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There's talk of regulations that would force engine manufacturers to make their engines available to a minimum number of teams if they are capable of supplying more than one yeam. They won't be forced to supply multiple teams, of course; it will be down to the teams themselves as to which manufacturer they get their engines from. But the proposed regulation is designed to stop teams from blocking other teams from getting their engines because there has been grumbling about the balance of performance between the engines used by works teams and the engines supplied to customers. There have been accusations that Mercedes have deliberately prevented their customers from competing with their works team by supplying a different specification of engine. If the FIA can enforce a balance of performance between works and customer engines, then the regulation obligating manufacturers to supply multiple teams if that is possible (and such a supply chain would be a condition of entry) is a way of closing off a loophole that would limit the ability of other teams to compete.
In this case, Hill is only advocating for Williams to join Honda in 2017 if Honda produce a better engine this year.
The same claims were aimed at Ferrari as well, but as explained prior and why the factory team always out does the supplied teams is due to information, and not difference in power between like engines. Mercedes builds engines and their factory constructor gets them knowing perfectly before hand what it is fully capable of, dimensions to build a car around it and so on. Williams, Lotus and FI don't get this nor should they. Then there is the issue of specialized lubricants that supposedly get team 50+ hp (if I remember correctly) and that is usually factory only, such as Ferrari and Shell or Petronas and Merc. Williams from what I've seen never ran Petronas and used Petrobas with Merc PUs and not to count the fact that they run their own transmissions and KERS built in house by Williams. All of this formulates into something that is significantly different to the factory.
It's always easier to mount claims of "well we're just getting under powered engines and that's why we're not strong enough". Time and time again Merc was shown to have a better balance than the past couple FWs and still had a good low down force set up as well. So who is to blame for poor chassis pairing? I mean if Williams were actually given under powered units they wouldn't be challenging for Podium in both 2014 and 2015. Also I hate to say it but their drivers aren't nearly as good as the duo at Mercedes and RBR or Vettel at Ferrari so that also plays a factor. It also goes back to what you've said, teams have too much say.
As for Hill, that doesn't explain what benefit he sees them getting that outweighs not staying with Mercedes, especially when Honda already has a works team and will have one then.