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25 February 2021

Why the US and EU are at odds over tech regulation

Washington and Brussels are preparing for a closer working relationship. But is there more that divides than unites them when it comes to Big Tech?

By Ido Vock

Joe Biden came into office vowing that America would work together with its European partners, who were among the first to congratulate him on his election. His secretary of state Antony Blinken is a Europhile who speaks fluent French. But for all the warm words, the US and EU could be on a collision course over what to do about the giants of technology.

There is good reason for the two partners to work together on technological regulation. “The need to preserve democracy and the rule of law from digital disruption is urgent in all democracies. I hope the EU and US will choose to work together more constructively towards a globally applicable, democratic governance model of technology,” Marietje Schaake, the international policy director at Stanford University’s Cyber Policy Centre, told the New Statesman. “There are strengths in the US’s emphasis on national security concerns, while the EU is usually more focused on fundamental rights.”

But, on both sides of the Atlantic, there are suspicions that there is more that divides than unites over Big Tech. 

Headquartered in and operated from Silicon Valley, the main tech companies are governed not only by matters of national security, but also by the freer ethos of American businesses. Almost all the companies that make up the average user’s experience of the internet are headquartered in the US. (ByteDance, which makes TikTok, the video sharing app, is almost unique in being a Chinese app with a significant Western audience.) European politicians, meanwhile, view the influence of these companies over the societies and economies of European countries with increasing fear.

Twitter and Facebook’s decision to ban Donald Trump from their platforms in the wake of the 6 January US Capitol insurrection was an example of the friction. Angela Merkel, the German chancellor, called the move a breach of the “fundamental right to free speech”.

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European politicians do not believe hate speech should be allowed to spread uncontrolled on social media. After all, virtually all European countries have much more stringent laws on hate speech than the US, where most speech that does not incite violence is legal. Rather, leaders worry that decisions surrounding what content deserves to be removed from platforms that have evolved into de facto public forums are being taken by American companies arbitrarily, with little public oversight or transparency.

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Perhaps more than Merkel, the politician who best articulated the European position was Ursula von der Leyen, the president of the European Commission, who said: “No matter how right it may have been for Twitter to switch off Donald Trump’s account… such serious interference with freedom of expression should be based on laws and not on company rules. It should be based on decisions of politicians and parliaments and not of Silicon Valley managers.”

The cynical argument is that high-profile decisions on moderation are influenced by the business interests of American tech giants. James Ball, writing in the Independentargued that it was perhaps not a coincidence that Twitter, wanting to keep Congress on side, banned Trump mere hours after it was confirmed the Democrats had won control of the Senate.

[See also: The big tech lobbyists targeting Capitol Hill]

Then there is the issue of competition. Some EU leaders see the fact that there are few European tech giants as, partly, a result of gatekeeping by the GAFA companies (Google, Amazon, Facebook and Apple), which prevent potential competitors emerging. Falko Mohrs, a member of the German Bundestag for the Social Democratic Party, has championed legislation which would make it easier to sanction tech companies deemed to be acting as cartels.

“We are aiming to have a more proactive and preventive regulation towards the market power of digital platforms,” Mohrs told the New Statesman. The legislation should help tackle existing monopolistic behaviour, as well as prevent its emergence when signs of anti-competitive behaviour begin to appear, he says.

Mohrs’s legislation would give greater powers to the Cartel Office, Germany’s competition regulator, to determine when a company is deemed to be acting in an anti-competitive manner and impose sanctions on it. Such a move could ban Apple from pre-installing some of its own apps on iPhones, or restrict Amazon from promoting its own-brand products over those of its competitors, as it has been accused of doing. The European Commission is investigating  Amazon over this alleged practice, which the company denies.

There is also the reality that, in the United States, the conversation around regulation of Big Tech is derailed by partisan arguments about political fairness. Trump and his allies, for example, have advocated for the repeal of Section 230, which provides platforms with immunity for third party content, and have been accused of politicising congressional hearings on tech regulation.

“The polarisation over how to protect democracy in light of digital disruption is clearly hindering progress in the US Congress,” said Schaake. “One can debate whether polarisation is not also an effect that has been exacerbated by online business models, algorithmic amplification and disinformation.”

Even so, with or independent of the US, there are significant decisions that can be taken on the EU level. The EU’s market of some 450 million consumers is the third largest economy in the world. Where governments of smaller countries argue that tech companies ignore national laws they find inconvenient – in a recent dispute with Facebook, the Australian prime minister Scott Morrison accused Big Tech of thinking “they are bigger than governments and that the rules should not apply to them” – Europe argues that it has the heft to force companies to comply.

The matter isn’t hypothetical. Two proposed laws would significantly toughen regulation of Big Tech in Europe. The Digital Services Act is a wide-ranging legislative proposal, which would impose new obligations on tech companies regarding advertising and illegal content. It would also force tech companies which function as platforms, such as Facebook, to be clearer with regulators about how they choose to present content to users and how they present adverts to users.

The Digital Markets Act, a sister proposal, would define the largest tech companies as market “gatekeepers”, imposing harsher restrictions on allegedly anti-competitive practices, such as a company abusing its dominant position in a market to promote its own products to users.

[See also: Why the EU’s new tech legislation could become the most lobbied in history]

Both acts will be backed up with the threat of fines totalling up to 6 per cent of global annual turnover for the DSA and 10 per cent for the DMA.

The proposals, in effect, dare companies to adhere to the EU’s plans for the governance of the internet – intended to be among the tightest in the world – or forgo a lucrative market. They will also almost certainly create tension with the US, although the mood on the regulation of Big Tech has changed since Joe Biden’s victory.

There will also be a battle over tax. The low levels of taxes paid by American firms on profits made in Europe have long infuriated lawmakers. American firms set up their paper headquarters in low-tax EU jurisdictions such as Ireland or Luxembourg, often paying very low taxes in countries where they make billions in profit. The EU has mooted a 3 per cent digital tax on tech giants, which the Trump White House objected to, arguing it would disproportionately hit American firms.

“During the era of physical companies, corporate taxes were linked to the location of employees and production. In a digital economy, it is more difficult to determine where value is produced,” said Stéphanie Yon-Courtin, an MEP who sits on the EU Parliament’s Committee on Economic and Monetary Affairs. “There are two options available to us: either shift taxes towards where users are, or impose a global digital tax [with the help of the OECD].”

With a change of power in Washington, it may be that the most developed economies will come to an agreement on taxation. If not, the EU has signalled that it is ready to act without the US.

[See also: What the term “Big Tech” tells us about the future of Silicon Valley titans]