Today, the European Union’s Digital Markets Act (DMA) officially goes into force and the American businesses that it is aimed at must start complying with it. You probably haven’t heard about it, but the DMA is the core of the EU assault on American technology firms. It specifically targets American businesses while being designed to apply to ZERO European companies. If the U.S. government stands idly by as the EU aggressively implements it, the DMA will hurt American workers, American companies, American consumers, and American taxpayers. And yet, as I’ll show below, some American officials have been helping the EU create this law that unfairly hamstrings some of the most important companies in the American economy. In this essay, I’ll explain how the DMA goes about specifically discriminating against American businesses, the ways in which the DMA seeks to obstruct their normal business activities in the European market, how the DMA hurts America, and why -bizarrely- some American politicians are helping the EU do this.
The DMA Targets Digital “Gatekeepers” And Defines Gatekeepers Selectively to Target American Companies
The DMA is a big deal. It is broad, uncompromising, and unprecedented. As Ana Malheiro, Case Handler Officer at the European Commission in the Digital Markets Act Task Force, points out, the DMA “introduces a new form of regulation of digital markets which has no direct precedent in any other sector in the European Union, or anywhere else in the world.” Under the DMA, companies with 75 billion euros in market capitalization and who provide a platform service with more than 45 million active monthly users are deemed “gatekeepers.” The DMA also gives the European Commission a great of deal discretion to decide that, even if a company does not fit the technical definition of gatekeeper, it is still a gatekeeper based on any combination of other factors including number of business users, network effects, scale and scope effects, switching costs, vertical integration or “other structural business or service characteristics.”[1] In other words, the European Commission has the de facto ability to deem any business a “gatekeeper” if it decides that it does not like that company for whatever reason.
It is worth noting that the list of “gatekeepers” in the Digital Markets Act does not include a single European company, only the five U.S. Big Tech companies (Apple, Amazon, Meta, Microsoft, and Amazon) along with ByteDance, the Chinese firm that owns TikTok. Analysts believe that EU regulators used a backwards induction approach to build these gatekeeper criteria. That is, they knew they wanted to hit American tech firms and so they intentionally built the criteria in such a way as to capture them but not capture European businesses. Andreas Schwab, the European Parliament rapporteur for the Digital Markets Act, even admitted that the DMA should unquestionably target only the five American Big Tech companies, saying “let’s focus first on the biggest problems, on the biggest bottlenecks. Let’s go down the line—one, two, three, four, five—and maybe six with [China’s] Alibaba….but let’s not start with number seven to include a European gatekeeper.” The EU, for whatever reason, gave far less consideration to Chinese tech companies despite their growth in the European markets.[2] On top of that, the burden of proof has been shifted. Normally, businesses, like individuals, are innocent until proven guilty. With the DMA, that is no longer the case. Again, Andreas Schwab has been willing to flatly state this publicly saying “it's not up to the Commission anymore to prove to them that they have unfair business models.”
This use of the term “gatekeeper” is also instructive on the politics here. Rather than acknowledging and appreciating the economic infrastructure provision that technology platforms provide and calling them “commerce facilitators” or “service providers”, using the term gatekeepers is both dismissing how much building technology firms do and is attempting to invoke the notion of leverage. It is the populist idea that “they” have too much power over “us”.
The DMA Deliberately Hamstrings These “Gatekeepers”
These gatekeepers have to abide by special rules in a number of areas. First, there are the rules specifically about data collection and especially as that relates to advertisement and publishing. Gatekeepers cannot combine data from different services within the same company and cannot, for the purpose of selling advertisement, process personal data of end users using services of third parties.[1] Meta and Google may not be named in this particular section, but it is not difficult to see how this is specifically aimed at Meta and Google’s business models. The DMA also prohibits gatekeepers from requiring interoperation with a particular web browser or payment service for in-app purchases and prohibits gatekeepers from requiring business users subscribe to other platform services.[2] Businesses that advertise and publish with Meta and Google have been required to use those companies’ ID systems and use other services within the ad tech stack in order to purchase advertising within Meta and Google. This allows those firms to collect more and better data. The DMA also requires that these platforms provide advertisers and publishers with access to information related to their pricing and algorithm and to those business users’ performance metrics.[3]
Second, the DMA requires gatekeepers allow third-party software to direct end users around the platform and allow their business users to (free of charge) advertise to and contract with end users they acquired through the platform outside of the core platform service.[4] It also requires gatekeepers allow third-party software application to be interoperable with their operating systems.[5] This is aimed at Apple and the App Store. It is designed to stop Apple from requiring the use of its in-app purchase system while restricting developers from informing iPhone/iPad users that there may be cheaper alternatives outside of the App Store. Gatekeepers also must have “fair, reasonable, and non-discriminatory general conditions of access” to its app store.[6] In principle, there is no issue with this last provision, but it is quite vague and that may allow European courts wide latitude to decide that nearly anything an app store does to limit access to their app store is not “fair, reasonable, and nondiscriminatory.” Gatekeepers must also allow end users to uninstall any app that has been pre-installed and easily change default settings.[7] This provision was aimed at Google, Microsoft, and Apple, all of whom sell products with pre-installed features.
Third, the DMA strictly limits self-preferencing. Gatekeepers must not treat their own products and services more favorably and must allow interoperability on effectively equal terms.[8] These provisions of the DMA are aimed at Google, Apple, and Amazon. Related to self-preferencing, the DMA does not allow gatekeepers to use non-publicly available data gathered through their platform to compete with the platform’s business users.[9] The DMA also says that gatekeepers may not engage in price parity clauses.[10] This is aimed at Amazon. For what it’s worth, there are good reasons to be skeptical of such clauses, especially if they wide in scope. This particular provision is one of the most sensible in the DMA.
How the DMA Harms America
At first glance, these provisions may seem reasonable but there at least three reasons why U.S. officials and U.S. citizens should be concerned by the DMA. First, it would harm American businesses and lead to job losses for American workers in the technology sector. The American business community and many American policymakers view the DMA as “a direct attack on U.S. companies for being too big and too successful in Europe.”[1] This specific targeting of American Big Tech companies isn’t harmless to American workers. As Adam Kovacevich, the CEO of the Chamber of Progress correctly notes, “European regulations that single out our tech sector threaten American jobs – not just in Silicon Valley, but in cities from Pittsburgh to Birmingham.” It is also worth pointing out that, since the EU’s Digital Markets Act applies to the biggest American tech firms but does not apply to Baidu, Alibaba, Tencent, or Huawei, it actively discriminates against American firms and thus in practice in favor of Chinese firms in the European market; this is yet another reason for the United States to vigorously oppose the DMA.
The DMA provision about third party software (Article 6, Section 8) effectively forces Apple to allow sideloading of unvetted apps that weaken Apple’s curated walled garden which is what makes it so attractive to so many users. If Apple customers wanted sideloading and hyper-customization, they wouldn’t buy iPhones, they’d buy Androids. Moreover, U.S. officials and Apple believe that weakening Apple’s walled garden approach will make it harder for Apple to protect users’ data privacy. This provision thus directly harms Apple’s customers and Apple’s competitiveness. The prohibition on self-preferencing that applies to Apple but not to a lot of other phone makers, would mean that, in Europe, Huawei phones would come with a lot of already built-in apps but that Apple could not pre-install FaceTime, iMessage, or the App Store as that would be self-preferencing. The DMA is tilting the playing field against American businesses and in favor of Chinese businesses. The DMA’s prohibition on combining data from different sources directly attacks Google’s business model by making much more difficult to combine data from Chrome, search, maps, etc. to deliver more focused advertisement (which is their biggest revenue source). The same holds true for Meta. The whole business model of Google and Meta is to collect data that then gets used to sell more effective advertising. The DMA is a deliberate attempt to throw as much sand in the gears of that model as possible. This will obviously have downstream consequences for Google’s and Meta’s workforces and the broader American economy that they contribute to. The interoperability rules mean that Meta will have to allow users of rival services like Signal and Telegram to message users of WhatsApp within WhatsApp without themselves actually having to join WhatsApp. That would open up all kinds of challenges related to spamming, phishing, and data security that would hurt WhatsApp users.
Big Tech’s European competitors have already openly said that they anticipate the DMA to help them take market share away from the American Big Tech companies. That is not an accident. It seems clear that part of the motivation here was to help European firms at the expense of American firms; Swiss ProtonMail that competes with Gmail, German NextCloud that competes with Microsoft in cloud computing, Swedish Spotify that competes with Apple, and French Kelkoo Group that competes with Google. As the New York Times explains, “specifics of the law read like a wish list for rivals of the biggest companies.” Moreover, the rules in the DMA are per se prohibitions and so are not subject to pro-efficiency, pro-consumer, or pro-competition justifications so, even if Big Tech can show that some action of theirs that rules afoul of the DMA regulations actually has positive effects, that does not matter.[2] Another problem is that complying with the DMA rules may, in many cases, force the Big Tech companies to violate other EU rules. For example, the DMA rules on data portability for business users may force Big Tech firms to violate end users’ privacy rights that are enshrined in the GDPR.[3]
Second, the DMA would require U.S. companies to share their trade secrets with European and Chinese competitors. The DMA says that gatekeepers “shall provide business users and third parties authorised by a business user, at their request, free of charge, with effective, high-quality, continuous and real-time access to, and use of, aggregated and non-aggregated data.”[4] Doing that, as well as the requirement that they divulge information about their algorithm, would amount to giving away trade secrets related Big Tech’s software and algorithms.[5] That section of the DMA makes no mention of exceptions for trade secrets and, in fact, the term ‘trade secret’ appears not a single time in the text of the DMA. This suggests the extent to which the authors of the DMA did not think about or care about gatekeepers’ intellectual property rights. Relatedly, the DMA breaches the trade secrets protections that businesses are afforded in international law under the TRIPs Agreement.[6]
Third, the DMA would make it harder for American small businesses to use Big Tech platforms to sell their goods and services in Europe. There are a lot of American technology startups that rely on larger firms to grow their business. This is true with regards to supply chains as well. There are approximately 300 American companies that produce goods for Amazon’s brands; “they are small and medium sized businesses who employ tens, hundreds or thousands of workers each; produce home goods, electronics and clothing; and are geographically dispersed across the country from California to Utah, Minnesota, Iowa and Pennsylvania.” If Amazon is not allowed to self-preference within its own platform, that is going to hurt those suppliers and thus hurt the employees who work for them. It would be one thing if European companies won market share on a level playing field, but American policymakers should be upset at American companies and American workers losing market share because European regulators are imposing rules on them that do not apply to European companies. This is blatant regulatory protectionism.
Digital trade is important for the United States. From 2005 to 2021, trade in digitally delivered services more than tripled, and information and communication technology services increased more than five‐fold. The United States is a powerhouse in services and especially digital‐friendly services. U.S. services exports grew from $563 billion in 2010 to $897 billion in 2022, a 42 percent increase. A lot of that growth either is or could be connected to digital technology. In 2019, the digital economy was roughly a 10th of American gross domestic product, and from 2005 to 2019, it grew at more than double the rate of the nondigital economy. Digital service jobs are not just a coastal blue state thing either. Service exports support 98,800 jobs in Michigan, 73,000 jobs in Missouri, 32,300 jobs in Kentucky, 46,200 jobs in Utah, and 116,000 jobs in Ohio. All told, service exports support 5.3 million American jobs.
Some of the most high‐profile American businesses that benefit from this are the Big Tech firms: Apple, Microsoft, Amazon, Google, and Meta. These are five of the most important companies in the American economy—and arguably the world. The more of their services that they can sell abroad (e.g., Microsoft and Amazon’s cloud computing, Google’s search and advertising, Apple’s media content, and Meta’s social media and WhatsApp), the better it is for those firms’ workers and shareholders, most of whom are American. Apple supports more than two million jobs in the United States. Amazon employs over 1.5 million workers.[7] Google, Meta, and Microsoft employ 175,000, 65,000, and 122,000 workers respectively.[8] American tech workers reap the lion’s share of benefits from international supply chains. Even though iPhones are made in China, China only captures about a quarter of the total value of an iPhone, the vast majority of the rest of that value goes to Apple employees and shareholders in the United States.[9]
The Big Tech companies also help other non-digital firms and thus their workers quite a lot. Cloud computing is a good example here. As the Congressional Research Service notes, “One driver of the diffusion of the benefits of the internet and digitization has been cloud computing. Cloud services have been called the great equalizer, since they generally allow small companies access to the same information and the same computing power as large firms using a flexible, scalable, and on-demand model.”[10] Many millions of other knowledge workers, even if they are not directly employed by the technology sector, depend on it for their livelihoods. More than three-quarters of Fortune 500 companies rely on Microsoft’s cloud computing services.
A worker at one of these businesses, or any other business that can better sell its services globally, has more disposable income that they can then spend on local goods and services. Those benefits then spread to the wider economy; one technology sector job supports, on average, five other jobs in the economy. Moreover, millions of Americans’ retirement savings plans, such as a 401(k), include one or more of these companies’ stocks. These firms contribute significantly to the U.S. tax base, and they provide services that delight consumers, often for free. In 2022, the five Big Tech firms plus Intel spent $215 billion on research and development, roughly double the Pentagon’s R&D budget for that year. There are a lot of ways in which the success of these companies strengthen America. To the extent that U.S. policy encourages more globally liberalized trade in services and thus helps these companies succeed, those policies make America better.
Populists are Helping the EU Sabotage America’s Most Important Businesses
Unfortunately, some populists in the United States, rather than defending American workers, are so bent on fighting Big Tech that they are actually cheering on this flagrant protectionism. Amy Klobuchar even admitted (perhaps unintentionally) to working with European regulators to craft the Digital Markets Act. You can see this for yourself in this clip here. It is not clear that Klobuchar even knows she’s being recorded here, and you’ll notice Andreas Schwab from the quotes above on this call too.
In other words, here we have a U.S. Senator on a chummy Zoom call with European bureaucrats blurting out what many suspected, which is that she helped create EU legislation that deliberately discriminates against American companies and American workers. If you want to see the whole recording, here it is.
For her part, Senator Elizabeth Warren excoriated Commerce Secretary Gina Raimondo simply for saying that she was concerned that the EU’s Digital Markets Act would disproportionately affect U.S. based businesses.[1] In fact, letters from Warren to Raimondo as well as a May 2023 report from Senator Warren’s office show, very clearly, that Warren wants to undermine these firms in global markets.[2] Meanwhile, emails obtained by a Freedom of Information Act request suggests that Lina Khan’s FTC may have been actively colluding with European regulators to block mergers and acquisitions that likely would have been cleared by U.S. courts. It has also sent officials to assist the EU with the Digital Markets Act.[3] That is sometimes a routine matter in these situations but it is concerning in light of these other moves.
These maneuvers have carried over into trade policy. Other correspondence, also uncovered by Freedom of Information Act requests, show that the USTR’s office has been heavily lobbied on trade policy…..Lina Khan, Jonathan Kanter, and Lori Wallach, the first two long-time technology industry critics and third one a long-time opponent of trade liberalization. As the Wall Street Journal puts it “Ms. Khan and her sidekicks torpedoed freer digital trade because they want to make it easier for foreign governments to impose their anti-trade agenda on U.S. businesses. Since they can’t pass their agenda in Congress, they are leaning on foreign governments to do it for them.” So not only is the FTC not trying to alleviate the burdens foreign regulators are putting on American companies, it may also be soliciting their assistance in carrying out its domestic crusade.
On top of all this, the Biden administration recently weakened America’s support for new trade rules that would facilitate greater international trade in services. Specifically, President Biden’s US Trade Representative Katherine Tai announced that the United States would no longer support efforts under the World Trade Organization’s Joint Statement Initiative to create new rules on source code, data flows, and data localization. This is a huge mistake.
What The U.S. Response Should Be
First, the United States should support the Joint Statement Initiative. The ACLU, Freedom House, and the Information Technology and Innovation Foundation have written a coalition letter arguing to the Biden Administration that they should strongly support a free, open, and nondiscriminatory approach to source code, data flows, and data localization. We should be re-engaging with our partners in the Asia-Pacific region in an attempt to join the CPTPP and should be trying to ensure that the digital trade in the USMCA are seen as the benchmark for what digital trade rules should look like.
With regards to the EU and the DMA specifically, U.S. officials should seek a compromise solution like with the Transatlantic Data Privacy Framework. Such a compromise on competition policy would seek to minimize the impact on firms’ efficiency (and thus American workers and shareholders) while satisfying EU concerns. For example, as long as it does not require divulging source code or other trade secrets, the requirement that platforms (Google and Meta) provide advertisers and publishers with access to information related to their pricing and algorithm and to those business users’ performance metrics seems like something that should not be terribly difficult to do. The same could be said for the provision on price parity clauses and for a few of the other provisions in the DMA as well. There’s definitely room for compromise on some of the provisions of the DMA. On the other hand, the prohibition on combining data from different sources and requiring sideloading unreasonably undermine Google and Apple’s respectively abilities to deliver value to consumers. Who they apply to is as important as the provisions themselves. For the DMA to be perceived as legitimate at all by U.S. officials, it has to apply to at least some European firms. U.S. officials should treat it as a non-starter that the DMA applies to American firms but not a single European firm. Hopefully, some kind of compromise can be reached here. The new Trade and Technology Council (TTC) between the U.S. and the EU, which was established in 2021, would be a particularly good forum for this kind of compromise to be hashed-out in.[1] As Anu Bradford points out, “the purpose of the TTC is both to mitigate the US-EU horizontal regulatory conflict and to strengthen the Transatlantic alliance to jointly counter China’s market-distortive policies and the use of technology toward illiberal ends.[2] If, however, EU officials insist on maximally enforcing a DMA that only applies to American and not European firms and thus can quite easily be understood as regulatory protectionism, then the cooperation on tax policy under the OECD needs to be reconsidered. A spirit of transatlantic cooperation is far preferable to enmity, but that has to go both ways.
In sum, the EU’s Digital Markets Act specifically discriminates against American firms. Digital commerce is important to America’s economy and so that discrimination and hyper-regulatory approach hurts American workers, American consumers, and American business. Unfortunately, some American populists are so fixated on their animosities toward the Big Tech firms that they are helping the EU carry out this set of policies. The U.S. government should be doing the opposite. We should be trying to advance American businesses’ ability to compete on a level playing field in global markets rather than stand idly by as they are being unfairly discriminated against. We need to be challenging Europe’s digital protectionism.
-GW
[1] Jorge Liboreiro. “EU and US vow to boost microchip supplies and promote trustworthy AI.” Euronews. January 10, 2021.
[2] Anu Bradford. 2023. Digital Empires. p. 252.
[1] Elizabeth Warren. Letter to Commerce Secretary Gina Raimondo. March 4, 2022.
[2] Elizabeth Warren. Letter to Commerce Secretary Gina Raimondo. December 14, 2021. Elizabeth Warren. Letter to Commerce Secretary Gina Raimondo. March 4, 2022. Elizabeth Warren and Pramila Jayapal. Letter to Commerce Secretary Gina Raimondo. July 20, 2022.
[3] FTC, Justice Department, and European Commission Hold Third U.S.- EU Joint Technology Competition Policy Dialogue. March 30, 2023. https://www.ftc.gov/news-events/news/press-releases/2023/03/ftc-justice-department-european-commission-hold-third-us-eu-joint-technology-competition-policy. This has not gone unnoticed by Congress. In August 2023, Ted Cruz sent a strongly critical letter to the FTC over these matters. Senator Ted Cruz. Letter to Lina Khan, FTC Chair. August 22, 2023.
[1] Meredith Broadbent. “Implications of the Digital Markets Act for Transatlantic Cooperation.” Center for Strategic and International Studies. September 2021. p. 1.
[2] Aurelien Portuese. “The Digital Markets Act: A Triumph of Regulation Over Innovation.” Information Technology and Innovation Foundation. August 2022. p. 2, 8.
[3] Aurelien Portuese. “The Digital Markets Act: A Triumph of Regulation Over Innovation.” Information Technology and Innovation Foundation. August 2022. p. 13-14.
[4] REGULATION (EU) 2022/1925 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act). Article Six, Section 10.
[5] Gary Hufbauer and Megan Hogan. “The European Union Renews Its Offensive Against US Technology Firms.” Petersen Institute for International Economics. February 2022. p. 7.
[6] Gary Hufbauer and Megan Hogan. “The European Union Renews Its Offensive Against US Technology Firms.” Petersen Institute for International Economics. February 2022. p. 3.
[7] Amazon, Inc. Form 10-K with the SEC for the fiscal year ending on December 31, 2022.
[8] Wyatte Grantham-Phillipe. “Google to lay off 12,000 employees, the latest tech giant to cut thousands of jobs.” USA Today. January 20, 2023. NPR. “Facebook's parent company Meta is laying off another 10,000 workers.” March 15, 2023. https://news.microsoft.com/facts-about-microsoft/ Accessed June 29, 2023.
[9] Tripp Mickle. “How China Has Added to Its Influence Over the iPhone.” The New York Times. September 6, 2022.
[10] Fefer, Akhtar, and Sutherland. “Digital Trade and U.S. Trade Policy.” December 9, 2021. p. 8.
[1] DMA. Chapter III, Article 5, Section 2.
[2] DMA. Chapter III, Article 5, Section 7 and 8.
[3] DMA. Chapter III, Article 5, Section 9 and Article 6, Section 8.
[4] DMA. Chapter III, Article 5, Section 4 and 5, and Article 6, Section 4 and 6.
[5] DMA. Chapter III, Article 6, Section 4.
[6] DMA. Chapter III, Article 6, Section 12.
[7] DMA. Chapter III, Article 6, Section 3.
[8] DMA. Chapter III, Article 6, Section 5 and Section 7.
[9] DMA. Chapter III, Article 6, Section 2.
[10] DMA. Chapter III, Article 5, Section 3.
[1] DMA. Chapter II, Article 3, Section 8.
[2] Meredith Broadbent. “Implications of the Digital Markets Act for Transatlantic Cooperation.” Center for Strategic and International Studies. September 2021. p. 16.