In the face of mounting global environmental challenges such as climate change, biodiversity loss, and pollution, and increasing focus on environmental, social and governance (ESG) awareness, sustainable trade practices and supply chains have the potential to radically transform Africa’s economic future.

From green logistics to fair trade and circular economy principles, sustainable trade practices have a significant positive impact on global and local trade. In addition to environmental benefits, they enhance market competitiveness and open access to new markets that value a commitment to sustainability.

However, the transition to eco-friendly and sustainable supply chains is reliant on several factors, not least a significant investment in the infrastructure and technology needed to streamline port and customs operations and ensure a smooth entry of goods into the country in question. An understanding of the importance of digital transformation by governments and regulatory bodies is also a key factor in adopting digital solutions over more traditional manual systems.

African countries that understand and embrace these requirements are well on their way to laying the groundwork for sustainable trade practices.

As an example, the port of Cotonou in the West African country of Benin handles an average of 80 to 90 merchant vessels monthly. According to the African Development Bank, Cotonou deals with 90 percent of the country’s international trade, serving up to 100 million consumers. In 2022, the port handled 12.5 million tonnes of goods, a figure that is predicted to almost double by 2038, reaching 23 million tonnes.

In a gesture of confidence, the recent extension of an €80 million loan by the African Development Bank for significant infrastructure upgrades will expand the port’s operations even further. Yet despite the vast and complicated operations of one of Africa’s busiest ports, Benin has jumped to 66th place on the World Bank’s Logistics Performance Index, an astonishing leap of approximately 100 places in just under a decade, positioning the country as West Africa’s key trade hub.

But this wasn’t always the case. High shipping costs, low efficiency, and poor logistical facilities threatened to stifle any hopes the port had of becoming a key trade route, despite the fact that the country is a crucial transit route for West Africa, connecting millions of people in the landlocked countries of Niger, Mali, Burkina Faso, Chad, and the northern regions of Nigeria.

Technology is revolutionising trade practices
The solution? Leveraging technology to break through the complexities, inefficiencies, and obstacles impeding effective trade, and transform Benin into an economically competitive trade hub.

This is a story that replicates itself in trade ports along Africa’s entire coastline. Operators and customs entities are constantly looking for ways in which to alleviate the backlogs and delays caused by the high volumes flowing through these trade entry points, and digitisation, along with improved physical infrastructure, is proving to be an extremely effective solution. Partnerships and collaborations with specialist service providers hold the key to success.

The Webb Fontaine and Benin story
Backtracking from the current situation, and highlighting the importance of long-term public-private collaborations in modernising and streamlining trade landscapes, Webb Fontaine started working with Benin’s Ministry of Finance and Benin Control in 2017. Implementing a suite of innovative solutions including Webb Single Window, Webb Transit Tracking, Webb Valuation, Webb Ports, and Webb Customs, we are proud to be playing a pivotal role in transforming trade in the country.

Webb Single Window has been a game changer. It forms the basis of GUCE Benin, a digital platform with over 6,500 users in the logistics chain that facilitates import, export, and transit operations, and incorporates electronic payment via Paylican, Webb Fontaine’s official payments partner. Webb Single Window has also automated the processing of key administrative operations like issuing licenses and authorisations, overseeing currency exchange operations, managing exemptions, and communicating with tax services.

In practical terms, this means streamlining the process needed to get containers out of the port. Digitising processes to create efficiencies, using new technologies such as artificial intelligence (AI), reduces the time spent on clearance of goods, for both customs brokers and administrators. Benin now ranks as West Africa’s top port and holds the third-highest rating in Africa behind Egypt and South Africa. Release times have been reduced by 30%, with a remarkable 50% of containers being released within only two days.

Along with operational efficiency at the ports themselves, economic growth is a key benefit. From digital skills development to higher revenues as a result of streamlined operations, technology is playing a crucial role. For example, reducing the clearance time from 47 days to only a few days allows for more cycles of importation, increasing tax revenue and creating a healthy economic cycle. This also attracts foreign direct investment, making the port more attractive for investors and traders.

However, the use of technology in port operations is just one aspect in a larger framework of sustainable trade. The resultant benefits, such as automated systems and data analytics have the potential to lead to more efficient operations, reduced emissions, and less waste, which are all key components of sustainable trade practices. For instance, quicker turnaround times not only reduce the carbon footprint of shipping and logistics operations, but they also reduce the need for extended storage, in turn decreasing energy consumption and waste.

Is Africa ready for sustainable and eco-friendly supply chains?
Despite the challenges faced by African countries, many are making great strides. Togo’s new container platform, Nigeria’s planned green port, Liberia’s green economy reforms – all are notable examples. Yet much still needs to be done to fully embrace the digital transformation journey, while at the same time addressing issues like infrastructure development.

All stakeholders have a role to play in implementing sustainable and eco-friendly trade practices and policies. African governments, for instance, can make a commitment to investing the funds and resources needed to create infrastructure that will support both trade and digital advancements, as well as support sustainability initiatives. The African Continental Free Trade Area can play a crucial role in developing a standardised approach to these issues, based on learnings from other countries on the continent.

Africa is a continent that has immense potential when it comes to creating and maintaining sustainable trade practices that will drive economic growth. The continent’s success stories demonstrate this, and serve as a call to governments, industry stakeholders, policymakers and the private sector to work together to find tangible solutions that will promote further growth and development. Webb Fontaine is already playing a crucial role in supporting Africa’s governments on their trade facilitation journeys, with specialised port technology that is securing customs revenue, mitigating trade fraud, and streamlining clearance times. In the same way, when all stakeholders collaborate and contribute to improvements in their respective areas, Africa’s economies will reap the collective rewards.

To read the article as it was published on the CIO Africa webpage, click here.

The post Africa’s Trade Transformation: The Power of Technology for Sustainability appeared first on WITA.

With e-commerce reaching staggering heights, the narrative of digital trade is often celebrated for its exponential potential to elevate businesses, large and small, to global platforms, and for driving a services-led economic revolution. The $2.41 trillion digital economy underscores the critical role of data flows in international trade.

However, this very backbone of digital trade — the free flow of data — now carries with it an intrinsic risk, transforming every business into a potential node of vulnerability. The cyber theft of intellectual property and personal data is emerging not just as a commercial hazard but as an acute national security threat. The 2017 WannaCry ransomware attack, which paralyzed over 200,000 computers across 150 countries, and the NotPetya attack, which caused unprecedented disruption to supply chains and major businesses like Maersk, highlight the critical need for countries to strengthen their defenses.

Policy development in the digital trade domain is witnessing unprecedented complexity. The European Union’s General Data Protection Regulation (GDPR) marked a significant policy shift, setting new global standards for data protection and influencing digital trade practices worldwide. Similarly, India’s draft e-commerce policy and the United States’ proactive measures through the Cybersecurity and Infrastructure Security Agency (CISA) reflect diverse, national strategic approaches to navigating digital trade regulation and cybersecurity.

One of the most contentious issues in the realm of digital trade is data localization, which states that data on a nation’s citizens or residents should be collected, processed, and stored inside the nation’s boundaries. This requirement stipulates that the data should also be accessible to that country’s government, ostensibly for regulatory and security purposes.

Russia’s 2015 data localization mandate epitomizes the practice of data localization. It requires that Russian citizens’ personal data be stored domestically, pushing international firms to migrate their servers to comply or face sanctions. This move, paralleled by China’s Personal Information Protection Law, underscores a tightening grip over digital sovereignty, aiming to shield data from foreign espionage while asserting control over digital realms.

Similarly, India’s evolving policy reflects a balancing act between boosting local data processing and guarding against foreign surveillance and digital colonization, a concern echoed by Vietnam’s 2019 cybersecurity law. These laws have sparked international debate over their implications on global digital trade, raising alarms about heightened operational costs, the emergence of trade barriers, and the potential stifling of the digital economy’s growth.

Data localization policies, while aiming to safeguard data and enhance national security, risk undermining the trust foundational to digital trade. Such policies burden multinational corporations, especially tech companies, which rely on the global flow of data to drive innovation. Additionally, these policies may result in a fragmented approach to data storage and security, making it more challenging to maintain a unified cybersecurity defense.

Against this backdrop of regulatory challenges, the private sector emerges as a pivotal force in shaping the future of digital trade. Tech giants and startups alike prioritize growth and innovation, with companies like Amazon and Google revolutionizing global commerce through their platforms. However, their operations raise questions about data privacy, market dominance, and cybersecurity. The Apple vs. FBI conflict over iPhone encryption illustrates the tension between private-sector innovation and government security concerns, highlighting the complexities of balancing privacy with national security.

Responding to these complexities, the United States-Mexico-Canada Agreement (USMCA) introduced a digital trade chapter. By limiting member states’ capacity to enforce data localization, the USMCA proposes a model that aims to balance the economic benefits of free data flows with security concerns. However, it includes exceptions for legitimate public policy objectives, providing a flexible framework that can adapt to varying national security needs.

Nevertheless, the dynamic nature of technology and cybersecurity means that the agreement will need continuous updates to remain relevant. Moreover, its impact is inherently limited to North America and might not directly influence countries with different digital trade and security postures, such as China and the EU. The challenge lies not just in crafting regulations that can adapt to the rapid pace of technological change but also in achieving an international consensus that respects the diverse security and economic interests of different nations.

In response to these challenges, Japan has championed the notion of Data Free Flow with Trust (DFFT) on the international stage. DFFT aims to establish a set of common rules that enable the free flow of data across borders while ensuring robust privacy and security protections. One of its focus areas is making national data governance systems interoperable, rather than identical, recognizing that trust is a fundamental component of the digital economy.

Beyond DFFT, there are other international efforts aimed at harmonizing digital trade regulations while addressing security concerns. The World Trade Organization (WTO) continues to hold dialogues that seek to address issues related to digital trade. Similarly, the Digital Economy Partnership Agreement (DEPA) between Singapore, Chile, and New Zealand represents an attempt to develop a modern digital trade agreement that covers digital identity, data flows, and personal data protection, among other areas.

As digital trade becomes a pillar of the global economy, nations worldwide have adopted diverse policy approaches to secure their digital spaces while fostering economic growth. The national responses reflect a spectrum of strategies, from stringent data localization to liberalized data flow frameworks, each presenting unique challenges and trade-offs.

To strengthen our digital defenses, countries must come together around a common framework that goes beyond just national policies. This approach needs to be rooted in strong international cooperation, ensuring that data not only moves freely but also securely, adhering to international standards like those set by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). It’s about building a collective commitment to protect our digital infrastructures.

Additionally, the private sector’s critical role cannot be emphasized enough. Businesses must prioritize cybersecurity, integrating it thoroughly within their operations and leadership structures. This includes appointing seasoned executives such as Chief Information Security Officers (CISOs) to top roles and cultivating a cybersecurity-aware culture across all levels of the organization. This culture should empower employees to use advanced digital tools securely.

As we navigate the evolving landscape of digital trade, nations and corporations must strive for a balanced approach that respects both the economic potential and the security imperatives of our interconnected world. International cooperation and adherence to global standards are crucial in forging a unified strategy that protects against cyber threats while facilitating free data flows.

The private sector must prioritize cybersecurity, embedding it within their strategic and operational frameworks, and cultivating a culture of security awareness among all employees. Only through such a comprehensive and harmonized approach can we ensure that digital trade continues to be a driver of economic prosperity without compromising national security. This path requires ongoing vigilance, adaptability, and collaboration across borders to effectively meet the challenges posed by technological advancements and the global nature of cyber threats.

The post The Invisible Borders: Navigating Trade and Security in the Digital Age appeared first on WITA.

Specifically, the TTC should incorporate a trade agreement framework informed by regular formalized stakeholder input. This framework would focus on (1) avoiding the full range of trade barriers arising from new technologies and (2) tailoring cooperative efforts in a way that allows the United States and the EU to promote their shared values globally and prevents small disagreements from impeding progress. Significantly, a trade agreement foundation for trade and technology cooperation would create huge efficiencies and go a long way toward ensuring US-EU engagement on issues of common interest from administration to administration and from commission to commission.

This recommendation is based on the following elements:

Break down the artificial divide between trade and technology

Let’s start with some basics. One of the original reasons for creating the TTC was to head off unnecessary trade barriers arising from new technologies and diverging efforts to regulate them. Legacy trade barriers coming from deeply entrenched US-EU regulatory divides had proven extraordinarily difficult to bridge. Think, for example, of biotech food, hormone-treated beef, pathogen reduction treatments for poultry (the infamous “chlorine chicken”), and conflicting standards on a wide range of industrial products.

One of the main ideas behind the TTC was to get ahead of the curve and avoid the new-tech version of “chlorine chicken”—that is, to identify and prevent unnecessary trade barriers to products of new technologies from arising in the first place. Another related goal was to ensure that the United States and the EU could globally promote trade rules on products of new technologies that reflect their joint values of transparency, the rule of law, human rights, and high labor standards.

As the TTC has proceeded, however, the tendency in the public narrative has been to create an artificial divide between “technology” and “trade.” This has led to a deeply unhelpful but persistent narrative that the TTC is making good progress on “technology” but is lagging on “trade.” What is probably meant by this is that officials are having useful discussions on initiatives such as an artificial intelligence (AI) roadmap, but that they haven’t resolved long-standing bilateral disagreements over, for instance, bilateral mutual recognition agreements on pharmaceuticals or machinery.

Of course, the officials haven’t: The TTC never set out to provide additional leverage to resolve such deep, long-standing divides, so it makes no sense to judge its success on that basis. (A comprehensive agreement negotiation would do that, but that’s another topic.) It’s not an accident that long-standing disputes such as hormones in beef or pathogen-reduction treatments for poultry have not been on the TTC’s agenda.

To illustrate the problem, treating AI or other new technology product standards as a distinct category from “trade” ignores the fact that having two sets of standards that conflict with each other unnecessarily represents the ultimate trade barrier.

The TTC would benefit from getting back to one of its original goals: avoiding unnecessary bilateral barriers to trade in new technologies, and collaboratively promoting a joint vision of how such products should be regulated on a global basis. This includes early bilateral engagement on proposed legislation—which is where trade barriers often arise.

Sharpen the TTC’s focus on specific common trade goals

Old habits die hard. When the United States and the EU sit down together on trade issues, it’s hard to avoid complaining about what the other side has done or pressing the other side to do something it doesn’t have an interest in doing. This is not to minimize the importance of such discussions: The parties need a forum to complain and advocate.

But the TTC should have a dedicated trade space where the parties can focus on building concretely on the things they can agree on, and to shape and nuance those issues so they are maximally congruent, shedding tangential disagreements. The approach of pressuring the other party to agree reluctantly to the other’s pet initiative simply has not worked in the TTC. (It can work in the context of a comprehensive trade agreement, where there are trade-offs and momentum, but it’s much harder in a cooperative forum such as the TTC).

I can attest from many years as a trade negotiator, especially with the EU, that identifying areas of agreement is not always easy. This is in part because a standard trade negotiation tactic is to turn any proposal, however mutually beneficial, into an “ask” that can be pocketed and used as leverage to get something else. If one side suggests, for instance, that the parties work on compatible standards for a new product produced by both parties, the trade negotiation instinct of the other side will sometimes be to make those discussions contingent on a negotiation it wants that the other does not. This discourages genuine cooperative proposals and attracts proposals on which there is disagreement, hindering cooperation.

The TTC should recognize this dynamic and deliberately avoid it, isolating the areas of agreement and disagreement, and “parking” the latter so the agreed areas can move forward without hesitation or caveats.

To illustrate, the United States and the EU undeniably have a huge common interest in opposing and defending against the increasing impact of a growing number of harmful international trade policies and practices. It is also true, however, that the EU is more hesitant to associate those practices with a particular country, such as China. This difference hobbles cooperation and encourages distancing because cooperation can be interpreted as general broad alignment vis-à-vis China, and the EU doesn’t want to associate itself with all US views on China (or its perception of those views).

One solution to this impediment would be to focus on countering specific harmful trade practices and policies and/or sectors, and perhaps even avoid characterizing the work as China-specific or endemic to any particular system, “nonmarket” or otherwise. In other words, strip out any divisive “ideological” aspect of the issue and move forward on those core elements that are not divisive. This would also sidestep the facile and false binary choice between engagement and disengagement with any particular World Trade Organization (WTO) member. 

Another practical example of this approach: The United States and the EU have significant and long-standing differences between how they define “international standards” in the WTO agreement, and a fight on that issue is tempting whenever they sit down to discuss standards compatibility. But they can and should pragmatically work to avoid future standards conflicts—a huge potential trade barrier—without taking on that ideological disagreement. The same is true for streamlining how products are assessed for conformity with regulations in each of their markets, in which they have a common interest, but widely divergent approaches. 

As a final example, the United States and the EU have a strong common interest in assuring that labor rights are respected around the world, but very different approaches to enforcement—to oversimplify, the United States’ use of trade tools versus the EU’s use of cooperation and persuasion. The same is true of environmental protections and trade. The TTC should avoid taking on this long-standing difference in approach and focus instead on joint practical initiatives that reflect where both sides agree.

To be clear, the TTC has ultimately cooperated well on many issues, but could eliminate much wasted time and energy by deliberately focusing on and shaping the cooperative issues, and not letting the disagreements and complaints slow efforts down.

Establish a durable institutional foundation

US-EU trade fora have, for decades, been a bit ad hoc, designed and developed by particular US administrations or EU commissions, only to be reformulated and reinvented after the next election. That reinvention has several negative effects: It takes significant time and negotiating effort to reinvent procedures. It lacks the durability of an ongoing framework, even though the substance of the subsequent discussions often remains similar. And it lacks a structured mechanism for receiving and incorporating stakeholder input across the broad range of trade issues—input that is critical to anticipating commercially meaningful potential barriers and to identifying and pursuing joint global objectives.

Contrast this process with bilateral meetings that are held under official Trade and Investment Framework Agreements, which have an agreed framework for participation by the agencies, regularly scheduled meetings, and, generally, a regularized formal process for receiving and incorporating stakeholder input. Further, under such framework agreements, regular meetings generally continue from administration to administration, since they are required by the agreement, without a new administration needing to redesign the forum or create a new initiative or set a schedule. This helps avoid the impression that the forum itself solely represents the priorities of any one administration. Policies will evolve from one administration to the next, of course—although targeting core issues of common interest will minimize differences—but the foundational mechanics and logistics, including stakeholder participation, are already in place. The result is both efficiency and legitimacy of the process that brings the parties together.

Indeed, the absence of such an ongoing trade agreement structure between the United States and the EU is notable, given that it is practically a norm with other trading partners.

When US and EU officials meet in Belgium in April, they will be right to celebrate that the TTC has been a significant plus for the transatlantic relationship. At the same time, the TTC could be even stronger and more durable by incorporating a specific trade agreement framework informed by regular formalized stakeholder input. As noted above, two features should take priority going forward: The TTC should aim to avoid future trade barriers arising from new technologies, and it should work to promote US and EU shared values globally and prevent small disagreements from impeding progress. Building on the success of the TTC by adding the permanent structure of a trade agreement framework would help keep the US-EU trade relationship steady and on course, even as the occupants of the White House and the Berlaymont building change over time.

L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative from 2010 to 2023. He was chief negotiator for comprehensive trade agreements with the EU and the United Kingdom, as well as trade lead for the US-EU Trade and Technology Council.

To read the full blog post as it appears on the Atlantic Council website, click here. 

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Thank you for such a generous introduction, Stormy. And thanks to Aspen Institute Germany for inviting me to speak at this important conference. It is a pleasure to be with all of you today, albeit virtually.

Trade and technology are closely interlinked. From the invention of the earliest sailing ships, to steam engines, railways, and steamboats, to the advent of containerization, ever more sophisticated logistics, and the demand for climate friendly transportation, technology has always played a vital role in shaping the way we live and trade. This trend is accelerating like never before. We are living in an era of unprecedented technological change, experiencing and shaping innovations that could have a major impact on how we trade, who trades, and what is traded.

Technological developments can unlock new opportunities for businesses and individuals around the world. To realize this potential, we need to understand how to harness new technologies to make sure that they translate into job creation, economic growth, and helping to deliver Sustainable Development Goals in line with the WTO’s stated mission to improve living standards.

There is no doubt that the future of trade is inextricably linked to digital technologies. According to WTO estimates, global exports of digitally delivered services have more than tripled since 2005. Between 2005 and 2019, the average annual growth rate of digitally delivered services reached 7.3%. By contrast, other services exports grew only by 5.6%, and goods by 4.7%. During the pandemic, exports of digitally delivered services further increased by 14% year-on-year, and e-commerce sales soared.

The current framework regulating trade in services and technology at the WTO was put in place in 1995, generations ago in technology terms.  WTO Members are working to improve the existing tools and developing new ones to reflect the changing nature of trade. Let me elaborate on some of that work.

First, at our 12th Ministerial Conference last June, WTO Members agreed by consensus to extend the longstanding moratorium on customs duties on electronic transmissions until our next Ministerial Conference, in one year. This outcome was fundamental to preserving a trade policy environment that is supportive of e-commerce and is of tremendous importance for many businesses.

But because this moratorium is set to expire in a year, discussions will continue in the coming months to address the gap between developed and many developing countries on the one hand, and some developing countries on the other, who see the moratorium as detrimental to raising revenue and addressing the digital divide in ecommerce.

At MC12, Ministers also agreed to reinvigorate work under the work programme on electronic commerce, a longstanding effort aiming to address all trade-related issues relating to global e-commerce. This work includes development-related issues, such as digital divide in terms of digital infrastructure, connectivity, and capacity building.

Second, there is a lot of attention these days on the plurilateral joint initiative on e-commerce. Eighty-seven WTO Members, including many developing countries, participate in this initiative to develop baseline rules to govern the global digital economy. In particular, Members seek common disciplines to facilitate remote transactions and strengthen trust in digital markets while helping to tackle digital trade barriers. Members are aiming to conclude them by the end of the year.

It is significant that developed country Members participating in the initiative recognize the importance of inclusion and the barriers faced by developing and least developed countries seeking to benefit from the digital economy. In this regard, the ‘E-commerce Capacity Building Framework’ launched by Australia, Japan, Singapore, and Switzerland is a key step to strengthen digital inclusion and to help harness the opportunities of digital trade. The Framework will offer a wide range of technical assistance, training, and capacity building to support countries’ participation in the e-commerce negotiations.

In addition to these initiatives, discussions of technology-related issues take place in various specialized committees. For example, Members have been increasingly notifying the WTO’s Committee on Technical Barriers to Trade about their measures affecting digital trade, e-commerce, and cybersecurity. The level of interest to these topics is so high that the Committee will hold thematic sessions on current challenges and best practices in these areas.

Finally, there has been a push on behalf of some industry associations to further expand the coverage of the WTO Information Technology Agreement, which has 82 participants, representing about 97 per cent of world trade in IT products. During the pandemic, dozens of products covered under the ITA2, such as pulse oximeters, played a key role in saving lives. Furthermore, access to IT products and information and telecommunications infrastructure is paramount for small businesses’ engagement in e-commerce. Last year, we held an Information and Dialogue Session with IT industry representatives during our annual Public Forum, and our Members appreciated the first-hand information from industry representatives. I encourage those of you for whom this subject is important to participate in similar events in the future.

My next point is that access to technology is crucial to reducing the cost of climate change mitigation, speeding up the low-carbon transition, and creating green jobs, and the WTO has an important role to play in this regard.

Trade is often seen as a contributor to climate change through emissions caused by the production and transportation of goods. But this view is incomplete because international trade — and the WTO as the guardian of multilateral trade rules — can help achieve climate goals by enhancing adaptation and mitigation efforts.

To transition to a low-carbon economy, countries need affordable access to advanced technologies. And open trade plays a critical role in providing such access. Lowering barriers to trade in environmental goods and services would help facilitate transfer and deployment of climate change mitigation and adaptation technologies. Wind turbines, solar panels, heat pumps, and biogas stoves need to move across borders as freely as possible if we want to limit the global warming to 1.5 degrees.

The average tariff on environmental goods is already relatively low, particularly in developed economies. But some environmental goods are still subject to high tariffs in some countries, and non-tariff barriers are prevalent as well. Our analysis suggests that eliminating tariffs and reducing non-tariff measures on some energy-related environmental goods and environmentally preferable products could increase global exports in these products by US$ 109 billion (5%) and US$ 10.3 billion (14%), respectively, by 2030. This boost in the use of climate-friendly technologies could lead to a reduction of net carbon emissions by 0.6 %.

By the same token, installation and operation of clean technology is often complex and requires specific user skills that can be difficult to source domestically. So, removing barriers on environmental services, such as environmental consulting and engineering, can also help reduce costs of projects that lower emissions.

And such access is particularly important for developing countries. Think about it: 13% of the world’s population doesn’t have access to a stable electricity supply. Households that are off-grid now can benefit from access to electricity through solar power.  And the environment benefits because this energy is renewable.

Free movement of environmental goods and services will also result in economic diversification and job creation, particularly in services.  For example, the rooftop installation cost of photovoltaic modules accounts for approximately 60% of the total cost. A growing number of jobs, especially in Africa, are being created in off-grid decentralized renewables, which also boosts employment in other sectors such as agro‑processing, health care, communications, and local commerce.

With its broad membership, which includes countries with different political systems and levels of development, the WTO offers a unique forum for discussions on reduction of barriers to environmental goods and services.

The WTO can also help countries mobilize support and build trade-related capacities for adaptation. For example, the WTO surveys the evolving technology needs and priorities of least-developed countries and supports them by monitoring developed countries’ programmes for transferring relevant technologies to least-developed countries in line with their obligations under the WTO TRIPS Agreement. Climate change adaptation, including disaster prevention and water management, was an important element in 25% of the 152 environmental technology transfer programmes reported by developed members to the WTO between 2018 and 2020.

Furthermore, our Aid for Trade initiative – which is increasingly about investment for trade – can and should help developing and least-developed countries build climate-friendly critical trade infrastructure. In 2020, disbursements with a climate objective represented 31% of total Aid for Trade.

My last point is that technology is also at the heart of many trade tensions today. In 1989, the former U.S. Secretary of Defence Harold Brown wrote a paper on U.S. – Japan technological competition, which was aptly titled “High Tech is Foreign Policy”. This is again the case today. For many countries, technology is at the heart of foreign policy, national security, and geopolitical tensions.

Let me give just one example.  In the last couple of years, we have witnessed attempts to “onshore”, “nearshore”, or “friend-shore” supply chains for sensitive technology. As governments and business seek resiliency in supply chains, we can all certainly understand, to a degree, the trend to do business only with friends and neighbours given global uncertainties, even if it increases costs a little – or even a lot.  But the consequences of taking this too far will be counterproductive – less resilience, more vulnerabilities, and greater exposure to shocks. This is especially true given increasingly frequent and more intense natural and man-made disasters – such as extreme weather events and climate change, armed conflicts, and pandemics.

Not one single country or even a few countries can produce everything – or event most things – domestically. The key to supply chain resilience is therefore more international cooperation and more diverse supply chains.

Moreover, consider other unintended consequences of isolationism: our preliminary research at the WTO shows that decoupling of the global economy into two blocs would slash long-term global real GDP levels by about 5 percent.  And that is a conservative estimate, not taking into account the unquantifiable economic, social, and political consequences of having two systems of rules and standards regarding issues such as sustainability, labor, and the rule of law.

Now, more than ever, the pull toward globalization cannot, and should not, be ignored, despite pressures to become more isolationist and self-sufficient to a fault. The high cost of fragmentation shows that we need more strategic multilateralism and less unilateralism or tactical bilateralism. That’s the thought I would like to leave you with today.

Thank you for your attention.

To read the full speech, please click here.

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Let’s start with whether there really is a big shift in policy here. It is fair to say that “industrial policy” has long been looked down upon by many leading economists. Nonetheless, a wide range of actual U.S. economic policy falls squarely within it: ethanol subsidies, high tariffs on steel and aluminum imports, very long copyright terms, and price supports for sugar are just a few examples of how the U.S. government has tried to support specific U.S. industries. Whether or not people referred to this as “industrial policy,” that’s what it is. Thus, regardless of what leading policy thinkers had to say about industrial policy, policy makers have been very willing to adopt it (often at the behest of the corporations that benefited).

But now people are using the term “industrial policy” more, and expanding the scope of industries covered, with semiconductors the most prominent one. That is a shift, although not an unprecedented one. In the beginning of Bill Clinton’s first term, industrial policy was also a hot topic. And in the 1980s, the Reagan administration pushed its own version of support for the semiconductor industry.

Longtime advocates of industrial policy such as Dani Rodrik say the new CHIPS Act is significant “because it is a sign that we have moved well beyond market fundamentalism and because it shows there is now bipartisan support for industrial policies.” Of course, the idea that we were ever in a place of “market fundamentalism” is contradicted by the facts of actual U.S. economic policy, as noted above, which involved a wide range of economic interventions by the government. Industrial policy advocates are looking to spin these new developments in a triumphalist way, in an effort to demonstrate that their policies are in vogue. But the degree of change is less clear, and it will likely take a few years to gather enough evidence on past and current U.S. government economic interventions to do a proper comparison and make an assessment of how big a shift we are seeing.

The second question is whether new initiatives such as the CHIPS Act will be successful. This law offers more than $50 billion in subsidies to semiconductor companies to build new production facilities in the United States. Will this work? This depends in part on how we define “work.”

One problem is that these companies might just be trying to extract government money for projects they would undertake anyway. Such efforts are fairly common, as companies play governments off one another to extract financial concessions for already planned investments. (This is why Bernie Sanders and others worry that these subsidies are just “corporate welfare.”) So we might see new semiconductor investment in the United States in the coming years, but it will be hard to determine whether it is more than what would have happened without the subsidies.

Assuming that these subsidies do increase investment beyond what we would have seen otherwise, we then run the risk that the industry has been distorted in ways that are unsustainable in the market in the long run. If we incentivize companies so much that they over-produce, it could lead to some companies becoming unprofitable, and then demanding a new round of subsidies to keep then afloat. Once companies become dependent on government support, it is hard to wean them off it.

Underlying all of this is a fundamental question: Is there a problem with U.S. semiconductor production being too low right now? Surely there are some sectors (e.g., military aircraft) where we would not want to be too dependent on other countries. But is semiconductors in that situation at the moment? It can be hard to answer this, because some of the data being used as a justification for the subsidies is misleading. For example, a Washington Post article titled “A new era of industrial policy kicks off with signing of the Chips Act” noted that: “About 37 percent of the world’s semiconductors were manufactured in the United States in 1990 versus about 12 percent in 2020.” But in 1990, China was not an economic powerhouse, and as its consumption of semiconductors in domestic manufacturing sectors grew, it was sure to increase its share of global semiconductor production. It may be that the U.S. industry is performing badly, but commonly cited figures such as these are not convincing evidence of that. The public debate needs an objective assessment of just how many semiconductors the United States needs to produce domestically or buy from friendly countries in order to be secure.

There are many questions about the future of U.S. industrial policy, and it could take years to answer them. Will the CHIPS Act’s semiconductor subsidies have their intended effect? Will these types of economic interventions be extended to other industries? Will the current enthusiasm for industrial policy fade away as it did after an early burst in the Clinton years? And could the sudden prominence of the issue lead to a rethink of any of the long-standing industrial policies in sectors that are much less strategically important? The conversation over industrial policy has started up again, but it remains to be seen where we end up.

By Simon Lester, J.D., Nonresident Fellow, International Economics, Rice University’s Baker Institute For Public Policy

To read the full commentary by Simon Lester, J.D. please click here

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However, China’s rise to economic stardom could not have been achieved without its heavy integration with the technologically developed world, particularly the United States. When it comes to international trade, science and technology can cross national borders much easier than goods or people. International cooperation can play a large role in propelling technological advancement forward. Within the last three decades, internet protocols, hardware design and manufacturing, software development, and IT standards have evolved within a global system, with countries relying on each other for shared knowledge and techniques. As such, both China and the United States’ technological development fields have benefited greatly from global interdependence. 

However, in recent years, the possibility of the United States and China’s economic “decoupling” has become a hotly debated topic among scholars and the media. Their decoupling refers to the “deliberate dismantling—and eventual re-creation elsewhere—of some of the sprawling cross-border supply chains that have defined globalization and especially the U.S.-China relationship in recent decades.” While decoupling is becoming an increasingly popular path, political desires to decouple must not lead to rash decision-making. After years of interdependence, decoupling the two most powerful nations has serious implications, not only for the future of technological development, but for the broader objectives of global cooperation.

Measuring Recent Decoupling

Despite the term becoming an increasingly used buzzword in international economic discussions, decoupling in our globalized world has not been an easy phenomenon to measure. According to research conducted by faculty at the Columbia Business School, one new innovative method to determine decoupling is by focusing on patent technology between the two nations. By using the propensity for “domestic patents in a technology area to cite foreign patents relative to citing their own,” researchers created a measure that indicates the degree of technological decoupling between the U.S. and China. Specifically, the research focuses on three historical “screenshots”—2000, the year before China’s entry to the WTO; 2009, the end of the Great Recession; and 2019, the end of the sample period, which coincides with open attempts of decoupling. By using these three periods of time, researchers were able to chart the development of decoupling over the last two decades as economic rivalry heightened between the two nations.

After integrating comprehensive patent data from the U.S. and China, the study finds that overall, technology integration between both countries steadily increased throughout the first two decades of the 21st century. As expected, during this period, China also exhibited more dependence on U.S. technology than the U.S did on Chinese technology; after joining the WTO and integrating with world markets, China naturally relied heavily on U.S. innovation to aid its growth and development. Interestingly, however, while China’s dependence on the U.S. increased during the first decade studied, its technological integration with the U.S. decreased since the end of the Great Recession. In other words, the propensity for new Chinese patents to cite U.S. technology steadily decreased in the last decade, marking a significant change in the relationship between the two nations.

Understanding These Trends

This research provides a good baseline for how technological decoupling is unfolding between the U.S. and China, and the trends can be applied to predict the future relationship between the two nations. While the unprecedented interdependence between the U.S. and China throughout the last two decades cannot be quickly nor easily ended, the raw patent data reveals one clear indication: technological decoupling has already begun. And because of the intensifying state of economic and geopolitical rivalry both nations find themselves in today, this decoupling will likely gain momentum in the years to come. 

As a growing mutual distrust has colored national attitudes in recent years, decoupling is increasingly viewed as a politically favorable path in both the United States and China. Despite their many differences, both Trump and Biden campaigned on a desire for the United States to decouple from China by decreasing the U.S.’s dependence on Chinese products and supply chains. The COVID-19 pandemic has also heightened domestic political rhetoric on decoupling from China and greatly influenced public opinion about the U.S.’ relationship with the nation. An early 2020 poll on attitudes towards China found that 75% of Americans believe the U.S. should end its dependence on China, specifically when it comes to Chinese medical technologies and exports. Moreover, when asked whether they agreed that the U.S.-China trade relationship should change in a post-pandemic world, 72% of respondents agreed, indicating that an overwhelming majority of the U.S. population holds a negative attitude toward integration with China.

Although China benefited immensely from the economic integration with the U.S., which characterized its rise to economic stardom, China now seeks to decrease its dependence on foreign countries for critical technologies and products. From the Chinese perspective, the government considers decoupling from the U.S. as a potential means to achieve greater independence from the West.  For the U.S., decoupling from China focuses primarily on discouraging Chinese imports in order to safeguard American jobs and national security. For China, however, decoupling serves a broader objective: it marks a shift in China’s strategic focus from one of economic growth to one of economic control. By decreasing its reliance on foreign technologies, China seeks to promote domestic dominance of Chinese firms and leverage this dominance into global competitiveness, thereby becoming a more independent and powerful economic hegemon. 

Ultimately, we know that innovation decoupling has already begun, and because of both nations’ political atmospheres, we can predict that these trends will continue to gain momentum. Although there is a growing political desire within both countries to decrease dependence on each other in this new age of international competition, the immense consequences of innovation decoupling between two world superpowers must be thoroughly considered before it is too late.

Implications for the Future

International cooperation is paramount to properly address the global issues the world faces. However, technological decoupling inhibits the necessary cooperation and integration required to combat challenges that transcend national boundaries. International issues, like the climate crisis and future pandemics, require that the U.S. and China share knowledge, technologies, and innovation with each other in order to be better equipped to solve them. 

While there is a natural tendency for nations to decouple on security technologies, there are pervasive consequences when technological decoupling escalates to a point beyond these conventional boundaries. As political tensions rise between the U.S. and China, complete innovation decoupling becomes more and more of a possibility. Technological decoupling in fields such as microchips and semiconductors could set the stage for decoupling in fields such as green technology or antiviral medications. The implications of decoupling and the rhetoric that surrounds it are far-reaching, and when it comes to the U.S. and China’s cooperation on climate change, we have already begun to see its effects.

A decade ago, the cooperation between the U.S. and China was a primary driver for global efforts to combat the climate crisis. The two nations funded joint research projects, shared best practices with regulators and academics, and most notably, made a joint public pledge to “work constructively together for the common good.” Since then, the world has changed significantly. Rhetoric on decoupling has grown. Both nations have become steeped in suspicion of each other’s intentions. And given that technological decoupling has already begun, it is no wonder why this cooperation is gone.

The implications of complete innovation decoupling between the U.S. and China must not be ignored. There is too much at stake. The solutions to adequately addressing global crises rely on changing the existing trajectory of decoupling between the world’s strongest two economies, before it is too late. As the world descends into intense economic and geopolitical conflict, technological development is one area where international cooperation must not be forsaken for rash politics. 

Nicolas Lama (CC ‘24) is a Senior Editor at CPR and a sophomore studying Political Science, Economics, and East Asian Languages and Cultures. At the Columbia Business School, Nicolas is an undergraduate research fellow, where he conducts research on the economic and political intersections between the United States and China. He was awarded the Critical Language Scholarship to study Mandarin this summer at the Changchun Humanities and Sciences College through the U.S. State Department with the goal of fostering more future mutual understanding between the two nations.

To read the full commentary by the Columbia Political Review, please click here.

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In 2018, the Trump administration initiated an investigation into China’s technology, intellectual property, and innovation practices under Section 301 of the Trade Act of 1974. The investigation found that Chinese acts and policies were burdening U.S. commerce, which prompted the U.S. Trade Representative (USTR) to impose tariffs worth more than $500 billion on imports from China. Our team has been closely tracking the effects of these tariffs, including gathering data on exclusion requests filed by U.S. importers and analyzing what the information can tell us. We received helpful input from The Lincoln Network as well.

There have been four tariff lists, or tranches, in the last four years. The tariffs were imposed on more than 10,000 product categories: 818 in tranche 1, 279 in tranche 2, 5,733 in tranche 3, and 3,207 in tranche 4A. Although tranche 4 was split into 4A and 4B, 4B tariffs were suspended as part of trade negotiations in 2019. The USTR also established the process by which interested parties could request exclusion from tariffs.

As for exclusion requests, since our last Section 301 update, the number filed hasn’t changed. As of September 6, 2021, importers had filed 52,746 product exclusion requests: 10,814 for tranche 1, 2,869 for tranche 2, 30,283 for tranche 3, and 8,780 for tranche 4A. Exclusions are valid for one year, at which point U.S. importers can apply for an extension.

The USTR has been reviewing extension requests and recently announced that it would reinstate Section 301 tariff exclusions for 352 products. To determine which imports would receive an exemption until the end of the year, the USTR reviewed whether products can be sourced from the United States or elsewhere.

In light of the recent USTR announcement and its impact on industries and workers, we are updating our Section 301 data and turning to sector-level analysis. This update focuses on consumer technology products. Consumer technology imports cover a wide range of products, such as clinical thermometers, gaming devices, drinking water coolers, and even tracking devices, representing a fairly large share of the goods targeted by the section 301 tariffs. In 2017 (the year before the tariffs were imposed), the customs value of consumer technology product imports was approximately $198 billion. We used a list of HTS codes derived from public comments filed by the Consumer Technology Association for our analysis.

Our key findings include:

1. Consumer technology product importers have been actively filing for exclusion requests. These U.S. importers have filed an exclusion request for 99% of their products that have been subject to the tariff.
    
2. Approval and denial outcomes for consumer technology product exclusion requests mirror overall product trends, with only 13% to 14% approved, and approval rates higher in the first two tranches than the third and fourth tranches.
    
3. Based on the 8-digit HTS codes for those consumer technology product imports on the section 301 list, China’s share of U.S. imports declined from 33.2% in 2017 to 19.4% in 2021. This is a larger change than seen in overall imports, for which China’s share declined from 22% to 18%. This may reflect the relatively large presence of consumer technology products in section 301 lists combined with USTR’s relatively high rate of denials for exclusion requests.
    
4. For the consumer technology products subject to the tariffs, there was some shifting from China to other countries, but not as much as policymakers may have hoped. China’s share of U.S. imports in the affected product areas declined from 35.8% to 27.5% over 2017 to 2021. Meanwhile, those shares increased for several Southeast Asian economies such as Vietnam, Taiwan, Thailand, South Korea, and Malaysia. Mexico’s share remained relatively flat.
    
5. Based on more detailed 10-digit HTS data (the level at which extensions are often granted), we find that approximately 40% of consumer technology product tariff exclusions received an extension.

Exclusions

As previously mentioned, consumer technology product importers have filed exclusion requests for 99% of the products that have been subject to the tariff (table 1), or 21,583 of the 21,896 consumer technology products. Overall, the outcomes for consumer technology product exclusion requests mirror statistics for other products (table 2). Of the 52,746 product exclusion requests, 6,802 (13%) were granted an exclusion and 45,944 (87%) were denied. For consumer technology products, there were 21,583 exclusion submissions, 3,097 (14%) of which were approved and 18,486 (86%) were denied.

Table 1. Consumer technology products subject to Section 301 tariffs: tariff exclusion requests filed and not filed (as of April 7, 2022)

Table 2. Summary tables: Outcomes for tariff exclusion requests

Table 3 reports the outcomes for exclusion requests for all products by tranche, while Table 4 reports the same data for consumer technology products.

Table 3. Outcomes for tariff exclusion requests: all products

Table 4. Outcomes for tariff exclusion requests: consumer technology products

Outcomes vary by tranche. Overall, the approval rating was 34% for tranche 1, 37% for tranche 2, 5% for tranche 3, and 7% for tranche 4A. Overall consumer product outcomes are similar, with the approval ratings of 29% for tranche 1, 40% for tranche 2, 6% for tranche 3, and 7% for tranche 4A.

Extensions

As USTR reviews requests extensions for tariff exclusions, the reasons or categories differ. Table 5 lists the number of consumer technology products granted an extension by decision category, including standard extensions granted, Covid-19 extensions, and reinstatements. A small share (2%-3%) of extensions for these products was Covid-related. The share of those reinstated increases over time. (These statistics are based on 10-digit HTS data and hence the absolute figures will not compare with those of the 8-digit-based statistics. We only did this to show the distribution of types of extensions, which had to be done at the 10-digit level.)

Table 5. Extensions granted for consumer technology products (calculated at the 10-digit level)

Overall, statistics based on 10-digit HTS indicate that 40% of consumer technology product exclusions granted received extension at some point since 2018.

Note that a product could have received an extension multiple times. For example, “Wireless communication apparatus that can receive audio data to be distributed to wireless speakers (described in statistical reporting number 8518.22.0000)” received an extension on both September 2, 2020, and March 28, 2022.

Some shifting of trade partners

Among consumer technology products subject to the tariffs, there was some shifting from China to other countries, but not as much as policymakers may have hoped. In this case, we use HTS 4-digit level codes to capture broader substitutions and product reclassifications. The data indicate that China’s share of U.S. imports declined from 35.8% to 27.5% over 2017 to 2021, or an 8.3 percentage point decrease. Yet China remained by far the largest import source, with Mexico relatively flat and a far second at 17.51% in 2021. Meanwhile, shares increased for Southeast Asian economies such as Vietnam, Taiwan, Thailand, South Korea, and Malaysia (figure 1).

Further analysis should include these calculations at the 4-, 6-, 8- and 10-digit levels in order to assess whether and to what extent product shifting within fairly detailed categories occurred (i.e., if there was a tariff on imported blue widgets with white polka dots from China, was there a consumer shift to blue widgets with red polka dots from China, or perhaps a shift to just plain blue widgets from Vietnam?).

Figure 1. Changes in US import shares in consumer technology product areas affected by setion 301 tariffs, 2017-2021

Conclusion

Exclusion outcomes for consumer technology products differed across tranches. The analysis could be extended to other sectors, especially given the recent changes in USTR reporting. Since the release of a Government Accountability Office (GAO) report, the USTR developed internal procedures that describe the process of determining which products qualify for a tariff exclusion. These changes may help policymakers to get a better understanding of the impact of Section 301 tariffs, though the reasons for USTR decisions on exclusions and extensions remain vague.

The U.S. International Trade Commission recently announced a new factfinding investigation that will examine the impact of the section 301 tariffs and the section 232 tariffs on steel and aluminum imports.

Also, the Office of the U.S. Trade Representative is about to commence a statutory four-year review of the Section 301 actions. That review will consider “the effectiveness [of the tariffs] in achieving the objectives.”

Beyond assessing changes in China’s intellectual property rights regime and technology transfer regime, it is not clear what criterion USTR will use to determine effectiveness. Questions that officials asked at the public hearings, however, often focused on whether there was existing domestic production or potential for domestic production, as well as the possibility of third-country sources. Finally, enough time has passed to allow for an assessment of downstream effects of the tariffs, as well as an assessment of whether and to what extent the tariffs spurred domestic production in the subject product area and/or a diversion to third party sources.

Christine McDaniel is a Senior Research Fellow at the Mercatus Center. Her research focuses on international trade, globalization, and intellectual property rights.

Polina Prokof’yeva is a second-year MA student in the Department of Economics at George Mason University. Polina graduated from Concord University with a BS in geography.

To read the full commentary by the Mercatus Center of George Mason University, please click here.

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Russia’s revanchist aggression in Ukraine has shocked Europe, the United States, and the world. At the same time, it has breathed new life into the imperatives for a transatlantic partnership and the broader liberal-democratic order it represents.

One key area of added transatlantic cooperation lies with the newly established forum for negotiation on technology and innovation issues, the U.S.-E.U. Trade and Technology Council (TTC). However, while the newfound transatlantic unity provides a valuable opportunity for American and European leaders to cooperate through the TTC, some experts have expressed doubt that the TTC would succeed in solving long-standing disputes.

Existing Obstacles

Renewed liberal-democratic solidarity is not entirely a result of Russian president Vladimir Putin’s war in Ukraine. In fact, since the beginning of the Joe Biden presidency, the United States has sought to  repair the transatlantic relationship frayed by the policies of the Trump administration. Bart Gordon, former congressperson and current director of the Trans-Atlantic Business Council, described the new thrust as a “sea change.” Gordon noted that “the previous administration … was looking for reasons to try to pick a fight, whereas in this administration, they’re looking for reasons to try to work together.” The Trade and Technology Council is one product of this shift, meant to bolster Western coordination on technology policy against growing assertiveness by some authoritarian regimes to control and exploit the potential of emerging technological domains.

However, even with a more amicable partner in the White House, relations between American and European leaders have had their bumps. In September 2021, just a week before U.S. and E.U. diplomats were scheduled to hold their first meeting of the TTC, the United States announced a new defense technology pact with the United Kingdom and Australia, known as AUKUS. This agreement scrapped a partnership that France had been cultivating with Australia, an action which French Foreign Minister Jean-Yves Le Drian described as “a stab in the back.” Since this dispute, France has been the most vocal detractor of holding talks on technology collaboration.

There have also been obstacles to cooperation on issues of data privacy. In recent years, the European Union has grown increasingly hawkish towards Big Tech companies. It has pressured the U.S. to adopt digital privacy and antitrust legislation in line with European standards to ensure the safe flow of European data across the Atlantic. Compromise here, however, has been slow to materialize, as many of the world’s largest tech firms are based in the United States and the U.S. has not yet reached a domestic consensus on regulating its tech sector.

Addressing many of these challenges in an interview with the Atlantic Council in September 2021, E.U. Commissioner for the Internal Market, Thierry Breton, a Frenchman, expressed with regret that “there is, indeed, growing feeling in Europe … that something is broken in our transatlantic relations.”

Promising Signs for Enhanced Cooperation

Optimism for meaningful cooperation, though, is still warranted. The TTC is the most promising forum for technology and innovation collaboration in recent memory. Launched in June 2021, the TTC’s explicit goal is “to lead global, like-minded [democratic] partners in promoting an open, interoperable, secure, and reliable digital space, and to remain leaders in developing and protecting tomorrow’s technology.”

Importantly, the Council’s agenda intentionally avoids topics of long-standing disagreement and tension between the U.S. and Europe (so-called “iron rice bowls”) which have doomed previous forums for negotiation, such as agricultural subsidies, the Boeing-Airbus dispute, and Trump-era steel and aluminum tariffs.

The Council established ten working groups to promote high-level dialogue on a variety of issues where collaboration appears possible, including:

The Council’s first meeting in September 2021 led to a series of notable outcomes on issues where significant agreement already exists. For example, on the issue of the global semiconductor shortage, both sides are committed to “identify[ing] gaps in the semiconductor value chain” and enhancing their respective semiconductor ecosystems. The U.S. and Europe have already begun taking important steps towards this shared goal. Of note, the European Commission has drafted legislation to mobilize over €43 billion in public and private funds to double its share of the global semiconductor manufacturing market by 2030. Meanwhile, in the United States, lawmakers continue to debate the CHIPS for America Act and the FABS Act, which provide lump-sum and tax-based incentives for chip manufacturers to “onshore” their operations. While these appear to be self-serving initiatives, the two sides view them as critical to ensuring mutual resiliency in a critical strategic industry.

In artificial intelligence (AI), the U.S. and E.U. affirmed their commitment to responsibly developing AI which is used in a way that respects democratic values and universal human rights. The European Union has already proposed sweeping legislation, known as the AI Act, which would serve as the first comprehensive law on artificial intelligence use and development worldwide. While the U.S. has no similar legislation making its way through Congress, the White House has established several bilateral initiatives through U.S. embassies and federal agencies with European partners to promote “democracy-affirming technologies” and responsible artificial intelligence and machine learning.

The next TTC meeting is scheduled for May 15-16, 2022, and this event will be the first dialogue since the Russian invasion, providing the TTC with a sense of urgency and seriousness that some analysts suggest might instill a spirit of compromise. Already on March 25, the President of the European Commission Ursula von der Leyen released a joint statement with President Biden announcing “an agreement in principle on a new framework for transatlantic data flows,” an agreement that the TTC will likely be tasked with fleshing out. Kenneth Propp with the Atlantic Council argues that this could mean a softening of Europe’s position on the issue of data privacy, acknowledging that the biggest threat to European data security is Russia, not U.S. tech companies. This could represent a significant breakthrough in cooperation on an issue where the two sides have struggled to find common ground, possibly heralding a wave of collaborative activity across a variety of other domains as well.

Putin’s wanton aggression in Ukraine has united a previously fractured Western world in a way that appeared impossible just months ago. The May meeting of the TTC provides a chance to build upon previous points of compromise. The United States and its European allies have a remarkable opportunity to harness the current political momentum to forge cooperation in securing their shared leadership in the technologies of the future.

Gregory Arcuri is a research intern with the Center for Strategic and International Studies in Washington, DC.

To read the full commentary by the Center for Strategic and International Studies, please click here.

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Global companies should prepare for an aggressive response to any Russian aggression. The U.S. and European countries are promising to impose tough new sanctions against Russia. It is difficult to predict exactly the contours of the West’s response from a global sanctions perspective.

Russia’s invasion of Crimea in 2014 resulted in the comprehensive sanctions program against Russia. Some have argued that the 2014 sanctions program was not as tough as it needed to be. Congress eventually stepped in to tighten the sanctions program.

From a compliance standpoint, the Ukraine-Russia Sanctions Program starting in 2014 has presented difficult compliance issues. Aside from designating a number of Specially Designated Nationals (“SDNs”), OFAC created a comprehensive Sectoral Sanctions regime, which raised a number of difficult issues. Instead of prohibiting business with various designated entities and individuals, the Sectoral Sanctions imposed specific restrictions on a number of entities an individuals, including limits on new credit or debt, as well as specific prohibitions on Russia’s oil and gas industry.

The challenge in predicting just how far the United States and Europe will go in adopting new sanctions is that there are a number of alternatives, each of which presents some serious collateral consequences to the United States and Europe. In this regard, Europe, and in particular Germany, has moved forward with Russia to establish the Nord Stream 2 pipeline for the transmission of natural gas.

The United States would face stiff opposition if it decided to sanction or stop the Nord Stream 2 pipeline, but recently Germany has indicated it may halt the pipeline if Russia invades the Ukraine. Putin will have to take this into account.

Aside from the Nord Stream pipeline, the United States and Europe may impose tough new restrictions governing Russia’s access to international banks, and in particular, may cut off Russia’s access to the Society for Worldwide Interbank Financial Telecommunications (SWIFT) global system for financial transactions. SWIFT is an international cooperative that is essential for financial transactions in the global economy. Such an action would have a significant impact on Russia, although Russia has been exploring with China the possibility of setting up their own international financial network as an alternative.

If the United States and Europe decide to impose tough new sanctions on Russia’s oil and gas sector global companies could face a complex maze of compliance issues. For example, if Gazprom becomes a prohibited entity, United States and European companies will need a significant wind-down period to adjust. Given the impact this could have on oil and gas global energy markets, I expect that United States and European leaders will avoid such a harsh measure.

Another possible avenue for sanctions is the restriction on export of technology and communications products to Russia. The Russian economy is transforming by embracing new technologies and producing consumer goods in response to demand. By restricting technology products, Russia’s economy may be derailed slightly but a significant impact is not likely.

Apart from these possible measures, the United States and Europe could expand the current Sectoral Sanctions program and the list of SDNs. Russia, however, is adept at circumventing these restrictions and has been able to avoid the direct hits that the United States and Europe sought to impose in response to the invasion of Crimea.

Companies have to monitor this situation and prepare for a possible new regime of sanctions. Compliance will be at the forefront on this issue. Whatever happens, Russia is likely to decide on its next step in the coming weeks.

Michael Volkov is a former federal prosecutor with over 30 years’ experience in a variety of government positions and private practice. Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, and regulatory enforcement issues.

To read the full commentary from JD Supra, please click here. 

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Here are a few brief excerpts:

“How do we ensure that our digital trade agenda supports our broader national security interests, for example with respect to physical infrastructure, cybersecurity, and reliable semiconductor supplies?”

“How can we balance the right of governments to regulate in the public interest, with the need for rules that guard against behavior that discriminates against American workers and businesses?”

“We’ve seen what happens when trade agreements and trade policy become outdated and fail to address modern challenges. By maintaining flexibility in our digital trade policies, we can ensure they remain resilient and long-lasting.”

“We must remember that people and workers are wage earners, as well as consumers. They are more than page views, clicks and subjects of surveillance. . . . This means they have rights that must be protected—both by government policy and through arrangements with other governments.”

“Nearly every aspect of our economy has been digitized to some degree. Our efforts to formulate and pursue digital trade policies should, therefore, begin with a high level of ambition to be holistic and inclusive.”

What do we learn from these comments? Digital trade policy should be consistent with our other policies. It should be flexible, holistic, and inclusive. People are consumers as well as workers. Nothing earthshaking there. Instead, we are left with a bunch of questions—the same questions the administration has been asking since it took office—and once again I am tempted to say, just get on with it. Make a decision and do something. There are no perfect answers to these questions, and nobody is waiting for them anyway. The rest of the world is moving ahead, forging alliances, building bridges, setting international standards, and negotiating agreements, and in the process realizing that they don’t need the United States. Several friends have described Biden’s trade policy as Trump Lite, and they have a point. Trump rejected plurilateral opportunities; Biden ignores them. The bottom line is the same; only the rhetoric is different.

This is particularly relevant for digital trade, a relatively new and rapidly growing part of the trade universe less encumbered by long-standing examples of protection and special treatment. The U.S.-EU Trade and Technology Council (TTC) is focusing on it for precisely that reason—there are no built-in “iron rice bowls” of protection and therefore there is an opportunity to develop new common rules.

It remains to be seen what the TTC will produce, but if you were looking for hints in Ambassador Tai’s speech, you wouldn’t find very many. It was also widely rumored that she would propose negotiating an Indo-Pacific digital trade agreement. That didn’t happen either. (Of course, allowing Trade Promotion Authority to expire makes such a negotiation much more difficult, but that’s a subject for a future column.)

More distressing was her answer to a question about how best to protect privacy, which was that standards for privacy must be determined domestically and priorities for U.S. digital trade policy lie in protecting how U.S. data standards are respected in cross-border data sharing. There are two problems with that. First, relying on national standards simply guarantees internet fragmentation, encouraging every government to develop its own rules that interfere with cross-border data sharing. Second, even if it were a good idea, Congress has been incapable of developing standards, with the result that the European Union’s General Data Protection Regulation is rapidly becoming the global default (except in China).

Privacy is only the tip of the iceberg. The European Union, via its Digital Markets Act, Digital Services Act, and artificial intelligence proposal, is using first-mover advantage to build the precautionary principle into digital trade rules to the detriment of U.S. platforms, service providers, and consumers. The workers that Ambassador Tai is concerned about are also voracious consumers of data and users of apps. How these regulations are sorted out internationally will have a major impact on their lives, if not their jobs. It is axiomatic in politics that you can’t beat something with nothing, and right now the United States has nothing in the digital regulation space. It is not Ambassador Tai’s job to develop those domestic policies, but it is her job to seek multilateral approaches that protect our interests while maintaining the free flow of data. A purely domestic approach will do the former at the expense of the latter. A strategy to develop international standards (presumably without China) can do that, but there were few signs in Ambassador Tai’s speech that the administration both understands that and has a plan for implementing it.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. 

To read the full commentary from the Center for Strategic & International Studies, please click here.

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