Europe in the New Geopolitics of Technology: Tackling Long-Term Resilience and Competitiveness Challenges

Written by | Monday, April 11th, 2022

Global tech supply chains are fragile and withstand shock after shock. After the Covid-19 pandemic and the assault against Huawei, the Russian invasion of Ukraine underlines once more the importance of the geopolitics of technology for governments and companies. What can be done to reduce our vulnerabilities and cultivate our strengths? Technology interdependence is a double-edged sword. Europe can target Russian procurement of semiconductor technology in cooperation with the United States and G7 countries. But Russia can retaliate by cutting access to neon gases and palladium, causing severe damage to the value chain. The case is a telling example for a European problem that goes beyond the semiconductor industry.

Europe faces a long-term resilience and competitiveness challenge, for which it has two main tools to act: industrial policies and controls over technology transfers. In other words, Europe has offensive and defensive options to cultivate its technological power. On the offensive side, government intervention to support Europe’s industrial strengths is indispensable. On the defensive side, it requires government regulation to prevent forced or intangible technology transfers, especially to military end-users.

In this new situation of weaponization of tech supply chains, Europe is navigating the US-China rivalry. The European Union is fine-tuning its defensive toolbox to prevent unwanted transfers of European technology to China — but the scope of such instruments goes beyond this country of concern alone. Europe has most often adjusted to US decisions to cut China’s access to specific technologies on the basis of a shared transatlantic risk assessment. In some cases, however, especially in sectors such as aeronautics or cutting-edge electronics, the extraterritorial application of US measures is perceived in Europe as unfair US commercial practice.

But the EU’s moves are all “country-agnostic”. Therefore, they are not meant to specifically target China and its efforts to acquire European technology. However, China’s practice of state capitalism, Xi Jinping’s ambitions for China’s global leadership status, the risk of war in East Asia and the US-China rivalry have been the main driving force behind Europe’s change of approach. The EU’s improved defensive toolbox and the relaxation of state aid restrictions in support of the semiconductor industry are welcome moves. It is worth noting how sharply they contrast with the EU’s long-standing belief in the guiding force of the market for innovation and investment.

But Europe’s toolbox of defensive measures is far from complete and still contains exploitable loopholes. The weaknesses of the European semiconductor sector are real. It is now time to take the new European logic further. The two policy papers by Mathieu Duchâtel put forward concrete recommendations to strengthen existing mechanisms, with the firm conviction that Europe would benefit from further learning from good practices elsewhere and engaging in deepened cooperation with allies and friends, where acting alone proves to be insufficient.

On top of that, Europe is now aware that the problem of forced or intangible technology transfers goes well beyond issues of unfair competition from China: this is about positioning Europe in a global environment defined by the US-China contest for global supremacy and by China’s global leadership ambitions. Moreover, it is clear and transparent that China has a specific appetite for technologies that might directly serve its military projects. The EU and its member states have significantly improved their defensive toolbox to better monitor transactions and address risks. This toolbox ranges from investment screening and export control to adjusting the rules governing international scientific cooperation. But limits and loopholes do persist.

Building on the analysis, the author lays out eight recommendations to address existing gaps and advocates for a more balanced cooperation framework with the US and Japan for tech transfer controls. As the EU and member states work to increase the efficiency of their control policies, including by working with the US and Japan, it is important to note that no control policy will by itself stop China’s drive for technology acquisition. Common and coordinated approaches by the EU, Japan and the US are therefore important to reduce the risks of loopholes being exploited, especially when it comes to emerging technologies, for which a common (and evolutive, with regular updates) control list appears to be a crucial step.

The regular complaints coming from Europe and Japan regarding the commercial advantages that the US Department of Commerce provides to US companies by using extraterritorial export control is a major issue of trust between the US, the EU and Japan. A trilateral framework for technology transfers controls should not ignore this issue. Only by reducing differences and mistrust on that question can the three parties work together on an agenda of technological competition with China centered on preserving military superiority and coming to terms with China’s active competition to demonstrate the superiority of its Leninist system and state capitalism over liberal democracies. In this competition, controls over technology transfers will play a role but not the decisive one — innovation and the capacity to industrialize R&D will be more crucial.

Overall, the EU’s approach to managing tech transfers has already undergone significant change. Like counterparts in the US and Japan, European policymakers and regulators constantly reinforce and expand the toolbox of defensive mechanisms. However, more effort is needed because keeping up with the fast-paced technological innovation in the private sector is a huge challenge. Placing trust in market-based mechanisms and openness is in the EU’s DNA. Everywhere else, export/investment controls and industrial policies are instruments to enhance international competitiveness. In parallel, Europe’s preference for multilateral diplomacy is challenged by the return of bipolar competition — building an efficient multilateral system for regulating technology transfers seems an overly ambitious task. For Europe, adjusting to these realities is a matter of strategic relevance in the international system.

‘Europe in the New Geopolitics of Technology’ — Policy Papers by Mathieu Duchâtel — Institut Montaigne.

The Policy Papers can be downloaded here

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