Economic Policy

The European Union Takes on American Technology Firms

Google has been the latest American technology firm to earn the ire of the European Union with its $5.1 billion fine, following closely after Apple and Microsoft. Federica Russo argues that the EU is doing what the US government is perhaps unwilling to do- regulate the technology companies' growing power.

BY: FEDERICA RUSSO

It is the middle of the summer but despite the high temperatures, there is a cold wind blowing over the European Union and the United States’ relationships that could turn into a storm. In recent days, the tense situation linked to the commercial duties already imposed by the US administration, was exacerbated by the charges brought against Google.

The Mountain View giant was hit with a $5.1 billion fine by the European Commission alleging that Google abused its dominant position by laying down conditions on European operators, which are not in line with the Community Law on this subject. According to Margrethe Vestager, the EU’s competition commissioner, Google has used the Android system to enforce its dominance as a search engine by undermining the field of competition through the pre-installation of Google Chrome and Google Search applications in order to obtain the license related to the Google Play Store.

In the past, other American companies have been addressees of Commission measures for anti-competitive practices. Specifically, in 2016 Apple was ordered to pay $13bn to the Irish government, which allowed the tech firm to pay lower tax rates in the framework of a deal classified as illegal state aid. In 2013, Microsoft was hit with a $730bn fine by the European regulators for failing to honor an agreement reached at the end of the 2009 investigation into the link between the Internet Explorer and Windows.

Entering new markets is often associated with greater opportunities to expand horizons and gains but it always entails adapting company strategies and the organization to different political, social, cultural, and legal contexts, all of which have a strong impact on the companies’ objectives. In doing so, not all the firms succeed. As a result, international organizations and companies must develop an analysis of the dimensions that characterize the selected market.

The legal system can significantly impact the company’s decisions as it requires abiding by established rules, laws, and behaviors; companies must oblige and put in place procedures to navigate that foreign business environment. This bureaucratic machinery is more or less complex depending on the political apparatus it is modeled on. Based on the international relationships already established in certain regions, the legal system can dictate how transactions should be carried out by penalizing the market operators, even when they are anchor companies.

What happened to Google is a further demonstration of the fundamental competition policy analysis and its connection with the internal firms’ dynamics. At the root of this policy, boosted in the West by the liberal current, there is the idea that monopoly situations lead to the loss of social well-being by producing a static inefficiency within the market where it becomes necessary to defend the competition between enterprises and the consumer choice by embracing the principle of economic freedom.

In the European Union, the antitrust laws, which must be observed by the European companies, are expressed in the Treaty on the Functioning of the European Union (TFEU):

-Article 101 defines as incompatible with the internal market all the agreements between undertakings and associations of undertakings which can prevent, restrict, or distort the competition by limiting investments, technological progress, production or by dividing the market with dissimilar conditions applied to a different commercial partner;

-Article 102 prohibits the abuse of a dominant position referred to a single firm or to a group on the whole market or on a single part of it. This recalled concept could be linked to the meaning of market power of an enterprise, which identifies the sphere of influence and the possibility of exercise of power similar to that of monopolists.

In spite of the underlined objectives, which relate to the guarantees for social well-being thanks to industrial productivity improvement, there may be strategic reasons behind the measures put in place to support “national champions”, water down foreign competitors, or in response to the decisions made by the political counterparts.

The European move against Google was promptly criticized by US President Donald Trump who has commented on the matter by recalling the “advantages” taken by Brussels. The post written on Twitter seemed to be hinting at the European will to act against the Big G in order to push back the commercial measures imposed by the US. This is a hypothesis that cannot be excluded and that highlights the negative effects of a trade war, which are widespread even in the sectors not directly affected by the duties.

In the meantime, Google has rejected any and all accusations. The CEO Sundar Pichai pointed out the contribution to innovation technology provided by his company. But the EU’s latest moves are indicative of the aggressive curtailment of American tech companies that the regional collective is aiming to achieve. Be it privacy, antitrust or even taxes, the European Union is seeking to do what the United States has been unable to do- regulate technology companies’ unyielding power.


Federica Russo is an Italian student of Business Administration with a focus on Organization Design, Statistics, Corporate Management, and International Economy. With five years of experience in writing articles on world affairs, she is a contributor for the Asian section of “Il Caffè Geopolitico” where she covers articles on Chinese issues. At the moment she is working on her final dissertation analyzing the impact of the BOD composition in the multinational Oil Companies.

Photo: ec.europa.eu

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

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