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China and the US are challenging Europe’s role as top tech regulator

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European Commission executive vice president Margrethe Vestager talks to media in Brussels, Belgium.

Thierry Monasse | Getty Images News | Getty Images

LONDON — China and the U.S. are taking more aggressive steps in regulating large tech firms, challenging the European Union’s dominance in the space.

The EU is the leader in tech regulation for a long time. The reason is that the EU does not have large technology companies in its region. Regulation was therefore the area where Europe can dominate. High-profile policies such as GDPR — or the General Data Protection Regulation, which give users a stronger say over how their data is used — made headlines around the world and forced technology giants to make changes.

But the United States is catching up and China is also taking it to a new level — which has not only increased the pressure on Big Tech, but also questioned the role of the EU in this space.

“China, the U.S. – they have started to figure out that they need rules,” Dexter Thielen, lead analyst at the Economist Intelligence Unit, told CNBC over the phone. According to Thielen, there’s a lot of competition when it comes to regulation.

In recent months, Chinese authorities introduced numerous laws that target the technology sector. A number of companies have been subject to new investigation and penalties due to anti-monopoly laws and stronger data protection regulations.

It has led to billions of dollars being wiped off the value of Chinese tech giants, with companies such as Tencent, Alibaba and Didi under pressure.

In the U.S. meanwhile, President Joe Biden in July signed a new executive order that impacts corporate consolidation and antitrust laws. The Federal Trade Commission has the power to review and challenge “bad” mergers. It also limits the use of non-compete agreements.

This is what this means for the EU.

“If Europe does not catch up, it could perhaps do it by cooperating with the U.S. and other countries, it will lose its ‘Brussels effect’ — not because of a decline in its soft power, but rather due to China’s technological dominance, which will come with protocols, standards, specifications, and ultimately rules,” Andrea Renda, senior research fellow at the think tank CEPS, told CNBC via email.

If the EU wants to keep its leading role in technology, it may need to change how they approach regulation.

Thielen from the EIU stated, “Regulation isn’t sufficient.”

In fact, there are plenty of initiatives that the European Commission — the executive arm of the EU — is working on that show an attempt to influence other areas in the sector.

Thierry Breton, Europe’s single market chief, is working on an artificial intelligence strategy, on space traffic management standards — which promote safe access to outer space, and others. Recent announcements by the Commission also revealed plans to expand the production in the region of semiconductors.

These steps are all part of what EU policymakers call digital sovereignty. It is the belief that the bloc must foster innovation within its borders and be less dependent on companies and technology from abroad.

It is not clear, however, if it will be successful and how quickly. It takes so long to put in place new laws. This is the main criticism of the EU.

A recent example is the Digital Services Act and the Digital Markets Act — two major pieces of legislation aimed at ensuring fairer competition, which were presented in December but are unlikely to be put into action before mid-2022 at the earliest.

Matthias Bauer from the ECIPE think tank, senior economist, stated that both the DSA (and the DMA) are complex legislations and are difficult to judge economically. “It is unlikely that any significant progress will be made soon for the DSA or the DMA. They are far-reaching, and very hard to understand, so it’s not likely to happen.”

He acknowledged that the U.S., China and the EU share a common goal: To give data users more control and to limit digital giants’ market power. He stressed however that every region is different and there will likely be significant regulatory divergence.

‘Too soon to tell’

In the end, Emre Peker, director at the consultancy firm Eurasia, said it was too soon to say that the EU is losing its crown as the world’s top tech regulator.

The EU can’t control Washington and Beijing’s regulatory and commercial trends, but it will continue to work hard to keep its top position in rulemaking. However, he stated that regulations alone won’t help EU to reduce interdependencies.

He added that “that’s an actuality most European policymakers are well aware of but have no solution to at the moment.”

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