Officials from the U.S and the European Union are meeting next week in Pittsburgh to discuss a wide range of trade and regulatory issues as part of the new U.S.-EU Trade and Technology Council (TTC). Formalized in June of this year, the TTC was designed to align American and European approaches to trade and technology, develop global standards, and help rebuild the fractured transatlantic relationship. As we noted at the time, the TTC represents an opportunity to promulgate trade rules that are beneficial for startups on both sides of the Atlantic, and it includes a working group specifically for SMEs.
The meeting has been overshadowed by recent developments in Afghanistan and around the AUKUS security pact have further strained the U.S.-EU relationship, and EU policymakers were considering cancelling or postponing next week’s meeting. Officials should prioritize trust-building and finding common ground through the TTC, but U.S. policymakers should be wary of European policies affecting startups and should continue to push for a fair, level playing field for startups on both sides of the Atlantic.
Cross-Border Data Flows: One of the most pressing issues for startups on both sides of the Atlantic continues to be the free flow of data across borders. The European Court of Justice’s decision in July 2020 to strike down the Privacy Shield Agreement—a transatlantic agreement that allowed U.S. companies, especially startups and small businesses, to process and store data of EU users in the U.S.—has left uncertainty in its wake. The court was concerned that EU users’ data could be surveilled by U.S. intelligence agencies and believed that U.S. data privacy protections are too weak to protect EU users. As a result of the decision, startups serving EU customers have faced increased costs, encountered new logistical burdens, and lost customers. Officials have made little progress to replace Privacy Shield, which itself was a replacement of a similar agreement invalidated by the court in 2015 over similar concerns. U.S. policymakers insist a deal is close, but their European counterparts consider it a stretch to finalize a deal by the end of the year.
Competition: The U.S. should not import the European approach to competition, enshrined in theDigital Markets Act (DMA), which remains targeted at U.S. firms. The DMA designates and regulates the behavior of so-called “gatekeeper” companies, which are almost exclusively American. This is likely to improve the position of firms hailing from authoritarian countries, in addition to having secondary impacts on both European and American startups. Acquisitions—which the DMA (and some American proposals) would restrict—are a “crucial metric of thriving startup ecosystems” that produce “many winners,” according to the Brussels-based Allied for Startups. The data confirm acquisitions' importance for driving startup growth and investment, and policymakers on both sides of the Atlantic should avoid undermining opportunities for startups to successfully exit.
Artificial Intelligence: The U.S. and EU agree on values to govern emerging technologies like Artificial Intelligence, but we must reach a regulatory structure that doesn’t disproportionately harm startups. Eliminating bias and mitigating socially-harmful externalities that can be wrought by AI are necessary efforts that merit international alignment, especially to counter nefarious uses of AI in less democratic corners of the world. However, the EU’s proposed framework to govern AI lacks balance and would uniquely burden startups and small businesses. The law would regulate the tech stack that goes into building AI and subject both the companies developing AI and those deploying AI to separate requirements. While large companies may be able to comply with relative ease, small companies will face cost increases and a decrease in opportunities in EU markets. If an American AI startup sold AI solutions to a European SME, for example, both companies would encounter increased costs of doing business under the EU proposal. These costs disincentivize both AI development and the uptake of AI solutions by conventional businesses—lessening the overall AI market in the EU and leveling secondary effects on AI investment on both sides of the Atlantic.
EU leaders were already tempering expectations for next week's summit in Pittsburgh, even before the latest controversies around AUKUS that prompted calls for a “pause and reset” of transatlantic relations from some EU policymakers. Despite the recent tensions, policymakers must come together to ensure that startup ecosystems on either side of the Atlantic are able to thrive. The TTC was conceived as an institution to formulate trade approaches that can benefit all, and that should include startups.
