Innovation Instead of Imitation: Brazil Needs a Brazilian Approach to Digital Markets

Editor's note: This article appeared in the Brazilian magazine Estadão.

Europe’s digital model may not be the best fit for Brazil. Bill 2768/2022, mirroring the European Union’s (EU) experimental Digital Markets Act (DMA), could potentially hinder innovation rather than ignite it. Brazil’s digital landscape calls for a culture of innovation, not borrowed blueprints of unnecessary intervention. Fortunately, the National Congress still has time to consider the possible broader effects of such a bill before it is finally adopted.

As a general principle, ex-ante regulation is only justified in the presence of market failure. However, the Brazilian digital market is incipient, vibrant, and poised for a ‘digital transformation’—it does not currently display any signs of market failure. As such, the Brazilian economy would be better served by fostering a climate where innovation and competition can naturally thrive, and which relies on existing competition laws to address potential concerns rather than embracing experimental foreign regulations.

However, even in the face of market failures, the bill would likely not be effective for a number of reasons. First, the bill is overly broad and open-ended both regarding its definitions and the obligations imposed on digital platforms. Like the DMA, the Brazilian bill introduces a sweeping regulatory framework with objectives ranging from economic development to the promotion of innovation. As such, the bill generally lacks a well-defined goal set, which risks fostering arbitrary enforcement and stifling legitimate business practices. In other words, by casting the net too wide, Brazil risks overreach by extending beyond competition-focused goals and delving into broader societal and economic objectives.

Second, Brazil’s proposed digital regulation may increase regulatory fragmentation by overlapping and conflicting with existing regulatory regimes. Specifically, the bill allocates powers to three agencies–Anatel, CADE, and the ANPD—in overseeing digital platforms. This bureaucratic triangle creates risks about the coordination and consistency of enforcement practices. Make no mistake, this leads to confusion and increased costs on business—hindering the effectiveness of the overall regulatory framework.

Third, the bill encompasses an overly broad spectrum of companies by defining digital platforms with “essential control” as companies with annual gross revenues exceeding BRL 70 million in services to Brazilians. By some estimates, it would impact at least 187 digital service and e-commerce companies in Brazil. Thus, this might inadvertently stifle innovation and hinder market entry for smaller players. Even the EU’s DMA takes a more nuanced approach, targeting only the largest digital players (the “gatekeepers,” Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft) who provide core platform services.

Fourth, the Brazilian bill’s chilling effect on innovation stems primarily from its ambiguous restrictions on otherwise generally procompetitive practices like refusals to deal and self-preferencing. This vagueness creates a wide window for interpretation, potentially deterring businesses from innovation and ultimately harming both consumers and the market.

Brazil is better served by taking a cautious approach to digital regulation. The National Congress should first assess whether there is concrete evidence of market failure in Brazil’s digital markets, as well as study the DMA’s impact on Europe’s digital economy and consumers before it follows the EU in a regulatory race to the bottom.

Furthermore, in the event Brazil decides to push forward with legislation, the Congress should consider a more narrowly tailored regulation to avoid undue burdens on smaller enterprises, as well as take steps to avoid potential conflicts and overlapping enforcement practices among multiple agencies. The National Congress should also strongly reconsider the obligations related to refusals to deal and self-preferencing, and instead aim for a more competition-focused and balanced approach that avoids stifling innovation and harming the positive effects of robust competition.

The National Congress faces a stark choice: hinder innovation with unnecessary regulations or unleash Brazil’s digital potential. Choosing wisely means prioritizing competition, fostering agility, and crafting bespoke solutions for its unique market. It is time to choose innovation over imitation.