Context: The economic gap between the U.S. and Europe keeps widening. Europe’s interventionist approach to the technology sector has not strengthened, but more likely even further disadvantaged, European technology makers. But it also affects technology users (businesses as well as consumers). Recently, Apple launched its Apple Intelligence functionality and said that it would not be made available in Europe “for the foreseeable future” (October 29, 2024 euronews article). Meta and Google have also refrained from making certain AI offerings and features available in Europe (July 18, 2024 Outpost article).
What’s new: OpenAI just launched its text-to-video model, Sora, and in a support article bearing today’s date listed the 165 countries in which it is now available (or at least about to become available). Notably absent are China (which has its own alternatives, particularly Vidu and Kling), Russia (presumably due to sanctions) and all EU member states, the UK and Norway, the largest non-EU member state of the EU-dominated European Economic Area (EEA).
Direct impact: It is not known yet for how long OpenAI will withhold Sora from European users. If OpenAI merely intends to obtain some regulatory clarification before launching, then this could change in a matter of months as suggested by a footnote: “Right now, users can access Sora everywhere ChatGPT is available, with the exception of the United Kingdom, Switzerland and the European Economic Area. We are working to expand access further in the coming months.” But given the thicket of regulations that the EU has put in place, not all of which are even AI-specific, there appears to be a risk that European users may not get access anytime soon. The economic impact of a single AI service being withheld from European users (businesses as well as consumers) is difficult to quantify, but the combination of multiple major offerings being unavailable in Europe undeniably does represent a lost opportunity for productivity gains, AI education and competition.
Wider ramifications: At an abstract level, it has dawned on some EU leaders that the bloc may need to think its regulatory policies. For example, Italian politician and former banker Mario Draghi edited a report on how Europe could attempt to become more competitive (link to European Commission (EC) website) that also recommends are more thoughtful approach to regulation. What the actual consequences are going to be in the years ahead remains to be seen.
OpenAI strictly prohibits circumventing its territorial restrictions: “Accessing or offering access to our services outside of the countries and territories listed below may result in your account being blocked or suspended.” This is what it needs to do so it cannot be held responsible if some utilize virtual private networks (VPNs) or other technical solutions to get or enable access to Sora in no-go territories.
The EU has such a jungle of tech regulations that some companies may be scared away from offering services there just because they don’t know if they can safely navigate the minefield. It appears that Apple is primarily concerned about the application of the Digital Markets Act (DMA), which regulatores “core platform services” such as iOS and the App Store, while Google worries about the General Data Privacy Regulation (GDPR). It is not known what EU regulation(s) OpenAI is concerned about with respect to Sora, but the AI Act is presumably at least a major part of the consideration.
EU regulations apply in the 27 EU member states and three countries that are members of the EEA but not of the EU: Norway, Iceland and Liechtenstein. The two latter ones are, as of now, on the list of supported countries, but Norway is not.
Some Chinese AI providers, among them Kling AI, appear to be less concerned about EU regulations. They may be more prepared to take risks, and their activities draw less attention (except when there are geopolitical implications) than those of major U.S. technology companies (“Big Tech”) or their partners like OpenAI and Anthropic.
Overly ambitious policy makers such as former commissioner Thierry Breton were treating AI regulation as a race despite the fact that no country or bloc gains more power by regulating earlier. In the end, each jurisdiction will do what it believes serves its citizens (and, as part of that, its economy) best. The leadership of the European Parliament was more than happy to accomodate, and rushed proposals through the parliamentary process, with highly ideological (partly even nonsensical) ideas being added in the form of amendments. The result is a thicket of regulations, some of them fundamentally misguided and others pursuing laudable goals but in a poorly-executed form. The bottom line is legal uncertainty.
There is an urban legend in the EU called the “Brussels effect,” meaning that companies will apply certain EU rules on a worldwide basis. In the case of the GDPR, that has happened to some extent, but around the world people keep shaking their heads over pointless pop-ups and other requests for confirmation that users agree to rules they will neither read in detail nor care to understand. The EU must be careful now not to overplay its hand. Up to a certain point, companies will even comply with what they may internally describe as idiocies and insanities just because of the 450-million-people target market (EU facts and figures). But Apple, Meta, Google and OpenAI are now showing the EU that it has gone too far, the result being that European businesses and consumers are deprived of access to important new technologies.
The EU is in serious trouble. Some major member states of the eurozone, such as France and Italy, are overindebted and always will be, as there will never be a political majority in favor of serious reforms. Germany, the largest EU economy and essential to the staiblity of the common euro currency, has been in bad shape for about six years and will likely continue to fail to grow. It may even shrink if its automotive industry does not emerge from its current “carmageddon” crisis. And there is no chance of the EU catching up in the technology sector anytime soon, as many of its best entrepreneurs and engineers decide to work for non-EU companies.
An article published by the Institut Polytechnique de Paris explains that “[t]he rate of business investment is virtually the same at the start of 2024 in the United States and the eurozone (13.5% of GDP), but the proportion of this investment in technology is much higher in the United States (5% of GDP compared with 2.8% in the eurozone).” The author of that article expresses the “fear[] that Europe will be drawn into a vicious circle of low investment in new technologies and research and development, and hence low productivity gains and growth.” Some of Europe’s problems are societal and cultural, such as multilingualism being an impediment to startup growth and investors being exceedingly risk-averse. But the political environment also discourages investment and entpreneurialism.
French president Emmanuel Macron and Mr. Draghi held a discussion last month at the Collège de France where Mr. Macron warned that Europe had only two to three years to manage a turnaround.
Europe’s dwindling economic strength, combined with significant growth in some other parts of the world, will give ever more technology companies reasons not to offer their services in Europe. The UK has recently been pursuing similar policies as the EU, sometimes with a bit of delay, but philosophically of the same mold. Under its current left-wing government, heavy regulation may be even more en vogue.
Imperfect (or incomplete) implementation of Sora geofencing
OpenAI’s geofencing of Sora may not be working perfectly as intended yet. There is at least one country on today’s list of countries in which Sora is supposed to be available but in which it is not: the Principality of Monaco, a very small country (2 km², 40,000 inhabitants) on the French Riviera (Côte d’Azur). It is neither a member of the EU nor of the EEA. This article is being written in Monaco, and Sora’s webpage says the service is not available in this country:
Some technology companies do not treat Monaco differently from France, though it is a sovereign country that adopted its own privacy law last week (CMS website (French)) and its IP address range is clearly identifiable.