The EU-US Trade and Technology Council: how can great results follow great expectations?

#CriticalThinking

Peace, Security & Defence

Picture of Jamie Shea
Jamie Shea

Senior Fellow for Peace, Security and Defence and former Deputy Assistant Secretary General for emerging security challenges at NATO

The EU-US Trade and Technology Council (TTC) was launched at the EU-US Summit in Brussels during President Biden’s trip to Europe last June. It was accompanied with great fanfare given all the many tensions and disputes between Brussels and Washington during the four years of the Trump administration. These included tariff disputes over civilian aircraft subsidies, steel and aluminium, US ‘Buy American’ laws and protectionist public procurement policies, and the EU’s unwillingness to open its markets to US agricultural products, particularly those with genetically modified ingredients.

Brussels objected to the use of Section 231 of the US Trade Act, which designated even German built cars as threats to US national security, and thereby justified quotas and trade restrictions. The EU and US also clashed on broader economic issues, such as data protection and monetary policy in the G7, EU imports of Russian gas via the Nord Stream 2 pipeline and the reform of the World Trade Organization, which Trump paralysed by blocking the appointment of appellate judges to WTO trade dispute panels. At one stage, Trump even described the EU as “the enemy of the United States”.

The setting up of the Trade and Technology Council was thus lauded by both sides as marking a new beginning. If successful, it will form a new strategic partnership between Washington and Brussels in which they would resolve legacy trade disputes through compromise, promote trade and transatlantic technological innovation by agreeing to common standards and greater market access. Additionally, it could combat the practices of non-market economies globally by reforming the WTO and promoting trade and technology standards based on Western democratic, transparent norms and practices, including workers’ rights and sanctions on the use of forced labour. China is clearly the political target here, even if the US and EU trade negotiators emphasise that they will be focusing on other non-market economies as well.

The TTC is a political platform intended to build trust and improve informal relationships among US and EU negotiators

The TTC is consequently a highly ambitious venture which goes well beyond the traditional trade area. It is not designed to lead to a new transatlantic trade agreement following the Transatlantic Trade and Investment Partnership (TTIP) which was abandoned at the beginning of the Trump administration. Given hostility to open trade in both the US Congress and national parliaments in the EU, it is far too early to restart formal trade negotiations. Neither the Biden administration nor the European Commission have the mandate or authority to do this at the present time.

Rather, the TTC is a political platform intended to build trust and improve informal relationships among US and EU negotiators. Moreover, it should seek common ground, look for pragmatic solutions that serve the interests of both sides, and resolve immediate issues that stand in the way of broader transatlantic trade, particularly in the digital services sector, in areas such as data collection and privacy, or the taxation of the major tech companies. If agreements are reached in the Council that need to be translated into EU or US legislation, the European Commission will seek approval from the European Council and the Biden administration from Congress.

The TTC will have ministerial-level political leadership to drive it forward. On the US side, this will be Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo, and US Trade Representative Katherine Tai. On the EU side, it will be two vice-presidents of the European Commission, Margrethe Vestager and Valdis Dombrovskis. After a few rounds of informal staff talks, the inaugural ministerial meeting to launch the TTC will take place in Pittsburgh on 29 September. The US has chosen Pittsburgh as a symbol of an old decaying rust belt city that has successfully renewed itself on the basis of high-tech, digital and green industries – thus encapsulating the overall TTC objective. Encouragingly, just a few days away from the Pittsburgh meeting, the following points of consensus seem to be emerging from both camps.

The TTC stress the need to come up with ways to counter what they see as the main features of the Chinese model

Firstly, the TTC needs to be a success to demonstrate that both sides can deliver on the expectations and high level of ambition. Apart from the failed TTIP, there have been several disappointing transatlantic trade initiatives in recent years: the Transatlantic Business Dialogue, the Transatlantic Economic Council and the Transatlantic Technology Council, to name but a few. So, the new TTC is under pressure to be more than just a talk shop and deliver some early results to build momentum.

The working group on global trade challenges even began its work on 15 June, the day of the EU-US Summit. So the US and EU sherpas would like the Pittsburgh ministerial meeting to map out work programmes and deliverables for the 10 established working groups of the TTC, at a minimum. These groups range from trade, digital and tech services, technology standards, data protection and storage, foreign investment screening, WTO reform, climate change and decarbonisation, promoting the green and circular economy to critical infrastructure protection and secure supply chains. One priority across the working groups is to create better business opportunities for small and medium-sized enterprises and facilitate their participation in the digital economy. The idea is to set realistic goals and de-escalate existing trade tensions. The US and the EU have already made initial inroads by suspending reciprocal tariff penalties on Airbus and Boeing in retaliation for state subsidies, although the underlying dispute in the WTO has still to be resolved, and the EU has paused the introduction of tariffs on US steel and aluminium imports as a goodwill gesture, even though these have been authorised by the WTO.

Secondly, both the US and the EU need to align procedures and insist on a values-based approach and the need for the TTC to formulate a democratic, liberal alternative to the Chinese non-market model. There were echoes of this approach in the State of the Union address which EU Commission President Ursula von der Leyen gave to the European Parliament in Strasbourg on 16 September, when she advocated an EU ‘Global Gateway’ infrastructure spending and investment programme to counter Beijing’s One Belt, One Road initiative. Both US and EU officials leading the TTC stress the need to come up with ways to counter what they see as the main features of the Chinese model: forced labour in Xinjiang province, theft of intellectual property, contributions to global warming through the export of coal-fired power plants, non-transparent financing deals in foreign countries, state subsidies to Chinese companies in tech, energy and construction sectors and forced technology transfers. The corollary of pushing back against the Chinese model is that the TTC has to be itself an exercise in democracy as well as promote democratic values in the wider world.

There has been considerable labour opposition to transatlantic trade deals in the past with accusations of lowering health and safety standards

Thus, both the US and the EU want the TTC to be a multi-stakeholder process that will work closely with business, trade associations, lobbying groups and civil society. The European Parliament is pushing for trade unions and labour organisations to be formally represented to protect workers’ rights and to demonstrate the benefits of a more integrated transatlantic market and level playing field to the average worker and consumer. There has been considerable labour opposition to transatlantic trade deals in the past with accusations of lowering health and safety standards (“chlorinated chickens”) or allowing US companies into EU public procurement, particularly in medicines and health. The regional parliament in Wallonia even impeded the EU-Canada comprehensive trade deal for several months, in an effort to win more guarantees on EU standards. So it will be interesting to see how successful the TTC will be in engaging the social partners and turning organised labour and sectoral interest groups in a more trade-friendly direction.

 

Egmont, a Brussels-based think tank, has also suggested that the TTC should engage with other democracies around the globe to encourage them to sign up to standards and agreements negotiated in the TTC. They suggest having observers from these third countries at TTC meetings and even the creation of a broad Committee on Technology Standards. However, the initial response from US and EU officials suggests that it is too early to engage third parties. The focus has to be first and foremost on aligning EU-US procedures and standards. This will be challenging enough as Washington and Brussels often share the same goals, such as the decarbonisation of their economies by 2050, but use different approaches and policymaking structures, leading to clashes once they get into detail; for example, regulation versus market forces, light touch versus hard regulation and priorities that do not always overlap.

Climate will be an early test of the ability of both sides to define a level playing field for competition

Thirdly, the US and the EU also agree that the working groups must not only function individually but coalesce around a limited number of political priorities that resonate with public opinion and the political debate on both sides of the Atlantic. Four such priorities constantly come up in the discussion: climate change, the response to China, technology standards and WTO reform.

After the floods and forest fires in Europe and the hurricanes and extreme heat in the US this summer, climate change policy will be an immediate priority for the TTC, particularly in view of the upcoming COP26 in Glasgow. Despite the agreement on objectives and the new commitment of the Biden administration to domestic and international carbon reduction measures, the regulatory responses of the EU and US are different.

Washington has expressed its opposition to EU proposals for carbon border adjustment taxes. The EU is also proposing an emissions trading scheme and other price-based mechanisms that the US finds unhelpful. By contrast, the US is opting for industry incentives and industry conversion subsidies to meet environmental compliance standards. The US also stands to lose out on its coal exports to Europe as the EU focuses on renewables. So, climate will be an early test of the ability of both sides to define a level playing field for competition in green goods and services, and to align more closely on carbon pricing and taxation.

The focus of the TTC will be on fostering an open global technology architecture with common standards

Even from a climate perspective, the response to China is inevitably complicated. China is the world’s largest carbon emitter and continues to build and export coal-fired power plants, but it is also the world’s largest producer of renewables and solar panels. So which aspect should the TTC focus on? There is not yet a common EU-US approach to China even though much of their analyses converge. So far, the US has largely adopted a go-it-alone approach, with the intention to coerce China into buying US foodstuffs, as in Phase One of the Trump-Xi trade agreement, causing less Chinese business for the EU.

An early task for the TTC will be to determine which issues to push China on. One idea is finance and China’s lending practices, as these are assuming a larger place in the One Belt, One Road projects. The US and EU could agree on investment principles and rules for transparent lending, and then put pressure on Beijing to agree to these international standards. The TTC would look especially at green investments. Other ideas on the table concern rules on technology produced by state subsidised companies, particularly in telecoms and technical infrastructure. In the wake of COVID, rules on health care products and services are likely to be high on the TTC agenda.

Moreover, the focus of the TTC will be on fostering an open global technology architecture with common standards that allow different products and services to ‘plug and play’ and to prevent monopolies. China is seen as the primary obstacle here as it is developing its own version of the internet and operating software. Yet here too US and EU competition rules are different with the US seeming to favour anti-trust legislation to break up the big tech giants, while the EU wants them to pay more tax and close down tax havens and cosy profit repatriation schemes. But first must come agreement on data protection and privacy as the European Court of Justice has declared the current EU-US data exchange agreement, Safe Harbour, illegal because of inadequate data protection.

The appetite is to expand the scope of the current WTO beyond narrow trade issues

The Biden administration has lifted the US block on the appointment of appellate judges to WTO panels and the organisation has a new Director-General. Yet both the US and EU agree that the WTO is in need of urgent reform. Although some experts have proposed the creation of a new global trade body along Western democratic lines to replace the WTO, the prevailing view in Washington and Brussels is that there is no time for this, and that it is important to have China in a global trade organisation. The WTO might be the lowest common denominator but it is important to use all the tools available. The US and EU cannot do everything alone and global rules are needed on digital services, workers’ rights, access to health and medicines and climate change. The WTO should also support the implementation of the UN Sustainable Development Goals. So the appetite is to expand the scope of the current WTO beyond narrow trade issues like subsidies and most favoured trading nation clauses.

The EU has already done a lot of internal work on WTO reform but now the US needs to catch up. The ministerial meeting of the WTO (MC12) in December is probably too soon for Brussels and Washington to adopt a common position. The US Trade Representative still does not have her full team approved by Congress and in place. This said, some hope has been expressed by trade officials that there could be an agreement on fisheries, especially over-fishing and stocks sustainability. Moreover, perhaps the TTC could agree before December on a joint roadmap for WTO reform. Some ideas that might be worthwhile to include in such a roadmap might be a WTO working group on workers’ rights, transparency obligations for WTO members or an initiative on services.

Now, we must wait and see if and how the TTC will live up to expectations in the months ahead. We are told there will be regular high-level meetings to assess the results and drive the process forward. A US official involved says that “the problems get the attention but are minor compared to what unites us on global challenges”. We will soon know if this is indeed true.

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