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30 Aug 2023

Economy

Europe

UK-EU Relations

Anu Bradford analyses Meta’s decision to keep Threads out of the EU market, suggesting that the standoff raises deeper questions about whether governments or tech companies govern today’s digital economy.

When Meta launched Threads in July, EU consumers were left to look on while British consumers were flocking to the new and exciting social media app designed to rival Twitter. While the initial excitement around Threads seems to be waning, Meta’s choice of forgoing the EU market remains significant and carries important lessons for tech companies, the EU and the UK.

Meta’s practice of sharing data across its platforms, including importing data from Instagram to Threads, may violate the EU’s strict data privacy and competition rules, including the recently adopted Digital Markets Act. At the same time, the absence of similar regulatory requirements has kept the UK market open to Threads. This suggests that the EU may be overreaching and that there is a cost to being the regulatory superpower.

However, this apparent Brexit dividend may not last. This attempt by Meta to defy the ‘Brussels Effect’ – the ability of the EU to achieve global compliance from foreign companies through market regulation – will not be easily achieved. There is a reason why leading US tech companies have over the past decade repeatedly capitulated to stringent EU antitrust, data privacy, and content moderation rules – and are also likely to comply with the EU’s impending new AI regulation.

Indeed, Open AI’s Sam Altman was the most recent tech leader to acquiesce to Brussels. Earlier this year, he stated that his company may not enter the EU due to regulatory constraints, only to reverse his threat a few days later.

Similarly, last year Meta warned that, absent a government-negotiated solution to the transatlantic data transfers, the company may need to pull out its key services – such as Facebook and Instagram – from the EU. Days later, Meta clarified that it had no intention of leaving Europe.

Google also recently released its AI tool, Bard, in Europe, even if it did so only after having first tweaked its product to ensure compliance in the EU. As a result, the EU may also now call Meta’s bluff on Threads and stand firmly behind its ambitious regulatory agenda.

It would be costly for Meta to forgo one of the largest and wealthiest consumer markets in the world. Making up for the lost EU users in China is not possible due to local censorship rules. Developing markets like India offer a vast userbase but lower advertising revenue per user.

The EU is also no longer alone in its efforts to rein in tech companies. Digital regulations are burgeoning across the world, with countries such as Australia, Brazil, Canada, and South Korea emulating a number of European digital regulations. As a result, the EU will not be the only market these companies will soon need to forgo in an effort to evade stringent regulations, further narrowing the opportunities to expand their user base outside the EU.

Of course, Meta’s decision to delay introducing Threads in the EU may still pay off. It can be an effective lobbying strategy, strengthening the factions in Brussels that already worry that the EU’s ambitious regulatory stand puts the EU at disadvantage.

Meta’s strategic choices involving Threads are interesting in that they raise an even deeper question about whether governments or tech companies govern today’s digital economy. There is a compelling argument that the world is no longer unipolar, bipolar, or multipolar but rather ‘technopolar’, as Ian Bremmer has argued, stressing how tech companies today rival many states in their size and societal influence.

Even so, there are reasons to doubt that states will be powerless to govern tech firms. Governments retain the authority to exercise coercive force on firms and, despite their vast influence, tech companies remain beholden to regulators. They cannot decouple themselves from governments, coerce their way into merger clearances, refuse to pay dig­ital taxes, or restore content that the government has ordered them to take down. Neither can they engage in targeted advertising if governments ban it, or treat gig workers as independent contractors if the govern­ment has legislated for these workers to be employees.

Ultimately, the power of tech companies – their ultimate sovereignty – is limited to not doing business in jurisdictions whose laws they resent. However, that is a distinctly costly way for them to exercise sovereignty.

The clash between the Threads business model and the EU regulations will reveal who will ultimately relent: Meta or the European regulators. In the near future, we will find out whether Meta is prepared to bear those costs and keep Threads out of the EU and what, if any, concessions it may be able to extract while it keeps the EU doubting the limits and costs of its regulatory authority. But it is too early to write off the EU regulators and declare Meta and the Brexiteers as winners.

By Anu Bradford Henry L. Moses Professor of Law and International Organizations, Columbia Law School.

Her new book Digital Empires: The Global Battle to Regulate Technology will be published by Oxford University Press in September.

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