Europeans Challenge Boeing’s Merger Plan

PARIS — Alleging a menace to free competition, the European Union on Wednesday formally challenged the legality of the pending $14-billion merger between U.S. aerospace giants Boeing and McDonnell Douglas.

In a dispute that tests notions of sovereignty in a shrinking world, the EU argues that Boeing’s global dominance of the commercial aircraft market gives European governments the right to contest a marriage of the two U.S.-based companies.

The challenge from the 15-member EU could, in theory, ultimately lead to the merger being declared illegal in Europe and multibillion-dollar penalties being slapped on the new U.S. company’s European assets or sales.

Boeing--which controls about two-thirds of the world market compared with about one-third for the European consortium Airbus--promised to “continue to work” with the European Commission, the EU’s executive body, to resolve the dispute.

But the aircraft maker said U.S. authorities must have the final say, especially because of the defense holdings of the two companies.

“The U.S. Federal Trade Commission should be given the lead in this case as it so obviously concerns key U.S. interests, not the least of which is in the sovereign area of defense,” Boeing Chairman Philip M. Condit said in a lengthy statement.

For both sides, the most troublesome prospect in an age of increasingly entangled globalization of commerce is one where the European Commission would rule one way on the merger and the FTC another.

“This is where two worlds collide. These issues have never been pushed,” said Alec Burnside, head of the Brussels office of the international law firm Linklaters & Paines.

A dispute with such high stakes could ultimately lead to a U.S.-Europe trade war, but trade and antitrust experts on both continents doubt that the affair will reach that point.

“If this gets too hot, the State Department will get involved,” said William Baxter, a law professor at Stanford University and head of the Justice Department’s antitrust division under former President Ronald Reagan. “It will be negotiated at the political level.”

It seems sure to come up at a U.S.-EU summit Wednesday that will be attended by President Clinton, Commerce Secretary Bill Daley and U.S. Trade Representative Charlene Barshefsky.

The dispute, building ever since Boeing and McDonnell Douglas announced their merger plans in December, is generating increasingly sharp rhetoric from both sides of the Atlantic and giving unprecedented visibility to an increasingly unwieldy problem in today’s so-called borderless economy.

On March 19, the European Commission launched a formal inquiry into whether the proposal to create a new company with combined revenue of $48 billion conforms to European rules.

Karel Van Miert, the European trade bloc’s commissioner for competition, has lobbied heavily against the deal in Washington, calling plans to create the world’s single largest aerospace and defense company unacceptable in their current form.

Some Europeans see the Boeing case as giving the United States some of the same medicine that Washington has forced on Europe by passing widely resented legal bans on doing trade with Cuba and Iran. Similarly, U.S. antitrust officials have sought to contest alleged cartel-like behavior among Japanese companies.

“America leads the way in extraterritoriality, in exporting its laws,” Burnside said, “so it is rather amusing, in a way, to see the objection coming from the other direction. The shoe is now on the other foot.”

Indeed, former Clinton Administration antitrust chief Anne Bingaman aggressively championed the notion that if an offshore cartel affects U.S. citizens, the Justice Department has a “legitimate interest” in pursuing a case against the cartel, Baxter said.

On Wednesday, U.S. congressional leaders also weighed in, calling on Clinton to demand that the EU review of the merger be impartial and untainted by politics.

Lawmakers from Washington and Missouri, the home states of Boeing and McDonnell Douglas, said in a letter that Van Miert’s public criticism of the $14-billion deal is “inappropriate, prejudicial and does grave harm to the due process that is both the legal right of the involved parties and the foundation of fair and impartial antitrust review.”

The 1990 European Community Merger Regulation gives the community’s antitrust experts the right to review and reject mergers that create or maintain a commercially dominant position found to be harmful to competition.

The Boeing-McDonnell Douglas merger is directly relevant to European interests--particularly those of Airbus, a French-based creation of the governments of Britain, France, Germany and Spain that has grown to become Boeing’s only serious competitor. Still, at least 80% of the commercial aircraft now flying in Europe are U.S.-built.

A final decision will be made by the European Commission by July 31.

The new American corporation could be liable to fines on its European sales or assets. The penalties could total up to 10% of global revenue, or nearly $5 billion.

Staff writer Leslie Helm in Seattle and Bloomberg News Service also contributed to this report.