Making America First in the Digital Economy: The Case for Engaging Europe – summary from Atlantic Council’s paper
“Making America First in the Digital Economy: The Case for Engaging Europe” by Frances G. Burwell (Atlantic Council)
The modern global economy is increasingly driven by digitalization, which is transforming all economic sectors. Hence, the future growth of the US economy depends on the success of its digital economy. While the US has been a trailblazer in this sector, the global leader in the regulating the digital economy is the EU: in order to promote and rely on the digital economy, the US has to work with Europe. Such partnership is interesting for two reasons: first, because Europe is already the United States’ major partner in digital trade; second, the European regulatory superpower has an immense impact on US firms
The priorities for the US-EU digital agenda are:
- Competition Policy
- Taxation of Digital Enterprises
- Data Flows
- Anti-terrorism and Hate Speech
Cooperation with the EU is essential not only for the US to continue as a leader of the digital economy, but also for both to succeed in fighting cyber-attacks, online terrorism and criminal networks.
The Case for Engaging Europe
The global digital economy is growing at a remarkable speed: between 2005 and 2017, the percentage of internet users around the globe has tripled, and such growth is now continuing. In the US, digitalization and artificial intelligence have already had a tremendous impact on industries such as manufacturing and transportation. This has mostly benefitted SMEs, which are now able to broaden their customer base regionally and internationally. The US has been leading in this sector thanks to its transformative firms (e.g. Apple, Microsoft, Google, etc.), and digitalization is now estimated to contribute to up to 33% of the GDP. The digital economy is among the most internationally competitive elements of the US economy, with regular annual surpluses.
As the US grows its digital economy, the best partner for this effort is the EU, with which engaging is in US interests for two reasons. First, it is the second largest digital economic powerhouse, and, in some indicators, it leads. Event though digitalization varies from country to country, France, the UK and Germany all lead the US in percentage of individuals using the internet. Moreover, the EU accounts for almost half of all US digital trade, being the primary market for many US firms. Second, it has become a regulatory superpower in the digital space: while the US has generally not sought to put out new regulations on the emerging digital sector, European policymakers have often created rules specifically designed for the digital economy (i.e. laws on copyright, privacy, etc.).
Regulation by others has an immense impact on US companies, for many of which it is easier to adopt EU regulations across all global markets. Aside from promulgating said legislations, the EU is active in promoting its approach to digitalization to the G7 and G20. Therefore, US firms will be left more vulnerable if this European digital activism is ignored; furthermore, a lack of cooperation will leave the field open to other emerging powers in the digital world, especially China and Russia. Only through engagement with Europe can the United States ensure that US interests are protected in this new digital world.
When it comes to the US-EU digital agenda, the following issues have been the most prominent over the past few years:
- Privacy: within the EU, the protection of personally identifiable information is viewed as a fundamental right, not primarily as a consumer protection issue, as in the US. The two parties have clashed over privacy, struggling to reach agreements on issues such as data transfer and data protection. It is clear that privacy will continue to be a key issue for businesses operating across the Atlantic.
- Competition Policy: the EU has an extensive record in policy antitrust behavior, including in the tech sector. US tech companies are certainly subject to antitrust and other reviews in Europe, as they are leaders in the marketplace. Statistics then show that US firms are relatively a small portion of the EU’s competition caseload. Ensuring an open tech market is a priority for EU competition authorities, but a key question is whether competition regulations designed for the traditional economy are appropriate for the digital age. Barriers to entry can also be low compared to manufacturing, where new entrants might have significant capital investment. When firms dominate a particular part of the tech sector, they may actually increase competition in formerly static markets. In 2018, the Commission plans to examine the role of platforms and whether they stifle competition in the digital economy and should be subject to specific legislation.
- Taxation of Digital Enterprises: the EU noted that it is harder for governments to ensure that they receive tax payments from revenues generated in their country. The taxation of digital enterprises has the potential to become an area of enormous transatlantic tension.
- Data Flows: the cross-border flow of data has emerged as point of potential US-EU disagreement, especially given data’s increasing centrality to business and its profits. Transatlantic differences over data are important not only in the US-EU marketplace but also in the development of global rules in this sector. Clearly, the EU will continue to be an ambitious regulator in this area.
- Copyright: modernizing copyright protections to take digital technology into account has been a complicated issue in both the US and the EU. In this real, the divide has been less between the different sides of the Atlantic than between different types of companies. The main differences have focused on how companies should police their users for illegal use of copyrighted material, what liability the companies may have for the actions of those users, and how to balance the sharing of digital content with the rights of creators to be compensated.
- Anti-terrorism and Hate Speech: over the past few years, the US and EU have both experienced a growing online presence of terrorist recruitment material and other extremist content. While the US has freedom of speech enshrined in the First Amendment to the Constitution, some European states have restricted public speech in specific instances (such as in cases of racism, denial of the Holocaust, etc.). given its constitutional protection, the US has generally not sought to develop equivalent rules for online hate speech. However, the revelations about Russian influence on the 2016 US elections may cause the US to reconsider what has been a largely hands-off approach. To date, US companies such as Facebook have focused on providing greater transparency regarding political advertising their sites, rather than any removal of content.
The Next Steps for US-EU Digital Cooperation
To build better habits of cooperation between the United States and EU on these digital issues, officials should focus on few key issues where positions are not yet fully established and where existing legislation does not have to be overturned. Over the next several years, the following efforts might foster such cooperation:
- Boosting Cybersecurity Standards to Protect the Internet of Things: both the US and the EU aim to establish standards for cybersecurity protection for the IoT, from critical infrastructure to personal networks. Greater cooperation in this area would help keep both the US and the EU safer from disruption by criminal and terrorist attacks.
- Reducing Terrorist and Criminal Exploitation of the Internet: there is already significant information sharing across the Atlantic on these matters, but gathering digital evidence in a timely way that will stand up in a court of law has proven much more complicated. The European Commission is expected to propose legislation intended to reduce obstacles to cross border collection of e-evidence among EU member states. Along with law enforcement access to data, US-EU cooperation in this area would also benefit from a full discussion of how to best monito and eliminate terrorist content and reduce online radicalization
- Coordinating Regulatory Approaches to Blockchain: blockchain is the leading emerging technology for tracking transactions. Although known primarily for its ties to Bitcoin, it has also been used to record other transactions. It is far too soon to know what regulations might entail, but it is already clear that competing US and EU regulatory frameworks for global technology like Bitcoin will not be productive.
- Reaching an Agreement on E-commerce: the EU tabled a proposal for e-commerce regulations during the Trade in Services Agreement (TISA) negotiations at the WTO. Given the key role of SMEs in growing both the US and European economies, there should be an incentive to agree on some fairly simple and technical rules that would smooth transatlantic e-commerce. This might happen bilaterally initially and then be folded into TISA, but this will take considerably more time given uncertainties about the negotiation.
- Creating a Dialogue on Market Competitiveness in the Digital Age: competition authorities in the US and the EU have long shared data and general information about their approaches to antitrust and other antimarket behavior. It is time for a focused conversation between DG competition and the US justice department about how the digital economy affects competition in markets as well as what constitutes anticompetitive behavior and what does not
- Establishing a US-EU Digital Council: there is a constant churn of new dilemmas and issues on the US-EU digital agenda, and many differences could be ameliorated by a more proactive and regular discussion of these matters as they emerge.
Traduzione di Giorgio Tiberio