The European Union’s content moderation law known as the Digital Services Act (DSA) mandates that profitable large technology companies help fund the DSA’s enforcement. While not directly targeting non-European enterprises, this tax on large tech companies is part of a much broader EU move toward protectionism and has come at the expense of U.S. businesses.
The DSA is designed to establish a single European-wide standard intended to help companies detect and remove illegal content and protect EU citizens, especially children. The law has varying requirements for different categories of service providers. The classifications Very Large Online Platforms (VLOP), and Very Large Search Engines (VLOSE) are defined as any platform or search engine having more than 45 million monthly users in the EU. They have the strictest rules on reporting illegal activity and making advertising and other algorithmic functions of social media more transparent.
To help fund the DSA’s enforcement, the EU has issued fees to companies labeled as VLOPs or VLOSEs based on their annual income and size of user base. Several companies, including Meta, have challenged this because it allows non-profitable establishments to pay nothing even though they may require more resources to regulate their platforms. This leaves companies that did post a profit to pay a disproportionate amount of the total, essentially forcing some corporations to subsidize others regardless of which platform is more of a burden for regulators.
With the exception of German-owned Zalando, all VLOPs or VLOSEs are European branches of non-European companies, such as Meta and other American tech companies. When taken together with other aspects of the DSA, it is easy to conclude that the law disproportionately harms American companies. In addition to content moderation and privacy protections, the DSA intends to make it easier for small European tech companies to get started and scale up quickly.
Early indicators suggest this will hurt American companies and consumers in the U.S. and EU. A study by the Center for Strategic and International Studies found that the rules created by EU technology regulation, including the DSA, would increase prices for anyone using a paid digital service. This includes consumers and businesses, which could drive up costs. The study also suggests that U.S. exports to the EU could be negatively affected.
The DSA is just the latest example of Europe’s slow embrace of protectionism. The EU has increasingly labeled large non-EU tech companies as “gatekeepers” under the Digital Markets Act, prohibiting them from self-preferencing and subjecting them to additional fines for non-compliance. The EU has also enacted rules to exclude American experts from helping craft technical standards.
The broader picture shows an effort to favor European startups over American businesses within the EU. Ultimately such an approach hurts transatlantic cooperation in trade and technology and punishes American companies for their success.
