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EU: Boeing Trade Dispute With U.S. Nearing Climax

Prague, 8 July 1997 (RFE/RL) - The European Union and the U.S. companies Boeing and McDonnell Douglas are moving swiftly towards the climax of their disagreement over the planned merger of the two aviation giants.

EU competition officials are to deliver a decision before the end of the month on whether the Union should prohibit the $14 billion merger from taking effect on the territory of its member states. In the event of a ban, the stage appears set for a major trade war between the United States and Europe, with incalculable consequences.

The EU has put its cards on the table: anti-trust officials from all 15 states agreed unanimously in Brussels last week that the proposed merger would lead to a strengthening of Boeing's existing dominant position in the market for commercial airliners - and therefore it should be prohibited. The EU is trying to protect the European Airbus consortium, which is the only other major western producer of large airliners, from what it sees as unfair trade practices.

The EU officials also agreed that the compromise offers made so far by Boeing are not enough to prevent a strengthening of this dominant position. This represents an ultimatum: Boeing is being told, in effect, to abandon the core of its merger plans or face an EU-wide prohibition.

For its part Boeing is taking a conciliatory line in public. Jim Frank, Boeing's Vice President in Europe, told RFE/RL today he and his team are continuing negotiations with EU officials in Brussels, and that he believes a solution will be found which is acceptable to both sides. He declined to say what compromise offers Boeing has put on the table, but he described the ongoing talks as cordial.

But, judging from earlier comments from U.S.-based officials, Frank's mild comments hide a steely determination by Boeing to continue with the merger. That's particularly the case since the U.S. Federal Trade Commission (FTC) last week gave approval for the merger plans, saying that the combination would not substantially undercut competition in aircraft manufacturing because McDonnell Douglas's share of the big passenger jet market is now so small.

In his comments to RFE/RL today, Frank dismissed the EU's concerns that the merger would threaten the position of Airbus Industrie. He noted that Airbus won 44 per cent of the world market last year, and he described the four-nation European consortium as a formidable competitor. Such a competitor, he said, does not need the type of protection which the EU is trying to give it.

For its part Airbus is tight-lipped. Spokesman Alain DuPieche told RFE/RL from Toulouse today that his company does not want to comment while discussions are still underway in Brussels. He noted recent remarks by Airbus Chief Executive Jean Pierson denouncing the planned merger as an attempt to suppress competition.

The U.S. FTC's position is that competition would not be hindered by the merger because McDonnell Douglas, once a major supplier of passenger aircraft, is now no longer a viable competitor in that market sector. Therefore, according to the FTC, Boeing does not gain any significant competitive potential from the merger.

However, the EU is worried that even if McDonnell Douglas is no longer a big player on its own in the airliner sector, Boeing would still gain much. For instance, Boeing would gain the business of servicing and supplying spare parts to the McDonnell Douglas's planes already in service, which still account for 24 percent of the worldwide airliner fleet. And Boeing would gain access to McDonnell Douglas's major defense and space business. The financial resources of this sector could be used to support Boeing's commercial plane operations, and in addition Boeing would have increased access to advanced technology developed with public funding for the defense industry.

With a news blackout over the Brussels negotiations, it's impossible to know exactly what Boeing's Frank is bringing to the bargaining table. But one area of disagreement which the Americans can probably afford to give way on, is the question of Boeing's long-term exclusive contracts to supply planes to three U.S. airlines. The EU considers that these deals represent a considerable foreclosure of the market, and it fears that the merger would give Boeing greater leverage to enter into more such deals in future. Even the FTC found the exclusive deals questionable, and said it would monitor their impact for anti-competitive effects.

Boeing could probably afford to drop the exclusive deals. It knows well that once customers have chosen a manufacturer's products, they are in any case reluctant to change to a new and untried line.