The EU’s crackdown on “Big Tech” risks US retaliation

By
Pieter Cleppe
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After Elon Musk, Meta founder Mark Zuckerberg has come out against the EU’s digital policies, complaining that “Europe has an ever increasing number of laws institutionalizing censorship and making it difficult to build anything innovative there.” In particular, he lamented that the European Union has fined tech companies more than 30 billion dollar in the past 10 years in what is “almost like a tariff”, adding that the US government, instead of defending American tech, led the attack.

It should be clear that this will no longer be the approach of the US government, now that Donald Trump is in charge, particularly with big tech figures like Musk on his side.

The European Commission is however not planning to change course. Last week, it stated that President-elect Donald Trump’s impending arrival in the White House did not affect its commitment to enforcing its laws on big tech, thereby referring to ongoing cases against Apple, Google and Meta. Thereby, the Commission is investigating these U.S. tech firms under its Digital Markets Act and Digital Services Act. The latter allows the EU to slap fines of up to six percent of a service provider’s annual global turnover, in the name of “fighting disinformation and dissemination of illegal content”.

Also in Europe, discontent about the EU’s overzealous approach to tech has been bubbling up, with former Italian PM Mario Draghi slamming the EU’s flagship GDPR data regulation in a widely publicized report prepared for the EU Commission. Draghi noted that “The General Data Protection Regulation (GDPR) is estimated to have reduced the profits for small tech companies by more than 15 per cent”, thereby adding that “with this legislation, we are killing our companies.” Oddly, the European Commission was just ordered by the EU’s General Court to fine itself for €400 for violating its own GDPR rules, as it had been found responsible for illegally transferring data to the U.S. In the same context, Meta had already been fined €1.2bn, in 2023, for transferring users’ data to the U.S. without adequate safeguards.

Competition policy

Apart from these fines or threats to be fined in the context of digital policy, the EU Commission has also been dishing out record fines to U.S. big tech in the context of its competition policy. Google for example, was fined €2.4bn in 2021 for “market abuse”, as it was found guilty for self-promoting its own shopping service. Yes, in the EU, one can not just promote one’s own products in one’s own shop.

“Antitrust” action was only one way to slap cash out of the pockets of U.S. big tech. The European Commission used the EU Treaty ban on “state aid” to order Apple to pay a whopping 13 billion euros in back taxes to the Irish government, where Apple’s EU operation is headquartered. The argument of the European Commission was that Apple would have received “illegal” tax benefits from Ireland over the course of two decades. After years of lawsuits, the top EU court sided with the EU Commission.

One can make the case that not all tax benefits are open to all companies in an equal manner and that therefore the EU state aid ban can be invoked, but to mostly apply this ban on such grey areas while permitting blatant violations of “state aid” is yet more evidence that the European Commission’s competition policy has become hopelessly politicised through the two terms of Margrethe Vestager, the former EU Competition Commissioner.

Already in 2014, when she entered office, she openly stated that she found it “natural that competition policy is political.” Since then, enforcement of blatant violations of the EU’s ban on state aid has only gotten weaker, with the Commission allowing Italy to bail out banks and France to nationalise a shipyard to prevent an Italian takeover. The “temporary” relaxation of the EU’s state aid ban during the Covid crisis effectively became permanent. At the moment, member states shamelessly hand out large-scale subsidies. Germany and France are the main violaters. Roughly 80 per cent of the state aid which was approved by the EU Commission in recent years is spent by those two member states. Smaller member states have railed against “permanent or excessive non-targeted subsidies” but ultimately, we can only conclude that the EU’s competition policy, which should serve as the bedrock for the EU’s single market, is simply unravelling.  

Turning the ban on “state aid” against private sector investors

The EU Commission’s tendency to pervert the meaning of “state aid” is not only causing macro-economic damage, but it is also hurting people in specific cases. There is for example the case of two Swedish-Romanian brothers, Ioan and Viorel Micula, who invested millions in various food processing and packaging factories in Romania in the 1990s. Thereby, they benefited from a tax incentives scheme, as the investment happened in an economically deprived area.

After Romania decided to scrap the tax incentive scheme in 2005, the brothers legally challenged this, whereby they obtained compensation from an arbitration court, which condemned Romania for violating an investment treaty with Sweden. In 2015, the European Commission however declared that this compensation really amounts to illegal “state aid”, ordering Romania to recover the sums that had already been paid. Surely, instinctively, anyone should find it strange to see the same eurocrats going after “state aid” handed out by a non-EU country (Romania only entered the EU in 2007) while ignoring blatant violations of state aid by EU member states.

It didn’t help the brothers that a private arbitration court sided with them, given the EU’s increasing hostility to arbitration. The case is still ongoing today. After the General Court annulled the EU Commission’s decision in 2019, in 2022, the European Court of Justice (ECJ) sided with the European Commission. In October 2024, on its turn, the General Court sided with the European Commission, against which the brothers filed an appeal in December, thereby arguing that the Commission is misinterpreting and misapplying EU State aid rules. Perhaps something good can come out of the legal ordeal if the top EU court ultimately puts the Commission back into its box.

While it is already problematic for the EU to apply state aid provisions in an inconsistent manner and while undermining international arbitration decisions amounts to hurting international investor confidence, a key problem is that key events in the Micula case arose before Romania’s accession to the EU on 1 January 2007. Therefore, the EU should not have any say over any of this in the first place. In 2022, Nikos Lavranos, an expert in investment law and arbitration, described the whole thing as “overreach of the ECJ”.

Another aspect that can be considered “overreach” is that last October, the General Court declared the brothers to be personally liable for repaying the millions of euros to Romania they had been enjoying as a result of the arbitration ruling. The Court thereby allowed to recover the partial payments from any of the companies owned by the brothers, without having regard to whether the company actually received payments. In other words, even a company that did not enjoy the supposed “state aid” would need to pay it back. The brothers may wel manage to get the ECJ to draw a line in the sand here, as in July 2024, the ECJ already introduced some clear limits to lumping several companies to together as a “single economic unit.” In any case, the episode is illustrative as to how EU Treaty provisions on “state aid”, originally meant to protect fair competition within the EU single market, have ended up being used against the private sector.

Is Trump about to retaliate?

The problem with the attempts by the European Commission and the European Court of Justice to expand their legal influence outside of the EU’s jurisdiction, for example by refusing to apply international arbitration decisions, is that also other jurisdictions are able to do that. Most certainly U.S. President Donald Trump is not exactly shy to consider this.

For the European economy, which is strongly dependent on the international order, this is a massive concern. Only a few days after entering office, Trump has already been blasting EU regulators for targeting US tech giants, describing their cases against American companies as “a form of taxation”, warning “We have some very big complaints with the EU.” Also the ongoing investigations under the EU’s Digital Markets Act against those three companies can lead to fines.

In Europe, there has been relatively little attention for all of this, despite the major repercussions of American retaliation. Ultimately, the EU should simply focus on removing protectionist barriers to trade between national economies in Europe. Lots of progress can still be made there without rattling Europe’s major trading partners.  

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