Three Ways that Europe’s Digital Markets Act Would Discriminate Against U.S. Workers and Companies
Explaining DMA’s impact on American workers who make Apple phones & apps, Amazon’s store brand goods, and Google’s travel search results
The Digital Markets Act (DMA) was introduced by the European Union ostensibly to “better protect consumers” and create “fairer and more open digital markets for everyone.”
In reality, the DMA effectively singles out American companies and seeks to limit their products and services in Europe in a way that will give their European and Asian competitors a huge advantage.
This discriminatory impact has been recognized by the Biden Administration, which noted its opposition to proposals “specifically designed to target only U.S. companies where similarly situated non-U.S. companies would not be covered,” and by Members of Congress who expressed concerns about the DMA’s threat to “disproportionately harm American technology companies.”
DMA’s “Gatekeeper” Criteria & Obligations
First, some background. The DMA applies to companies providing “core platform services” such as social networks, search engines, operating systems, online advertising services and intermediation services. Companies are designated “gatekeepers” under the Act if they meet certain quantitative and qualitative thresholds including:
- €6.5 billion in annual turnover within the European Economic Area,
- €65 billion market capitalization,
- Providing a core platform service in at least 3 EU countries,
- A customer base of at least 45 million monthly end users and 10,000 business users.
Gatekeepers are required under the Act to refrain from from “preferencing” their own services or products or discriminating against third party services; provide access to platforms without requiring transactions be concluded only through their platform; and provide data generated or provided for in the context of their product to third party vendors.
Given these rules, let’s take a closer look at three examples of how the DMA would specifically harm U.S. workers and companies.
1. The DMA would hamper Apple and help Samsung, Xiaomi, and Huawei in the European smartphone market.
The DMA would both prohibit Apple from “self-preferencing” its own apps or App Store on the iPhone, and require that Apple allow “sideloading” of unvetted, third-party apps on iPhones, undercutting Apple’s competitive differentiator of a safe, curated walled garden.
Practically speaking, a European consumer comparison-shopping for a new smartphone would immediately notice that phones from Xiaomi, Huawei, and Samsung came with the added convenience of built-in app stores, messaging, and productivity apps — while Apple’s iPhone was required by the DMA not to include Apple App Store, Facetime, or iMessage (because doing so would be “self-preferencing”).
The result? Dumber iPhones, fewer iPhones sold, and more foreign-made Android devices sold in Europe
The effect of these proposals will be to distort and hamper the ability of Apple to compete effectively in the European market by restricting its ability to provide valuable features or services to consumers in a cost efficient manner.
Competition in the smartphone market in Europe became more intense in 2021, with companies gaining and losing market share at a rate not previously seen. Apple increased its market share of the mobile market in Europe from 31% at the start of 2021 to over 35% of the market by the end of the year. This growth in Apple’s market share was a vote of confidence from consumers who purchased the iPhone at the highest rate ever.
Other companies holding significant market share include South Korea’s Samsung, China’s Xiaomi, and China’s Huawei at 31%, 12% and 10% respectively. Xiaomi also saw its market share increase from 9.6% to 12% in 2021.
The European market is an important contributor to Apple’s financial performance, accounting for over 27% of the company’s $365 billion revenue. With the competitiveness of a company considered to be synonymous with its profit performance and ability to compensate employees, the hampering of Apple’s ability to compete in Europe may have negative impacts on its American workforce.
The prevention of web-based software or app installations from third parties on Apple devices has allowed the company to retain control over its products and networks and offer maximum protection to its consumers. Removing Apple’s ability to prevent sideloading onto devices will create security risks not just to individual devices, but government systems, enterprise networks, public utilities and so on.
These security risks may be particularly heightened in the event that competitors such as Xiaomi or Huawei gain Apple’s market share as the Chinese government continues to be criticized for its arbitrary interference with privacy, pervasive surveillance and monitoring and censorship and oversight over all data collected by its tech companies.
2. The DMA would hurt American companies supplying Amazon store-branded goods.
Article 6 of the DMA prohibits gatekeepers from treating its services or products more favorably than similar services or products of third parties. It also mandates that U.S. big tech platforms apply “fair and non-discriminatory conditions” to products and services rankings.
Although some critics view the favorable rankings of companies’ own products as benefiting only technology companies, store brand products and services are in fact produced and supplied by other American companies — often small and medium sized businesses.
There are currently approximately 300 American companies that produce tens of thousands of individual products for various Amazon’s brands including AmazonBasics, Amazon Elements, and Amazon Essentials.
They are small and medium sized businesses who employ tens, hundreds or thousands of workers each; produce home goods, electronics and clothing; and are geographically dispersed across the country — from California to Utah, Minnesota, Iowa and Pennsylvania.
One of those suppliers is Burnette Foods Inc., a third generation nationally sourced distributor of fruits and vegetables and food manufacturer headquartered in Elk Rapids, Michigan. The company is one of the largest producers of shelf stable fruits and vegetables with thousands of acres of farmland, processing plant and warehouse space and processes millions of Michigan grown fruits and vegetables annually. Burnette Foods has continued to grow since its incorporation in 1969 and now employs 380 workers across various locations in Michigan.
The private label brands produced by suppliers such as Burnette Foods are on average higher rated by consumers, re-purchased more often and returned less frequently than comparable brands. In addition, Amazon provides support to manufacturers to market, develop, test new innovative products and obtain consumer feedback.
The restriction on ‘self-preferencing’ by the DMA would mean fewer sales of these goods to European consumers, ultimately meaning less sales for Amazon’s American suppliers.
3. The DMA would help European companies like Trivago take market share from U.S. companies like Google.
While key European Parliament leaders have insisted that the DMA does not only target U.S companies, but focuses on the dominance of large technology companies over smaller entities, European competitors of American Big Tech firms such as Google have publicly stated their belief that the DMA will allow them gain market share.
For example, today Google’s travel search results provide flights, hotels, and vacation rentals to consumers.
The Chief Financial Officer of Trivago, a European travel and hotel comparison search company, recently stated during the company’s fourth quarter earnings call, that the DMA:
“..is coming, likely this year, which might put some pressure on some of our biggest competitors and might slow them down, and we think that’s a benefit for us. And if we deliver on our product road map, then we can reset and gain market share.”
The company’s CEO later added:
“that in price comparison services, namely travel metasearch, the “main company affected by the DMA will be Google…Google would be captured for sure.”
The comments from Trivago’s leaders lay bare the intent of the DMA is to hobble American companies in order to help European companies. Analysts have concluded that the thresholds set by the European Commission were subjective and most likely based on a “backward induction” process to ensure that the US companies were captured.
And what impact would such discrimination have on U.S. jobs? Google’s travel search services are powered by its 2010 acquisition of Cambridge, Massachusetts-based ITA Software, which employed more than 450 U.S. scientists and engineers.
If the DMA blocked Google from showing travel results in order to help Trivago, Trivago could hire more European employees — but Google’s 450+ American travel search engineers could see a negative impact.
The Biden Administration is right to stand up for U.S. workers.
Although some have suggested that the US should not be lobbying against EU efforts to “rein in Big Tech”, the Biden Administration shouldn’t stand by as the DMA puts rules on American tech firms that will help foreign firms grow at our companies’ expense.
A bipartisan group of 30 Members of Congress said last week that the “EU’s proposed approach to promoting competition among digital platforms unfairly targets American workers.” We couldn’t agree more.
The Chamber of Progress (progresschamber.org) is a new center-left tech industry policy coalition promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
Our work is supported by our corporate partners, but our partners do not sit on our board of directors and do not have a vote on or veto over our positions. We do not speak for individual partner companies and remain true to our stated principles even when our partners disagree.
