Transatlantic Dialogues on Competition in the Digital Sector
This week was the first meeting of the EU-U.S. Joint Technology Competition Policy Dialogue between the European Commission, the U.S. Department of Justice Antitrust Division and the U.S. Federal Trade Commission. Parties intend this dialogue to continue alongside ongoing transatlantic engagement, including within the context of the EU-U.S. Trade & Tech Council (TTC). [DisCo previously discussed the importance of raising platform related issues within the TTC].
In the Inaugural Joint Statement issued on December 7, parties committed “to collaborate to ensure and promote fair competition, as we firmly believe that vigorous and effective competition enforcement benefits consumers, businesses, and workers on both sides of the Atlantic.”
As both enforcement authorities and policymakers consider the new challenges brought by the changing digital economy, dialogues like this are critical to discuss shared approaches. A shared transatlantic goal should be protecting vigorous competition so that U.S. and EU consumers can continue to benefit from open and competitive markets.
The Inaugural Joint Statement also cited dynamics in the digital market such as network effects, the role of data, and interoperability that make it necessary for authorities to “adapt and respond to these new challenges.” Industry has participated in various government consultations (here and here) that dive further into these dynamics, numerous Government reports and studies on competition enforcement in the digital economy have been published analyzing how competition enforcement can adapt to these challenges.
Some countries, like Germany, have adapted their competition laws to address perceived challenges according to these recommendations, while preserving fundamental competition law principles of efficiency and consumer welfare. Other countries, like the U.K., are in the process of doing so. Still others have decided to fine-tune enforcement to address these challenges using the inherent flexibility of competition laws.
However, there are serious concerns where governments go beyond competition law principles and seek to restructure markets to favor national champions, or discriminate against specific firms. The OECD recommends “promoting competition and efficiency in cases of conflict with non-efficiency goals, except where application of this principle is simply not practicable or politically feasible, in which case the competition distorting impact of the regulations is minimised.”
The EU’s Digital Markets Act (DMA) is set to impose on a handful of US companies new obligations and prohibitions inspired by remedies sought under ongoing competition investigations into those same companies. Through regulation, it effectively eliminates these companies’ ability to prove the pro-competitive or efficiency enhancing effects of their conduct. The DMA contains no safeguards to address circumstances where its application will reduce efficiency or consumer welfare, and is therefore liable to distort competition between regulated and unregulated firms.
The need to consider pro-competitive effects of conduct before imposing penalties is particularly important in dynamic digital markets, where, as an EU expert report acknowledges, “the economics are not yet completely understood”. The focus of competition enforcement should remain on fostering a vigorous competitive process that improves outcomes for all consumers. Departing from this standard threatens to undermine collaborative approaches to ensuring robust competition in the transatlantic digital market.
Many U.S. officials have already raised concerns with the Digital Markets Act.
The U.S. National Security Council warned EU leaders about the targeted and discriminatory nature of the DMA last June. Peter Harrell, Senior Director for International Economics and Competitiveness on the White House National Security Council, noted the potential impact to U.S. firms speaking at a CSIS event in November.
U.S. Commerce Secretary Raimondo has repeatedly cited concerns with the DMA and other proposed EU legislation including the Digital Services Act. At an event held by the U.S. Chamber of Commerce in December 2021, she stated: “We have serious concerns that these proposals will disproportionately impact U.S.-based tech firms and their ability to adequately serve EU customers, and uphold security and privacy standards[.] . . . We understand the proposals are moving quickly through the EU’s legislative process, but now more than ever, we encourage officials to continue listening to concerns by stakeholders before finalizing their decision[.]” She previously made similar concerns in September ahead of the first meeting of the TTC.
U.S. officials also reportedly raised concerns about the risk to IP and trade secret protection in a position paper shared with EU officials.
As the U.S. and EU consider approaches to digital governance, bilateral initiatives such as the Joint Technology Competition Dialogue and the TTC are important to discuss shared approaches while also raising concerns about unintended consequences for transatlantic trade through flawed regulation that doesn’t account for the pro-competitive effects of common platform conduct.