The EU’s forthcoming regulation on Artificial Intelligence could cost the bloc’s economy up to €31 billion over the next 5 years and cause investments to shrink by as much as 20%, according to a study published on Monday (26 July).
The assessment by the Centre for Data Innovation looked into the administrative costs of the Artificial Intelligence Act (AIA), a horizontal EU regulation to introduce increasing obligations based on the level of risk associated with the application of the groundbreaking technology.
The study author stresses the administrative burden the new legislation is expected to create, which they say will disincentivise innovation and technology uptake.
“The Commission has repeatedly asserted that the draft AI legislation will support growth and innovation in Europe’s digital economy, but a realistic economic analysis suggests that argument is disingenuous at best,” said senior policy analyst and report author Ben Mueller.
For Mueller, the Commission proposal conflicts with the Digital Decade target of having 75% of European companies using AI by 2030. That goal would require roughly 10 times the level of current investment in the technology, yet the study author says compliance costs would eat up just under 20% of those investments.
“The study confirms our concerns that ambitious European start-ups and small developers of AI solutions will be hit by the next wave of rigid and ambiguous EU rules, which, like the GDPR, will put them at disadvantage compared to [very] large companies,” Karina Stan, Director of EU policy at the Developers Alliance told EURACTIV.
The estimated economic cost does not include the foregone investment in AI, such as lower productivity growth and brain drain as start-up innovators might decide to move to less regulated markets, the report says.
SMEs would be particularly deterred from entering the market, as they generally have fewer resources to meet the compliance costs. The cost might be up to €400,000 for AI systems deemed ‘high-risk’, which for an average SME might mean a 40% loss in profits.
“The proposed act could certainly be more innovation-friendly. On the plus side, it provides a clear framework for compliant AI applications to innovative companies,” said DIGITAL SME head Sebastiano Toffaletti.
In the Commission proposal, high-risk applications are defined as posing a significant risk to people’s health or fundamental rights. The argument is that companies cannot be exempted from respecting fundamental rights because of their size, while there are plenty of AI applications that do not involve high risks.
However, the study challenges the current definition of high-risk as too broad, assessing it would cover more than one-third of the EU economy, excluding the financial sector. As a result, Mueller considers foreign competitors would eat up market shares from European businesses.
“It is bewildering to see that even regulating the most dangerous systems is met with such push back,” said Kasper Drazewski of the European Consumer Organisation (BEUC). “Following this logic, it isn’t enough to have an AI Act that is stripped down to its bare bones; the entire proposal should go through a grinder so it doesn’t affect industry profits.”
Shadow rapporteur Svenja Hahn stressed that the AI regulation should not block innovation nor lead to a brain drain. However, the liberal MEP does not see boosting innovation and protecting fundamental rights as mutually exclusive, as they “can both be met by the AI Act.”
According to Andreas Aktoudianakis, a policy analyst at the European Policy Centre, the study highlights several critical points of the proposal, such as the need to clarify the legal obligations, the unrealistic expectations on error-free data in a nascent application and the significance of providing AI regulatory sandboxes for SMEs.
However, for Aktoudianakis “the study fails to consider its argument in relation to the EU’s geopolitical role on AI regulation, and the EU citizens’ particular concerns. These are integral to analysing the remit and enforcement of the Commission’s approach to AI regulation.”
The Commission’s risk-based approach is meant to provide a solid regulatory environment in which consumers can trust AI applications. Without trust in the technology adoption rates might remain low, Aktoudianakis warns. On the other hand, if successful, the regulation might set the international standard, similarly to GDPR.
“If the EU succeeds in providing clarity and guidance through the Act, EU businesses might be able to leverage ethical models for AI applications that could become the de-facto global reference, giving our companies a decisive advantage over less regulated applications from China or the US,” Toffaletti added.
[Edited by Josie Le Blond]