EU Challenged to Develop Better Tech Export Strategy for China

eWEEK TREND ANALYSIS: A recent study from the Germany-based Mercator Institute for China Studies contends that advanced technology-producing states in the EU directly affected by U.S. trade controls with China must better coordinate their actions.

BERLIN—As global governments prepare a new set of rules for the digital economy, the European Union must overcome a range of challenges in order to develop a holistic approach to controls regarding export of sensitive technologies to China.

On Jan. 3, the U.S. government began unveiling new export control proposals aimed at restricting China’s access to sensitive technologies, following pressure it heaped on European countries to ban Chinese telecommunications group Huawei from their 5G networks. 

A study from the Mercator Institute for China Studies (MERICS), a Berlin-based institute for contemporary and practical research into China, argues that advanced technology-producing states in the EU directly affected by U.S. controls must better coordinate their actions.

For example, the United States has produced a list of 14 emerging technologies that includes artificial intelligence (AI) and quantum computing, but it is finding it much harder to isolate specific technologies within these broad categories where controls make sense.

That’s because AI is based on software and logarithms, not on large, tangible products that are exported through ports and easily restricted. Semiconductor manufacturing equipment, on the other hand, can be more easily controlled.

Can't Be Too Generalized When Targeting Controls

“The U.S., Europe and other allies like Japan must be very surgical and targeted in deciding what technologies they try to control,” Noah Barkin, senior visiting fellow at the German Marshall Fund in Berlin, explained. “If they go too far, they risk shooting themselves and their own companies in the foot."  

Barkin noted that some of these technologies are very complex and evolving at an extremely rapid pace, and governments do not have the expertise to assess how they could be used and whether restrictions make sense.
That means a closer dialogue with the businesses that produce these products and the scientists and researchers who develop them is necessary, which requires the participation of key individuals in specific companies and research organizations, rather than involving broader trade bodies.

“The challenge is that these businesses have little incentive to restrict the sales of their own products,” he said. “So governments need their input, but ultimately it is the politicians who have to decide."

John Lee, MERICS’ senior analyst, Digital China, noted one key challenge for Europe is ensuring that technology transfers and R&D programs with Chinese actors do not undermine European long-term economic competitiveness.

Regulations Must Stay Within Ethical Guidelines

Another is ensuring they don't promote technological applications that conflict with European values, such as use of mass surveillance technologies for political repression.

“In Europe, the priority is currently on increasing knowledge at grassroots level about the potential risks of exchanges with Chinese actors, and increasing visibility for national governments and EU institutions of what’s going on around their economies and R&D ecosystems,” Lee explained. 

Lee said Europe faces additional political challenges in the form of pressure from Washington to align with U.S. foreign investment review, export controls and sanctions regimes, with concern over China’s economic rise and increased technology development capabilities a major concern. 

“The general threat perception of China means that Chinese dominance of any advanced technology sectors, which may or may not have military or espionage applications, has become a problem,” Lee said. “The underlying U.S. strategic concerns about China and hence about technology transfers to China will not go away.”

Meanwhile, the EU also has to surmount the difficulties inherent in bringing all its members in line with a coherent policy on control of sensitive technologies, which may impact various states to different degrees. 

“The EU faces the unique problem of coordinating the interests of 27 member-states, only a few of whom are leaders in the sectors where technology transfers to China are of concern, and of convincing member-states to give EU institutions wider policy-making and regulatory power in this area,” Lee noted. 

Balancing Act in Trade, Risks and R&D

The fundamental challenge for the EU would be to strike the right balance between the benefits from cross-border trade, investment and R&D integration and the risks that these create, in a context where once-clear boundaries between economic and security issues are blurring, Lee said.

Both Lee and Barkin pointed to the failure of the Dutch firm ASML to obtain an export license for supplying photo lithography machines to a Chinese buyer as an example of high-profile tech export concerns. 

Direct pressure on the EU from the U.S.—in the case of Huawei, ASML and other reported instances—is also expected to play a larger role in the future. The economic uncertainty unleashed by the COVID-19 pandemic also will be a factor as more advanced economies like Germany, which counts China as a critical trade partner, attempt to ramp up exports again. 

As Lee also mentioned, wrangling consensus from 27 EU member-states, many of which are reluctant to hand over any more political control to Brussels, is a major stumbling block. 

Why EU Should Be the Coordinator of Tech Trade

“Member-states want to maintain control over what they sell and don't sell abroad. But if they go it alone, they lose leverage vis a vis the United States, China and others,” Barkin said. “So giving the EU a coordinating role, as states have done in assessing 5G risks and responding to Chinese FDI, makes a huge amount of sense."

Barkin also pointed out that some European capitals are worried that the U.S. push to restrict technology exports is aimed not only at preventing certain products from falling into the hands of the Chinese military, but also at containing China's technological rise more generally.

“European governments are not on board with that,” he said. “To distinguish between what makes sense and what doesn't, they will need to develop their own approach.”

Nathan Eddy is a longtime eWEEK correspondent based in Berlin.