By Trevor Wagener
A strong new paper by Meredith M. Broadbent at the Center for Strategic and International Studies (CSIS) discusses discrimination against US 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 US policymakers should not draw inspiration from EU anti-tech policies or the heavy-handed, paperwork-heavy broader EU regulatory model. The traditional lighter-touch US regulatory approach to tech has vastly outperformed the heavy hand of EU regulation. US 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 US policymakers should remember that the EU tech regulatory agenda as presently designed is an explicitly anti-US 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 US 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 US interests across a range of industries.
The third key point is that costs to US businesses and workers could be enormous. US Bureau of Economic Analysis (BEA) data show that US$39 billion in annual US ICT services exports to Europe are directly and immediately threatened, US$283 billion in annual potentially ICT-enabled services exports to Europe are impacted, and US$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 US digital economy accounted for US$3.70 trillion of gross output, US$2.41 trillion of value added (translating to 10.3 per cent of US gross domestic product [GDP]), US$1.24 trillion of compensation, and 8.0 million jobs. The impact on the US economy and US workers could be even larger if global regulators of other industries follow the precedent and significantly reduce total US exports across all categories: up to US$2.6 trillion in US exports each year could be affected.
The targeting of US businesses in EU tech regulatory policies is undeniable. As the piece notes, EU regulations of tech companies disproportionately hit US companies. The DSA, for instance, designates 16 US-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 US 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 US digital trade negotiators to vigorously raise questions and concerns with their EU counterparts. European policymakers need to understand that discriminatory treatment of US firms by close allies is a precedent that US policymakers cannot accept.
Wultra: “Thanks to our participation at Money20/20 Europe, we had the opportunity to present our company together with other leaders from the banking and financial technology industry. At the same time, we gained an array of great contacts to potential business partners.”
The Czech Fintech Association is delighted by the size of the delegation, which has expanded to include representatives not only from emerging companies such as Dateio, Wultra, Threatmark, and Finshape but also from delegates who attended the conference representing members such as Direct Fidoo, Deloitte, Lemonero, Comgate, Twisto, and magazine Fintree.cz.
“The Czech Fintech Association is proud of its members who successfully presented at the Money20/20 conference. Their participation in this significant event confirms the strength and innovativeness of the Czech fintech ecosystem,” Executive Manager of the Czech Fintech Association, Ondřej Machač .
