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Digital Markets Act: Is the European Union Taking the Lead?

Analysis - 17 February 2021

The European Commission published on December 15 its Digital Markets Act, a new text aiming at regulating the digital economy and limiting the gatekeeping power of large digital players. Institut Montaigne launches today a series of articles to analyze the stakes behind the new regulation. In this first article, Gilles Babinet, Advisor on Digital Issues at Institut Montaigne, and Dr. Alina Polyakova, President and CEO of the Center for European Policy Analysis (CEPA), share their views on new digital regulations, from both a European and American perspective.  

What is the European Union’s approach to the dominant position of large digital platforms? 

Gilles Babinet: This is a broad question that must be answered first by referring to the different opinions that may be expressed within different parts of the European Commission. There are several schools of thought. On the one hand, there are those who think that platforms structurally include biases (competition, hate speech, taxation, etc.) that should be dealt with in depth. On the other hand, there are those, more interventionist, who think that the dynamism of European technological players will be insufficient to catch up with the advance taken by large American meta-platforms, and that it is therefore necessary to create the conditions enabling European players to fill the gap. The latter are highly supportive of very bold industrial policies and, of course, they are carried by today’s general attitude towards foreign technology companies. 

The change in the US administration, however, creates a zero-gravity moment, whereby it becomes difficult to choose between either of these approaches. If the United States sends signals that point in the direction of lowered trade conflicts and closer cooperation with Europe, it is likely that those who advocate for a reduction in competition from outside Europe through regulation will be outvoted. If not, in the context of a recovery which is proving to be laborious, it is possible that the EU will look to confine American technological players. Overall, the European remain realistic: they know that they are not in a position to impose unilateral regulations on technology, much less to demand the dismantling of American platforms. Things would probably have been different if Europe had not fallen so far behind on these issues - and had built its own meta-platforms. 

Overall, the European remain realistic: they know that they are not in a position to impose unilateral regulations on technology, much less to demand the dismantling of American platforms. 

What is the United States’ approach to the dominant position of large digital platforms? 

Dr. Alina Polyakova: The US has a complex regulatory environment on this question. In Europe, the Commission is taking the lead in a European-level response whereas, in the US, we haven't had any coherent federal-level responses when it comes to digital regulatory policy. Congress has not passed one piece of meaningful legislation on this issue. As a result, we have many disparate proposals that all overlap in various ways and, in some cases, contradict each other.

Coming out of the Senate and the House of Representatives, these proposals take on a broad set of issues, from domestic infrastructure, 5G, algorithmic transparency, all the way to section 230 reform, which could have profound implications for how the US government regulates not only social media platforms, but also tech companies more broadly. 

It proves to be difficult to separate questions around content moderation from questions around digital regulatory policies. 

Although the US is home to many of the world's largest global tech companies, the regulatory situation has often resembled the wild west. There is no regulatory agency or regulatory mandate from the federal government to set guidelines, except within the narrow scope of the Federal Trade Commission (FTC) that regulates e-commerce.

The Federal Communications Commission (FCC) has no jurisdiction over any social media platform since the implementation of section 230 of the Communications Decency Act in 1996, at a time when the penetration of digital technology was not comparable to where we stand in 2021. At the same time, much of legal activity, especially on data privacy, is happening at the state level. California, for example, implemented a wide ranging data privacy law, not dissimilar to the GDPR. This could be a precedent for national legislation at a future point.

It proves to be difficult to separate questions around content moderation from questions around digital regulatory policies. 

Antitrust regulation may also be on the horizon as the US Congress increasingly looks at precedent in other industries, such as finance and tobacco. 

How does the DMA position Europe in the global technology landscape? 

On the European technological position, Europe still has a clear advantage in terms of industrial data, which are still far from being exploited by the GAFA.

Gilles Babinet: There are two ways to answer this question: through technology or through geopolitics. On the European technological position, Europe still has a clear advantage in terms of industrial data, which are still far from being exploited by the GAFA. Let’s keep in mind that, with players such as Schneider Electric, Siemens, ABB, Bosch and a few others, who are the main builders of industrial digital infrastructure, the European Union has unquestionable leadership in this area. This is leaving out of the equation Nokia and Ericsson, which will become backbones of industrial information systems with 5G. 

This analysis has been done in the European Commission and Commissioner Thierry Breton endeavors to generate strong dynamics to create alliances and preserve European industrial data. 

On the geostrategic level, China is now playing a game apart. This is already visible in the way the Chinese authorities, for example, push developers to no longer share their code elsewhere than on Chinese platforms, and to recommend that they no longer do so in English. The question for Europe is to choose between a 1 vs. 1 vs 1 approach (the USA vs. the EU vs. China) or to continue in a 2 vs. 1 logic (the USA and the EU vs. China). The answer is still unclear, and issues like preserving industrial data make it anything but obvious. 

Dr. Alina Polyakova: My concern is that, by moving towards regulation before moving towards innovation, we'll end up with a European Union that is in the digital backwater. At the end of the day, for Europe to have a place in what is a "tech Cold War" between the US and China, it needs to compete at a market level and to produce innovative technology firms. With the current DMA, and to a certain extent with the Digital Services Act as well, the European Union moves towards protectionism and away from innovation. Overall, it seems to prioritize regulation over innovation. It is widely known that quite a few European countries have a very restrictive regulatory regime that makes it very difficult for entrepreneurship to emerge. 

Europe should work on how to build a better assessment and enforcement mechanism for investment that takes into consideration the difference between democratic and authoritarian regimes that sponsor certain companies.

Moreover, Europe should work on how to build a better assessment and enforcement mechanism for investment that takes into consideration the difference between democratic and authoritarian regimes that sponsor certain companies. If the EU wants to have a leading role in organizing all member states’ regulatory responses then, at the same time, it needs to strengthen its foreign investment review processes to take value considerations into account.

 

Copyright: Olivier Matthys / POOL / AFP

 

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