Biden Will Need to Talk Tech and Tax to Fix Ties With Europe

From NATO to climate change, the relationship between the U.S. and Europe is in dire need of a reboot after four years of President Donald Trump’s abrasive “America First” policies.

Technology—covering 5G networks, digital taxation, privacy rules, cross border data flows and more—may not be the most obvious place to start fixing a transatlantic security alliance formed before the dawn of the Internet. But as Joe Biden heads to the White House, it’s arguably the most urgent, if difficult.

The spread of Covid-19 has underscored as never before the dominant role tech companies will play in driving future economic growth, determining the balance of power with China and filling the gaping holes that the pandemic has torn in government budgets either side of the Atlantic.

Biden Will Need to Talk Tech and Tax to Fix Ties With Europe

The U.S. struggle to persuade European governments to follow its lead with blanket bans on Huawei Technologies Co. Ltd. from 5G networks drew headlines, yet other tech disputes—over how to regulate intercontinental data transfers, or who gets to tax the overseas profits of U.S. tech giants—are just as consequential. Inc. became the latest target this week of European Union competition regulators.

If they’re to meet a rising challenge from China, the Americans and Europeans need to cooperate, set common standards and resolve their tax and other differences, according to Bruce Stokes, director of a transatlantic task force set up by the German Marshall Fund, a think tank based in Washington and Brussels.

“This is the next big crisis in transatlantic relations,” Stokes said. “To be successful in this future technological environment you need brains, money and market, and alone neither the U.S. nor Europe has enough brains, money and market to compete with the Chinese going forward.”

Take the distribution of tech company users, the source of big-data streams so valuable that some have called them the crude oil of the future. Only 235 million, or fewer than 10% of Facebook’s approximately 2.74 billion monthly active users are in the U.S., making international markets essential to the company’s data pool. By contrast, well over 90% of WeChat’s roughly 1.2 billion users live in China.

“If the Teslas of the world are not working with Europe they will have a big market that will disappear,” said Lise Fuhr, director general of the European Telecommunications Network Operators’ Association. “It is still a big, well-educated and diverse market that’s hard to ignore.”

Biden Will Need to Talk Tech and Tax to Fix Ties With Europe

Even so, tech has become a major point of transatlantic division. The Trump administration twice walked away from talks aimed at creating new international rules for setting taxes on trade in digital services, while at the same time threatening a trade war if France, the U.K. or others followed through with plans to set their own.

Finding a new legal framework for transatlantic data transfers is even more urgent, according to Jean-Marc Leclerc, vice-chair of the American Chamber of Commerce in the EU’s Digital Economy Committee.

The European Court of Justice in July struck down the 2015 U.S.-EU Privacy Shield framework for data transfers, in a case that turned on whether the agreement protected the privacy rights of Facebook’s 400 million-plus European users when the company moved their data to servers in the U.S., where protections are weaker. The answer was no.

“It’s extremely important for us,” said Leclerc. “Most of the economy relies on data flows these days, so we are trying to help both sets of governments to find a long-term solution.”

Hitting a transatlantic reset can’t happen until at least January, when Biden is sworn in, and then it won’t be easy. For one thing, there’s no snapback to a time before Trump, especially amid growing calls for so-called “digital sovereignty” in Europe that would reduce dependence on the U.S.

With the exception of 5G and digital tax, the Trump administration didn’t pay much attention to tech in its dealings with the EU for the last four years, but Europe did. The EU prepared new regulations including a Digital Services Act that could impact U.S. companies and further complicate the relationship, according to Fran Burwell, a fellow at the Atlantic Council, a Washington think tank.

Biden Will Need to Talk Tech and Tax to Fix Ties With Europe

Biden will take time to get a team and strategy in place and is likely to be more attentive to the concerns of America’s big tech companies than was Trump. His ability to cut international deals also could be limited by a Senate that’s expected to remain in Republican control. All of which could create the temptation to focus on more traditional transatlantic areas for cooperation.

“They need to be talking right away, because the European train is moving,” Burwell said of leaders in Brussels and Washington. “These digital issues are not a technical backwater anymore. We are talking about the resilience of our systems.”

Biden has made it clear that he sees restoring alliances as a priority. Meanwhile, “companies on both sides are already working together and governments at a less senior level are already working together,” said James Lewis, a former U.S. official at the departments of State and Commerce who now runs the Strategic Technologies Program at the Center for Strategic and International Studies, in Washington.

One example, according to Lewis, is OpenRAN, a telecoms project to broaden access to the Internet being led by U.S., Japanese and European companies. “It’s the reaction to China that will drive them together,” he said.

Still, the U.S. penchant for imposing sanctions even on allies began before Trump and is seen in Europe as a long-term threat to its sovereignty over banking, trade and foreign policy. The dominance of American tech companies like Facebook and Amazon has added to this sense of over-dependence.

In response, the EU started a European Cloud Initiative designed to “secure Europe’s place in the global data-driven economy.” A report by the Brussels-based European Council of Foreign Relations proposed the creation of 11 new tools to strengthen Europe’s economic sovereignty, including a digital currency to obscure the visibility of European financial transactions to the U.S., and an export bank to help European companies trade without fear of U.S. sanctions.

“These are not instruments that you would like to use,’’ but they’ve become necessary, Carl Bildt, Sweden’s former prime minister, said at the report’s publication in October. “I would declare a digital emergency for Europe if I see how we are lagging behind the Americans and the Chinese.”

©2020 Bloomberg L.P.

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