undertakings not related to their own facility.
In principle, we think the division into EU Open Foundries and Integrated Production Facilities makes sense. The scope of the instrument is sufficiently broad to allow for projects which are in line with the needs of the EU key industries. It is important and good that the required evolution path towards the “next generation of chips“ is not narrowly defined either, so that innovations across different technologies can be targeted.
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BDI Position European Chips Act
Article 12 – Application First-of a-kind Summary of Paragraph
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The Commission shall, in consultation with the European Semiconductor Board, choose and deselect the facilities. Facilities which are no longer Integrated Production Facilities and Open EU Foundries shall lose all rights linked to the recognition of this status arising from this Regulation.
We recommend clarifying the status of the European Semiconductor Board within the decision process. Moreover, it is not clear whether a loss of rights includes repayment obligations for state aid, that has already been granted.
Article 13, paragraph 2 and Article 14 – Public Interest and support & permit granting procedures Summary of Paragraphs
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In order to reach security of supply in the Union, Member States may, without prejudice to the state aid provisions in Articles 107 and 108 of the Treaty, apply support schemes and provide for administrative support to Integrated Production Facilities and Open EU Foundries in accordance with Article 14 (each member state must have an authority for the facilities; facilities must have the most rapid treatment legally possible).
We welcome the article as the first-of-a-kind principle creates attractive framework conditions for establishing new production and development sites in Europe, which can have catalytic effects. We need to establish a level playing field in funding in regard to third countries and regions. This includes the introduction of efficient fast track procedures to enable a quick realisation. In order to create a global level playing field, Articles 13.2. and 14 create the necessary legal framework. It must be ensured, however, that the EU state aid framework remains intact and that a subsidy race inside the Single Market is avoided. A focus on international competitiveness is imperative for a proper investment review. Location factors such as infrastructure as well as energy and wage costs must be considered in this context. To avoid permanent subsidies, market-oriented viability in the medium to long term is required for all state support.
Chapter IV Pillar Three: Monitoring and crisis response Article 15, Paragraph 1-4 and Article 16 – Monitoring and early warning indicators Summary of Paragraphs
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Member States shall carry out regular monitoring of the semiconductor value chain and report their findings to the European Semiconductor Board regularly. In particular, information from undertakings on significant fluctuations in demand and known disruptions, as well as an early warning for crisis are relevant. Therefore, the
Above all, a monitoring process for collecting information about the value chain makes sense in order to identify requirements and risks at an early stage. To do so, the process of setting up the necessary mechanisms and administration for monitoring by the Member States must be accompanied by consultations with user industries, associations and manufacturers. However, a quantitative monitoring mechanism based on
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BDI Position European Chips Act
Commission and the European Semiconductor Board must identify early warning indicators.
current figures alone will not really help to avoid shortages, as it will always be far too late. Instead, the strong involvement of experts from industry is required to make a much earlier qualitative assessment and a simulation of potential future shortages. In addition, the semiconductor industry is open to many risks, inter alia geopolitical and natural which are difficult to forecast and collecting data on chip supply/demand only, will not help to avoid supply chain vulnerabilities. It should also be understood that the current chip shortage has various reasons, one is misled procurement strategies and “just-in-time” supply chains. Putting the focus on the semi-conductor industry alone will not help avoiding future disruptions since a lot of factors and not in their control. Due to the decentralised monitoring and information collection by Member States, there is a high risk of defragmentation and double bureaucratic burden for the undertakings with locations in several Member States. Therefore, the national monitoring processes should be harmonised.
Article 17 – Key market actors Summary of Paragraph
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Member States shall identify and monitor key market actors along the semiconductor supply chains. These are primarily informative on a number of undertakings that rely on market actors, market shares and importance of key actors, as well as the impact of the disruption by the market actor.
The German industry understands the need to identify and monitor key market actors. Unfortunately, the monitoring processes (timeline, scope, format) on the availability and integrity of the services or goods are not clearly enough defined. Asking or urging manufacturers to prioritise specific industries in Europe is a powerful intrusion into the market and must be implemented with a great deal of care and prudence. Industry must be strongly involved in developing these processes. We are also faced with the question of the supply chain disclosure obligation - how are supply chains and innovation partnerships treated that are based on the division of labor (market economy) and extend globally.
Article 15, paragraph 5-7 and article 18 – Crisis stage Summary of Paragraphs
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Where the Commission becomes aware of a potential semiconductor crisis, the European Semiconductor Board assesses whether the activation of the crisis stage is warranted and whether joint procurement should be initiated. Moreover,
In general, we take a rather critical stance on this pillar and the crisis stage. Primary responsibility for finding ways out of a semiconductor shortage lies with the industry. Public crisis management must not undermine free trade. It is also
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BDI Position European Chips Act
consultations with relevant third countries are carried out. The duration of the crisis stage is set during the implementing act and can be extended arbitrarily.
undefined what a crisis is. The determination of a semiconductor crisis must be based on distinct and transparent criteria. Moreover, the crisis stage can be extended but the article does not mention the option to end the crisis stage early. Besides, there must be a clear definition of when and why the crisis stage is extended. In addition, one must also consider the effects of this mechanism on MNCs’ willingness to invest in EU. If MNC players invest in EU, it must be clear under which circumstances market interventions (“crisis stage”) are planned and how they affect the investing company. German industry is recommended to consult the Commissioners' Group Trade in depth on the measures mentioned as part of the crisis stage, which, due to their relevance to trade, also clearly fall under Article 207 TFEU. In addition, German industry questions the legal certainty of the measures, since freedom of foreign trade outside of national security considerations can also result in an interpretation by the BVerfG. As the EU Commission itself admits, self-sufficiency in a European semiconductor value chain is not an achievable target. The EU Chips Act should therefore put more emphasis on international alliances with like-minded partners beyond the mere exchange of information on semiconductor supply chains, for instance by means of trade agreements based on mutual dependencies.
Article 19 – Emergency toolbox Summary of Paragraph
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At the crisis stage, the commission can introduce measures for specific critical sectors or in general. In particular, an export permit for crisis-related products can be introduced.
Export bans are a powerful market intervention. In this way, a planned economy for “crisis-relevant products” can lead to customer lobbying. Such an instrument would be a deep intervention in market openness, private property and freedom of contract, the foundations of our innovative market economy. Plans for export permissions fail to recognise that investments in a market economy are made with the aim of making a profit. The prospect of an export ban in a scenario of a shortages in the semiconductor market significantly reduces the incentive to invest in semiconductors. The conditions and the exact permissions must be clarified. This is also in opposition to an open Europe. The proposal is also dangerous because it could provide a template for other states to regulate the export of
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BDI Position European Chips Act
important goods as well. Our international economy would be severely affected by this. The best tool to build supply chain resilience is to open markets, not to close them. Article 20 and 28 – Information gathering Summary of Paragraphs
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Undertakings must inform the Commission about their production capabilities, production capacities, current primary disruptions and provide other existing data necessary to assess the nature of the semiconductor crisis. Deadlines can be set for information supply and penalties can be set for non-compliance. In addition, information required by third countries must always be transmitted to the Commission.
Excessive market surveillance is a significant intervention and is viewed critically by industry. Any data request must be proportionate, appropriate and effective In the best case, the penal regulations must be negotiated jointly with industry and should always be based on the size of the company and the information value. In addition, the sharing of information and the deadlines must be made jointly with the undertaking. The sharing of information must not conflict with applicable IP rules or the unauthorized disclosure of knowledge to third parties. This requires a comprehensive re-sharpening of the section.
Article 21 – Priority orders Summary of Paragraph
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The Commission may oblige Integrated Production Facilities, Open EU Foundries or other semiconductor manufacturers to accept and prioritise an order of crisis-relevant products. This may only be rejected if the production capacity is justified and causes an unreasonable economic burden. In the case of obligation, the company will not be liable for any breach of contract as a result of the prioritisation.
A prioritisation of crisis-relevant products is technically very demanding and can hardly be tackled in a very narrow time frame of less than six months, let alone changed. It also needs to be clarified whether there is compensation for products that are not produced or whether there are refunds for capital losses associated with the prioritisation. In order to enforce priority orders, a legal basis would be necessary that clearly defines the products and materials as well as the conditions. In addition, semiconductor products are mostly customised, have certain specifications, certifications etc. that cannot simply be shipped to another customer. Prioritisation of certain industrial sectors is also undesirable from the perspective of the user industry. Prioritising one of the critical industrial sectors will quickly worsen bottlenecks in another, also critical sector. Moreover, it is unclear for how long a particular sector will be classified as prioritised and how often the assessment takes place. The critical sectors affected by the bottlenecks may also differ significantly between Member States. The definition of “critical sector” is also problematic. Article 2.16 refers to the Annex of the NIS2 Directive. So, basically every company would be
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BDI Position European Chips Act
“critical”. That must be narrowed down significantly, and selection criteria must be defined, probably in an additional regulation Article 22 – Common purchasing Summary of Paragraph
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The Commission may, upon the request of two or more Member States, establish a mandate to act as a central purchasing body on behalf of the participating Member States for their public procurement of crisis-relevant products for certain critical sectors.
The German industry sees the role of the commission as a "public procurer" for chips as very critical. The majority of chips are not publicly procured. It is about inter-industrial relations. The Chips act must clarify, how interactions with customer industry, beside the critical sectors like health, energy, transport, banking & financial market infrastructure, drinking water, waste water, digital infrastructure, public administration and space are handled. Moreover, it is not clear what the next step will be after the procurement, as chips are B2B products at global scale.
Chapter V: Governance Article 23 and 24 – EU semiconductor board Summary of Paragraphs
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Establishment and tasks of the European Semiconductor Board. Tasks are advising the authorities board of the Chips JU, supporting Integrated Production Facilities and Open EU Foundries, discussing and preparing the identification of specific sectors and technologies with high potential, monitoring and crisis response issues and providing advice regarding the consistent application of this Regulation. Moreover, it supports the Commission in crisis assessment. It consists of representatives of each member state. Where relevant, as regards function and expertise, a Member State may have more than one representative.
The German industry asks itself whether the EU Semiconductor Board is necessary. Can't the planned tasks be taken over by the council committee? In addition, it is unclear how the interaction with other bodies, e.g. the alliance, takes place. Regarding a common understanding, too many committees are a real hindrance. Moreover, the wording on the representatives of the member states is too daring. Which political authority, which ministry is responsible for the "security-related" and crisis-related issues at the national level? All in all, it must be ensured that the governance structure does not slow down these urgently needed investments or hinder the timely establishment of a strong EU semiconductor ecosystem. Given the far-reaching competencies foreseen, expertise of members must be a key priority – if set up. And regular, close exchange with industry must be established (where possible under competition law).
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BDI Position European Chips Act
Impressum Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Lobbyregisternummer: R000534 Redaktion Frau Dr. Sophia Helmrich Referentin Digitalisierung und Innovation T: +49 30 2028-1402 s.helmrich@bdi.eu
Lobby Registry: R000534
BDI Dokumentennummer: D D1531
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