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EU AI Act Undermines European Competitiveness…Again

Updated: Feb 8

Well-meaning EU regulations, from privacy to competition policy, have tended to accidentally favour big American tech firms over scrappy local challengers. Europe's digital protections throttled the online businesses that make the new economy since digital copyright rules landed a blow to home-grown tech stars Spotify.

Brussels' new artificial intelligence (AI) act seems destined to further relegate European companies to the role of an “also ran” in the global technology race. In their typically style, EU regulators have imposed the world's harshest restrictions on AI development that clash with the bloc's ambitions to lead in this critical domain. Far from “a launch pad” for leadership as EU Comissioner Thierry Breton claims, the rules threaten to undercut the competitiveness of Europe’s AI sector as it tries playing catch-up with American and Chinese tech titans.

The rules, which were approved this week after two years of debate, impose strict limits on how companies can develop and use AI technologies. From banning most uses of ‘high-risk’ AI applications like facial recognition systems to requires special certifications for others, supporters hailed them as a milestone that will boost public trust and safety. Sceptics, however, point to unbridled American compeition and Chinese strategic data collection as evidence that the policy will both undermine European aims of self-reliance and the competitivness of its domestic tech ecosystem.

The sizable increase to compliance costs disadvantages European startups compared to cash-rich rivals like Google, Amazon and Alibaba that dominate AI research. Venture investing in EU tech firms already plunged by over 60% following the implimentation of the strict General Data Protection Regulation. The new regime risks exacerbating the investment drought.

Europe's untreated structural economic weaknesses will also be laid bare. Unlike the US Inflation Reduction Act’s $370 billion of industrial subsidies, EU national and bloc-level aid schemes remain uncoordinated and modest. Europe’s digital single market likewise remains fragmented compared to America or China’s vast unified home markets. Adding restrictive AI criteria atop this will turn the screws further on upstart tech firms.

In their fixation on the precautionary principle, EU officials have repeatedly prioritized hypothetical risks over concrete economic impacts. But the effect has been to enfeeble Europe’s own digital economy, handicapping companies that should be global pacesetters. New revelations of industrial espionage by China make clear the geostrategic imperatives of nurturing competitive tech sectors. Hobbled by myopic rules like the AI Act, Europe’s corporate ranks will remain confined to the role of also ran rather than champion. Brussels must balance its regulatory instincts with industrial realpolitik if it wants to avoid AI becoming the latest own goal.


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