Ge Honewell Merger Case Executive Summary

This paper has a twofold purpose : on the one hand the GE/Honeywell case is being looked into : from a US Antitrust Authorities point of view, we look into the reasons why the EU decided to block the proposed Merger. On the other hand, we investigate what kind of major Competition Policies are in place, and how we evaluate them (advantages, disadvantages).

First, we brieflly outline the “history” of the case. GE announced its proposition on October 22, 2000, prompting an investigation in the US and the EU. Throughout the investigation, US and EU authorities worked together. On May 2, 2001, it was announced that an agreement had been reached, but further proceedings did not work out, and on July 3, 2001, the European Commission decised to block the deal.

In the market of large jet engines, the EU claim that GE’s position is dominant, is rejected, because most of the market share is due to one single customer, and because the competition is very strong anyway. In the avionics and non-avionics market, the US authorities oppose the EU’s view that GE Capital distorts fair compition in this capex-sensitive market on a number of grounds, one of the most important being that GE Capital has to provide capex to a lot of other GE subsidiaries, imposing opportunity costs, and hence has a WACC that should be similar to the open market rates. Even if GE has an advantage in the financial funding area, it is viewed by the US as a regular method, an allowed competitive advantage. Regarding the avionics and non-avionics market, the US authorities consider it to be a market with very strong competitors, hence, the merger (as a causal factor on its own) would not drive these strong competitors out of the market.

In the final section on the GE/Honeywell case, we look into the underlying cause of the difference between the EU and US view on it. The US authorities focus less intense on the “competition”, which they do not see as an end in itself, but as a promotor of efficiency. Therefore, they are less prone to accept the reason of “threat to the competition intensity” than the EU.

In the second part of this paper, we define and evaluate different kinds of Competition Policies. The first one is Unilateralism (undertaken by a single state, having an impact on other state(s)). This policy is considered to be sub-optimal, there is no agreement from all affected stakeholders, and usually they react with (similar) counter-measures, hence dragging all parties into a loose/loose situation.

Regarding Bilateralism (involving two states reaching trade agreements), we sketch the history of this kind of trade agreements, and we look into the most important kinds of bilateral agreements, such as the FTA’s (Free Trade Agreements), the BIT’s (Bilateral Investment Treaties), and the MRA’s (Mutual Recognition Agreements). We describe the advantages of Bilateralism (stimulating investments, reducing trade barriers, etc.) and the disadvantages (eg adjustment pressures regarding mature industries).

Finally, we discuss the major principles of multilateralism (eg. the “most favourite nation” principle and the “national treatment” principle). We then provide an overview of the main advantages of this Policy (stimulating peace, constructive handling of conlficts, the easiness of set rules that are well-known to all members, etc.). The US and EU positions in this respect are briefly touched upon.

We conclude that Multilateralism is superior to other Policies, but that its implementation is difficult. Frequently, nations block the process and reverse to unilateral actions. This weakens the multilateral framework and confidence and delays the process. Lobbies, cartels, public and private interests can hinder the process, arguing to their stakeholders that the nation’s sovereignty is in danger.