EU Competitiveness Hinges on Digital Adoption Not Digital Regulation
After enacting a wave of overly complex and burdensome digital regulations, including most recently the EU AI Act, the EU is now facing the fallout as major technology companies announce delays in the rollout of AI capabilities to their EU services. These delays are causing Europeans to miss out on the advantages of AI, with Europe falling behind its U.S. and Chinese counterparts in effectively navigating an increasingly AI-driven world.
Three companies have announced delays in as many months. First, Meta decided in June 2024 to delay its AI services to EU/EEA users due to an ongoing investigation by the Irish Data Protection Commissioner (DPC) on behalf of the European data protection authorities on whether training AI models from public content shared by adults on Meta services violated the EU’s General Data Protection Regulation (GDPR). Soon after, Apple confirmed the delay of three new AI-powered features to the EU due to regulatory uncertainties caused by the EU’s Digital Markets Act (DMA). Finally, X decided to pause AI training in the EU after the DPC asked the Irish High Court to order X to suspend, restrict, or prohibit its processing of personal data. The DPC said the delay “will help [the DPC] to continue protecting the rights and freedoms of X users across the EU.” These delays may look like wins to some European policymakers, but make no mistake, European businesses are losing out on technology, opportunity, and funding, all of which contribute to dwindling European competitiveness.
Indeed, Meta has since decided it won’t release its multimodal Llama model, an open-source large language model capable of handling mediums like audio and video, to the EU due to regulatory concerns, representing a loss of AI-powered services in real terms. A fragmented and complex regulatory landscape is also impacting startups wanting to expand into Europe. ScaleAI, a startup founded in the United States that provides the data infrastructure for companies to build and deploy AI models, decided to avoid the EU entirely for its first European headquarters. Instead, it chose to set up in London after the UK’s AI Safety Summit showed a true commitment to working with the AI industry. ScaleAI’s choice of headquarters resulted in a multi-million-pound investment funnelled into the UK and not the EU, reinforcing the fact that the UK remains Europe’s leading destination for foreign direct investment in digital technology.
Returning European Commission president Ursula von der Leyen has promised to boost failing European competitiveness through technology in her second presidential term with three AI-focused priorities: an “AI Factories Initiative” to open up government-backed supercomputing for local firms; an “Applied AI Strategy” to introduce the technology into EU industries; and a “European AI Research Council” to bring research together across Europe. Unfortunately, none of these priorities address the EU’s increasingly unwieldy set of digital regulations, such as the Digital Services Act, the DMA, the GDPR, and the EU AI Act. Von der Leyen may wish to see increased AI adoption by EU businesses, but unless the European Commission or the new MEPs successfully rein in EU regulations, these recent AI delays offer a small glimpse into the EU’s likely future.
Given that EU policymakers are unlikely to give up so soon on their newly passed, but ill-fitting, digital regulations, the most promising path forward to minimise the harmful impact of these regulations is through smart implementation. In many cases, EU laws provide regulators some flexibility to interpret requirements, and regulators should make generous use of these opportunities to avoid further constraining digital innovation. The European Commission should afford national authorities sufficient time to properly address implementation requirements. This means national authorities need to build expertise, establish relevant subnational authorities, and consult with the necessary stakeholders to implement EU-level regulations like the EU AI Act.
The Commission should also establish an EU-wide body that has the authority to decide how EU digital regulations interact with each other and create minimal compliance standards for industry. Such a body has already proven successful in the UK, where its Digital Regulatory Cooperation Forum (DRCF) brings together key UK regulators to deliver a coherent approach to digital regulation that supports consumers. Funded equally across the participating regulators, experts from each regulator come together to make sense of the regulation, as well as engage with other key stakeholders including industry, civil society, and academia. At the EU level, engaging experts from member states, industry, civil society, and academia, to come together to make sense of EU regulations in practice, would assist in better implementation and compliance. Such a body would go far to reducing barriers to entry into EU markets by clarifying understanding between member states and industry. It would also encourage the movement of more firms into EU markets by simplifying regulatory compliance, meaning key digital services become accessible to European businesses.
Ultimately, the EU is confused on its goals. Rather than striving to be a leader in digital regulation, it should strive to become a leader in digital adoption. If EU policymakers want a competitive Europe, they need to reevaluate their goals and act accordingly.
Image Credits: European Parliament
