Brazil Considering New Digital Competition Legislation

Commentary by Meredith BroadbentandJohn Strezewski

Published May 9, 2024

As the U.S. government retreats from weighing in with trading partners in favor of balanced treatment for its digital tech champions, one after the other, major markets are turning to the European Union's Digital Markets Act (DMA) as inspiration for revamping their antitrust regimes. The DMA is an ex ante framework that regulates large tech players by laying out a set of blanket rules for all designated firms and imposing harsh penalties on violators. Now, Brazil, the world's 11th largest economy, is joining a growing list of nations in formulating DMA-like ex ante legislation to regulate digital competition. As seen in the case of Turkey, however, Brazil's take on the DMA could expand the authority of the country's digital regulator even beyond the scope of the model EU legislation.

Brazil's Take on Digital Competition Regulation

On November 10, 2022, Brazil's Draft Bill Regulating Digital Platforms was introduced in the Brazilian House of Representatives. The bill adopts an approach that intentionally mirrors the EU DMA by establishing a digital markets regulatory regime that applies only to a subset of companies. In the European Union, these covered companies are called "gatekeepers" and consist of only the largest digital firms-Amazon, Apple, Microsoft, Bytedance, Google's parent company Alphabet, and Facebook's parent company Meta-in the digital services industry. The European Commission decided to include these specific firms based on quantitative thresholds, such as yearly EU revenue (€7.5 billion/$8.1 billion), market capitalization (€75 billion/$81 billion), and user base (45 million). Firms that simultaneously exceed all of these thresholds were designated as gatekeepers.

While the DMA's quantitative minimum requirements are both arbitrary and not calibrated to a firm's true market power, they are at the very least high enough to only qualify a few key market participants. This is not the case for the Brazilian legislation, however, which takes the "gatekeeper" designation to the extreme. The bill's minimum revenue threshold-the only relevant quantitative threshold it identifies-is a mere R$70 million (approximately US$14 million). Going far beyond the EU regulation, the Brazilian iteration would thus coverhundreds of tech companies, placing regulatory burdens not only on U.S. "Big Tech" players but also on Brazil's own technology startups and unicorns. Often described as Latin America's "most established startup hub," the depth of this regulation could muddy Brazil's reputation as an investment environment keen to nurture innovation.

The idea that this bill could delay Brazil's technological progress is not simply speculation. In the European Union, the DMA and its sister legislation, the Digital Services Act (DSA), have already slowed the pace at which European consumers adopt new and useful innovations. Both Microsoft and Google, for instance, postponed the launch of their groundbreaking AI features due to DMA compliance issues. While Google's "Bard AI" tool launched in the European Union in July 2023-four months after U.S. and UK users obtained it-Microsoft's Copilot has yet to be rolled out. While delaying individual features may seem like a minor inconvenience for EU users in the short term, one can only imagine what the long-term effects of this trend will be. It is not difficult to envision a future where, with these small delays having built up over time, the European Union sits permanently behind the United States and other countries that have built less invasive regulatory regimes. With the bill already expanding the scope of EU regulation by several times, these effects would only be compounded for Brazil.

The bill's designation criteria are not the only factor that differentiates it from the DMA; its policy prescriptions are also far broader in nature. The DMA lists a number of specific "dos and don'ts" that apply universally to all gatekeepers. The list covers common antitrust topics such as interoperability, self-preferencing, and data use. The Brazilian legislation in its current form, meanwhile, contains no such list. In other words, it does not call for bans on any specific conduct but instead gives broad authority to Brazil's National Telecommunications Agency (Anatel)-a regulator broadly comparable to the U.S. Federal Communications Commission-to impose regulatory measures based on a series of vague aspirational objectives, such as "promoting economic development" and improving "access to information."

Approaching regulation in "a much less detailed way," per the bill's justification section, will give space to Anatel to adjust the regulation based on market conditions and avoid putting a "straitjacket" on designated firms. Though this sentiment is no doubt appreciated by regulated firms, the legislation in its current form would give Anatel comprehensive authority to both write the rules and enforce them. This is problematic since Anatel is a telecommunications regulator, not a digital markets regulator. Competition in the telecommunications market is vastly different than in the "digital economy," which, in today's day and age, covers far more than just the transmission of information. Especially given the bill's broad scope, digital market participants could come from a wide variety of data-driven sectors, like retail, insurance, pharmaceuticals, and more. For this reason, the United Kingdom created a Digital Markets Unit (DMU) within its existing competition regulator to carry out its proposed competition legislation rather than transfer authority to communications officials at Ofcom, the United Kingdom's communications regulator.

Brazil should follow the United Kingdom's example by giving its existing competition regulator-the Administrative Council for Economic Defense (CADE)-responsibility for overseeing competition in digital markets. CADE has already investigated several of the bill's target firms, namely Google, Apple, and Meta. Furthermore, it has on numerous occasions evaluated conduct that is directly relevant to the legislation, such as self-preferencing and refusal to deal. Given this extensive experience, creating a DMU-like entity within CADE would not be overly difficult and would avoid regulatory overlap between CADE and Anatel. In short, Brazil should leave its competition regulation to the competition regulator.

On a positive note, an area in which the bill deviates from the DMA is in its penalty system, which is less onerous. The DMA authorizes fines of up to 10 percent of global annual revenues for violations and 20 percent of revenues for repeat offenders. Firms would, therefore, likely be fined several billion dollars for each violation. Brazilian regulators recognized that this draconian fee structure would dampen innovation and opted instead to impose a more reasonable maximum fine of 2 percent of Brazilian turnover. While sufficient to deter companies from adopting anti-competitive practices, the 2 percent maximum penalty also shows a degree of restraint not reflected in the EU legislation.

Conclusion

Often referred to as the "global superpower regulator," the European Commission is giving inspiration and cover to many advanced developing countries to promulgate completely new and imprecise regulatory structures aimed at U.S. tech firms, targeted predominantly by virtue of their size and success in international markets. Empowering competition regulators across the globe with completely new and untested authorities to force changes in the business practices and innovative services of U.S. tech firms should not be taken lightly by U.S. officials. It's a global trend that deserves close consultations with these governments and between U.S. officials and members of Congress struggling to preserve balanced and fair treatment in competition policies aimed at firms in this sector.

Meredith Broadbent is a senior adviser (non-resident) with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. John Strezewski is an intern with the Scholl Chair in International Business at CSIS.

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