Brussels’ Anti-U.S. Tech Regulations Could Set a Dangerous Precedent
A strong new paper by Meredith M. Broadbent at the Center for Strategic and International Studies (CSIS) discusses discrimination against U.S. digital services by the EU Data Act and broader European regulatory proposals. The paper covers a lot of ground, and a few specific implications bear further analysis to highlight key implications.
The first key point is that U.S. policymakers should not draw inspiration from EU anti-tech policies or the heavy-handed, paperwork-heavy broader EU regulatory model. The traditional lighter-touch U.S. regulatory approach to tech has vastly outperformed the heavy hand of EU regulation. U.S. businesses created the critical innovations of Web2.0, built global champion firms, benefitted consumer welfare immensely, and then led the way in AI innovation with large language models, spurring another round of disruptive competition. The EU, meanwhile, has generated more paperwork than tech innovation or champion firms.
The second key point is that U.S. policymakers should remember that the EU tech regulatory agenda as presently designed is an explicitly anti-U.S. agenda, and one that could set precedent elsewhere. EU policies like the Digital Markets Act (DMA), Digital Services Act (DSA), and the forthcoming Data Act and EU Cloud Services Scheme (EUCS) target U.S. tech companies and impose prescriptive requirements for Information and Communications Technology (ICT) market access. This precedent risks influencing regulators of numerous industries in other jurisdictions and harming broader U.S. interests across a range of industries.
The third key point is that costs to U.S. businesses and workers could be enormous. U.S. Bureau of Economic Analysis (BEA) data show that $39 billion in annual U.S. ICT services exports to Europe are directly and immediately threatened, $283 billion in annual potentially ICT-enabled services exports to Europe are impacted, and $594 billion in annual potentially ICT-enabled services exports to all countries could be at risk if other countries follow the EU tech regulatory precedent. These ICT-enabled exports support millions of Americans’ jobs: The BEA estimated that in 2021, the U.S. digital economy accounted for $3.70 trillion of gross output, $2.41 trillion of value added (translating to 10.3 percent of U.S. gross domestic product [GDP]), $1.24 trillion of compensation, and 8.0 million jobs. The impact on the U.S. economy and U.S. workers could be even larger if global regulators of other industries follow the precedent and significantly reduce total U.S. exports across all categories: up to $2.6 trillion in U.S. exports each year could be affected.
The targeting of U.S. businesses in EU tech regulatory policies is undeniable. As the piece notes, EU regulations of tech companies disproportionately hit U.S. companies. The DSA, for instance, designates 16 U.S.-based entities out of the 19 total entities regulated as VLOPs or VLOSEs. Regulators of many other industries, in the EU and elsewhere, are no doubt watching and waiting to see the consequences to determine whether they should imitate this precedent.
Regulations can be designed to primarily impact foreign firms; in such cases they may be non-tariff barriers to trade (NTBs) serving protectionist or discriminatory purposes that violate obligations under global or bilateral trade agreements. When a jurisdiction imposes protectionist or discriminatory policies targeting another jurisdiction’s firms, generally the targeted firms’ home jurisdiction objects strenuously to set the stage for constructive resolution.
Even in cases where a problematic policy is “sticky”, it is important to register concerns strongly to avoid creating unchallenged precedent that can be used to justify future policies targeting your firms, possibly in other industries or by other jurisdictions. That makes it all the more surprising that, from the outside looking in, it seems that U.S. officials have been reluctant to engage with Europe with enough vigor to improve the discriminatory aspects of the long list of forthcoming EU tech regulations.
Now is the time for U.S. digital trade negotiators to vigorously raise questions and concerns with their EU counterparts. European policymakers need to understand that discriminatory treatment of U.S. firms by close allies is a precedent that U.S. policymakers cannot accept.
