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The Financial Express

Challenges and opportunities within trans-atlantic paradigm


European Council President Charles Michel and European Commission President Ursula von der Leyen posing for photograph with US President Joe Biden during the EU-US summit in Brussels on June 15 this year –Reuters file photo European Council President Charles Michel and European Commission President Ursula von der Leyen posing for photograph with US President Joe Biden during the EU-US summit in Brussels on June 15 this year –Reuters file photo

Recently, an EU-US Summit convened on  June 15, 2021 marked the beginning of a renewed trans-atlantic partnership not only through the establishment of the EU-US Trade and Technology Council (TTC) but also outlining an ambitious joint agenda for post-COVID EU-US cooperation.

Analysts have pointed out that the Biden Administration, consistent with interactive engagement, has offered the EU the opportunity to re-vitalie transatlantic relations, which reached the lowest point since World War II under the Trump Administration. This initiative was undertaken to address the bilateral disputes and tensions that gradually emerged, partly as a result of Trump's 'America First' policies. The TTC will aim to deepen EU-US relations on trade and investment and also to avoid the creation of new technical barriers to trade by cooperating on key policies such as technology, digital policy issues and supply chains. The first meeting of the TTC is scheduled on September 29-30  2021.

It may be recalled that the EU had already demonstrated its keenness to 'reset' trans-atlantic relations after Biden's election victory in November 2020. The European Commission and the High Representative (HR) published on  December 2, 2020 the Joint Communication on "A new EU-US agenda for global change" where it was stressed that while EU-US relations were tested under the Trump Administration through geopolitical power shifts, bilateral tensions, and unilateral tendencies, the new Biden administration would "present an opportunity to design a new trans-atlantic agenda for global cooperation based on our common values, interests and global influence". This would help create stronger bilateral and multilateral cooperation to address the COVID-19 issues, climate crises; solve the EU-US bilateral trade disputes; improve cooperation on technology, trade, and tech standards; and work together "towards a safer, more prosperous and more democratic world". The EU also decided to set up the TTC to address mounting competition from China as it sets its own standards in tech and digital trade.

The TTC aims to deepen EU-US relations on trade and investment, and to avoid new technical barriers to trade by cooperating on key policies on technology, digital policy issues and supply chains. In this context the TTC is expected to cover numerous issues-- technology standards, regulating Artificial Intelligence (AI), climate and green tech, ICT security, data governance and technology platforms, export controls, investment screening, digital technologies and challenges in global trade.

The EU is eager to reboot trans-atlantic trade relations and to end the trade disputes triggered by the previous Trump administration. However, at the same time the EU is considering a realistic and careful approach for trans-atlantic trade cooperation focusing on specific issues of shared interest-- solving the bilateral trade disputes and irritants, cooperation on WTO reform, and strengthening regulatory and standards cooperation.

It is generally understood that the EU and the US will try to use trade to help fight climate change, protect the environment, promote workers' rights, expand resilient and sustainable supply chains, continue to cooperate in emerging technologies and create decent jobs. In addition, both parties aim to uphold and reform the rules-based multilateral trading system and to stand together to protect businesses and workers from unfair trade practices created by non-market economies that are undermining the world trading system. The last factor obviously refers to China.

It is clear that the EU and the US intend to not only share information regarding cyber security concerns and other areas relevant to non-market practices in the civil aircraft sector but also cooperate on the screening of inward and outward investment in this sector. However, strategists have noted that if the EU and the US cannot agree on what type of subsidies are allowed in this sector, it will be very difficult for them to challenge China's subsidy programmes to its own civil aircraft industrial segment.

Despite the efforts from the European Commission to have the US suspend its Section 232 tariffs, nothing formal has been agreed to till now. Commission President von der Leyen  has however stated that Brussels and Washington needed "a little bit more of time" to settle the Section 232 dispute, and that she is confident that a solution would be reached before the end of the year. It is indeed crucial that an agreement be found before December 1, when the postponed second tranche of EU rebalancing tariffs will kick off. This will have the potential for escalating the existing dispute. Nevertheless, economists feel that it is unlikely that the Biden administration will swiftly terminate the Section 232 tariffs this year. This is so because Biden is trying to carefully avoid a conflict with America's steelworkers on this issue. Some in this sector are also drawing attention to the structural problem of global excess capacity driven largely by China's trade practices both in the steel and aluminium sector. Legal and political constraints limit the possibility to find a creative solution.

Another key priority for the trans-atlantic trade agenda will be cooperation on WTO reform. The European Commission intends to pursue reform of the WTO across all of its functions, in particular updating its 'rulebook' and restoring its Dispute Settlement Mechanism (DSM) and Appellate Body (AB). The Commission wants a reformed Appellate Body, improved functioning of the WTO system, and modernised rules in areas such digital trade, agriculture and competitive neutrality. Economists feel that the EU's priorities for WTO reform are very much in line with those of the US. However, it is unlikely that the EU and the US will be able to reach an agreement on multilateral or plurilateral agreements before or during the Ministerial Conference to be convened later this year. Possible exceptions could be an agreement on fishery subsidies.

The EU-US is now both trying to enhance their relationship regarding trans-atlantic climate cooperation. Both Parties have agreed on two platforms-- the "EU-US High-Level Climate Action Group" and the "Transatlantic Green Technology Alliance". They have also indicated that both sides will try to agree on a broad agenda on climate cooperation, including sustainable finance and addressing the risk of carbon leakage. It may be recalled in this context that on his first day in office, President Biden signed the reintroduction of the US into the Paris agreement. Later in April 2021, the US convened a "Leaders Summit on Climate", bringing together leaders from across the globe to initiate climate action ahead of the UN Climate Change Conference in Glasgow (COP26). The US has also announced its target of climate neutrality by 2050, and a reduction in emissions by 50-52 per cent by 2030. This aspect has also been reiterated by US Climate Envoy John Kerry. It is being hoped that both sides will be able to usher in a constructive engagement and common approach during multilateral negotiations with the help of the two newly created platforms- ahead of COP26.

The next issues that will be addressed seriously by both sides will be the three challenges pertaining to cooperation on digital policies.

The first factor that will receive attention will be the question of designing effective governance rules for digital services associated with online content on social media platforms and marketplaces. It may be recalled that the impact of disinformation was acutely felt in the EU during the European Parliament elections in 2019, as well as earlier during the Brexit referendum campaign in 2016. The European Commission has since drafted a Digital Services Act which aims to target these issues by creating a governance framework that improves transparency about the algorithmic activity and business models of digital platforms, e-commerce, and other digital services. The lack of common rules and minimum standards for transparency online has, according to the EU, undermined fair trade, consumer trust, and most crucially, democratic resilience online. The US has however, despite the January 6 events in the Capitol Hill been unable to draft anything similar to the European Commission's Digital Services Act.

The EU is also attaching significance to both sides boosting fair competitive practices in digital markets. The European Commission has already drafted the Digital Markets Act which aims to reign in  the so-called 'gatekeeping' activity by big 'GAFAM' companies (Google, Apple, Facebook, Amazon, Microsoft), among others. This measure has been taken because dominant online platforms and services harvest vast troves of data by monitoring user activity across their platforms. These data translate into crucial insights - also referred to as "data power" - that potentially give these companies unfair advantages, while stifling innovation, competition, and growth through investment for SMEs. However, as most of the big tech companies are based in the US, the EU's efforts are causing uneasiness among US big techs.

The last point of contention relates to digital taxation. Differences between the US and the EU on the regulation of the digital economy surfaced in 2019 regarding digital services tax. Strongly advocated by France, this measure has been fiercely opposed by the US, whose tech giants would be affected by a European digital tax regime. The USTR has already announced in June 2021 the conclusion of the one-year Section 301 investigations of the Digital Service Taxes (DSTs) previously adopted by several EU Member States (Austria, France, Hungary, Italy, Poland, Spain) and other countries. According to the investigations, these tax schemes are designed to apply only to companies with very high revenues, effectively targeting primarily US companies. This, the USTR considers as discriminatory. In response the USTR wants to impose additional tariffs on certain goods from these countries, while suspending the tariffs for up to 180 days.

A definitive framework for the transfer of EU data to the US is necessary, but the 2018 US Cloud Act has been an obstacle and the main reason for the latest ECJ ruling on July 16, 2020. This piece of legislation allows US intelligence agencies to access data hosted by US firms, regardless of the jurisdiction in which the data server is physically located. This is being construed as being against the citizens' right pertaining to data protection and privacy.     

Both sides are taking on several difficult issues within their trans-atlantic agenda. It is clear that all of these aspects will require strong commitment from both sides. One now has to wait and see what happens.

 

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.

[email protected] 

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