Dec 01, 2022

The EU-US Trade and Technology Council Reaches a Crossroads

Overshadowed by concerns over “Buy American” subsidies and new US export controls for advanced technologies, fissures are also emerging when it comes to the core issues of transatlantic trade and technology cooperation.

US Secretary of State Antony Blinken, US Secretary of Commerce Gina Raimondo, European Commission Vice President and Commissioner for Competition Margrethe Vestager, European Commission Vice President and Commissioner for Trade Valdis Dombrovskis, France's Foreign Minister Jean-Yves Le Drian and other guests pose for a family photo ahead of a dinner at the US-EU Trade and Technology Council summit in Paris, France, May 15, 2022.
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The next meeting of the EU-US Trade and Technology Council (TTC) that begins on December 5 in Washington, DC, may well turn out to be the most consequential in the TTC’s short history. Since its establishment in the early months of the Biden administration, the TTC process has been hailed as a productive effort in transatlantic trust-building. Yet pressures are mounting, and the Washington meeting will be a significant test of the TTC’s capacity to steer through growing tensions over subsidies, trade issues, and distinct geopolitical postures on China.

Do the US and EU Want the Same Thing from the TTC?

The initial push to establish the TTC came from the European side, who viewed it is an opportunity to reset frayed transatlantic relations. In December 2020, the European Commission  pitched to the incoming Biden administration the establishment of a forum to reduce trade barriers, coordinate on technical standards development and tech regulation, improve critical supply chain security, and deepen research cooperation in critical emerging technologies. After initial worries that the TTC would become a talking shop producing few deliverables, the Biden administration eventually warmed to the idea and the TTC was officially launched at the June 2021 US-EU Summit.

In contrast to the European vision of the TTC as a platform for transatlantic trust-building, geopolitical concerns are at the center of American hopes for the TTC. Policymakers have framed it as one critical piece of the Biden administration’s China policy based on the “invest, align, compete” approach outlined by US Secretary of State Antony Blinken in May 2022. The US aims to align with its “like-minded partners” in Europe as well as the Indo-Pacific and elsewhere.

The place of China in the TTC has become a bone of contention as Europe has steadfastly resisted the framing of TTC as an anti-China alliance. European officials strongly object to efforts to position the TTC as a means of countering and containing China in the growing global tech conflict.

Aiming for Agreement

The TTC’s loose design allows officials to steer around traditional sources of discord in the transatlantic relationship and focus on areas ripe for cooperation. The TTC is overseen by high-ranking economic and trade officials in the US and EU who meet at occasional summits, while much of the day-to-day work takes place within 10 working groups on topics ranging from cooperation on technical standardization to export controls. Unlike the failed Transatlantic Trade and Investment Partnership (TTIP) initiative a decade earlier, which aimed for a high bar of US-EU regulatory alignment across a range of issues, “regulatory autonomy” based on “respect” for “different legal systems in both jurisdictions” is a founding principle of the TTC.

Additionally, irritants that could derail cooperation are deliberately kept off the table, including agriculture, procurement, and investment dispute settlement issues. Instead, the focus is on so-called “virgin” issues where both the US and EU are developing rule systems for emerging technologies and there is a potential to move in the same direction, for example on efforts to develop “trustworthy” Artificial Intelligence (AI) and digital standards.

While China remains the implicit focus in the work of several TTC working groups, the TTC’s priorities shifted considerably after Russia’s invasion of Ukraine in February 2022. Ahead of the TTC’s second meeting in Paris-Saclay in May 2022, coordination on export controls rose to the top of the agenda. The TTC’s working group on this topic provided a platform for an “unprecedented level of cooperation” on joint export prohibitions to Russia and Belarus on dual-use items and other sensitive technologies with a potential military application.

Barriers to Transatlantic Cooperation on Tech Standards

Russian aggression was a shot in the arm for the cause of transatlantic unity in the TTC’s infancy, but, in the longer term, divisions over how to deal with China are likely to impede meaningful cooperation on key issues. The TTC’s Working Group 1 on technology standards illustrates the challenges. 

To date, this working group has actually been one of the TTC’s most active and successful. Its major deliverable was the establishment of a Strategic Standardization Information (SSI) mechanism to facilitate information-sharing among government officials and Standard Development Organization (SDOs) in Europe and the US over developments in standard-setting on sensitive technologies and materials. This initiative drew momentum from China’s 2020 bid to set up and chair a committee at the International Organization for Standardization (ISO) on lithium, which flew under officials’ radar until the European Commission was alerted by the Australian government. Enhanced information-sharing measures will assist stakeholders in anticipating and quickly reacting to China’s future efforts to lay claim to sensitive standardization topics.

Yet, insiders question whether the TTC will be able to reach the higher-hanging fruit in this area. The standardization working group aims, in the longer term, to establish a platform for the coordination of transatlantic development of standards in areas such as AI. A standard-setter at the European level dismissed the TTC as largely a “political statement” with little potential to deliver on its more ambitious aims. In addition to barriers imposed by the stark differences in the European and American standardization systems, skeptics point out that it is not self-evident that US and EU firms are really “like-minded partners” on standardization. For European companies with investments in China, the question of who their like-minded partners are in the first place is not straightforward.

On the Agenda in Washington

While transatlantic ties via the TTC have been bolstered by geopolitical developments such as Russia’s invasion of Ukraine, and some level of concern about China, over the past two months unilateral US moves have complicated the dynamic. The most notable major new friction dogging the TTC is the US Inflation Reduction Act’s (IRA) provisions that incentivize Americans to buy electric vehicles made in North America. Brussels argues that these “Buy American” provisions discriminate against European producers and violate World Trade Organization (WTO) rules. EU leaders are keen to see some progress on addressing these concerns.

Both sides appear eager to separate this and other related issues from the TTC process, though it is likely to be challenging to fully insulate the TTC, as it was for the negotiations that led to the Privacy Shield agreement earlier this year. The US and EU recently launched a Task Force on the IRA to address Europe’s concerns. Similarly, the US has also expressed concerns about several legislative proposals making their way through EU institutions. For instance, Washington has recently sought to narrow the definition of AI and broaden the exemption for general-purpose AI in the EU’s forthcoming Artificial Intelligence Act—expected to enter trilateral negotiations between the European Commission, Parliament, and Council to finalize the act sometime early next year.

Since the last TTC meeting earlier this year, the US has been pushing the EU to take a harder line on China across a broader front, including in areas where EU officials are reluctant to take a harsher line. For US officials, including some that are involved with the TTC process, Beijing remains a top national security concern, especially in the technology sector—statements over the past several months from senior US officials have placed advanced technologies such as semiconductors, AI, and quantum computing at the center of US concerns, in ways that some EU officials are likely to object to. This was demonstrated by the set of new unilateral and unprecedented set of restrictions Washington released in October targeting Beijing’s access to advanced semiconductor technologies. One part of the controls touches on advanced semiconductor manufacturing equipment, potentially drawing in EU technology leaders in the Netherlands and Germany.

While the EU has implemented export control rules for some dual-use items and various investment screening mechanisms, it has not treated China with the same level of national security concern. US officials in November embarked on what is likely to be a months-long process to convince the Dutch government, in particular, to align with the new controls, but strong industry pushback from Dutch and German companies that would be most impacted by the new controls has increased and led the Dutch government to signal it could push back on transposing the measures into Dutch law outside normal multilateral channels such as the Wassenaar Agreement.

This friction has added some tension to the TTC process, but officials will also attempt to keep this issue in separate channels. However, a growing sense that the US is willing to take unilateral measures in part designed to force compliance in other jurisdictions, including Europe, without sufficient consultation, has added to the complexities facing further progress within the TTC on issues such as export controls.

Rough Sailing Ahead

After an encouraging start, the TTC has now entered deep water. While the Russian invasion of Ukraine initially drew Europe and US officials together over export controls and sanctions, the economic toll of the war now threatens to undermine transatlantic unity. At the same time, divisions over the China challenge are resurfacing.

The Washington meetings will be a test of the two sides’ initial commitment to pushing forward on areas with a high potential for cooperation and steering around the rocky shoals.

Sarah Eaton is Professor of Transregional China Studies at the Institute of Asian and African Studies at Humboldt University of Berlin.

Daniel Fuchs is assistant professor at the Institute of Asian and African Studies at Humboldt University of Berlin.

Paul Triolo is a Senior Vice President on the China Team at Albright Stonebridge, where he also tracks global technology policy developments.