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1. Time to Rethink Export Controls for Strengthened US-EU Cooperation and Global Trade Rules

Author:
Matthias Bauer and Dyuti Pandya
Publication Date:
04-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The escalation of broad export controls by the US, under the guise of national security and the aim to curb technological transfers to potential adversaries,[1] marks a new epoch of bureaucratic oversight. The US push for broad export controls also underscores a critical juncture in US-EU relations and global trade rules. Broad export restrictions not only challenge the very foundation of free trade but also contribute to the erosion of Western technology leadership.[2] Unilateral export controls may start strong but eventually lose effectiveness and become counterproductive,[3] pushing non-US companies, particularly in the semiconductor sector, to find alternatives to US components.
Topic:
International Cooperation, European Union, Regulation, Exports, Trade, and Semiconductors
Political Geography:
Europe and United States of America

2. Building Resilience? The Cybersecurity, Economic & Trade Impacts of Cloud Immunity Requirements

Author:
Matthias Bauer
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
EU Member States should call on the EU’s Cybersecurity Agency (ENISA) and the European Commission to abandon immunity requirements in the proposed EU Cloud Certification Scheme (EUCS). With immunity requirements in the EUCS, the EU risks opening a Pandora’s box, paving the way for data localisation, foreign ownership restrictions, and local establishment requirements in digital industries globally leading to rising trade tensions. ENISA’s current proposal could increase policymakers’ appetite for data localisation in the EU. It would empower the European Commission and Member State authorities to exclude foreign businesses from domestic cloud services markets and set a dangerous precedent for any data-intensive sector. The list of “sectors of high criticality” could be logically extended to both existing services (e.g., financial services) and to new technologies and business models, such as IoT in the energy and healthcare sectors, and autonomous driving in the transport sector. Non-EU jurisdictions would be pressured to respond in kind. EUCS immunity requirements would increase cloud adopters’ exposure to cybersecurity risks. Data localisation often creates obstacles to an integrated management approach towards cybersecurity risks. Country of headquarter and foreign ownership restrictions in the proposed EUCS risk removing global frontier cybersecurity technologies from Member State markets. Excluding these and other EU and non-EU companies from EU Member States could result in a long-lasting security deficit of EU cloud adopters vis-à-vis organisations that are still able to use reliable and often best-practice cloud services offered by providers from outside EU Member States. Immunity requirements in the EUCS are discriminatory by design. They could provoke retaliatory measures by EU trading partners, either unilaterally or through WTO or bilateral FTA (e.g., UK-EU) Dispute Settlement. Local establishment requirements and foreign ownership restrictions would by design discriminate against foreign cloud providers. US-headquartered companies, which currently serve more than 75% of the EU market, would be most affected by EU immunity requirements.[1] Depending on US preferences and the scope of the proposed EUCS, the EU could be subject to retaliatory tariffs of up to USD 12 billion worth of EU goods exports or equivalent restrictions for EU services exports to the US. Other governments could lodge complaints via the WTO as well (e.g., Singapore, Japan, Canada and others, where cloud development is advancing rapidly). EU suppliers are currently in no position to manage a broad-based transition to cloud, and thus such requirements would delay significant efficiency and security gains that current foreign suppliers could offer. A blanket exclusion of non-EU cloud vendors would also likely undermine Europe’s objective to achieve a 75% cloud adoption rate for EU enterprises. Sensitive European businesses and public sector organisations would have to delay migration and make do with legacy systems for a very long time. Contrary to large countries, these negative impacts would be much more pronounced for smaller EU Member States, which lack the presence of large domestic incumbents and generally rely much more on an open international trading regime for digital services. ENISA’s cloud certification scheme should be limited to technical and transparency requirements. Immunity requirements for non-personal data should be addressed in bilateral initiatives such as the EU-US Trade and Technology Council (TTC) or agreements requiring a company that sought to offer services of the highest level of sensitivity to be headquartered in a country granted adequacy with EU data protection rules, or a country that is an adherent to the OECD’s Trusted Government Access principles, or (concerning the US) a participant in the upcoming Trans-Atlantic Data Privacy Framework. Excluding foreign companies from operating in the EU would have far-reaching consequences. If that is the intent, it should require a sound legal analysis and the decision should be taken through a formal legislative procedure at the EU level.
Topic:
Economics, Markets, European Union, Cybersecurity, Digital Economy, Trade, and Resilience
Political Geography:
Europe

3. Online Platform Regulation and Investment Attractiveness: A Look at the EU, the UK and Impacts on Small Open Economies

Author:
Matthias Bauer, Vanika Sharma, and Oscar du Roy
Publication Date:
08-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Small trade- and investment-oriented economies like the United Kingdom (UK) should carefully consider whether to regulate online platform services based on presumptions rather than evidence that consumers are being harmed. Flimsily enforced platform regulation can have a chilling effect on investments in business expansion and innovation, particularly in technology-adopting industries. Several countries around the world are designing new competition policies that specifically target large digital platforms. The theory behind these policies is grey. There are political concerns about the impact of various aspects of platforms on society, especially regarding the collection and safety of data. However, practices that harm consumers – traditionally a key motivation of competition enforcement – are very rare. Indeed, the success stories of large tech platforms demonstrate that they offer strong benefits and conveniences to millions of business users across a wide range of industries. Marginal costs of supply, high-quality services, continuous technological advancements, and platforms’ ability to drive productivity growth have enabled especially small businesses to thrive and compete in domestic and international markets. Against this background, it is highly questionable why some governments, with the backing of power-seeking competition regulators, are aiming to legally interfere in services provided by large technology companies. An important consequence that has so far received little attention from policymakers and competition authorities is the impact of platform regulation on a country’s investment attractiveness. It is obvious that bans and restrictions on corporate conduct cause regulated companies to abstain from investments and establish new business elsewhere. What is less clear is the effect of regulation on investments by companies that extensively adopt platform services to reduce costs, speed-up innovation, and expand market opportunities. In this policy brief, we argue that access to integrated and internationally traded platform services is increasingly important for a country’s investment attractiveness, even more so for smaller countries. Access to advanced technologies and the utilisation of network effects create a virtuous cycle of economic opportunities, investments, value creation, and trade. Discretionary and presumption-based competition enforcement, as adopted in the EU, risks hurting smaller countries in particular. The EU has chosen the path of proscriptive and protective policymaking with the DMA to achieve industrial and trade policy goals rather than defending competition in the Single Market. UK competition policy risks being driven by institutional interests and ideological considerations, which could potentially lead to the adoption of a regulatory landscape that is even more restrictive than that of the EU, undermining Britain’s ambitions for economic and innovation leadership.
Topic:
Markets, European Union, Regulation, Economy, Investment, Trade, and Online Platforms
Political Geography:
United Kingdom and Europe

4. The Imperative of International Cooperation for EU Competitiveness and Resilience in Technology-Driven Industries

Author:
Matthias Bauer, Renata Zilli, and Dyuti Pandya
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The EU must embrace international cooperation and collaboration in technology-driven industries to ensure competitiveness and global relevance, while also considering the drawbacks of isolationist policies. The EU’s commitment to open markets and global cooperation has historically been its strength, and EU policymakers should continue to prioritise on these principles. Global markets, international R&D collaboration and global industry-led standards are crucial for innovation and efficiency in technology-intensive industries. Various sectors, including pharmaceuticals, ICT, aerospace, and defence, heavily rely on global partnerships to stay competitive and advance technologically. International cooperation in economic and security affairs, as exemplified by EU participation in global value chains of advanced semiconductors, the traditional EU approach to industry-led technology standardisation, and EU involvement in the international F-35 fighter development program, is critical for leveraging industry expertise, sharing technological advancements, and collectively addressing challenges in strategic sectors, thereby enhancing Europe’s economic resilience and security capabilities. Trust and legal certainty form the foundation for international partnerships in high-tech and defence sectors. Collaborations among like-minded partners enable secure information sharing, intellectual property protection, financial commitments, and compliance with regulations, while ensuring adherence to key EU values like human rights and the rule of law.
Topic:
International Cooperation, Science and Technology, European Union, Trade, Resilience, and Competition
Political Geography:
Europe

5. The Impacts of EU Strategy Autonomy Policies – A Primer for Member States

Author:
Matthias Bauer
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
EU governments should be much more sceptical and critical of the EU’s strategic autonomy agenda and the new polices intended to achieve the EU’s “long-term” industrial and technological ambitions. The long-term costs for Member States’ economies and the process of economic convergence are largely ignored by the agenda. Negative impacts of strategic autonomy on trade openness and the international rules-based trading system are also greatly understated. Many EU strategic autonomy ambitions are inherently guided by a “European Union First” impulse. Policymakers follow the assumption that EU values are superior to those in other parts of the world and EU regulation should be different from third countries. Major strategic autonomy aspirations represent a relapse of the EU to the old policy of EU member states designing and enforcing their own laws without considering the economic and political costs of regulatory fragmentation and economic disintegration from others. Recent strategic autonomy policies are estimated to create income losses in the EU of between 0.08% and 0.15% of EU27 GDP. These losses correspond to short-term economic harm resulting from changes in the use of productive resources in the EU. Long-run impacts, which reflect losses to productivity and innovation, could be up to 3 to 5 times higher with national income per capita falling by up to 0.5% to 0.75%. The costs are not evenly distributed across the EU27. Larger countries like France and Germany are less impacted than smaller ones, notably Ireland and the Baltic states. The impacts on Ireland, for example, are close to 4 times bigger than they are for France, the impacts on Estonia close to twice those on Germany. Strategic autonomy ambitions have failed to account for negative impacts on developing countries. To the extent that the EU’s policy stance further fragilizes rules-based multilateralism, there are longer-term impacts stemming from a less certain legal environment and higher barriers for cross-border trade and investment. EU strategic autonomy policies have the effect of empowering vested interests in developing countries to engage in lobbying for their own protectionist policies. Accordingly, EU strategic autonomy policies risk encouraging the diffusion of protectionist policies globally, particularly in countries with weak institutional capacity. EU Member States should examine their options and ask themselves whether there are better long-term strategies to pursue than those currently proposed at the EU level, strategies guided by the spirit of an open society – a society embracing the principles of free trade, non-discrimination, and economic freedom. Europe’s policymakers should aim for closer market integration and regulatory cooperation with trustworthy international partners such as the G7 and the larger group of the OECD countries. It is in the EU’s self-interest to advocate for a rules-based international order with open markets. It is neither in the EU’s economic nor its political interest to disintegrate from partner countries.
Topic:
Markets, Treaties and Agreements, European Union, Trade, and Strategic Autonomy
Political Geography:
Europe