THE EU DIGITAL MARKET ACT
Targets Discrimination Against U.S. Companies in Violation of WTO Commitments
and Threatens the Re-Set of Trade Multilateralism and of Trans-Atlantic Relations1
June 8, 2021
The EU Digital Market Act (“DMA”),2 which was introduced on 15 December 2020,
targets U.S. digital services companies in violation of EU non-discrimination
obligations under the World Trade Organization (“WTO”), which risks derailing
efforts to restore trade multilateralism and to resolve politico-economic issues
between the EU and the United States.
EU officials and the European Parliament have expressed concerns for some time
about U.S. digital platforms in the EU market and the desire to establish “digital
sovereignty”.3 According to EU officials, U.S. platforms – which include some of the
largest and most successful companies in U.S. history – represent a barrier to the
development of competitive European digital platforms. While the EU has used its
competition law aggressively to address these concerns,4 political elements in Europe
believe that competition law has failed to create favorable market outcomes for EU
Against this background, the EU introduced the DMA to address perceived
shortcomings of EU competition law. The DMA proposal, as currently drafted,
would impose on U.S. companies the competition law remedies and relief sought
under ongoing EU antitrust investigations and appeals, without affording these
companies the same rights of defense. The DMA approach plainly targets and
discriminates against U.S. companies and has raised serious concerns among some
U.S. policymakers – including U.S. officials who are generally supportive of stronger
The EU does not seem concerned about the obvious WTO violations arising from the
DMA. The DMA clearly violates the most-favored nation (“MFN”) obligations and
national treatment commitments made by the EU under the General Agreement on
Trade in Services (“GATS”) in the WTO in a range of services sectors, including
computer and related services, distribution services, advertising, data processing and
retrieval, and others. The DMA is designed to accord “less favourable treatment” to
1 Prepared by King & Spalding LLP for the Computer & Communications Industry Association.
2 For the EU description of the DMA, see
3Digital sovereignty for Europe,
https://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_BRI(2020)651992 (2 July 2020)
4 Within the EU there have been at least 30 EU and national competition investigations into large gatekeeper
platforms, several of which have forwarded novel theories of harm, https://op.europa.eu/en/publication-detail/-
en?WT.mc_id=Selectedpublications&WT.ria_c=41957&WT.ria_f=5961&WT.ria_ev=search (p. 6).
services and service suppliers of U.S. origin by imposing discriminatory measures, as
well as suspending due process protections, that do not apply to or affect like services
and service suppliers from Europe.
Implementing a measure that so plainly violates the EU’s WTO obligations will
significantly undermine U.S. and EU efforts to promote a multilateral rules-based
system. The DMA initiative will raise tensions between the United States and the EU
and make it harder for U.S. officials to defend working with the EU in the WTO and
other contexts. The DMA will also raise concerns that the EU is adopting non-
competitive tactics like “forced technology transfer” that U.S. officials tend to
associate with China, and which the EU has committed to oppose together with the
United States. This would complicate efforts by U.S. and EU policymakers to
cooperate on efforts relating to Chinese non-market economy issues.
In short, the DMA as currently drafted risks undermining key EU policy goals,
particularly concerning improvements in U.S.-EU economic relations. EU officials
should review and address potential WTO concerns, and mitigate against negative
implications for the overall U.S.-EU political-economic relations.
Competition Law and Discrimination Rules
Although the international community recognizes the need to address legitimate
competition law issues and abuses of market power, the DMA has offended settled
expectations of regulatory fairness by violating procedural due process and basic
The preamble of the DMA states
that its objective is “complementary to but different”
from competition law. The DMA aims to “ensure that markets where gatekeepers are
present are and remain contestable and fair, independently from the actual, likely or
presumed effects of the conduct of a given gatekeeper covered by this regulation on
competition on a given market”. The DMA is therefore targeted at certain companies
that have specific levels of services market trade, regardless of the actual positive or
negative effects their conduct might have on the competitive environment.
The targeting of U.S. companies under the DMA is no accident. According to the
EU, there are over 10,000 platforms in the EU,5 but the only platforms targeted under
the DMA are from the United States. As recently as May 31st, the Financial Times
The EU lawmaker who will steer the EU’s flagship tech regulation
through the European parliament has said it should focus on the largest
five US tech companies.
Andreas Schwab, a German MEP and longtime critic of Google, spoke
after France and Germany both called for the EU to be tougher on Big
Tech. He said Google, Apple, Amazon, Facebook and Microsoft, were the
“biggest problems” for EU competition policy.6
The Financial Times reported that Schwab rejected the idea “to include a European
gatekeeper just to please [US president Joe] Biden” and observed that “[h]is position
is likely to be seen as anti-American, at a time when the EU is focusing on rebuilding
transatlantic ties.” Such overt targeting of U.S. companies is consistent with EU tax
and regulatory approaches to U.S. tech companies in recent years 7.
The DMA establishes criteria tailored at U.S. companies to designate them as
“gatekeepers” of digital platforms on which ex ante
restrictions will be imposed.
approach is a major departure from the normal competition policy approach which is
based on ex post
case-by-case enquiries to determine whether there is a case of abuse
of market power or anti-competitive practices and, if so, the appropriate remedy
action. The DMA approach also goes far beyond the advice of the EU’s own expert
report on competition policy, which instead advocated at most for shifting the burden
of proof for specific forms of particularly harmful conduct.8 Instead, the DMA tailors
to U.S. companies a presumption of a negative impact on the internal market simply
based on the size of the company and its market presence, without considering the
impact of EU competitors with similar market power.
The DMA also sets targeted quantitative criteria for designating “gatekeepers” whose
conduct is presumed to have a harmful effect on the EU internal market. Any entity
that has the annual turnover of EUR 6.5 billion or more, within the European
Economic Area (EEA) in the last three financial years, or with market capitalization
of EUR 65 billion or more in the last financial year, would be considered a
“gatekeeper” and would be subject to the obligations of the DMA. Draft amendments
have recently been prepared that would raise DMA gatekeeper thresholds for annual
turnover to 10 billion euros and increase the core service requirement from one to
two, which would further limit the application of the measure to U.S. companies.
European companies that supply services identical to those supplied by foreign
gatekeeper companies will not meet the quantitative criteria for the gatekeeper status
– and thus by definition will not be subject to restrictive provisions of the DMA.
The DMA imposes ex ante
onerous obligations on foreign platforms identified as
gatekeepers. These obligations force them to disclose proprietary information, inflict
high costs of compliance on these platforms, and reduce their competitive capabilities
in a variety of ways including by restricting their use of data, forced sharing of their
infrastructure and investments, and prohibition of some of the pro-competitive
business models pioneered by such platforms. These outcomes will harm the
platforms and make their services less attractive to European users, to the advantage
of their European competitors.
In addition, the procedures for developing and applying the DMA do not provide due
process for targeted companies to ensure objective justifications or consideration of
The DMA directly violates the EU’s MFN and national treatment obligations under
According to Article XVII of the GATS, the national treatment commitment
scheduled by the EU in a range of sectors supplied by in-scope companies, so called
“gatekeepers”, stipulates that the EU must provide to services and service suppliers of
other Members “treatment no less favourable” than that provided to its own like
services and service suppliers.
The same provision also clarifies that such treatment may be “formally identical” or
“formally different”, but it must provide at least equal conditions of competition. This
interpretation has been settled in WTO jurisprudence.9
The EU may argue that the DMA provides “formally identical” treatment to all
platforms through the application of the same qualitative and quantitative criteria for
designating “gatekeepers”. However, the application of the targeted criteria referred
to above clearly “modifies conditions of competition” to the detriment of U.S.
platforms. In other words, the DMA de facto
discriminates in favour of suppliers of
European origin and fails to satisfy the legal standard of national treatment in Article
XVII of the GATS.
This conclusion draws further support from the DMA Inception Impact Assessment
Report by the Commission. The Report reveals that the main objective behind the
measure is to impose new obligations and prohibitions on core platform services
supplied by foreign companies, obligations and prohibitions that would not apply to
EU companies so that the latter could “scale broadly” and contribute to the EU’s
“technological sovereignty”. In other words, the DMA was intended to discriminate
against non-EU companies. In addition, the design of the DMA clearly targets and in
fact applies exclusively to leading U.S. digital companies.
In addition, Article II of the GATS obliges the EU to “accord immediately and
unconditionally to services and service suppliers of any other Member treatment no
less favourable than that it accords to like services and service suppliers of any other
country.” The targeting of U.S. companies under the DMA while excepting “like”
services suppliers from Russia, China and other countries clearly violates the GATS
9 See, e.g., WTO dispute settlement reports EC - Bananas III
, China - Publications and Audio-visual Products
- Electronic Payment Services
Although the EU may attempt to invoke exceptions to justify violations of the GATS,
the exceptions would not apply in the context of the DMA. Article XIV of the GATS
(General Exceptions) provides a list of legitimate policy objectives for which
Members would be allowed to deviate from their legal obligations to protect. These
objectives include, inter alia
, protection of public morals or maintaining public order,
prevention of deceptive and fraudulent practices and, protection of the privacy of
individuals in relation to the processing and dissemination of personal data.
Article XIV includes important requirements to ensure that these exceptions are not
abused. First, such measures must not be applied in a manner that would constitute a
means of arbitrary or unjustifiable discrimination between countries where like
conditions prevail, or a disguised restriction on trade in services. Second, Article XIV
requires that any measure taken under this provision be “necessary”. The application
of the “necessity test” in this context means that the measure in question must
contribute to the attainment of the objective which it is stated to serve and that the
measure would be the least trade restrictive means of achieving the desired result. In
other words, if the authority imposing the measure has reasonably available to it an
alternative measure that serves the same purpose and is less trade restrictive, the
measure in question would be deemed not “necessary”.
In the context of the DMA, the EU would not be able to establish a nexus between the
DMA and any policy objective listed in Article XIV of the GATS.
Finally, the DMA intentionally discriminates against non-EU companies, particularly
U.S. companies. Under WTO rules, this makes the DMA a “disguised restriction” on
trade in services, that cannot be justified under GATS Article XIV. Therefore, the
measure will be found to violate EU GATS obligations.
Article 3 of the WTO Agreement on Trade-Related Aspects of Intellectual Property
(“TRIPS Agreement”) provides that each Member shall accord to the nationals of
other Members treatment no less favourable than that it accords to its own nationals
with regard to the protection of intellectual property. According to Article 1 of the
TRIPS Agreement, intellectual property includes “undisclosed information” such as
The DMA violates TRIPS Article 3 because it requires “gatekeepers” to disclose
proprietary information, user data, internal tools, details of technical infrastructure,
and other intellectual property to competitors. The DMA also requires gatekeepers to
provide competitors access to key system hardware and software features and to
provide continuous real time access to data generated on their platforms.
In addition, the DMA also requires gatekeepers that supply search engine services to
disclose to their competitors how they rank answers to a given query. This
requirement would require U.S. companies to disclose sensitive trade secrets and
expertise while their EU competitors are not subject to the same requirement.
Additional requirements compel gatekeepers to disclose information on
interoperability and performance-measuring tools.
Imposing such requirements on U.S. companies and not on their domestic
counterparts, without an effects-based assessment into the proportionality or necessity
of these requirements that affords the defendants due process and rights of defence,
violates the national treatment obligation in Article 3 of the TRIPS Agreement, as
well as the substantive provisions of Article 39 of the TRIPS Agreement regarding the
protection of undisclosed information.
As shown above, the DMA as drafted plainly and deliberately violates numerous EU
WTO obligations. Choosing to violate the WTO in this manner would be troubling
under any circumstances, but raises very serious concerns at this particular time
regarding the EU commitment to multilateral rules generally, and to collaboration
with the United States in particular.
After years of heightened controversy in the U.S.-EU relationship, the United States
has a new Administration that is publicly committed to improving relations with the
EU. However, the United States, including important elements in Congress, should
not be expected to accept the imposition of such a high-profile measure that is plainly
designed to harm some of the largest and most important U.S. businesses in violation
of fundamental international trade rules. Recent achievements have shown the
benefits of EU-U.S. cooperation, including the G7 agreement to apply a global
minimum tax. However, continuing coordination on new international tax rules will
is conditioned on “the removal of all Digital Services Taxes, and other relevant
similar measures, on all companies.”10
Furthermore, a controversy over the DMA will complicate cooperation between the
United States and the EU on the critical issue of non-market forces to secure a level
playing field. For years, EU officials have urged the United States not to act
independently on such issues, but rather to coordinate with the EU. The new U.S.
Administration has shown willingness to work with the EU – but it will be difficult to
collaborate in confidence with the EU on such key issues if the EU adopts approaches
such as de facto
discrimination against U.S. technology companies and the
requirement of technology transfer from the targeted U.S. companies.
The same concerns apply to potential efforts to reform the WTO. Many stakeholders
in the United States remain sceptical of the benefits of the WTO, and of the
willingness of WTO Members such as the EU to address basic issues regarding the
market-oriented nature of the multilateral trading system. This scepticism will be
aggravated if the EU makes it impossible for U.S. technology companies to compete
in Europe, while providing favourable access for other competitors.
10 G7 FINANCE MINISTERS & CENTRAL BANK GOVERNORS COMMUNIQUÉ, 5 June 2021, see para.
16 (emphasis added), https://home.treasury.gov/news/press-releases/jy0215 .
In addition, by pressing forward with the DMA, unless significantly amended, the EU
risks undercutting plurilateral negotiations on digital trade at the WTO. If the United
States and the EU have a dispute over the DMA, the chances of their working together
on the digital trade agenda will be significantly diminished, and other countries will
apparently continue non-market and coercive economic behavior in Europe with
respect to digital trade with no consequence.
Given all these concerns, moving forward with the DMA, as currently drafted, risks
undermining major EU priorities and creating major new trade tensions with the
United States. Under these circumstances, the EU should review and significantly
amend the DMA and engage with the new U.S. Administration to create a
constructive dialogue. Such an approach would be consistent with the EU’s approach
on other recent trade disputes, such as Boeing-Airbus and global tax reform, and
would strengthen the foundation for bilateral and multilateral cooperation between the
United States and the EU.