US-EU Digital Relations in Practice: Part I
13 July, 2021
The volume of digital trade between the United States and the European Union is the largest in the world, and a cornerstone of the global digital economy. Total EU-US trade in goods and services doubled from $594 billion to $1.2 trillion between 2003 and 2017. In the year 2018, American trade in digitally-enabled services with Europe topped $333 billion dollars, with exports from the US reaching $213 billion and imports $120 billion – a $93 billion trade surplus. Furthermore, as the digital economy increases in sophistication with the rise of AI, cloud computing, Internet of Things, and 5G and 6G infrastructure, the potential fields of cooperation between the two economic powerhouses are also manifold. However, despite being each other’s largest trading partners in digital services, differences in regulatory approaches and priorities continue to impede cooperation on the technological and diplomatic level. As such, both sides continue to miss out on potential opportunities.
The overall trade relationship began going sour in 2016, when the United States withdrew from talks over the Transatlantic Trade and Investment Partnership (TTIP) agreement citing domestic political pressure. This was followed by the imposition of 25% steel and 10% aluminum import tariffs, citing national security concerns, as well as a threat to impose tariffs on foreign auto manufacturers. The European Union responded with tariffs on American imports such as sweet corn, peanuts, motorcycles, and bourbon whiskey.
On July 18th, 2018 the European Union fined Google’s parent company Alphabet, Inc. the amount of €4,31 billion, related to its anticompetitive practices in Android devices, which were required to pre-install 11 Google apps on their devices. “Google has used Android as a vehicle to cement the dominance of its search engine” according to Margarethe Vestager, European Commissioner for Competition. The size of the fine reflected “the serious and sustained nature of Google’s actions.” More recently, Facebook threatened to pull out of the European market entirely if European regulators move forward with a proposed ban on data sharing with the United States, citing a lack of legal protection in the US against surveillance by the US government.
In response to the fine, it didn’t take long for President Trump to tweet “I told you so!” and repeat his claim that Europe was taking advantage of American companies. However, his administration was otherwise generally unconcerned with engaging Europe in the digital sphere, choosing instead to promote isolationist views with respect to security, military, and diplomatic endeavors.
While differences between the United States and European Union had been simmering for quite some time, the relationship appeared to reach a nadir under the Trump administration. The Trump administration’s “America First” approach to international trade had set the tone in recent years for a more confrontational strategy vis-a-vis the EU and a dramatic escalation in tensions, although it is simplistic to assume this was the sole reason for the decline in relations. The European Commission had long ago decided to be the world’s premier antitrust regulator, out of concern that European markets were being dominated by non-European concerns who stifle domestic competition. This is commonly understood to mean the large American multinationals and, to a lesser extent, Chinese tech firms.
After the European Union announced its comprehensive Digital Single Market strategy in late 2015, American firms immediately became concerned that the ambitious project would be used to overregulate them while operating within European borders. A report put out by the U.S. Chamber of Commerce in 2015 warned about the dangers of “handcuffing American competitiveness” in the name of privacy concerns, and of misunderstandings of best practices in the digital space. As the largest private lobbying group in the United States as well as a significant lobby within the EU, the AmCham has since released further critiques of Europe’s AI proposals, the European Data Strategy, and other areas that involve regulation.
From the European perspective, the Snowden revelations of 2015, combined with the rise of Chinese tech firms with extremely invasive data collection capabilities, catalyzed the impetus for a hands-on approach to digital governance. Mass data collection and the increasing concentration of information in the hands of the so-called “GAFA” companies (Google, Amazon, Facebook, and Apple) also became a matter of concern due to anticompetitive practices, possible exposure to invasive tracking of internet and consumer habits, and mishandling of European citizens’ personal data. Thus was born the slogan of “digital sovereignty” in the EU. According to a recent European Parliament briefing, digital sovereignty refers to the idea that “Europe must act independently in the digital space.”
Upon her election to the European Commission presidency in 2019, Ursula von der Leyen stressed the need for “technological sovereignty” in order to counter security threats from Chinese firms and address concerns about the actions of American tech multinationals in a coordinated manner. This required the strengthening of the Digital Single Market, expanding regulation and harmonization in the areas of data sharing and privacy. Laws such as the GDPR were quickly adopted outside of European borders by countless firms who would rather spend time, money, and resources to bring themselves into compliance rather than lose the European market.
In contrast to the European approach, the formulation of US digital trade policy has historically relied less on enforcing abstract legal norms such as privacy, and rather upon a “product-centric” approach to economic competitiveness. American digital trade policy as a whole is therefore primarily focused on consumer protection, patent enforcement, and reducing barriers to production and trade for its own concerns.
In this view, the highly technical nature of the subject matter and the vast resources in the hands of American tech companies to enhance their product position means that digital policy is often a synergy between government, research institutes, and industry. This stems in part from the wide mandate granted to the U.S. Congress to interact directly with technological experts and business concerns through various fora to derive rules and regulations, and to the executive branch to conduct negotiations with international partners. The Trade Promotion Authority (TPA) in particular outlines Congressional guidance on formulating negotiating objectives and conducting negotiations, requirements for the Administration to consult with Congress and industry stakeholders, and terms, conditions, and procedures to enter into trade agreements.
Differences in how the US and EU view and define their mandates have sometimes stymied trade negotiations in the past. While the EU has been delegated the authority to set up an internal market on behalf of its member states, differing needs between member states have sometimes limited the actual scope of negotiations which the EU conducts in practice. This manifested itself when in 2018, Donald Trump and Jean-Claude Juncker issued a public statement pledging a reset in relations and cooperation on a number of fronts including reforming the WTO, reducing trade barriers, public procurement, and possibly resolving the problem of protectionist tariffs. Shortly after the statement was issued, the European Council, made up of the heads of Member States, strictly limited any possible negotiations carried out by the European Commission to the elimination of tariffs, excluding agriculture. The Council further emphasized the need to account for the social and environmental impacts of any future trade agreement.
Another outstanding issue, and indeed more sensitive, are the barriers to data transfers between the US and EU over how well the US safeguards user privacy by EU standards. In July, 2019, the US-EU Privacy Shield, which had been the primary legal framework for transferring data between the two economies, was invalidated by the European Union Court of Justice on the grounds that US safeguards for personal data collected from the EU were not “essentially equivalent” to those provided in the EU for its citizens. The decision cited concerns over “individual redress” regarding surveillance, for which there is no legal framework in the United States. Meanwhile, some U.S.-based academics such as Anu Bradford of Columbia Law School allege this is part of a larger trend of “unilateral regulatory globalization”, where the EU has become the effective global sovereign regarding data privacy matters based on legally and culturally-contingent privacy norms. However, cross-border data flows between the two economies remain in a state of dangerous uncertainty, highlighting the need for a new agreement that complies with both legal systems.
As a new US administration under Joseph Biden continues to establish itself, prospects for a reset in US-EU trade relations continue to grow. In Part II, the dialogue between the US and EU will be explored in light of contemporary issues and possible solution frameworks to overcome the recent impasses. As Covid-19 and domestic and international political concerns continue to form the backdrop for future talks, the need for new paradigms in digital trade between the US and EU will become all the more well-defined.