One of the most serious challenges President Joe Biden faces is China’s growing military power and the technologies behind that. He and his advisors underscore that, in contrast with the Trump administration, they will work closely with European and Asian allies to address this challenge. This collaboration will be challenging as the China challenge is so multi-faceted and different allies bring different perspectives to each facet.
Most European and Asian governments agree with the United States that China’s growing military might presents a strategic threat in Asia, and that its industrial subsidies and forced technology transfers are a problem. That said, they were repelled by the Trump administration’s unilateral power-based tactics and differed with it and among themselves about the nature of the threat China presents.
The Biden administration must recognize and work with these differences. In particular, it must bring a nuanced approach to the issue of national-security controls on the leakage of critical technologies that promote China’s military capabilities.
Japan is all too aware of the consequences of this leakage: it lives daily with Chinese incursions into its air and maritime space. European countries do not “feel” the problem the same way: they are farther away and have more difficulty disentangling economic issues from national security concerns.
Europe is, however, becoming more sensitive due to China’s human-rights violations in Xinjiang, its stifling of Hong Kong’s political voice, its disregard for international law in the East and South China Seas, its bombastic coronavirus “diplomacy” over the past year, and the complaints of industry about its economic policies. All these concerns have already had an impact on European policy, as the EU has toughened its laws against subsidies and dumping, introduced a “screening mechanism” to regulate acquisitions of European companies, and updated its controls on technology exports.
The Biden administration can build on these steps, but it must understand and work with the nuance of the changes in European policy, while at the same time helping Europe better understand the nature of the problem.
The Changing National Security/Technology Problem
Working with Europe to stem the leakage of critical technologies that could boost China’s military capabilities is important because the types of technologies relevant to defense has broadened and because the EU’s role in this has changed significantly.
Traditionally, the United States and its allies relied on their technological dominance to offset Russia and China’s numerical military superiority, with tactical nuclear weapons in the 1960s and precision and stealth technologies in the 1970s and 1980s. These first two “offset strategies” were driven and owned by governments working with large defense contractors. This made it easier for governments to control the export of the relatively limited universe of “dual-use” technologies that had civilian and military applications, whether by requiring licenses under the Coordinating Committee on Multilateral Export Controls (CoCom) or through screening foreign acquisitions of firms (for example, by the Committee on Foreign Investment in the United States, or CFIUS).
The Obama administration recognized that the U.S. lead in “dual-use” technologies had eroded, and that the commercial sector had developed a wide range of new technologies that could have military applications, including in sensing, computing, data analytics and deep machine learning, communications and systems integration, robotics, genetic engineering, and many other fields. This explosion in “dual-use” technologies as well as in the universe of companies developing them led the Obama administration to develop a “third offset strategy,” predicated on working with the private sector in the United States, Europe, and elsewhere to stay one step ahead of the “quick followers” in China and elsewhere.
At the same time, the Defense Department saw China using open and covert means to acquire a wide range of advanced technologies. The report it commissioned from the CEO of the cyber-security firm Symantec, Michael Brown, on Chinese technology acquisition practices was completed at the end of 2016. It led in 2018 to the Trump administration’s tough approach to China’s “technology theft” (the trigger for the trade war) as well as to the adoption of the Foreign Investment Risk Review Modernization Act and the Export Control Reform Act. Both acts are tied to the ongoing U.S. government effort to identify “emerging and foundational” dual-use technologies that should be subject to export and investment-screening controls, which Washington hopes other countries will help enforce.
Europe’s Evolving Approach
The same trends—the technological advances of China and Russia, the broadening expanse of dual-use technologies, and the growing number of Europe’s own high-tech firms—have changed Europe’s approach to technology and national security as well—although perhaps not as much as the United States might want.
Despite enormous strides in integration, European countries jealously guard their sovereignty over national security and defense. Under the treaties creating the EU, national security is explicitly reserved as a “competence” of member states.
This creates tensions with export controls in the EU and European Economic Area (EEA), as the non-military part of “dual use” falls into the EU’s single market, in which products flow freely. Member states accordingly limited the EU role in export licensing merely to transposing into EU law decisions made in other fora: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (CoCom’s successor), the Nuclear Suppliers Group, the Australia Group (for Chemical Weapons), and the Missile Technology Control Regime. This grudging inclusion of the EU ensured that those member states not in the different multilateral arms-control regimes would also control exports of designated items.
This grated on the European Commission, which believed the single market and common commercial policy justified a more substantive EU role. It therefore jumped on the European Parliament’s anger at reports that European surveillance and crowd-control products were used to suppress the Arab Spring, and recommended in 2016 that the EU revise its export-control regulation significantly to allow the EU to license things and technologies that had not been listed by the multilateral regimes. While this initiative was supported by the European Parliament, the member states had serious reservations about giving the EU more powers in this domain, leading to four years of debate.
Similarly, the European Commission leapt on the concerns caused by a surge of Chinese investment in 2015-2016, including the acquisition of one of Germany’s leading robotics companies, KUKA, as well as the attempted acquisition of Aixtron, a German firm that makes key inputs for semiconductor production. The European Commission’s 2017 proposal for an EU “screening mechanism” for inward investment sidestepped member-state sensitivities by making the EU a center of exchange of information about foreign acquisitions of firms. It also succeeded in excluding “competitiveness” and “reciprocity” from the scope of the review, as these go against the EU’s generally open approach to foreign investment. As a result, this proposal was adopted in 2019, and entered into force in 2020.
The EU’s New Export-Control Regulation
The reluctance of member states reluctance to have the EU wade into dual-use export controls was worn down by the growing concerns about China’s technology acquisition as documented by the business sector and the U.S. and Japanese governments, including with regard to Huawei and 5G. But China’s repression of the Uighurs and its heavy-handed approach in Hong Kong also changed the calculations, especially as the European Commission and European Parliament couched the need for a new regime as critical to protecting human rights.
The new regulation—which was agreed by the EU Council and the European Parliament last November but is not yet formally adopted—makes important changes to the EU export-control system that allies can work with as they strengthen efforts to prevent the leakage of dual-use technologies to China and Russia. Indeed, even the change in the form of the law, from a regulation of the Council to one of the Council and the Parliament, is important, as it engages the EU itself in an issue once considered the purview of the member states.
Further, new provisions allow the EU to adopt “autonomous” export-control authorizations for cyber-surveillance equipment/technology (Article 4a) and for other purposes (Article 8a). While the former got attention in the human-rights debate, the latter is potentially more important. The new EU approach in both cases is bottom-up: the move to require an EU-level export license must start with a member state adopting a licensing requirement (that is, the European Commission cannot itself propose products or technologies to be controlled).
In the case of cyber-surveillance equipment/technology, if a member state lists something that is not restricted by the four main export-control regimes noted above, that starts an automatic process that compels the other member states to follow suit within a specific period. The EU can adopt a licensing requirement when all have done so.
Article 8a on other “autonomous” EU controls is far more nebulous. It starts again with a member state requiring a license for equipment/technology on public-security (including terrorism) or human-rights grounds, but then simply requires notification of the European Commission and other member states without further elaboration. But the article gets some power from a preambular paragraph, which explains that this is meant to be to “enable the Union to react rapidly to serious misuse of existing technologies, or to new risks associated with emerging technologies” by helping member states coordinate their response to a new risk, although they should also thereafter start efforts to “introduce equivalent controls at the multilateral level.”
Article 8a also refers to the “end-user,” which arguably allows the EU to adopt export-licensing requirements for specific end-users and/or end-use. This is particularly important with respect to China, although most EU governments dislike establishing controls by destination country.
Making the Best of It
For many, the EU’s new investment-screening and export-control laws will appear feeble next to the immediate threat of China’s growing ability to project military power in Asia. But any effort to stem the flow of technologies to China’s military establishment must be multilateral, precisely because the range of technologies and the number of firms developing them has expanded so much. While U.S., Japanese, and other authorities will naturally work with the European countries that are members of Wassenaar and NATO, the EU process is also essential to plug leaks through the EU/EEA Single Market.
In helping strengthen the implementation of the EU laws, the United States and other countries can and should ramp up information and intelligence sharing with their European counterparts at the national, EU, and NATO levels. This is critical to explain that China, Russia, and other countries could use certain technologies for military purposes. They will also need to find countries that are willing to help launch the EU processes by listing certain technologies (and possibly end-uses/users). Finally, as it develops guidance for the investment-screening and export-control laws, they can work with the European Commission, whose guidance documents, such as those on dual-use research and electronic licensing, can be very influential.
In so doing, however, the United States and other countries should make clear that their interest is based on national security and/or human rights. Although the EU has more powers in economic policy, concepts like “competitiveness” and “reciprocity” are too easily used for policies that undermine the EU’s generally open approach to trade and investment. They will also need to emphasize their intent to bring any controls ultimately to the multilateral level, as this remains politically important in Europe.
Achieving effective European action on preventing the leakage of critical technologies to China will not be easy, in part as EU engagement in this area is still novel. But a concerted and well-thought through approach will be appreciated by Europe’s allies and could be effective as well.
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