📢EU COMPETITIVENESS AND THE AI ACT: DEVELOPMENTS & CHALLENGES

The European Union's regulatory approach to artificial intelligence (AI) is undergoing continued scrutiny as the AI Act enters its implementation phase. While the EU positions itself as a global leader in AI governance, concerns persist regarding the impact of regulatory frameworks on innovation and competitiveness.

This article examines key legislative developments, potential amendments, and industry concerns surrounding the AI Act and its implications for European businesses.

Potential AI Act Re-Opening and Legislative Review

The European Commission has confirmed that the AI Act will be included in its upcoming digital package, with an impact assessment expected by the end of 2025. Lucilla Sioli, Director of the AI Office, has clarified that this will not constitute a "big review" but will focus on simplifying compliance for small and medium-sized enterprises (SMEs). The assessment is expected to examine intersections between the AI Act and other legislative frameworks, though it remains unclear whether this will result in a formal reopening of the Act. The Commission has also announced a broader review of digital regulations to evaluate whether they adequately address business needs, particularly for SMEs and small midcaps. However, Commission spokesperson Thomas Regnier has not confirmed any concrete plans to amend the AI Act itself.

Ensuring Europe's Competitiveness in AI

A recent paper by the European Tech Alliance, Ensuring Europe's Competitiveness, underscores the importance of fostering AI innovation while maintaining fair competition and proportionate regulation. The paper advocates for an AI framework that avoids excessive barriers to entry and ensures that AI rules work effectively for businesses of all sizes. To achieve these goals, the Alliance recommends:

Limiting the scope of regulations to general-purpose AI (GPAI) providers
Ensuring appropriate documentation requirements without excessive administrative burdens
Avoiding mandatory participation in standards-setting processes
Implementing ad-hoc external assessments rather than broad compliance mandates

These principles aim to ensure that the AI Act remains practical and conducive to innovation while maintaining regulatory clarity and fairness.

Algorithmic Discrimination and GDPR Challenges

One of the most debated aspects of the AI Act is its interplay with the General Data Protection Regulation (GDPR). Stefano De Luca from the European Parliamentary Research Service has highlighted tensions between the two frameworks, particularly regarding the processing of special categories of personal data. While the AI Act permits such processing under certain conditions to mitigate algorithmic bias, the GDPR imposes strict limitations on handling sensitive data. This discrepancy creates legal uncertainty, especially for AI systems that rely on large-scale data processing across various sectors. Addressing these inconsistencies may require legislative amendments to the GDPR or additional regulatory guidance to clarify compliance obligations for AI-driven businesses.

Calls for a Bolder EU Tech Strategy

Despite concerns about regulatory burdens, some analysts argue that the EU should take a firmer stance on enforcing its tech laws. Mario Mariniello, a non-resident fellow at Bruegel, contends that claims of over-regulation are overstated, with investment challenges in Europe primarily stemming from skilled labour shortages, energy costs, and economic uncertainty—rather than regulatory constraints. He suggests that instead of softening regulations, the EU should:

Strengthen enforcement of the Digital Markets Act (DMA) and Digital Services Act (DSA)
Enhance antitrust and merger control measures to promote fair competition
Refine the GDPR to reduce undue compliance burdens on smaller firms
Reinforce the AI Act to ensure a robust ethical framework for new technologies

Mariniello argues that a well-enforced regulatory system will ultimately enhance EU competitiveness by providing long-term stability and fostering investor confidence.

SMEs and AI Act Compliance

A review by the Future of Life Institute emphasises the AI Act’s significant focus on SMEs, mentioning them 38 times compared to 7 references to 'industry' and 11 to 'civil society.'

Key provisions designed to facilitate SME compliance include:

Regulatory sandboxes offering free access and testing support
Proportional assessment fees to minimise financial strain
Simplified documentation processes tailored for smaller businesses
Dedicated communication channels for compliance assistance
Proportional obligations for general-purpose AI model providers based on their business scale

These measures aim to strike a balance between maintaining high AI governance standards and ensuring that SMEs are not disproportionately burdened by compliance costs.

Copyright Loopholes and AI Act Criticism

A major concern recently raised by MEP Axel Voss, a key architect of EU copyright law, is the AI Act’s perceived failure to adequately protect intellectual property rights. Voss and 15 cultural organisations have criticised the legislation for leaving creative professionals exposed to mass data harvesting by AI systems. Specifically, concerns stem from a text and data mining exemption that was originally intended for limited personal use but may now enable large companies to exploit vast amounts of copyrighted material. This issue highlights ongoing challenges in aligning AI regulation with existing copyright frameworks, potentially necessitating further legislative refinements.

Conclusion

The EU’s approach to AI regulation continues to evolve amid growing concerns about competitiveness, legal clarity, and compliance burdens. While the AI Act is a landmark regulatory framework, its interaction with existing laws, particularly the GDPR, and its implications for SMEs and AI innovation remain key areas of debate. Moving forward, EU policymakers must strike a delicate balance—ensuring high ethical standards and legal certainty while fostering an environment where European AI companies can thrive on the global stage. As the impact assessment unfolds in 2025, businesses should stay informed about potential legislative adjustments and prepare for emerging compliance requirements.