Focus Areas:    Competition | EU

Is European Competition Law Protectionist? Unpacking the Commission’s Unflattering Track record

Introduction

 

I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!

Donald Trump

When I look into merger control, antitrust control, state aid control, I find no U.S. bias.”

Margrethe Vestager

 

Last month, the European Commission slapped another fine upon Google for infringing European competition rules (€1.49 billion this time). This brings Google’s contribution to the EU budget to a dizzying total of €8.25 billion (to put this into perspective, the total EU budget for 2019 is €165.8 billion). Given this massive number, and the geographic location of Google’s headquarters, it is perhaps not surprising that some commentators have raised concerns about potential protectionism on the Commission’s part.

This is nothing new. Critics have long argued that European competition law has been used to shield European industries from their large American rivals. From the notorious decision to block the GE/Honeywell merger in 2001, to more recent enforcement activities in the tech sector, every European intervention against a US company tends to usher in a fresh wave of accusations.

This criticism has come from both sides of the US political aisle, and both Donald Trump (quoted above) and Barack Obama have led the charge during their respective Administrations. Referring to European investigations against US tech companies such as Facebook and Google, then President Obama famously decried that:

Sometimes their vendors—their service providers—who can’t compete with ours, are essentially trying to set up some roadblocks for our companies to operate effectively there. We have owned the Internet. Our companies have created it, expanded it, perfected it, in ways they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is designed to carve out their commercial interests.

But is there any merit to these claims of protectionism? A quick look at the monetary penalties assessed by recent decisions of the European Commission reveals that its enforcement activities (under article 101 and 102 TFEU, excluding cartels) have disproportionately affected US companies. Since the entry into force of Regulation 1/2003 (the main piece of legislation that implements the competition provisions of the EU treaties), US companies have been fined a total of €10.91 billion by the European Commission, compared to €1.17 billion for their European counterparts. On its face, this seems to stand in stark contrast to the findings of a recent study by Anu Bradford, Robert Jackson, and Jonathon Zytnick, which rejects claims that EU merger control is biased against US firms (findings that are certainly bolstered by the Commission’s condemnation of the contemplated merger between Siemens and Alstom).

As we explain, the harsh fines inflicted upon US firms are not necessarily evidence of protectionism.

Instead, they are likely a result of the Commission’s decision to focus significant attention on the tech sector. Because the vast majority of large tech firms are US-based, all else equal, it is to be expected that the majority of investigations and enforcement actions would involve US firms. At the same time, for reasons also discussed below, the Commission’s tech-industry focus may tend to lead to larger fines when infringements are found.

Nevertheless, some caution is warranted with this conclusion. It bears noting that the Commission is a political body, and, as we discuss below, it is hardly structured to be immune to domestic political influences that may tend toward protectionism. The decision to prioritize enforcement in the tech sector is not taken in a vacuum. Whether this policy preference is down to legitimate concerns about high-tech markets or to (potentially unconscious) protectionism is almost impossible to tell. Similarly, neither a finding of infringement nor the magnitude of the fine imposed is mechanical: Even if its outcomes generally correspond with the expected outcomes from a country-neutral, tech-sector focus, the specific decisions the Commission makes, as well as the magnitude of the fines it imposes, may show a protectionist bias. Without a more robust statistical analysis it is impossible to rule out entirely the possibility that these decisions are influenced by a protectionist impulse, as well.

Click here to read the full issue brief. 

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