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651. Russia’s digital tech isolationism: Domestic innovation, digital fragmentation, and the Kremlin’s push to replace Western digital technology

Author:
Justin Sherman
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
Digital technology has long been a key component of the Russian government’s power, and for years following the collapse of the Soviet Union there was significant technology entanglement between Russia, the West, and other areas of the world. That changed in the late 2000s and early 2010s with heightened paranoia within the Kremlin about regime security and foreign subversion—and Russia’s 2022 full-scale invasion of Ukraine has taken this to new levels. Due to combinations of intense securitization, Western sanctions, foreign businesses exiting Russia, tech “brain drain,” and other factors, digital technological isolationism is now both a reality and a desired goal for Moscow. This report examines the history of the modern Russian state’s approach to digital technology, the internet, and connection and interdependence with the West and foreign countries. It then analyzes the Kremlin’s late 2000s and early 2010s shift to a heavily securitized approach to the internet and its concerted push to develop domestic digital technology—both the successes and many failures. It then examines the 2022 Russian war on Ukraine, how the conflict and resulting events (such as sanctions and brain drain) have shifted Russia’s approach to domestic technology and digital isolation, and where different digital technology segments, such as hardware and software, stand.
Topic:
Science and Technology, Cybersecurity, Internet, Innovation, Isolationism, and Russia-Ukraine War
Political Geography:
Russia, Europe, Eurasia, and Ukraine

652. On the Importance of Placebo and Nocebo Effects in International Trade

Author:
Lucian Cernat
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Trade agreements are powerful drivers of global economic integration, leading to increased trade flows between countries. Usually, trade agreements are extensive documents with hundreds of provisions and different levels of enforceability. Are all these provisions useful, even those that are “best endeavours” and do not introduce legally binding obligations on trading partners? This policy brief proposes a new methodological approach to evaluate these effects. The basic idea is inspired by the “placebo effect” in medicine: under the right conditions, one can get positive results, even when the actual intervention is simply a “sugar pill”. Similarly, trade policies may have positive effects even when they lack strong, enforceable commitments. A placebo trade policy effect can emerge from “soft provisions” that bring positive trade effects, compared to the “do nothing” scenario. The main hypothesis behind this new methodology is that even if trade interventions lack the force to solve problems outright, a positive placebo effect can arise if stakeholders believe that such a policy will generate favourable market access. Conversely, a negative nocebo effect might emerge when stakeholders are convinced that certain trade policy initiatives (notably FTAs) have a detrimental impact, despite undeniable evidence to the contrary. The paper concludes with a few concrete examples illustrating both the placebo and nocebo effects and identifies factors that may lead to more positive outcomes from current and future trade policies.
Topic:
Globalization, Treaties and Agreements, European Union, Trade, and WTO
Political Geography:
Europe

653. A Strategy for a Competitive Europe: Boosting R&D, Unleashing Investment, and Reducing Regulatory Burdens

Author:
Andrea Dugo and Fredrik Erixon
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The EU stands at a crucial economic juncture. Economic growth in Europe’s mature economies has stagnated, with productivity and other indicators of economic vitality showing poor results. Public debt is alarmingly high in several countries, and the region faces new fiscal demands due to an ageing population, conflicts and war, and the energy transition. To reverse its economic decline, Europe must adopt a new strategy for improved competitiveness. The starting point of this strategy should be an honest assessment of Europe’s declining productivity compared to leading economies like the US. Historically, some European countries matched or even surpassed US productivity levels, but this gap has widened over the past three decades. While the US economy has also faced challenges, its technology, R&D, and innovation sectors have significantly boosted productivity growth. This paper identifies three key areas for policy improvement to rejuvenate Europe’s economic dynamism: Radical expansion of R&D Expenditure: Governments must significantly increase funding for universities and create better conditions for private R&D investments. The EU currently fails to meet its own target of R&D expenditures at 3 per cent of GDP. Achieving parity with US R&D expenditure levels would require an additional €200 billion annually. Mobilisation of European Savings for Investment: Despite a higher savings rate than the US, Europe’s underdeveloped capital markets hinder economic growth and investment in new enterprises. The EU needs policies to channel savings into a vibrant corporate market. Expanding the European bond market, which is currently half the size of the US one, is essential for European firms to secure funding and keep the pace of American innovation. Regulatory Reform: The EU’s restrictive regulatory environment increases business costs and stifles innovation. A shift in regulatory attitudes, for instance in the banking sector, could unlock €4.5 trillion annually, providing much-needed capital for European firms, especially small and medium-sized enterprises, to finance innovation during the green and digital transition. By addressing these areas, Europe can create a more favourable environment for business growth, innovation, and long-term economic stability.
Topic:
European Union, Regulation, Digital Economy, Investment, and Research and Development
Political Geography:
Europe

654. The External Side of Europe’s Great Economic Transformation: International Trade in Services

Author:
Lucian Cernat and Carmen Díaz Mora
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s digital transition is starting to bear fruits. Europe’s economic landscape is becoming increasingly digital, with sectors like information and communication technology (ICT) capturing a growing share of EU GDP. This Policy Brief examines the impact of these economic shifts on Europe’s trade profile and the policies that the EU can pursue to support this transformation.
Topic:
International Trade and Finance, European Union, Regional Economy, and Digital Transition
Political Geography:
Europe

655. Future-proofing the EU’s Investment Attractiveness: A Bold Reform Agenda for Competition Enforcement, Taxation and Digital Policy

Author:
Matthias Bauer, Dyuti Pandya, and Oscar du Roy
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Reducing the deterrent effects from EU and Member State laws in three key cross-sector policy areas – competition policy, business taxes and VAT, and digital policies – could significantly enhance the business environment within the Single Market and boost the EU’s attractiveness to both domestic and foreign investors. The EU’s future competitiveness is at risk due to a significant disparity in investments, particularly in technological innovation, compared to the US. Despite having a larger population and labour force, the EU lags behind in large business activities, with US firms consistently outspending their European counterparts in key tech-intensive sectors such as software, computer services, pharmaceuticals, and biotechnology. Moreover, China and other emerging nations are rapidly catching up, dramatically diminishing the EU’s relative economic and political influence on the global stage. The urgency for the EU to bridge these gaps is more critical than ever (Section 2). The EU’s profound investment gap highlights a systemic advantage for the US in fostering innovation and economic growth. The EU’s regulatory complexity, largely driven by legal fragmentation in horizontal policies, further exacerbate the situation, deterring cross-border activities reducing the region’s attractiveness to global investors (Section 3).
Topic:
Markets, Reform, European Union, Digital Economy, Investment, and Digital Policy
Political Geography:
Europe

656. Negotiating Uncertainty in UK-EU Relations: Past, Present, and Future

Author:
David Henig
Publication Date:
09-2024
Content Type:
Special Report
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Ten key points to negotiating the UK-EU relationship: Europe has been weakened by difficult UK-EU relations at a time of international challenge. Eight years after the Brexit referendum a new UK government and European Commission provides a good opportunity to reset approaches and put obstructions aside. Too big for either side to ignore, this will always be an important, time-consuming, and slightly chaotic relationship – which thus needs a much firmer footing based on the following shared understanding: Probably the broadest, deepest bilateral relationship in the world, adding the world’s second largest trade flow to integrated neighbourhood challenges, meaning inevitable complexity and ongoing negotiation of many different topics. This has been insufficiently recognised, and should ideally be considered jointly, e.g. in terms of a shared vision, road map, scoping, implementation, otherwise even agreeing sequencing will always be problematic; Wide scope, with inevitable challenges and tensions, requiring regular senior-level contact, this should start with annual summits that develop mutual understanding, supported by regular meetings between UK Ministers and Commissioners, senior official meetings, and the sharing of information at expert level. There should not be a single undertaking negotiation; Divorce taking time to overcome, emotions on both sides are settling but still livelier than normal between nominal allies, with many involved who would simply like the unattainable return to the pre-2016 state, and others just as strongly opposed in various ways; EU needs to be less rigid given the UK will not neatly fit into existing models, there being too many mutual interests, from which will flow multiple arrangements and deals. Showing greater willing to a now more constructive counterpart means creativity in how to structure the relationship to deliver mutual interests as well as specific asks of both sides; Negotiations must informally include many actors, such as businesses, civil society, lower-level governments, academics, listening to whom should be the basis for the UK and EU shaping mutually acceptable deals. All of these stakeholders will equally have to learn to live with the uncertainty and difficulties of an ongoing relationship with multiple strands; UK previously a naïve negotiator failing to understand this collaborative yet still competitive, and increasingly public, nature of modern trade negotiations, or its new third country status. Positive signs of learning shown with the Windsor Framework should be developed – to include ‘Team UK’ negotiating, openly testing ideas with specialists, and understanding the EU, importance of trust in implementation, and limits of taking back control; Northern Ireland will always require special handling as a part of the UK whose peace process requires strong relations with the rest of the country and the EU. Ambiguity and flexibility will continue to be needed; There is no perfect model for future UK-EU relations, all potential options having drawbacks rendering them somewhat unstable, and no swift negotiating path to most of them. While the UK is not a member of the EU there will always be barriers to trade and movement of people which both sides with their priorities will aim to discuss, negotiate, and seek to ease; Public communications and understanding around the relationship must be improved, whether that is in terms of negotiating progress, realistic options for both sides, care with overly-simplistic messaging, or particular terminology with often multiple meanings; Despite uncertainty there will be a steady move towards deeper, more robust arrangements, since both UK and EU have strong interests in making these happen, but this will not be a quick or steady process, instead it will come from considerable engagement, flexibility, and patience, to create something that is tolerable if always slightly sub-optimal.
Topic:
Bilateral Relations, European Union, Regional Integration, and Regional Politics
Political Geography:
United Kingdom and Europe

657. Enhancing Technology Diffusion in the EU amid Tough Structural Challenges

Author:
Matthias Bauer, Elena Sisto, and Oscar du Roy
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
To remain globally competitive, the EU must empower firms to adopt the best technology solutions available on global markets. Building on a strong tradition of innovation, the EU relies on corporations across industries to drive the diffusion of technology through the commercialisation of technological innovations. Technology diffusion is crucial for embedding new technologies into society and is essential for sustaining industrial competitiveness. EU and Member State governments must prioritise enhancing the EU’s “diffusion capacity” – the ability to effectively spread and adopt innovations across Member States.
Topic:
Science and Technology, European Union, Digital Economy, and Services
Political Geography:
Europe

658. Is the European Union Deforestation Regulation WTO-Proof?

Author:
Bruno Capuzzi
Publication Date:
09-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The European Union Deforestation Regulation (EUDR) is set to take effect on 30th December 2024. While it aligns with EU’s climate goals under the European Green Deal, it has sparked concerns with EU partners regarding its compatibility with World Trade Organization (WTO) principles. Internally, some member-States and productive sectors fear that the lack of clarity in its rules could disrupt European supply chains. Products like coffee, chocolate, and leather are some examples where costs and price are expected to rise due to compliance requirements, documentation, and shipment segregation. Critics argue that the EUDR’s unilateral imposition of EU standards on third countries could be viewed as extraterritorial and more restrictive than necessary towards its objectives. This paper analyses lessons from WTO reports on US Shrimp/Turtle and US Tuna/Dolphin, which are relevant to discussions on non-product-related processes and production methods (PPMs). Key findings suggest that the EUDR could be justified under GATT exceptions clause (Article XX). However, for this to be successful, the Policy Brief proposes more flexibility in considering local realities of exporting countries. This would include shifting the EUDR approach to cooperating towards an outcome-based equivalence systems instead of rigid procedural requirements.
Topic:
Agriculture, European Union, Trade, WTO, Deforestation, and Mercosur
Political Geography:
Europe and Latin America

659. Empires of Exceptionalism: Lessons from the EU AI Act and Attempts at AI Legislation in California

Author:
Hosuk Lee-Makiyama and Claudia Lozano
Publication Date:
11-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The EU AI Act, which passed after three years of negotiations and much ambivalence, sets a comprehensive regulatory framework that reflects the European Union’s unique needs that are not translatable to other jurisdictions. The proposed bill in California (SB 1047) illustrates this case in point. The bill could potentially mislead the public into thinking that AI is already under effective regulatory control. Lawmakers must recognize that the EU differs from other systems. The EU AI Act is not only shaped by the desire to slow down global AI development, allowing Europe to catch up with rivals like the US and China: The EU lacks an enforceable constitution, and the Act prohibits its governments to impose social scoring and discriminatory measures. SB 1047 only addressed humanity-ending disasters and had unclear practical value. Meanwhile, the EU AI Act was passed into law to prevent internal competition and Europe’s history of authoritarianism. Existing laws in California and the EU already regulate most AI use cases. In addition, the EU AI Act reviews existing regulations to ensure they are still fit for purpose, something California failed to do in SB 1047. A critical takeaway is to examine existing obligations or executive powers (including enforcement agencies and public funding) to achieve the desired policy objectives. The diverging outcomes of the two laws show the importance of avoiding mismatches between policy objectives and legislative scope. AI regulation cannot substitute for other policy objectives, like privacy and antitrust. Also, lawmakers must weigh the cost of failed regulation against the risks of non-regulation. California did not see any immediate costs of inaction, whereas delayed action by the EU might have led to the fragmentation of its internal market. Also, given its collective decision-making, the EU can escape accountability for policy failures due to premature laws in a way the leaders in other political systems cannot.
Topic:
European Union, Digital Economy, Legislation, and Artificial Intelligence
Political Geography:
Europe, California, North America, and United States of America

660. Shared Liability: The European Parliament’s Misstep in Fighting Financial Fraud

Author:
Matthias Bauer, Andrea Dugo, and Dyuti Pandya
Publication Date:
11-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The rise in financial fraud has prompted regulatory proposals under the Payment Services Regulation in the form of a shared liability model provisioned under Article 59. The potential proposal by the European Parliament could now extend liability beyond Payment Service Providers to Electronic Communications Service Providers and online platforms. While the intent to address fraud is commendable, this model misallocates responsibilities by requiring non-financial entities to oversee fraudulent activities, despite their lack of visibility and technical control over financial transactions. Extending liability to non-financial entities risks undermining consumer vigilance and diluting payment services providers’ efforts to maintain fraud awareness. A shared liability regime covering non-financial entities would also disproportionately burden smaller “digital” firms, leading to legal uncertainties, costly legal disputes, and market exits. This would not only drive market concentration and reduce competition in digital services but also undermine EU and Member State efforts to support Europe’s lagging digital start-ups and scale-ups. The resulting harm to innovation and entrepreneurship would be a significant setback to the EU’s broader digital ambitions.
Topic:
European Union, Regulation, Services, European Parliament, Fraud, and Liability
Political Geography:
Europe