Sunday, July 21, 2024

Why Europe Needs to Rethink its Approach to Digital Regulation

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The lightning-speed in which digital technology is transforming the global economy is bumping up against Europe’s heavy-handed approach to regulation—posing a threat to innovation, competition, and economic growth. A new chart out by European think tank Bruegel shows the dizzying array of regulatory edicts springing forth from Brussels.   

The European Union claims the aim of its regulations—such as the Digital Markets Act, Data Act, AI Act, and EUCS—is to protect consumers and support European businesses. But it is increasingly evident that these overreaching measures will have detrimental consequences for European companies and the continent’s global competitiveness—while also discriminating against American companies in ways that violate the EU’s trade obligations.  

Criticism of Europe’s overregulation is coming increasingly from European voices. Two recent examples: Executives from more than 150 companies—including many headquartered in the EU—recently signed an open letter to the European Commission, warning that Europe could stifle innovation and miss the AI revolution if it adopts the AI Act.  

Similarly, DIGITALEUROPE, whose members include both European and international companies, has criticized the proposed Data Act. The Brussels-based group notes with alarm that the Act would “place European industry at a disadvantage by forcing it to give up hard-earned data and restricting contractual freedom, potentially leading to a new wave of de-industrialization and poses risks to our cybersecurity.”  

Many of the EU policies under consideration also discriminate against U.S. companies operating in the European market. Like other companies doing business internationally, these American firms already navigate complex regulations worldwide and now face additional burdens when conducting business across the Atlantic.  

Indeed, American companies are being specifically targeted. As noted in a recent bipartisan congressional letter to President Biden, the “discriminatory elements of these policies will weaken American competitiveness by unfairly favoring domestic European firms and inadvertently benefiting Chinese, Russian, and other foreign-owned competitors.” This not only threatens the competitiveness of American businesses but also restricts their ability to invest in research and development, impeding overall innovation and growth. 

Moreover, Europe’s overregulation likely will entrench incumbents, thereby hindering innovation and competition—perversely undercutting the very goals it purports to promote. Compliance costs and bureaucratic hurdles disproportionately impact startups and smaller companies, hampering their ability to introduce new products and services into the market.  

Europe could fall further behind in the global race for technological advancement, as innovative companies seek more favorable environments elsewhere. No economy has successfully regulated its way to being more innovative, more efficient, more productive, more competitive.  
To respond to these concerns, Europe needs to reevaluate its approach to “digital” regulation and strike a better balance between consumer protection and the need for markets to innovate. This would not only attract more global investment, but also propel European homegrown talent to the benefit of its economy. Unfortunately, EU policy makers and regulators have so far failed to recognize this and are relying instead on their traditionally aggressive regulatory approach—and, in so doing, undercutting the very progress they seek to achieve.  

For its part, the Biden administration’s response to Europe’s regulatory overreach and targeting of U.S. firms has been, at best, patchy. Worse yet, there are some within the administration that want the United States to follow Europe’s lead. Doing so would be a prescription for America economic stagnation. 

America needs a thriving European economy. Europe’s quest to be the first to regulate will not result in smart regulation. The Biden administration needs to unequivocally reject Europe’s approach, while offering sound counsel through constructive dialogue.  

About the authors

Jordan G. Heiber

Jordan Heiber leads the Chamber’s international privacy and data flow policy portfolio and manages a team responsible for the full suite of digital policy issues, including cybersecurity, artificial intelligence, and more.

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Zach Helzer

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