EU tech envoy: 'The winds have changed' on regulating Silicon Valley

Big Tech isn’t known for embracing new rules: Its lobbyists have successfully quashed federal privacy and antitrust legislation and are pushing hard against the EU’s efforts to regulate online speech and commerce.

It might sound like Gerard de Graaf has a tall order.

As Europe’s ambassador to Silicon Valley, de Graaf moved to San Francisco in September 2022 with a directive to ensure companies are ready to comply with a wave of new regulation emanating from Brussels. He’s part of a growing list of “ambassadors” setting up shop in the mecca of U.S. tech.

The EU’s online speech and safety regulations, known as the Digital Services Act, will be enforced starting later this month, with enforcement of separate rules for online marketplaces in the Digital Markets Act following next spring. The bloc has also proposed new regulations for AI that are still being negotiated. De Graaf was a key architect behind many of those new rules, and now he’s in Silicon Valley to ensure companies comply.

What he’s seen, however, is more complex than it might seem. He told POLITICO that tech CEOs are familiar, even increasingly comfortable, with the laws their lobbyists are paid to argue against.

“The lawyers will always say, ‘There's a problem, it's not going to work, we can challenge this, we can litigate this,” he said. “But, I think, at the strategic level, these companies recognize that the winds have changed.”

The role of digital envoy as he describes it is part cop, part counselor, part hype man — representing the EU as not just a regulator but also an innovator. And his mission has continued to shift since the office opened, with his five-person outpost navigating tech layoffs, the collapse of Silicon Valley Bank, the rise of generative AI and more.

He joined the new POLITICO Tech podcast to discuss the EU’s ambitions in Silicon Valley and his impressions of the place, as well as the disconnect he’s observed between company executives and the lobbyists they employ in Washington and Brussels. Below are excerpts from the interview edited for length and clarity.

Steven Overly: What has surprised you most about the place? You've been doing tech from Brussels for a long time, how is it different in Silicon Valley?

Gerard de Graaf: Look what has happened in the last 12 months. I mean, we arrived in September. I remember the key issue or the topic at the time was metaverse. We were all talking about the metaverse, right? And here we are, like even less than a year later, I mean, not much talk anymore about the metaverse. It's all about AI. It's about generative AI. This area moves even faster than we thought and sometimes even in more unpredictable ways than we thought.

The other thing that I mean, maybe not surprised us, but in a way I think is notable, is strong interest in what the European Union is doing. I remember people saying, ‘Well, we are Silicon Valley, and you are the Silicon Valley of regulation.’ I think that has been moderated. I think there is a genuine interest in and also recognition that the EU is also a technology powerhouse. I mean, maybe not with the kind of big platforms that you have here in Silicon Valley, but there's a lot of smaller, medium-sized companies that are very advanced in technology.

More on the regulatory issues, I mean a lot of what the EU is doing is maybe not as stupid as people thought — maybe they originally that it was over-regulating, stifling innovation and those kinds of things — I think that there's a rediscovery maybe or a better understanding of where the European Union is coming from and why it is regulating in the way it is regulating.

I was going to ask if you get a sense that there's just an acceptance that this is going to be the EU role, and it's better to work with than against it. Or what's driving that shift that you have seen in how Silicon Valley thinks about the EU?

Definitely. The EU is a very big market. These companies are highly successful in the European market and, of course, want to continue to be successful in the European market. These companies recognize that, particularly after the negotiations have been concluded on the Digital Services Act and Digital Markets Act, that the name of the game is compliance, is implementation. And I think we've seen a genuine commitment to try to comply.

There's also, I think, a deeper recognition that the days of exceptionalism — that somehow digital is different from other sectors of the economy, which are quite heavily regulated, including in this country. I mean, think about banking, think about energy, think about pharma ... there is a recognition that those days are also behind us. And then the question is, well, if there is going to be regulation, what is regulation that makes sense?

We know the situation in this country is complicated, particularly in Washington, D.C., to get bipartisan agreement on legislative initiatives. From the perspective of these companies, if there is a region that is regulating, it's better that that region is the European Union, which is a region based on a rule of law with a human rights framework, than it is done by countries that maybe have different intentions or based on autocratic regimes and repressive type of measures.

To be honest, it's somewhat surprising to hear that analysis because from here in Washington, I hear a lot about what tech companies are lobbying for and one of the things I hear often is they want the Biden administration to push back more on the EU. How does that reconcile with this idea that they actually think the EU does have a light-touch or a more sensible approach to regulation?

There's a lot of sympathy in the Biden administration for what the European Union is doing. I mean, again, we know the situation in the U.S. It would not be possible in the U.S. to implement legislation like the Digital Services Act, the Digital Markets Act. The feedback we got from the U.S. administration, it was never aggressive or strongly negative. I mean, of course, there were issues of concern, and the U.S. administration has kind of carefully communicated these issues of concern, but also recognizing that, of course, we have our own elective procedures and negotiations, and we're a sovereign group of nations so we can implement the laws that the European Union sees fit to implement.

There's maybe a little bit of a difference between the industry representative organizations, I mean, the industry lobbies, if I can kind of use that term, and when you talk to the industry here, in terms of the senior level, the board level. I mean, the lobbies will always lobby. The lawyers will always say, ‘There's a problem, it's not going to work, we can challenge this, we can litigate this.’ But, I think, at the strategic level, these companies recognize that the winds have changed. I mean, the tide has turned. This is no longer 2015. We're not in 2016, we're in 2023.

You said you hear a different tone when you meet with leadership there in Silicon Valley. What is it like when you go into these meetings? I assume part of your job is getting to go to Meta and talk to Mark Zuckerberg or go to Google and talk to Sundar Pichai. Do these companies roll out the red carpet or is it a bit of ‘here comes the Grim Reaper’?

Discussions at the political level are done by the political leaders in the European Union. We had Commissioner [Thierry] Breton, who is one of the lead authors of the Digital Services Act, if not the lead author, and the Digital Markets Act, and he was in San Francisco about a month ago and, indeed, we did have meetings with like Mark Zuckerberg, and also with Elon Musk, and others. And, of course, he also meets them regularly when they visit him in Brussels. Sundar Pichai was in Brussels not long ago.

There is a respect, I mean red carpet or not. They know it's important to have a constructive relationship with the regulator. I mean, effectively, the European Commission is going to be the regulator for these very large online platforms. And it's in the interest of both sides that there is a respectful relationship between, say, the regulator and the regulated.

What I think is interesting is that, when there's these discussions at the CEO level, they know extremely well what the Digital Services Act is about. Mark Zuckerberg, I mean, … he can quote articles to the commissioner and back like, ‘Well, let's have a word about Article 32, this and that and the other.’ So this is not abstract, like 30,000 feet, way over my head. This is part of the framework conditions within which these companies will need to operate. What needs to be recognized is that this is something that plays in the boardroom, this is something that the CEOs know about. And they steer the ship. The ship is steered by the captain, the ship is not steered from the machine room.

Could the captains of the ship there in Silicon Valley do a better job of messaging to the work rooms in Washington and in Brussels to resist regulation and change less? Sometimes folks in Washington and Brussels play bad cop so that executives can be good cop, if you will. I realize I mixed my metaphors there, but I think you get the idea.

That's choices that companies have to make themselves how they want to project their own images and their own initiatives and investments that they make into compliance. I mean, lobbyists are paid to lobby. The lawyers are paid to litigate. That is their business model. Even if we would have the most favorable legislation for platforms ever conceived, I mean the lobbyists would find fault with it. It's like water off a duck's back.

We've talked a lot about regulation. But a lot of countries that have a presence in San Francisco or Silicon Valley use it to try to drum up business and turn investors on to startups or convince companies to hire more people back at home. How much of your job is trying to bring some of that Silicon Valley innovation back to Europe?

If you're a small team, then it's even more important to set the right priorities. So we can't be everywhere all of the time. But definitely this is part of our brief. I think it's also important to underline that there's a lot of successful startup activity in Europe. We have still significant challenges in terms of scaling up the startup. So we have a lot of unicorns, but they're small. It's very hard still in the European Union to really grow big.

We need one set of rules for the whole of the internal market, and if that's the case, then it's the largest consumer market in the world with 450 million users and consumers. The interesting observation I make is that we are building a single market in the European Union because we don't have it yet. The U.S. had a single market and, to some extent, still has a single market, but it's about to lose it. This is what happens, of course, if at federal level there is not sufficient action. This doesn't stop the sub-national states to legislate.

Having you now on the ground in San Francisco, having your team out there, how do you expect that will influence or change the way the EU pursues future tech regulations?

It should change things for the better. We're now close to where a lot of the action still is, this remains a very vibrant source of new technology development. Just look at AI. We are now in the final stages of the negotiations on the EU AI Act. We are constantly informing the negotiators in Brussels, like what's going on, particularly around generative AI so that the negotiations, the discussions, ultimately, the regulation is going to be more informed.

Annie Rees contributed to this report.

To listen to the interview with de Graaf and other tech leaders, subscribe to our new daily POLITICO Tech podcast.