Victor Hugo said that "Even the darkest night will end and the sun will rise". It is at that precise moment, when the sun begins to rise, when we must imagine what the post-pandemic reality will be like and how best to rebuild the world after the pandemic.
When the sun starts to rise, it’s time to imagine how the post pandemic reality will be and what is the best way to build back better. In this context of optimism, ERT (European Round Table for Industry) launched its flagship paper on trade: “Making Open Strategic Autonomy work – European Trade in a Geopolitical World”. Europe’s industrial leaders released this new publication addressing trade policy as a fundamental recipe for recovery. The main ingredients include: reconstruct the confidence on global value chains or strengthening the transatlantic relation appear to be roots of this new economy based on the twin transition that comes to light. In this process, digitalization becomes paramount.
The report highlights the links between trade policy and some of the most interesting geopolitical issues of our time providing relevant recommendations which could guide the current debate. At the same time, it includes a useful analysis for Europe’s new foreign policy strategy based on the concept of open strategic autonomy, concluding that the EU should foster mutual dependencies between trading partners.
Strengthening global value chains
As the effects of the pandemic spread all over the world, the pillars of the globalized economy trembled. The resilience of supply chains was jeopardized, and protectionism entered the scene. ERT takes the lesson and establishes how global value chains (GVC) can become more resilient, reliable, and trusted.
“Investing in innovation and digital and sustainable infrastructure will enable European industries to be competitive globally. Open trade relations stimulate the adoption of new technologies and open new markets globally for European products and services”, Jacob Wallenberg (Chair, ERT Committee on Trade & Market Access)
A trade policy that supports trade in services and digital trade can strengthen the resilience of GVC by improving both production processes and logistics. In this sense, building GVC resilience must include supporting and strengthening critical services. GVC rely on the well-functioning of those services – from internet connectivity and telecommunications, to logistics and supply chain management – to facilitate trade in goods. For this, policy makers need to take into consideration the role that telecom networks, digital infrastructure and services play in the functioning of supply chains. In the case of the EU, to ensure the interoperability of supply chains it comes clear that there is a need for deeper integration to advance in the construction of Single Market.
This is particularly urgent in sectors such as the energy and digital. Indeed, the emphasis should be posted on using the full range of policy tools, including industrial policy, to build new capabilities and boost innovation in industries, such as the digital sector. While avoiding a protectionist conduct, trade policy should boost an innovation-friendly environment through guaranteeing a level playing field, tackling unfair competition, and protecting intellectual property rights.
Creating a transatlantic digital economy
The EU and US should work together to construct a common transatlantic digital economy, starting with closer cooperation on digital governance, regulation, and standard setting. For this, the new Trade and Technology Council (TTC), provides a stable framework to strengthen bilateral collaboration.
The TTC and its working groups should aim to facilitate trade and responsibility of online platforms and other large tech companies, and encourage EU-US cooperation to enhance critical technologies such as Artificial Intelligence, 5G/6G, edge computing, blockchain, etc. Without closer collaboration there is risk of further regulatory fragmentation, which would impose unnecessary burdens on businesses. The combined market shares of the EU and US and their combined influence enables them to set standards internationally in many sectors based on transparency and shared values.
Another area where interests are largely aligned is regarding a potential multilateral agreement to liberalise digital trade. The new US administration could help push for digital trade liberalization both through the World Trade Organisation (WTO) and bilateral agreements, including provisions on data flows and consumer protection, through an expanded IT agreement. On the European side, the Commission’s trade review calls for the EU to play a central role in setting rules for e-commerce by pushing for an ambitious and comprehensive WTO agreement on digital trade.
Despite the common views, there are significant divergences views on topics such as competition, content regulation, and AI and data governance that need to be resolved. Both EU and US policymakers are increasingly concerned about the dominance of large technology firms in the markets, but each economic block has a particular vision on how to tackle this situation. While in the US competition authorities are prioritising ex-post antitrust enforcement on a case by case basis, in the EU policymakers have moved to more prescriptive ex-ante rules for gatekeepers through the proposed DMA regulation.
The EU and US should not avoid addressing these controversial issues. This effort must be balanced by collaboration on innovation and in supporting critical and emerging new technologies. The European concept on open strategic autonomy must be defined and applied with sufficient flexibility. It’s time to gain momentum to reduce barriers to digital trade. Collaboration in these areas would not only allow the EU and US to reduce regulatory frictions, but to influence regulation elsewhere.