Consider these news flashes:
In short, for good or ill, the way the world regulates megamergers, trade, food and the atmosphere is now decided largely in Europe. The old continent may not–yet–have found a way to end capital punishment in America, or to defeat George Bush’s missile-defense proposal. But it is doing a helluva job in taking over the world economy. “The U.S. is going to have to accept that the Europeans are using clout,” says Wilfried Schneider, an EU official in Washington. “The global market is not an American market.”
Even the U.S. market is now less of an American market. As a unifying Europe asserts its regulatory muscle, its entrepreneurs are in flight to the United States, where they are less subject to what the French call dirigisme, or direction by bureaucrats. The rush is astonishing. According to Mergerstat, a Los Angeles research service, foreign companies in the past three years have taken over 2,779 U.S. companies worth a stunning $766 billion. Three quarters of that money is from Europe. The $300 billion spent last year was seven times the value of General Electric’s proposed $42 billion acquisition of Honeywell. In short, Europe’s business is buying into the global reach of U.S. industry while its politicians try to tame it.
None is more aggressive than European competition commissioner Mario Monti. His recommendation that the EU veto the GE-Honeywell merger stunned and angered the Bush administration. The United States invented antitrust law in 1890, and it had a virtual monopoly on serious trust busting for 100 years. By the 1970s, U.S. courts had dismissed every possible big-is-bad argument as unproved by the economic facts, and trustbusters began focusing on price-fixing and anticompetitive behavior. In 1990, the European Union set up a competition commission, based vaguely on the U.S. model. It was not until Monti arrived from the groves of Italian academia in 1999, however, that the EU began reviving the big-is-bad arguments that it used against GE.
From its headquarters in Brussels, the EU is now the first stop even for American competitors out to chop down big, successful rivals. Sun Microsystems, Oracle and other software makers last year persuaded Monti to launch an inquiry into Microsoft, even though the software giant was, and is, still on trial at home. Similarly, Monti is now probing Intel, partly at the behest of archrival AMD. “The EU now dominates world antitrust, period,” says Charles F. Rule, former antitrust chief under Ronald Reagan, and now a lawyer in Washington. “The only way Washington can get back in the game is by intervening more than Brussels. That could end big mergers entirely. A disaster. On the other hand, all of this is great for us lawyers.”
The EU is also setting the world standard on genetically modified food, perhaps unfortunately. The U.S. Food and Drug Administration, long a leading world arbiter of food and drug safety, has determined that to date GM foods have shown no adverse health effects. Nonetheless Europe has refused to certify these foods, blocking or delaying distribution outside the United States. Crops like Switzerland’s “Golden Rice,” engineered to save people dying for lack of vitamin A, have not reached the developing nations for whom they were designed.
Europe’s regulatory offensive is most popular on the subject of global warming. Casting itself as the environmental champ against an indifferent Bush administration, Europe is now trying to push Japan to adopt the Kyoto targets for reducing CO2 emissions. This would isolate the United States as the only rich country outside the Kyoto accord. But the United States is also the only wealthy power with a population that is expected to explode (by 26 percent) over the 1990-2010 Kyoto CO2 cutback period. As a practical matter, this puts United States compliance with Kyoto goals out of reach, a fact European leaders surely understand but don’t publicly acknowledge. So Europe’s aim here appears chiefly to discredit George W. Bush.
Its aim on the trade front is more serious. One crucial difference in trade policies is that the United States puts its rules into law, while Europe still coddles many industries through informal deals or backstage phone calls. Under the rules of the World Trade Organization, members can challenge protectionist national laws, and Europe has been doing just that. In response to such challenges, the WTO has outlawed U.S. protections for industries threatened by subsidized imports, and by imports “dumped” in the United States at prices below the cost of production. Last week the WTO struck again, banning a U.S. tax shelter called the Foreign International Sales Corp. (FISC), which was set up 30 years ago to offset comparable European export-tax incentives. U.S. firms used this shelter to avoid $4 billion in tax on export profits last year alone. At least as a matter of international law, the WTO rulings effectively disable U.S. defenses against what Congress has long held to be unfair trade practices abroad.
Now comes the crunch. No one believes that Congress will repeal any of the laws struck down by the WTO. Equally important, Europe under the new WTO ruling can retaliate immediately against FISCs–by barring $4 billion worth of any U.S. exports that Brussels might choose. No wonder Zoellick considers the situation “nuclear.”
All-out trade war is unthinkable. Worldwide, exports soared 12 percent last year, or four times faster than the average growth rate for national economies. That means globalization is raising the wealth of nations, and no one can afford to stand in its way. Europe wants leadership and control of the agenda, not destruction of the global economy itself. The United States, for all its loss of face as an economic superpower, needs world trade just as much. So if the EU votes to veto the GE deal, after dismissing new GE concessions last week as inadequate, American antitrust officials may strike back by killing some big European acquisition–and then invite Monti to talk. European trade commissioner Pascal Lamy and his U.S. counterpart, Zoellick, are already in touch by phone, orchestrating the greatest smoke-and-mirror show international trade has ever witnessed.
Here’s how it’s likely to play out. They will resolve the few issues that can be settled, and then postpone potential peace-breakers like anti-dumping rules until these issues can be swept under the rug of the global tariff-reduction talks, due to begin at the Dubai summit. With no clear direction, and no progress toward one, these talks are likely to be a sham. But a useful one. “Lamy and Zoellick are united by a goal of just not failing,” says Charlene Barshefsky, Zoellick’s predecessor as U.S. trade rep. “Negotiations must go on. Never mind how much can actually get done.” So Europe and the United States will keep up appearances of amity at the global conference table. But make no mistake: Europe now controls the agenda.
