Economy

EU-US Relations: In Search of Common Ground?

Analysis 13 September 2021
EU-US Relations: In Search of Common Ground?

The message of US President Joe Biden’s first overseas Europe tour has been clear: America is back, and Western alliances are not broken. But for Europeans, the realisation has come that after four acrimonious years under the Trump administration, Biden’s arrival will not make the challenges go away overnight.

Has the transatlantic rift caused under Trump vanished?

How will Europe’s new security awakening influence EU-US efforts to align their geopolitics?

How can the new transatlantic cooperation contribute to the climate-neutrality transition?

How to align US and EU policy priorities and market instruments and how might these policy interventions affect international trade and reduce trade frictions? 

Are EU and US tech strategies as aligned as they could be?

In this policy brief, EURACTIV is looking into areas for closer transatlantic collaboration and the main bones of contention.

FROM TRUMP TO BIDEN: WHAT IS AT STAKE?

The US has historically been the EU’s closest ally. Though while differences between both sides of the Atlantic were present also under the Obama administrations (see for example the reset with Russia), Trump’s ‘America First’ foreign policy eroded trust on both sides, with his administrations’ withdrawal from a number of multilateral initiatives – such as the Iran nuclear deal, UN Human Rights Council and numerous nuclear arms control agreements – and questioning of the core institution of transatlantic security in a spat over burden-sharing within the North Atlantic Treaty Organisation (NATO).

Tensions over defence spending, mixed signals on Washington’s commitment to the military alliance’s mutual defence clause (Article 5) and withdrawal of US troops from Germany have contributed to the EU starting to place ‘strategic autonomy’ at the heart of its foreign policy. Though confusions remains what the term actually aims for in practice, as the concept means different things to different people, the bottom line is clear: the capacity to act and being capable of acting autonomously from the US, if necessary.

However, the absence of capabilities has largely prevented the bloc from acting autonomously in recent years, more joint European projects, especially on defence, have emerged, raising questions (and fear) about potential duplication with NATO structures.

With the Biden administration, a G7 meeting in the UK, a NATO summit in Brussels, followed by an EU-US summit, and a meeting with Russian President Vladimir Putin in Geneva have signalled a comeback of US multilateralism. The message of his first overseas tour were clear: America is back, and Western alliances are not broken.

However, despite the transatlantic love-fest, a number of bones of contention between the two sides, such as the withdrawal of troops from Afghanistan, the dispute over the Nord Stream 2 gas pipeline and how to jointly deal with geopolitical heavyweights in Moscow sand Beijing.

China remains the elephant in the room. In some ways, stakeholders have suggested that Europe has asserted its ‘strategic autonomy‘ from Washington, at least when it comes to relations with Beijing, by reaching a “Comprehensive Agreement on Investment” (CAI) with Beijing, at least in principle. Before taking office, the new Biden administration had asked Europe for coordination on China, but the EU push might have made the complete reparation of EU-US relations a bit more difficult. However, Europeans are unlikely to buckle on Beijing ties too much: European Council President Charles Michel defended Brussels’ troubled effort to negotiate the deal, which has been delayed by recent rows about human rights sanctions.

The recent Afghanistan debacle has brought back bad memories of American solo-runs. EU leaders and diplomats have complained about a lack of consultations, as the decision to pull out has revived fears of a renewed terrorist threat to the West and of a possible repeat of the 2015 migration crisis.

A NEW CLIMATE ENTENTE?

In 2008, President Barack Obama had vowed to lead action against climate change following his election victory. But the global financial crisis and opposition in the US Congress undermined his efforts to push through major legislation.

Despite this, Obama managed to tackle truck emissions, methane leaks from the oil and gas industry and updating energy efficiency standards for home appliances during his second term in office (2012-2016).

Most importantly, the Clean Power Plan, unveiled in 2015, was the first ever in the US to limit carbon pollution from energy. The Obama administration also tightened fuel efficiency and pollution standards for vehicles and invested billions in clean energy technology.

But Obama’s biggest legacy, arguably, is the signature of the Paris Agreement on climate change, which was adopted by the UN after months of bilateral diplomacy between the US and China. 

All those efforts crashed to the floor under the Trump administration in 2016, where transatlantic cooperation on climate and energy hit an all-time low. Trump publicly questioned the scientific consensus behind the man-made nature of climate change and rolled back environmental regulations introduced under Obama, including the aim to reduce carbon emissions.

In November 2020, the US left the Paris Climate Agreement, which Trump argued put an unfair burden on industrialised economies compared to developing ones. This was, however, counteracted by state-level and local action under initiatives such as the US Climate Alliance, the US Climate Mayors group and others like billionaire ex-New York mayor Michael Bloomberg, who supported policies in favour of the Paris goals and called on world leaders to ignore Trump.

During that time, it was the private which led the way, boosted the rapid rise of renewables, which displaced coal as the cheapest source of electricity. By 2020, emissions in the US hit their lowest level in three decades, with nearly 20% of US domestic energy production coming from wind and solar.

At the same time, cooperation on energy security with Central and Eastern Europe was bolstered under the Trump administration, with the US leading a push against the Russia-backed Nord Stream 2 pipeline, and first shipments of US “freedom gas” making their way to Poland.

Joe Biden’s election in 2020 again turned the tables, opening new avenues for transatlantic cooperation on climate and energy. 

Since taking office, Biden has reversed many Trump-era policies, proposed an ambitious climate agenda and named John Kerry as his special presidential envoy for climate. As Obama’s former Secretary of State, Kerry had helped steer negotiations on the Paris Agreement, and his nomination was a signal that the US would recommit to global green diplomacy. The US then soon rejoined the Paris Agreement.

In Brussels, the European Commission quickly followed up on Biden’s election by proposing a “transatlantic green trade agenda,” saying the two sides “can lead the world” towards a greener economy.

Brussels and Washington share a common interest in pressuring China to up the ante at the UN climate summit in November. Beijing is accused of environmental dumping in goods such as steel, and the EU has since tabled proposals for a carbon border tariff, which is widely expected to hit Chinese manufacturers.

What Europe and the US could envisage is to “work together to set a global template for such measures,” the Commission said, calling for a joint EU-US “trade and climate initiative” at the World Trade Organisation.

But while Biden is not outright opposed to the EU’s carbon tariff plan, Washington did raise concerns about potential “serious implications” for trade. Unlike Europe, the US has no harmonised price on carbon and is likely to be targeted by the EU tariff unless it can prove its climate policies are comparable to Europe’s.

However, the question remains about domestic limitations to Biden’s climate plans, with large parts being dependent on the upcoming mid-term election in 2022. If Democrats win majorities in both houses of Congress, the second half of the Biden administration’s term could be more hands-on than the first. If Republicans maintain their lead in the Senate, with or without a majority in the House, it is unlikely that any of Biden’s proposed initiatives – which could include a carbon tax, major investments in green technology and infrastructure, and regulation of the energy sector – would pass during his presidency.

TRADE AND THE TTIP

Under Donald Trump, the EU-US trade relationship was put to the test with the US decisions in spring 2018 to impose tariffs on imports of steel and aluminium under the pretext of national security, and its refusal to grant the EU a permanent exemption, continued US blockage of new appointments in the World Trade Organization (WTO), and Washington’s threats to impose tariffs on imports of EU cars and car parts amongst others.

Just after Biden took office, both sides were eager to relaunch the bilateral cooperation after years of disputes. Following 17 years of a legal battle over the subsidies Europe and Washington gave to their large aircraft manufacturers, Airbus and Boeing, Commission President Ursula von der Leyen in June announced an agreement that will suspend for five years the $11 billion tariffs that both sides imposed on products including EU wine or US motorcycles.

For Washington, the deal represents an opportunity to bring closer the transatlantic partnership to face the growing challenge that China represents, including in the field of civil aviation. Both sides also agreed to collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries.

However, they did not make substantial progress in solving the other tariff dispute triggered by the Trump administration’s decision to punish the EU’s steel and aluminium exporters.  

Beyond the tariff issues and on a more positive note, Europe wants to forge an alliance with the US to cooperate on the World Trade Organisation (WTO) reform to update the global trade rulebook, including to better address China’s industrial subsidies. At the EU-US summit, they committed to updating the WTO’s rulebook “with more effective disciplines on industrial subsidies, unfair behaviour of state-owned enterprises, and other trade and market-distorting practices.” 

Brussels has also proposed setting up a Trade and Technology Council for better transatlantic cooperation, officials hope that the new body will give a new transatlantic footing to keep pace with China, which could mean reviving negotiations (or at least providing a platform for) and bringing the Transatlantic Trade and Investment Partnership (TTIP) back through the back door.

Launched in 2013, negotiations were overshadowed by criticism over reducing the regulatory barriers to trade, food safety and environmental standards. Obama had advanced an EU-US free trade treaty designed to deepen transatlantic relations, but Trump, under his ‘America First’ policy, cancelled the  TTIP trade pact. It was effectively halted under Trump and ultimately declared “obsolete and no longer relevant” by the EU side.

The TTC, due to kick off in Pittsburgh on 29 September, is unlikely to advance any policy convergence in the two blocs, given the very different structures of the legal systems. It is more likely to provide a platform for confrontation, clearing out the mutual misunderstanding that might pose obstacles to the creation of a united Western front facing the technological rise of China.

DIGITAL

Following its rapid growth in political, economic and strategic weight, the technology sector has increasingly become a stumbling block for transatlantic relations. Tech companies enjoyed little or no scrutiny during the Obama administration, as the mainstream view of the digital environment was a space for democratic participation and civic engagement.

The situation changed dramatically with the election of Trump, which shocked most of the Western elite and shed light for the first time on the newfound power of online platforms. The hyper-capitalist logic of the internet economy favoured the development of giant companies that, left unchecked during Obama’s two terms, semi-monopolised one or more digital markets.

Later on, the Trump administration maintained an ambiguous relation with Big Tech. Online platforms provided Trump with a megaphone for polarising the public debate but regularly tried to contain him in the face of public backlash. At the same time, the Trump administration maintained the traditional policy of defending US corporate interests abroad, for instance by imposing trade sanctions against countries like France that introduced a tax on online services.

The European Commission under Ursula von der Leyen had the merit to put on the table long-overdue legislation on the new digital reality. The EU digital agenda was however doomed to bring friction on the other side of the pond. The first point of conflict was over the control of personal data, as Europe is currently dependent on American cloud service providers and data infrastructure. As a consequence, EU data subjects are under the jurisdiction of the US authorities, which in case of national security do not fall short of mass surveillance as the revelations of Edward Snowden in 2013 made clear.

The two blocs tried in two instances to establish a special treatment for the protection of European data that ensured transatlantic data flows, a key component of international trade. However, both agreements were struck down by the Court of Justice of the European Union in the Schrems I (2015) and Schrems II (2020) decisions, as the US regime falls short of EU privacy standards. Negotiations are currently ongoing, but there is a widespread belief in Brussels that the only way to avoid a Schrems III ruling is for Washington to change its surveillance law, something no administration was so far available to do.

At the policy level, the key point of tension is the regulation over digital markets and services. The Digital Markets Act (DMA) is particularly seen as tailored to target American companies since its intention is to regulate the online platforms that play a ‘gatekeeping’ role by determining access to one or more aspects of the digital economy. Andreas Schwab, the MEP leading on the file, was one of the policymakers who initiated the discussion on the possibility to break Big Tech companies such as Google. Schwab has recently declared to the Financial Times that the DMA should only target GAFAM and maybe Alibaba, prompting Commission Executive Vice President Vestager to say that the EU tech policy is not ‘anti-American’.

Additional tension is brought by the EU ambitions on ‘digital sovereignty’, which would like to see the bloc more independent of foreign technologies. On industrial policy, France and Germany have been advocating for a more interventionist approach that pushes the promotion of European champions able to compete at the international level. Smaller and Nordic countries have opposed such an approach, as they are traditionally leaning toward open trade and do not see the benefit of acquiring European, or rather Franco-German, technology that is often less advance and more expensive.

Under the Biden administration, a more collaborative approach is back on the table, and the importance of digital affairs has been recognised with the institution of the Trade and Technology Council (TTC). 

While both sides announced at an EU-US June summit this year a wide-ranging tech and trade alliance to counter Beijing’s technological rise, they failed to address bilateral sticking points on the digital economy. Both officially pledged at the EU-US summit “to promote innovation and leadership by US and European firms”, but Washington fears this may not include its biggest tech companies.

This article was republished from EURACTIV.

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