Global Governance
The EU in 2020: Through the Barriers to Digital Transformation

The barrier phenomenon, which has begun to play an important role in the European digital transformation, is not yet fully appreciated in terms of its long-term and strategic impact. The latter, at some point, may go beyond the digital agenda and become a precedent for other areas of the European agenda, thus laying the foundation for possible European isolationism, writes Sevak Sarukhanyan, Consultant at the EDB Digital Initiatives Fund.

In 2020, as in the past five years, the European Union continued to treat the digital agenda as the main new source of economic growth, poised to strengthen the potential of the Union. However, in 2020, when the world and the EU itself faced a significant crisis caused by the coronavirus pandemic, Brussels took significant strides towards developing its digital agenda.

The most important strategic step of the European Union was the adoption of the EU Strategy for Data in February 2020. The document is a fundamental and probably the first truly applied document ever adopted by the European Commission as part of the European digital agenda.

This special significance of the document is due not only to its directions and steps, which should create conditions for a lightweight and effective mechanism for “data sharing” like G2G, G2B and B2B. All these conditions and the projected “data sharing” mechanisms are important, but nevertheless, the fundamental significance of the strategy lies in the fact that it contains specific barriers to the operation of transnational, primarily American and Chinese companies within the European Union. The strategy involves not only collecting and sharing data, but also ensuring their safety within the European Union itself, creating institutional barriers for their flow to foreign platforms.

This new barrier phenomenon, which has begun to play an important role in the European digital transformation, is not yet fully appreciated in terms of its long-term and strategic impact. The latter, at some point, may go beyond the digital agenda and become a precedent for other areas of the European agenda, thus laying the foundation for possible European isolationism.

Digital Economy Development
Progress in digital technology has created tremendous wealth concentrated in a small group of individuals, companies and countries.

The history of the European digital transformation shows that the new barrier approach is the result of the ineffectiveness of the former mechanisms used by the European Commission to support the digital agenda of the Union. The abolition of roaming in Europe, which the previous leadership of the Commission presented as a great achievement, was, of course, an important event. But if one considers the abolition of roaming in the context of what was happening in the digital market of the European Union itself, then its significance is not so impressive. For example, we can cite the share of American corporations in such important segment of the digital market in Europe as “cloud services”. Here, in recent years, a trio of leaders have emerged, which actually monopolistically control the entire European segment of “cloud services”: Amazon, Microsoft and Google. None of the above companies are European.

All previous programmes and regulations of the European Union, aimed at supporting the growth of competitiveness of European companies, did not bring the Union the desired result. On the one hand, the Commission introduced good conditions for the growth of European start-ups, while on the other hand, growing companies in the EU were absorbed and continue to be absorbed by, first of all, American giants. Over the past few years, leading US players have acquired such successful European start-ups as Momondo (Denmark), Beddit (Finland), SensoMotoric Instruments (Germany), Regaind (France), Shazam (UK), Fayteq (Germany), Limes Audio (Sweden), Simplygon (Sweden), Goo Technologies (Sweden), (Switzerland), etc.

Thus, the EU digital agenda has shown that while creating better conditions for the emergence and growth of European start-ups, it simultaneously creates a platform where the American giants “hunt” for the best projects and solutions.

The EU Strategy for Data should change this picture, as it implies easier access to European data for European companies and complicates the conditions for access to them by foreign companies. That is, it creates clear digital barriers, the purpose of which is to concentrate European data in Europe. The leadership of the European Commission does not hide its attitude towards the adopted strategy: “Big data, data and again data,” said the President of the European Commission Ursula von der Leyen. “And we all know that the more data we have, the smarter our algorithms. This is a very simple equation. And therefore, it is so important to have access to data that are out there.” 

However, the “Strategy” is not the only step by the European Union to create a barrier for the American and Chinese digital giants.

The very managerial approach of Europeans to the digital economy and transformation has seriously changed with the new composition of the Commission. Vice President Margrethe Vestager is now responsible for digital transformation. In the past, when she oversaw competition in the EU, she created a headache for the American tech giants Apple and Facebook with her investigations and fines. Margrethe Vestager is a fan of tough antitrust regulation, and today she is responsible for the digital transformation of Europe. If the EU Strategy for Data creates conditions like “Europe for the Europeans”, then the proposed Digital Markets Act, presented in the fall of 2020 by Vestager and Internal Market Commissioner Thierry Breton, presumes changing the nature of the foreign giants themselves in the European market.

In particular, the law provides for regulation, according to which companies like Apple, Amazon and Google are required to transfer the performance indicators of their platforms publishers — the source to their main algorithms — to European advertisers. That is, they should lose the most important monopoly not only on data, but also on the source of their primary processing, which, in fact, ensures the dominance of American companies not only in Europe but also in the global market. Failure to comply with this requirement can result in fines of up to 10% of the companies’ global annual turnover. These are astronomical proportions that no multinational corporation has ever encountered.

The Digital Markets Act, which is an essential practical addition to the Strategy for Data, creates another significant barrier for multinational giants to limit their dominant position in Europe.

It is difficult to say how effective the new barrier-oriented approach of the European Commission to the digital transformation will be. After all, the digital sphere itself is constantly changing and may begin to grow in new segments that are not regulated by the already-adopted documents. However, we can say with complete confidence that the old EU digital agenda was doomed to failure, the best indicator of which was the growing dependence of the European market on American platforms.

For the Russian Federation, the transformation of the European digital agenda and practice serves as more than simply an important example: the EU is an integration association, and its practices are relevant, first of all, to the EAEU. The digital agenda of the latter cannot but change. The member countries must decide themselves how this will happen. However, obviously, the example of the EU shows that creating a single competitive digital space without “barriers” for multinational companies is becoming problematic. It’s true that barriers should also be understood as clear and well-calibrated regulatory measures, and not prohibitions and artificial obstacles, which solve the problem only temporarily.

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