When Jack Met Mario

When a company with headquarters in Fairfield, Conn., trumps an offer from a firm upstate in Hartford for a business based in Morristown, N.J., you would think all concerned could sort out their differences over a chowder dinner in New Haven. Wrong! They fly to Brussels instead and let an Italian professor of economics settle their hash.

Weird, huh? Not in the age of globalization--for that, in effect, is what the General Electric Co., United Technologies Corp. and Honeywell International Inc. have just done. Last year GE outbid UTC for Honeywell; American antitrust authorities approved the merger. But--though the game isn't over--the deal appears to have been nixed by the competition division of the European Commission in Brussels, which is headed by an Italian, Mario Monti. (To continue the Connecticut theme, Monti studied at Yale.) For more than 10 years, the commission has claimed jurisdiction over any merger between firms whose combined global sales are more than $4.3 billion and that do at least $215 million of business in the European Union. GE-Honeywell easily passed the test; GE alone employs 85,000 people in Europe.

Though UTC won't comment on the commission's investigations, sources close to the case say it opposed the deal. That makes sense. UTC's Pratt & Whitney division is a competitor of GE's in the global market for large aircraft engines. (With Rolls-Royce of Britain, the companies make up what is, in effect, a three-member oligopoly.) GE's competitors may have thought that by combining GE's engines with Honeywell's advanced electronics, Jack Welch's company would have been able to offer customers an irresistible package--especially since GE, through its aircraft-leasing division, is itself a customer for planes. The commission sympathized with GE's competitors and asked the company to make disposals of assets way beyond anything that Welch and his successor as CEO, Jeffrey Immelt, deemed reasonable. GE hasn't formally walked away, in part to assuage Honeywell stockholders who might otherwise sue, in part because the full commission has yet to endorse Monti's view, and in part because hope springs eternal. But few now bet the deal will go through.

There's more to this than the usual tale of corporate rivalry. GE, after all, is no ordinary American company, and Welch--the great hero of modern American capitalism--is no ordinary boss. Since he declared the commission's conditions unacceptable, three Senators--Republican Phil Gramm and Democrats John D. Rockefeller and Ernest Hollings--have expressed concern to the Europeans. Hollings, new chairman of the Senate Commerce Committee, said the developments supported those who think the E.C. seeks to "protect and promote European industry at the expense of its U.S. competitors," and warned that "denial of a merger...would undermine an already strained E.U./U.S. trade relationship."

There's rich irony here. Until this case, officials in Washington and Brussels had boasted that competition policy was an area of splendid cooperation across the Atlantic. Moreover, Monti is about the least likely man in Brussels to be motivated by crude anti-Americanism. Indeed, he was offered the job of Foreign Minister in the Italian government of Silvio Berlusconi, conservative America's favorite European. In any event, GE competitors opposed to the deal are--like UTC--just as likely to be American as European. Airbus, Europe's flagship aviation company, says it supported the GE-Honeywell deal. I understand that only one airline formally opposed the merger, and I suspect it is based in the U.S.

Rather than turn the case into an excuse for a trade war, officials should be considering its real issues. Monti's team--"understaffed and underpowered," in the words of an observer--relies too much on the comments of competitors for the analysis of a merger. The E.C.'s investigative and decision-making functions should be separated, as they are in the American system. Most important, global businesses need global-competition rules--and a global body to enforce them. That, however, would diminish the power of U.S. officials, including chairmen of Senate committees. So don't bet a chowder dinner on it.