“While subsidized M&A or non-transparent sovereign wealth dealings do not pose a ‘clear and present danger,’ so to speak, they merit thoughtful consideration well before a political confrontation occurs,” according to Dr. Hufbauer, who detailed the report’s findings and recommendations at the National Press Club here today.
Dr. Hufbauer is the Reginald Jones senior fellow at the Peterson Institute for International Economics. Thomas Moll is a research assistant at the Peterson Institute. Luca Rubini is a lecturer at Birmingham Law School (UK).
The study examines three recent instances where subsidized finance was seen or alleged to have played a significant role in an M&A transaction: the Chinese state-owned oil firm CNOOC’s bid for Unocal, the purchase of several Ingersoll-Rand divisions by Korea’s Doosan Infracore and moves by Electricité de France to expand into a number of new markets abroad.
The authors contend that subsidized M&A, if not restrained by agreed international rules, might breed costly, wasteful emulation as well as protectionist sentiment in major markets – not least the United States – especially when viewed against the sensitivities raised by the growth in sovereign wealth funds.
The appropriate response, they say, is to move toward a multilateral compact on M&A subsidies. Such a pact would be designed to increase government transparency, while drawing a line around what types of subsidies would spur review and limiting the types of retaliatory actions governments could use to counter subsidies. The authors suggest this year’s Group of Eight summit in Japan as an appropriate forum to begin discussions of such a multilateral agreement.
“Proposals to address M&A subsidies should emphasize the benefits of an open investment climate,” stated Dr. Hufbauer. “A multilateral compact will serve as a bulwark against, rather than an incentive for, protectionist legislation.”
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