Opinion: US firms under fire in EU markets

Sensible regulatory reforms in the US have eliminated the worst abuses, saving consumers billions each year as vital industries became disciplined by market forces.

Unfortunately, regulatory reform is lagging elsewhere in the world, which means trouble for American firms operating in a global economy. Foreign governments continue to use regulatory and competition policy as a means of manipulating markets, picking winners and losers through politics rather than competition. Not only does this dampen innovation, it reduces consumer benefits and limits choices in the marketplace. Nowhere is this more evident than in the high-tech sector.

A fine mess
In Europe, Microsoft continues to find itself under the scrutiny of the European Commission, despite already paying a record fine of more than $600 (zł.1,873) million and agreeing to share valuable software code. Now, regulators are threatening additional fines of over $2 (zł.6.2) million per day dating back to December 15 of last year for allegedly not complying with earlier edicts to disclose valuable server computer technology.

But Microsoft has been trying to comply, providing technical documentation, offering to license its source code, and even supplying free technical support to those requesting a license. It is unclear, however, if this will satisfy EC regulators who seem more interested in the status of competitors rather than consumers. Despite the fines and threats of more fines, the actual substance of the case was not heard until last month, when the European Court of First Instance took the case. On April 24, Microsoft called the EC's 2004 antitrust ruling against it "fundamentally flawed in fact and reasoning," only to be attacked by the EC's legal team, which said that the ruling should remain in place.

So regulators are continuing to call the shots, often in consultation with the very competitors threatened by Microsoft. It appears that Microsoft's competitors are designing a regulation to hamper its ability to compete. Yet it is difficult to determine where the proceedings are heading. The EC has been less than forthcoming about its objectives and has rejected Microsoft's request for a public hearing on the issue, offering only the option of closed-door deliberations, which Microsoft rejected.

Tip of the iceberg
The ramifications of EC policies on competition and regulation extend well beyond the current Microsoft case. A number of American companies have been entangled in European red tape. Regulatory policy is essentially being wielded as a new form of protectionism, and excessive fines are a welcome source of additional revenue. Perhaps the most notorious episode was the European denial of the General Electric-Honeywell merger, despite the fact that both companies are American and the deal was approved by the Department of Justice.

Apple Computer is the latest victim, with the lower house of the French Parliament passing a law that could force the company to develop a new iPod for the French market. The law would open the design to content providers other than iTunes, something that could undermine the rights of content owners such as musicians and film studios. Although the law must also be passed by the French Senate, it already has Apple debating whether it should abandon the French market.

Worldwide trend
Unfortunately, such heavy-handed regulations are not exclusive to Europe. South Korea recently banned the version of Microsoft Windows that is used throughout the rest of the world, a decision that is still on appeal by Microsoft. Korean regulators also authorized a raid on Intel's offices in Seoul in what may be another effort to hobble a successful American company through regulatory mandates.

Fortunately, some US officials recognize the negative impact of such regulation on American companies. Federal Trade Commission chair Deborah Platt Majoras recently said: "The health of the US economy has become increasingly affected by the competition policies of other countries." Of course, addressing these concerns remains a significant challenge. Many countries are seeking broader trade agreements with the US and competition policy should be a key component of any such discussions. The US must emphasize the important goal of harmonization - expanding competition, innovation, and consumer welfare in a dynamic marketplace.

Dick Armey is a former Majority Leader of the US House of Representatives and current chairman of FreedomWorks, a non-profit grassroots issue advocacy organization in Washington, DC