The pressure to review Europe’s tech regulations is mounting. In a letter sent on June 21 to US President Joseph Biden, the co-chairs of the Congressional Digital Trade Caucus and a bipartisan group of 46 members of Congress lambast European digital policy as discriminatory against US companies and dangerous for transatlantic security.
The European Union’s digital agenda “will weaken American competitiveness by unfairly advantaging domestic European firms and inadvertently benefitting Chinese, Russian, and other foreign-owned competitors,” the letter reads. The EU goes “beyond legitimate public policymaking” and the Biden administration must “raise our own concerns over the EU’s digital policies.”
The strong congressional letter represents the latest salvo in a simmering battle to push both Washington and Brussels to address the impact of tech regulation on security in the bi-annual transatlantic Trade and Technology Council. At the TTC’s fourth edition in Sweden last month, the allies agreed for the first time to “exchange information on non-market policies and practices affecting digital trade, as well as on our respective policies linked to risks stemming from digital firms from non-market economies.”
Translation: Washington and Brussels will discuss how their domestic digital policies might unintentionally advance Chinese tech, trade, and security interests — a previously taboo topic.
The two sides still disagree on the scope of the new talks. Washington wants to include EU tech regulations. The Office of the United States Trade Representative sees an opportunity to “identify and address” regulations that “Chinese actors or their intermediaries might misuse.” Brussels wants to limit the talks to combatting Chinese firms such as TikTok and Huawei. But current and former Commission staff insist that the EU’s own digital policies will likely remain off the table.
Over the past few years, the EU has raced ahead with a series of landmark tech regulations — the General Data Privacy Regulation, the Digital Services Act, and the Digital Markets Act, among others. For US policymakers and tech leaders, these European rules discriminate against US tech firms while ignoring geopolitical concerns and security risks. Authoritarian leaders such as Turkey’s Recep Tayyip Erdoğan already have copied European digital regulations to cement control over social media platforms. Chinese tech giants could emerge unscathed while US — and European — competitors are burdened with huge compliance costs. As Europe’s reliance on cheap Chinese tech increases, Washington worries that so does the continent’s vulnerability.
“The European Union’s acts will likely benefit Chinese firms, particularly as there are no European companies waiting in the shadows with the scale and scope of interlinked services that U.S. companies provide,” concluded the Washington-based Center for Strategic & International Studies. “Europe could see a scenario where European businesses access lesser-quality services at a higher cost and increase their reliance on Chinese firms, with associated cybersecurity and national security challenges.” The think tank estimated that 16% of European companies using US tech providers would switch to Chinese providers to avoid $22-50 billion in “new compliance and operational costs.”
Ahead of President Biden’s first visit to Brussels in 2021, the US National Security Council objected to the DMA’s goal of reining in digital gatekeepers. In a letter to the EU’s Washington office, the NSC complained that the regulation unfairly targeted the five biggest US tech firms: Google, Amazon, Facebook, Apple, and Microsoft. Chinese companies would not be touched — and could benefit. The DMA requires the US gatekeepers to grant Chinese and Russian firms access to technical and operational infrastructure and lacks clear safeguards to protect trade secrets and intellectual property rights.
Another American concern is the EU’s Data Act, still under negotiation. It will impose limits on data transfers with DMA-designated gatekeepers while forcing them to share proprietary data with third parties — including Chinese firms. Data localization requirements in the EU Cloud Scheme could bar US cloud operators from the European market, slashing efficiency and increasing cybersecurity risks.
The EU has its own fair share of complaints about US policy. This year, the EU erupted over the Inflation Reduction Act, forcing the Biden administration to deem European automakers eligible for the Act’s electric vehicle tax credits at the risk of infuriating Congress. The Trump administration responded sternly to European outcry. In 2020, after several European countries imposed a digital services tax almost exclusively on US companies, the US imposed tariffs on European products, including cosmetics, soap, and handbags.
Although the two sides reached a global tax deal and the tariffs abandoned, the EU responded to US pressure by proposing an Anti-Coercion Instrument. It will allow Brussels to impose tariffs and other sanctions on countries judged to practice “economic coercion” which is defined as using economic means to achieve political goals. The tool developed to confront the Trump administration could end up being deployed to confront China.
Until now, the TTC has steered clear of these clashes. Both sides were eager to use the TTC to repair relations soured by Trump-era trade disputes. Russia’s renewed invasion of Ukraine became the priority and the alliance responded in unison to impose unprecedented export controls against the Kremlin. At the inaugural TTC in September 2021, the EU and the US agreed to “exchange information on the impact of non-market, distortive policies and practices in third countries.” Mutual respect for “regulatory autonomy” was paramount. No mention was made of either side’s own tech regulations.
Even if the new TTC conversations take the European approach and focus exclusively on China’s TikTok and Huawei, there will be plenty to discuss. If passed, the US RESTRICT Act, endorsed by the Biden administration, would grant the executive branch the power to ban TikTok. Under the potential law, the Secretary of Commerce would gain the power to designate a country as a “foreign adversary.” Europeans fear that a new Trump administration could abuse this power to ban almost any foreign-owned tech firm, although Congress could use a joint resolution to block a designation. The US already is pressing Europe hard to “rip and replace” Huawei from continental networks, a demand whose cost is ballooning. European telecom operators are fighting for a “fair share” connectivity fee to draw funds from US tech companies to pay for the needed investments.
No consensus yet exists in Washington on how hard to push each other on their domestic tech priorities. US Trade Representative Katherine Tai takes a hard line; her office recently released a report naming Europe’s DMA as a trade barrier. At the same time, US Federal Trade Commission Chair Lina Khan announced plans to send a US delegation to aid DMA implementation, which she sees as a much-needed regulation to reign in US digital giants.
Europe, too, is divided. Although its digital policies are dominated by its two largest — and most zealously regulatory — countries, France and Germany, Europe’s smaller but most tech-oriented members often disagree with the Commission’s agenda.
Despite these divisions, it is possible — and necessary — to consider the security implications of digital policies. The TTC is the pre-eminent transatlantic tech dialogue mechanism. So far it has produced marginal deliverables that do not tackle core disagreements. There is now an opening for the allies to talk. Both sides should take advantage.
Matthew Eitel is Special Assistant to the President & CEO and a Program Officer for Digital Innovation Initiative at the Center for European Policy Analysis.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.