Brown takeovers, with WTO help

Ten years ago, many leftist politicians and economists expressed outrage at the new rules of the World Trade Organization (WTO) obliging member-countries to give “national treatment” to foreign industrial corporations. That is, foreign firms operating in a country had to be given the same treatment as domestic ones, and could not be burdened with additional conditions. The left (and much of the centre too) denounced this as a diabolical way of empowering foreign companies with global clout to smash Indian ones.

So, I find it really amusing that Indian Commerce Minister Kamal Nath has just protested to the European Union that France and Luxembourg are violating WTO rules on national treatment in trying to thwart Lakshmi Mittal’s takeover of European steel giant Arcelor. WTO rules that were supposed to be terribly anti-Indian are now being invoked to promote an Indian takeover of a European firm.

Kamal Nath seems to be relying on a European Union commitment to the WTO on trans-border acquisitions. This does not apply to developing countries like India (though Europeans want it to). And WTO member-countries can block foreign takeovers on security grounds (like the US blocking a Chinese takeover of Unocal). Still, it is notable that Mittal may succeed because of WTO protection.

This shows that the left-wing messiahs decrying the unfairness of the 1995 WTO rules did not have the foggiest. They assumed implicitly that Indians were inferior to whites, and so any open competition would enable the whites to thrash the Indians. What has now been demonstrated is that Indian leftists are certainly inferior, but Indian businessmen are not.

Lakshmi Mittal is the best evidence of this. Starting with a mini-steel plant in Indonesia, he has become the world’s biggest steelmaker, with factories across the globe and workers of 45 nationalities. Mittal got no Indian protection: he started abroad and stayed abroad. Last year he took over International Steel Group, the biggest US steel company. And he has now bid to acquire the second-largest company in the world, Arcelor, which is headquartered in Luxembourg and also has extensive operations in France and Spain.

The Luxembourg government owns a little over 5% of Arcelor’s shares. It is thinking of passing a law permitting companies to issue “poison pills” to deter foreign raiders. Poison pills are strategies to make takeovers unattractive, such as issuing a flood of cheap shares to existing shareholders, or taking on huge new liabilities. Kamal Nath has taken on Luxembourg too, warning that India might refuse to renew its bilateral treaty on avoidance of double taxation. Luxembourg is a low-tax haven, so MNCs use it as their headquarters for investing in countries like India. But without a double taxation treaty, such companies would lose their tax advantage, and perhaps quit Luxembourg.

Lesson: countries with lots of foreign investment have more weapons at their disposal than countries that do not. Liberal foreign investment is not a recipe for foreigners to take you over, but a recipe for acquiring means to exert counter-pressure when necessary.

Some people will wonder why India is going out of its way to assist Mittal. He carries an Indian passport, yet many will hesitate to call him an Indian businessman. He is the epitome of the globalised businessmen, transcending national identity. He is an Indian national who lives in London but has no steel plants in either India or Britain, although he has a string of steel plants in other countries across the globe. The world is his oyster.

Yet Indians regard Mittal as one of their own, and are proud at his global conquests. Notwithstanding the advance of globalisation, most people, in India and abroad, take pride in their own businessmen.

That explains why the chief of Acelor, Guy Dolle, has concocted the excuse that Mittal does not have the right “culture” to take over his company. This is a thinly disguised racist attempt to portray Mittal as a brown man with Marwari values who should not be able to touch one of the crown jewels in Europe. Luxembourg’s politicians feel the same way.

Many Indians bristle at this racism. Yet many of them also get upset at the thought of a big Indian company being taken over by a foreigner. Nationalist chauvinism exists in some degree everywhere, in developing countries like India as well as rich ones like France and Luxembourg. Indian support for Mittal is a form of nationalist chauvinism, no less than the resistance of France or Luxembourg.

I think Mittal has a fair chance of triumphing. He is headquartered in the European Union, so he cannot easily be depicted as a foreigner, despite his brown skin. Even if he is foiled on this occasion, he will find others. After all, he has WTO rules to help him.

What do you think?