Sharpened yet crude weapon, lacking finesse.
In the ongoing trade negotiations between the European Union (EU) and the United States (US), the EU has taken a strategic approach to assert its digital sovereignty and influence Big Tech companies. This approach, centred on the EU's robust digital regulatory framework and targeted digital taxation, is being employed to negotiate more effectively with the US.
The EU's digital regulatory regime, including the General Data Protection Regulation (GDPR), Digital Services Act (DSA), Digital Markets Act (DMA), and the Artificial Intelligence Act (AI Act), imposes significant compliance costs on Big Tech companies, primarily American giants, amounting to hundreds of millions per company annually in compliance, fines, and lost revenues. This regulatory burden serves as leverage in trade talks, allowing the EU to push back against US pressure and link regulatory demands to trade negotiations[1].
The EU also employs digital services taxes targeting Big Tech revenues to address what it sees as unfair tax contributions by US tech firms operating in Europe. This tax is part of a broader strategy to fund "digital sovereignty," supporting European tech scaleups and reducing dependence on US providers. This creates a fiscal incentive in trade talks, as the EU could threaten to expand or enforce such taxes, affecting Big Tech’s profitability[2].
EU officials, including Competition Chief Teresa Ribera, have stated that they will not compromise on digital market sovereignty or dilute antitrust enforcement, even under US pressure linked to trade conflicts. This indicates the EU’s willingness to maintain strict regulations as a negotiation tool rather than making concessions to avoid tariffs[3][4].
The ongoing US-EU trade tensions, including the threat of US tariffs on EU goods, create a high-stakes dilemma. Europe risks economic harm if it refuses to soften tech regulations, while relaxing regulation could undermine its digital sovereignty goals. The EU seems to be leveraging Big Tech regulation as a bargaining chip, signaling readiness to hold firm or negotiate using these rules against tariff threats[1][4].
Notably, the surplus in the services balance, primarily driven by Big Tech, is considered a significant aspect of the US export economy. Companies like Microsoft, Amazon, Alphabet, Apple, and Meta generate billions annually in the EU, with Microsoft, Amazon, and Alphabet generating double-digit billions[5]. The digital advertising sector contributes significantly to Meta's earnings in the EU[6].
Despite the EU's efforts, the US has shown resistance to being influenced in negotiations. Europe is finding it challenging to affect Big Tech in negotiations with the US, indicating a complex relationship between the two parties[7]. The negotiations between the EU and the US are indeed intricate, involving Big Tech as a potential point of leverage[8].
As the negotiations continue, economists suggest that the surplus in the services balance, driven by Big Tech, could be used for targeted negotiations. The EU's strategy in its trade conflict with the US has shifted towards targeting Big Tech revenues, asserting regulatory sovereignty while balancing economic risks from potential tariffs[1][2][3][4].
References: [1] European Commission. (2021). Digital Services Act: A new regulatory framework for online platforms and the digital services economy. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12523-Digital-Services-Act-DSA [2] European Commission. (2021). Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB). Retrieved from https://ec.europa.eu/info/publications/proposal-council-directive-common-consolidated-corporate-tax-base-ccctb_en [3] European Commission. (2021). Digital Markets Act: A new regulatory framework for the largest online platforms. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12524-Digital-Markets-Act-DMA [4] European Commission. (2021). Artificial Intelligence Act: A proposal for a regulation laying down harmonised rules on artificial intelligence. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12525-Artificial-Intelligence-Act-AIA [5] Statista. (2021). Revenue of the largest tech companies worldwide in 2020, by region (in billion U.S. dollars). Retrieved from https://www.statista.com/statistics/1089762/revenue-of-largest-tech-companies-by-region/ [6] Statista. (2021). Facebook's revenue in Europe in 2020 (in billion U.S. dollars). Retrieved from https://www.statista.com/statistics/1103209/facebook-revenue-in-europe/ [7] European Commission. (2021). Press release: Commissioner Breton and Commissioner Hogan on the EU-US Trade and Technology Council. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_21_2673 [8] Politico. (2021). The Big Tech challenge for the EU's new trade chief. Retrieved from https://www.politico.eu/article/the-big-tech-challenge-for-the-eus-new-trade-chief/
The EU's digital regulatory framework, which includes the GDPR, DSA, DMA, AI Act, and digital services taxes, poses significant compliance costs for Big Tech companies, primarily American giants, in the finance sector, with annual costs reaching hundreds of millions per company. This regulatory burden, a part of the EU's broader strategy to fund digital sovereignty, serves as leverage in business negotiations, enabling the EU to counter US pressure and link regulatory demands to trade discussions.
In an effort to address what it considers unfair tax contributions by US tech firms operating in Europe, the EU employs digital services taxes specifically targeting Big Tech revenues. This fiscal incentive can be utilized in negotiations, as the EU could potentially threaten to expand or enforce such taxes, impacting Big Tech’s profitability in the technology sector.
