EC Squeezed by Debate on Global Trade
The executives of Aerospatiale, the French manufacturer of turboprop aircraft used by short-hop commuter airlines, had just learned that they had been forbidden to buy their Canadian competitor, De Havilland.
They were furious.
The decision was bad enough, but what particularly rankled was its source: the Commission of the European Community. They could not believe that Europeans would tell a European company that it couldn’t grow.
Yet that is exactly what happened early last month, when the commission--the equivalent of a cabinet to the 12-nation European Community--vetoed the deal on grounds that it would sharply curtail competition in the production of 20-seat to 70-seat turboprops.
The decision, which seems destined to echo throughout Europe and across the Atlantic, has reopened the debate on the Continent about “industrial policy”--the conscious efforts of government to intervene in the marketplace to help domestic companies do battle with foreign rivals.
At one end of the spectrum are advocates of a Europe-wide industrial policy. They would single out up-and-coming European companies--”winners” in today’s jargon--nurturing them with government financial support and encouraging them to undertake mergers and joint ventures.
At the other end of the spectrum are those who argue that European companies can compete globally with rivals from the United States and Japan only if their mettle is tempered by stiff competition at home. This is the camp that wrote the De Havilland decision.
Europe’s challenge is to find common ground along the spectrum.
“The art is in finding the proper balance between industrial policy and competition,” said Alan J. Stoga, an international economist with Kissinger Associates in New York.
For a continent with a rich tradition of direct government support for industry, a cold-turkey switch to cutthroat competition would be unnecessarily painful, Stoga said.
The United States has traditionally relied more heavily than Europe on antitrust policies designed to guarantee consumers the benefits--lower prices and better products--that competition is supposed to deliver. In the De Havilland case, however, the EC Commission proved more American than the Americans.
By contrast, analysts have said that picking winners is exactly what Japan has done to grab international market share in electronics and other industries.
“Japan doesn’t play by the same rules,” Stoga said. And many Europeans fear that their firms will compete at a disadvantage if they do not receive the same kind of support.
That was the nub of the De Havilland case.
It squarely pitted government “interventionists” against the “ayatollahs of competition,” as the two camps describe each other inside the EC Commission.
Aerospatiale and its Italian partner, Alenia, formed a joint venture, called Avions de Transport Regional, that is the world’s biggest manufacturer of 20-seat to 70-seat turboprops. ATR had its heart set on acquiring De Havilland, a Boeing subsidiary that is No. 2 in that market despite being on the verge of bankruptcy.
The proposed buyout went to the EC Commission under a year-old regulation that gives it authority to veto “uncompetitive” mergers and buyouts.
Before the De Havilland case, the commission had cleared all 52 mergers it had reviewed. It blocked the De Havilland buyout by a bare majority of nine of the 17 EC commissioners. (Subsequently, Bombardier Inc. of Montreal announced this week that it is weighing an investment in money-losing De Havilland.)
Sir Leon Brittan, the British free-market philosopher who is the EC commissioner responsible for competition policy, led the opposition.
“The deal,” Brittan said, “would not so much have led to economies of scale or investment in research and development as acquisition of market share.” He warned that the takeover might have driven British Aerospace and Fokker, a Dutch manufacturer, out of the production of small turboprops.
Brittan’s most formidable opposition inside the commission came from Martin Bangemann, the German commissioner responsible for wiping away national borders by the end of 1992 as an obstacle to the movement of goods within the EC.
Bangemann, challenging Brittan’s analysis of the commuter aircraft market, said the market should be regarded as including planes already in service and 19-seat aircraft that could be easily converted to the 20- to 70-seat range. Viewed this way, he said, the merger would have given ATR only 28% of the world market, not the 50% that Brittan foresaw.
Bangemann, who is seeking greater opportunity to review future proposed mergers before they go to the full commission for a vote, expressly did not make his case in terms of industrial policy.
But the Italians--and, particularly, the French--did. They were aghast that the EC would block a French company from extending its global reach.
The European Parliament, a mostly advisory body to the EC, passed a resolution declaring that subsequent decisions on mergers should be based less on strict mathematical computations of market share and more on such broader factors as social and environmental consequences.
THE MARKET FOR TURBOPROP AIRCRAFT
European companies dominate sales of the small propeller-driven planes favored by commuter airlines. A European Community body has voted to bar Aerospatiale/Alenia, the dominant French-Italian combine, from buying De Havilland, the sole North American entrant in the competition. Aerospatiale (France)/Alenia (Italy): 31% British Aerospace: 4 % Casa (Spain): 3% De Havilland (Canada): 19% Dornier (France): 2% Embraer (Brazil): 13% Fokker (Netherlands): 9% Saab (Sweden): 19%
Source: Commission of the European Community
