The EU’s new Artificial Intelligence Act (also known as AI Act) has far-reaching implications, impacting companies across all sectors that develop or deploy AI in the EU, as well as those using AI systems that produce outputs affecting EU residents. Several participants in the EU’s AI value chains are affected by the implementation of the world’s first AI regulation, approved by EU lawmakers on March 13.
The AI Act expands the definition of an “AI system” to encompass any autonomous machine-based system that “infers, from the input it receives, how to generate outputs.” It also extends to “general purpose AI models” which represent key building blocks of AI systems with broad applications.
AI systems are categorized according to the potential harms they may cause. This includes “high-risk AI systems” used in critical infrastructure, employment, environment, credit scoring, election, border control, and health, among others. The actors in the AI value chain are faced with increased compliance requirements for developing, using, or distributing these high-risk AI systems.
A “provider,” who stands at the center of the AI value chain as the developer of the AI systems, must meet stringent compliance requirements throughout the development and use lifecycle, including conformity assessment, risk management, and registration in an EU database.
The AI Act applies even to non-EU “deployers” who operate AI systems producing output used in the EU. These deployers face stringent requirements including data governance, monitoring of AI performance, ensuring staff’s AI literacy, and notification of material malfunction to other parties in the AI value chain.
The Act also encompasses the roles of “product manufacturers,” “importers,” “distributors,” and “authorized representatives,” with each having their respective obligations.
With the increasingly ubiquitous role AI is set to play in product offerings, US companies must critically examine their positions within the AI value chain, which products they distribute, operate, or otherwise provide output used in the EU, and how their AI systems are classified.
The AI Act imposes considerable fines: up to 35 million euros or 7% of global turnover for prohibited AI practices, and up to 15 million euros or 3% of global turnover for violation of a party’s obligations within the AI value chain, therefore, US companies must tailor their product design and compliance mechanism accordingly.
Considering the size and strategic importance of the EU market, US-based companies must comply with the AI Act or risk losing the right to promote their offerings in the EU. The prevailing wisdom emerges: AI won’t replace your products, but products with AI governance will replace those without it.
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