Merging the US and Europe

It was a case of good cop-bad cop, but which one was which?

First, US antitrust officials approved a proposed megamerger between General Electric and Honeywell International, a $43 billion deal that would have altered the aerospace industry. But then this week, the European Commission blocked the deal, citing a potential for the new company to knock out competitors.

So, who was right? The answer goes way beyond the failed merger itself to the question of how governments will manage commercial competition in a global economy.

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Like software and telecommunications, the aerospace industry is truly global. That's why both the US and the EC had to rule on this merger.

But their stark divergence on such a market-altering decision reflects deeper differences that must be resolved soon before political tempers rise across the Atlantic. US Treasury Secretary Paul O'Neill, for instance, called the EC decision "off the wall."

One fundamental difference is the EC's history of letting its industrial policy, which is aimed at helping European companies compete with US giants, influence antitrust decisions. EC officials generally judge a merger on its market impact.

In 1997, for instance, it imposed burdens on the Boeing-McDonnell Douglas merger that ended up aiding the expansion of Europe's Airbus consortium.

In contrast, US antitrust cops look at the economic impact, especially on consumers. The US also doesn't look at the theoretical possibility of a near-monopoly developing but watches to see if a company abuses its market share against competitors. The EC lacks many legal tools to go after a near-monopoly once it approves one, so it tends to block them from the start.

Antitrust policy has evolved on both continents over the past century, and both sides now need to recognize that national rules need to bend for the sake of harmony and certainty in international business.

One solution is for the US and EC to agree on which industries are global in nature and then design an agreement on competition policy. That's difficult in some industries that tend to create "natural monopolies." But with a common goal to generate innovation and lower prices, Europe and the US can find a way.

(c) Copyright 2001. The Christian Science Monitor

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