Monday

22nd May 2017

Column / Brussels Bytes

Clock ticking for EU to fix the digital single market

  • The commission is treating personal data as a form of remuneration for internet communications, allowing it to regulate the likes of WhatsApp, Telegram, Skype and Viber as if they were traditional telephone services. (Photo: George Hodan)

The raison d’etre for the Digital Single Market (DSM) was to incorporate the digital economy into European integration. But from its very launch, the EU’s five-year DSM strategy always went far beyond that important task, imposing too many restrictions on new technologies.

The European Commission’s mid-term review of the DSM strategy, published last Wednesday (10 May), nevertheless shows that much can be accomplished in two-and-a-half years.

But unless policymakers focus on integrating the digital market, instead of holding it back with excessive regulations, many benefits of new technologies will be denied to Europeans, and the European economy will be saddled with senseless and damaging limitations for years to come.

The General Data Protection Regulation (GDPR), one of the first DSM milestones highlighted in the review, is a case in point.

The GDPR fulfils a clear need for a single set of data protection rules that ensure what is legal in one member state is not illegal in another, making it easier for digital firms to do business, and allowing Europeans to enjoy the same protections throughout the EU.

However, it also imposes new, unnecessary, and futile restrictions on emerging technologies.

In particular, on artificial intelligence (AI): the so-called “right to explanation,” contrary to its supposed purpose, will not stop some companies palming off responsibility for their decisions onto computers, but it will impose pointless costs on those that use AI responsibly.

Novel and costly concept

The right to explanation also does not address any conflict between member state regulations, it is an entirely novel concept in European law – and a costly one.

That is not to say the EU should never do anything new.

The purpose of European integration is to transcend contested borders and competing nationalisms, by building economic interdependence and a European identity.

Digital policy cannot skirt around this purpose: not when a European citizen can cross a border that matters little to her and, as a result, lose all of her eBooks and face extortionate charges to call home.

The DSM review outlines the phased abolition of roaming charges, which will begin this summer, and the imminent decision on the portability of digital content – both of which promise to address obstacles like these.

That said, a ban on roaming charges is something of a half-measure: a single European spectrum market would cut the inefficient duplication costs of maintaining twenty-eight isolated national markets for mobile services.

Additionally, the review highlights laudable plans to reduce cross-border regulatory differences that push online retailers to “geo-block” customers in other member states. But it also reasserts the EU commission’s wish to ban the use of geo-blocking to differentiate prices from one region to another.

This would force uniform pricing for e-commerce and digital goods throughout the EU, meaning customers in Romania must pay the same price as customers in Luxembourg, where net incomes are more than fifteen times as high.

It seems almost too obvious to point out that price is a function of demand, and therefore, in turn, of wealth.

A ban on online price differentiation, or “discrimination,” as the commission calls it, would allow Danish purchasing power to inflate Bulgarian prices online, which will weaken competitive pressure on high street prices.

Wealth advantage

The price paid by customers in wealthier EU member states, such as Luxembourg and Denmark, might fall, of course, but it would do so at the expense of customers in Romania and Bulgaria.

The distinction here is between stopping practices that punish people for crossing borders – such as cutting off services they have paid good money for – and forcing businesses to enter new markets at the same prices, regardless of local demand or incomes.

A vendor limiting its activity or setting its prices according to local market conditions is no more of a challenge to European integration than an individual choosing never to travel outside their native country. There is nothing wrong with making it easier for both to broaden their horizons, but they should not be forced.

Alas, once again the DSM strategy goes too far. It is certainly not flat-out wrong all the time, but it is overwrought.

To express all of this another way, the DSM strategy shows how policymakers drastically overestimate their own role in the digital economy.

Consider how the review recommits the EU commission to the unenviable task of orchestrating security in the Internet of Things, with no thought as to whether a bit more transparency might push manufacturers to develop better security themselves.

Or witness the never-ending saga of the EU’s notorious cookie law: after enduring fifteen years of consternation and mockery over the pervasive and annoying banners that law had spawned, the commission now proposes to replace it with a new and even more pointless rule that will force web users to make a choice every web browser offered them anyway.

Another dubious idea to come out of the commission is to treat personal data as a form of remuneration for internet communications, allowing it to regulate the likes of WhatsApp, Telegram, Skype and Viber as if they were traditional telephone services.

This line of reasoning assumes the regulations need an update because new services fall outside of them, as opposed to the regulations themselves having outlived their purpose. Therefore, persistently applying regulations almost becomes an end in itself.

Shooting from the hip

There is a running half-joke in academia that the instincts of policy analysts incline them to regulate more than not, because that is what they have been taught to do. This tendency may be more prevalent in digital policy because it still is fairly new.

European responses to labour, healthcare, pensions, and welfare issues have deep roots, both in modern politics and in European history. Whereas digital policy, so far, does not.

The absence of such roots make things easier for policymakers who are inclined to shoot from the hip, because there is no commonly-agreed frame of reference for debating and responding to digital issues in the way that there is for, say, paid maternity leave.

Moreover, because the European Court of Justice lacks the power of a federal constitutional court – and therefore cannot overturn member state laws that obstruct the single market – regulating one issue at a time is less a path towards ever-closer union than a politically expedient alternative to it.

But these constraints in no way diminish the risks of hasty policymaking. Without a lighter touch and a tighter focus, policymakers risk regulating Europe’s digital economy into the ground.

It is a shame that the review limits itself to a progress report of the DSM strategy, and does not actually review strategy itself, because there are two fundamental problems with the DSM strategy.

One is that it lacks focus: it sets out important areas of the digital economy, but takes for granted the need for extra regulations to ensure their success.

Second, it treats the digital economy as a dangerous beast that can only be tamed by the firm hand of the law, which leads to needlessly prohibitive rules and a less digital Europe.

The EU should be wary of imposing digital regulations that are not grounded in breaking down regulatory barriers and supporting European integration, because new rules – from the cookie law of fifteen years ago to the incoming artificial intelligence laws of today – are likely to remain in force for a very long time, along with any unintended negative consequences.

For something as new and quickly changing as the digital economy, the long-term cumulative impact of such mistakes on European productivity, competitiveness and welfare will be huge.

The EU should refocus its DSM strategy before that happens.

Nick Wallace is a Brussels-based senior policy analyst at the Center for Data Innovation. His Brussels Bytes column deals with the digital single market and data-related policy issues in the European Union.

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