REVIEW & OUTLOOK
Patriot Games
Waging trade war is the wrong way to punish European perfidy.
The U.S. and Old Europe haven't exactly been seeing oeil-to-eye of late. But American politicians looking for payback ought to be careful lest they aim at the French and hit Americans instead.
Consider the Senate amendment tucked into last week's war funding bill that would tighten U.S.-ownership rules for air-cargo carriers and disrupt Deutsche Post's bid to acquire a portion of Seattle-based Airborne. The sneaky provision is courtesy of delivery rivals UPS and FedEx, which are only too happy to block more formidable competition.
We like a French joke as much as the next guy. And it's amusing to see French's mustard (invented by New Yorker Robert T. French in 1904) hurry out a release saying that the "only thing French about French's mustard is the name!" French hotel conglomerate Accor even rushed to remove its French flags in front of its U.S.-based Sofitels.
But in today's global economy a boycott against a "French" or "German" company can easily be a blow against American workers. Our politicians are figuring this out, albeit slowly. A number of House Members recently sent a letter to the Pentagon demanding that the U.S. Marines end a contract with the French-owned catering firm Sodexho Alliance. But then Representative Chris Van Hollen pointed out that Sodexho's U.S. unit was based in his home state of Maryland, has 110,000 American employees (in all 50 states) and pays $646 million in U.S. taxes.
In South Carolina, the state House also passed a resolution calling for a boycott of French goods. The bill died when lawmakers realized that French tire-maker Michelin had $2 billion in investment and 6,000 workers in South Carolina alone.
All told, Europe remains this country's most important trading partner. According to Johns Hopkins' Center for Transatlantic Relations, Europe held some $3.3 trillion in U.S. assets in 2000, accounting for two-thirds of total foreign assets here. Old and New Europe accounted for half of total global earnings of U.S. companies in 2001.
Which gets us back to Germany's Deutsche Post. U.S. air carriers are still subject to ownership restrictions that date back to the 1920s. Even in today's interconnected economy, foreign shareholders can't own more than 25% of the voting stock of domestic airlines or carry paying passengers between U.S. cities. In theory these laws protect national security, safety and unions. In reality they discourage capital investment in cash-starved U.S. airlines and allow American companies to block competition.
Deutsche Post bought a majority stake in U.S. delivery firm DHL three years ago. UPS and FedEx, which together control more than 70% of the U.S. ground delivery market, unleashed their lobbyists to persuade the Department of Transportation to kill the deal on "foreign ownership" grounds. They haven't had much success, but they are now trying again with DHL's bid to buy Airborne.
The DHL-Airborne deal isn't a violation of the traditional ownership restrictions, because DHL plans only to buy Airborne's ground delivery business; the airline unit would be spun off and Deutsche Post would contract with it for U.S. business. And so UPS and FedEx want Congress to do their dirty work.
The original Senate amendment established an entirely new standard for carrying military air cargo that disqualified foreign-controlled firms--cutting out a German-linked Airborne. The final language was watered down, but House Republicans want to restore the tougher provisions.
Congress should be doing the opposite, especially given the feeble state of American air carriers. Clearing away the foreign ownership provision would open the industry to new capital, spur competition and lower costs. As public policy, it sure beats another taxpayer subsidy.
As for national security, any carrier operating in the U.S. has to follow U.S. laws regardless of where its shareholders sit. There's no reason a foreign-owned airline or cargo company couldn't fulfill its duties in the Civil Reserve Air Fleet--that is, hiring out their planes to the military just as our current airlines are doing today in Iraq.
We can think of many ways to pay back the French, starting with the end of the U.N.'s oil-for-food program. But exploiting patriotic feeling as a way to block domestic U.S. competition isn't the American way. Come to think of it, it's positively French.
