U.S. Companies Taking Heed of EU

A spate of tough antitrust actions by European bureaucrats and the smooth introduction of a regional currency, the euro, have raised the European Union’s profile, reminding U.S. firms that they ignore Brussels at their own peril.

That message came through loud and clear during the recent visit by General Electric Co. Chief Executive Jeffrey Immelt, whose firm suffered a humiliating defeat last year when EU regulators squashed the company’s proposed $47-billion acquisition of Honeywell International Inc.

In addition to appealing that decision, Immelt has moved his European headquarters from London to Brussels, the seat of the 15-member EU, and appointed Nani Beccalli, an Italian, as the voice for GE in Europe. GE has one-fourth of its worldwide assets in Europe.

“This is my first visit to Brussels since becoming chairman of GE,” Immelt said in a speech to European policymakers and business leaders Jan. 28. “You told my predecessor, Jack Welch, to ‘go home’ last June.... Since then, we have become much smarter and moved our European headquarters to Brussels. Now, if you tell me to go home, I won’t need to get on a plane.”

Other U.S. firms are reaching the same conclusion about the growing influence of the European Union, particularly in economic matters, said U.S. government officials and business leaders. They pointed to the explosion in lobbying, with estimates that up to 10,000 people here are involved in the business of influencing government, compared with just hundreds a decade ago. London remains the most popular base for U.S. companies, but Brussels boasts 300 European headquarters among its 1,300 American firms.

“What has dawned on U.S. companies more and more is that with the evolution of European institutions, the power has little by little moved from the national member states to Brussels,” said Elaine Cruikshanks, chief executive of Hill & Knowlton’s Western European operations. “The balance is always changing, but you have to keep your eye on the ball on where the power lies.”

Though U.S. executives have started taking notice, the overall understanding about the transition of the EU from a trading organization to a regional economic and political power remains woefully inadequate, said Jeremy Davies, a British expatriate who serves on the advisory board of the European Union Center of California, a nonprofit educational group.

Davies, a former partner with PricewaterhouseCoopers, said this knowledge gap is particularly evident here in California, where business and government leaders have focused their energies on developing relations across the Pacific. He pointed out that the EU is already one of California’s top trading partners and its leading foreign investor.

“When you have established investors, it may be much easier to grow new investment with them rather than chasing some of the Asia Pacific countries who are more focused on their own development than investing in the U.S.,” he said.

Mastering the nuances of the euro world isn’t easy. With five governing institutions--the parliament, council, commission, court of justice and the court of auditors--it isn’t always easy figuring out exactly whose arm to twist. Just navigating the paperwork is a formidable task, though official EU documents are translated into the 11 languages spoken within the 370-million-person region.

Under the leadership of former French President Valery Giscard d’Estaing, EU officials this week launched a yearlong constitutional convention aimed at clarifying some of the thorny issues of sovereignty and jurisdiction. Streamlining the bureaucracy and more clearly defining the division of power among members is even more important as the EU moves forward with plans to add 10 new members from Central and Eastern Europe. The relatively trouble-free introduction of the euro within a 12-member bloc of the EU has simplified cross-border business, and the increased efficiency has made the region more competitive with the rest of the world.

EU muscle-flexing in the areas of competition policy and trade, including long-running disputes over steel and hormone-fed beef, has received the most attention in the United States. In addition to quashing the GE deal, European regulators gave a thumbs down to the WorldCom Inc.-Sprint Corp. merger and Microsoft’s proposed takeover of British cable operator Telewest Communications.

But there are many other areas where the EU is developing regional policies or standards that have far-reaching implications for foreign firms operating in Europe, said Rockwell Schnabel, newly appointed U.S. ambassador to the EU.

“Today, two-thirds of the issues that used to be handled at the capital level are handled in Brussels,” he said. “That is why, when you drive around, you see all this building going on.... This thing is exploding and people are moving here because of it.”

EU officials wield power in transportation, communication, environment, food safety and public health. But as Europe has moved further down the road of regional integration, that sphere of influence has expanded to include issues such as securities regulation and Internet privacy.

Efforts are underway to establish an EU legal standard for patenting computer software, a system for classifying and labeling chemicals and regulations on insider trading and corporate takeover rules.

Getting the EU’s diverse members to toe the line isn’t easy. Dissatisfied governments have balked at implementing EU directives on electricity deregulation and food safety. Germany has refused to support proposed regulations on corporate takeovers unless the EU provides protection for Volkswagen against a hostile buyer.

Schnabel, a Los Angeles investment banker who served as a trade official and diplomat in the previous Bush administration, said he is working with EU authorities to get U.S. firms greater access to the complex EU decision-making process. Unlike the U.S., the EU does not have a system requiring lawmakers to open the legislative process to the general public.

For example, Schnabel said, U.S. firms had little input into the EU’s decision last year to impose new restrictions on products containing genetically modified organisms. The U.S. claims the new labeling requirements could cost U.S. firms as much as $4 billion and violate global trade rules.

“These rules are put on the books and our companies have little input initially,” he said.

S. Linn Williams, former president and chief executive of Edison Mission Energy’s European division, said EU officials are much less likely than their U.S. counterparts to consult with individual companies, preferring to get their information through trade associations. Europe’s legal and regulatory process also makes it difficult for foreign firms to know whether to make their case with individual governments or the EU.

Though the EU commission is responsible for drafting legislation and the parliament and council share responsibility for enacting laws, the issues are usually driven by member nations.

That means real change often comes from the bottom up. California winemakers are in a dispute with the EU over restrictions on labeling imported wine. Though French and Italian winemakers can press their case through their own governments, California winemakers would need to lobby the U.S. government, key European winemaking governments and EU bureaucrats, said Williams, a former U.S. trade official.

“On labeling, California winemakers would be very wise to talk to France, Italy, Spain and Portugal,” he said. “If they can work out a compromise with them, the chances are it will work in Brussels.”