Has globalisation gone too far?

The past few months have witnessed a number of high-profile cases of western countries stopping acquisitions of domestic companies by foreign corporations. The world had barely absorbed the news of a number of European governments speaking against Mittal Steel?s 22 billion euro bid for Luxembourg-based Arcelor. And then, Dubai Ports World had to agree to divest its container terminals in the US to an American entity under pressure from the US Congress. Earlier, the Chinese oil company, CNOOC, was prevented from taking over Unocal in the US.

These are not isolated cases. They fit into a pattern. There is growing resistance in the developed countries to foreign takeovers of national enterprises. Earlier, rumours about a takeover by Pepsico of Danone, the French dairy company had received similar resistance. It was also visible when the Chinese Lenovo acquired IBM Corporation?s personal computer business in 2005 for $1.25 billion.

Another point that is clear from these cases is the fact that these are not being stopped on the basis of pure business considerations, but by protectionist intentions. For instance, the Arcelor CEO used the perfume versus eau-de-cologne analogy to describe his company and Mittal Steel, rather than claiming the offer was unattractive. Therefore, racist overtones have been used to block the deal rather than pure economic logic. This reminds one of an earlier instance of a bid made by Daewoo of South Korea in the privatisation programme of Thomson Multimedia in the late 1990s, when the deal was stopped in order to retain the European identity of the company in question.

The governments of developed countries are acquiring powers to protect their national champions from foreign takeovers. On the eve of January 1, the French government published a decree listing 11 sectors that can be protected from foreign takeovers on the grounds of security. Most of the EU members retain powers to stop foreign takeovers. In the US, the President can veto any deal that is perceived to threaten ?national security? under the Exxon-Florio Amendment. The term ?national security,? however, has not been defined. This provision has been used to stop deals such as CNOOC-Unocal.

This trend is to be seen against the backdrop of the demand of developed countries, especially the EU, for a multilateral framework on investment (among the other so-called Singapore Issues) within the ongoing Doha Round. That framework, if agreed upon, would (as per the proposals of the proponents) have, among other issues, granted a national treatment to foreign investors and their investments. In other words, foreign investors would have got the right to establish and acquire any business entity in any country.

Obviously, the proponents of the treaty were seeking to write WTO rules that would assist their enterprises to strengthen their global reach. They had apparently not realised that they themselves would be on the defensive on this count. They should be grateful to developing countries who resisted the launch of negotiations on investment under the Doha Round and had it dropped off the Round in the July 2004 package. Otherwise, it would be doubly embarrassing for the developed countries to stop such acquisitions by foreign enterprises and go against the WTO rules that they themselves had sought!

What comes out is that the developed countries support and pursue globalisation only when it helps them and not when it tends to go too far. In that context, one can recall the outrage on outsourcing of services from India some time before in the US, with some US states imposing taxes to discourage outsourcing. The US government, along with the EU, has been the most vocal champion of liberalisation of trade in services. However, when it hurts them, there is resistance.

In any case, their own record in liberalisation of movement of natural persons under Gats has hardly been encouraging?with very few commitments being made, if at all, and almost all with conditions or limitations that render them ineffective. The double standards are in evidence in many other ways as well. The developed countries have practiced regionalism and bilateral FTAs, while preaching to the world the virtues of multilateralism. Now that developing countries, especially those in Asia, have also started to evolve their own regional trading arrangements, there are proposals seeking a moratorium on RTAs.

They have similarly preached the virtues of trade liberalisation to developing countries, while maintaining high peak tariffs and specific duties on products exported by developing countries, such as food products, textiles and clothing, and leather products, among others.

It is this selective attitude to globalisation that has affected the pace of negotiations in the Doha Round. Developed countries seek ambitious proposals for market access for their products and services. However they are not willing to undertake ambitious commitments to reduce distortions in the agriculture sector. It is evident that two significant agreements reached at the Hong Kong Ministerial viz. phase out of export subsidies on agriculture and duty-free-quota-free market access for least developed countries were accepted after a lot of haggling. The progress since the Hong Kong Ministerial in respect of the Round has not been encouraging at all.

Perhaps the time has come to take a pause and launch a dispassionate debate on the process of globalisation that is provoking widespread resistance in the North and the South.

?The writer is DG, Research and Information System for Developing Countries (RIS). These are his personal views