U.S.-E.U Relations in Tech | Brunswick

U.S.-E.U Relations in Tech

Biden-Harris Administration's Next Steps on Tech

After four years of a U.S. administration that disdained the EU and frequently clashed with key European allies, European officials are eager for greater cooperation with the Biden administration, particularly on the digital economy. For years, the EU has acted as the de facto regulator of Silicon Valley, but it recognizes the need for alignment and collaboration with the U.S. given the nationality of the vast majority of tech companies.

EU and U.S. citizens share similar concerns around the need for greater transparency and accountability of online platforms, spread of illegal and harmful content, impact of tech on their democracies, and ethical use of artificial intelligence. Legislators in Europe and the U.S. are increasingly questioning whether antitrust tools are sufficient to deal with the specific challenges of online platforms that play a strategically important role.

Transatlantic agenda. In December 2020, the European Commission published a transatlantic agenda to foster U.S.-EU relations under the BidenHarris administration—encouraging global cooperation based on shared values of human dignity, individuals rights, and democratic principles and calling for the creation of an EU-U.S. Trade and Technology Council which will serve as a forum to “reduce trade barriers, develop compatible standards and regulatory approaches for new technologies, ensure critical supply chain security, deepen research collaboration, and promote innovation and fair competition.”

Risk of splintering against China. Both sides recognize the need for transatlantic alignment to craft common approaches, or at least minimize divergences and avoid the risk of a further splintering of the digital space, which would cede more ground to China’s vision.

Both (but especially Europe) face the challenge of maintaining global leadership in industries of the future as China implements a focused state-run program to dominate many of them, including artificial intelligence and big data analytics, super-computing, genomics, 3-D printing, industrial batteries, electric vehicles, the industrial internet, nanotechnology, and robotics.

The EU and the U.S. also both face the challenge of a China increasingly intent on controlling key international standard setting bodies and enshrining standards that will give an advantage to Chinese exporters and values. They share concerns about allowing China to set standards regarding facial recognition and 5G to lock in their values and exporters’ advantages.

At the same time, there remain areas where the EU and the U.S. maintain different approaches to key issues, particularly regarding the transfer of personal data and digital taxes. These will create major obstacles in the development of true EU-U.S. cooperation on tech policy.

Privacy Shield. One of the most serious and intractable differences stems from the EU Court’s 2020 decision to invalidate the Privacy Shield agreement that has enabled thousands of companies in Europe to transfer personal data to the United States. This decision came just five years after a similar decision invalidating the Privacy Shield’s predecessor, the Safe Harbor agreement, pointing to the difficulty for the EU and the U.S. to define a legal framework that will satisfy the court’s core objection that U.S. law does not afford EU citizens sufficient rights of legal redress before U.S. courts, especially with regard to improper government surveillance. While encryption and data localization would address the problem, this approach would be economically destructive, would complicate law enforcement, and might not improve data security. The Biden administration will face the challenge of how to address this challenge, which may necessitate U.S. Congress updating national security laws.

No swift resolution. The Biden administration has given few signs of wanting a swift resolution on this issue. The Biden administration is unlikely to propose a national security reform that would pass muster with the European Court of Justice. But the early appointment of privacy expert Christopher Hoff to deputy assistant secretary for services at the U.S. Department of Commerce, who will be the European Commission’s primary interlocutor on EU-U.S. data transfers, has widely been interpreted as the Biden administration’s intention to prioritize transatlantic policy. But many more appointments in a range of agencies will also be key in shaping this debate.

Digital tax. Global taxation of the digital economy is another area of potential tension between the two blocs. The EU is poised to go ahead with a bloc-wide tax on digital services offered by tech companies, which are largely U.S.-based, if a global consensus fails to be reached at OECD level by mid-2021. Global negotiations have stalled in 2020 with the Trump administration’s reluctance to enter a global agreement so close to the election. EU heads of state and government are due to take a look at the situation in March and decide what course of action the bloc should take. France in particular is pushing for decisive action by the EU to force the U.S.’s hand. Paris has its own national digital tax, but has pledged to scrap it as soon as there is an international deal. Spain and the U.K. are also ready to go ahead with a national tax if OECD negotiations fail. Unilateral taxes have been seen by the U.S. as discriminatory against U.S. companies and have led to threats of retaliatory tariffs against those governments.

Breaking the deadlock. Janet Yellen, the new U.S. Treasury Secretary, gave an early signal at a G20 meeting in late February of the new administration’s willingness to work with its European allies on digital taxation. She said the U.S. would drop the so-called “safe harbor provision”, which would have given tech companies the possibility to abide by any agreement on a voluntary basis only, and was a major stumbling block for international negotiations. Yet she had also reaffirmed in written responses to questions from the U.S. Senate Finance Committee that retaliatory tariffs could still be on the table if other countries moved ahead with unilateral efforts.

State action. At the same time, U.S. state legislatures are pursuing similar efforts to tax the digital economy. This year, Maryland lawmakers overrode a veto from the governor to pass the nation’s first tax on digital revenue, leading the way for several state legislatures proposing similar tax bills including Connecticut, Indiana, Massachusetts, Montana, Nebraska, and New York, with more expected to follow. For many states, levying a tax on digital advertising is a practical solution to fill budget deficits exasperated by the current economic downturn. However, states are expected to face legal battles, as evidenced by the recent tech industry-led lawsuit aiming to halt Maryland’s landmark bill.

KEY PEOPLE TO WATCH:

Christopher Hoff directs the U.S. Department of Commerce’s efforts to create digital policy, including cross-border data flows. As a new deputy assistant secretary, Hoff assumes responsibility for managing EU-U.S. data transfers following the CJEU’s decision to invalidate the Privacy Shield adequacy framework.

Cam Kerry, currently a senior fellow at the Brookings Institution, previously served as General Counsel at the Commerce Department. He played a key role in Safe Harbor and wrote an exhaustive defense of the Privacy Shield. If Kerry returns to government service, he may play a key role on U.S.-EU technology issues.