Competitive Europe and the Regulation of Artificial Intelligence (AI) and Other Emerging Technologies? Principles of Better Regulation in the Context of AI and the Future of Better Regulation

THE CHANCELLOR OF JUSTICE OF THE GOVERNMENT OF FINLAND, DR. TUOMAS PÖYSTI AT THE MEETING OF THE EU DIRECTORS AND EXPERTS OF BETTER REGULATION, HELSINKI 27 JUNE 2019. BACKGROUND NOTE TO A SPEECH.

Competitive Europe and the Regulation of Artificial Intelligence (AI) and Other Emerging Technologies? Principles of Better Regulation in the Context of AI and the Future of Better Regulation[1]

Dear Chairperson, dear professionals and friends of Better Regulation,

1. It is a pleasure for me as the Chancellor of Justice of the Government of Finland to address this competent audience with the mission of better regulation. The European Union is expected by citizens to deliver better, the Union is expected to be inclusive and engage citizens, businesses and other stakeholders to participation. Better regulation is an important tool in that. According to the Presidency Programme of Finland’s Presidency of the Council of the European Union transparency, better regulation, involvement of citizens and respect for the principles of subsidiarity and proportionality are crucial for strengthening trust in the EU.  Continuation of an ambitious better regulation policy and agenda helps the European Union to deliver the strategic agenda for the 2019-2024 agreed by the European Council on 20 June 2019, in particular in the development of the economic base of Europe and European competitiveness, strengthening and deepening of the internal market and addressing digital revolution.  
2. Purpose of this presentation is to give some insights into the future needs and possibilities of the European Union work and policy on better regulation, particularly in the light of the regulation of Artificial Intelligence (AI) and other emerging technologies and the competitiveness of the European model and European businesses.  My conclusions are that the Better regulation agenda should built on the elements and consolidation of the experiences of the Better regulation policy during 2014-2019 and continue to systematically use and develop the European Commission better regulation toolkit.  An ambitious Better Regulation Policy is one way to ensure that in line with the new Strategic Agenda for 2019-2024 the Union institutions focus on what really matters.^[i] An up-to-date Better Regulation agenda also seeks to maintain qualities of rule of law and effective realisation of human rights. Also sustainability and perspectives of the future generations should be present in the ambitious future Better Regulation Policy. A clear commitment by the European Parliament, the Council including impact assessment of their texts and the Member States are needed to secure functioning and competitive regulation in the digital field. Better regulation work needs increasingly networking with other international institutions such as the Council of Europe and OECD and with different expert networks in the Member States. There are significant risks of fragmentation of the legislation and of the internal markets concerning AI and other emerging general purpose technologies which are disruptive and not limited to specific established markets, products and services. Therefore, legislation should be general acts with wide scope of application. In digital economy specific features are significant returns to scope and network effects, significance of data, competition between platforms and ecosystems. These all require revised legislative and regulatory approaches.

1. Introduction: Chancellor of Justice in the legislative and regulatory governance and the results of the European Union Better Regulation Policy

1. My perspective to better regulation is that of a European Union Member State general constitutional oversight institution which has a specific constitutional role in the general oversight of legislative preparation (law-preparation) and processes and, in the legislative and regulatory governance. The Chancellor of Justice of the Government of Finland is pursuant to the Constitution of Finland the Supreme Guardian of the Law (in Finland), and additionally Independent Legal Adviser of the Government attending all Government (Cabinet) sessions. The specific constitutional remit of the Chancellor is to to ensure legality of the official action of the Government and the President of the Republic (Constitution Act section 108).  Oversight and proactive steering of the realisation of the fundamental rights and international human rights in Finland is an important dimension of the constitutional mandate of the Chancellor of Justice. One of the specific constitutional functions of the Chancellor of Justice is the prior control of the constitutionality of the draft legislation and Government legislative proposals, and, the oversight of the law-preparation and the observance of the good law-preparation practise and legislative preparation procedures including openness and participation to procedures of preparation. The Chancellor of Justice reviews proposed legislative bills and the preparatory procedure in their entirety. The Chancellor pays particular attention to the constitutionality of proposal including the realisation of fundamental and human rights, and whether the proposal gives sufficient and reliable information-basis for the Parliament to use its legislative power and to openness and to the realisation of the rights of participation in the preparation process. Additional specific focus issues in the review are taking into account the European Union law, international law and the margin of appreciation they leave for the national legislator and the coherence of legislation in the legal order. The observance of the good law-drafting and law-preparation practices including taking appropriately into consideration the opinions of Finnish Council of Regulatory Impact Analyses is also a systematically supervised in the prior review by the Chancellor.[ii]
2. The Chancellor of Justice is a general overseer of legislative & regulatory governance and legislative quality adding to the work done by a specific independent control body of impact assessments in Finland, the Finnish Council of Regulatory Impact Analyses. The services of the Chancellor of Justice have also actively contributed to the instructions and guidelines on the law-drafting and regulation.[iii]
3. The input to legislative governance by the Chancellor of Justice is enriched by the orientation in the general legality oversight and oversight of the fundamental rights and international human rights towards structural issues of the realisation of rights and societal fairness. Among structural issues to which the Chancellor focuses are the rights of future generations, which are significant part of the fundamental right to environment but also a more general angle into the realisation of rights. The constitutional oversight reviews then taking duly into consideration and balancing with today’s needs the rights of the future generations in legislative preparation and public policies. Specific issues of the rights of the future generations relate to the climate change and biodiversity.  An additional focus area is the digitalisation and automation of decision-making in public tasks and functions. Here the Chancellor’s services develop proactive oversight including the general prior control of legislative proposals.[iv] Finally, the general legality oversight of the courts of law and with proactive guidance the public authorities and all those charged with public tasks, and additionally the attorneys-at-law and licensed lawyers give a root level citizen and end-user insights into the realities of and problems resulting from the incoherence and caveats in legislation.
4. I warmly recommend all Member States to have legislative and regulatory oversight institutions with strong and independent mandate, including general institutions providing back-up for the specific better regulation authorities such as the Finnish Council for Regulatory Impact Assessment, and a wide networking of these institutions and general institutions being their guarantors of effectiveness.
5. The discussions held in the Council under the Romanian Presidency of the Council of the European Union and the stocktaking of the better regulation policy by the European Commission are the starting point of my reflection. The Romanian Presidency has summarised the results of the discussion that an ambitious better regulation policy shall continue to be a priority for the European Union with continued work with the quality of impact assessments and performing more ex-post impact assessments,, promoting the use of the innovation principle, focusing on digitalisation and making new regulation digital-by-default and future-proof. The traditional EU topics such as the principles of proportionality and subsidiarity, simplification of legislation, improving access to information bearing in mind the needs of the SMEs and also continuation of the work on the regulatory fitness programme REFIT and improving REFIT Platform continue to be on the Union Better Regulation Agenda. Finally, an important topic raised is the implementation and enforcement of legislation. [v]
6. I see the future of work on better regulation very much as a continuation of the work already done and as consolidation of the fruits and experiences of the approaches already taken. I endorse on my perspective the agenda shortly summarised by the Romanian Presidency. The overall evaluation of the results of the European Commission Better Regulation policy is positive and, it is more systemic & comprehensive and has produced more results than many of the national better regulation policies including the width of the impact assessments. I will simply comment on some specific challenges on the innovation principle and digitalisation with digital by default -idea.

2. Demand and Scope for European Union Better Regulation Policy

1. The European Union has done a remarkable journey on better regulation. Union started the work on better regulation as part of the issues of the quality of legislation and redefinition of what is good government and good governance in the European Union multi-level governance context, and of the Union’s capacity to deliver tangible results. The Juncker Commission in office 2014 – 2019 has had a broader focus in its Better Regulation Agenda, which addresses three different foundations for the legitimacy of the Union: (a) the performance as delivery of the policy objectives, (b) open participation to decision-making process, and (c) the subsidiarity and proportionality of the Union action. The Commission committed itself to a principle of evidence –based and knowledge based policy making whereby the Union will only act when it adds value and where impact assessments are integrated into the policy-planning and policy-making process. These are still highly valid demand factors, also in relation to AI and other digital technologies.
2. The Better Regulation Policy did not specifically mention a fourth significant source of legitimacy, the correspondence with values which are and are felt common by the citizens and target groups of legislation. Ultimately the last point is related to fundamental rights and human rights, one of the core values on which the European Union is founded. The consideration of the human-centric AI and building trustworthy, transparent system under human control and the having human rights by design and default in the AI based and other digital systems. There is a case to expand the scope of the work for better regulation in order to avoid fragmentation to separate, non-consistent discourses while maintaining the specific focus on competitiveness with economics-informed angle.
3. One of the priorities of the Presidency Programme of the Finland’s Presidency of the Council of the European Union is to contribute to more competitive but also socially fair, inclusive and sustainable European Union. Single Market, rule-based free trade and up-to-date, high quality legislation are guarantors of common competitiveness of the European Union. The Union’s legitimacy rests on the Union’s ability to provide socially, ecologically and economically sustainable welfare. [vi] Future Better Regulation policies can and, should address these objectives, which also are highly relevant for the emerging new technologies. Best Regulation Policy and Agenda need to move beyond the technical competitiveness and the comprehensive and integrated approach stated in the European Commission Better Regulation principles needs to be strengthened.  The work on the Member States should also be integrated into the work done at the Union Institutions since the legislative and regulatory environment consists of Union and Member States rules. 

3. How can legislation and regulation related to AI be digital-by-default and innovation friendly?

1. Digital technologies in general and particularly the artificial intelligence (AI) are disruptive and transcendal to business models and administrative organisation and change also social behaviour. This disruptiveness is also an irritating factor to better regulation efforts and thereby a test how far we are ready to go with the idea of innovative legislation and innovation principle, enabling legislation and future-proof legislation. These are right principles. But do we know what they mean and are we ready to take this path? The Union’s general problem is that we speak a lot and do to little so taking this engagement of future-proofing of the legislation is a significant challenge and should be taken seriously. This would also mean taking ex ante and ex post social and technologic impact assessments together with assessments on the realisation of human rights and consequences for competitiveness systematically.
2. AI is a general purpose technology whose application is not limited to a specific domain or market. AI is and will increasingly be one of the defining factors of the digital revolution and the digital age we will live. AI’s full potential lies that it goes together with Big Data, Smart Data and digital networks and digital platforms and leads to disruptive and transformative changes in business models across markets of different products and services, ways in which public administration delivers and in the way of life of ordinary individuals.[vii] Addressing regulatory and legislative needs for AI will be a test case for strengthening and deepening of the Single Market bearing in mind that Digital Single Market is still an incomplete project and there are considerable fragmentation in the digital markets.
3. As a general purpose technology with transformative capacities the legal and regulatory issues related to AI cannot be solved only by sectorial legislation but general legal acts and principles with wide scope of application and application together with the evolving competition law and human rights law is needed. The fluidity of application of the AI technologies is one of the rather permanent features of AI and other emerging general purpose technologies and they call for legislation and regulation trough general acts. In better regulation policy it is important to distinguish between general purpose technologies and innovation on limited domains where domain-based or sectorial regulation will still function.
4. Globally there is fierce competition between China, USA and EU in the AI field including systemic and governance approaches. China invests heavily on AI and intends to be a leading actor in the field and aims at acquiring knowledge and to be able to control and influence digital infrastructures on a long term perspective. The Chinese model uses the possibilities provided by large population and a society, where data protection rules are not an obstacle for AI solutions and use of Big data. The Chinese approach also uses AI as a non-transparent mechanism of control and exercise of authority over society and in the service of non-liberal and authoritarian state and requires the AI based solutions like any other technical infrastructure to be also at the service of the state. U.S. does not have a specific governance model except the central role of the software and other tech companies in the development and the freedom provided to private sector actors and the reading of the consumer welfare standard in these terms accompanied with academic and even government-funded research (including the defence community). The U.S. regulatory approach is based, so far, essentially on the fair information processing practises requiring transparency and accountability but not restricting as such any technology or the use of Big data as such, albeit there are differences between U.S. States on data protection provisions. The EU is strongest in the regulatory approach whereas it is weaker software development and investment. The EU has placed rather strict data protection rules at the centre of the regulatory approach and now the discussion is about safeguarding fundamental rights by design and default as well as establishment of ethical AI. Closely related to that is the wider European initiative by the Council of Europe to draft an internationally binding instrument concerning AI. The EU leads the way of thinking about regulation, particularly from the fundamental and human rights perspectives. A good question however is the EU’s ability to enforce its legislative and regulatory standard in global competition and in a situation where most of the software and related platform development activities take place in the U.S. (and China). 
5. The EU General Data Protection Regulation GDPR has an extremely wide scope of application, and despite the efforts on better regulation, the GDPR is very complex instrument, which is complemented by complex national rules as they are still required by the GDPR. The GDPR requires, for example, national legislation on automatic decision-making. This creates significant risks of fragmentation.
6. The General Data Protection Regulation is partly based on pretty old legislative models – it has been called in the academia as old wine in the new bottle. It is also a hybrid compromise representing different European sub-traditions of data protection and privacy; it gives considerable weight to informational self-determination compared to protection of individual integrity. Currently the risk here is a consent inflation, particularly in the context of network of connected sensors such as internet of things where there is no traditional screen as a gate to data collection, and in the absence of clear rules and systems of MyData. In the future interaction with virtual and physical environment and many commercial and administrative transactions take place between AI powered machines or virtual assistants on both side of the transaction. The GDPR is not, without significant interpretation, very friendly towards AI powered consent and consent management. The legislation on the personal data needs to be general by character but significant part of the interpretation shall be context-sensitive based on the risks and also enabling possibilities for realisation of human needs and realisation of fundamental rights and freedoms. Context-sensitivity is also needed to keep data protection law societally relevant and to safeguard also competitiveness by, for example, not creating unnecessary obstacles for the use of data. European Court of Human Rights endorsed approach of the privacy primarily as integrity fits in an easier way with U.S. thinking on Big data and AI powered decision-making than the very strict emphasis on individual self-determination of information.[viii]
7. The better regulation approach following from these observations are two-fold: Firstly, the impact assessment should have a specific look on various dynamic contextual application and include technological impact assessment, also from the perspective of the access to the markets and usability of new technologies and consequences of various legislative and regulatory alternatives. Secondly, in the better regulation work there is a constant need for searching of balance between data protection elements in relation to other interests and of balanced regulatory and legislative option within the data protection law itself. In the case of GDPR the hybrid nature and the complexity of the Union legal act was substantially increased in the compromises within the Council and between the European Parliament and the Council. Here an additional impact assessment and drawing conclusions of it might have been useful. Subjecting modifications made by the European Parliament and the Council to impact assessments before decision-making would be advisable.
8. In the better regulation policy it is important to assess the interoperability of the European legislation and regulation with wider international norms and principles, such as OECD principles on the Artificial Intelligence (OECD, Recommendation of the Council on Artificial Intelligence, 22.5.2019) and Council of Europe conventions and guidelines and, also with U.S. law. Maintaining this global view on competitiveness and regulatory policies on new technologies is also part of the needed work for better regulation.
9. Digital-proof legislation and innovation friendly legislation should tackle some typical challenges. Fluidity, blurring of the boundaries of markets and services and the dynamic nature are characteristics of the AI solutions and, by nature, also required from regulation. Additional challenge is the pace of development where backward looking regulation and legislation would not do any good. There is a compelling case against too sectorial special legislation. Rather, competitive and human rights securing Europe needs legislation setting general principles corresponding to wider international approach to legislation and regulation, and then complementary steering instruments to provide for additional legal certainty. Such additional instruments are standards, certifications, approved codes of conducts and accepted good practises, ethical codes and binding corporate rules provided that the whole system of regulation is capable of relatively fast accommodating new needs and technologic and business solutions. With the complementary instruments it is also important to maintain the fluidity and flexibility. For example, EU environmental law requires on many occasions the use of best available technologies. Similar type of requirement of the state-of-the-art technological solutions are used in the provisions of the GDPR concerning response to risks and on the information security. In the national application of the EU environmental law, however, the best-available- technologies have been interpreted setting rather rigid maximum pollution standards and thereby the flexibility and proportionality in relation each context sought after in the provisions have not realised.[ix] That calls on the inclusion of the view of the enforcement and implementation to the policy planning and law drafting in the Union, and a very close dialogue between Member States and Union is needed to correspond to the principles of better regulation.
10. Fragmentation of legislation leading to the fragmentation of single market is a significant risk and also a current caveat in the Digital Single Market. The internal market is often not a real single market but divided to several national markets or submarkets. This happens very easily in digital and other new technologies. One of the future tasks of the EU work on better regulation is together with Member States to act against fragmentation, to which also digital channels and platforms may also create new tools albeit digital platforms are also a way to really realise Digital Single Market.
11. Fragmentation and complication of the legal provisions appears also in other emerging technologies. The legal protection of the Global Satellite Navigation Systems (GNSS) and the related services from interferences are a good example. Protection of the GNSS and the devices capable of interference are covered by several International Telecommunications Union and European Conference of Postal and Telecommunications Administrations –based instruments, European Telecommunications Standards Institute ETSI standards, and several EU directives (for example the RED, Radio Equipment Directive 2014/53/EU; EMCD, Electromagnetic Compatibility Directive 2014/30/EU; and LVD, Low Voltage Directive 2014/35/EU) and the implementing national laws. Regulation is rather technical and detailed and leaves quite essential national margin of discretion albeit it is of general nature. [x]
12. To understand what is genuinely new and what is only interpretation and restatement of old legal principles in a slightly new environment is a genuine challenge. Discussion and documents about digital rights shows that many existing legal principles are simply restated with slightly modified interpretation in the digital environment but there are also genuinely new features. AI accelerates digital economy and digital society, which have some fundamentally distinctive features: the emergence of digital platforms as a model of business, administrative and civil society organisation, role of the ecosystems to business and competition between platforms and ecosystems as one of the primary frontiers of competition and the decisive role of various types of data. Digital economies are shaped by relatively extreme returns to scale and network effects (network externalities) where the value for participants depends on the number of other users on a platform and surrounding ecosystem. Access to various types of data is one of the critical success factors giving competitive advantage. The standards to assess consumer welfare in competition law, effects on prices and pricing and assess the impacts of technology and regulation to productivity needs to be re-considered as well as thinking what is a  definition of a market at hand.[xi] For productivity growth and innovation the ability and ease to enter to the markets with new products and services and capacity to bring in new innovations continues to be a driver for competitiveness, and therefore these aspects should continue to have high status in the impact assessments and in the Better Regulation Policy in general. [xii]Platforms may be concentrating and monopolistic. Therefore, access to markets, possibilities and costs of entry and access to data and data portability and free flow of data together with inter-operability of data and information systems are vital features of truly enabling legislation in the digital society.
13. Success of the AI based solutions and business and societal sustainability of digital markets ultimately rests on the citizen and consumer trust. Sustainable trust depends on the realisation of fundamental rights and freedoms and human rights by design and default as common values in the AI systems. The work for better regulation should broaden to integrate also the work done for human-centric and human rights by design and default approach in which also the CoE is a pioneering actor.

4. The AI and Other Emerging Technologies: Conclusions for the Future EU Better Regulation Agenda

1. The conclusions are that not only the European Commission but also the European Parliament and the Council, and the Member States shall commit together to a common and ambitious Better Regulation Agenda 2019 – 2024. The components of the Commission Better Regulation Agenda and the Better Regulation toolbox used during 2014-2019, as they are updated, are a good point of departure. I have outlined some substantive better regulation principles to provide a framework for competitive legislation:

Good legislation and regulation (modified from Pöysti 2014 and recommendations for Finnish better regulation programme):

1. is based on fundamental rights and human rights and provides optimal conditions for their realisation and effective access to justice
2. is coherent with the rest of the legal system
3. reduces uncertainty costs and unnecessary risk premiums
4. keeps administrative costs and legal transition and learning costs to a reasonable minimum and optimizes compliance costs
5. attains reasonably its objectives (effective) and keeps a proportionate relationships between costs and benefits
6. is based on the assessment of the likely impacts taking into consideration the entirety of the regulatory environment and international regulatory competition
7. seeks to enhance productivity and innovations with knowledge-based arguments; particularly by maintaining functioning threat of entry and exit from the market and reasonable division of power
8. enhances economically efficient allocation of resources and risks
9. enhances sustainability in all its dimensions and takes into account the rights of the future generations
10. enables and supports societal, organizational and individual learning

1. In addition, we need a deepened understanding about the digital environment and the new legislative and regulatory models capable of giving a dynamic balance in those circumstances. We need an enhanced work against legal and market-fragmentation under the Better regulation programme. This requires more involvement and commitment of the Member States. The better regulation work and agenda should also open more to networking with human rights thinking and to networking with other international institutions (OECD, Council of Europe) and take systematically the issues of coherence and interoperability of European regulation on the global level.
2. Needless even to say that the systematic Better regulation work shall cover also the existing laws, also red together with the Member States legislation. The updated REFIT Programme and REFIT Platform would be useful. The work here could also benefit from the AI based solutions. In the private sector, in the various information retrieval services and recently also in some experiments in Finland the AI has proven to be a good tool in the production of consolidated texts and as assistance to law-drafter and law-maker. The European Union could lead the way in digital access and AI powered digital drafting as well as in the development of a Single access to justice platform for the enforcement of the Union rights. Only then could we say that we Digital Single Market with Digital Rights.

Notes and references