G7 and Tech Governance



Hosuk Lee-Makiyama | ECIPE

The past week of summitry was preceded by President Biden’s promise to re-engage and reset – or reel in – the oldest (but not necessarily the most docile) of US allies, namely Europe. In three of the four summits – at G7, NATO and the bilateral with the EU – France and Germany were counterparts (and counterweights) to America’s proposition for a common purpose. Germany was arguably “present in absence” in Biden’s fourth summit, in his meeting with President Putin in Geneva.

The news headlines homed in on one aspect of the joint statement that urged China to respect the autonomy and human rights in Hong Kong and the situation in Xinjiang. There was also unprecedented support for stability across the Taiwan Strait – which China immediately denounced as illegal meddling with its internal affairs. President Biden may have failed to rally France and Germany into the jihad against China. But the statement has entrenched the two deeper regardless.

O-RAN, tax and platform regulations

Known associates of China sometimes like to challenge the “legitimacy” of G7. Other fellow Brussels pundits probably don’t share Beijing’s actual concern about G7, which is that China is not a member. Instead, critics point to the lack of “purpose” of G7 or its lack of efficacy, especially compared to the more technically oriented G20.

The criticism against G7 disregards how the two summits serve very different purposes: G7 of today is effectively a like-minded group that shares a history, yet not all the strategies going forward. In contrast, G20 is a policy coordination mechanism between the principal regional powers, where its members merely share a common aversion against tumbling backwards. And neither G7 nor G20 is very effective at what they do. But are there any viable alternatives? It would be a return to G2, to which Europe and Japan won’t be invited.

Yet, China’s systemic challenge is just one tent peg that grounds the big tent of the alliance. Still, the China peg determines how far the other pegs can stretch the fabric. A tech divide evidently continues to spook the seven countries. At the digital ministers’ meeting in late April, the US and its allies called for a reference on 5G vendor diversity in the summit conclusion but failed. Japan and the US had already pledged $4.5 billion towards developing indigenous alternatives although their home markets were already free from Chinese suppliers. The US Senate also tabled the Endless Frontier Act (later merged into the US Innovation and Competition Act) to promote a consortium of US and Chinese market entrants by displacing European and Korean 5G vendors. These proposals may not meet the non-discriminatory requirements on subsidies and technical standards laid down under the WTO.

Similarly, the US resists EU regulations against US platforms and online services using arbitrary thresholds that single out Silicon Valley. In other words, digital markets divide the G7 between those who want vendor diversity in technologies where Europe happens to be leading, yet not in online platforms where the US happens to be dominant – or vice versa. Instead, the final G7 leaders’ communique reiterates the need for “transparency, the openness of process and participation, relevance, and consensus-based decision-making” in line with referenced WTO agreements. The US-led Open RAN Alliance is unlikely to meet any of these criteria.

But at its best, G7 is a preparatory meeting before a global consensus, similar to how APEC served that role before some WTO ministerials. That is how G7 as a likeminded group (arguably more homogeneous than APEC) exert its influence. For example, the conflict over corporate taxation of services (unfairly epitomised as “digital tax”) approach its end with a compromise of a 15% minimum tax floor and a split of the tax revenues between destination and home jurisdictions. There’s still a great deal of strategic ambiguity left: Some countries might continue their tax deductions on intangibles or decide to go after small businesses. Just imagine a mom-pop shop or a freelance architect paying corporate taxes in every country where their clients reside. Some will surely ignore the G7 consensus outright.

From Cornwall to Brussels

In a time of geopolitical gambits, intense lobbying and renewed interest in industrial policy, there are plenty of temptations and disagreements on both sides of the Atlantic. The truce on the Airbus-Boeing dispute may not herald a new transatlantic era, if it means that every window in the glasshouse has been broken and all legal remedies are exhausted. The only option that now remains is to forgive ourselves our common sins.

Then there is the small matter of ending Section 232 measures on steel, which remains a sacred goal for the German stakeholders. Ending the tariffs is also an exorcising ritual that Merkel needs to love America again. But lifting the 232s remains a political risk for the Biden-Harris administration – at least until it secures its second term. Applying pressure through EU tariff retaliation against the swing states (merely helping the Republicans) or carbon tariffs are arguably just self-harming.

The truth is that Europe and America continue to be antagonists in their own right. But unlike Beijing, Brussels wields a formidable soft power that legitimises tech policies in other countries that are hostile to US industrial interests, while the US has billions of Federal funds for industrial policies its disposal. Just like the Airbus-Boeing conflict – services tax, platform regulations, or illegal 5G subsidies are transatlantic issues we bring to the OECD, WTO, G7 or G20 for collateral damage. A cynic might say that the EU and the US should spare the rest of the world of their transatlantic champagne problems.

In that regard, the bilateral Trade and Tech Council seems like a natural progression and a deliverable worthy of an EU-US summit. But we should not forget that much of the regulatory coordination was already taking place, discretely at technical levels in areas like export control, third-country trade or standardisation. TTC trace its origins with other similar ideas to the final days of the Trump administration. But if the intention is to triangulate against harmful third country practices, one might argue that some partners, some of who hold critical leverages against China, went missing along the way.

Also, institutionalising that bilateral dialogue is not entirely risk-free. Publicity creates an incentive for blame games, where one accuses the other of not “engaging seriously” and melodramatic walk-outs, just because the other side happens to disagree. Like its predecessors – TEC and TTIP – TTC will attract lobbyists, NGOs, and others with no genuine interests in transatlantic mechanisms. Instead, they are merely trying to lobby for new domestic rules through the backdoor.

Hosuk Lee-Makiyama is the director of European Centre for International Political Economy (ECIPE) and a leading author on trade diplomacy, EU-Far East relations and the digital economy.

To read the original commentary from The European Centre for International Political Economy, please visit here