Stiff resistance by the European Commission against a $44 billion merger of two US companies should trouble the oil and gas industry on several levels. One huge concern should be the ready exercise of veto power by an international body that doesn't represent the affected companies' home country. Activism such as this in any industry represents government misguidedness of a type now leading the US back in the direction of energy price controls (OGJ, June 25, 2001, p. 19).
The EC acted after US and Canadian antitrust authorities approved the merger of General Electric Co. and Honeywell International Inc. At this writing, it had produced a draft decision to block the all-stock deal, having first imposed conditions that GE, the acquiring party, found unacceptable.
Strange doctrine
Whatever the outcome, the EC's reasons for treading so heavily in a mostly US merger raise serious questions. They have nothing to do with monopoly concerns or price effects, the central concerns of US antitrust enforcement. Rather, they focus on potential competitive effects of "dominance" of the merged company in its various markets and the possibility that it might gain market influence through the exercise of "portfolio power."
This is strange antitrust doctrine, peculiar to Europe and hostile to such natural outgrowths of business globalization as size, complexity, and mobility of capital. From outside of Europe, it also seems protectionist, although American companies joined European counterparts in lobbying the EC against the GE-Honeywell merger.
Compounding concern is the airy insistence of Mario Monti, EC competition commissioner, that politics plays no role in the issue. He has all but reversed a US-approved decision involving privately owned assets and attempts to insulate himself from accountability. It's an outrageous exercise of nebulous authority. It must not go unchallenged.
The capricious nature of the EC's decision should trouble energy companies both because of the new uncertainty it imposes on international investment and because of the threat it raises to trade. Relations between Europe and the US are deteriorating. The EC's move challenges US sovereignty. The already contentious mood amplifies suspicions of protectionism.
The inevitable urge to retaliate will sour politics of the US's own experiment with extraterritorial arrogance. As prospects for the GE-Honeywell merger faded, the House Committee on International Relations voted to extend by 5 years the ridiculous Iran-Libya Sanctions Act (ILSA). The law provides for punishment of non-US companies that don't honor unilateral US economic sanctions in the namesake countries.
European governments properly resent ILSA and have successfully called the US bluff. Companies from Europe and elsewhere are now investing with impunity in Iran and Iraq. The lack of enforcement makes extension of ILSA look self-delusional. But of course it's only bluster staged for domestic politics, damaging only to US companies.
Now that the EC has thwarted the GE-Honeywell merger, however, ILSA becomes a way to vent American spite at European heavy-handedness along with Iranian and Libyan association with terrorism. The US thus might not only extend ILSA, which seems likely in any case, but try to enforce it as well. That would further erode trans-Atlantic relations. Worse, it would accelerate the retaliatory cycle.
A weakening global economy can't afford such conflict. And the energy industry doesn't need this peril to its markets.
The trends head nowhere good. Reversing them requires attention to an impulse common to them all.
The EC took its ambiguous authority too far with its resistance to the GE-Honeywell merger. The US did so with its third-party provisions of ILSA. And it all came about while energy price controls were reappearing in the US.
Government ambition
The common impulse isn't sudden cultural hostility between Europeans and Americans. It's government ambition exercised on both sides of the Atlantic with no proper sense of boundary. What happened to state restraint, which the past decade proved to be vital to economic growth and human well-being?
It's not too late to get state and private interests back into proper balance where commerce is concerned. The first step is to acknowledge that, where those interests intersect, governments should favor limited involvement. The state-dominated alternative is always bad for business. And it's even worse for people.
