Commentary: When Protectionism Wears Camouflage

The proposed merger of Boeing Co. and McDonnell Douglas Corp. could lead to an unprecedented showdown between U.S. and European antitrust authorities. On May 21, the European Union issued a "statement of objections" on the deal--a first step toward blocking it later this summer. The U.S. Federal Trade Commission is expected to approve the merger. If the EU rules against it, the U.S. may retaliate by slapping tariffs on European aerospace rival Airbus Industrie--or other trade war-style tactics.

What's disheartening about this debate is its hypocrisy. While pretending to defend competition in commercial aviation, a truly global industry, Brussels and Washington continue to protect national interests. The problem is that antitrust law has not kept up with the globalizing economy. Although the idea has been discussed for years, the world still lacks a neutral antitrust enforcer authorized to make professional decisions based on a single set of internationally agreed-upon rules.

If ever a case needed international review, Boeing-McDonnell is it. The $14 billion combination would leave only two civil aircraft makers, Boeing-McDonnell and Airbus. And few industries are as global as commercial aircraft. Airlines now buy planes from just three companies. Last year, Boeing had about 65% of the market, Airbus had 31%, and St. Louis-based McDonnell Douglas the remaining 4%.

WORRIED. The EU's Commissioner for Competition, Karel van Miert, argues that a merger would increase Boeing-McDonnell's market share in Europe to a level that, according to EU regulations, would "impede effective competition" there. FTC Chairman Robert Pitofsky, meanwhile, will probably claim that the combination would scarcely change the competitive landscape for commercial aircraft, since McDonnell Douglas is such a weak player.

The U.S. is irked by the muscle-flexing of European trustbusters. But America is just as guilty. For years, U.S. antitrust authorities have insisted on the right to extend U.S. law to foreign companies overseas when the activity affects U.S. consumers. Last December, for example, the FTC required Swiss pharmaceutical makers Ciba-Geigy Ltd. and Sandoz Ltd. to divest some U.S.-based operations before merging so the combined company wouldn't dominate research and development for gene therapy. Now, the Americans are worried that the EU wants to exercise the same extraterritorial prerogatives.

Of course, the U.S. has reasons to push through the merger. The Pentagon, facing cutbacks in weapons spending, has encouraged consolidation of the defense industry to improve its efficiency. A combined Boeing-McDonnell would be a strong competitor to rivals Lockheed Martin Corp. and Northrop Grumman Corp.

Meanwhile, many aircraft-industry analysts think the EU's complaints about the Boeing-McDonnell merger are just a ploy to protect Airbus. Indeed, the EU's van Miert may have difficulty proving that McDonnell would increase Boeing's civil-aircraft market share by much. But van Miert is worried by Boeing's exclusive contracts with American Airlines Inc. and Delta Air Lines Inc.--and, recently, a possible deal with Continental Airlines--under which the carriers pledge to buy only from Boeing over the next 20 years.

Skeptics of the EU's motives say the Europeans are using antitrust concerns as a lever to win concessions on the trade front--namely, an increase in Airbus subsidies. "Why not just come out and say it's a quid pro quo?" asks James McAleese Jr., an international business lawyer in McLean, Va. Such accusations are "on the verge of bad taste," sniffs an affronted EU official. Maintains van Miert: "Our analysis of the Boeing-McDonnell Douglas file is conducted strictly on the basis of the European merger regulation and nothing else."

In theory, the Boeing-McDonnell review could be a chance to advance the cause of worldwide trustbusting--and perhaps of creating a global antitrust body. As a first step, trustbusters should cooperate more. That will prove ever more important as global competition spurs more megamergers. Antitrust should not be a stalking horse for economic nationalism. When that happens, the first casualty is competition.