US, EU to boost security tools as G7 eyes economic coercion

The US and European Union will pledge to step up coordination on economic security measures like export restrictions, the screening of outbound technologies and foreign investment controls to fight back against economic coercion from countries such as China.

The US and EU will also commit at the fourth meeting of the Trade and Technology Council later this month to address these issues within the framework of the Group of Seven (G7) as well as the World Trade Organization, according to a draft copy of the TTC conclusions seen by Bloomberg.

To build consensus beyond the G7, finance chiefs were careful to include other nations in the conversation with a session dedicated to pledging more support to lower and middle-income countries and helping them secure resources from IMF facilities.

The western allies are struggling to land on a strategy to deal with Beijing's growing economic clout, particularly with their supply chains so dependent on China. G7 finance chiefs proposed a new partnership that'll be open to other nations, as previously reported by Bloomberg News.

They aim to launch the partnership for Resilient and Inclusive Supply-chain Enhancement, or RISE, by the end of this year at the latest, the communique showed. 

That indicates growing concerns among the G7 over China, given its role in supplying and manufacturing for the global economy. While the US is pushing to reduce reliance on China, some European countries took a more nuanced approach.

UK Chancellor of the Exchequer Jeremy Hunt talked of de-risking rather decoupling from China.

"No-one is saying we shouldn't be trading with China. Everyone is saying that in certain specific areas, not just semi-conductors, we need to avoid dependency, we need to diversify our supply chains."

The G7 communique issued yesterday offered some support for the US drive to reduce supply-chain dependence on China while also reaching out to the Global South to show the group of rich nations can take concrete action to their benefit while the G20 struggles with divided opinion.

Bloomberg reported this week that G7 leaders meeting this month will aim to send a signal to China by announcing a joint effort to counter economic coercion. Those efforts are likely to be limited at first to coordination and information exchanges, rather than more tangible actions.

Washington and Brussels will commit to "continue coordination in the field of export controls and cooperation on investment screening and to address the challenges posed by, among other issues, non-market policies and practices and economic coercion," according to the draft statement, which could still change.

The statement highlights US and EU concerns with the use of economic coercion to "induce or influence a foreign government into taking, or not taking, a decision or action in order to achieve a strategic political or policy objective."

The European Commission, the EU's executive arm, didn't immediately respond to a request for comment.

However, European Union ministers on Friday backed reducing the bloc's economic dependence on China even while they will now have to figure out how to make that a reality, foreign policy chief Josep Borrell said.

US and EU policymakers have repeatedly criticised China's decision to block Lithuanian exports following the country's 2021 decision to open a de-facto Taiwan mission in Vilnius. The move provoked a backlash from Beijing and resulted in a 75% drop in Lithuanian exports to China.

The draft statement includes a bilateral commitment to coordinate efforts related to export controls and investment screening, particularly with respect to semiconductors and other sensitive technologies that pose national security risks. The two sides also want to ensure the "consistent implementation" of sanctions and to work with third countries to stem the trans-shipment and circumvention of "sensitive" goods to Russia and Belarus.

"We will continue cooperating among ourselves and work with other states in strengthening effective and responsible export controls to address the challenges posed by the misuse and illicit diversion of technologies critical for the development of weapons of mass destruction," the draft document said.

After nearly two years of transatlantic trade negotiations, Joe Biden's administration and the EU aim to produce concrete economic deliverables at the 30-31 May meeting of the Trade and Technology Council in Sweden. 

The two sides plan to unveil a series of bilateral agreements related to clean energy technologies, including a statement of best practices on green public procurement, and joint standards related to electric vehicle charging, according to the draft. 

European policymakers have been demanding concrete outcomes from the bilateral talks, but it remains unclear if the two sides can agree to a critical minerals agreement that would help put a salve on simmering transatlantic tensions related to America's green energy subsidies. 

The document reflects that uncertainty by including a placeholder provision for details about a critical minerals agreement, which would essentially allow EU companies to take advantage of some of the benefits in the Inflation Reduction Act on the 50 minerals defined as critical in the law.

Advanced tech

The joint statement contains various other provisions governing cross-border collaboration on advanced technology issues and semiconductor supply chains. 

According to the statement, the two sides have created a "joint early warning mechanism" for semiconductor supply chain disruptions and a transparency mechanism for reciprocal sharing of information about public support. 

The draft also notes that both the US and EU are committed to avoiding a semiconductor subsidy race from each other's state support for domestic chip manufacturing.

The document also includes plans for creating transatlantic standards and best practices for other modern technologies, like artificial intelligence, quantum computing, electric vehicle charging, 3D printing and sixth generation wireless telecommunications networks.

Disclaimer: This article first appeared on Bloomberg, and is published by a special syndication arrangement.