May 25, 1997 in Nation/World

Showdown Looms On Boeing Merger Proposed Mcdonnell Douglas Deal Highlights Tricky Global Trade Issues

Edmund L. Andrews New York Times News Service

Who is Karel van Miert, and why is he declaring war on the Boeing Co.?

As the Seattle-based aerospace giant pushes to complete its $14 billion takeover of McDonnell Douglas Corp., the biggest roadblock is suddenly being posed by a feisty European official who has bluntly branded the deal “totally unacceptable.”

The official is Karel van Miert, a 55-year-old former Belgian Socialist who is the European Commission’s minister for competition and, de facto, the continent’s top antitrust authority. Few Americans have heard of him, but that is changing fast, especially in corporate boardrooms.

Last week, van Miert handed Boeing a list of “objections” to the McDonnell Douglas deal. Never mind that the takeover involves two American companies, or that his biggest objection stems from two long-term sales contracts that Boeing recently reached with two American airlines.

“If any deal has an effect on the European marketplace, then the jurisdiction is within our territory,” said Willy Helin, van Miert’s spokesman. “We don’t give a damn about extraterritoriality.”

It’s not just the Boeing deal that has caught van Miert’s attention. Last Tuesday, he met with British officials and reiterated his hard line against the proposed marketing alliance between British Airways and American Airlines, a subsidiary of the AMR Corp. Van Miert has complained that it would eliminate competition on many routes between the United States and Britain.

But it is in the Boeing and McDonnell Douglas case that van Miert is flexing his muscles for a showdown with both the U.S. aerospace industry and, very likely, the U.S. government.

In a slew of public comments, he has warned that the creation of an aerospace goliath would endanger competition in Europe, especially for Airbus Industrie, the European aircraft consortium based in Paris that competes with Boeing and McDonnell Douglas. If Boeing fails to address his concerns, van Miert has threatened to block the deal or impose fines of up to 10 percent of Boeing’s revenues, or about $4 billion.

For American companies, the case highlights the lengthening reach of the European Union as Europe acts increasingly as a single political entity. But experts say van Miert’s higher profile is a result of the inevitable clashes that come with the rise in international trade.

Whether the United States tries to block European companies from doing business with Cuba or Iran, or Europe tries to enforce an internal ban on hormone-treated beef from American cattle farmers, international disputes over conflicting national policies are piling up. And there are few precedents for guidance.

“The whole issue of extraterritoriality is a vexing area, and it is one that is going to get worse,” said Michael Hodges, senior lecturer in international relations at the London School of Economics. “Having dealt with many of the issues between borders, we are now looking at issues behind the borders.”

The looming fight over Boeing could easily engulf the Clinton administration. Although the Federal Trade Commission is not expected to decide the antitrust issues until next month, the U.S. government has already approved several big mergers within the nation’s shrinking military and aerospace industry. And van Miert has already attracted warning growls from Boeing’s home-state senators and from Vice President Al Gore.

While van Miert has been quick to object, his bark is often worse than his bite. Indeed, most disputes that he initiates are eventually settled through negotiation and compromise rather than by taking companies to court. Of roughly 500 mergers that his office has reviewed, only seven have been blocked outright.

Just last week, his office approved with only minor changes British Telecommunications’ takeover of MCI Communications, the second-largest long-distance telephone carrier in the United States after AT&T.; But two years ago, he pressed Kimberly-Clark Corp. and Scott Paper to sell off some of their European businesses as a condition for approving their merger.

He has also provoked sputtering indignation from London to Bonn. He infuriated the British government last fall when he first threatened to block the proposed alliance between British Airways and American Airlines. He also outraged German government officials by challenging subsidies to Volkswagen in eastern Germany as well as state aid to areas in western Germany. And he has chastised the French government for its billion-dollar bailouts of state-owned companies like Credit Lyonnais, the troubled bank.

In the Boeing and McDonnell Douglas case, European officials have made it clear that they do not expect to veto the proposed merger outright. Rather, they suggest, the goal is to get Boeing to address their worries about particular business practices.

The European Commission must make a final decision on the merger by late July. If it vetoed the deal, and the FTC approved it, the fight would probably shift to the World Trade Organization in Geneva.

Van Miert seems to relish conflict. A tough-minded politician who once headed the Belgian Socialist Party, he has become one of the most powerful figures within the sprawling bureaucracy of the European Commission, the executive arm of the European Union. His attacks on a wide range of anti-competitive practices and on Europe’s mountain of subsidies for industry have generally won praise as tough and honest. That is no small feat, since every country in the European Union has sacred cows that it wants to protect.

With a staff of more than 100 people, van Miert oversees a staggering volume of activity. His ministry reviews all major mergers that involve European companies as well as a few that do not. It also investigates allegations of price-fixing and a wide range of attempts to stifle competition, much like the U.S. Justice Department and FTC, which together employ an antitrust staff of more than 1,100 people.

Boeing and McDonnell Douglas executives argue that van Miert is merely protecting Airbus. The competition in commercial aircraft had already been reduced to Boeing and Airbus, and company executives argue that Boeing’s acquisition of McDonnell’s military business would not change the balance. They also defend their airline contracts, asserting that the contracts were awarded through open competition and that Airbus also has lined up similar long-term contracts.

“It’s obvious he wants a war,” Harry Stonecipher, the president and chief executive of McDonnell Douglas, said in Washington last week.

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