Global mergers force anti-trust busters to work hand in hand

Date: 07/09/00

Transatlantic cooperation in competition cases is burgeoning as the effects of corporate mergers, particularly in the high-speed communications, media and Internet sectors, are increasingly felt in every time zone and every jurisdiction. Tim Jones reports

SO MUCH has been written about the spats between the world's great trading powers that it is easy to ignore the amount of ideology- and information-sharing which goes on behind the scenes.

Bananas, aircraft hush-kits and unfair tax breaks for US multinationals might dominate the headlines when the names EU and US are mentioned in stories, but the reality of 99% of the €300-billion annual trading relationship between two of the world's commercial giants is more peaceful and humdrum.

Nowhere is this evidence of the 'end of history' more pronounced than in the burgeoning cooperation between anti-trust authorities as the effects of corporate mergers - particularly in the high-speed communications, media and Internet sectors - are increasingly felt in every time zone and every jurisdiction.

Bernie Ebbers, the charismatic former sportsman who now runs telecoms giant WorldCom, knows this only too well. Just before the European Commission's summer break, Ebbers grudgingly abandoned his planned €125-billion take-over of rival carrier Sprint in the face of seemingly implacable and united opposition from US and EU anti-trust regulators.

Like all the smartest corporate lawyers, WorldCom/Sprint's teams had made playing off Brussels against Washington a key element of their strategy for winning approval for a deal which was always going to be a regulatory minefield.

When Competition Commissioner Mario Monti made it clear that his officials were recommending a veto of mergers between two American operators because of major overlaps in long-distance services and Web infrastructure, Ebbers appealed to the US Department of Justice's anti-trust chief Joel Klein.

"They played the American political card and warned against destroying the Nineties miracle of choice and innovation," said someone involved in the talks. "As you can see, it did not work."The strategy failed, say EU officials, because the Commission's competition directorate-general has learned lessons from the debacle over the merger between the world's number-one plane-maker Boeing and its only serious US rival in the civil aircraft field, McDonnell Douglas back in 1996.

Then, former Competition Commissioner Karel van Miert was seen to be waging a personal war against a link-up that was seen, in the White House at least, as an essential consolidation in a strategically crucial industry. It was also President Bill Clinton's re-election year and the Washington state vote is not to be ignored.This time around, Monti and Klein worked hand in hand. Both are apostles of Teddy Roosevelt's dictum that governments should speak softly but carry a big stick. Monti originally made his name in Brussels as a softly-softly cajoler of governments in the politically charged area of tax harmonisation; so much so that his snail's-pace plans to reform value added taxation caused ructions within his own department.

Klein, a softly spoken New Yorker, is a careful strategist who likes to pick his battles and needs a water-tight case before taking on powerful corporations. "They talk the same language," says an EU official. "Van Miert was very bright, but he could get very emotional and go off deep end. Monti is much more professorial or patrician."

The upshot was that Monti's top officials working on the WorldCom/Sprint case took part in all the key meetings in Washington while lawyers from the justice department's anti-trust division were kept in constant touch with the competition directorate-general's latest analysis. "It really was a model of cooperation - the closest we have got under our cooperation agreement," said a Union official.

In 1991, the EU signed an agreement - since updated - with the US under which the two sets of competition authorities notify each other about cases with a transatlantic impact, as well as cooperating in cartel inquiries in the territory of one party which adversely affect the interests of the other (a process known in anti-trust circles as 'positive comity').

Under 'traditional comity' provisions, the two sides have rules designed to avoid conflicts over enforcement - and these arrangements are proliferating. The Union has a 'positive comity' deal in the bag with Canada and, at the EU-Japan summit in Tokyo in July, the two sides signed a far-reaching accord to boost cooperation between the Commission and the Japan Fair Trade Commission.Ironically, in the same week, the Commission imposed a €900,000 fine on Japanese giant Mitsubishi Heavy Industries for failing to supply information under Union rules regarding a chemical pulping joint venture between Ahlström and Kvaerner.

Even the new EU-Mexico free-trade agreement includes competition provisions. "Our experience so far has demonstrated that cooperation in competition matters between the world's major economies is beneficial not just for the authorities but is also in the interest of companies and ultimately the consumer," said Monti.

And yet the Commission has failed to convince the US of the need to get competition onto the agenda of the next round of multilateral negotiations to be held under the auspices of the World Trade Organisation. "It is not really that the Americans hate the idea - it is actually central to US economic policy since the Sherman Act. It is more that they suspect the Europeans are using the issue to clog up a round that should concentrate on classic market-access issues," says a veteran of EU-US trade diplomacy.

In a speech to the Confederation of British Industries in July, Trade Commissioner Pascal Lamy made it clear that he has no intention of bowing to US demands on this front.

"In globally integrating 21st century markets, you cannot ignore the need for basic rules on foreign direct investment and on competition," he said. "Can we put those issues off for another day, the halcyon day just around the corner when suddenly everything gets easier? I don't think so. We will wake up and find that it is 2010, or 2015, and we are still trying to operate a world trading system based on rules invented, for the most part, in the middle of the previous century."

Getting even a minimalist round back on track following the collapse of the Seattle talks will be hard enough without throwing in the investment, competition and environmental issues which are bound to antagonise someone.

In the meantime, transatlantic competition policy cooperation will be tested by three key link-ups: British Airways/KLM, AOL/Time Warner/EMI and Deutsche Telekom/VoiceStream.

The Americans have already fired a shot across the bows of the BA/KLM merger, which is expected to be notified to Klein and Monti in September. "The US will not allow British Airways to use a merger with KLM, the Dutch flag carrier, as a back door to achieve greater access to our market," said Dorothy Robyn, a member of Clinton's National Economic Council.She told the International Aviation Club in Washington in July that if the UK government fails to negotiate a new 'open skies' agreement with the US which allows more than United Airlines and American Airlines access to London Heathrow Airport, the US authorities will block the merger.

Monti's reaction will interesting. Van Miert always regretted how little he demanded in return for the intra-European tie-up between SAS and Lufthansa, and warned his successor not to make the same mistake. Officials in the competition directorate-general could be tempted to use US threats to exact strong remedies from BA/KLM, but their transport counterparts will find yet another bilateral open-skies deal hard to swallow.

So far, the inquiry into AOL/Time Warner has centred on the threat that the two could sew up Internet access in the US, but the Commission is focusing on how the merger of Time's music business with that of EMI could lead to the creation of an overbearing bidder for artists' rights.

Both of these cases could easily turn into another Boeing/McDonnell Douglas, but officials suspect they will go the other way. "Given the positive outcome of the WorldCom case, my money is on the two authorities using each other in these cases rather than allowing themselves to be used," said one national competition official.

Major feature. Transatlantic cooperation in competition cases is burgeoning as the effects of corporate mergers, particularly in the high-speed communications, media and Internet sectors, are increasingly felt in every time zone and every jurisdiction.