Doing Business : EC Getting Close to a Joint Antitrust Policy : And the rules look American. The object is to keep markets open for competition and to protect the consumer.

The 12 nations of the European Community, after 17 years of wrangling, are finally pursuing an antitrust policy that, with some important exceptions, walks and talks the American way.

“They’re moving closer to our antitrust goal of protecting consumers from the robber barons and the inefficiencies of monopolies,” said Joseph P. Griffin, head of the local office of the American law firm Morgan, Lewis & Bockius. That is good news for Americans doing business in Europe. Dismantling monopolies means opening markets to competition, Griffin said, “and the European Community hasn’t distinguished between opening to European competitors and to foreign competitors.”

The Treaty of Rome, the 1957 charter of the European Community, authorized regulation of joint ventures and moving against businesses that so dominate their fields they “abuse” their position. It also provided the power to block national subsidies that give one company an unfair advantage over others elsewhere in Europe.

What was missing was authority to turn thumbs up or thumbs down on proposed corporate mergers and takeovers before they took place.

The European Commission, executive branch of the EC, proposed such rules as long ago as 1973, but the member nations themselves, which must approve any such change in policy, put the rules in place just last September.

“The matter was hugely sensitive politically, because we were going straight to the heart of national sovereignty,” said H. Colin Overbury, one of Europe’s top trust-busters as director of the European Commission’s merger task force.

The rules had to be acceptable to everybody--from Britain and Germany, which long had their own antitrust laws, to Italy, which put such rules in place only last October, and the Netherlands, which has rules but seldom enforces them.

It was the EC’s determination to bring down all trade barriers among its 12 members by the end of 1992 that turned the tide. The member nations realized they could not operate as a truly common market if they did not play by one set of antitrust rules.

Sir Leon Brittan, vice president of the European Commission for competition policy, is trying to make the most of his new tools.

“For competition policy, the interests of the consumer are paramount,” he said in a speech last month at Yale University. “A company’s interests are to maximize profits, and there is nothing wrong with that.

“But sometimes a company is tempted to take the easy way out by swallowing up competitors, carving up the market with them or driving them out of business. The consumer’s interest, of course, is to have a wide choice of goods and services.”

Europe, unlike the United States, has not tried to distinguish between good and bad mergers and acquisitions via numerical measurements of market control. Subjective judgment still plays a significant and formally recognized role.

Among the goals set out in the new merger regulation, for example, is the European Community’s “economic and social cohesion.” The EC may take into account whether a proposed merger or takeover would enhance European businesses’ ability to compete with other (read American and Japanese) companies.

To some observers, these clauses could permit nothing less than a European “industrial policy”--a conscious governmental effort to help some local companies grow big enough and strong enough to compete not just within the Continent, but worldwide. It is an approach that clearly has been followed at a national level with companies such as Italy’s Fiat.

“There seems to be an inherent policy to allow mergers that will enable European companies to compete with the Americans and the Japanese,” said Howard M. Liebman, a Brussels-based lawyer with Oppenheimer Wolff & Donnelly of Minnesota.

John Ratliff, a lawyer specializing in EC matters for the European firm Stanbrook and Hooper, identified what he called a policy of “allowing European companies to get big enough to compete worldwide.”

Brittan insists, however, that he is not trying to turn his competition office into a European version of the Japanese Ministry of Trade and Industry.

“When you look around the world for examples of genuinely competitive industries,” he said, “lack of competition at home is not a common feature. In fact, companies taking on world markets are more likely to be fit and able to do so successfully if they have been training competitively at home.”

Yet one of his first decisions under the new merger regulations--to permit car makers Renault of France and Volvo of Sweden to form an alliance to make cars, trucks and buses--fed the belief that industrial policy had come to the EC.

Already this month, 15 proposed mergers had been referred to the competition office, according to Overbury. The office had approved eight, including Renault-Volvo, so far, but in fairness, the merger regulation is so new that the office has not had time to come up with an unfavorable ruling.

The office’s reach extends to any merger that would have a significant impact on competition in Europe, even if the companies involved are headquartered elsewhere.

Thus the European Commission found itself ruling on the takeover of MCA, the Hollywood entertainment firm, by Japan’s Matsushita, whose myriad products include films, tapes and records. (It approved.) Still pending is AT&T;’s attempted hostile takeover of NCR, a U.S. manufacturer of business information-processing systems.

“American companies that do a substantial amount of business in Europe are watching these cases with interest,” said Geoffrey D. Oliver, attorney in Brussels for the Los Angeles law firm O’Melveny & Myers.

Brittan, the competition commissioner, met in Washington last month with U.S. Atty. Gen. Dick Thornburgh to begin coordinating U.S. and European antitrust policy. His goal is some variety of formal agreement that will prevent Europe and the United States from colliding over mergers that involve both.

Even as Brittan and his office’s 250 bureaucrats grapple with the merger regulation, they continue to pursue instances of businesses abusing their dominance of the marketplace. They do not always get their way.

Last year, Brittan and his staff disapproved of a takeover by Douwe Egbert, a large Dutch coffee maker, of a smaller competitor in the Netherlands. They were overruled, in effect, by the full, 17-member European Commission.

Supporters of that takeover were led by Frans Andriessen, the senior Dutch commissioner. He acknowledged that it would enhance Douwe Egbert’s dominance of the Dutch coffee market, but argued that since the Netherlands will be part of a unified European market after 1992, the acquisition would have no measurable effect.

Brittan’s office is also keeping a watchful eye on joint ventures and government subsidies that impede competition.

It has sought to approve joint ventures that enable companies to collaborate on certain kinds of activities--research and development, for example--that they could not do separately.

Some industry executives here find the competition office to be more appreciative of their needs. For example, it is taking an understanding look at a European joint venture in pharmaceuticals proposed by two American companies, Du Pont and Merck Sharp & Dohme. “The Commission seems to be taking a more favorable approach to joint ventures than it once did,” said Rembrand Van Lil, Merck’s counsel in Brussels.

A particular bugaboo of Brittan’s is the penchant of European governments to dish out fat industrial subsidies that are as economically damaging to competition as they are politically attractive to elected officials. Home-country politics sometimes block his efforts.

Last year, for example, the European Commission decided not to investigate a $32-million German government subsidy of a Daimler-Benz auto plant in Bremen.

Brittan argued that the grant’s distorting effect on competition in the car industry outweighed the fact that Bremen was in a depressed region of Germany. He was outvoted by a faction led by the British commissioner for regional development and the German commissioner for integrating the EC market.

Brittan has scored some notable successes. Going after a subsidy offered by his own government last year, he forced the supposedly free-market Britain of Margaret Thatcher to reduce a $1.6-billion grant to the Rover automotive group to $938 million.

Mergers: The European View

Unlike the United States, the Europeans pay little attention to precise measurements of market control in evaluating mergers. Subjective judgment plays a significant and formally recognized role.

LANDMARK DECISIONS ON COMPETITION

The European Commission found that:

Outcome:

May, 1990

The French government had injected too much capital into Renault, the government-owned car maker

Renault required to pay back $1.2 billion

June, 1990

The British government sought to provide $1.6 billion in capital to Rover, a car maker, before selling it to British Aerospace for $300 million

Government required to take back $662 million

Oct., 1990

Air France had proposed to buy the next two largest French airlines, Air Inter and UTA

Acquisition affirmed, but some domestic and international routes must be offered to competitors

Bayer and Hoechst, German drug companies, had agreed to cooperate on research, development and marketing of an AIDS drug

Agreement affirmed because of expenses and difficulties of AIDS drug development

Nov., 1990

Renault of France and Volvo of Sweden had entered into joint production agreements for cars, trucks and buses

Joint venture affirmed because competition would not be harmed

Dec., 1990

The French government had paid Saab-Scania of Sweden $38 million to build a heavy truck plant in Angers

Grant affirmed because Angers is a depressed area

Solvay of Belgium and ICI of Britain, Europe’s two major producers of soda ash (a key ingredient in glass), had divided the European market and agreed not to compete with each other

Solvay fined about $40 million and ICI, $23 million

SOURCE: European Commission