Mind the Gap: Priorities for Transatlantic China Policy - Report of the Distinguished Reflection Group on Transatlantic China Policy
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Mind the Gap: Priorities for Transatlantic China Policy Report of the Distinguished Reflection Group on Transatlantic China Policy July 2021
July 2021 Mind the Gap: Priorities for Transatlantic China Policy Report of the Distinguished Reflection Group on Transatlantic China Policy Wolfgang Ischinger Joseph S. Nye, Jr. Bernhard Bartsch Janka Oertel Reinhard Bütikofer Nadège Rolland Elbridge Colby Boris Ruge Elizabeth Economy Marietje Schaake Tobias Ellwood Susan Schwab Bonnie Glaser Bruce Stokes Mikko Huotari Alexander Stubb Andrea Kendall-Taylor Nathalie Tocci Anja Manuel Jan Weidenfeld Amrita Narlikar
Table of Contents Foreword 6 Introduction 9 Key Priorities 13 Pushing for an Economic Level 18 Playing Field Bolstering Economic Security 24 Competing for Tech Leadership 28 Providing Alternatives on 32 Infrastructure and Connectivity Setting the Agenda in 40 International Institutions Preserving Liberal Society and 44 Promoting Human Rights Sustaining a Balance of Power 50 for a Free and Open Indo-Pacific Notes 56 The Distinguished Reflection 62 Group & Team Acknowledgments 65
R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
Foreword by the Co-chairs
Dear Reader,
Today’s China presents fundamental challenges to the democracies of
Europe and North America. At the Special Edition of the Munich Secu-
Wolfgang Ischinger
rity Conference on February 19, 2021, President Biden spoke about the
need “to prepare together for long-term strategic competition with
China.” At the same event, Chancellor Merkel called on transatlantic
partners to articulate a “joint agenda.”
In the US, there is a strong bi-partisan consensus in this regard. In
Joseph S. Nye, Jr. Europe, too, attitudes toward Xi Jinping’s China have shifted, not just
among the foreign policy elite, but also among the broader public.
China is no longer seen primarily in terms of trade and investment
opportunities or a threat to jobs, but also as a challenge to American
and European interests and values including human rights and democ-
racy. Increasingly, European decision-makers view China’s behavior in
the Indo-Pacific and its projection of influence and power globally with
concern.
The June 2021 summits of the G7 and NATO as well as the EU-US
summit confirmed that China is at the top of the transatlantic agenda
and that there is convergence in terms of moving towards more robust
policies in dealing with Beijing.
And yet, a gap remains between American and European views. This is
due to different readings of China and differences in basic approaches
to foreign, economic, and security policy. In part, the gap reflects dif-
ferences in the level of economic and financial exposure. In part, it is
due to different security interests and defense commitments.
6
FO R E WO R D
Which elements of the existing international order can be maintained
and to what extent that order needs to be adapted has been the sub-
ject of intense debate during the work of our Reflection Group. We
have also debated to what extent “decoupling” from China is desirable
and possible. While we have not resolved these issues, we are con-
vinced that they must continue to be part of the transatlantic conver-
sation.
Faced with the reality of China’s policies today, the democracies of
Europe and North America must join forces to defend and advance
their interests and their values. If they do so, in cooperation with
like-minded partners around the world, we firmly believe they will be
able to hold their own in any competition with China. And by working
together rather than separately, Canada, Europe, and the United States
will create a basis for a more fruitful dialogue with China in the future.
None of us want to see a “new Cold War.” We recognize that China has
its rightful place in the international system, and we believe that
dialogue is necessary.
We hope that this report will contribute to a more joined-up transat-
lantic approach. It is itself a product of transatlantic cooperation
involving the Aspen Strategy Group, the Mercator Institute for China
Studies, and the Munich Security Conference. It was made possible by
the engagement of a distinguished group of individuals with a wealth
of expertise on China as well as transatlantic relations.
All members of the group played an active part in laying the ground-
work for this report. However, members do not necessarily subscribe to
every aspect of the analysis and recommendations contained therein,
and the same holds for the three convening organizations. The report
represents an effort at capturing the prevailing opinion among members.
7R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P 8
I N T RO D U C T I O N
Introduction
As this report was being finalized in July of 2021, it was evident that the
views of American, Canadian, and European policymakers on China are
converging.
“We are in the midst of a
fundamental debate US policy towards China underwent a major shift under President Donald
about the future and Trump. While different in style and modus operandi, President Joe Biden
direction of our world. has broadly continued on this trajectory, with bi-partisan support. In an
We’re at an inflection
op-ed published in early June, Biden wrote that the purpose of his trip to
point between those
Europe was to demonstrate the capacity of democracies to “meet the chal-
who argue that, given all
the challenges we face – lenges and deter the threats of this new age.”1 China featured prominently
from the fourth industri- in that op-ed.
al revolution to a global
pandemic – […] autocra- Two years earlier, in 2019, the EU coined its now familiar “China trinity,”
cy is the best way for- describing the People’s Republic as being simultaneously a partner, a
ward, […] and those who
competitor, and a systemic rival. Since 2019, European policies have evolved
understand that demo-
further. In its “EU-US Agenda” of December 2020, Brussels expressed
cracy is essential – essen-
agreement with Washington on “the strategic challenge presented by
tial to meeting those
challenges.”3 China’s growing international assertiveness,” while acknowledging that
“we do not always agree on the best way to address this.”2
Joe Biden, US President,
MSC Special Edition,
February 19, 2021 The evolution of Western (and global) views on China can only be under-
stood against the background of the course charted by the Chinese Commu-
nist Party (CCP) over the past years, ranging from massive violations of hu-
man rights and the suppression of political freedoms at home, to “Wolf
Warrior” diplomacy and influence operations abroad, to a doubling down on
a state-led economic model. The June summits of the G7 and NATO as well
as the EU-US summit provide evidence of the significant level of agreement
among transatlantic partners, based in good part on concerns about Bei-
jing’s coercive behavior. In these formats, heads of state and government
identified a series of specific measures to address challenges presented by
China.
One element of convergence is the recognition that a principal challenge
emanating from China is in the areas of technology, trade, and investment,
and that China’s neo-mercantilist techno-nationalism and sustained non-
convergence undermine free-market economies and the existing global
system of economic governance.
9R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
There is also an understanding that the West must put forward credible al-
ternatives with regard to global infrastructure and connectivity in order to
generate economic growth and enhance respect for the rule of law, transpa-
rency, and sustainability. Joining forces can help mobilize top-level political
support for a comprehensive connectivity strategy, which so far has been
lacking on both sides of the Atlantic.
Convergence with regard to China’s record on human rights has been partic-
ularly tangible. In March 2021, for the first time since 1989 and in coordina-
tion with the US, the UK, and Canada, the EU imposed human rights sanc-
tions against China over Beijing’s abuses in Xinjiang (China responded by
targeting EU institutions, Members of the European Parliament, NGOs, and
others). Increasingly, transatlantic partners perceive the CCP as engaging in
an assault on liberal values and norms as well as human rights, threatening
their core interests.
The inclusion of Taiwan in the final documents of the G7, NATO, and EU-US
summits signals unprecedented transatlantic concern about threats to
peace and stability in the Taiwan Strait. China’s growing diplomatic and
military pressure against Taiwan is the main source of cross-Strait tension.
Countries on both sides of the Atlantic are increasingly worried about the
potential of a military conflict and believe it is important to voice their sup-
port for the peaceful resolution of differences between Beijing and Taipei.
The growth of Chinese power has limited the ability of liberal democracies
to shape the international order. Transatlantic partners have seen China
make its influence felt in international organizations across the spectrum.
With regard to security, there is a high degree of asymmetry between the US,
Canada, and European nations in terms of their security exposure in the
Indo-Pacific and their respective capabilities. At the same time, it is increas-
ingly clear that European interests are impacted where China encroaches on
the sovereignty and independence of Indo-Pacific nations and undermines
freedom of navigation. As EU High Representative Josep Borrell noted on
June 3, “the EU’s interest is precisely this: that the regional order stays open
and rules-based.”4 In addition, it is evident that a major crisis in the Indo-
Pacific would have immediate repercussions for European security as the US
would redeploy military resources from Europe and adjacent areas. At the
same time, it would severely impact Europe’s economies.
10I N T RO D U C T I O N
In sum, convergence is real, but important voices have warned against Eu-
rope taking sides in what some perceive as a competition primarily between
the US and China. Speaking at the Atlantic Council in February, French
President Emmanuel Macron said, “a situation to join all together against
China, this is a scenario of the highest possible conflictuality. This one, for
me, is counterproductive.”5 A few days earlier, at the World Economic
Forum, Chancellor Angela Merkel said much the same and argued against
the “building of blocs.”6
European reluctance about entering into confrontation with China is also
evident in surveys.7 As documented in the Munich Security Report 2021,
publics on both sides of the Atlantic see China as one of the world’s most sig-
nificant risks (see Figure 1). However, Europeans are more reluctant than
North Americans about confronting China, especially in the economic
realm (see Figure 5). Convergence in public opinion, too, should not be taken
for granted.
Clearly, it would be counterproductive to pretend that the US, Europe, and
Canada are fully aligned with regard to China. The reasons are evident and
are based in differences of geography, economic exposure, priorities, percep-
tions, as well as fundamentally different approaches and traditions in for-
eign policy. Washington recognizes this. As Secretary of State Antony
Blinken highlighted in a speech in Brussels on March 24, the US will not
force allies into an “us or them” choice with regard to China.8
Nor is there a need for full alignment: the areas of agreement among transat-
lantic partners are substantial and offer a solid basis for cooperation. What is
needed is a pragmatic approach identifying joint action where possible and
(in the words of the December EU-US agenda) “managing differences” where
necessary.
This is the approach advocated in this report. Building on the results of the
June summits, we propose a transatlantic agenda focused on achieving
quick wins over a period of up to 18 months, with recommendations orga-
nized by seven issue areas.
If transatlantic partners can implement such an approach, it will not only
enhance the effectiveness of China policies, but will also help put the part-
nership on a solid foundation. If, by contrast, the democracies of Europe and
North America fail to come together, resulting divisions will be a source of
11R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
continuous disagreement, potentially undermining the relationship as a
whole.
Working together with partners such as Australia, India, Japan, New Zea-
land, South Korea, and many others with whom areas of agreement can be
identified will be crucial to achieving success.9 In the case of Russia, a con-
structive dialogue on China is clearly not a near-term prospect. But given
Russia’s strategic interests it is a conversation to which the West should
revert once conditions permit.
The rise of a domestically authoritarian and globally assertive China renders
transatlantic cooperation more relevant than at any time in recent history.
Transatlantic partners need to be ready for long-term strategic competition.
They must also seize opportunities for cooperation with China, starting with
issues such as climate change, global health, and food security. By working
together from a position of strength, they will improve the chances of arriv-
ing at more productive relationships with China.
12K E Y P R I O R I T I ES
Key Priorities
Working together to develop a joint policy agenda on China, transatlantic
partners should focus on quick wins. Such quick wins will be important for
their impact with China as well as for establishing confidence on both sides
of the Atlantic that this cooperation is attainable and worthwhile. With
these considerations in mind, we suggest the following policy priorities for
transatlantic cooperation over the next six to 18 months:
Pushing for an Economic Level Playing Field
Transatlantic partners must continue to engage in a long-haul push for the
implementation of Chinese commitments regarding market access in China,
subsidies, intellectual property (IP) protection, and government procure-
ment rules. However, the immediate transatlantic agenda should focus on
steps that can be taken independently of China but that are likely to have
effects with the political leadership in Beijing, such as:
• Resolving transatlantic economic disputes to enable more robust
cooperation in dealing with China
• Promoting a more joined-up strategic outlook on China’s economic
trajectory
• Reforming the WTO and working on plurilateral initiatives
• Leveling the playing field with China in third markets through
cooperation on the ground
Bolstering Economic Security
In the face of Chinese efforts to acquire critical technologies and know-how
abroad, both sides of the Atlantic have undertaken major efforts to upgrade
their investment screening regimes and have placed greater attention on the
issue of export controls. Against the backdrop of the Covid-19 pandemic,
which acutely exposed strategic vulnerabilities, transatlantic partners have
also sought to reduce dependencies on China for the supply of critical
materials and technologies. Moving forward, key areas to address include:
13R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
• Closing gaps in and future-proofing technology control toolboxes
• Improving supply chain and technology security through
diversification
• Mitigating the risks of Chinese economic coercion
Competing for Tech Leadership
Transatlantic partners, while also competitors themselves, have a joint in-
terest in competing for tech leadership vis-à-vis China. The US, Canada, and
Europe should selectively strengthen coordination on maintaining a com-
petitive edge in critical foundational, emerging, and frontier technologies
(like quantum computing, synthetic biology, and artificial intelligence) and
on creating a conducive environment for their deployment, including by:
• Setting tech standards together
• Fleshing out and coordinating rules for the technology sector
• Aligning principles on artificial intelligence governance and ethics
• Developing a shared approach to managing the human rights implica-
tions of technology
• Promoting jointly funded research and development in foundational
and emerging technologies
• Developing joint guidelines to protect basic science research at
universities
Providing Alternatives on Infrastructure and Connectivity
The challenge China’s global infrastructure policy poses is well recog-
nized in North American and European capitals. Together, transatlantic
partners provide enormous resources for building connectivity world-
wide. However, they have failed to coordinate and communicate their lev-
el of engagement. Building upon the June 2021 G7 and EU-US Summits,
transatlantic priorities should include:
14K E Y P R I O R I T I ES
• Developing a coordinated transatlantic approach
• Mobilizing the EU for action
• Taking flagship projects forward
• Promoting a joint narrative
• Joining forces with like-minded partners
Setting the Agenda in International Institutions
It will be critically important that transatlantic partners coordinate their
respective norms- and values-based initiatives. However, there is also
agreement that the US, Canada, and Europe must intensify practical ef-
forts to pursue a transatlantic agenda across the whole of the global gov-
ernance architecture, including by:
• Establishing a transatlantic dialogue on international institutions
• Coordinating on policy in international institutions to counter harmful
Chinese initiatives
• Coordinating on personnel questions in international institutions to
counterbalance Chinese representation
Preserving Liberal Society and Promoting Human Rights
Transatlantic partners should capitalize on opportunities to jointly double
down in defense of liberal society, human rights, and political freedoms vis-
à-vis China. Increasing coordination between the United States, Canada and
Europe as well as coordination within the Organisation for Economic Co-op-
eration and Development (OECD) and with the Global South should be a key
component in pursuing transatlantic priorities, such as:
15R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
• Setting the terms of civil society interactions – starting with the Beijing
Olympics
• Combatting digital authoritarianism
• Elevating anti-corruption as a national security priority
• Formalizing consultation in the OECD and with the Global South
Sustaining a Balance of Power for a Free and Open Indo-Pacific
While European nations are less exposed to China’s hard power and are less
engaged in the region, their security interests are significantly impinged
upon by the trajectory of Chinese policy. In the near term, common transat-
lantic priorities should include:
• Developing a joined-up approach on security in the Indo-Pacific
• Upholding international law and engaging with partners in the region
• Supporting Taiwan and preparing for contingencies
• Engaging China on global security issues
16K E Y P R I O R I T I ES
17R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
Pushing for an Economic Level
Playing Field
The Stakes
Under President Xi Jinping, China has come to embrace a neo-mercantilist
techno-nationalism and turned its back on free market economy norms and
principles. Domestic market reforms that would have levelled the playing
field with OECD economies have slowed down and are increasingly embed-
“How do we create a level ded into wider Chinese efforts of bolstering party-state capitalism.10 At the
playing field with an ever same time, China’s economic integration with North America and Europe in
more challenging, con- terms of trade, investment, and capital markets is at an all-time high, and
frontational China? And
many Western corporates are still doubling down on economic growth and
how do we deal with an
research and development (R&D) opportunities in China. For many North
ever more aggressive
American and European industries, scaling back economic engagement
and repressive Russia?
Answering these ques- with China, let alone full-scale decoupling, would be difficult and costly.11
tions will be central to
the future of our As they cannot rely on Beijing to reverse course on its domestic and global
alliance.”13 economic policies and practices, transatlantic partners must join forces and
Heiko Maas, German
shape the economic environment in which they interact with China in ways
Foreign Minister, Inaugura- that are favorable to European and American interests. To protect free mar-
tion of the Fritz Stern Chair
at Brookings, March 9, 2021
ket principles at home and abroad, Europe, the US, and Canada must seek
greater alignment on key matters of global economic governance, such as
the future of the World Trade Organization (WTO) as well as alternative or
complementary plurilateral arrangements. Moreover, with the aim of greater
reciprocity in bilateral economic relations in mind, transatlantic partners
should align measures to protect the level playing field at home, as Chinese
actors expand their footprint, and to support champions of competitive neu-
trality in China. As China challenges the existing global economic order and
rules, transatlantic engagement, and cooperation with like-minded free
market economies around the globe also matters more than ever. Recent
commitments by the G7 countries to pursue collective approaches to chal-
lenging Chinese non-market policies and practices12 rightly also extend to
collaborating with free market economies around the world. This will help to
ensure that individual countries, which might be in less of a position of
strength vis-à-vis China than the US or Germany, do not need to confront
Beijing on their own.
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The State of Play
The US, Canada, and Europe have long attempted to level the playing field
with China, with concerns and interests being largely in alignment: these
efforts are aimed at (1) improving the position of foreign commercial actors
operating in China vis-à-vis Chinese competitors, e.g., with a view to market
“We must constrain access, subsidies, and IP protection, and (2) curbing the spread of unfair Chi-
China’s economic preda- nese economic practices, such as state-funded and -sponsored takeovers in
tion by partnering with North America and Europe. However, neither efforts of the US, like the Phase
our allies and friends to I Deal, nor of the EU, like the political agreement on the Comprehensive
deny China free access
Agreement on Investment, seem to be capable of fundamentally changing
to our markets unless it
the trajectory of Chinese economic policy and conduct.
agrees to abide by global
rules of fair trade.”14
However, there have been a range of level playing field issues between the US
Mitt Romney, US Senator,
Member of the Foreign
and the EU themselves that have distracted them from jointly tackling level
Relations Committee, playing field issues North American and European companies face in China.
The Washington Post,
April 1, 2021
These have included disagreements over data privacy standards as well as
global corporate taxation. The existence or mutual threats of imposing (even
higher) tariffs on European goods, such as steel and automotive products, by
the US or on US goods, such as motorbikes or whiskey, by the EU, and the
long-standing Airbus-Boeing dispute over subsidies have also hampered Al-
lies’ ability to pursue a joint level playing field agenda vis-à-vis China. Steps
taken by both sides to resolve these disagreements, like the Airbus-Boeing
moratorium until 2026 or the G7 agreement on global tax reform – if it can
garner bipartisan support in the US15 – could help to enable transatlantic
partners to engage more robustly with China on level playing field issues
both inside and outside the WTO. They might also pave the way for joint ef-
forts to level the playing field vis-à-vis China in third countries, which have
so far also ranked rather low on the transatlantic agenda but which might
gain momentum as a topic of greater joint interest on the back of efforts to
implement the Build Back Better World (B3W) initiative.16
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The Priorities
The US and Europe must engage in a long-haul effort to push China to make
and keep commitments on critical aspects of a level playing field, such as
market access, subsidies, intellectual property protection, and government
procurement rules. However, transatlantic partners might find that rather
than engaging with China directly, over the next six to 18 months, leveling
the playing field in relation to China will yield more promising results, in-
cluding with China: such efforts include (1) resolving economic disputes be-
tween the US and Europe and strengthening the joint outlook on China’s
economic trajectory as a basis for engaging China more robustly; (2) building
an even stronger rapport with like-minded partners on matters of global
economic governance as a basis for a more robust engagement with China
and (3) coping with the fallout of unfair practices by Chinese economic ac-
tors in third countries. Specifically, joint transatlantic action over the next
six to 18 months should revolve around a set of realistic deliverables, which
fall broadly into four areas:
Resolving transatlantic economic disputes to enable more robust
cooperation in dealing with China
The European Commission and relevant US government departments
should follow up on the recent G7 agreement on global taxation as a basis for
further negotiating relevant rules and processes with China in the G20 con-
text. This is particularly urgent as China has shown growing eagerness itself
to set the rules of the game in this space. Clearly, such steps must be de-
signed to ensure broad political support in the United States and European
countries, both on substantive grounds but also to ensure any such agree-
ments are lasting and reliable.
At the same time, the moratorium on tariffs in the long-running dispute over
subsidies to Airbus and Boeing should lead to a permanent resolution of this
issue and free up bandwidth to deal with unfair competition from China’s
subsidies for its COMAC commercial airliner.
Washington and Brussels should also step up consultations on a number of
issues that may not be fully addressed over the next 18 months but are inte-
gral to a joined-up position in dealing with China, such as embracing compa-
rable standards for the review of foreign investments and the updating of ex-
port controls.
20P U S H I N G FO R A N ECO N O M I C L E V E L P L AY I N G F I E L D
Promoting a more joined-up strategic outlook on China’s economic
trajectory
The governments on both sides of the Atlantic should encourage the
formation of a transatlantic CEO advisory group on China. Jointly launched
by the US president and the EU Commission president, ideally with buy-in
from Canada and other interested non-EU European countries, the group
would help to bridge the gap between China discussions in the political and
business sphere and send a strong signal to Beijing that level playing field is-
sues are at the top of the agenda from all angles.
The American and European Chambers of Commerce in Beijing should
launch a joint North American and European tracker on the business envi-
ronments in strategic markets in China. This could take the form of a joint
regular report and also involve participation by other OECD chambers in the
future.
Reforming the WTO and working on plurilateral initiatives
The US, Canada and Europe need to agree that the WTO requires fundamen-
tal reform, if it is to be relevant, and to develop a joint agenda, with other
free market economies, to deliver such reform. Transatlantic partners
should seek pragmatic steps that can revive the WTO, such as finding ways
to unblock the impasse at the appellate body, while focusing on making the
necessary preparations for the 12th WTO Ministerial Conference that will
take place in Geneva in late 2021. In this respect, coordination efforts under-
taken under the current UK Presidency of the G7 should be pursued with
even greater urgency.
In order to make better use of the WTO with a view to China’s unfair trade
practices, transatlantic partners should not only focus on institutional re-
form. They should also jointly bring a group of cases to the WTO that fulfill a
single level playing field goal in relation to China, e.g., through “strengthen-
ing competitive neutrality”, to which other WTO members can then sign up
to on a case-by-case basis.
As agreed by G7 nations at the June 2021 summit, transatlantic efforts with-
in the WTO should be complemented by “second track initiatives,” such as a
plurilateral agreement among the broadest possible coalition of WTO mem-
bers on state subsidies.
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Leveling the playing field with China in third markets through
cooperation on the ground
Europe, Canada, and the US should intensify efforts to jointly address the
negative implications of unfair Chinese competition in third markets. This
will require the US, Canada, and Europe monitoring and pooling intelli-
gence on the ways Chinese entities propel unfair competition in third
markets.
North American and European governments and trade agencies should also
develop and deliver joint messages that their economic engagement – and
that of their companies and citizens – with third countries is ultimately tied
to free and fair market economy principles being upheld by these third
countries.
US, Canadian, and European embassies on the ground, investment banks,
and development and trade agencies should also develop and implement
joint programs aimed at encouraging and supporting recipient countries to
embrace free, rules-based market environments. Activities implemented to-
wards this end should aim at strengthening the rule of law, supporting pub-
lic sector oversight capacity building, specifically as pertains to curtailing
corruption, and empowering civil society actors engaged in monitoring
labor and environmental practices.
22P U S H I N G FO R A N ECO N O M I C L E V E L P L AY I N G F I E L D
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Bolstering Economic Security
The Stakes
China has a long track record of industrial and technology policies that
involve a highly strategic management of its global interdependencies and
commercial relations. Beijing’s efforts are underpinned by government
programs aimed at achieving dominance in key market segments and value
“Building resilience will chains. To this end, China pursues an intensive and systematic campaign of
mean increasing our exploiting technology transfers from imports and joint ventures, acquisi-
production of certain tion, and espionage to leapfrog industrial development, modernize its mili-
types of elements here tary, and improve China’s relative global power position.17 China’s policies
at home. In others, it’ll
have moved beyond playing catch-up in various areas and constitute the
mean working more
world’s most ambitious experiment in “techno-nationalism” – with far-
closely with our trusted
friends and partners, na- reaching implications for the competitiveness, security, and resilience of
tions that share our val- transatlantic partners.
ues, so that our supply
chains can’t be used As the free market economies that have gathered under the OECD’s umbrella
against us as leverage.”21 are heavily invested in China and their global supply chains are deeply en-
Joe Biden, US President, tangled with the Chinese market, they also share a set of economic security
signing of an executive concerns vis-à-vis China. While such concerns traditionally relate mostly to
order on supply chains,
February 24, 2021 “technology leakage” narrowly defined, they are now expanding and include
(1) preventing specific technology transfers with military and dual-use pur-
poses as well as controlling access to cutting-edge and sensitive technolo-
gies, (2) strengthening resilience by managing vulnerabilities in supply
chains, systems, and networks, and (3) preserving a healthy industrial base
and long-term innovation capacity through targeted government funding of
R&D and the protection of intellectual property. As the scope of concerns
has expanded, so has the set of critical technologies that are of strategic
importance.18
At the same time, the countervailing commercial incentives to deepen
rather than limit interdependence with China are much higher than with
any past competitor or adversary of the “West.” The vast Chinese market
not only offers revenues that enable companies to spend more on R&D, but
also makes it possible in certain sectors to innovate faster and make use of
economies of scale.19 Sustained unequal openness between the Chinese and
the OECD markets, however, creates distortions that have a negative impact
not only on future competitiveness but also the long-term resilience and
economic security of Europe and North America. The security impli
24B O L ST E R I N G ECO N O M I C S ECU R I T Y
cations deriving from growing interdependence with China are increased
further by China’s current political trajectory, its declared aim of becoming
a leading technology player that is able to use (and abuse) its role in global
supply chains for political goals, the growing innovation capacity and global
technological clout of Chinese companies, as well as Beijing’s renewed focus
on military-civil fusion and self-reliance policies.20
The State of Play
Recent transatlantic efforts to manage tech competition with China have
already led to some initial coordination and/or alignment, including with a
view to investment screening mechanisms and revamped export controls.
However, the transatlantic community will need to step up its game, as
“We will seek cooperation China is increasingly capable and willing to leverage or weaponize economic
with likeminded partners dependencies, including through the threat and use of retaliatory sanc-
wherever we can to sup- tions,23 which is undermining the security of free market economies in more
port open, fair and rules-
profound ways than in the past. Efforts to tackle economic security concerns
based trade; reduce stra-
in relations with China are also already intertwined with the emergence of a
tegic dependencies; and
broader systemic competition, including over values (also embedded in the
develop future standards
and regulations: all of use and management of technologies), physical and digital infrastructures,
which are critical for our and global diplomatic and geostrategic influence.
economic strength.”22
However, more effective transatlantic coordination is conditioned by pre-
Valdis Dombrovskis, Euro-
pean Commission Executive vailing differences in relative sensitivities related to economic security chal-
Vice-President for An Econo-
lenges as well as the competitive nature of technology development between
my that Works for People,
Update to the 2020 EU In- like-minded partners. To overcome their differences, the transatlantic
dustrial Strategy, May 5,
policy and business communities will be well served to follow a few key
2021
principles in their approach to economic security. First, allied coordination
requires investments in mutual education, information exchanges and
private sector dialogue on China and the challenges to economic security
it poses. To this end, the recently launched EU-US Trade and Technology
Council (TTC) and the envisaged establishment of technology coordination
offices in G7 executive agencies that deal with economic security consti-
tute important steps forward. Second, to reconcile global business activity
and national security, and control certain technologies effectively, build-
ing higher walls for a limited scope of technologies while allowing other
transnational business activities to be conducted with as few boundaries
as possible should remain the preferred approach. Finally, for an efficient
management of technology controls, targeted coordination efforts among
flexible technology-specific groupings of countries seems the most promis-
ing approach.
25R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
The Priorities
Allies need to “run faster” than China in innovation, technology develop-
ment, and related standard-setting. This will require more joined-up R&D
and industrial strategies and leveraging the existing competitive nature of
US and European industries on global markets in limited strategic sectors.
In the end, any joint action will only succeed with transatlantic leaders
creating a narrative that will convince businesses and the respective publics
within the US, Canada and Europe to sacrifice short-term economic gains
for long-term economic security and reduced dependence on China. To
jointly succeed in the bolstering of economic security over the next six to 18
months, transatlantic partners can and should pursue measures in a num-
ber of priority areas:
Closing gaps in and future-proofing technology control toolboxes
Transatlantic partners should invest in the multilateral architecture by
strengthening the Wassenaar Arrangement, which could include additional
resources as well as more frequent updates that capture more adequately the
rapid pace of technology development. They should also establish perma-
nent dialogue structures across the Atlantic – and parallel to the relevant
multilateral frameworks, to (more rapidly) harmonize the definition and
scope of critical emerging and foundational technology definitions.
Another aim should be to establish a regular exchange and information
sharing mechanism among transatlantic partners and Japanese and South
Korean legislatures on China and economic security in form of joint commit-
tee meetings or joint (public) hearings. Greater coordination in this grouping
could also include supporting industry associations in Japan, South Korea,
the US, Canada, the EU and other European countries to establish best prac-
tices for export control compliance and internal company governance.
Transatlantic partners should expand the scope and coordination of screen-
ing mechanisms for key technologies, such as quantum or AI, to capture
venture capital investments and R&D collaboration with Chinese entities.
The US, Canada, and Europe should invest in more coordinated responses
to Chinese cyber theft and attacks, including by establishing liaison officers,
conducting joint training and exercises, cyber security policy simulations,
and improving modalities for threat and vulnerability intelligence sharing.
26B O L ST E R I N G ECO N O M I C S ECU R I T Y
Improving supply chain and technology security through
diversification
Transatlantic partners should coordinate information-sharing on (ongoing)
supply chain risk reviews, which could include a particular focus on meth-
odology, findings, and the intersections between vulnerabilities.
They should invest in mechanisms that support the establishment of com-
mon principles for managing risks associated with non-trusted suppliers for
technologies, including on 5G and in the future 6G, building on the EU’s “5G
toolbox” and the Prague principles precedent.
Transatlantic partners should work with like-minded economies, such as
Japan, on building a large, trusted space of free flows of data to build scale,
with Taiwan and South Korea on semiconductor development, with Aus-
tralia on rare earth supplies, with India on pharmaceuticals, and with key
emerging economies on digital connectivity to diversify relations and limit
risk accumulation.
Mitigating the risks of Chinese economic coercion
Transatlantic partners should jointly invest in research and risk assess-
ments toward transparency around critical Chinese activities that create
or enhance the potential for economic coercion around technology choke
points. The G7 or the TTC should mandate research for and the publication
of an annual flagship resilience and economic security report that articu-
lates the research and risks.
They should move to establish a collective security mechanism against eco-
nomic and political coercion with like-minded countries. Such a mechanism
should be triggered when an country is targeted by Beijing. A more ambi-
tious version of this would involve automatic responses to Chinese coercion
that would kick in as agreed upon by parliaments in advance. A first step
would be to work with countries that have already been targeted by Beijing’s
coercive efforts.
Transatlantic partners should invest in risk assessments and potential joint
responses to threats of future “infrastructure capture” or dominance by
China, including by assessing the scope for coordinating digital currency
developments.
27R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
Competing for Tech Leadership
The Stakes
Technology is already a key element in competition between China and the
“West” and will be in the future (see Figure 2). The Covid-19 crisis has cata-
lyzed China’s push for global tech leadership. Beijing’s goal is to rapidly
adopt digital and emerging technologies and integrate them with traditional
industries to boost China’s future competitiveness. In doing so, Beijing aims
to reduce its reliance on foreign technology. Tensions between China and
the US, Canada, and Europe have accelerated this trend. The new five-year
plan (2021-2026) places a strong emphasis on indigenous technological
innovation.24
As China’s tech clout grows, transatlantic relations become even more cru-
cial: together North America and Europe could form the politically, econom-
ically, and technologically powerful transatlantic core of what should be-
come flexible tech coalitions of like-minded countries that can push back
against China’s authoritarian approach. To this end, more transatlantic
alignment around technology policy vis-à-vis China is needed.
The State of Play
In recent years, the US and the EU have diverged on tech issues: for example,
a tough American approach to Chinese 5G network technology has com-
pared to an uneven European stance on the issue, with different countries
pursuing different strategies to mitigate risks. Europe is also hesitant about
“You see the possibility decoupling its tech supply chains from China. Rather, many European coun-
for alignment [between tries prefer to chart a putative “middle course” between the two technologi-
the US and the EU…] cal power blocs.
I would really hope that
as democracies we could
In large part due to global expansion of Chinese tech firms, which are ever
agree on some of the
more deeply embedded in an authoritarian political system and, as a result,
fundamentals when it
comes to standards- often implicated in the use of technology for surveillance purposes, transat-
setting.”25 lantic views are now converging with regard to the downsides of reliance on
Chinese technology. Some initial proposals have been made: a new EU-US
Margrethe Vestager, Europe-
an Commission Executive Trade and Technology Council has been created, and the Biden administra-
Vice President for a Europe tion is considering convening a techno-democratic alliance.27 Still, differ-
Fit for the Digital Age, The
Wall Street Journal, June 17, ences between the EU and the US on tech policy priorities remain.
2021
28CO M P E T I N G FO R T EC H L E A D E R S H I P
Transatlantic partners also need to spell out the specifics of their shared un-
derstanding of values related to some fundamental matters of tech gover-
nance, such as the right to privacy, instead of implicitly assuming a similar
understanding on the other side of the Atlantic. Transatlantic cooperation
to address China’s growing push for leadership in technology can only suc-
ceed on the basis of a clearly defined agenda.
The Priorities
Transatlantic partners should pursue the below concrete steps together over
the next six to 18 months to lay the groundwork for effective cooperation on
tech issues.
“We must build every Setting tech standards together
possible technological
sharing path between Europe, the US, and Canada must make greater strides towards promoting
our key alliances. […] I’d
joint technology standards, such as in 5G and 6G or artificial intelligence
like to see a national list
(AI). Beijing sees international bodies as an opportunity to promote Chinese
of key technology plat-
technologies and make them the global standard (see, for example, China’s
forms that we collective-
ly agree must emerge Standards 2035 policy) and intervenes politically and economically to boost
using Western values China’s national champions. In contrast, transatlantic partners prefer a
and must be the ones more hands-off approach, relying on private corporations to participate in
being used by our de facto tech standard setting as well as in relevant standard setting bodies,
partners.”26 and they assume that a given technology will be judged on its merits.
Eric Schmidt, Chairman of
the US National Security The US, Canada and Europe must develop a better joint understanding of
Commission on Artificial
Intelligence, Senate Armed the geopolitical implications of setting technical standards and avoid a sce-
Services Committee hearing, nario whereby they are divided on standard-setting processes and outcomes
February 23, 2021
themselves. Even without resorting to Chinese tactics, transatlantic part-
ners should share information with each other and with their own compa-
nies (1) to help Western companies understand how China attempts to influ-
ence global standard setting (2) to assess risk and support the formation of
private coalitions, and (3) to ensure there are sufficient funds for knowledge-
able Western experts to attend important standards-setting meetings.28
Fleshing out and coordinating rules for the technology sector
A key priority should be coordinating export controls on key technologies,
such as semiconductors (see Figure 4), as these present a high leverage op-
portunity for capping Chinese capabilities and blunting illiberal uses of
technology.
29R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
Additionally, the US and the EU should finalize the shared rules they are ne-
gotiating to create an enabling environment for US-EU data flows. This will
stimulate trade between transatlantic partners and give them maximum
leverage to shape global rules. They should also agree on a set of tailored
restrictions on technology exports to China as well as foreign direct invest-
ment into their technology sectors by Chinese firms.
Aligning principles on artificial intelligence governance and ethics
The EU is working on a pan-EU framework to set risk-based rules for the use
of AI and basic privacy measures to be built into algorithms. The EU envis-
ages a Transatlantic AI Agreement setting “a blueprint for regional and
global standards aligned with our values.”29 Meanwhile, some US cities and
states have already moved to ban the use of specific applications of artificial
intelligence, such as facial recognition. These different initiatives should
lead to transatlantic coordination and alignment on some high-level princi-
ples. NATO should support efforts toward transatlantic cooperation on AI,
particularly when it comes to security implications for the alliance.
Developing a shared approach to managing the human rights im-
plications of technology
Developing countries are an increasingly important arena in which the tech
competition between the West and China are highly visible. Chinese invest-
ments in information technology infrastructure or offerings of inexpensive
products may come at a high price for security and human rights. The gath-
ering of data and use of surveillance systems all have human rights implica-
tions. Transatlantic partners need to outline a shared understanding of how
to ensure human rights protections in the application and development of
technologies as well as how to effectively compete with China’s technology
offerings in developing countries.
Promoting jointly funded research and development in founda-
tional and emerging technologies
There needs to be a resurgence in pooling resources between liberal democ-
racies with developed tech sectors for R&D in critical technologies, including
quantum computing, synthetic biology, the latest semiconductors, or AI. To
this end, the US Senate recently passed the United States Innovation and
Competition Act of 2021 (USICA), which authorizes 110 billion US dollars in
30CO M P E T I N G FO R T EC H L E A D E R S H I P
spending on federal government R&D and affiliated efforts. The EU, mean-
while, has recently made available more than 100 billion euros for invest-
ments into digitization including research, which comes on top of spending
by the member states. The US, Canada, and the EU should seek opportuni-
ties to support joint research projects between the US, private sector compa-
nies, and partner countries.
Developing joint guidelines to protect basic science research at
universities
The US and the EU have long benefited from open exchange of ideas in the
scientific and academic community. It is important to preserve an open,
ethical, and integrated global knowledge system. However, some Chinese
actors have in recent years taken advantage of Western openness. Instead of
closing universities to Chinese or other international researchers, the US,
Canada, and Europe should create tailored – and uniform – risk manage-
ment measures to address current and future security threats. In most cases,
this merely requires transatlantic partners to enforce existing guidelines for
conflict of interest and openness about funding sources, as well as to deepen
training for researchers and students about what activities are inappropriate
and how to apply existing rules. A dialogue on these issues should bring to-
gether senior representatives of leading research universities in the US,
Canada, and Europe to develop basic principles.
31R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
Providing Alternatives on
Infrastructure and Connectivity
The Stakes
In an increasingly interconnected world, the relevance of global infrastruc-
ture is obvious. Connectivity covers infrastructure but captures a broader
set of issues relevant to the systemic rivalry underway with an authoritarian
China pursuing hegemonic ambitions. Connectivity is inherently geostrate-
gic. It will, in large part, determine the future shape of the world both in
“It is important to bring terms of physical and digital connections and the predominant set of rule
forward this connectivity and norms.
initiative and to make
sure we have the better While the overall picture is mixed, China has invested heavily into its con-
and the more convincing
nectivity strategy, the Belt and Road Initiative (BRI), which extends through-
model. […] It is, for us,
out the developing and emerging world as well as into the EU. Using BRI,
important to convince
our partners [that] with China has succeeded in creating a new strategic environment in many
us, the investment geographies, involving new dependencies (raw materials, value chains, trade
comes without strings routes, and loans) and impacting norms (lack of sustainability or degrada-
attached compared to tion of transparency). BRI is based on a China-centric vision of production,
China.”31 trade and value chains and has a long-term negative effect on the autonomy
Ursula von der Leyen, Euro- and resilience of recipient countries as well as on global governance. 30
pean Commission President,
Euronews, June 13, 2021
As the saying goes, you can’t fight something with nothing: while BRI has
long been criticized by the US and Europe, what is needed are credible alter-
natives to respond to the vast needs for infrastructure and to generate eco-
nomic growth, while respecting the rule of law, transparency, and environ-
mental and financial sustainability. Together, transatlantic partners already
provide enormous resources for building connectivity worldwide. However,
they have failed to coordinate and communicate their level of engagement.
Hence the need for a coordinated transatlantic approach on global infra-
structure and connectivity, working through the G7 and EU-US formats in
particular. Such an approach would need to cover the respective “neighbor-
hoods” of Europe and North America, while also engaging partners globally,
particularly in the Indo-Pacific and Africa.
Given the vast financial needs for connectivity, estimated by the World Bank
at around two trillion US dollars a year globally, bringing in the private sec-
32P ROV I D I N G A LT E R N AT I V ES O N I N F R A ST RU C T U R E A N D CO N N EC T I V I T Y
tor will be indispensable to any successful transatlantic effort to promote
high-quality and high-standard connectivity. However, in many cases devel-
opment assistance will be critical because projects are not commercially via-
ble.
As some aspects are covered elsewhere, this chapter focuses on the idea of a
coordinated transatlantic connectivity approach as well as the construction
of the necessary physical infrastructure and the accompanying non-materi-
al architecture (principles, institutions, funding).
The State of Play
Connectivity, a concept originally developed to integrate the Soviet space at
the end of the Cold War, made a comeback in 2018 when the EU adopted a
communication on “Connecting Europe and Asia.” In January 2021, the
European Parliament adopted a report on “Connectivity and EU-Asia rela-
“China has this Belt and tions” which expands the connectivity approach to a global level. In 2019
Road Initiative, and we and 2021 the EU concluded connectivity partnerships with Japan and India.
think that there’s a much
more equitable way to On the US side, a key document is the Build Act, a bipartisan piece of legisla-
provide for the needs of
tion adopted in 2018, which led to the creation of the US International Devel-
countries around the
opment Finance Corporation (DFC) with a budget of 60 billion US dollars.
world. […] It’s a values-
driven, high-standard, There are also other initiatives including the Blue Dot Network, in conjunc-
transparent financing tion with Japan and Australia, and the Clean Network Initiative.
mechanism we’re going
to provide […] and we During the first high-level meeting of the EU-US dialogue on China on May
believe that will not only 26, Deputy Secretary of State Sherman and EEAS Secretary General Sannino
be good for the coun-
“underscored a shared interest in improving connectivity by supporting
tries, but it’ll be good for
partners in setting up regulatory environments that are conducive to sus-
the entire world and
tainable connectivity, as well as through quality infrastructure development
represent values that our
democracies represent, and projects consistent with the highest transparency, digital, and green
and not autocratic lack standards.”33
of values.”32
The June 2021 G7 summit marks a breakthrough in terms of elevating the
Joe Biden, US President,
G7 Summit, June 13, 2021 issue and attracting top-level political support. Heads of state and govern-
ment agreed to “aim for a step change in our approach to infrastructure fi-
nancing” and emphasized the need for transparency, sustainability, and
strong standards. 34 The initiative was branded “Build Back Better World” or
B3W. The summit established a task force to develop practical proposals and
report back in autumn. The objective is to take the initiative forward at the
mid-2022 G7 summit hosted by Germany. By contrast, the EU-US summit
33R E P O RT O F T H E D I ST I N G U I S H E D R E F L EC T I O N G RO U P
communiqué contained only a passing reference, pledging to “enhance our
cooperation on sustainable connectivity and high-quality infrastructure.”35
The question now is whether B3W will do better than previous Western ini-
tiatives and whether it will actually translate into a credible program de-
livering results.
The Priorities
While there will be several lines of operation, the June 2021 G7 summit has
identified an important framework. Transatlantic partners should pursue
the following measures over the course of the next six to 18 months:
Developing a coordinated transatlantic approach
Realistically, much of the work on connectivity and global infrastructure
will be done on a national or ad hoc basis. However, transatlantic partners
should coordinate closely, working through the G7 as well as in other for-
mats. Working through the OECD, the US and Europe should join forces
around the Blue Dot Network as a global certification mechanism.
Mobilizing the EU for action
The EU has been a leader in articulating connectivity as a concept. Its con-
tribution is indispensable in order to provide credible alternatives to BRI.
However, bureaucratic infighting has gotten in the way of EU action and the
Commission (which controls the relevant resources) has been slow to act. As
member states and the European Parliament have been urging, the Commis-
sion and the EEAS must seize the momentum of the June summits and move
from rhetoric to action with regard to B3W and with regard to implementing
the EU’s connectivity partnerships with Japan and India.
The EU and its member states should also review how their official develop-
ment assistance programs can be integrated into a strategic approach on
connectivity.
Taking flagship projects forward
The EU and its member states should also review how their official develop-
ment assistance programs can be integrated into a strategic approach on
connectivity.
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