EU Regulations Threaten Global Economy

While one might imagine that the actions of European regulators (search) do not have much impact on the lives of American consumers and businesses, it is becoming increasingly clear that this is not the case.

In recent years, a number of actions taken by European officials have had great ramifications on our nation and should cause us some concern.

Just last week, the European Union Competition Commission (search) announced to Microsoft (search) and the rest of the global economy that they were ready to impose some draconian sanctions on the company as a result of their three year investigation. These sanctions could impact how your computers and software operate.

The Microsoft case is only the latest in a series of decisions in Brussels demonstrating that American and European officials have very different views about the role of regulation and antitrust (search). A few years back, European antitrust officials blocked the merger of two American companies, GE and Honeywell, which had been given the green light by American officials. Additionally, EU officials levied huge tariffs on American produce in what many have labeled the "banana wars (search)," hurting American farmers and businesses.

Recently, the Europeans have imposed a moratorium on genetically modified food produced by many American companies. U.S. Trade Representative Robert Zoellick (search) said, “[t]his trade barrier harms farmers and consumers around the world by denying them the benefits of productive, nutritious and environmentally friendly biotech products.”

In the Microsoft case, the EU’s announcement made clear that they were prepared to impose not only harsh financial penalties (up to 10 percent of Microsoft’s annual sales), but also require the company to disclose proprietary technical data (search) to its competitors and to place restrictions on the companies ability to distribute its own media player software.

What makes the developments in this case most disturbing is the role of a few Microsoft competitors. It is hard to imagine anything more unseemly than a few powerful American companies running to foreign governments encouraging them to target another American company. It is particularly disturbing when these companies ignore the resolution achieved in the U.S. courts and run overseas hoping to get the Europeans to impose more radical sanctions than those accepted by their own government.

Here in the U.S., the initial judgment ordering the break up of the company was overturned and a fair and reasonable settlement was reached with the Department of Justice, State Attorneys General and Microsoft. The settlement has led to significant changes in the way Microsoft does business and Microsoft is now the most regulated high-tech company in the world.

While it would be in everyone’s best interests for the matter to end there and for settlement compliance to move forward, some are not satisfied. A few powerful competitors of Microsoft, including Sun (search), Oracle (search), and Real Networks (search), have tried to find every venue possible to inflict legal punishment on Microsoft. They lobbied the Justice Department to go after Microsoft, they lobbied state attorneys general to oppose the settlement, they have filed private antitrust actions and now they are pushing for the EU and other foreign governments to punish Microsoft. When one venue does not work for these competitors, they turn to another.

Judge Kollar-Kotelly (search), after reviewing many of the same sanctions being proposed by the EU, said they were nothing short of “market engineering” and that “[c]ertain of Microsoft’s competitors appear to be those who most desire these provisions and, concomitantly, are the likely beneficiaries of these provisions.” Judge Kollar-Kotelly even pointed out that many of these proposals were “not supported by any economic analysis.”

It is understandable that the Europeans do not feel bound by decisions made in U.S. courts and may pursue their own policies. However, it will be completely counterproductive to the entire global economy if a decision in Europe destroys years of work in the U.S. to resolve this case and bring it to a close. The remedies discussed by the EU could literally undue the entire settlement reached here in the United States and effectively mean their rulings on an American company will supersede our own laws.

That development should send shivers down the spine of every multinational business and the world’s consumers who are faced with a patchwork of laws and regulations that could make global commerce more difficult. This could slow innovation, make goods and services more expensive and reverse years of progress made by carefully negotiated trade agreements.

The specifics of what the EU is calling for should be of particular concern to everyone. The technical disclosures and media player requirements proposed by the EU are most disturbing because they completely ignore the fact that Microsoft has spent billions of dollars developing its technology and now a group of competitors will get it for free. This would result in denying Microsoft the benefits of its own intellectual property (search) and a return on its investments.

If the EU can step in and force a company to disclose the fruits of its labor, what is the incentive for others to take risks and develop new technologies? The minute they are successful, a competitor will run to the EU and complain until some action is taken. As a result, consumers and the economy will see great harm.

Antitrust in this country is supposed to be about protecting consumers. It appears the EU thinks that protecting the competition is more important than protecting the consumer. Allowing U.S. based competitors to use the EU as a forum to retry Microsoft shows the extremes they will go. This is where the United States should vocally disagree with Europe.

Since the Europeans began their investigation, the market has moved on and many of the concerns are no longer relevant. In the server market, which the EU was concerned about, Linux (search) has been rapidly increasing its market share. Unfortunately, the EU seems poised to enact draconian remedies in 2003 to address a market that existed in 2000 but no longer does today. Overzealous regulations that are years behind the market will only result in harming the industry and consumers across the globe.

It is obvious from this case, and a number of other disputes, that some resolution needs to be reached between the U.S. and EU regulators. Aggressive regulation and intervention by the EU will have dire consequences for our economy and we need to act now.

Jim Prendergast is the executive director of Americans for Technology Leadership.