EU digital strategy divides, doesn’t conquer

Leonid Bershidsky

Perhaps the biggest reason Europe has not produced digital economy giants like Google, Amazon, Facebook or Netflix is that there’s no such thing as “Europe.” Starting out in Sweden, France or Germany, a company is not European – it’s Swedish, French or German. Tax regulations, postal tariffs, financial systems, copyright, labeling and data protection rules – nothing is harmonized.

Failing to get member states to accept more uniformity, European bureaucrats seize every chance to fix what’s not broken and regulate what does not need regulating. The European Commission’s recent Digital Single Market proposals are a good example: They put off removing geographical blocks (so-called geoblocking) on digital content, but they contain a requirement for Netflix and other video-on-demand services to include no less than 20 percent European content in their catalogues.

Even in the U.S., e-commerce transactions spanning several states are a legal gray area: It’s not easy for Internet retailers to collect different sales taxes for every state they ship to, so most of them do not, giving rise to arguments over their legal base. In the EU, independent nations charge different tax rates – and speak 24 different languages to boot. Earlier this year, the European Commission found that 63 percent of the websites it studied blocked customers from buying outside their home countries. Many of them let a user pick a product or service and then, at the final stage of the order, rejected an address or a credit card.

It’s no less frustrating when a YouTube video you want to see is replaced by a flickering back screen with the message that this content is blocked in the viewer’s country; when a movie that is out in the U.K. is not available to a German Netflix user; when you cannot watch the same movies on vacation in a neighboring country that you can watch at home.

Andrus Ansip, the European Commission’s vice president for the digital single market, comes from Estonia, perhaps the most digitally advanced EU country, but also a tiny one. No matter how technologically advanced they are, start-ups in his country and elsewhere in the EU cannot scale as fast and as efficiently as U.S. firms. No wonder Ansip says he hates geoblocking. Yet businesses do not want the EU to issue regulations against the practice: The European e-commerce association, which goes by the acronym EMOTA, has told regulators that the industry itself should work out best practices. Its main fear was that the EU would force all businesses to sell to customers regardless of where they are and then deal with the consequences such as delivery and tax intricacies.

Unwilling to be passive and unable to overcome the resistance of business lobbies, the Commission settled on a bizarre compromise: Its proposal is to allow customers in any EU country to check the prices in any other country and then buy wherever the prices are best. Yet, in a twist that renders this meaningless, the retailers will not be obliged to deliver. A Belgian will be able to buy a cheap refrigerator in Poland, but he’ll need to organize the delivery himself. If that does not sound very digital-age, tough luck. Retailers are happy, though. They will only have to charge local taxes and they won’t have to deal with cross-border shipments. As for customers – well, no one entitled them to tell the businesses how they should operate; they can take it or leave it.

The new proposals specifically exclude audio and video content. Apparently, copyright issues are even harder to resolve than tax and logistical ones: Video hosting and video-on-demand services are contractually bound not to show certain content in certain countries, and removing these barriers would involve negotiating with rights holders and making sure their compensation does not suffer from cross-border access. They make more by selling rights to every individual country. An EU-wide license would not make economic sense to many of them, and bureaucrats fear less European content would be produced. On these grounds, France, for example, has advocated limiting the EU’s interference to making sure digital subscriptions are “portable” – that the same movies can be watched wherever a subscriber travels in Europe.

The lobbying power aligned against making copyright EUwide – content producers, TV channels that buy licenses for specific markets, governments like the French one worried about the preservation of national language and culture – is too great for the European Commission to overcome, so it keeps pushing the issue down the road. All that bureaucrats such as Ansip can do at this point is envy U.S. companies success in obtaining global licenses for mostly U.S.-made content. That kind of envy manifests itself as more meaningless regulation – for instance, the requirement that Netflix and other similar services include no less than 20 percent of European offerings in their catalogues. The European Commission itself admits that diktat will not change anything: Netflix and YouTube already have 21 percent each of EU-produced content. All the proposed new regulation accomplish is make the EU look silly, as if it’s forcing U.S. platforms to accept and sell subpar local material.

A true European common market for all kinds of digital commerce would mean a single system of postal tariffs and EUwide copyright on all kinds of content. A unified value-added tax (not an impossibility given that VAT is the only tax for which EU members have accepted some regulation from Brussels) would also help. An agreement of the 28 member states on all these matters would make the EU, with its market of 500 million consumers, larger than the U.S. America’s truly single market has given its companies a colossal lead, but eliminating internal borders in the EU would at least help narrow the gap. Instead, they’re perpetuating the protection of European firms within their small home markets and preventing truly global players from emerging.

The problem with the EU is not that it usurps member states’ regulatory powers, as euroskeptics (including those advocating that Britain leave the European Union) claim. Rather, it’s unable to get individual countries to agree on common measures that would bring tens of billions of euros into their economies, and so it regulates what it can – often without much effect. A bureaucracy deprived of an underlying consensus is often a lame beast.

© 2016, Bloomberg View