As Washington and Beijing Face Off, Brussels Must Act
What started as a bump in the road in relations between two giants has evolved to become a permanent feature of the global economy: the US-China trade war is here to stay, and the ultimate prize of this geopolitical battle is universal technological superiority.
Indeed, the race to crown the leader of emerging technology research, development and implementation is well underway. Whichever country, or company, secures its place at the top of the technological food chain will also be responsible for writing the norms and rules of use for new innovations.
The direction and screening of foreign investments, privacy standards for individual users, and the question of how to deal with alleged security challenges posed by China’s telecommunications giant Huawei are just some of the obstacles on the course. So far, Washington and Beijing appear the only powers willing to play the game.
As such, it is increasingly apparent that European governments must act, and soon, before the bloc is caught between the competing demands of rival powers. It’s time to redraft export control regimes to preserve European norms for the use of particular technologies, particularly where challenged by China. European companies also need to be shielded from US extraterritorial jurisdiction.
Trump’s Export Control Reform Act (ECRA)
In August last year, the Trump administration unveiled the Export Control Reform Act (ECRA), designed to limit the export of emerging technologies to end users, destinations and uses of concern. Additionally, Section 1759 of the Act requires the US government to review the scope of existing export controls on transactions involving “military end uses and military end users” in arms embargoed countries like China.
Proposed reforms to control the export of US technologies and products outlined in ECRA mirror, for the most part, intelligent manufacturing sectors marked out in Beijing’s Made in China 2025 industrial vision. Washington, then, hopes to shore up American power to shape future standards and norms by limiting the growth of China’s counterpart industries.
Washington adopted a similar strategy against the Soviet Union during the Cold War, with one key difference: a traditional reliance on multilateral pressure has given way to the US charting a unilateral course against China. Even so, Trump’s call for bans against Huawei 5G infrastructure is evidence that support, or compliance, from US allies is still very much expected.
With ECRA being filed with new regulation and expected to take effect in 2020, third countries must get their houses in order. The EU is no different.
Export Control and Omni-Use Products
Export control refers to measures that governments adopt to limit the spread and use of certain goods and services; the ultimate aim is typically the preservation of national security, and promotion of foreign policy. Restrictive measures, namely customs and licensing, when applied to export controls currently cover two categories: military goods (conventional) and dual-use items (traditional), including goods and technology that can be adapted for both civilian and military applications.
In today’s global economic ecosystem, there are two additional categories that states may look to control. The first, critical infrastructure, includes electricity, gas and water networks that are central to both the military and economic security of any country. Companies that currently deliver these resources must be protected from hostile takeovers from foreign entities.
The second category is emerging technologies, including digital products that can be readily transferred between countries without physically crossing national borders or passing a customs check. Complicating things further is the fact that emerging technologies can be used for a range of things simultaneously, from military operations to healthcare services, and are typically integrated at all levels of society. Such “omnipresent” technologies, or “omni-use” products, differ significantly from traditional, dual-use technologies.
The EU Tech Industry
The US call for a global export control regime targeting omni-use technologies will especially impact countries with dominant high-technology sectors, while regulations that flow from the adoption of ECRA will have major implications for global firms with headquarters in the US.
Furthermore, the impact of ECRA will trace supply chains far beyond US borders given the extraterritorial jurisdiction of US law: foreign products made up of more than 25 percent of US material may require a re-export license from the US. The impact on European countries will be drastic.
For example, the Netherlands is home to a number of industry giants working with semiconductors, photonics and quantum technology. These firms will soon be torn between the Chinese and US markets. Moreover, US extraterritorial jurisdiction could result in broad sanctions against European firms throughout the bloc, and cause large scale disruption to global supply chains.
The Path Ahead for Brussels
Upholding European norms for the use of certain technologies where challenged by China, and protecting European firms from US attempts to exercise authority beyond its borders, should be seen as issues of top priority for Brussels’ policymakers.
While continued bilateral talks with the US and China are vital, it is more important than ever that the EU engages on a bloc-level to craft a comprehensive, EU-wide export control system for emerging technologies. The introduction of electronic licensing, for example, is a crucial step for European innovators.
In addition to crafting an EU-wide framework, partnerships with similarly-affected countries should be explored. Japan, for example, is a technology competitor for now; Tokyo should also be considered a valuable partner in the coming waves of reform.
The security, economic and political consequences of a unilateral US push for global technology sector reform, designed with Washington’s interests at its core, requires a multilateral response. EU authorities cannot afford to watch this race from the stands.