U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

ASSESSMENT | EXTERNAL ECONOMIC POLICY | USA

U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity Assessment of the U.S.-EU Joint Statement of the Trade and Technology Council

July 2022 Background and General Comments On May 15 and 16, 2022, the second ministerial-level meeting of the U.S.-EU Trade and Technology Council (TTC) took place in France. The TTC sends a much-needed powerful signal of transatlantic solidarity und unity. German industry is pleased to see that, particularly in view of the Russian attack on Ukraine, the United States and European Union (EU) are cooperating more closely than they have in decades, especially in joint sanctions policy.

Concrete action should now follow the political commitments. The work programs of the ten working groups should be translated into action. The dismantling of trade and investment barriers should not be pushed into the background and should be implemented in a sustainable manner.

For the continuing success of the TTC, it is also important that stakeholders are closely involved in the discussions. Additionally, it is essential that decisions made jointly are swiftly implemented on both sides of the Atlantic.

Julia Howald and Anna Kantrup | External Economic Policy | j.howald@bdi.eu; a.kantrup@bdi.eu | www.bdi.eu

U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

Table of Contents Background and General Comments ................................................................................................ 1 Working Group 1: Technology Standards Cooperation .................................................................. 3 Working Group 2: Climate and Clean Tech ...................................................................................... 3 Working Group 3: Secure Supply Chains ......................................................................................... 4 Trade and Technology Council Statement on Rare Earth Magnets ..................................................... 4 Trade and Technology Council Statement on Solar Supply Chains ..................................................... 4 Trade and Technology Council Statement on Semiconductors ............................................................ 5 Working Group 4: ICTS Security and Competitiveness .................................................................. 5 Trade and Technology Council Statement on the Importance of Security, Diversity, Interoperability, and Resilience for Information and Communications Technology and Services .................................. 5 Working Group 5: Data Governance and Technology Platforms ................................................... 5 Working Group 6: Misuse of Technology Threatening Security & Human Rights ....................... 6 Working Group 7: Export Controls Cooperation ............................................................................. 7 Working Group 8: Investment Screening Cooperation ................................................................... 7 Working Group 9: Promoting SME Access to and Use of Digital Technologies .......................... 7 Working Group 10: Global Trade Challenges................................................................................... 8 Imprint ................................................................................................................................................ 10

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

Working Group 1: Technology Standards Cooperation With the increasing complexity of our modern economy, international standardization is receiving growing attention. Against this background, the BDI welcomes the fact that the U.S. Administration and European Commission, together with industry, want to proactively support technical standardization and standardization of future technologies in the context of the All Electric Society as well as green and digital transformation initiatives. For example, the EU and the United States have agreed in the TTC to establish a Strategic Standardization Information (SSI) mechanism. Strategic analyses and the prioritization of international standardization requirements significantly strengthen the competitiveness of the EU and the United States. Appropriate projects are to be supported and embedded in the framework of the European Standardization Strategy. Close coordination with stakeholders from industry, for example via the High-Level Forum, should be ensured.

Technical standardization should be oriented to the needs of the market and to practicality. Standardization is business-driven and business-supported. Economic operators ensure that the right content is standardized at the right time.

All stakeholders should strive for international standards, insofar as this is reasonable and practicable for industry as the addressee of such standards. Technical standardization should be carried out within the framework of recognized and established processes in international standardization organizations.

Given the shared fundamental societal values of the United States and EU, efforts should be made in artificial intelligence (AI) to develop uniform standards and create a common transatlantic AI ecosystem. The risk-based approach supported by the EU and United States is appropriate to strengthen the necessary trust in the security of AI-based systems. We therefore welcome the TTC's push for increased cooperation and a methodological alignment of risk assessment. Due to their importance in the context of international standardization for areas such as AI or also cybersecurity, semiconductors should also be included in the work of Working Group 1.

Working Group 2: Climate and Clean Tech The BDI welcomes the development of common methods for recording specific product carbon footprints. However, the definition of environmentally and climate-friendly technologies and products should be viewed rather critically, as there are hardly solvable difficulties of classification and in many cases innovative “conventional” technologies and products are also needed as precursors for more climate and environmental protection.

In the context of the initiatives for the development of clean and low-carbon products and technologies, Working Group 2 refers, among other things, to the importance of increased promotion of Green Public Procurement (GPP), which is also in line with joint activities on public procurement in the context of Working Group 10. In this respect, the intention is to work towards a common understanding of sustainability aspects in public procurement procedures, focusing on green products and technologies and identifying best practices. The BDI welcomes the intention to strengthen cooperation on GPP. It is important that the specification of environmental aspects is concrete and non-discriminatory in relation to the product or service to be procured, in order to specify the necessary environmental requirements and avoid arbitrary and competition-distorting specifications.

German industry expressly supports the third focus of Working Group 2 on strengthening electromobility. It is correct to place a strong focus on joint measures for the rapid comprehensive deployment

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

and expansion of charging infrastructure. It would be equally important to agree on concrete steps towards the stated goal of mutually recognized operating requirements and test procedures for the testing of e-vehicles, including charging stations.

In addition to the massive scale-up of electromobility, the decarbonization of transport and thus a faster path to independence from fossil fuels requires the use of CO2-neutral fuels and the associated comprehensive refueling infrastructure: in Germany and Europe for the decarbonization of the existing fleets of cars and trucks, but also for the further decarbonization of air and sea transport and in nonelectrified rail transport. Regarding international air and sea transport, climate protection measures such as the use of CO2-neutral fuels should be further developed and enforced under the umbrella of the UN organizations ICAO and IMO. Working Group 2 should therefore agree on an additional focus for cooperation on CO2-neutral fuels.

Support measures for electromobility should not discriminate against foreign value creation and suppliers. A link to labor organizations, as proposed in the draft bill for the Build Back Better Act in the United States, could put European companies, among others, at a disadvantage.

Working Group 3: Secure Supply Chains Trade and Technology Council Statement on Rare Earth Magnets The BDI shares the analysis of the importance of rare earth magnets for the economic and climate ambitions of the United States and EU as well as the challenges around the rare earth magnets supply chain. The concentration of exploration and further processing of rare earths in China illustrates the high transatlantic dependency and thus susceptibility to risk in terms of achieving one’s own political goals.

The activities of the European Raw Materials Alliance (ERMA) and financing tools of the European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD) should be better coordinated with other EU funds and filled with life, for example also by member state co-financing.

The BDI welcomes the close cooperation between the EU and United States within the framework of the TTC and in the Conference on Critical Materials and Minerals between the EU, the United States, Japan, Australia, and Canada. However, it is unclear what concrete collaborations are planned, for example involving geological services.

Trade and Technology Council Statement on Solar Supply Chains The BDI shares the assessment and challenges around the solar supply chain regarding access to raw materials.

The listed EU activities have so far focused on the issue of sustainability, transparency, and traceability in the (raw material) supply chain and, above all, corporate due diligence. Heavily underweighted are the important topics of diversification and resilience in supply chains, which have suddenly come into focus following the Russian attack on Ukraine and also with a view to China.

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

Trade and Technology Council Statement on Semiconductors German industry takes a very critical view of the third pillar of the EU Chips Act. As the legislative process has not yet been completed, we are also opposed to the European Commission already incorporating its contents into bilateral agreements with the U.S. Administration.

We disagree with the establishment of an early warning mechanism and the declaration of the “crisis stage.” While increasing the transparency of the EU semiconductor value chain is desirable, it should not be an end in itself. Any data collection should prove that the data collected is really useful in terms of crisis prediction and management. The approach proposed by the EU Commission currently contains too many unanswered questions regarding the mandatory release of information, mandatory prioritization, joint procurement, and export controls.

A quantitative monitoring mechanism based only on current figures will not help to avoid shortages, as it represents only the current state. In particular, it cannot predict or mitigate acute crises – such as those caused by the coronavirus pandemic or the war in Ukraine. Instead, the close and early involvement of experts from industry is needed to make a much earlier qualitative assessment of the next crisis and quantitative simulation of possible future shortages. For example, shortly after the outbreak of the war in Ukraine, experts could have drawn up concrete best and worst case scenarios of what consequences the war could have for the semiconductor value chain. Current or even historical figures do not allow such assertions to be made. Furthermore, the semiconductor industry is exposed to many risks that are difficult to predict, including geopolitical and natural risks. The current chip shortage has several causes – including purchasing strategies and just-in-time supply chains in parts of the industry.

Focusing on the semiconductor industry alone will not help avoid future disruptions, as many factors are beyond its control.

The establishment of the joint early warning and monitoring mechanism should therefore only happen in close coordination with industry. The proposed exchange of information on supply chains should only take place while safeguarding the trade and supply chain secrets of the semiconductor industry.

The intended two-month pilot project for the early warning system lacks the participation of industry as an important stakeholder in the semiconductor value chain.

German industry welcomes the fact that the U.S. Administration and EU Commission are planning a stakeholder dialogue involving industry in the summer of 2022. Before such a dialogue is held, no concrete crisis mechanisms should be defined within the TTC. We also welcome the fact that both the U.S. Administration and EU Commission have spoken out against a subsidy race.

It should be made clear that semiconductors are part of the global semiconductor ecosystem and at the same time there is a different embedding of semiconductors in the respective industrial landscape.

Working Group 4: ICTS Security and Competitiveness Trade and Technology Council Statement on the Importance of Security, Diversity, Interoperability, and Resilience for Information and Communications Technology and Services The BDI supports the TTC’s approach to strengthen security, diversity, resilience, and interoperability in ICTS supply chains. We welcome that the evaluation of the trustworthiness of manufacturers of ICTS

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

solutions is to be based on the EU’s 5G toolbox and comparable approaches. It is crucial for German industry that there is no discrimination against market participants based on their origin / headquarters.

Certification schemes must primarily contain technical requirements that are suitable for strengthening the cyber resilience of a solution. Effectively strengthening the resilience of ICTS solutions requires a holistic approach that encompasses all actors along the value chain. Before introducing new policy measures, policymakers in Germany should allow stakeholders time to gain experience with the implementation of paragraph 9b of the Act on the Federal Office for Information Technology (BSI Act – BSIG).

Internet connectivity is a key competitive factor and the basis of future industrial and economic production and service systems with a wide range of applications. Financial support to third countries to build secure ICTS infrastructures as well as to deploy an effective risk-based cybersecurity framework is a constructive means to strengthen global cyber resilience in a comprehensive manner.

Close cooperation and intensified information exchange between the U.S. Administration and the EU on 6G research and development is essential to best leverage the potential of this next generation of mobile communications based on our shared values.

Working Group 5: Data Governance and Technology Platforms Combating illegal content and disinformation is an important goal. In principle, we welcome the goal of creating transparency and a clear legal framework for all parties involved. The goal of increasing transparency must be balanced with the legitimate interest of businesses to protect trade secrets or industrial or intellectual property. The exchange of industry best practices is also welcome.

We support the establishment of a structured dialogue on issues of platform governance and competition in digital markets. The close transatlantic exchange on issues of competition law should be continued. Consistent approaches and the avoidance of legal fragmentation, especially on new regulatory issues such as dealing with gatekeepers on platform markets, can increase legal certainty for companies. Coherence is important and generally preferable to going it alone at the national level. Regulatory measures frequently impose a strong encroachment on entrepreneurial freedom, internal growth, and competition, which must be justified.

Working Group 6: Misuse of Technology Threatening Security & Human Rights The BDI welcomes the fact that security issues, new technologies and human rights protection are being considered together in Working Group 6. Russia's war of aggression against Ukraine is one of the reasons why the European Union and the United States need to coordinate more closely on these issues. A responsible approach to security technologies is crucial to these efforts. The clear commitment to the importance of an undisturbed and free internet is also welcome. The working group's announcement that it will work together with the help of scientists to better identify and understand manipulated and false information on the Internet is another step in the right direction.

The further work of Working Group 6 should be geared toward combining the classic goals of export control with the protection of human rights.

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

Working Group 7: Export Controls Cooperation The transatlantic partners’ export controls against Russia and Belarus are unprecedented – both in the way they have been coordinated and in the way they have deprived strategic sectors of material and industrial inputs. These sanctions have notably surprised the Russian leadership despite numerous and concrete announcements. The BDI congratulates the TTC partners on this success.

This cooperation should continue as announced by Working Group 7 in the areas of licensing procedures, control of emerging technologies, and regulatory practice (bilaterally and with third countries).

Both partners should work to remove existing export control barriers to facilitate technological developments (e.g., in climate-neutral mobility). The partners should additionally strive for an export control framework that keeps up with the pace of technological change.

Comparable standards and requirements reduce bureaucratic burdens for companies, creating markets the innovative and economic power of which will be decisive in the race for technological leadership. The partners in the TTC should expand their cooperation against Russia and develop a common strategic position of the transatlantic partners in export controls.

Working Group 8: Investment Screening Cooperation The BDI welcomes the commitment of the negotiating partners to the importance of openness to investment. At the same time, we recognize the increased requirements for state investment controls, especially after Russia’s invasion of Ukraine.

The offer of increased cooperation in investment controls agreed between the partners is in the interest of German investors as well as investment recipients. Exchanging experience and data can help to target investment controls to limit negative repercussions. Going forward, the partners should take care to involve industry in the consultations and to prevent an excessive expansion of controls driven by industrial policy.

Working Group 9: Promoting SME Access to and Use of Digital Technologies German industry welcomes the approach of facilitating access to digital tools and technologies for medium-sized companies in the EU and the United States. Support programs should be adequately funded and as unbureaucratic as possible.

Data-driven business models are becoming increasingly important for corporate competitiveness. More and more industrial SMEs and family-owned companies are working on fully recognizing or tapping the potential of the new value creation options. At the same time, progress in networking and automating production processes is sometimes slow. Digital processes and new technologies will be more widely used once the added business value of technologies and applications becomes clear and concerns about unauthorized access to data by third parties diminish.

It is important to raise awareness of the possibilities of digitalization and cybersecurity among SMEs as well. Best practice guides can help identify potential and challenges.

In addition, companies need an innovation-friendly environment with a legally secure framework and state-of-the-art digital infrastructures, including in rural areas. Comprehensive investment in digital

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

education and training is necessary to counter the growing shortage of skilled workers, not least in the STEM sector.

Working Group 10: Global Trade Challenges The BDI supports close coordination between the EU and the United States with a view to maintaining a liberal, market- and rules-based trading system and a comprehensive reform of the WTO. In this context, we also welcome the establishment of an early warning mechanism for third-party trade measures.

The cornerstones of global trade should be a level playing field, the fairest possible reciprocity, and common, high standards in the areas of labor, human rights, the environment, and climate to avoid a further race to the bottom.

Existing asymmetries and distortions with countries that differ fundamentally in their economic systems should be addressed through the TTC’s highly practice-oriented work and counteracted with coordinated measures.

On page 3 of the Joint Statement, the partners reaffirm the goal of reducing unnecessary bilateral trade and investment barriers, preventing the emergence of new barriers and resolving existing differences (the word “conflicts’ is avoided). However, there are few concrete approaches to achieving these goals in Annex X of Working Group 10.

A type of early warning mechanism is also to be introduced for bilateral trade barriers that could arise, for example, from new regulations or legislative proposals. Within the framework of Working Group 10, a party may indicate the need to discuss regulatory initiatives by the other party affecting trade to avoid the emergence of new bilateral trade barriers. Provided that it improves the existing possibilities for exchange (bilaterally or within the framework of the WTO), we welcome this mechanism.

The EU and the United States announce that they will identify specific areas and/or products where mutual recognition of conformity assessments could promote transatlantic trade. In the mechanical and plant engineering sector alone, the potential for cost savings through mutual recognition of conformity assessment results is five to 18 percent, according to estimates by the VDMA industry association. In this context, implementing the goal of “one standard, one test, accepted everywhere” has top priority.

Mutual recognition of conformity assessment test results requires prior harmonization of underlying norms and standards. This can only be achieved through international standardization work within the multilateral framework. In this context, it is important not to give way to the “low hanging fruit” of mutual recognition of standards. Different standardization requirements can never be suitable for concretizing European legal requirements (cf. New Legislative Framework). The partners should intensify multilateral and bilateral talks in this direction and seek binding regulations.

In addition, we encourage both sides to start negotiations to reduce industrial tariffs on each other.

Unfortunately, the goal of resolving existing trade differences is not further specified. The EU and the United States should urgently work on a final resolution on subsidies in the aviation sector and the punitive tariffs associated with them, which are currently subject to a moratorium. In addition, the remaining U.S. import restrictions on steel and aluminum from the EU should be finally abolished. The close cooperation and coordination on sanctions against Russia again clearly show that the EU and

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

the United States are reliable partners for each other and that imports from the EU do not endanger the national security of the United States.

Finally, Working Group 10 also aims to strengthen cooperation in public procurement. The Joint Statement emphasizes that both sides are continuing their efforts to facilitate trade through increased cooperation in public procurement, which is to be welcomed. The partners similarly lay out efforts to make energy and high-tech supplies crisis-proof. Moreover, the announcement of increased cooperation in public procurement corresponds with the statements from Working Group 2 in view of increased cooperation in the context of green public procurement. With a view to the mutually declared goal of achieving trade facilitation, the European Commission should also use the TTC to address and counteract the tightening of the Buy American provisions, which are problematic for European companies. As there are no rules in the EU that correspond to the far-reaching Buy American provisions, in the long term the EU should work towards the goal that Buy American provisions do not apply to companies from the EU.

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U.S.-EU Trade and Technology Council: Signal of Transatlantic Solidarity

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 German Lobbyregister Number R000534

Editorial Julia Howald Deputy Head of Department External Economic Policy T: +49 30 2028-1483 j.howald@bdi.eu Anna Kantrup Senior Manager External Economic Policy T: +49 30 2028-1526 a.kantrup@bdi.eu

BDI Document number: D 1606

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