In her State of the European Union speech, European Commission President Ursula von der Leyen delivered a clear-eyed assessment of the European Union’s position within the global digital economy. Alongside predictions of a European “digital decade” shaped by initiatives such as GaiaX, von der Leyen admitted Europe had lost the race on defining the parameters of personalized data, leaving Europeans “dependent on others”, writes Louis Auge.
Despite that straightforward admission, the question remains whether European leaders are willing to mount a consistent defence of their citizens’ data privacy, even as they accept reliance on American and Chinese firms. When it comes to challenging American social media or e-commerce giants like Google, Facebook, and Amazon, Europe has no problem seeing itself as the global regulator.
In facing China, however, the European position often seems weaker, with governments only acting to curb the influence of Chinese technology suppliers such as Huawei under intense US pressure. Indeed, in one key area with serious implications for several economic sectors Commission President von der Leyen cited in her speech – unmanned aerial vehicles, otherwise known as drones – Europe is allowing a single Chinese firm, DJI, to corner the market practically unopposed.
A trend accelerated by the pandemic
Shenzhen Dajiang Innovation Technologies Co. (DJI) is the unquestioned leader of a global drone market predicted to skyrocket to $42.8 billion in 2025; by 2018, DJI already controlled 70% of the market in consumer drones. In Europe, DJI has long been the unmanned aerial vehicle (UAV) supplier of choice for military and civilian government clients. The French military uses “commercial off-the-shelf DJI drones” in combat zones like the Sahel, while British police forces uses DJI drones to search for missing persons and manage major events.
The pandemic kicked that trend into high gear. In European cities including Nice and Brussels, DJI drones equipped with loudspeakers admonished citizens about confinement measures and monitored social distancing. DJI representatives have even tried to convince European governments to use their drones to take body temperatures or transport COVID-19 test samples.
This rapid expansion in the use of DJI drones runs counter to decisions being taken by key allies. In the United States, the Departments of Defense (the Pentagon) and the Interior have banned the use of DJI’s drones in their operations, driven by concerns over data security first uncovered by the US Navy in 2017. In the time since, multiple analyses have identified similar flaws in DJI systems.
In May, River Loop Security analyzed DJI’s Mimo app and found the software not only failed to adhere to basic data security protocols, but also that it sent sensitive data “to servers behind the Great Firewall of China.” Another cybersecurity firm, Synacktiv, released an analysis of DJI’s mobile DJI GO 4 application in July, finding the company’s Android software “makes use of the similar anti-analysis techniques as malware,” in addition to forcibly installing updates or software while circumventing Google’s safeguards. Synacktiv’s results were confirmed by GRIMM, which concluded DJI or Weibo (whose software development kit transmitted user data to servers in China) had “created an effective targeting system” for attackers – or the Chinese government, as US officials fear – to exploit.
To address the potential threat, the Pentagon’s Defense Innovation Unit (DIU) has introduced a small Unmanned Aircraft Systems (sUAS) initiative to procure drones from trusted American and allied manufacturers; France’s Parrot is the only European (and, indeed, non-American) firm currently included. Last week, the Department of the Interior announced it would resume purchasing drones through the DIU sUAS program.
DJI’s security flaws have also sparked concern in Australia. In a consultation paper released last month, the Australian transport and infrastructure department flagged weaknesses in Australia’s defenses against “the malicious use of drones,” finding UAVs could potentially be used to attack the country’s infrastructure or other sensitive targets, or otherwise for purposes of “image and signals gathering” and other types of reconnaissance by hostile actors.
In Europe, on the other hand, neither the European Data Protection Board (EDPB), the German Federal Commissioner for Data Protection and Freedom of Information (BfDI), nor the French National Commission on Informatics and Liberty (CNIL) have taken public action on the potential dangers represented by DJI, even after the company’s products were found forcibly installing software and transferring European user data to Chinese servers without allowing consumers to control or object to those actions. Instead, the use of DJI drones by European military and police forces may appear to offer consumers a tacit endorsement of their security.
Despite an opaque ownership structure, links to Chinese state abound
Suspicions of DJI’s motives are not helped by the opacity of its ownership structure. DJI Company Limited, the holding company for the firm via the Hong Kong-based iFlight Technology Co., is based in the British Virgin Islands, which does not disclose shareholders. DJI’s fundraising rounds nonetheless point to a preponderance of Chinese capital, as well as linkages with China’s most prominent administrative bodies.
In September 2015, for example, New Horizon Capital – cofounded by Wen Yunsong, son of former premier Wen Jiabao – invested $300 million in DJI. That same month, New China Life Insurance, partly owned by China’s State Council, also invested in the firm. In 2018, DJI may have raised up to $1 billion ahead of a supposed public listing, although the identify of those investors remains a mystery.
DJI’s leadership structure also points to links with China’s military establishment. Co-founder Li Zexiang has studied or taught at a number of universities linked to the military, including the Harbin Institute of Technology – one of the 'Seven Sons of National Defence' controlled by China’s Ministry of Industry and Information Technology – as well as the National University of Defense Technology (NUDT), directly supervised by the Central Military Commission (CMC). Another executive, Zhu Xiaorui, served as DJI’s head of research and development up until 2013 – and now teaches at the Harbin University of Technology.
These links between DJI’s leadership and China’s military would seem to explain DJI’s prominent role in Beijing’s repression of ethnic minority groups. In December 2017, DJI signed a strategic partnership agreement with the Bureau of Public Security of the Autonomous Region of Xinjiang, outfitting Chinese police units in Xinjiang with drones but also developing specialized software to facilitate missions for the “preservation of social stability.” DJI’s complicity in the campaign of “cultural genocide” against the Uighur population of Xinjiang burst into the headlines last year, when a leaked video – shot by a police-controlled DJI drone – documented a mass transfer of interned Uighurs. The company has also signed agreements with authorities in Tibet.
An inevitable crisis?
While DJI has gone to considerable efforts to counteract the findings of Western governments and researchers, even commissioning a study from consultancy FTI that promotes the security of its new “Local Data Mode” while sidestepping existing flaws, the monopolistic control of this emerging sector by a single firm with links to China’s security establishment and direct involvement in systemic human rights abuses could quickly become a problem for regulators in Brussels and the European capitals.
Given how prevalent drones have become across the wider economy, the security of the data they capture and transmit is a question European leaders will have to address – even if they prefer to ignore it.
Commission proposes measures to boost data sharing and support European data spaces
Today (25 November), the Commission is presenting the Data Governance Act, the first deliverable under the data strategy adopted in February. The Regulation will facilitate data sharing across the EU and between sectors to create wealth for society, increase control and trust of both citizens and companies regarding their data, and offer an alternative European model to data handling practice of major tech platforms.
The amount of data generated by public bodies, businesses and citizens is constantly growing. It is expected to multiply by five between 2018 and 2025. These new rules will allow this data to be harnessed and will pave the way for sectoral European data spaces to benefit society, citizens and companies. In the Commission’s data strategy of February this year, nine such data spaces have been proposed, ranging from industry to energy, and from health to the European Green Deal. They will, for example, contribute to the green transition by improving the management of energy consumption, make delivery of personalized medicine a reality, and facilitate access to public services.
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COVID-19 reveals the shortcomings of a paper-based trade system
According to a recent report by the International Chamber of Commerce, as COVID-19 reveals the shortcomings of a paper-based trade system, financial institutions (FIs) are finding ways to keep trade circulating. It states that the problem being faced today is rooted in trade’s single most persistent vulnerability: paper. Paper is the financial sector’s Achilles heel. The disruption was always going to happen, the only question was, when, writes Colin Stevens.
Preliminary ICC data shows that financial institutions already feel they are being impacted. More than 60% of respondents to the recent COVID-19 supplement to the Trade Survey expect their trade flows to decline by at least 20% in 2020.
The pandemic introduces or exacerbates challenges to the trade finance process. To help combat the practicalities of trade finance in a COVID-19 environment, many banks indicated that they were taking their own measures to relax internal rules on original documentation. However, only 29% of respondents report that their local regulators have provided support to help facilitate ongoing trade.
It’s a critical time for infrastructure upgrades and increased transparency, and while the pandemic has caused a lot of negative effects, a potential positive impact is that it has made clear to the industry that changes do need to be made to optimize processes and improve the overall functioning of international trade, trade finance, and money movement.
“I think it comes down to integrating new technologies in smart ways. Take my company for example, LGR Global, when it comes to money movement, we are focused on 3 things: speed, cost & transparency. To address these issues, we are leading with technology and using things like blockchain, digital currencies and general digitization to optimize the existing methodologies.
"It's quite clear the impact that new technologies can have on things like speed and transparency, but when I say it’s important to integrate the technologies in a smart way that’s important because you always have to keep your customer in mind - the last thing we would want to do is introduce a system that actually confuses our users and makes his or her job more complicated. So on one hand, the solution to these problems is found in new technology, but on the other hand, it’s about creating a user experience that is simple to use and interact with and integrates seamlessly into the existing systems. So, it’s a bit of a balancing act between technology and user experience, that’s where the solution is going to be created.
"When it comes to the broader topic of supply chain finance, what we see is the need for improved digitalization and automation of the processes and mechanisms that exist throughout the product lifecycle. In the multi-commodity trading industry, there are so many different stakeholders, middlemen, banks, etc. and each of them have their own way of doing this - there is an overall lack of standardization, particularly in the Silk Road Area. The lack of standardization leads to confusion in compliance requirements, trade documents, letters of credit, etc., and this means delays and increased costs for all parties. Furthermore, we have the huge issue of fraud, which you have to expect when you are dealing with such disparity in the quality of processes and reporting. The solution here is again to use technology and digitalize and automate as many of these processes as possible - it should be the goal to take human error out of the equation.
"And here is the really exciting thing about bringing digitalization and standardization to supply chain finance: not only is this going to make doing business much more straightforward for the companies themselves, this increased transparency and optimization will also make the companies much more attractive to outside investors. It’s a win-win for everyone involved here.”
How does Amirliravi believe these new systems can be integrated into existing infrastructure?
“This is really a key question, and it's something that we spent a lot of time working on at LGR Global. We realized you can have a great technological solution, but if it creates complexity or confusion for your customers, then you’ll end up causing more problems than you solve.
In the trade finance and money movement industry, that means that new solutions have to be able to plug in directly into existing customer systems --using APIs this is all possible. It’s about bridging the gap between traditional finance and fintech and making sure that the benefits of digitalization are delivered with a seamless user experience.
The trade finance ecosystem has a number of different stakeholders, each with their own systems in place. What we really see a need for is an end-to-end solution that brings transparency and speed to these processes but can still interact with the legacy and banking systems that the industry relies on. That’s when you’ll start to see real changes being made.”
Where are the global hotspots for change and opportunities? Ali Amirliravi says that his company, LGR Global, is focusing on the Silk Road Area - between Europe, Central Asia and China - for a few main reasons:
“First, It’s an area of incredible growth. If we look at China for example, they have maintained GDP growth of over 6% for the last years, and central Asian economies are posting similar numbers, if not higher. This kind of growth means increased trade, increased foreign ownership and subsidiary development. It’s an area where you can really see the opportunity to bring a lot of automation and standardization to the processes within the supply chains. There is a lot of money being moved around and new trading partnerships being made all the time, but there are also a lot of pain points in the industry.
The second reason has to do with the reality of currency fluctuation in the area. When we say Silk Road Area countries, we are talking about 68 countries, each with their own currencies and the individualized value fluctuations that come as a by-product of that. Cross-border trade in this area means that the companies and stakeholders that participate in the finance side have to deal with all kinds of problems when it comes to currency exchange.
And here is where the banking delays that happen in the traditional system really have a negative impact on doing business in the area: because some of these currencies are very volatile, it can be the case that by the time a transaction is finally cleared, the actual value that is being transferred ends up being significantly different than what might have been agreed to initially. This causes all kinds of headaches when it comes to accounting for all sides, and it’s a problem that I dealt with directly during my time in the industry.”
Amirliravi believes that what we are seeing right now is an industry that is ready for change. Even with the pandemic, companies and economies are growing, and there is now more of a push toward digital, automated solutions than ever before. The volume of cross border transactions has been growing steadily at 6% for years now, and just the international payments industry alone is worth 200 Billion Dollars.
Numbers like that show the impact potential that optimization in this space could have.
Topics like cost, transparency, speed, flexibility and digitization are trending in the industry right now, and as deals and supply chains continue to become more and more valuable and complex, demands on infrastructure will similarly increase. It’s really not a question of “if”, it’s a question of “when” - the industry is at a crossroads right now: it’s clear that new technologies will streamline and optimize processes, but parties are waiting for a solution which is secure and reliable enough to handle frequent, high volume transactions, and flexible enough to adapt to the complex deal structures that exist within trade finance. “
Amirliravi and his colleagues at LGR Global see an exciting future for the b2b money movement and trade finance industry.
“I think something that we are going to continue to see is the impact of emerging technologies on the industry “he said. “Things like blockchain infrastructure and digital currencies will be used to bring added transparency and speed to transactions. Government-issued central bank digital currencies are also being created, and this is also going to have an interesting impact on cross-border money movement.
"We’re looking at how digital smart contracts can be used in trade finance to create new automated letters-of-credit, and this gets really interesting once you incorporate IoT technology. Our system is able to trigger transactions and payments automatically based on incoming data streams. This means, for example, that we could create a smart contract for a letter of credit which automatically releases payment once a shipping container or a shipping vessel reaches a certain location. Or, a simpler example, payments could be triggered once a set of compliance documents is verified and uploaded to the system. Automation is such a huge trend - we’re going to see more and more traditional processes being disrupted.
"Data is going to continue to play a huge role in shaping the future of supply chain finance. In the current system, a lot of data is siloed, and the lack of standardization really interferes with overall data collection opportunities. However, once this problem is solved, an end-to-end digital trade finance platform would be able to generate big data sets that could be used to create all kinds of theoretical models and industry insights. Of course, the quality and sensitivity of this data means that data management and security will be incredibly important for the industry of tomorrow.
"For me, the future for the money movement and trade finance industry is bright. We’re entering the new digital era, and this is going to mean all kinds of new business opportunities, particularly for the companies that embrace next generation technologies.”
Research and scientific innovation essential for economic recovery in Europe
The next EU budget 2021-2027 will pave the way for strong EU support for the research, innovation and science sectors – vitally important in the delivery of economic recovery in Europe, writes David Harmon.
The European Parliament is set to vote on November 23th next on the provisions of the revised EU budgetary framework for the period 2021-2027.
€94 billion as of now is being put aside to finance Horizon Europe, nextGenerationEU and Digital Europe. These are key EU initiatives that will ensure that the EU stays to the forefront in developing new digital technologies. This in now more important than ever. Digital transformation is moving centre stage in terms of how technology will develop key vertical industries and future smart grids in Europe.
And Europe has the know-how to fulfil its key policy targets under these important EU flagship programmes and to do so in an environmentally manner.
The bottom line is that we are now living in the 5G era. This means that new products such as high definition video and self-driving vehicles are going to become a reality in everyday life. 5G is driving this process of ICT innovation. But EU member states do need to work together to make 5G a success so as to economically develop Europe and to comprehensively address broader societal needs.
ICT standards must operate in a structured and in an inter-linked manner. Governments must ensure that spectrum policies are managed in a manner that guarantees that self–driving cars can travel seamlessly across borders.
Policies at an EU level that promote excellence in science through the European Research Council and via the European Innovation Council are now ensuring that highly innovative ICT products are successfully entering the EU marketplace.
But the public and private sectors must continue to work closely together in the delivery of EU policy goals that fully incorporate and integrate the research, innovation and science sectors.
Already under Horizon Europe a number of public private partnerships are being put in place that will cover the development of both key digital technologies and smart networks and services. The process of innovation works at it’s best when the private, public, educational and research communities are collaborating and cooperating together in the pursuit of common policy objectives.
In fact, in even a broader context the 17 UN Sustainable Development Goals can be achieved via scientists and researchers across the world engaging in common projects.
Europe is playing to its strengths under the Horizon Europe programme.
Europe is home to some of the finest software developers in the world. Over a quarter of all global [email protected] is carried out in Europe.
Horizon Europe and its predecessor programme Horizon 2020 are recognised as leading global research initiatives. But industry has to step up to the plate if Horizon Europe is going to be a success.
Horizon Europe must and will support the process of innovation.
This is the key if traditional industries such as the energy, transport and health and manufacturing sectors are going to be fit for the digital age.
International collaboration and co-operation can and will support the implementation of the strategic autonomous policy goals of the EU.
We are living through a digital revolution. We all must work together to make this revolution a positive success for everyone and this includes bridging the digital divide.
Now that Europe is on the verge of securing agreement to the terms of the new EU budget 20210—2027, interested parties can prepare for the first call for proposals under Horizon Europe. The publication of such calls will take place within the first quarter of 2021. Advances in the fields of AI, big data, cloud computing and high performance computing will all play critical roles in bringing new innovative ICT products and services into the marketplace. We have witnessed at first hand this year the very positive role that new technologies can play in supporting high-speed online platforms and in enhancing connections for businesses, friends and families alike.
Policy frameworks will of course have to be put in place to cater for the evolving technologies that are coming on stream. Civic society, industry, the education and researcher sectors must be fully engaged in developing this legislative roadmap.
We know the challenges that lie ahead for us. So let us all actively address these challenges in a spirit of determination, friendship and international co-operation.
David Harmon is director of EU Government Affairs at Huawei Technologies and he is a former member within the cabinet of the European Commissioner for research, innovation and science during the period 2010-2014.