BRUSSELS: A wave of overseas acquisitions of European assets has triggered a call in the European Union for foreign bids to be vetted, but opposition to such a move is strong and new controls will be hard to sell.
Many EU diplomats and senior officials have dismissed a written proposal by two European Commissioners to set up a high-level board with powers to reject bids by foreign companies or investment funds looking to buy EU companies or other assets.
Italy’s Antonio Tajani and France’s Michel Barnier suggest the EU consider creating a centralized committee — like those in the United States, Canada, Japan, China and Australia — to vet foreign bids on strategic grounds.
Such a body would replace Europe’s existing patchwork of national oversight bodies, creating a more unified vetting process, they wrote in a letter to EU Commission President Jose Manuel Barroso, sources who have seen the letter said.
The proposals from the commissioners in charge of industry and the single market underline concern among some senior EU officials about unchecked foreign investment, particularly from China, India, Russia and Brazil.
But the pushback against their ideas also shows how deep the differences are among European policymakers over managing foreign investment flows, and whether critical sectors such as banking, telecoms, automobiles and steel should be protected.
"We see no benefits for Europe in trying to restrict inward investment, which promotes the availability of risk capital and employment in Europe," said Joakim Reiter, head of trade policy at Sweden’s embassy to the EU in Brussels.
National authorities in the Netherlands, Britain and Scandinavia are traditionally open to foreign investment, mergers and acquisitions while French and Italian authorities have at times moved to protect national interests.
Critics of foreign direct investment warn that Europe risks giving up precious technical know-how and sectors of strategic importance to unknown investors. Advocates defend it as critical to Europe’s ability to emerge stronger from financial crisis.
Rattled
French President Nicolas Sarkozy has argued that the EU should not be naive on trade and investment and should demand reciprocal rights for its own firms. EU officials are debating whether to make access to lucrative EU public works contracts conditional on reciprocal openings by countries such as China, India and Russia.
EU industry was rattled last year when Chinese firm Xinmao beat all EU offers for Dutch cable maker Draka, prompting fears that the bid — and others in Europe’s high-tech sector — might be backed by state funds.
Although Xinmao eventually withdrew its offer, the incident highlighted Europe’s diverging approaches to foreign investment.
An EU committee could forge a single approach and integrate existing EU rules on general and energy-related acquisitions, Tajani and Barnier’s letter says, according to sources.
EU officials confirm Barroso received the letter and say it will be discussed later this month. But trade experts see it as a dangerous precedent that could be protectionist.
A British government source told Reuters that London would oppose tighter controls, and retailers are also skeptical.
"The idea of assessing investment is a dangerous premise because investment is a market phenomenon," said Jacques Pelkmans, director of economics at the College of Europe in Bruges. "A marginal check may be necessary if a sovereign wealth fund that’s not transparent or that’s politically motivated invests in sensitive areas. But overall I would have to see a good, serious proposal giving evidence why this is necessary."
Protocol breach
Some EU officials say the Barnier-Tajani initiative not only breached protocol by reviving an issue Barosso had dismissed, but also conflicts with a drive by the 27-country bloc to make inroads into investment markets in emerging economies.
The Lisbon Treaty granted the Commission power to negotiate investment treaties with third countries from 2009. Brussels announced last year it wanted such agreements with China, South Korea, India, Brazil and Russia in the hope of helping EU businesses set up production plants and tap markets overseas.
"The EU is trying to invest in a number of emerging countries as we speak," said Stefan Wengler, director of the Foreign Trade Association, a retail and import federation.
"We can’t then start looking into whether foreign investment should be allowed. That would be preposterous," he said.
European Trade Commissioner Karel De Gucht, in charge of prying open foreign investment markets for EU businesses, cast doubt on any early progress on an EU investment vetting board.
"That won’t happen next week. Maybe next year," he joked.
Such quips are getting louder in Brussels and in European capitals. But Tajani and Barnier are also trying to address a real rise in inward investment flows from emerging economies.
The stock of EU businesses and assets held by foreign investors grew by €1.1 trillion between 2004 and 2009, rising to €2.7 trillion, according to EU data. China and Hong Kong held €32.5 billion worth of EU businesses and assets in 2009, more than twice the €14.6 billion they held in 2004, while India’s stock of EU investments rose almost tenfold to €5.5 billion. –Additional reporting by Foo Yun Chee
