The climate for foreign takeovers is changing in a reaction against globalization, and this change is most pronounced in the world's richest countries now worried about where they will fit in a future world of shifting economic power.
A new report by the World Economic Forum on global risks argues that "unfettered globalization and growth is coming to an end, as governments seek to balance economic expansion with political priorities and sustainability concerns."
One sign is a growing belief that corporations in certain "key" sectors of the economy play a strategic role in a country's economic potential and that this is weakened if those corporations are sold to foreign investors. This belief is often subsumed under the heading of "national security."
Just before departing for Australia for this year's summit of Asia-Pacific Co-operation Council leaders, U.S. President George W. Bush signed a new law, the Foreign Investment and National Security Act of 2007, making takeovers of U.S. companies more difficult. The new law subjects more sectors to "national security" reviews and gives members of the U.S. Congress the right to intervene, opening the door to a much more politicized process.
At the same time, Japan has just toughened its laws on foreign takeovers of Japanese companies by blocking more than 10 per cent foreign ownership in Japanese companies producing technologies that can also be used in weapons systems, such as semiconductors and specialty metals. Some 137 items are listed in the new regulations, effectively shielding many well-known Japanese companies from foreign takeovers.
France has not introduced new laws since it published a list of "strategic" sectors in 2005. But French President Nicolas Sarkozy is aggressively pursuing efforts to build up large-scale French "national champions."
Last week he engineered the merger of Suez and Gas de France to create one of the world's largest energy companies and a leader in liquefied natural gas technology. The French government will effectively control nearly 40 per cent of the new company.
Now, Sarkozy is pushing the restructuring of Areva, France's government-controlled nuclear technology company to make it a world leader as countries seek nuclear power.
A new report on world investment prospects to 2011 from the Economist Intelligence Unit and Columbia University's Program on International Investment, concludes that while foreign direct investment will continue to grow, "the risk of protectionism is now appreciable, the global geopolitical climate appears more threatening, and the outlook for securing a stable and co-operative international trading and investment environment is worse than in the recent past."
The gradual lowering of barriers to foreign takeovers around the world over the past two decades could now go into reverse in a "re-balancing" of polices, it says. A growing number of countries, the report said, may tighten existing investment rules to regulate foreign investments and protect "strategic sectors" from foreign takeovers.
Interestingly, it is the United States that is seen as leading this turnaround. The EIU report said it is taking a more restrictive approach on trade and investment. The U.S., it says, "will block foreign takeovers of key U.S. companies, which has become more likely following recent legislative changes. All this will make for constrained globalization and less foreign direct investment than might otherwise be the case."
As key global economies – notably the U.S., Japan, Germany and France – adopt a more restrictive approach in response to the huge shake-up of the world economy now under way, what should Canada do?
This is what Red Wilson, who is chairing a review of our Investment Canada Act, is supposed to tell us. Let's hope there will still be some strong Canadian-owned companies left by the time he reports.
♠ Posted by Emmanuel in Trade at 9/10/2007 02:55:00 PMIn this op-ed, David Crane of The Star ponders what Canada's next move will be when it comes to globalization as the likes of the US, Japan, Germany, and France appear to be slowing down the globalization train to protect national interests. Call it preserving national security or raising protectionist barriers, but things aren't as freewheeling as they used to be. Many of the measures being taken by these countries are summarized below. Will Canada join the globalization countermovement? A "Competition Policy Review Panel" headed by "Red" Wilson (no, he's not in cahoots with that proto-socialist London Mayor Ken Livingstone) is due to report soon on how Canada should treat foreign investment and competitiveness. Stay tuned: