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Compliance Costs Could Pose Challenges for Chinese Tech Companies Amid European AI Rules

Chinese tech companies, compliance costs, European AI rules, hamstring



The European Union’s Artificial Intelligence Act is set to be implemented on August 1. While the act aims to protect democracy, fundamental rights, environmental sustainability, and the rule of law, it will also result in increased compliance costs for foreign companies looking to do business with the EU. Chinese companies, in particular, are expecting to face higher expenses and additional time commitments to ensure compliance with the AI act.

AI innovation has been advancing rapidly, surpassing regulatory measures. OpenAI’s release of its ChatGPT AI tool in 2022 prompted several countries and trade blocs to rush to develop legislation to govern the use of AI. The EU’s AI Act encompasses 12 main titles, addressing prohibited practices, high-risk systems, transparency obligations, governance, post-market monitoring, information sharing, and market surveillance. Notably, the act does not regulate AI systems and models used in scientific research and development to avoid hindering their groundbreaking impact in this sector.

Non-compliant companies will face substantial fines, with administrative penalties reaching up to €35 million (US$38 million) or 7% of the companies’ worldwide annual turnover for the preceding year, depending on which is higher. Law firm Harbottle and Lewis partner, Emma Wright, acknowledges that the EU AI Act is the world’s first significant attempt to regulate AI. However, it remains to be seen whether the cost of compliance will stifle innovation or if the act will establish an effective AI governance model that can be exported by the EU.

While the EU’s AI Act seems like a step in the right direction, there are concerns about its potential to quickly become outdated due to the rapidly evolving nature of AI technology. Considering the speed at which AI progresses, as demonstrated by the launch of generative AI last year, the timeframes for implementation could make the AI Act obsolete sooner than anticipated. It is crucial for regulatory authorities to stay abreast of AI advancements and continually update the legislation to ensure it remains effective in addressing emerging challenges and risks.

Additionally, foreign companies, especially those from China, are likely to face significant challenges and increased compliance costs when doing business with the EU. These added expenses may have a negative impact on foreign investment and trade relations between China and the EU.

It is important for companies to start preparing for compliance with the AI Act as soon as possible. Conducting an internal assessment of AI systems and practices to identify and address any potential non-compliance issues can help streamline the process. Companies should also consider partnering with AI compliance experts or legal professionals who can provide guidance and support throughout the implementation phase.

While compliance with the AI Act may involve higher costs and additional efforts, it is essential to recognize the purpose behind these regulations. Protecting democracy, fundamental rights, and the environment are crucial for the long-term sustainability and ethical use of AI technology. By establishing clear guidelines and governance principles, the EU aims to foster responsible AI innovation that benefits society while minimizing potential risks.

Overall, the EU’s Artificial Intelligence Act represents a significant step toward regulating the use of AI and addressing its potential impacts on society. However, it is an ongoing process that requires continuous monitoring, updates, and adjustments to keep up with the rapid advancements in AI technology. Balancing the need for compliance with fostering innovation will be a key challenge for both regulatory authorities and companies operating within the EU.



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