A key test of the Biden era of transatlantic relations will be the issue of how the United States and the European Union respond to China’s aggressive efforts to seize market share and industrial knowledge in areas of technology that are critical to national security. Divided over the question whether China is an immediate military threat, Europeans, despite some restrictions on Chinese company Huawei, have been reluctant to rein in Chinese technological capabilities and ambitions. China will continue to try to drive a wedge between allies, while building up its military use of emerging technologies. Since acting alone or with trepidation would undermine security on both sides of the Atlantic, the United States and the European Union (EU) have no time to waste in finding a common (or at least complementary) approach.
Under the Trump administration, much of the focus was over the issue of Chinese telecom giant Huawei’s involvement in fifth generation (5G) infrastructure. As a result of aggressive U.S. lobbying, and some acknowledgement that Huawei is a high-risk supplier, several – but not all – European governments have aligned themselves with the United States and placed restrictions on Huawei. Notably, Deutsche Telecom is still rolling out its use of Huawei equipment. While important to have a U.S.-EU consensus about high-risk suppliers such as Huawei, there are other significant policy areas at play, among them:
- Chinese investment in and acquisition of companies developing leading-edge digital technologies and those involved in artificial intelligence (AI), quantum computing, biotechnology, and additive manufacturing, for example – all of which have national security elements, as a recent Congressional Research Service report laid out.
- The export of sensitive technology and potential dual-use technology that can be employed for military use to China.
How these issues are addressed will be a key determinant in whether China reaches its goal to surpass American and European high-tech military capabilities. While China is indigenously developing its AI and other leading-edge technologies, it still heavily depends on high-tech imports and the technical know-how gained through acquisitions. Europe has a growing number of startups in AI and other emerging technologies and is a leading exporter of high-tech products to China. The goal should be to have U.S. and EU policies in these areas synched up. But while the United States has effective measures in place in both areas; Europe’s are lacking.
Targeting China’s Foreign Investment and Acquisitions
Since 1975, the Committee on Foreign Investment in the United States (CFIUS) – which includes officials from several executive branch agencies and is chaired by the Secretary of the Treasury – has reviewed the national security implications of foreign investment in U.S. companies or operations. Prompted by concerns over Chinese acquisition of U.S. advanced technology, Congress in 2018 updated CFIUS’ review procedures to include minority venture-capital investments in certain critical technologies, critical infrastructure, and personal data of U.S. nationals. Covered under these new procedures would be investments where the foreign investor would have access to non-public technical information. The Trump administration vigorously – and sometimes controversially – used the CFIUS process to block deals involving Chinese firms. President Obama also stopped the sale of a U.S. semiconductor company to a German firm whose parent company was Chinese. Biden officials are expected to use CFIUS to review and restrain Chinese investment, also with a focus on startups developing technologies critical to the U.S. military.
In Europe, 14 countries have foreign direct investment screening procedures, but they lack CFIUS’ rigor and authority. Germany just introduced an overhaul of its investment screening law to focus more on emerging technologies but it will take months to pass and implement. The European Union has a new screening framework for foreign direct investment, which took full effect on Oct. 1, 2020. This mechanism will facilitate information-sharing among EU member states on planned non-EU investment in sensitive sectors and the potential impact on national security. While this is the first such EU-wide framework, the European Commission does not have the authority to ban foreign investment into member states nor does it have authority to create uniform definitions of what security interests are.
Scrutinizing Dual-Use Exports
The Trump administration had an aggressive policy of controlling dual use exports, especially semi-conductors, to China. Restrictions on these exports, promulgated by the Department of Commerce, are not expected to be rolled back in the Biden administration. Industry groups are urging the Department of Commerce to work with the Netherlands, Germany, and other high-tech manufacturing countries to develop common objectives for restricting semiconductor technology to China.
But there is a problem: few EU member states have procedures to review the potential dual use of exports, including those involving emerging technologies. The Commission also has limited review authority of dual use technologies and enforcement is at the member state level, which is spotty at best. The United States and European countries are members of the Wassenaar Arrangement, which is a global multilateral arrangement on export controls for conventional weapons and sensitive dual-use goods and technologies. However, a single country can block any proposal and decisions can take years, which does not work in an era of rapid technological changes.
The Path Ahead
With the goal of having common or at least complementary policies on Chinese investment in strategic high-tech companies and the export of dual-use technologies, there should be regular, structured U.S.-EU discussions that bring together industry experts who understand the current and future state of emerging technologies and policy-makers to explore these issues. The European Union has proposed a “tech alliance” – the “EU-U.S. Technology and Trade Council” – which would be a government-to-government forum to discuss issues from data privacy to market access to taxation and regulation of Big Tech. Given the contentious positions of the United States and European governments on the broad digital agenda, this Council proposal, even if it got traction, would be the wrong place to discuss responses to China’s technological military ambitions. Sparring over other digital issues would serve China’s interests of keeping allies divided. At the end of the day, the format of the discussion is not as important as getting the right policies in place.
The Biden administration will seek allies’ support in its China strategy, including on these pivotal questions. Given the division among EU member states on these questions, an EU-wide consensus would require high-level courage. This is unlikely since this year will determine if and how the newly concluded EU-China Comprehensive Agreement on Investment will be implemented. But waiting for a better time is a bet against the future when China’s technological gains could be even greater security threats. The Biden administration should work with its European allies to find the courage to implement rigorous and meaningful measures to address the threats posed by China’s military tech ambitions.
Image: A view of the Munich Security Conference (MSC) Special Edition: “Beyond Westlessness: Renewing Transatlantic Cooperation, Meeting Global Challenges.” On the screen are, from left to right: Joseph R. Biden, Jr, President of the United States of America; Angela Merkel, Chancellor of the Federal Republic of Germany; and Emmanuel Macron, President of the Republic of France. February 19, 2021. Photo credit: UN Photo/Eskinder Debebe