At a time of considerable uncertainty about the future of transatlantic digital commerce, one Europe’s top officials for such issues, Gϋnther Oettinger, visited the United States last week and did little to dispel concerns that the EU’s Digital Single Market (DSM) may raise new barriers for U.S. companies. Of particular concern for many in the United States is vague language in the DSM that appears to be designed for protectionist purposes. As one of the strategy’s chief architects, Oettinger would have been uniquely well-positioned to offer needed clarification. He didn’t.
The growing list of political, legal, and regulatory cases involving top American technology companies prompted U.S. President Barack Obama earlier this year to call out Europe for protecting domestic competitors. More generally, it has raised serious concerns about the direction that Europe’s regulatory environment is heading as it proceeds through multiple policy initiatives in parallel—the Digital Single Market, the General Data Protection Review, a revision of the U.S.-Europe Safe Harbor Framework, and the Trans-Atlantic Trade and Investment Partnership. Any one of these on its own would be a major issue for the transatlantic trade relationship, but taken together, they could represent a major shift in the market environment for U.S. and other foreign technology companies.
While these myriad policy initiatives may over time resolve important issues for the digital marketplace as a whole, the immediate concerns related to discrimination against individual U.S. technology companies are proving more urgent (witness the recent Dutch raid of Uber’s European offices). Indeed, Mr. Oettinger himself has caused consternation by commenting that it is necessary “to replace today’s Web search engines, operating systems, and social networks with European ones” and arguing that Europe should have “digital sovereignty” from America—an approach that would unquestionably be counter-productive.
The DSM’s aim is admirable: to unlock the potential of the EU’s fragmented digital market. In a keynote address Thursday at the SAIS Center for Transatlantic Relations, Oettinger outlined the clear economic case for the DSM, detailing how Europe needs to remove a range of regulatory barriers—such as differing copyright, consumer protection, and contract laws—in order to develop a more inclusive, competitive, and productive digital economy. By providing the much-needed economies of scale essential to digital commerce, such reforms could add an extra $463 billion annually to the EU economy. The entire EU stands to benefit through improved Internet connectivity and digital skills, and greater ICT investments across the economy. Europe’s economy sorely needs this plan to succeed, as its industries and consumers are now falling behind on a number of ICT and digital economy measures. For example, only 4 percent of online trade takes place across EU borders and as ITIF has shown industry in Europe invests far less in ICT—a key driver of productivity—than U.S. counterparts.
Unfortunately, Oettinger did not provide clarity about the nettlesome particulars of the DSM, nor did he instill confidence that it is headed in a direction that it affirmatively will not disrupt digital trade between the United States and Europe. Echoing a recent statement from 51 members of the EU parliament, Oettinger told the SAIS audience that U.S. concerns about protectionism are a matter of misperception. Oettinger opened by denying that the initiative was about creating a “fortress” Europe. His advice was not to fall into the trap of those raising protectionist concerns about the DSM. However, in the very next breath, he explained how the DSM is intended to ensure a “level playing field,” which is exactly the sort of vague language that sets alarm bells ringing in the United States.
The DSM’s investigation into the regulation of online “platforms” is of particular concern to the United States, since the clear market leaders are U.S. technology companies such as Amazon, Facebook, and Google. Oettinger’s speech coincided with a European Commission announcement that it is starting two public consultations: one on geo-blocking, and one on online platforms, online intermediaries, data, cloud computing, and the collaborative economy. What is clear thus far is that the investigation into platforms aims to ascertain whether new technology-based players in traditional sectors, especially in entertainment and media, should face the same regulations as their traditional rivals or fall under a new arrangement. In response to a question, Oettinger was not able to clarify what services are covered by the potentially broad term “platform,” other than to emphasize that the EU wants “fair competition” to “stabilize” traditional markets. So we are left to wonder whether online media and service providers will be shackled with regulations that protect traditional companies that are struggling in the digital age, while at the same time hurting EU consumers and EU growth.
Europe’s regulatory approach to data protection and privacy remains in flux. Oettinger rightly points out that data is the fuel and currency of the global economy, especially for the United States and Europe, given the information-intensive nature of their trade relationship. Cross-border data flows between the United States and Europe are the highest in the world—50 percent higher than between the United States and Asia. As ITIF has written, data is a key driver of transatlantic economic growth. Recognizing the importance of cloud computing, the European Commission has launched a “European Cloud” initiative. Besides the need for cloud services certification, Oettinger did not make clear what else may be included in this, leaving residual concerns that the plan will favor European cloud providers or cloud providers that are required to store data in Europe.
Cloud services are far from the only data-related area undergoing changes in Europe. Mr. Oettinger outlined the need to harmonize data protection and privacy measures across EU members as companies, especially start-ups, face considerable legal complexity and costs navigating 28 different sets of laws. He puts the lack of online participation in Europe partly down to the fact that individuals and small businesses don’t trust external companies, because they don’t know if their data will be secure. However, there is virtually no empirical evidence to support this assumption. Few individuals appear to not use the Internet because of privacy concerns.
Europe puts its own digital enterprises at a disadvantage if it uses this misguided understanding as the foundation of its cloud services initiative. After all, the United States has built its competitive advantage with digital trade and online privacy rules that are designed to protect privacy while permitting innovation, suggesting that overly stringent regulations are in fact barriers to the development of a robust ICT ecosystem.
More welcome where Mr. Oettinger’s remarks that he considers the renegotiation of the U.S.-Europe Safe Harbor Agreement an important step in revitalizing the transatlantic data relationship given the many advances in ICT and cloud services since the agreement came into force in 2000. He said he hopes to see a revised Safe Harbor Agreement agreed and implemented in 2016, but he raised the prospect of delays and further revisions, depending on the outcome of an ongoing legal challenge against the agreement at the EU Court of Justice.
Oettinger asserted that geo-blocking is unacceptable if Europe wants to achieve a single European market. However, he admitted that the EU needs a tailored approach to figure out what exceptions may be needed, such as with national film industries and sports. He highlighted the film sectors in individual EU member states as a possible area for exemption, as geo-blocking would help preserve and support European culture. He further stated that the EU’s moves towards a single market and reform of geo-blocking shouldn’t destroy existing traditional business models. However, Mr. Oettinger’s broader approach to geo-blocking continues to be based on some misguided expectations about what will happen if geo-blocking is removed. As ITIF has written, prohibiting geo-blocking will likely harm at least some consumers of digital content who are located in lower-income EU nations.
Looking ahead, U.S. businesses and policymakers can only hope that European officials will further clarify questions about the DSM and not give in to more nationalistic and protectionist sentiments within Europe. This would be the best way to show the United States that concerns about protectionism really are a matter of misperception. In case he had any doubts, Mr. Oettinger should have come away from his visit to the United States with a clearer understanding that the level of concern on this side of the Atlantic is commensurate with the high stakes involved in the DSM, given the large and growing role that platforms, technology, and data play in the transatlantic trade relationship.