[Congressional Record Volume 143, Number 102 (Thursday, July 17, 1997)]
[House]
[Pages H5452-H5454]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          THE ECONOMIC DISASTER WAITING TO HAPPEN IN BRUSSELS

  The SPEAKER pro tempore (Mr. Rogan). Under a previous order of the 
House, the gentleman from Washington [Mr. Dicks] is recognized for 5 
minutes.
  Mr. DICKS. Mr. Speaker, I rise today to call my colleagues' attention 
to the economic disaster that is waiting to happen in Brussels. At this 
time the European Commission Merger Task Force is meeting to discuss 
the impact of the merger between two American companies, Boeing and 
McDonnell Douglas. The taskforce has as its purview the judgment of 
whether the merger poses any adverse impacts on competitiveness in the 
world aircraft market.
  But what is happening, Mr. Speaker, is that the European members 
representing governments who have directly subsidized the European 
aircraft consortium Airbus are using these discussions to extort trade 
concessions from Boeing in order to increase the market position of 
Airbus. This is truly an improper and unfair manipulation of the 
process.
  Now that our own Federal Trade Commission has determined that there 
are no anticompetitiveness problems with the merger, it is time for the 
United States to stand firm against the European Community and demand a 
halt to this travesty.
  Until 2-days ago, Mr. Speaker, the real intention of the Europeans 
was thinly veiled by their expression of deep concern over 
competitiveness. But on July 15, the EC's Minister of Competitiveness, 
Karel Van Miert, betrayed what I believe is the true motivation of the 
EC negotiators, to extract concessions out of Boeing through these 
merger talks that would directly assist Airbus.
  Two days ago, on the Belgian radio, Mr. Van Miert made this statement 
following the breakdown of the negotiations with Boeing: ``We cannot 
give our consent unless Boeing makes very serious commitments in order 
to, let's say, also further guarantee the chances of Airbus in this 
market in the future.''
  That, Mr. Speaker, is what this charade is all about, guaranteeing 
market opportunities for Airbus. We cannot, as a free trading Nation, 
allow this to stand. Certainly in light of this outrageous statement, I 
believe that the President, the State Department, and our Trade 
Representative must clearly and unequivocally express the 
dissatisfaction of the United States with the progress of these 
negotiations, in addition to our intention of taking retaliatory action 
if the EC proceeds in this wrongheaded direction.
  To make things worse, today Commissioner Van Miert

       noted with satisfaction the fact that the advisory 
     committee grouping the experts of Member States unanimously 
     shares the European Commission's analysis whereby the 
     proposals made by Boeing are not of a kind to dispel the 
     serious doubts expressed by the Commission regarding the risk 
     that will weigh upon competition because of the proposed 
     merger between Boeing and McDonnell Douglas. . .. The 
     commission showed it remained serene, and Mr. Van Miert hopes 
     to firmly recall that the Boeing-McDonnell issue was treated 
     strictly within the framework of the Regulation on mergers 
     and that the Commission analysis was based on tangible facts 
     and figures and not just on a political motive of some kind.

  I think Mr. Van Miert should go back and listen to his radio tape in 
Belgium.

       The spokesman then explained that the Commission will take 
     its final decision on 23 July. . . in order to leave the 
     relevant services time to proceed to authentication of the 
     documents comprising this issue.

  I want to point out to my colleagues that Mr. Van Miert says that the

       . . . European Commission decision in concentration matters 
     is legally binding for the parties concerned and means, when 
     it is a matter of veto, that the merged identity is illegal 
     in law. The EC regulation on mergers moreover give the 
     Commission instruments that are apt to dissuade those who do 
     not respect such a decision. In particular, it has the power 
     to impose fines up to 10 percent of the cumulated turnover of 
     the parties, or daily penalties, as long as the infringement 
     lasts.

  So I want to point out to my colleagues, this is a very serious 
matter, one that could result in fines of up to $4.5 billion against 
the Boeing Co. and the seizure of Boeing aircraft overseas. I say to 
the President and Vice President, members of this administration, we in 
the Congress want to support you in whatever actions are necessary in 
order to explain to the Europeans that if they do this, the United 
States will retaliate, must retaliate, in order to make certain that 
this merger goes forward and that we not be blackmailed by the European 
Commission and Mr. Van Miert.
  Mr. Speaker, I include for the Record an article on the current 
status of EC negotiations.
  The article referred to is as follows:

                   Current Status of EC Negotiations

       Discussions between Boeing and the European Commission 
     Merger Task Force have reached an impasse. Boeing has offered 
     significant remedies (see Attachment A) to allay the 
     Commission's concerns regarding the merger, but the 
     Commission continues to demand more. A team of Boeing 
     executives and lawyers met around the clock with the

[[Page H5453]]

     Merger Task Force from July 11th through July 15th. On July 
     15th, Boeing appeared to have a potential agreement with the 
     Merger Task Force, only to have the Merger Task Force retreat 
     later that day on the issue of Boeing's contracts with 
     American, Delta, and Continental. Following the Advisory 
     Committee's meeting on July 16th, Boeing was advised that the 
     Commission was reopening the divestiture issue.
       Boeing is concerned that it will be unable to reach a 
     successful conclusion to the merger review. Every time it 
     appears that Boeing is near an agreement with the Commission, 
     the Commission escalates its demands. At the present, the two 
     open issues appear to be divestiture of Douglas Aircraft 
     Company and modification of Boeing's existing contracts with 
     American Airlines, Delta Air Lines and Continental Airlines.
       Boeing has repeatedly stated to the Commission that it will 
     not consider divesting Douglas Aircraft Company. Divestiture 
     of Douglas Aircraft Company will mean its certain death and 
     the loss of over 14,000 jobs.
       The Commission's true objective on Boeing's airline 
     contracts was revealed when, on July 15th, following the 
     breakdown of negotiations, Karel Van Miert stated on Belgian 
     radio: ``. . . we cannot give our consent unless Boeing makes 
     very serious commitments in order to, let's say, also further 
     guarantee the chances of Airbus in this market in the 
     future.''
       As reported in the Financial Times, the Wall Street Journal 
     and the International Herald Tribune of July 17th, 1997, Mr. 
     Chirac said on July 16th: ``We strongly support the 
     Commission on its position on Boeing-McDonnell. It could be 
     extremely dangerous for Europeans.''
       Similarly, Mr. Rexrodt, Germany's economics minister is 
     reported to have said that concessions offered by Boeing were 
     ``clearly not enough''.
       Boeing is now faced with the proverbial Hobson's choice of 
     agreeing to divestiture and, effectively, kill Douglas 
     Aircraft, capitulating to the Commission's demands that 
     Boeing abandon its airline contracts or simply walking away 
     from a merger which has received the unqualified endorsement 
     of the Federal Trade Commission.


                      boeing's remedies proposals

                        Douglas Aircraft Company

       The Commission has repeatedly asserted that Boeing's share 
     of the commercial aircraft market would jump from 60% to 84% 
     upon the acquisition of Douglas Aircraft Company and that 
     Boeing's position as a ``dominant'' player in the commercial 
     aircraft market would be enhanced. Once again the Commission 
     is manipulating facts to fit a predetermined result. To 
     achieve the 84% market share figure, the Commission included 
     all of Douglas Aircraft Company's installed base. This 
     includes aircraft delivered up to 30-50 years ago! Douglas 
     Aircraft Company's share of the commercial aircraft market in 
     1996 was 3.8%. Since the merger announcement in December, 
     1996, Douglas Aircraft Company has booked orders for a total 
     of 7 aircraft, all of which were announced before the merger 
     announcement and 5 of which are leased freighters.
       The Commission has argued that Boeing may be able to 
     leverage the Douglas Aircraft installed base into additional 
     sales of Boeing aircraft. The Commission has not put forward 
     any evidence to suggest that this would be the case and in 
     fact, evidence suggests the contrary. If the Douglas 
     installed base were so valuable, why is Douglas failing? If 
     the Fokker installed base were valuable, why did one of the 
     Airbus partners (Daimler Benz) sell Fokker's spares business 
     and why didn't another airframe manufacturer surface as a 
     potential buyer?
       The Federal Trade Commission has thoroughly investigated 
     the viability of McDonnell Douglas's commercial aircraft 
     business and has concluded that it is not viable and that any 
     attempt to divest the commercial aircraft business would 
     further damage the business and not promote competition. 
     Nevertheless, the Merger Task Force proposed that Boeing 
     attempt to divest Douglas Aircraft Company. The Merger Task 
     Force further proposed that if no buyer could be found for 
     Douglas Aircraft Company Boeing would be required to shut 
     down the commercial aircraft production lines of Douglas 
     Aircraft and sell the spares business.
       So great is the Commission's zeal to deny Boeing any access 
     to Douglas Aircraft Company, it is overlooking potential 
     enormous harm to the owners and operators of Douglas aircraft 
     worldwide. Expert analysis submitted to the Merger Task Force 
     shows that even an attempt at divestiture of Douglas Aircraft 
     Company or its spares business could result in the loss of 
     value of Douglas aircraft in service worldwide of 7-14 
     billion dollars. Evidence has also shown that the cost of 
     customer support increases when such support is provided by 
     someone other than an airframe manufacturer, and the quality 
     of such support decreases.
       Not only is the Commission ignoring the potential adverse 
     impact of a divestiture on airlines, but it is ignoring EU 
     precedent and jurisdiction and comity considerations as well. 
     An order by the Merger Task Force requiring divestiture of 
     United States assets in the context of a merger between two 
     U.S. companies would be unprecedented in the history of EC 
     antitrust review and would violate principles of jurisdiction 
     and comity.
       Boeing has repeatedly stated to the Merger Task Force that 
     it would not attempt to divest any portion of the McDonnell 
     Douglas commercial aircraft business because of the potential 
     harm to world's airlines and the adverse impact such an 
     attempt would have on the over 14,000 employees of Douglas 
     Aircraft Company. Boeing has instead offered significant 
     structural and procedural remedies (see Attachment A) that 
     address the Commission's particular concerns regarding 
     ``leveraging'' without having a devastating impact on Douglas 
     Aircraft Company's customers, suppliers and employees.

                          Exclusive Agreements

       From almost the very beginning of the Commission's merger 
     review, the Airbus Member States and Karel Van Miert have 
     asserted that the merger could not be approved unless Boeing 
     terminated its ``exclusive'' agreements with American, Delta 
     and Continental.
       The agreements are between a United States airplane 
     manufacturer and United States airlines and are unrelated to 
     the merger. The three ``exclusive'' agreements essentially 
     provide the customers significant price protection and order 
     flexibility over a 20 year period in exchange for a sole 
     supplier relationship with Boeing. Were the exclusivity 
     clauses not present, Boeing would have required much larger 
     firm orders from the airlines to compensate Boeing for its 
     risk. The airlines are therefore receiving the benefits of 
     very large orders without the financial risk.
       The Federal Trade Commission has thoroughly reviewed the 
     existing ``exclusive'' agreements and has found no basis to 
     challenge them under U.S. law. While the Federal Trade 
     Commission's July 1, 1997 decision evidences concerns 
     regarding such agreements, the concerns relate only to the 
     degree of foreclosure of the market that may result from 
     future additional ``exclusive'' agreements.
       The Commission does not have jurisdiction over the 
     ``exclusive'' agreements in a merger review. It can acquire 
     jurisdiction only if it attacks the agreements under the 
     competition rules of Articles 85 and 86 of the EC Treaty. 
     However, because of its desire to obtain concessions from 
     Boeing regarding these agreements, the Commission has 
     manufactured jurisdiction based upon unsubstantiated 
     allegations by Jean Pierson of Airbus that the agreements 
     were the result of a conspiracy between Boeing and McDonnell 
     Douglas to use the merger and Boeing's resulting ``dominant'' 
     position and access to McDonnell Douglas customers to force 
     airlines to enter into such agreements. Thus, the Commission 
     is seeking ``voluntary'' concessions as the price of merger 
     approval instead of running the risk of losing a competition 
     case under traditional antitrust rules.
       Although Boeing's agreements with its three U.S. customers 
     are not properly included in the Commission's merger review 
     and are legal under U.S. law, Boeing is willing to make 
     significant concessions to the European Commission regarding, 
     such agreements in order to resolve the issue and obtain 
     merger clearance.
       As seen in Attachment A hereto, Boeing has offered a 10-
     year moratorium on such ``exclusive'' agreements except for 
     those campaigns in which another aircraft manufacturer offers 
     one first. Boeing has never gone one step further and offered 
     to modify its existing agreements to shorten the duration of 
     the ``exclusivity'' period to 13 years (the term of Air Bus' 
     ``exclusive'' deal with US Airways) and to allow American, 
     Delta and Continental to become launch customers for the 
     A3XX. What the Commission asks Boeing to do instead is give 
     up all of its contract rights and allow the airlines to keep 
     all of theirs.

                               Spillover

       Notwithstanding the existence of the 1992 Bilateral 
     Agreement between the DU and U.S. relating to commercial 
     aircraft subsidies, the Commission has repeatedly tried to 
     extract concessions from Boeing in the area of government-
     funded research and development contracts. It has also 
     insisted on extracting concessions from Boeing that would 
     impair its ability to deal with its suppliers.
       The Commission's articulated concern is as follows: by 
     acquiring McDonnell Douglas, Boeing will become bigger and 
     therefore more ``dominant''. In addition, the acquisition of 
     McDonnell Douglas would increase Boeing's resources in the 
     area of Dodd and NASA research and development contracts.
       The Commission has demanded that Boeing hold its commercial 
     and defense businesses separate. This would, of course, 
     deprive the U.S. Government of the benefits of the 
     application of commercial technology to defense programs. The 
     Commission has also demanded that Boeing license its patents 
     to Air Bus.
       Boeing has attempted to address the Commission's concerns 
     by offering certain remedies in the area of suppliers, 
     reporting of government research and development contracts 
     and patents, as set forth in Attachment A. To offer any 
     further remedies would interfere with the 1992 Bilateral and 
     would seriously impair Boeing's ability to conduct its 
     business.
                                                                    ____


         Boeing Responds to European Commission Recommendation

       Seattle, July 16--The Boeing Company today was informed 
     that the Advisory Committee of the European Commission's 
     Merger Task Force has recommended that the proposed merger 
     between Boeing and McDonnell Douglas Corp. not proceed 
     because remedies offered by Boeing were not sufficient.
       In particular, Boeing and the Commission have not been able 
     to resolve the issue of

[[Page H5454]]

     combining McDonnell Douglas's commercial airplane business 
     with that of The Boeing Company, and the issue of so-called 
     ``sole-source supplier'' agreements that Boeing entered into 
     at the request of its U.S. airlines customers.
       ``We are extremely disappointed because Boeing submitted to 
     the Commission a series of significant remedies designed to 
     address all of the Commission's concerns and to protect the 
     interest of our airline customers, suppliers, and the more 
     than 200,000 employees of Boeing and McDonnell Douglas,'' 
     said Boeing Chairman and Chief Executive Officer Phil Condit.
       In addition, Condit noted, ``The issues that the Commission 
     has raised already were analyzed in an extensive review by 
     the U.S. Federal Trade Commission, which approved the merger, 
     without conditions, on July 1.''
       ``It is our hope,'' Condit added, ``that once our remedies 
     are reviewed by the full Commission, prior to July 23, that 
     the Commission will find in favor of the merger and in favor 
     of free and fair competition.''

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