April 19, 2021

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The Day – E.U. proposes sweeping new rules for online business that could force fundamental changes for digital giants

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The European Union on Tuesday unveiled sweeping new rules for online businesses that could potentially force fundamental changes in the business practices of digital giants such as Google, Facebook, Apple and Amazon.

The new rules would overhaul the basic legal framework through which companies conduct their digital business in the vast, wealthy E.U. market, requiring platforms to police content far more aggressively and banning them from using their vast stores of data to unfairly overtake their competitors.

If enacted – a process that could take years – the rules would touch every company that conducts business on the internet within the 27-nation European Union, from the smallest to the gargantuan. But the very biggest companies, almost all of them American, would be subject to particularly aggressive rules.

Violations could be punished with fines of up to 10% of their global business turnover – in the case of Amazon, that would mean up to $28 billion. And repeated violations could be punished with an order to break up businesses.

The E.U.’s Digital Services Act and the Digital Markets Act together construct a European vision for rules of acceptable business behavior in the digital world that is far different from those in place today.

The proposals can be compared to the “first-ever traffic light that brought order in the streets,” said European Commission Vice President Margrethe Vestager, a Danish politician who has pursued aggressive regulation during her six years as the E.U.’s digital enforcer.

“We have such an increase in online traffic that we need to create rules to bring order into chaos,” she said as she announced the draft legislation.

Tuesday’s proposals are part of a trifecta of European initiatives that take aim at digital giants and could pose challenges for President-elect Joe Biden, who has promised a fresh U.S. effort to regulate the digital world but may want to move in a different direction than Europe.

Already, policymakers are trying to sort out the implications of a July ruling by Europe’s highest court that may force U.S. companies to overhaul how they handle the data of E.U. customers. And the E.U. is seeking to impose a new tax on digital businesses that could unsettle Washington, though E.U. policymakers say they hope to do so in cooperation with the White House and not in opposition to it.

Digital issues have “an opportunity to be an irritant. I’ve suggested that we should start off with a truce to give peace a chance,” said Anthony Gardner, a former U.S. ambassador to the European Union who advised the Biden campaign. He said that both taxation and the data privacy issues had the potential to be a “grenade.”

All three E.U. initiatives are the subject of a furious transatlantic lobbying effort, as companies and advocates seek to shape the digital world for years to come.

The proposals unveiled Tuesday would make major online platforms legally responsible for the content users post on their services, requiring companies to police abuse, misinformation and other legal violations far more actively than they do now. The goal is to empower E.U. countries to counter illegal content online. Vestager mentioned “terrorist propaganda” as one example.

Companies that allow other businesses to sell services through their platforms would have to allow equal access to their rivals rather than prioritize their own products. Apple could need to allow other companies to use the payment technology built into its iPhones, instead of locking it to Apple Pay. Amazon would need to give equal treatment to third-party sellers, for example by not defaulting on its product pages to items that it sells itself. Nor would it be allowed to use the data it gathers about popular third-party products to make decisions about which items it sells under its own AmazonBasics label. (Amazon chief executive Jeff Bezos also owns The Washington Post.)

And digital giants would have to make more of their algorithms transparent, to allow independent scrutiny of their business practices.

In all, it’s more proactive than the E.U.’s previous tech regulation, which tended to punish anti-competitive behavior that has already taken place, too late to help smaller companies that have been locked out of markets.

U.S. tech companies had mixed reactions on Tuesday.

“We are concerned that they appear to specifically target a handful of companies and make it harder to develop new products to support small businesses in Europe,” said Karan Bhatia, Google’s vice president of government affairs and public policy, in a statement. “We will continue to advocate for new rules that support innovation, increase responsibility and promote economic recovery to the benefit of European consumers and businesses.”

The proposals are “on the right track to help preserve what is good about the internet,” tweeted Facebook’s head of E.U. affairs, Aura Salla. “We welcome harmonised EU rules on harmful and illegal content online.”

Apple declined to comment. An Amazon spokesman pointed to a recent statement that it was concerned about “ensuring the same rules apply to all companies.”

Although the rules as drafted would have particular impact on the U.S. tech giants, other companies that operate solely within Europe would have to revisit their business practices. Policymakers are also hoping to regulate Chinese businesses as they expand their presence within the E.U.

Vestager said U.S. skepticism toward tech giants had grown in recent years to the point where she no longer worried about a transatlantic clash over regulation.

When she visited Washington not long after she took office six years ago, it was “a completely different world. They were kind of, ‘What are you doing in Europe?” she said.

Now, she said, “the debate will be very different than if we had tabled this five years ago.”

In one sign of that shifting sentiment, the U.S. government and 48 attorneys general filed a landmark antitrust lawsuit against Facebook last week, setting the stage for its possible breakup. Also on Tuesday, Britain unveiled its own proposal for digital regulations, the Online Harms bill.

But conflicts could arise on a range of issues. U.S. companies could be roped into enforcing European laws on free speech that tend to be far narrower than in the United States, for instance. American lawmakers who think digital giants should pay far more taxes still sometimes bristle when other countries try to tax U.S. companies. And the data privacy issues may force costly changes on U.S. companies to overhaul how they handle their European customers’ information.

The confluence of thorny topics could force Biden into a confrontation with Europe, even though both he and European leaders have said they want to reconcile after four years of President Donald Trump.

“Let’s face it. The biggest five companies in the world of tech are American, so if Europe steps in, even with many reasons to do so, that could lead to a deterioration of relations and a tax and trade war,” said Paul Tang, a Dutch member of the European Parliament who works on digital regulation issues and favors tighter rules.

The European Commission this month proposed a transatlantic council to discuss digital trade issues with the new administration.

Because they are moving faster than the United States, some European policymakers hope their standards will become the world’s.

“Since the global market is adopting our standards, if we push forward, we’ll be the first ones crafting the rules,” said Eline Chivot, a senior policy analyst at the Center for Data Innovation, a Brussels think tank, describing some of the European thinking on the area. “Everyone will follow our lead.”

Already, the E.U. has forced significant changes in behavior with a 2018 legal measure on data privacy that gives European users much more control over how their data is used, stored and sold by companies.

“The E.U. at some point has woken up to the fact that all of this digital stuff is of great strategic importance,” said Christopher Kuner, a law professor and director of the Brussels Privacy Hub, a research center at the Free University of Brussels. “The E.U. has no military clout, but where it does have a lot of clout is regulatory areas.”

But skeptics of Europe’s digital efforts say ambitious regulation is sometimes not backed by aggressive enforcement.

Vestager has sought huge fines against some of the biggest tech companies. But her efforts at times have been batted down by courts.

And Tuesday’s proposals were punctuated by an announcement that the very first fine for a violation of the data privacy rules was issued, more than two years after they went into effect. Ireland’s data regulator issued a $550,000 fine against Twitter for breaking data privacy rules – a drop in the bucket for a company that reported $936 million in revenue in the third quarter of 2020 alone.

The new rules “won’t curb the market power of big tech companies,” Tang said. He said he wished the proposals were more stringent.

“It’s absolutely going to be a change in the way we deal with data and in how we find an architecture for the Internet,” he said. “And it’s not going to be the end of the discussion.”

Birnbaum reported from Riga, Latvia. The Washington Post’s Quentin Ariès in Brussels contributed to this report.