The EU to remain the once and future ruler in a global economy?

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Although the United Kingdom is considering leaving the European Union and other economic players, such as China, are emerging, researchers suggest that the EU is — and will remain — a dominant player in the world's business arena.

Among other regulatory duties, the European Commission keeps a watchful eye on the mergers of European and foreign companies to maintain a competitive playing field, said Terrence Guay, clinical professor of international business, Penn State.

"Since the EU is an important regulator it gets to decide whether U.S., Japanese, Korean or any other country's firms merge, if they are operating within Europe," said Guay. "What they're interested in is how the merger or antitrust policies would affect competitiveness within the EU market."

Several international firms, including American companies, have paid the price for underestimating or failing to recognize the power of the EU to regulate its markets and approve mergers, according to the researchers, who released their findings in the book, "European Competition Policy and Globalization" (Palgrave Macmillan 2016). In 2001, for example, after receiving support from American regulators, Jack Welch, then CEO of GE, expected an easy approval of his company's merger with Honeywell, but was shocked when the commission rejected the proposal.

"Each case is a little different, but I think the GE-Honeywell case is one where there was a personality — Jack Welch — who basically didn't care what the EU thought and the earlier Microsoft cases from the 1990 were similar, too," said Guay, who wrote the book with Chad Damro, senior lecturer in politics and international relations, University of Edinburgh. "I think what has happened since the late 1990s, almost 20 years, is that more companies are realizing that you have to pay attention to the EU."

The clashes with GE and, soon after, a highly publicized tussle with Bill Gates and Microsoft, showed the gathering power of the EU.

"The EU was created in the 1950s, but it didn't have the power to regulate companies in anti-trust, government subsidies and mergers," said Guay. " Nobody took the EU's competition, or anti-trust in U.S. parlance, regulators very seriously until the 1990s. As the EU became more integrated, particularly the 1980s, that's when its leaders decided that if they wanted to make European companies more competitive, then they would need to build a regulatory regime that ensures that some companies don't become too dominant."

The EU was not afraid to flex this regulatory muscle as the high tech sector became more dominant. Besides the EU's involvement in the controversial Microsoft case, Guay noted that two cases against Google are currently making their way through the EU system.

Besides the prestige of its regulatory arm, the EU also serves as a model for regulatory bodies among countries in emerging markets.

"As other countries like China and India become more important to businesses and struggle to develop a regulatory system, most countries don't try to reinvent the wheel, so they look at U.S. models and European models," said Guay. "We are seeing a gradual influence of the European model taking hold in other countries."

Guay suggests that even with the challenges the EU faces, such as the UK's possible exit, he expects the European Commission to continue to exert its power, especially on mergers.

"The EU is not going away," said Guay. "As new products are developed and new services are provided, it's going to create questions on how these companies are competing."

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Media Contact

Matt Swayne
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814-865-9481
@penn_state

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