from Net Politics and Digital and Cyberspace Policy Program

The Digital Single Market Strategy Will Complicate the Economic Relationship Between the United States and Europe

EU Digital Single Market Strategy Net Politics CFR Fidler

May 6, 2015

EU Digital Single Market Strategy Net Politics CFR Fidler
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Today’s release of the European Union’s Digital Single Market Strategy starts a new era in digital diplomacy within the union and between the EU and the United States. The strategy identifies the ways in which the EU is unprepared to harness the economic opportunities digital technologies create. In response, the European Commission, the union’s executive arm, proposes the creation of a digital single market (DSM) through comprehensive reforms. While the strategy is undeniably important to Europe’s economic competitiveness, the reforms will significantly affect U.S. technology companies operating in the EU. As a result, the strategy will likely complicate already difficult transatlantic relations on e-commerce issues.

The DSM Strategy

The strategy analyzes how the EU’s single market does not allow Europeans to take advantage of the benefits associated with integrating digital technologies into economic activities. Despite claims that “Europe has the capabilities to lead in the global digital economy,” the strategy (and the accompanying evidence document) identifies a sobering litany of problems that holds the EU back. These problems include the geo-blocking online services, copyright laws and licensing regimes that impede access to digital content, burdensome tax codes, cybersecurity threats, barriers to cross-border parcel delivery, challenges with radio-spectrum allocations, poor adoption of digital technologies by European companies, shortages of skilled professionals, and lack of investment in digital skills and businesses.

To create a DSM, the strategy sets three core objectives supported by concrete actions:

  1. Produce better access to online goods and services by harmonizing e-commerce laws, improving parcel delivery across borders, reforming copyright regimes, and reducing the tax burdens associated with the online sale of goods and services;
  2. Create market conditions for European digital activities to flourish by harmonizing telecommunication laws, improving cybersecurity and data protection, and investigating online platforms to ensure compliance with EU laws; and
  3. Maximize the growth potential of Europe’s digital economy by building a single market for big data and cloud computing services, improving e-government, and investing in digital infrastructure.

European and Transatlantic Implications

The DSM strategy addresses the digital revolution’s threat to the effectiveness of the European single market, one of the EU’s greatest achievements. While the digital revolution has been years in the making, Europe hasn’t kept up. According to the European Commission, “[o]nly 1.7% of EU enterprises make full use of advanced digital technologies, while 41% do not use them at all.”

EU policymakers face a daunting challenge to implement the proposed reforms. They touch virtually every aspect of the digital economy and will affect the single market comprehensively—from pan-European policymaking to decision-making in small start-ups. The extent and complexity of the reforms mean the strategy will influence policy for years as the EU modernizes existing legislation and formulates new regulations. Like the push for the single market in the 1980s, translating the strategy into policy and law is a decisive test for the EU’s ability to adapt to technological and economic change.

Given the strategy’s importance to fundamental EU interests, it would be simplistic to criticize it as digital protectionism designed only to limit the power of U.S. tech companies. In fact, if implemented, some reforms will create growth opportunities for U.S. firms operating in the EU. However, it is disingenuous for European officials to claim that the strategy does not target U.S. companies that dominate European digital markets. The innovations and market successes of U.S.-based enterprises cast long shadows over Europe’s ineffective responses to the digital revolution. The strategy declares the EU’s intent to continue enforcing its antitrust rules (as it has against Microsoft and Google) and to launch a “comprehensive assessment” of the roles and power of online platforms (e.g., Google, Amazon), including those associated with the sharing economy (e.g., Uber, Airbnb). The likely outcome will be “level-the-playing-field” actions and regulations that disproportionately affect leading U.S. tech companies.

The United States and the EU already butt heads over data protection, privacy, and the application of EU competition law to U.S. tech companies. The DSM strategy will complicate the transatlantic relationship by increasing the friction between these two economic powers as Europe implements the proposed reforms.

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