> At best, it creates a legal conflict where AWS must violate either US or EU law.
No, that's the whole point of this setup. Amazon will not be violating US law when its European subsidiary says no, we won't respond to your subpoena. It would be if Amazon USA owned the European data centers directly and employed American workers. But it will do neither. The US courts can't compel companies to do things they have no legal authority over. It doesn't matter that Amazon owns the subsidiary -- fundamentally, the subsidiary is a foreign entity.
Case in point: China. China forces foreign companies to run this setup all the time, and its one of the chief issues with outsourcing and IP property theft/transfer (depending how you look at it).
This is an arrangement which enormously benefits Europe because it's quite similar.