The European Union and its member states are not able to keep up with the pace of innovation and growth of American companies. And now they are resorting to Chinese tactics to undermine U.S. innovation.
The new president of the European Commission, Ursula von der Leyen, has personally promised legislation on a European “Digital Strategy” within her first 100 days in office. Now three badly drafted, mostly incoherent White Papers were published by the European Commission – on Data, Artificial Intelligence and Europe’s Digital Future taking a clear aim at the American tech giants. The paper states: "Currently, a small number of Big Tech firms hold a large part of the world’s data."
The forecast does not look good – to put it mildly.
Realizing years ago they could not successfully compete with U.S. companies, the EU’s first response was to launch largely unsuccessful European projects massively funded with hundreds of millions of subsidies like the “Galileo satellite system,” the “European Cloud Initiative” and France’s Quaerosearch engine that were based on the notion that the European Union needs to have its own “independent” technology.
After those expensive lighthouse projects were effectively not able to compete, the EU fabricated the claim that American tech companies would not “pay their fair share” in taxes, are therefore competing in an “unfair” manner and have to be taxed more.
The Digital Services Tax was born, designed to exclusively target American companies.
Long-standing international taxation standards like the physical presence or the concept of value creation were sacrificed on the altar of false “fairness.” The EU proposal lacked unanimity and failed due to opposition from Nordic EU member states and other historically low tax countries like Ireland. Though many studies could prove that American digital companies are often paying more in taxes (and fines) than traditional non-digital European companies, France and other countries strongly pushed for unilateral digital taxes to collect what they think is rightfully theirs.
The Trump administration reacted strongly and rightly initiated a USTR Section 301 investigation that concluded that France’s DST is indeed discriminatory and proposed tariffs on $2.4 billion in French luxury goods as a response. Eventually, France backed down and agreed to a “ceasefire” by not putting the tax into effect until the end of the year.
After two failed attempts, heavily subsidizing European industry and imposing discriminatory taxes on American competitors, the EU White Papers show that the third approach is to restrict competition and European market access through new regulation and antitrust reform. Sound familiar? Yes, this new European Digital Strategy is made in China.
Let’s dive into the White Paper on data: The Commission plans to change EU policy and regulations to create "a single European data space" where "data can flow within the EU" and "The EU should create an attractive policy environment so that, by 2030, the EU’s share of the data economy–data stored, processed and put to valuable use in Europe–at least corresponds to its economic weight."
This is a clear attempt to favor EU data-based companies at the expense of American companies.
Another attempt to further discriminate against US companies is the potential change to EU competition law in regards to data-sharing practices: "The Commission will provide more guidance to stakeholders on the compliance of data sharing and pooling arrangements with EU competition law by means of an update of the horizontal co-operation guidelines." This could allow European companies to come together and agree to share data only between themselves.
On top of that, the document also aims to potentially reform its government subsidy regulations to facilitate greater government to business data sharing. This is of course designed to exclude American competitors.
Furthermore, the White Paper on Artificial Intelligence aims to introduce ex-ante conformity assessments for software and data with a possible requirement of an EU license before a system can be operated in the European Union. The EC claims to address high-risk technologies and to “mobilize resources to achieve an ecosystem of excellence.” The truth is that a system like this would provide huge opportunities for member states to rigorously deny market access for AI applications from other countries and foreign competitors.
Ultimately, the goal of this approach is two-folded: It is a desperate attempt to make the EU and its tech companies a significant player on the global stage and to prove and justify to the member states the necessity and importance of the existence of the European Institutions. All of this will come at the expense of EU citizens who will suffer for not being able to access innovative products solely because they might not come from Europe.
Andreas Hellmann is an International Advocacy Manager at Americans for Tax Reform.
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