The development of artificial intelligence has become a global race led by the United States and China. Both are investing enormous sums in new technologies, while the European Union is trying to strike a balance between innovation and mitigating the risks associated with it.

Europe's approach is easy to criticize because decision-making processes are often slow. This is particularly evident with AI, where technology advances faster than lawmakers can agree on new rules.

At the same time, it would be a mistake to assume that Europe should abandon regulation to remain competitive. Clear and transparent rules are beneficial because they make the investment environment trustworthy and predictable. However, Europe must be able to offer opportunities for innovation alongside regulation, and that is where Estonia could have a distinct advantage.

How can regulation become an opportunity?

The European Union's Artificial Intelligence Act, or AI Act, establishes rules for developing and using AI. Less attention has been paid to the fact that the legislation also provides for the creation of AI regulatory sandboxes.

These sandboxes allow companies to develop new solutions under controlled conditions with guidance from competent authorities while also determining how to comply with existing requirements. By August 2027, every EU member state must have at least one national-level regulatory sandbox in operation.

Spain completed the first such pilot program in June of this year. Companies worked with experts and government agencies to verify whether their solutions complied with EU requirements and identify shortcomings before bringing products to a wider market. This is valuable because it reduces the risk of having to make costly changes later.

Estonia could also take inspiration from Singapore, which has created an international testing environment that brings AI developers together with companies that assess the reliability and safety of their solutions. The 2025 pilot program involved 17 users of AI applications and 16 testing companies. One of Singapore's goals is to build AI testing into a new business sector in which local service providers can also serve international clients.

A small market as a competitive advantage

Estonia has spent years building its international reputation as a digital nation. We have advanced digital public services, a small domestic market and extensive experience in adopting new technologies. We could now use those strengths much more strategically.

Nor should we limit ourselves to AI. Around the world, new technologies and solutions are constantly being developed, and existing rules and frameworks may not always be flexible enough to accommodate testing.

Whether it involves innovative medical devices, autonomous transportation systems or entirely new financial services, Estonia could create a cross-sector regulatory sandbox where companies can work with public authorities to test ideas in real-world conditions.

Our market of 1.3 million people could be particularly well suited for this purpose. New solutions could be piloted here on a smaller scale. If successful, they could then be expanded and introduced to larger markets. Companies investing in research and development in Estonia would work with local specialists, establish permanent development units and contribute directly to the economy.

Of course, a small market alone is not enough to attract companies. We must be able to offer something they cannot find elsewhere. Estonia could deliberately build an environment where international businesses want to bring their development activities.

To stand out in international competition, Estonia should provide companies with specific advantages. These could include fast-track permitting procedures for pilot projects, rapid regulatory assessments of compliance and government assistance in identifying suitable partners.

Equally important is proactive international communication. Estonia should actively promote these opportunities to technology companies, investors and research institutions. The goal should be to help companies move from concept to real-world testing as quickly as possible, without compromising safety or the protection of individual rights.

Successful cooperation could, in turn, lead to larger contracts, more foreign investment and the establishment of permanent development centers. That would ensure that a meaningful share of technology development and the value it creates remains in Estonia's economy.

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