A New Era in the Transatlantic Partnership
The election of Joe Biden as President of the United States left transatlanticists everywhere with a sense of relief, followed closely by anticipation and scrutiny. Biden’s inauguration appeared to signal the return to multilateralism, with a revival of the transatlantic alliance as its cornerstone. However, to merely aim for a pre-Trump reset would not only be ineffective in addressing the current state of affairs, it would ignore the mounting frustration and disappointment that had taken root across the Atlantic long before the previous U.S. administration. Instead, the United States and the European Union need to re-examine their relationship and build the foundation for a new era of the transatlantic alliance, one not rooted in historical imbalances but a true and equal partnership. An effective vehicle to achieve this ambitious aim is trade. If the U.S. and EU are looking to lead, cooperation on major trade issues will not only benefit their own citizens but also entice nations caught in the multipolar crosshairs. Convergence between two of the world’s largest trading blocs will be key to establishing a world economic order ready for the challenges of the 21st century, including reformation of the WTO and a fair and comprehensive digital tax system. If addressed quickly and decisively, these issues will set the tone for cooperation both within the transatlantic sphere and beyond.
The first major issue on the U.S.-EU trade agenda is likely the proposed OECD digital tax system, with negotiations among members currently set to take place this summer. The issue of digital taxation has been a transatlantic thorn for several years now, culminating in the Trump Administration’s public rejection of the OECD digital services tax proposal in 2019 due to the omission of a safe harbor provision. However, although the Obama Administration participated in the Base Erosion and Profit Shifting (BEPS) project in 2015, there was clear pushback on taxing companies solely based on digital presence, already seen as unfair targeting of major U.S. tech companies. Several EU countries are taking the lead on this issue within the OECD, notably France and Germany, and have been critical of the U.S. position. Both symbolic and practical progress was made recently when U.S. Treasury Secretary Janet Yellen announced that the United States would “engage robustly” with the OECD’s two-pillar proposal and would drop the safe harbor demand. Europeans praised this show of good faith as a demonstration of U.S. commitment to the OECD process, bringing the possibility of agreement closer than ever before despite a number of issues remaining.
The momentum of this cooperation is powerful, but fragile, and even if the negotiations fail this round, the EU should be strategic in how they look to achieve trade objectives while still showing willingness to cooperate with the United States. If EU members unilaterally impose digital taxes on the largely U.S. tech companies, the United States will pursue retaliatory tariffs, bringing the two blocs right back to the trade standoffs of the last several years. Instead, the EU should continue to pursue a coordinated strategy among its members, avoiding deliberately punitive measures where possible. Not only could this further inform the OECD process should negotiations resume, but also demonstrates to the United States that the EU is willing to work towards a fair, but mutually agreeable solution.
Perhaps an even greater challenge will be the reform of the World Trade Organization (WTO), which is paramount to not only the transatlantic trade relationship, but also the health of the global economic order. Although the EU and the United States alone cannot alone resolve the WTO’s long-standing issues, as architects of the rules-based international trading system they have an opportunity to demonstrate leadership as the WTO seeks to adapt to current challenges, particularly in the digital economy. Newly confirmed WTO Director-General, Dr. Ngozi Okonjo-Iweala of Nigeria, is tasked with not only steering major structural reform, but also restoring confidence in the efficacy of the World Trade Organization after years of stagnation and waning influence.
This mission is more attainable when backed by a strong transatlantic alliance, specifically a United States willing to reclaim its seat at the multilateral table and a European Union prepared to cast a more critical gaze on those who violate the rules-based order. However, despite the Biden Administration’s signals towards international cooperation, reformation of the Appellate Body and dispute settlement mechanism will not come until U.S. concerns of judicial overreach have been addressed. A stronger approach on China and its state-owned enterprises may go a long way in bridging this gap, but it will be a drawn out and fractious process to get the United States fully recommitted to the WTO without alienating other members. The most recent EU trade strategy lists reform of the WTO as one of its top priorities, and Europe must be willing to actively fill the gap left by U.S. disengagement until a suitable agreement is found. Though this may cause tensions, for a true recalibration of the transatlantic relationship, Europe must demonstrate their ability to lead on the international stage in their own right.
The United States and the European Union cannot fundamentally alter the world trading order bilaterally; however, cogent transatlantic leadership in a time of division and uncertainty will have significant influence on developing partner nations who support this mission. Just as in the post-war order a desire for prosperity through multilateral engagement triumphed over previously ingrained doubts and divisions, once again the transatlantic partnership can usher in a new era of cooperation, this time built on a foundation of equals. Trade can be the gateway to this unity not because it is an area of full agreement, but precisely because it is not. Both WTO reform and digital taxation are immediate arenas in which to test the waters of diplomacy, building a foundation that goes beyond individual policy disputes and taps into the shared values that have carried the alliance for over 75 years. Navigating the nuances of multilateral cooperation without endangering American priorities will be a careful balance for the new U.S. Administration, just as the EU will have to set clear objectives among its Member States in order to assume credible responsibility in the global community. However, if both parties continue to come to the table in good faith, there is a real opportunity for the transatlantic alliance to provide much-needed leadership within the international order.
Courtney Flynn Martino is a senior program associate at FNF North America in Washington D.C.