The EU is moving fast to introduce new market regulation instruments for a few large digital companies – without thinking through the implications.
The Digital Markets Act has good intentions. It aims to ensure harmonized requirements for competitive and fair digital markets by introducing strict obligations for a handful of so-called gatekeepers. But the new rules threaten to hinder European innovation, without improving consumer welfare.
The motivation is understandable. Conventional competition law seems ineffective in combating unfair or consumer-damaging behavior of Big Tech companies with significant market power.
Sometimes, though well-meaning does not translate into well done. The DMA threatens far-reaching, unintended, and dangerous consequences.
The 21st century will be characterized by geopolitical disputes, which will increasingly center on leadership in key technologies. US President Joe Biden recognized this challenge and has launched an initiative to set standards for the digital economy, digital security, digital innovative ability.
His leadership comes at the right time. It combines liberal values, fair competitive conditions, the ability to innovate, and security in order to provide value-based democratic answers. Technology regulation must take these goals into account in a balanced manner and must anticipate and prevent undesirable side effects, such as improper access for third parties to the technological core of companies and their business models.
Equally important is a strengthened and intensified dialogue between the European Commission and the American government. It offers the chance to come to a common approach in the transatlantic relationship. This is the work and goals of the transatlantic Trade and Technology Council.
Unfortunately, European proposals are inconsistent with this dialogue. In its current form, the DMA demands extensive data-sharing obligations. It opens a dangerous Pandora's box. An example: the DMA allows third-party providers of online search engines to access ranking, query, click and view data from online search engines. State-controlled tech companies could use the data disclosure requirements to replicate products, lower quality standards, manipulate content — and promote disinformation.
This is far from a theoretical danger. A Chinese search provider could invoke the DMA to request sensitive user and business data and create functionally identical clones of Google or Microsoft. Such offers can find their way through clever marketing via new browser sidebars, plug-ins, or other installation requests that are foisted on the end-user. Once installed, state-controlled disinformation campaigns can be brought “to the people.” Consumers will no longer be able to see what information they are actually confronted with and where they are coming from.
Significant cybersecurity risks could result. Carelessly installed browser extensions or plugins do more than just redirect to fraudulent or otherwise problematic content. The installation itself can be used to inject malware or enable other technical manipulations. The discovery of the Russian bot network a few weeks ago shows that these scenarios are realistic.
These “side effects” endanger democracy. They will spread disinformation and doubts even among a small part of the population. In the digital space, these groups will quickly grow into supposed opinion leaders. When that happens, it portends dangerous consequences for the liberal, democratic public, and democratic discourse.
The DMA can create more and new problems than it purports to solve. Before enacting it, there is an urgent need for a comprehensive regulatory impact assessment, which, strangely, has not yet been done.
In light of the risks, we should heed the advice of Ambassador Wolfgang Ischinger, Chair of the Munich Security Conference. He says that Europe’s digital regulations must “not create unintended loopholes and problematic deadweight gains, or even widen the attack surface for those who seek to undermine the integrity and value base of liberal societies." As former US Deputy Secretary of Defense Evelyn Farkas recently noted, new regulations "should be coordinated and support our shared national security goal: to prevent Chinese and Russian actors from acquiring data."
Well-done European laws that take the listed aspects into account not only strengthen the European digital single market. They are a necessary prerequisite for a strong transatlantic partnership of values that serve, rather than endanger, common security and trust.
Matthias Machnig is the Vice President of the Economic Forum of Wirtschaftsforum der SPD eV, a Social Democratic Party leaning independent entrepreneurial professional association. He is a former German Deputy Economy Minister. This article is adopted the original German-language version.
February 8, 2022