Focus on the DMA: What if the Rest of the World Imitates the Digital Markets Act?

March 8, 2022

Paul MacDonnell, Executive Director, Global Digital Foundation
 

Do we need to worry about the Digital Markets Act’s impact on EU trade policy?

Maybe in the long-term.

For the EU, 'digital platform’ means U.S.-owned giants, such as Amazon, Google, and Facebook who account for a huge share of sectors such as retail, advertising, and cloud computing. Many of Europe’s policymakers and legislators see these as companies that have grown powerful by exploiting the absence of legislative constraint in Member States or by finding loopholes in the Union’s heterogeneous national rules. They are alarmed at platforms’ seeming unfettered freedom to disrupt not just economies but, given their nature, cultures.

It’s intuitive to blame platforms for Europe’s chronic low growth—a problem whose origins are home grown and which predate the advent of the digital economy. One (of several) EU policy responses is the Digital Markets Act (DMA), an attempt to encompass an entire digital economic revolution within a single regulatory envelope. The DMA is designed not only to prevent specific uncomfortable outcomes but also to shape the future of the digital economy in Europe itself.

The DMA has one central approach: to treat digital platforms as ‘gatekeepers’ or utilities. ‘Gatekeeper’ renews the concept of ‘carrier’—a term used during the 1980s and 90s when telecommunications operators were the dominant technology companies. Up until then these dominated the transmission of voice and data traffic across copper, and later fibre-optic, cables until their designation as ‘carriers’ gave smaller competitors guaranteed access to their networks. The DMA treats the major digital platforms as carriers in this sense. Its particular aims are twofold: the first is to secure better terms for European businesses that rely on platforms to transact and communicate with customers; the second is to redesign Europe’s digital economy so that, eventually, the Union will bring forth its own digital platform champions. The DMA’s measures include allowing businesses who, once having secured customers via gatekeeper platforms, will no longer have to rely on these platforms to communicate or transact with them in the future. Other measures go further. For example, the legislation will grant commercial third-parties and potential competitor platforms access to gatekeepers’ data and operating systems.

Is this a malicious attack on U.S. success? Major U.S.-owned platforms and many policy analysts will say it is. They will say that the DMA is a tailored punishment of U.S. businesses. If we stop to think for a moment we can certainly see one or two things that platforms do that could be legitimately tested under competition law—for example, using customer data contributed by business users to target products at those same customers to directly compete against the business that supplied their data. It’s at least debatable.

But then we have to consider that the DMA goes much further than competition case-law which could be expected to narrowly target a specific practice, assess the consumer harm involved, and levy punishment accordingly. It goes beyond this in the sense meant by the CCIA’s Christian Borggreen when he said that it will do to the digital economy what your dentist would be doing if, having told him you have a toothache, he responded by removing eighteen of your teeth. That’s ex ante regulation for you.

Why would any of this have implications for international trade?

The DMA has the capacity to affect the economy over the long term in a way that is much more profound than the imposition of an effective super tax on Big U.S. Tech. In truth, the ‘digital economy’ as a separate entity has only ever existed in the minds of bystanders, among whose population policymakers and legislators on both sides of the Atlantic are overrepresented. When you get up close to it, especially now that it’s in its 20s, the ‘digital economy’ looks less like a discrete economic engine that can be tinkered with and made to work better for online sellers of vacuum-packed escargots in France and more like the acculturation of an entire society to a new way of being. There won’t be spats between Washington and Brussels or, if there are, they will not be the real story. The real story will be that the DMA is unlikely to help Europe’s economy all that much. Then there will be the fact that it will make it much more difficult for European businesses to grow and transfer their knowhow to other countries. Because it will treat gatekeeper platforms and their data as a digital commons it is likely to generate its own slow-moving tragedy, disincentivising growth and cooperation between Europe and other continents. If the digital economy is as important as the DMA’s authors assure us it is then pretty soon Europe’s regular economy will be dominated by its gatekeepers, even if they are banks and car manufacturers. The impact of this will be that, if Africa, the Middle East and the less developed parts of Asia are to take advantage of new technologies and the business and organisational models they create then they are likely to look to China and the United States for the knowhow and the readymade technologies to get this done. Or, worse, they may look at the DMA as an idea worth imitating, and then decide to discourage ‘gatekeeper’ EU businesses who are in their markets.

The views expressed in this article are those of the author and not those of Global Digital Foundation which does not hold corporate views.