The law mandates egress to be free or at provider cost when two data processing services are used in parallel; AWS, OTOH, provides it free (better than is minimally required!) and to customers not protected by the law at issue (also more than required!) but only when migrating off of AWS, not when using AWS alongside another service, so (assuming it continues to charge much more than their cost for all other egress) is not actually complying with the law outside of a very narrow subset of the cases where it applies.
This is a particularly meaningless gesture in the direction of compliance from a provider dominant across so many categories of cloud services as AWS is -- the whole point of the "in parallel" requirement in the law is, I would assume, to prevent the mega-cloud providers (AWS, mainly, but also Azure and GCP) from being able to effectively lock customers to monopolize areas of cloud services where their specific offerings are weak by the egress fees of their dominant offerings which would be used alongside them. "Free only when you are transferring out to leave our platform" doesn't address this lock-in at all.
It’s rare for large companies to immediately comply with the spirit of the law. See EU261 for example - airlines were dragged kicking and screaming through the courts over many years.
Amazon’s behaviour isn’t surprising, but you’re not wrong to call it out
If AWS unilaterally cut egress fees 100x, then a few things might happen:
GCP and Azure customers might migrate to AWS or have very serious phone calls with their account reps. (Hmm, GCP customers might be unable to reach an account rep.)
Third party providers, who are currently stuck in AWS, GCP and Azure because their customers can’t afford egress if they move out, will consider alternative hosting. This is IMO a big one, but it has nothing to do with whether GCP and Azure play along.
Some customers might shut down their colocated systems and move into AWS.
You have an answer of why they think it applies in this case, but since it read to me like you were asking what the phrase itself meant (or in case it helps anyone else): it's most often used as 'arguing in bad faith' meaning wilfully misunderstanding the other party or just generally an insincere argument as a proxy or pretext for something else or with some ulterior motive.
So briefly in this case AWS does something which seems superficially good, but the real reason is to appease a law that it actually doesn't properly comply with. (Is the, not my, claim.) i.e. a good thing done in bad faith.