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Hope for the Best, But Prepare for the Worst at the US-EU Trade and Technology Council

Hope for the Best, But Prepare for the Worst at the US-EU Trade and Technology Council

December 2, 2022

The European Union wants it all—access to the U.S. market without fully reciprocal access to the EU, U.S. action against China while it free rides, and the freedom to restrict U.S. firms in Europe under the banner of “digital sovereignty.” It’s time for the U.S. government to say, “No more.”

In the third Trade and Technology Council (TTC) ministerial meeting on December 5, European delegates will likely complain about new U.S. local content rules for electric vehicle subsidies but ignore that their tariffs on passenger vehicles are four times higher than U.S. tariffs, all while the EU enacts significant barriers on trade in services—which is rich, given that in 2021 the United States ran a $161 billion trade deficit with Europe.

While the EU lectures the United States on free trade, it has long pursued an aggressive campaign against U.S firms, especially in the tech sector. The Digital Markets Act (DMA) and Digital Services Act (DSA) were designed to capture U.S. firms almost exclusively and not European or Chinese competitors that offer similar services. Same with pending proposals such as the Artificial Intelligence Act and the Cyber Resilience Act to regulate AI and the Internet of Things, respectively. France and the EU are pushing a discriminatory cloud cybersecurity regime akin to China’s that only deems firms that are locally owned and controlled to be trustworthy, thus excluding U.S. cloud providers from large parts of the market. These laws and regulations are in addition to policies and enforcement decisions that implicitly discriminate against U.S. firms and products, such as those in the EU standardization strategy.

And let’s not forget there are limits on personal data transfers to America that don’t exist for China or Russia. A recent European Data Protection Board study highlighted the lack of safeguards around government access to data in these countries, but it is strangely silent on cutting off data flows to them. This stands in stark contrast to Europe’s product-by-product decisions to cut off U.S. tech services like Google, Zoom, and Microsoft.

And of course, the massive fines European regulators continue to impose on major U.S. tech companies, extracting hundreds of millions annually to line the European Commission’s budget coffers. As if the EU’s import substitution goals weren’t clear enough, it created an initiative called GAIA-X to support the replacement of U.S. cloud providers with local ones. It has also pursued a so-called ‘fair share’ policy for Internet traffic that imposes extra fees on U.S. content companies to subsidize European ISPs—even though it comes at the expense of European consumers. If the Biden administration reacted with half the indignation that Europe has over the aforementioned EV provision, the tenor of the whole transatlantic relationship would be fundamentally different.

Meanwhile, rather than working closely with the United States to limit unfair Chinese trade practices that harm Europe and the rest of the world, Germany, France, and others in the EU continue with a business-as-usual approach to China. EU officials know that by staying on the sidelines they can also stay in the good graces of Chinese President Xi Jinping, so their companies can keep selling cars, machine tools, and other goods there—at least until China throws them out of the market.

It’s time for the Biden administration to hold the EU to a higher standard. If Europe expects American cooperation, then it needs to abandon its protectionist digital sovereignty campaign and start working with the U.S. government to confront the global threat from China. Let’s be clear: China is trying to do with batteries and EVs what it has already done in seeking to unfairly dominate semiconductors, solar panels, high-speed rail, pharmaceuticals, and other high-tech sectors.

If the EU refuses to change course and keeps trying to have it both ways, then the Biden administration needs to respond. That entails using new tools and actions. It can include opening Section 301 investigations into the DSA and DMA, amending the Internal Revenue Code to allow authorities to enact mirror taxes on countries that impose digital services taxes, creating a cause of action to allow U.S. firms to sue for DMA-mandated disclosure of trade secrets, and excluding EU firms from all U.S. procurement, including rail and other transport projects. The U.S. Trade Representative should dust off research into using Section 301’s long-overlooked provisions relating to barriers to services trade, via licensing, certification, and other restrictions. And if the EU continues to ban create new barriers to the movement of data to the United States, then America should do the same and ban the flow of data to Europe by EU companies.

A strong EU and U.S. alliance is critical. A high-level Chinese Communist Party official once stated that the thing China fears the most is not the United States against China, but the EU and the United States against China. But as important as forging that transatlantic alliance is, America should make it clear that the EU’s systematic attacks on U.S. companies are a deal breaker to tighter relations.

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