EU commissioner to White House today: $5.1B Google fine on agenda

Today, July 25, Jean-Claude Juncker, president of the European Commission – the governing body of the European Union (E.U.) – will be meeting with President Trump in the White House.  One of the items on the agenda will be the huge $5.1-billion fine that Juncker's commission just leveled on Google on July 18. 

President Trump was already on the European Commission's case when the commission leveled this fine.  In a July 15 interview, Trump was asked to identify who was the United States' "biggest foe globally right now."  He said:

Well, I think we have a lot of foes.  I think the European Union is a foe, what they do to us in trade.  Now, you wouldn't think of the European Union, but they're a foe.  Russia is [a] foe in certain respects.  China is a foe economically, certainly they are a foe.  But that doesn't mean they are bad.  It doesn't mean anything. It means that they are competitive[.]

After the E.U. Commission fined Google, he tweeted:

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!

The E.U. fined Google for violating an anti-trust statute that is economically unjustifiable and applied discriminatorily against American companies.

Economically Unjustifiable

The law under which the E.U. fined Google (Article 102 of the TFEU) allows the E.U. to fine companies for up to 10% of their worldwide revenue for abusing their dominant position in an industry.  It may be internationally illegal for the E.U. to fine a foreign company on sales that took place outside its jurisdiction.  Furthermore, since the amount of the fine is denominated to the companies' sales, not the harm it caused, it is really a tax.  Since the power to tax is the power to destroy, the E.U. can destroy any U.S. company doing business in the E.U.

An alternative E.U. anti-trust statute (Article 101) is economically valid.  It prevents companies from joining together in a cartel to drive up prices.  But the E.U. has been fining American companies under Article 102, which is not justifiable.  It fines companies for benefiting the consumer and causing economic growth.

Joseph A. Schumpeter, the eminent economist who argued that technological innovation drives growth, once pointed out that leading technological companies devote a huge amount of money to research in order to increase demand for their products and stay ahead technologically, and that this research largely drives growth.  His favorite example was the Aluminum Corporation of America.  Even though its patent protection expired in 1909, it continued to engage in "cost-reducing research, in the economic development of the productive apparatus, [and] in teaching new uses for the product" (note 20 on page 101-102).  It maintained its near monopoly for decades while it simultaneously reduced aluminum prices and expanded aluminum output.

Economic history since Schumpeter wrote this in 1943 has proven him correct.  For example, technologically dominant American companies have driven the computer and internet revolution:

· AT&T invented the semiconductor.

· IBM developed the modern computer.

· Xerox invented the computer mouse.

· Microsoft made the internet accessible.

· Intel chips greatly sped up computing.

· Qualcomm chips drove the wireless revolution.

· Google drove the internet revolution.

Applied Discriminatorily

If the E.U. Commission were applying Article 102 just against European companies, it would be stifling just European growth.  But the commission almost solely uses it to fine American companies.  We have searched the internet for instances of fines leveled by the E.U. under Article 102.  We believe the following to be an accurate listing of the five companies that have paid the highest fines:

1. Google. $7.8 billion in 2017 & 2018

2. Microsoft. $2.1 billion in 2004, 2006 & 2008.

3. Intel. $1.5 billion in 2009

4. Qualcomm. $1.2 billion in 2018

5. Telefonica. $0.2 billion in 2007

The only European company on the top five is the Spanish broadband company Telefonica.  The smallest fine levied against an American company is more than six times higher than the highest levied on a European company.  Make no mistake: this statute is being used to punish American companies for being big and American.  It is designed to shackle American companies so European producers can steal their market share.

Trump should tell Juncker that he must return all of the fines against Google, Microsoft, Intel, and Qualcomm that were levied on sales outside the E.U.  America should no longer tolerate the E.U.'s claim that it has jurisdiction over non-European sales of American companies.

The Richmans co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

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