The European Union is making life more difficult for businesses around the world.
The 27-nation bloc has passed new laws to aggressively police personal data, social media content and the dominance of Big Tech. He sued to block the merger. And it has drafted the world’s first comprehensive legislation to combat artificial intelligence.
The measures raise the stakes in how companies operate both inside and outside the EU. Last month, the EU’s opposition to a merger between two American tech companies, Amazon ( AMZN ) and robotic vacuum cleaner maker iRobot ( IRBT ), was enough to block the firms’ $1.4 billion merger.
The EU’s resistance was also enough to prompt Silicon Valley-based Photoshop maker Adobe to abandon plans to buy San Francisco-based web-based design platform Figma and US biotech giant Illumina to sell its cancer screening company Grail.
Big companies in the US and around the world now face a critical decision: do they adapt the way they produce and provide services to the EU’s more aggressive laws, or do they bet on more lenient rules in other countries where they operate?
Some global giants are reluctant to tiptoe around the EU, which remains the world’s third-largest economy and home to some 450 million people.
“We’ve seen businesses say, ‘I’m going to build my products, my widgets, my service, to conform to the most restrictive rules and not have different jurisdictional approaches,'” said Jordan Fischer, a lecturer in cross-border data management at the University of California, Berkeley, and a partner at Constangy.
This pressure to adopt the EU’s version of business compatibility outside its jurisdiction is growing, if not new. This is known as the “Brussels effect” by Columbia Law School professor Anu Bradfordto describe how aggressive EU legislation exerts “unprecedented and deeply underestimated global power” in 2012.
The Belgian city of Brussels is considered the unofficial capital of the EU.
“Companies that have customers in the EU or hope to do business in the EU decide to comply with the rules in order to continue selling in the EU and interacting with potential EU consumers,” said Meredith Kolsky Lewis, director of Transborder. Studying law at the University at Buffalo School of Law.
Established in 1993, the EU has a long history of acting more aggressively than the US in regulating business.
He even chalked up some early wins. In 2001, his antitrust stance killed a proposed $42 billion merger between GE and Honeywell, even though the industry association had won approval in the United States. In 2007, it passed sweeping environmental legislation that pushed chemical companies around the world to comply with new restrictions.
“This is no big deal for the Googles of the world”
In more recent years, the EU’s attempt to rein in the tech giants has become a major focus. The EU’s first major technology legislation, the General Data Protection Regulation (GDPR), came into force in 2018.
It is designed to protect the privacy and security of consumers and imposes obligations on companies anywhere in the world as long as they “target or collect people in the EU”.
The EU then added two more laws — the Digital Markets Act and the Digital Services Act — in subsequent years to try to curb the dominance of Big Tech companies like Apple ( AAPL ), Amazon ( AMZN ), Meta ( META ), and Microsoft ( MSFT ). ) and content from major online social media and e-commerce sites.
“Where a regulation like GDPR has the biggest impact is actually outside of Europe, in developing countries,” said Charles Kenny, an economist and senior fellow at the Center for Global Development in Washington.
“And I think that’s sad. I think this is something that the European rule makers and regulators are not taking into account.”
In response to tech regulations that included GDPR, which made no exceptions for startups, a group of African Union nations formed an alliance to advocate for more entrepreneur-friendly rules in poor countries like Sierra Leone and Ghana, Kenny said.
“It’s not a big problem for the Googles of the world or the Facebooks of the world to comply. It’s a big problem for small tech startups,” Kenny said, adding that he agreed some level of regulation is needed.
“I worry that the same thing could happen with these AI rules.”
The EU is set to introduce new legal restrictions on artificial intelligence this year, after EU members said last week they had agreed on the world’s first comprehensive AI legislation.
The new rules will focus on the use of artificial intelligence technology and categorize how strictly they are regulated depending on how risky the application is, including facial recognition and certain medical innovations that require approval before being offered to customers.
In the United States, federal laws regarding artificial intelligence do not yet exist, and it is not known whether this will happen.
The combination of added tech regulations from the EU and confusion about their own intentions within the US means more uncertainty and more complexity for global business, Lewis said.
Despite the EU’s hard line on tech laws, Fischer said companies have reason to hope the EU and US will become more aligned. He pointed to a framework signed with the United States this year, known as the Trade and Technology Council.
“I think it makes a lot of companies breathe a little easier. Not easy. But easier,” Fisher said.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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