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The Digital Services Act of the European Union

Until now the services offered by e.g. platforms are regulated via the E-Commerce-Directive which came into force at the beginning of the new millennium – when major and today well-known platforms like Facebook or Airbnb were not even existent at that time. Since then data and digital economy have become an integral part of economic activities all over the world.

Cities, Municipalities, Public Entities and Enterprises face a changing administrative and economic environment while the digital economy step by step is becoming part of the daily business in all members states of the European Union. The Digital Services Act is a necessity – and it has to contribute to keeping and protecting a strong public sector which can act within the boundaries of law to help administrations to treat all economic activities in a fair and proper way. It has also to safeguard reasons of public interest at all levels of government – a lesson Europe should have learned from the fight against COVID-19, which still keeps going on.

An opinion for “a framework regulation of the collaborative economy” initiated by Vienna in the Committee of the Regions (CoR) (opinion by municipal councillor Peter Florianschütz), was unanimously adopted in the CoR plenary session in December 2019. The demands contained in the opinion are to be incorporated by the regions, cities and municipalities in the presentation of a Digital Services Act announced by the EU Commission for the end of 2020. The demands include access to data for enforcement purposes, the creation of legal certainty in the internal market, increased liability of platforms and an exception for the housing sector, as housing has been subject to special national regulations at national and local level for many decades. In other words: housing means housing.

Since February 2020 the IMCO committee of the European Parliament has exerted efforts to table an initiative report with elements to be addressed by a Digital Services Act (Rapporteur MEP Alex Agius Saliba).

The Digital Services Act is to be presented by the EU Commission in autumn 2020 in a legislative pact and will deal with various online offerings, i.e. platforms, online trading places and cloud services or “mixed services”. As has been the case for years, the issue of “hate speech” or the right to freedom of expression will dominate the debate, also in other legislative projects such as copyright and ancillary copyright law. The central regulatory basis to be amended or newly established is found in the E-Commerce Directive of 2000.

“Digital developing countries” This outdated regulation has contributed significantly to the fact that European countries have become digital “developing countries”, as Pascal Saint-Amans, head of the OECD tax department, recently put it in an interview with FAS . “European countries are digital developing countries because they import many digital services from, for example, the United States.” For example, a strongly developed country of origin principle in the EU means that globally active corporations are able to optimise their tax burden on these imports by locating their business in countries with weak legal regulatory systems. In addition to the network effect (i.e. that the more people use a network/platform, the greater the benefit of the network/platform and the less attractive alternative platforms become), this EU regulation has contributed significantly to the global strength of platforms originating outside the EU.

Cities, municipalities and regions are therefore not a day too early to take a detailed look at the implications of such regulation or to play an offensive role in the regulatory debate. For it is precisely in the cities and communities that the digital world meets its physical manifestation, i.e. the apartment offered on a platform or the scooter that is activated with the app. On 18 February, the European Parliament began to deal with the topic of digital services in the internal market. The Parliament is doing this in the context of a non-legislative own-initiative report, which has the character of a resolution, but which is intended to send clear signals to the Commission in the formation phase for drawing up a proposal. In this way, the European Parliament wishes to provide the Commission with a framework to ensure that Parliament’s concerns are properly taken into account in the proposal.

Shaping the digital future
In mid-February, the EU Commission presented its communication on “Shaping the Digital Future”, which, apart from documents already leaked in summer and autumn 2019, provides a clearer picture of the EU Commission’s strategy in this area. Based on the principles of “democracy”, “fairness”, “inclusion” and the “European social and welfare model”, the Commission wants to take the digital path to the future. The Commission is pursuing several objectives in a three-pronged approach. These include the approach of “technology that serves people”, a “fair and competitive digital economy” and an “open, democratic and sustainable society”. With regard to platforms, the EU Commission defines that more clarity is needed on “the role and obligations of online platforms”, especially with regard to illegal content (or illegal, dangerous or counterfeit goods). In addition, the EU Commission emphasises above all the protection of consumers or their data and focuses on “clearer rules on transparency, conduct and accountability of those who act as gatekeepers for information and data traffic”.

“Thresholds mandatory”
The debate on the Digital Services Act is already well underway in Brussels through the presentation of position papers and thematic events or evening receptions. Lobbyists from large digital companies are making a high-profile appearance, according to Facebook lobbyist and former MEP Nick Clegg, who recently announced in the Süddeutsche Zeitung: “We need to be regulated. On February 12, 2020 the City of Vienna in Austria together with the Representation of the EU Commission in Austria held a panel discussion on data and platform economics. Max Schrems (data protection NGO “none of your business”), Ingrid Brodnig (author and digital ambassador of Austria), Klemens Himpele (MA 23) as well as Heidrun Maier-de Kruijff (Association of the Public Economy and Social Economy of Austria) discussed with the representative of the EU, Marc Fähndrich, the central questions arising from different perspectives on the platform economy. The aim of the event was to define the tasks and duties that platforms have to fulfil in a newly designed digital economy based on EU regulations. Apart from the rejection of self-regulatory models, the need for threshold values for platforms was repeatedly stated that in order to prove small (and locally anchored) platforms with a lower level of regulation, it was imperative that very large platforms (measured in terms of user numbers and/or turnover figures as well as the degree of Europe-wide or regional market dominance, among other things) be given much stronger specifications. In addition, a European answer must be found to the question that although parts of the platform industry are theatrically and aggressively demanding regulations, in reality it is precisely US corporations that always take the legal route in case of doubt or that always postpone the application of rules due to their ability to get through long legal proceedings without any problems.

Coalition of cities for digital fairness
Vienna has been pursuing an approach for years, which the EU Commission has now also adopted in its communication of February 19: “What is prohibited outside the Internet must also be illegal on the Internet”. Vienna therefore wants to treat all economic activities – whether analogue or digital – equally. This approach also unites us in the fight for modern regulation at the EU level, where the city has been exchanging ideas with other metropolises in the area of platform economy for 5 years. Cities in the EU, which were quite sceptical about Vienna’s approach just a few years ago, are now in part in the process of considerably tightening up their approach and are working, for example, on a clear limitation of platform offers in the area of short-term letting. Prague has recently declared its position on this matter. It has certainly been registered that Vienna insists that touristic platforms must provide data for enforcement purposes (local tax) or that the city has sent clear signals to the platforms that platforms are “involved in a process of infringement of rights” through the possible hosting of offers in municipal construction, as stated in an excerpt from a letter to tourist platforms operating in Vienna published in January 2020.

An intensive debate has started and cities need to engage in a sustained dialogue with the EU institutions to underpin their interests. The first step towards this is a strong participation of cities and municipalities in the public consultation that the European Commission started on June 2. And Europe’s local authorities will have to be proactive: An EU official has called this process of developing a Digital Services Act a “bulldozer”. With a time horizon for drafting and decision-making that could extend over the entire legislative period until 2024.