There was a certain irony when President Clinton threatened in July to go to the World Trade Organization if the European Union moved against Boeing’s acquisition of McDonnell Douglas. “I am concerned about what appears to be the reasons for the objection to the Boeing-McDonnell Douglas merger by the European Union,” the President said, “and we have some options ourselves when actions are taken in this regard.” The President was apparently referring to retaliatory trade sanctions against Europe, such as putting U.S. tariffs on European planes.
There was a brisk run up to the brink. High U.S. officials, up to and including the president, called or met with high officials in Europe to force a retreat. At the eleventh hour the Europeans did back down (or did they?). They let the merger proceed, but on two important conditions: Boeing would give up exclusivity on long-term supply deals, and Boeing would license to its competitors – that is, Airbus – McDonnell technology developed with U.S. government funding.
Just another trade case with a fairly happy ending? So the press and popular view would have it. Indeed, in the popular view this was a festering trade war triggered by European Competition Commissioner Karel van Miert, who was determined to protect Europe’s subsidized Airbus from the competition that would be waged by a stronger Boeing. Europe took the first shot by threatening to ground the merger. In the name of its honor, its standing, and its economy, the United States had to fight back.
But wait a minute. Is something wrong with this picture? Is this not the merger of two of the last three firms in the highly concentrated commercial jet aircraft market? Is this not the administration that has threatened to sue Japanese glass makers for keeping American exporters out of Japan; that has sued two Swiss companies for merging in Switzerland; and that has (though I should not say it in the same breath) signed into law the Helms-Burton bill that penalizes foreign countries engaging in business in Cuba? Is this the administration that has temporized with the European Union’s proposal for internationalizing antitrust on grounds that antitrust issues do not belong in the WTO, lest U.S. sovereignty get compromised? Is Boeing-McDonnell Douglas not an antitrust case, or has antitrust gone the way of politics?
In the aftermath, few Americans or Europeans believe that the Boeing affair was anything other than political. Most Americans believe the skirmish was a game of the Europeans to protect their champion Airbus. Most Europeans believe it was a game of the Americans to protect their champion Boeing.
Can it be that Boeing-McDonnell Douglas was a serious antitrust case dealt with in good faith on the merits by the expert agencies on both sides of the Atlantic and that the problem was one not of offensive intrusions meriting retaliation but of slightly divergent law in need of sympathetic links? Yes, it can be; and that is my thesis.
It is worth comparing the law of the United States with the law of the European Community, examining the divergences, and asking how Boeing-McDonnell Douglas might have been an antitrust case, start to finish, rather than a trade war.
Two Sets of Laws
The U.S. and EU authorities reached different conclusions on the competitive effect of the merger. Why? Cynics find it obvious. The Federal Trade Commission’s allowing the merger promoted the U.S. champion, and the European Community’s challenging the merger promoted the European champion. But this simple, obvious answer is almost surely wrong. Each set of experts appeared to apply the law on the merits
This was possible both because there was an arguable question of fact and because of differences in the law. The question of fact involved a prediction: was McDonnell Douglas still a competitive force in commercial jets? Would it ever again, on its own or with a new parent, be able to make and sell fleets of jets to the commercial airlines?
The FCC answered no. It was apparently unable to uncover or discover a willing purchaser for the commercial jet assets of McDonnell Douglas, and McDonnell Douglas, on its own, had no prospects of making and selling next-generation fleets. The European Commission apparently disagreed as to McDonnell Douglas s effect in the marketplace – as did one of the five commissioners of the FTC. The divergence of opinion was not suspect; reasonable people could differ.
When the FTC found that Douglas (the commercial aircraft division) was competitively insignificant, this meant the end of the U.S. inquiry. But in Europe the Commission had another string to its bow, because of the different tilt to its law.
U.S. merger law is consumer oriented. The inquiry is whether the merger will make consumers worse off, as by raising the price of jets to the airlines. If McDonnell Douglas was not a competitive force to be reckoned with, there was no antitrust problem.
EC law is concerned not only with consumers, but also with unfair competitive advantages of dominant firms. Thus, not everything turned on the prospects for Douglas.
The cases are eclectic and contain hidden tensions. In some cases, where no competitor is threatened by a merger, the decision may focus on efficient market competition and consumer impact. In others, where competitors may be disadvantaged, the decision may postulate a predatory scenario with the prospect that the dominant firm will squeeze out its competitors and ultimately charge monopoly prices to consumers.
So it was with a case called de Havilland, which is cited by Europeans as authority for Boeing. ATR, a joint venture owned half by France and half by Italy, sought to buy Canadian de Havilland from its parent, Boeing. The merging firms made commuter aircraft. De Havilland was in poor financial condition and needed a subsidy from Canada to survive. Canada welcomed the acquisition, and Canadian antitrust authorities cleared it. But the European Commission enjoined the deal because the dominant joint venture gained a fuller line of commuter aircraft, which would so disadvantage the competitors (the Commission said) that they would be squeezed from the market, to the ultimate harm of consumers.
The parallels to Boeing-McDonnell Douglas are striking. Moreover, this winter and spring Boeing entered 20-year exclusive contracts with three big airlines. To the FTC, these contracts were a separate matter from the merger, though they could be anticompetitive since they fenced Airbus out of 11 percent of the market. To the EC, these contracts were an integral matter, since Boeing’s already dominant market share would increase as a result of the merger, and the effect of the fencing out – the unfair competitive advantage – was accordingly magnified.
In the EU, Boeing-McDonnell Douglas may have been an easy antitrust case. And just because Airbus was a European favorite did not mean that the merger was not anticompetitive.
Avoiding the Next Trade War
There are two ways to look at the Boeing-McDonnell Douglas problem. One view is the antitrust perspective. The other is the national trade policy perspective.
The Boeing affair unfolded from the national trade vantage. Here is how it looks from the antitrust perspective.
First, we accord each agency the presumption of dispassionate application of the rule of law, unless proved otherwise.
So doing, we observe: one authority has examined a merger and closed its investigation. (This act, incidentally, has no legal consequence. If, for example, the airlines believed that the merger was power-creating, they could and still can sue in U.S. courts.) The other authority has identified an antitrust problem under its law, and the merging parties have agreed to a solution that is satisfactory to that authority. A routine, colorless tale, this, much less riveting than the drama of a trade showdown.
The antitrust view is also the liberal trade policy perspective. That is so because the liberal point of view accepts the divergences of systems of law and tries, in the event of tension, to find linking or sympathetic solutions.
From the antitrust and liberal point of view, one would recognize the problem as an international (not national) one and would give deference to the autonomy of states to intervene against effects in their territory. Only in the event of a true conflict would there be need for a higher principle.
Some might argue that there is always a conflict when one nation s law is permissive and the other nation’s law is proscriptive and both laws apply to the same transaction. A tension, yes; but not a conflict requiring one nation to abstain from using its law to protect its citizens from harm.
To be sure, there are costs to tolerance of diversity. Unless and until (if ever) there is a world law for international transactions, this is a cost we choose to bear.
Nonetheless, there are principles that can make nations’ laws more sympathetic with one another, conferring on them aspects of open architecture and minimizing unnecessary costs of divergence. For example, nations could adopt the following four rules for transactions that could inflict antitrust harms across national borders.
1. Nations should apply their antitrust laws without discrimination.
2. Nations should not allow “national champion” interests to trump competition interests.
3. If nations pursue noncompetition objectives in antitrust cases, such as national security or a clean environment, they should do so transparently.
4. Political officials should neither provoke nor threaten trade retaliation against nations that have credibly applied their antitrust laws.
Politicians should leave antitrust to the experts