Opportunities and pitfalls for a new transatlantic relationship on tech

My AEI colleague Claude Barfield recently wrote about the growing interest in resetting the US-EU relationship on digital and technology issues — and the daunting obstacles standing in the way. Right on cue, the European Commission has released a proposal titled “A new EU-US agenda for global change” suggesting the transatlantic relationship is in need of “maintenance and renewal” while the Joe Biden administration is being formed. In discussing future transatlantic cooperation on tech policy, there are opportunities for productive collaboration — such as on cybersecurity and supply chain security issues — but topics like antitrust and digital taxation should be nonstarters. 

US and European Union flags are pictured during the visit of Vice President Mike Pence to the European Commission headquarters in Brussels, Belgium, February 20, 2017, via Reuters

The EU is taking full advantage of President-elect Biden’s
comments that he wants to reset America’s relationships with its allies. Many
of the policy items the Europeans are hoping to align with the US on are
related to the “digital regulatory environment.” The EU highlights that both
sides value openness, creating an opportunity to collaborate against
authoritarian powers (read: China) using their policy agendas.

The Europeans’ desire to move on from the past four years of
transatlantic tension and try to find common approaches is laudable. Mutual
concerns about China could produce meaningful cooperation on cyberespionage and
supply chain security. Collaborating to improve collective cyber protection and
establish a mutual understanding of trusted networks would undoubtedly benefit
the transatlantic allies.

It makes sense for like-minded nations to address
cybersecurity challenges as a joint force, especially when confronting digital
challenges posed by nation-state actors. US-EU cooperation on unilateral trade
measures against China could bolster American efforts to convince European
countries to join the US in shunning Huawei equipment from their 5G networks
due to ongoing security concerns.

These aspects of security and trade policy should be
top-line items for the US-EU transatlantic dialogue. However, the opportunity
the EU sees to bring the US into the fold on EU initiatives to tax Big Tech and
dismantle Silicon Valley’s leading companies with antitrust investigations and
fines should be a nonstarter.

According to the proposed agenda, the EU wishes the US to be a partner
in a “transatlantic dialogue on the responsibility of online platforms and Big
Tech, to find global solutions for fair taxation and market distortions in the
digital economy.” The US and EU view competition law and data protection (often
confused with and mislabeled as privacy) differently. The European proposal
wishes to promote “regulatory convergence” on antitrust and data protection
that would have the US yield to European competition rules and the accompanying
market definitions and privacy directives.

In the US, antitrust authorities have historically relied on
strict economic analysis and the consumer welfare standard — whether consumers are
harmed in a relevant market — to evaluate business conduct and mergers.
European competition law is not underpinned by the same principle. In
congressional testimony, antitrust expert Geoffrey Manne notes that since EU competition enforcers can “call
upon a large list of justifications for their enforcement decisions, they are
free to pursue cases that best fit within a political agenda” instead of
focusing on how to best protect consumers. This has resulted in EU regulators
using antitrust as a weapon against American tech companies, levying
multibillion-dollar fines that are out of touch with economic realities.

The EU’s idea of “harmonizing” on taxing US tech companies
is simply an attempt to create an additional revenue stream for cash-strapped
governments by targeting the success of America’s most innovative companies.
Talks on digital taxation at the Organisation for Economic Co-operation and
Development (OECD) have gone on for years to no avail. The push for a global
digital tax regime that includes digital services taxes has been stopped by US
diplomats who recognize it as a money grab. The Biden administration should be
“potentially as concerned about taxes that seem to be targeted at US companies
as the Trump administration is,” according to Brian Jenn, a former US Treasury official
and co-chair of the OECD’s Task Force on the Digital Economy from 2017–2019.
 

The UK, Spain, Italy, and (most notably) France have enacted
or are considering digital tax laws. In 2019, French President Emmanuel
Macron’s proposal for a unilateral 3 percent digital services tax  on American tech companies
that was touted as “fiscal justice.” President Donald Trump met
this idea head on by threatening tariffs of up to 100 percent on French wine,
cheese, and other products. French Minister of Finance Bruno Le Maire noted this week “that he hopes to convince Biden to
re-engage with the OECD process so an agreement [on overhauling the global tax
system] can be reached.”

In tech policy, there are areas like cybersecurity where the
US should seek productive transatlantic cooperation. But on antitrust and
digital taxes, punishing America’s tech champions and helping European
governments pay their bills — especially on the backs of US companies — should
have no place on the Biden team’s to-do list.

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