Scholars Identify Costs from EU Digital Agenda
The December 5th U.S.-EU Trade and Technology Council (TTC) third ministerial meeting was productive on several fronts, but made limited progress on the biggest obstacle to U.S.-EU free trade: EU digital protectionism, often marketed by proponents as “digital sovereignty.” The European Union has embraced a sweeping digital regulatory agenda, which is currently built around protectionism and discrimination against U.S. digital service providers, rather than facilitating EU innovation and entrepreneurship, or promoting European standards and values. Not only is this protectionist approach economically damaging to both the U.S. and EU, but it also pushes the EU toward reliance on Chinese tech giants, with concomitant threats to national security interests and transatlantic cooperation.
Meredith Broadbent of the Center for Strategic & International Studies recommended that the TTC “early alert” mechanism “should be employed to insist that new EU legislation does not create discriminatory trade barriers that cause harm to U.S. companies and U.S. and European broader strategic interests.” Broadbent noted that discrimination against U.S. firms is built into both existing and proposed EU digital regulatory regulations, from explicitly targeting leading U.S. firms as “gatekeepers” under the Digital Markets Act (DMA) and Data Act, to explicitly prohibiting any firm not headquartered in Europe from full certification under the proposed EU-wide Cybersecurity Certification Scheme for Cloud Services (EUCS).
The costs of such EU digital protectionism would be vast and would harm both U.S. and EU consumers and firms. An economic study by Kati Suominen found that the DMA and Digital Services Act (DSA) alone could impose “$22 billion to $50 billion in new compliance and operational costs to U.S. digital services providers, equivalent to 8 to 17 percent of these providers’ EU revenues,” much of which would be passed on to European customers. These added costs could restrict U.S. digital service providers from offering European firms some interlinked services that are standard elsewhere in the world, reducing U.S. services exports to Europe by $18 billion per year. Suominen estimated these cost increases on European businesses could conservatively be “€43 billion ($43 billion) per year and more plausibly €71 billion ($71 billion) per year, equivalent to 0.3 percent of EU GDP.”
Both Broadbent and Suominen noted that the EU digital regulatory agenda as presently designed was primarily aimed at U.S. firms, not Chinese firms, and did little to facilitate the growth of any European service providers who could offer services matching global market expectations. As a result, the most likely strategic outcome of the current EU digital regulatory agenda is to push European businesses toward increased reliance on Chinese tech giants for digital services. As Chinese law does not allow Chinese firms to refuse to assist the Chinese Communist Party or the state’s security or intelligence apparatus, and China lacks an independent judiciary that Chinese businesses could use to challenge such orders, increased EU reliance on Chinese firms is certain to create national security vulnerabilities in Europe that could undermine transatlantic cooperation.
Europe should reorient its digital regulatory agenda around fostering innovation and entrepreneurship, not enhancing the global reach of China’s security apparatus.