Transnationals and Governments: Recent Policies in Japan, France, Germany, the United States and Britain

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TRANSNATIONALS AND GOVERNMENTS

TRANSNATIONALS AND GOVERNMENTS Recent policies in Japan, France, Germany, the United States and Britain

David Bailey, George Harte and Roger Sugden

London and New York

First published 1994 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge Inc. 29 West 35th Street, New York, NY 10001 © 1994 David Bailey, George Harte and Roger Sugden All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue reference for this book is available from the British Library. Library of Congress Cataloging in Publication Data Bailey, David, 1966– Transnationals and governments: recent policies in Japan, France, Germany, the United States, and Britain David Bailey, George Harte, and Roger Sugden. p. cm. Includes bibliographical references and index. ISBN 0-415-09825-4 1. International business enterprises—Government policy—Case studies. I. Harte, George, 1954– . II. Sugden, Roger. III. Title. HD2755.5.B338 1994 388.8’8–dc20 93–38032 CIP ISBN 0-203-06662-6 Master e-book ISBN

ISBN 0-203-22108-7 (Adobe eReader Format) ISBN 0-415-09825-4 (Print Edition)

CONTENTS

List of figures, tables and matrices Acknowledgements

vii viii

1 INTRODUCTION: A SPECTRUM OF POLICY APPROACHES

1

2 JAPAN

7

3 FRANCE

46

4 GERMANY

81

5 UNITED STATES

106

6 BRITAIN

149

7 ISSUES OF CONCERN

181

Index

226

v

FIGURES, TABLES AND MATRICES

FIGURES

2.1 Summary of Japanese policy on transnationals 3.1 A chronology of recent French investment control

40 77

TABLES

2.1 3.1 7.1 7.2

The liberalisation programme in Japan The legislative position as of June 1992 Issues of concern Issues of concern (sub-headings)

26 68 183 184

MATRICES

1 2 3 4 5 6

Issues of concern in Japan Issues of concern in France Issues of concern in Germany Issues of concern in the United States Issues of concern in Britain Issues of concern in Japan, France, Germany, the United States and Britain

vii

189 195 201 207 213 219

ACKNOWLEDGEMENTS

A number of people have helped us in producing this volume. Thanks go to Lorna Aitken (Department of Accounting and Business Method, University of Edinburgh) for typing earlier drafts. Special thanks go to Dirk Bucksch (University of Hamburg) for all the time and effort that he put into researching and translating material relating to Chapter 4, and to Valeric Nash (Department of Commerce, University of Birmingham) for her patient, accurate and speedy typing. We particularly owe a debt of thanks to those closest to us for their patience and understanding whilst we have worked on this volume. They are: Nicky, Rachael, Stuart, Stephanie, Sarah, Sam and Beryl. Thank you all.

viii

1 INTRODUCTION: A SPECTRUM OF POLICY APPROACHES The principal aim of this volume is to provide detailed accounts of the policies various countries have pursued towards transnational corporations over the last thirty years or so.1 Accordingly Chapters 2 to 6 concentrate respectively on the recent policies of Japan, France, Germany, the United States and Britain. They focus on practical details and provide a chronological analysis for each country. Although our interest is with the attitudes of governments, we also reflect wider concerns and the roles of other groups, for example, trade unions, business and opposition parties. We then turn, in Chapter 7, to a specific topic that spans all five of the countries we have studied; we identify the issues associated with transnational which appear to have (or by implication have not) concerned governments in each of the countries. Analysing such issues is our secondary aim. These aims are explained by the fact that the research underlying the volume is part of a wider project studying the monitoring of transnational corporations. Our particular interest in this project is to design a new policy approach for Britain (and indeed elsewhere) by justifying, exploring and advocating the creation of monitoring bodies to process and analyse information on the impact and performance of transnational (see especially Bailey et al. 1994, explicitly pursuing the monitoring proposal). As part of this project we are interested in the policy experience of Britain and of countries British policy-makers see as international competitors. However, when we examined existing literature we found deficiencies, for our purposes. Firstly, there was a tendency towards relative superficiality; much analysis lacked depth, breadth and detail. Secondly, existing work tended to be fairly old, concentrating on the 1970s and earlier. Thirdly, the policy characterisations some studies offered seemed 1


unsatisfactory. With these points in mind we therefore undertook our own analysis, seeking a coherent, accurate, up-to-date and detailed appreciation of policy experience in various countries. This analysis is what is reported in Chapters 2 to 6. Furthermore our project also raises a question requiring a detailed answer and to which our country studies are directly relevant: if transnationals should be monitored, what are the issues upon which monitoring bodies should concentrate? As a contribution towards discussing this question, we considered the specific issues causing concern to the governments of Japan, France, Germany, the US and Britain in the recent past. It is our analysis of this topic that concludes the volume in Chapter 7. One of the things we cannot do in the concluding chapter is gauge the strength of concern over specific issues. At a more general level, however, our accounts in Chapters 2 to 6 reveal a marked contrast in the levels of concern about transnationals’ activities across countries and, as a result, markedly different approaches to transnationals. With this in mind we suggest that, crudely, the countries we consider can be positioned along a spectrum. The positions are given by the order in which we examine each country in this volume. At one end of the spectrum, Japan and France have been relatively more worried about transnationals’ alleged disadvantages and hence relatively more willing to attempt to influence their activities. At the other extreme, Britain has been very relaxed. In between have come Germany and the US, the latter being very similar to Britain in its actual policies but quite different in the willingness of many policy-makers to consider and propose alternative courses of action. The contrasting approaches of each country and thus their respective positions on the suggested policy spectrum will hopefully be clearer after a reading of subsequent chapters. Meanwhile, and in pan to reinforce the spectrum idea, we will essentially finish this introduction by giving an overview of those chapters, highlighting similarities and variations in approaches across countries. We suggest in Chapter 2 that Japanese policy over the last thirty or so years has responded to international pressures to open up to investment flows but that any alterations have been carefully planned, and have been influenced by an awareness of potential problems associated with transnationals’ activities. Before 1967 Japan tightly controlled firms using the 1949 Foreign Exchange and Foreign Trade Control Law and the 1950 Foreign Investment 2

INTRODUCTION

Law. A series of so-called liberalisations began in 1967, when various categories of industries were defined. Nevertheless, we characterise Japan as having a relatively tight rein on transnationals in the 1970s. Further changes are described for the 1980s but we argue that foreign investors are still faced with potentially significant hurdles, the concept of ‘administrative guidance’ being especially important in the 1990s. What is crucial in understanding Japanese policy is that Japan has consistently pursued its own interests, rather than giving transnationals a free rein. We argue that, as barriers have come down, the Japanese government has remained concerned about the dangers incoming transnationals could bring. In this sense, there is no suggestion that Japanese policy today is significantly different from Japanese policy twenty to thirty years ago. In Chapter 3, France is also shown to have developed a ‘more liberal’ attitude. Before 1967, the formal position was that prior authorisation was required for investors under complex exchange control regulations. In 1967 a declaration procedure was introduced. We characterise this as a liberalisation more apparent than real. We also describe further changes, for instance, introduction of a notification procedure in 1980, and look at various cases. We are left with the overall impression that it would be wrong to simply label the French stance as either obstructionist or liberal; we suggest that even though its attitude has become more relaxed, the French government still does not follow a hands-off approach. Over the years, France has been acutely aware of potential problems associated with transnationals. It has screened and considered individual investments; it has sometimes left transnationals to do as they wish and sometimes intervened in their activities; and all of this, we argue, has been in an attempt to pursue French interests. Our discussion of Germany—in Chapter 4—reveals an attitude which has been essentially liberal but which has also contained elements of the more wary and more active Japanese and French approaches. We point to a long line of government interventions to protect allegedly key sectors, and recognise the argument that the general framework of legislation and so on gives German firms a degree of protection from unwanted take-overs. We comment on the existence of supervisory boards and workers’ councils, limited voting rights, the part played by the banking sector, the level of government ownership in some firms and sectors, and the role of the Cartel Office, a potential barrier to transnational’ acquisition strategies. It is also suggested that at times there has been an active 3


policy debate within and outside of government. Our overall conclusion is that whilst the German government has steered clear of screening systems and legislation restricting inward investment, it has shown more concern over inward investment than has been the case in Britain, and has been more active. A slightly different picture is drawn for the US, depicted in Chapter 5 as a country with an open-door policy towards foreign direct investment but one where there has been an interesting debate. We suggest that as investment flows into the US have risen, concern over transnationals has shifted from the activities of US-based firms to those of foreign-based ones, in particular to acquisitions by inward investors. Whilst the administration has steadfastly opposed limits on the free flow of international investment—with limited exceptions on national security grounds—it has reluctantly agreed to a number of measures relating to inward investment to quell concern that government provisions were inadequate. These included information gathering measures, the creation of the Committee on Foreign Investment in the United States, and more recently Exon-Florio. We argue that nevertheless both the Committee and Exon-Florio have failed to satisfy many in Congress and outside that enough was being done. We suggest that the policy debate seems to go in cycles: Congressional and public concern over inward investment mounts, the administration reluctantly agrees to a limited measure to thwart more ambitious proposals, and then implements it in such a narrow manner, with support from the Treasury in particular, that concern soon mounts again that it was inadequate. The absence of any real willingness by US administrations to influence transnationals’ activities has been paralleled by a similar approach in Britain. In contrast, the quite strong concerns and hence lively debate outside of government about transnationals’ activities has not been paralleled; Britain has had an open door for transnationals but little debate. Chapter 6 suggests that both socalled domestic and overseas firms have been given an essentially free rein. As regards inward investors, for example, since the mid1950s British governments have assumed that transnationals provide net benefits and that therefore they should be warmly welcomed. The basic British approach is reflected in our discussions of, for instance, the 1947 Exchange Control Act, the 1975 Industry Act, referrals (or lack thereof) to the Monopolies and Mergers Commission, and the revealing series of events involving Chrysler. 4

INTRODUCTION

We argue that policy has been incoherent and fragmented, which is clearly very different to the Japanese approach. Moreover, although we report dissenting, critical voices, it is suggested that these have rarely disturbed the cosy British consensus. What we find especially striking, however, is that this consensus has been grounded on ignorance; there is no indication of systematic collection of information on the activities and impact of transnationals, whether foreign or British based. This again contrasts with Japan but also every other country we examined; even Germany and the US, the other so-called liberal nations, have been more actively concerned than Britain with information. Thus we conclude that if British governments have been pursuing an appropriate policy, this has been by luck rather than judgement. It is one based on ideology rather than knowledge of the specific impact and performance of transnationals. None of our argument is to say which country has pursued the best approach. Nor is it to say which policy would be optimal. To explore such points would take us into another volume with another purpose. However, the positioning of different countries along a relatively broad spectrum does imply that transnationals policy warrants detailed discussion and analysis. Finally, Chapter 7 concludes the volume. Its core is a series of tables and matrices. We identify and list the issues that our research and analysis revealed to be of interest in the five countries over the last thirty years. Having discussed problems encountered in analysing these issues we present our results in a series of six matrices, one for each country and a summary matrix. The results are briefly discussed. It is notable that across the countries we have studied there has been some consistency of interest in respect of various issues, namely: ownership and control, competitive implications, research and development and technology, employment and industrial relations, balance of payments and international trade, compliance and/or co-operation with wider industrial and economic policy, basic industries, and political issues. In addition we highlight other issues which have sporadically attracted attention, such as productivity and efficiency, impact on the exchequer, and regional impact. In the following chapters we turn our attention to the development of policies in Japan, France, Germany, the United States and Britain. 5


NOTE 1

Most of our material concerns inward investment. This is not because we focus on the inward side, but this is simply where most concern has centred.

BIBLIOGRAPHY Bailey, D., Harte, G. and Sugden, R. (1994) Making Transnationals Accountable: a significant step for Britain, London: Routledge.

6

2 JAPAN

INTRODUCTION This chapter offers an account of Japanese policies towards transnational and of the evolution of these policies since the Second World War. Building on this, we then discuss the characteristics of the policies. Policy has evolved considerably over the last thirty years, with Japan responsive to international pressures to open up to investment flows, but at the same time aware of the potential problems involved (and more explicitly so than in other countries which have taken the transnational issue seriously, such as France). This has contributed to the policy evolution having been controlled. The process has been one of ‘liberalisation’, but with Japanese objectives at the forefront. The second section examines policy chronologically, providing a description and identifying important characteristics. These characteristics include the flexibility of policy, the case-by-case approach (kobetsu shinsa) and the existence of particular concerns. Such characteristics are emphasised in the third section. A flow chart in the Appendix summarises the main changes in policy. As regards the Japanese government’s awareness of the potential problems involved in the process of liberalisation, the main concern has been to retain control in Japanese hands. US Senate (1975) notes an ‘instinctive’ fear of foreign intrusion upsetting the ‘Japanese way’, and Ballon refers to the way Japanese history shaped its attitude to foreign investment, with the appearance of the ‘black ships’ off its coast in 1853, and again in the late 1960s, ‘this time in the form of foreign capital, threatening an all-out economic invasion of the country’ (quoted by Averyt, 1986). There has also been an awareness of more specific problems incoming transnational might bring. The US Senate (1975) identifies 7


three such concerns. Firstly, worries over the idea of competition itself; ‘the Japanese do not accept the alleged advantages of “free competition”’. This is seen when Fujiwara is quoted: since an enterprise is a social as well as a legal entity, it is not desirable for an enterprise to defeat another in competition, thus leading to the bankruptcy of many related firms, to unemployment, and to confusion in the physical distribution and established business practices. The concern has also been that foreign business practice would be incompatible with the ‘Japanese way of doing things’. For example, in Japanese firms, cost reductions when profits are down have been likely to come through all workers, including management, taking pay cuts, not by layoffs. This paternalistic nature of the Japanese firm was seen as very different to foreign practice. Finally, there has been the level of co-operation between business and government, the ‘informal, subtle but very effective system of “administrative guidance”—informal guidelines, suggestions, persuasion and admonition’ (US Senate, 1975; Johnson, 1981). The fear was that incoming transnationals would be unresponsive to such guidance. Given such concerns, the liberalisation process was carefully controlled. Japan lifted controls slowly, with changes on the inward side as recently as 1984, and as Averyt (1986) notes, Japan was prepared to open up: only after competing Japanese firms established dominance in home markets and a strong foothold in the American market itself. The critical link between the presence of [foreign direct investment] in the home market and the ability of a trading partner to increase its export sales within the home market has always been seen very clearly by Japanese officials. Averyt (1986) refers to the then US Assistant Secretary of State Robert Hormats, who argued in 1981 that Japanese investment doors are only opened when significant economies of scale have been achieved, and the industry concerned is well positioned to enter international markets. In emphasising this view, Averyt also notes Abegglen, who argues that the reason why Japan’s performance in the world computer market has been weak is because 8

JAPAN

of the early US penetration in the computer market in Japan, competing with Japanese manufacturers in their home market. The evolution of policy on ‘home’ transnationals has also been controlled. Outward investments were carefully scrutinised up to the 1970s, with projects only allowed once it had been established that domestic jobs would not be lost, and with the monitoring of investments after they had taken place. Although formal case-bycase screening ended in 1971, reviews still took place and the political impact of investments was also considered, with occasional refusals of investments. These controls were not ended until 1980. This control over the process of policy evolution has taken place with particular objectives kept in mind. Strategy in screening inward, particularly US, investment has focused primarily on the importance of the technology the investor could bring (Averyt, 1986). This is quite different from other countries such as Canada, where capital, increased production, employment, or the marketing skills which the new investment might bring have all been considered more strongly. Whilst wider concerns have been evident at certain times in Japan, such as over the balance of payments, the key consideration has been over technology. Perhaps it has been felt that in primarily pursuing this goal, the realisation of other objectives (such as those considered more explicitly in Canada, France or Australia) would follow on naturally. By 1984, controls had been eased to the extent that only a notification system remained in place, with investment largely ‘automatically’ approved, although in reality the Ministry of International Trade and Industry (MITI) and other relevant ministries had to be consulted in ‘prenotification discussions’. However, in the early 1980s inward investment still grew relatively slowly. In part this is because the different cultural and business climate has made any take-over, whether foreign or domestic, difficult. Towards the end of the 1980s, Japan changed its competition law to make this easier, partly in response to foreign (particularly US) criticism that it was a barrier to foreign investment. It also made available financial and other support to foreign investors, particularly high technology ones. In short, Japan wants to be seen to be open, fearing barriers abroad to its outward investment and exports, but at the same time it is again concentrating on bringing in high technology activity. This is consistent with past concern over technology. 9


A HISTORY OF TRANSNATIONALS’ CONTROL IN JAPAN Strategy before 19671 Control over inward investment was provided by two laws, actually set up with the support of the occupying US, the 1949 Foreign Exchange and Foreign Trade Control Law (FEFTCL), and the 1950 Foreign Investment Law (FIL). These have been described as ‘the most restrictive foreign trade and foreign exchange control system ever devised by a major free nation’ (Hollerman in Johnson, 1981). Given that these had in fact been sanctioned by the then occupying US, Japan had a position of strength in its negotiations with other countries over its investment controls (Averyt, 1986), unlike Canada, for example, which unilaterally tightened its inward investment controls. Most inward investment in Japan was covered by the FIL, with some types covered by the FEFTCL. The FIL merely laid down the legal authority for the control of capital, aiming to (US Senate, 1975): create a sound basis for foreign investment in Japan, by limiting the induction of foreign investment to that which will contribute to the self support and sound development of the Japanese economy and to the improvement of the international balance of payments. Actual policy was set by cabinet, the Foreign Investment Council, and the relevant ministries, closely co-ordinating with business (US Senate, 1975). The FIL covered both acquisitions and greenfield investment by the creation of a new company. The FEFTCL covered greenfield investment by the establishment of branch offices or plants. Technically, the latter required no official approval for their establishment; the foreign company had only to inform the Ministry of Finance and MITI. However, the FEFTCL gave the government tight control as any transfer of funds related to branch operations needed official approval. In applying the FEFTCL, the general policy line was one of not approving any transfer of funds to build new plants or to engage in any manufacturing activity. The 1967 liberalisation moderated this to some extent, with the government screening transfers on a case-by-case basis. The FIL did not distinguish between portfolio and direct investment. Both required approval, with two minor exceptions. 10

JAPAN

The first class of exemptions (still in effect at the time of the US Senate hearings in 1975) was detailed in the FIL. The principle here seemed to be that share acquisitions were exempted if they arose out of existing investments, or did not represent net foreign capital inflows. For example, shares acquired from another investor, or shares acquired through donation or inheritance were exempt (US Senate, 1975). Secondly, from 1956 to 1964, investors from certain countries (including the US) could invest in subsidiaries, joint ventures (JVs) or branch plants in ‘unrestricted’ industries, provided they would not repatriate profits, or any proceeds from liquidating investments (US Senate, 1975). Over 1957–63, 316 of these ‘yen-base’ companies were established (Safarian, 1983). Between 1950 and 1964, 209 joint ventures (JVs) were set up. These ‘were carefully screened, under rather vague rules, allowing much administrative leeway to officials, and compounded by a complex bureaucratic process’. In 70 per cent of these ventures, foreign participation was less than 50 per cent (Safarian, 1983). Apart from this, the government had the authority to regulate or ban all share acquisitions by foreigners. ‘Automatic’ approval was given to foreign purchases of shares if: (i) aggregate foreign holdings of the company’s shares was 15 per cent or less; and (ii) the individual foreign investor’s holdings were 5 per cent or less, unless the industry was on the ‘restricted’ list. This list included water-works, railways, electric and gas utilities, fisheries, maritime and road transport, mining, radio, TV, port and harbour operations, and banking. Here (i) was set at 10 per cent (US Senate, 1975). Share acquisitions over these limits had to be approved by the government on a case-by-case basis. In this respect, the FIL was so vague that the government could set policy as it wished. Article 14 empowered the relevant minister, or the Minister of Finance, to ‘stipulate necessary conditions’, not defined further, in approving an investment, a power giving ‘sweeping authority to restrict and discriminate among investment proposals, subject only to policies set by the Cabinet and Foreign Investment Council’ (US Senate, 1975). Positive and negative criteria were identified for use in the approval process, though. The stated positive criteria were: (i) improving the balance of payments; (ii) developing essential industries; or (iii) being necessary for continuing technical assistance contracts. Negative criteria prohibited an investment if it was: (i) not ‘fair’; (ii) tainted by ‘fraud, duress or undue influence’; (iii) 11


‘deemed to have an adverse effect on the rehabilitation of the Japanese economy’; or (iv) made in currencies lacking sufficient convertibility (US Senate, 1975). Again there was much vagueness, particularly over what was ‘fair’, or what ‘an adverse effect on rehabilitation’ involved. This vagueness was itself a useful policy tool. The government could implement policy as it saw fit. The degree of foreign participation was crucial. For years it was extremely unusual for the government to allow foreign ownership over 49 per cent, and although 50–50 JVs were commonplace by 1963, majority foreign ownership was unlikely to be approved, although exceptions were made when highly-desired industries could not be secured on a Japanese-biased JV basis (Robock et al., 1977). Robock et al. (1977; quoting Kobayashi, 1970) notes that in 1967 there were just fifty-eight 100 per cent foreign-owned firms in Japan. Until 1973, even though some sectors had been opened up to potential majority foreign control after 1967, equality in share ownership in JVs was the most foreign investors could realistically hope for (US Senate, 1975). Before 1967 it was not made public what policy over approval actually involved. At least changes in 1967 gave foreign investors a yardstick to predict government reaction to their proposals. Given the tightness of the Japanese system, this in itself was seen as ‘considerable progress’ (Kobayashi, 1970). Lundeberg stated in 1964 that experience suggested that to gain approval, ‘the product or process of production should be new to the country, may not be “unfairly” uncompetitive with existing locally-owned companies, and should fit into the overall plans for the expansion of Japanese industry’ (US Senate, 1975). In other words, government concern towards incoming transnational centred on technology, with competitive implications and compliance with government plans also relevant. The spirit of application over the 1950s and 1960 was particularly important: the process of obtaining validation was cumbersome and time consuming, characterised by ambiguity, uncertainty, red tape, and protracted delay. Formal submission of the application was often preceded by lengthy informal negotiations with the authorities, who would insist on ‘improvements’ that could render the undertaking less attractive to the investor. (US Senate, 1975, our emphasis) 12

JAPAN

Also, fearing a lack of responsiveness to the usual administrative guidance, the government tried to get foreign investors to agree to an ‘informal memorandum’ limiting the investor’s scope of activities (US Senate, 1975). The net result was that transnational were rarely allowed in, and when they were it was after the Japanese government had satisfied itself that this was in Japan’s interests. One example of such delay and frustration can be seen in Yale’s attempt to enter the Japanese market (details from a senior MITI official, quoted in Safarian, 1993). It formally applied to invest in 1964. MITI negotiated with the domestic lock industry over Yale’s entry, but Yale finally got fed up and withdrew its application in 1972, some eight years after its application was first filed. These factors served as a great discouragement to transnational; ‘the effect was to deter much investment without putting the government on record with a formal denial’, in which case policy was more restrictive than the record would show (US Senate, 1975). Even so, the record does show a very restrictive climate. From 1945 to 1971, foreign direct investment amounted to only around US $900 m. In 1965 alone, foreign direct investment in Germany was US $640 m, in the UK US $450 m, in France US $430 m. In Japan it was only US $40 m (US Senate, 1975). Policy clearly favoured licensing over any other form of foreign participation. Over 1950–64, around 3,000 foreign technical assistance contracts were registered. These also had to be approved, with criteria including the cost of an import and whether its acquisition by a firm would damage local competition (Safarian, 1983). According to Ozawa (1973), the government felt it necessary to intervene, exercising through the Foreign Investment Law a ‘countervailing power’ to the ‘monopolistic possessors of technology’. Foreign firms were still wishing to provide technologies through licensing, though, because royalties were satisfactory, the technologies supplied were—initially at least—relatively mature by western standards, and because licensing helped foreign firms ‘feel out’ the unfamiliar social and cultural environment (ibid.). Most significant, however, was that the alternative form of entry, direct investment, was strictly controlled. Outward investment was also tightly controlled in this period, with the balance of payments not the only motivating factor (Robock et al., 1977). Investments were screened on a case-by-case basis, and ‘with no requirement to publish criteria for approval, MITI had virtually complete control over Japan’s external investment’ (ibid.). 13


The Ministry of Finance was required to issue a permit for any direct outward investment by Japanese firms. No permit was issued until MITI had established that no Japanese workers would lose their jobs. The control programme encouraged outward investment in natural resource projects, in an attempt to improve the terms of trade by improving access to foreign raw materials (Robock and Simmonds, 1983; Bergsten et al., 1978). Firms intending to invest outwards had to submit calculations of expected results and the relevant regulations of the host country. If there were any differences between firm and government, the latter prevailed, ‘the assumption being that it was in a better position to judge both the national interest and the interest of the firm’ (Bergsten et al., 1978). After the investment had taken place, the government continued with surveillance (Bergsten et al., 1978; although no details are given of the form of this monitoring). Declared earnings and any proceeds from disinvestment had to be repatriated without delay unless they were reinvested in the same enterprise, although Bergsten et al. note that enforcement was not strict and in practice there were quite considerable delays. They also note that these policies appeared to have had an effect, with survey evidence from the Export Bank of Japan showing that over 50 per cent of all outward investments in the late 1960s were undertaken to maintain or increase exports from Japanese parent firms, and a large proportion of the remaining investments were to develop raw material sources. Although policy on this issue was not as rigorously developed as on the inward side, what we again see in Japan is an awareness of the costs and benefits transnational activity can bring, and a control of such activity in an attempt to ensure it benefited Japan. 1967–73 After joining the Organization for Economic Co-operation and Development (OECD), Japan had been stalling as long as possible over easing inward investment controls. As one MITI official candidly admitted (US Senate, 1975): MITI’s basic approach has been to gain time as long as the opponents are not too angry. [The] frustration of the United States, however, has of late been rising noticeably. We have reached a point where an early liberalization of capital transactions becomes mandatory. 14

JAPAN

The result was carefully controlled policy changes, including delays to ensure that industries were strong enough to withstand competition. On the one hand, some in Japan saw more foreign firms as a way of reducing government influence, and fearing a growth of protectionism abroad, as an important ‘bargaining instrument’ to gain acceptance of Japanese exports (US Senate, 1975), just as in the 1980s it was hoped that increased outward investment by Japan would offset some protectionist feeling. On the other hand, resistance to change came from the government bureaucracy, not simply because change would affect one of its important levers of economic control, but also because it had plans to ‘rationalise’ the economy, encouraging mergers and so on. Liberalisation, and a ‘deluge of foreign capital’ would bring ‘unco-ordinated investment, waste, duplication, and “excessive competition”’, it was feared (US Senate, 1975). Moreover, some Japanese continued to fear that transnational ‘would bring to bear their tremendous managerial, technological and financial resources and drive out indigenous firms, and would not hesitate to seek monopolistic power’ (US Senate, 1975). Industry was ‘overwhelmingly’ against any real liberalisation yet accepted that change had to come (Pearl, 1972b). The solution was a ‘facade of liberalization which would quell foreign criticism and at the same time import technology and management techniques without endangering Japanese industry’ (Pearl, 1972b). A group of businessmen noted that the ‘evil influences of foreign capital have been ingeniously curbed in many other countries where capital is superficially liberalised’ (ibid.). It was recognised that Japan had to go beyond licensing agreements to obtain the foreign technology it needed, and had to allow more foreign participation. For example, Kurebayoshi, director of the Fiji Bank, argued in 1967 that: the time for licensing is running out. US companies are becoming increasingly reluctant to part with technology without some equity interest—some insist on control—in the Japanese companies that will be using the patents and the techniques. Clearly, Japan may have to start acceding to the demands if the needed technology is to be obtained. (quoted in Behrman, 1970) Japan ‘liberalised’ in ways that guarded against the sort of danger foreseen by a MITI official: 15


The world enterprise typically lets its parent corporation in the home country concentrate on the R&D efforts. If we allow world enterprises with this sort of behavioral pattern to come and operate in Japan as they please, we will likely suffer a critical slowdown of technological progress on our own footing. (US Senate, 1975, our emphasis) In other words, Japan needed transnational for the technology they could bring, but saw also the possible dangers. The ‘Liberalisation Programme’ was carefully controlled in an attempt to avoid these. The programme began in July 1967. It laid down four rounds of ‘liberalisation’ over five years. Round four was completed early, in 1971. The most important, fifth round, came in 1973. It is important to note that throughout the rounds of the programme, the Foreign Investment Law itself was not altered, so the government was free to interpret and implement the programme as it saw fit. The foreign investor had no redress of grievance if it was refused permission to invest (US Senate, 1975). Thus there was much flexibility in policy, similar to that evident in France (see Chapter 3). Regulations affecting both ‘portfolio’ and direct investments were altered. ‘Portfolio’ limits are of interest because with share ownership widely diffused, a small non-hostile shareholding might bring with it control. In setting low limits on which portfolio investments were automatically approved, the government ensured that foreign investors could not take control. In 1967, the limits on ‘portfolio’ investments were raised from 15 per cent to 20 per cent for aggregate foreign ownership in unrestricted industries, and from 10 per cent to 15 per cent in restricted industries. The limit per individual investor was raised to 7 per cent. By August 1971, under the fourth round, the limit for aggregate foreign holdings was 25 per cent and 15 per cent in unrestricted and restricted industries respectively. Per individual investor, it rose to 10 per cent in August 1971. In this respect, some direct inward investments could come in under the 10 per cent level, and this was apparently permitted by the government (US Senate, 1975). Three strands of policy could be noted in the programme (US Senate, 1975): (a) for greenfield investments, varying the degree of ‘openness’ among industries (this was done by assigning industries to different categories where 50 per cent or 100 per cent foreign ownership was supposedly allowed ‘automatic’ approval); (b) 16

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discriminating according to the degree of foreign ownership; and (c) distinguishing between greenfield investments and acquisitions. Without altering the law, three types of industry were established for greenfield investments. First, Category I industries, where individual investments were supposedly not screened if foreign ownership was less than 50 per cent and certain other conditions were met. These conditions comprised (US Senate, 1975): 1 The investment must not adversely affect existing Japanese businesses. 2 The proposed JV must not intend ‘to drastically change traditional methods of doing business in the industry involved’. 3 The Japanese partners must be engaged in the same line of business as the contemplated JV. 4 At least one Japanese partner must hold at least one-third of the total equity. 5 Directors selected by Japanese shareholders must be of Japanese nationality, and their number must at least equal the percentage of shares in Japanese hands. 6 A company under at least 50 per cent foreign control must obtain approval for expansion into other industries. 7 The Japanese partners could not contribute facilities to the JV, with the exception of real estate not occupied by a factory or sales facility. Clearly these encompass very broad requirements. Thus it is unsurprising that Category I greenfield investments often required ‘very heavy negotiations indeed with government agencies’ (US Senate, 1975). The second type of industry established in 1967 was Category II sectors. In these, 100 per cent foreign ownership was allowed in principle, but not necessarily in practice. Proposals were again scrutinised intensely, with the government wishing to protect Japanese concerns (US Senate, 1975). As for the third type, they comprised investments in other sectors and investment proposals including over 50 per cent foreign participation in Category I. These still required individual approval. In reality, however, the government screened whatever it wanted to, regardless of what category it was in. A revealing feature regarding government strategy is that inclusion of industries in the ‘liberalised’ categories was planned. MITI had been preparing, coming up with ‘countermeasures to hold off liberalisation’ until the basis of the industrial reorganisation 17


it saw as necessary could be achieved (Johnson, 1982). Its ‘Capital Transaction Liberalisation Countermeasures Special Committee’ joined with the Ministry of Finance’s ‘Foreign Capital Council’ and ‘came up with a vast tangle of rules and procedures that had the effect of turning Japan’s capital “liberalisation” into a strictly pro forma acquiescence in international conventions’ (Johnson, 1982). For example, there was only ‘100 per cent liberalisation’ of those sectors where foreign capital was highly unlikely anyway, such as. sake brewing, motorcycles, and Japanese wooden clog production. In addition, vital segments were omitted from allegedly ‘liberalised’ industries. For example, the television industry was declared ‘liberalised’, but foreigners could not produce colour TVs or use integrated circuits! In another case foreigners were prohibited from supplying the precise type of steel used by the car industry (Johnson, 1982). The programme called for allowing foreign entry in industries as they achieved sufficient competitiveness. As noted, the industries ‘liberalised’ initially were generally of little appeal to foreign investors. Only four JVs were established in Category I industries between the first and second rounds (July 1967 to March 1969) (US Senate, 1975). In the first round, fifty industries were opened up to foreign participation, seventeen at 100 per cent and thirtythree at 50 per cent, in what Johnson (1982) calls a ‘purely cosmetic public relations exercise’. This was because all the industries ‘liberalised’ were where a Japanese firm controlled more than 50 per cent of the market, or where most of the output was purchased by the Japanese government, or where no Japanese market existed anyway (such as cornflakes). As Michida notes, the attitude seemed to be that it was better to appear to be responding to foreign calls but ‘future liberalization measures are something to be considered tomorrow and tomorrow is another day’ (in Pearl, 1972b). Change came very slowly, and not because MITI wanted it, but because MITI was becoming weaker, and because industry increasingly realised that it had to open up to avoid isolation (Johnson, 1982). By the end of round four in 1971, there were 453 industries in Category I and 228 in Category II. The car industry was put in Category I in Spring 1971, a year ahead of schedule. One view is that this was in response to pressure from the US; the US at least hinted at the possibility of retaliation through increased restrictions on the access of Japanese-based transnational to the US (Robock et al., 1977). Johnson has a 18

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different story: MITI was trying to merge Japanese car manufacturers around either Nissan or Toyota, and to prevent manufacturers from forming JVs with US companies. However, in May 1969, Mitsubishi announced a JV with Chrysler on a 65:35 basis. The ‘fall-out’ was ‘enormous’. It was read ‘as a declaration of independence by some businessmen from MITI’. Isuzu followed suit, with another 65:35 JV with GM, although MITI managed to have more say here, rewriting the Isuzu-GM agreement to limit GM control. Accordingly, in October 1969 the cabinet rescheduled ‘liberalisation’, bringing it forward to October 1971, but the point is that ‘credit for liberalising the automotive industry in Japan must go to Mitsubishi and not to MITI or any other element of the Japanese government’ (Johnson, 1982). Industries excluded from either category by the end of 1971 included: (1) agriculture, forestry, fisheries; (2) oil refining, distribution and sales; (3) leather products (to protect the burakumin, the so-called Japanese ‘underclass’); (4) the manufacturing, selling or leasing of electronic computers and parts; (5) the information processing industry, including software; (6) retail trade operations with more than eleven stores; (7) the real estate industry (US Senate, 1975). Government concern over computers had been shown over its attitude to Texas Instruments (TI) and IBM (see Johnson, 1982; Averyt, 1986; Pearl, 1972b). MITI refused to accept IBM’s request to establish a wholly-owned manufacturing subsidiary until it licensed its basic patents to Japanese computer firms (Averyt gives no exact date). Similarly, Texas applied in 1964 to open a whollyowned subsidiary in Japan to manufacture integrated circuits. MITI sat on the proposal for thirty months, giving it ‘careful consideration’. It finally decided in 1968 that the US firm would be allowed only 50 per cent ownership of a JV with Sony, that it would have to licence its technology to Japanese considerations, and it would have to limit its output until Japanese companies could better compete. This only came after ‘TI threatened to exclude from the United States all Japanese products that it claimed “infringed” on its patents. In exchange for TI’s patents the Japanese gave TI access to the Japanese market’ (Weigner quoted by Averyt, 1986). Meanwhile, MITI was determined to develop a domestic computer industry that could compete, and in 1971 arranged a JV between Fujitsu and Hitachi in an attempt to counter IBM’s influence. This pooled the resources of the two leading Japanese 19


firms in computer systems engineering, software development and computer sales, at a time when otherwise they would have been unable to match IBM’s resources (Financial Times, 31/10/91). In October 1971 Superscope, a US electronics firm, was allowed to purchase 50 per cent of the shares of the Standard Radio Corporation, the first time the government had approved the acquisition of 50 per cent of the shares of a domestic electronics firm listed on the Tokyo Stock Exchange. However, the government made it clear that such moves would only be sanctioned if foreign firms were willing to comply with government conditions, such as on the timing of share purchases, and the guaranteeing that foreign partners would not withdraw earnings if Japan suffered a heavy balance of payments deficit. MITI stated as well that the government reserved the right to cancel such tie-ups if foreign partners violated these conditions (The Times, 30/10/71). On oil refining the Gulf Oil Company proposed building an oil refinery in Okinawa. MITI told Gulf it could only do so with a Japanese partner, and then warned off Idemitsu Petroleum when it looked as if a link up might take place (Johnson, 1982; again with no exact date). As for the supposedly ‘liberalised’ sectors, in practice there were two ‘catch-all barriers’ the government could fall back on. Firstly, there was ‘the screening of every enterprise within the framework of automatic approval, if the minister so desires, both to gain approval and to insure that the enterprise is not “detrimental”’ (Pearl, 1972a). This could be used ‘to quash any otherwise impeccable venture which looks as if it might be both foreigncontrolled and potentially too successful’ (ibid.). Note that this is in addition to the more open screening when a proposed investment fell into a ‘non-liberalised’ area, or when criteria were not met. Thus approval was anything but ‘automatic’. Secondly, there was also much delay in formal screening. Moreover, another imaginative policy was that whereby all proposed JVs or wholly-owned subsidiaries remained subject to screening and approval by MITI under the FEFTCL or FIL if they involved the introduction of foreign technology into Japan. As Johnson notes, ‘it is hard to imagine a JV or subsidiary that would not include the introduction of some form of technology or know-how’ (Johnson, 1982). Thus simply by stating that any incoming investment would be screened if it brought in new technology (a quite innocuous policy at first glance), MITI could screen just about any investment it wanted to. 20

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These preserved the ‘government’s ultimate control over foreign investments, even in the “liberalised” industries’, and also ensured that majority JV ownership did not pass into foreign hands (US Senate, 1975). By these means, Japan was superficially beginning to ‘liberalise’, yet in reality closely controlled inward investment, gaining the necessary time to ensure that sectors were strong enough to withstand foreign competition. It is worth noting as well that JV managements were forced to comply with the rules of the Commercial Code, to prevent foreign management vetoing JV decision-making, or using ‘unreasonable’ methods in handling votes and meetings. Furthermore, foreign investors were barred from using the proceeds from local operations for purposes other than those granted permission for, in order to prevent foreigners using locally-generated yen to acquire Japanese companies (Kobayashi, 1970). And government intervention did not end with the approval process. MITI laid down ‘ten commandments’ it ‘requested’ foreign investors to follow, in an attempt ‘to integrate the foreign investor into the Japanese economy’ (US Senate, 1975). These comprised (US Senate, 1975; Kobayashi 1970): 1 Direct investments should be carried out preferably through joint ventures with at least 50 per cent Japanese participation. 2 Avoid concentration. 3 Avoid undue pressure on small- and medium-sized businesses. 4 Co-operate with efforts to maintain order in native business. 5 Refrain from restrictive arrangements with the parent company. 6 Contribute technology but avoid interfering with native research and development. 7 Help improve the balance of payments. 8 Employ Japanese officials, and try to put shares on the open market. 9 Avoid closing plants, mass dismissals, and unnecessary confusion over wages and employment by paying due regard to prevailing practices. 10 Co-operate with the government in its economic policy. These were perceived as the possible costs incoming transnational might bring, and these ‘ten commandments’ were aimed at limiting them. Although we have found no information on how these conditions were followed up, the Fair Trade Commission was active in monitoring transnational’ activities in Japan. It took on a ‘watchdog’ role, aiming to prevent foreign firms gaining a 21


competitive advantage (Glazer in Ozawa, 1973; see also Wallace, 1982). The Commission also studied the problems that foreign transnationals might create in Japan (Ozawa, 1973). In this way monitoring and the liberalisation process went hand in hand. Through monitoring, the government had the information needed to decide when the economy was ready to open up further. None of the ministries involved could be termed ‘proliberalisation’ (Pearl, 1972b). ‘Conventional wisdom’ was that the Ministry of Foreign Affairs was most in favour (or rather the least not-in-favour), putting greater stress on the demands of OECD members, and that MITI was the most conservative (Pearl, 1972b). Pearl cites one author’s view that it was MITI’s policy to protect business and industry because small firms had not been ‘thoroughly rationalised and streamlined’ and because even growth industries, such as the motor industry, had not been thoroughly capitalequipped for international competition on equal terms with foreign countries. The Ministry of Finance was said to be somewhere in between, recognising advantages for the balance of payments, yet cautious of the possible effects on industry. Yet this could be a very inaccurate interpretation, as Pearl notes. He refers to the various nensho (informal memoranda) the Ministry of Finance had managed to extract after the opening up of financial institutions, which indicated a very negative attitude at the Ministry. Johnson (1982) also details the internal factions within MITI over liberalisation. Whatever the ministerial differences, policy distinguished between greenfield investments and acquisitions. ‘Automatic approval’ in both categories was only extended to greenfield investments. Even Category II enterprises were protected from take-overs. Aside from the Japanese aversion to take-overs generally, whether domestic or foreign, the US Senate (1975) notes that Japanese companies were vulnerable to take-overs as share ownership was widely diffused, with more than 10 per cent share ownership very unusual. Few shares had to be purchased by a foreign investor to gain control. The limits on ‘portfolio’ investments were important in this respect, as we have seen, in ensuring that control could not be taken by an incoming transnational acquiring a small shareholding. The ‘goals inherent in the entire liberalization scheme’ were kept in mind, namely (in 1972) ‘limiting foreign economic impact and control which might occur through direct investments’ (Pearl, 1972a). Again we see how controlled this process of ‘liberalisation’ was. The government was under pressure to open up, yet it 22

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maintained its aim of limiting foreign influence. Change was in this sense more apparent than real. For ‘liberalisation’ read ‘government screening’. Such superficial change was similar to that in France, where the 1967 and 1971 changes were not, in reality, ‘liberalisations’ at all (see Chapter 3 for further details). It in fact seems that licensing continued to be favoured. By 1972 the number of foreign technical assistance contracts had risen to 12,000. (Interestingly, it has been argued that encouraging licensing rather than direct investment was successful as Japan was very attractive to transnational, and also because the domestic industrial sector was strong and had the potential and resources to fully utilise foreign technology without any accompanying investment and management resources (Robock et al., 1977).) Given the above, Pearl concluded that (1972b, our emphasis): Capital liberalisation is a studied attempt to satisfy foreign pressures for free direct inward investment and to secure needed technology while continuing to control and limit such investment. The leaders of Japanese business and government remain unconvinced that free capital flows will be ultimately beneficial to them. He went on to state that there were strong internal pressures ‘rendering substantial concessions in this area almost impossible’. However, with embarrassingly large foreign exchange and trade surpluses, Tanaka’s administration (1972–4) came under mounting pressure, especially from the US, to open up to foreign goods and capital (US Senate, 1975). It was realised that further opening up to foreign investment was needed to halt the growth of anti-Japanese protectionist feeling abroad. Moves began in June 1972, with what has been claimed to be the easing of ‘all’ restrictions on outward direct investment, to allow a greater flow of Japanese capital abroad (The Times, 9/6/72). (Caseby-case screening of outward investments had supposedly been ended in 1971 (Robock and Simmonds, 1983; Bergsten et al., 1978).) Policy became more relaxed as the need for tight exchange control eased, and the government sought to raise outward investment to reduce the large exchange reserves and to avoid a second revaluation of the yen (Bergsten et al., 1978). However, it would be incorrect to say that ‘all’ restrictions were ended, and the policy change was controlled. There was still government guidance over outward investment, and 23


in this context ‘the government maintains an industrial strategy policy that firms are expected to observe’ (Robock and Simmonds, 1983). In addition, some kind of review process continued in operation; in fact, with increased sensitivity towards rising Japanese investment abroad, which was being viewed as neo-colonialism in certain Southeast Asian countries, a review of political impact was added to the examination of outward investments in the early 1970s (ibid.). Although approval from the Ministry of Finance was ‘virtually automatic’, denials were made on foreign policy grounds, and to avoid ‘grave adverse effects on the national economy’ (Bergsten et al., 1978). Furthermore, MITI would quite readily press larger firms to adopt certain procedures, especially when investing in developing countries (Safarian, 1993). As part of a revised industrial strategy, from 1970 policy aimed specifically at exporting low-productivity, polluting industries (Bergsten et al., 1978). These changes, combined with more generous tax and insurance treatment for outward investment, the revaluations of the yen, and protectionist threats from the US, at least contributed to a sharp increase in outward investment over 1972–3, more than doubling the value of the overseas investment stock. On the inward side, in July 1972, the Foreign Investment Council eased controls on Japanese access to foreign technology, although controls on petrochemicals were kept until January 1973, and on computer hardware and software until August 1974 (The Times, 23/6/72). More importantly, in September 1972, the Foreign Investment Council recommended ‘100 per cent’ liberalisation in response to growing foreign pressure and given Japan’s economic position (The Times, 12/9/72). 1973–80 This fifth round of alterations began on 1 May 1973, with the government announcing that Japan was ‘100% liberalised’. Whilst foreign investments in existing Japanese companies would now be allowed, hostile acquisition bids would not (The Times, 26/4/73). And anyway, foreign investors still had to obtain ‘automatic validation’, which in practice meant careful scrutiny. As Johnson (1982) notes, Japan was ‘100%’ liberalised, ‘except that it still protected some twenty-two industries as exceptions, still applied all the old rules about JVs and subsidiaries, and still maintained numerous administrative restrictions on both trade and 24

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capital transfers’. Five of the industries protected were agriculture. mining, oil, leather goods and retail trade, but ‘the other seventeen were the new strategic industries that MITI was nurturing’ (our emphasis). Again, the whole process illustrates an awareness of the problems transnationals might bring, a responsiveness to foreign pressure to open up, and a controlled change. ‘100% liberalisation’ came only to industries ready for it, whilst those targeted as strategically important were protected for longer. Computing was one such example. From the late 1960s, MITI had poured money into domestic computer research, had licensed foreign technology and had held the competition at bay (Johnson, 1982). This illustrates the point made by the then US Assistant Secretary of State Robert Hormats (US Senate, 1981): the Japanese tend to protect their industries from either imports or investment competition for a period of time until they build up huge economies of scale, and then they say, ‘let’s have free trade in that sector’, or ‘now you can come in and invest in that sector’ . . . ‘it is perfectly open’. But, of course, they are so powerful and so competitive at that point that it would not really pay very much to come in at this point even if everything were totally free and open. So-called ‘100% liberalisation’ in these seventeen other strategically important industries was delayed two or three years: integrated circuits as set for 1 December 1976, information processing for 1 April 1976, and computer manufacturing, sales and leasing for 1 February 1975. The retail sector was not scheduled for liberalisation, though. The US in particular wanted this opened, as it was felt that US control of retail operations might improve the competitive-ness of US goods in the Japanese market. Japanese merchandising practices were claimed to be discriminatory against the US (US Senate, 1975). However, retail business was ‘100% liberalised’ in June 1975 (Buckley et al., 1987). Table 2.1 below summarises the changes on inward investment over 1967-73. On the outward side, the rise in oil prices and the consequent deterioration in the Japanese balance of payments ended the rationale or the policy of deliberately encouraging outward investment (Bergsten et al., 1978). In addition, the recession over 1974-5 raised domestic opposition to the deliberate exporting of industries. In the latter half of the l970s, MITI tried to control outward investment in the extractive industries, both informally and by the use of government 25


Table 2.1 The liberalisation programme in Japan

Sources: Buckley et al., 1987; Johnson, 1981. * In unrestricted sectors. In restricted sectors, total foreign holdings in a firm could only be 15%.

credits and investment insurance (ibid.). In 1975 the government also proposed changes to the Antimonopoly Act to enable it to restrain Japanese-based transnational from anticompetitive acts; this led Bergsten et al. (1978) to note that Japanese policy towards transnational, ‘while more liberal in comparison to postwar policy, has the same ambivalence that US policy has’. In 1978 a system of prior notification for outward investments replaced the approval system, and this was continued under the 1980 law (see below) (Safarian, 1993). Apart from the four sectors protected (agriculture, mining, oil refining and leather), by 1976 Japanese industry was ‘100% liberalised’ towards inward investment (i.e. in what used to be ‘Category II’). This meant that 100 per cent foreign ownership was in principle feasible, but investments were still subject to a demanding review process. Ministries reviewing proposals focused on ‘obtaining a high degree of Japanese equity and managerial participation, limiting the scale of output or product line, and constraining the marketing and distribution arrangements’ (US Department of Commerce, 1978). 26

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We have found little information on policy in the late 1970s, except that screening operated and applicants were carefully scrutinised. Averyt (1986, our emphasis) notes that until 1980 ‘all inward investment was considered intrinsically suspect unless the applicant provided specific evidence to the contrary’, and Birembaum and Zackula (1988) note that prior to 1980, MITI and the Ministry of Finance ‘retained broad discretionary power to disapprove foreign investment for a variety of reasons—or for no reason at all’. A different view is presented in OECD (1979). This reports that in the period 1975–7 there were 1,989 inward direct investment applications. Of these, twenty-eight were withdrawn on the initiative of the applicant, and one was rejected outright. The OECD states that no inward investment proposals had non-customary or explanatory conditions attached. This does not square with the statements noted above, from Averyt (1986) or the US Department of Commerce (1978). The OECD concludes that ‘restrictions on inward direct investments have been progressively relaxed…such investments are fully liberalised’. This ignores two crucial points. Firstly, as Safarian (1983) points out, one has to remember that there are ways of discouraging applications, or of signalling that they would fail, without formally rejecting them. Birembaum and Zackula (1988) illustrate this. Prior to 1980, prudent foreign investors always consulted officials from MITI, the Ministry of Finance and the Bank of Japan before submitting applications, and these officials frequently discouraged formal requests for approval of foreign investments, as part of their ‘administrative guidance’. Secondly, the OECD is relying on information from the Japanese government itself, which has been keen to present itself as very liberal, and open to inward investment. We simply do not know to what extent the form and content of investment proposals was influenced by various ministries, or indeed how many potential investments were not made because of government policy.2 This illustrates the problem in assessing countries’ policies. Although very difficult, if not impossible, one has to look behind the somewhat bland statements of the OECD, and the rhetoric of governments eager to appear liberal, to see what was really going on. References in preceding paragraphs suggest an environment in Japan far from ‘fully liberalised’. Indeed, this is implied by the continued pressure from OECD countries to open up, in response to which the Diet urged the Ministry of Finance and MITI in 1979 to amend the foreign investment laws. Similarly, 27


Safarian (1993) states that in the late 1970s the government recognised that the laws needed overhauling as they had become ‘a complex anachronism, inconsistent with liberalization and leading to a great deal of confusion and criticism from foreigners’. 1980 to present Accordingly, in 1980 the government completely overhauled the legal framework, bringing out a new Foreign Exchange and Foreign Trade Control Law. On outward investment, approval requirements were supposedly eliminated (United Nations, 1988). However, Levey (1989) states that prior notification and approval is required by a Japanese corporation that remits funds abroad to establish or expand a branch office, incorporates a US subsidiary with share capital exceeding ¥10 million, or makes loans to a foreign firm. Safarian (1993) also details the notification systems on outward investments, with the Ministry of Finance and other relevant ministries having twenty days in which to decide whether to alter or suspend applications. Again, the relevant criteria are broadly defined, including whether ‘it might adversely affect the business activities of a certain sector of our industry or the smooth performance of our national economy’ (ibid.). Safarian believes that the purpose of this legislation was to monitor investments in a few sectors. Up to 1983, he found no formal suspensions. However, as with inward investments, prenotification discussions take place between the firm and MITI (see below), and formal applications are not made if problems cannot be resolved (ibid.). On inward investment, ‘the position is less clear’ (United Nations, 1988). Formal entry restrictions on direct investments were ended, except in the four industries already noted. Majority or 100 per cent foreign ownership was possible, whether greenfield or by acquisition, in the latter case with or without the consent of the company concerned (Safarian, 1983). However, prohibition ‘mechanisms were maintained, not abolished, moving in the terminology of government documents from “prohibition in principle” to “freedom in principle”’ (Safarian, 1983). If the inward investment was greenfield, or was an acquisition beyond certain limits (over 10 per cent of a listed company and any acquisition of shares of an unlisted company), or involved a substantial change in the business purpose of the company in certain cases, or another of a variety of situations involving control, then the investor had to 28

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give prior notice to the Bank of Japan, with the case reviewed by the Ministry of Finance and the relevant ministry concerned (Safarian, 1983). The review process lasted a maximum of thirty days, but could be extended to five months where the government (Ministry of Finance, 1980, our emphasis): 1 Considers the investment will adversely affect national security, will disturb public order, or will threaten safety. 2 Believes the investment will have serious adverse consequences on domestic enterprises in the same or related business, or on ‘the smooth performance of the national economy’.3 3 Wants to maintain reciprocity with the home country’s restrictions on Japanese investments. 4 Retains authorisation for capital transactions. MITI and the Ministry of Finance have the power to suspend a transaction indefinitely, or may recommend that the proposal be substantially changed under article 27 of the law (Birembaum and Zackula, 1988). However, neither an indefinite suspension or a formal ministry request for amendments have taken place since the act was initiated. From this, however, it would be incorrect to conclude that the investment climate was ‘liberal’. As Birembaum and Zackula (1988) conclude, ‘while the scope for exercising administrative guidance to deny foreign investment was reduced by the 1980 changes to the FECL, the practice is still very much alive’ (our emphasis). Whilst there has been no informal blocking, there is disagreement over ‘whether investments have been blocked informally or “suspended indefinitely” through the operation of administrative guidance’ (ibid.). Furthermore, as was the case before 1980, it is crucial for a foreign investor to notify the relevant ministry officials and clear the terms of the transaction before formal notice is filed if the proposal is to be successful. Thus whilst the Japanese government can accurately claim that article 27 has never been invoked, MITI and other relevant ministries simply deal with the problem in these ‘prenotification discussions’. Such discussions are a key part of the system of administrative guidance and are essential in non-routine cases. As will be seen in the Minebea case, failure to follow this gyosei shido process in the initial stages may prejudice officials against the company (ibid.). In proposals coming in for special scrutiny, i.e. where new or sensitive technology is involved, MITI may even refuse to accept a notice on 29


the grounds of ‘insufficient information’ (ibid.). Such ‘insufficient information’ covers failing to engage in prenotification discussions, and failing to provide information when requested by the relevant ministry. Birembaum and Zackula (1988) conclude that the ‘successful initiation of an investment on reasonable terms’ depends as much on this procedure as it does on complying with statutory formalities. In addition, under the Supplementary Provisions, prior notice had to be given for foreign purchases of shares in a group of eleven listed companies, where foreign ownership was 25 per cent or more already (Safarian, 1983). Six of these were in oil refining, such as Mitsubishi Oil and Toa Nenryo, where there was already 25 per cent ownership. The others were in the high technology sector, such as Fuji Electric and Hitachi (Safarian, 1993). Katakura, a textile company, was also protected, despite a Hong Kong investor, Wang Hsiang-tsang, objecting that ‘Japan’s economic integrity or national security is hardly at stake’. As the Japan Economic Journal asked; ‘if there is an easy recourse to hiding behind the government’s protection against foreign ownership, what is the meaning of the liberalization of foreign exchange and other external transactions under the new foreign exchange law?’ (Johnson, 1981). Certainly, in this case, the government was ignoring the new law. Such protection was not ended until 1984, when in response to US pressure, the Japanese government agreed to end this ‘designated company system’. The notification system is clearly very flexible. It ‘can be operated liberally, as is the stated intent of the cabinet, but one that can also quickly be made more stringent should circumstances so require’ (Safarian, 1993). The flexibility was evident in April 1986, when Trafalgar Holdings Ltd and Glen International PLC failed to acquire Minebea Co., a high-technology concern and Japan’s leading miniature bearing manufacturer (Ishizumi, 1990; Shinmura, 1989). In Shinmura’s words, ‘legal restrictions seemed to have helped prevent Minebea from being taken over’. These included the filing of documents with the Ministry of Finance and other relevant ministries because the foreign firms intended to buy over 10 per cent of Minebea’s shares. In addition, the Ministry of Finance concluded that as 10 per cent of Minebea’s products were defence related, such as army pistols, industrial fasteners and aircraft bolts, it would postpone a decision. The 1980 Law gave the government this discretion, and the ‘decision making process, normally completed within thirty days, was stretched out to four months’ (Ishizumi, 1990). 30

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Meanwhile, Minebea placed shares with friendly shareholders and diluted Trafalgar’s holding by issuing new bonds. In addition, it was argued by Trafalgar that the Ministry of Finance instructed Japanese securities firms not to co-operate with it in the take-over bid (Ames, 1986). This led Ames (1986) to conclude that ‘administrative guidance is still very much alive in Japan’. Ishizumi (1990) argues that the hostile nature of the bid triggered rejection symptoms in business, financial and government circles. Furthermore, as no ‘favorable consensus of opinion’ had been obtained from the government or the Liberal Democratic Party through informal contact, it was ‘thoroughly snubbed and rebuked’. As noted earlier, these informal, prenotification discussions are crucial for success, particularly in cases such as these where there is special scrutiny. Once again, in this case as recently as 1986, we see the extent of the government’s interest in foreign take-overs. There was official resentment because of the bid’s hostile nature, and because the government had not been sounded out. The government stalled on approval for the take-over and apparently instructed other firms not to co-operate, allowing time for defence preparations to be made. Such an interpretation is reinforced by Johnson (1981). Whilst recognising ‘freedom in principle’ in the 1980 law, he argues that: regardless of this principle, the restrictions in the new version still leave Japan a considerably less open country than most of its leading trading partners. The most important of these restrictions concerns foreign takeover bids to acquire established Japanese companies. Similarly, Ames (1986) argues that despite the belief that regulatory barriers are largely a thing of the past, the Japanese government would use informal or formal means to thwart any foreign takeover threatening a major Japanese competitor in industries designated as crucial for Japan’s economic development. He lists five such designated areas; aerospace, new energy sources, information processing and telecommunications, biotechnology and new industrial materials. He points to an article in a leading Japanese newspaper indicative of such sensitivity; ‘if foreign ownership keeps increasing (in computer components), it may affect company management and industrial policy to promote this industry’ (Nihon Keizai Shimbun 24/5/83, quoted in Ames, 1986). It seems that government concern to protect key sectors remains. More generally, there is little data available on how the system 31


has operated, in terms of approval rates or conditions attached to investments. Japanese officials stress this is because such concepts are no longer relevant after the 1980 law (Safarian, 1983), although in reality this more likely reflects the use of prenotification negotiations by officials as part of their administrative guidance. However, it is accurate to conclude that direct investment in Japan is in some ways easier now than in the past. For example, the Ministry of Finance has shortened the waiting period to fifteen days if the investment is regarded as routine, and the process can be as rapid as just one day (KPMG Peat Marwick McLintock, 1989; Booz, Allen and Hamilton, 1987). Apart from this, Japan has other means of controlling transnational. One means of control focuses on joint ventures (JVs), which are still popular among British firms as a means of entry. Their establishment remains subject to review by the Japanese Fair Trade Commission (FTC). The JV contract must be lodged with the FTC within thirty days after signing, and the FTC has no time limit in its review. The FTC considers whether the agreement contains provisions constituting an ‘undue restraint of trade’ or an ‘unfair business practice’, as per the Antimonopoly Law (KPMG Peat Marwick McLintock, 1989). It has the ability to change JV agreements as Japanese interests develop and can do so formally and informally. For instance, in 1980 the FTC agreed with the Japanese construction machinery firm Komatsu that its JV set-up in the early 1960s with the US-based Bucyrus-Erie was unfair. The US firm supplied Komatsu with the know-how to build power shovels, and in exchange took a tight grip over Komatsu’s exports of the product and the power to veto the introduction of competing products by Komatsu in Japan. The FTC ruling came after the ‘usual Japanese sort of informal pressure’ was unsuccessful in forcing Bucyrus to move (The Economist, 2/2/80). The crucial point here is that an agreement was revised as the Japanese firm grew more competitive. In another example, Caterpillar-Mitsubishi, one of the largest JVs, was able to revise its export policies after FTC intervention. This again shows how policy towards foreign transnational has evolved over time, as Japanese competitiveness has grown, and the dependency on foreign technology has weakened. More generally, when intangible assets such as patents, knowhow, designs or trademarks are transferred to a Japanese subsidiary or JV, a notification similar to that for capital investments has to be made. The licensor and licensee must file a ‘license agreement report’ 32

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with the Ministry of Finance and other relevant ministries. Again there is a thirty-day suspense period, which may be shortened or extended to allow for ministerial review. Normally, except for licenses in certain designated categories, or those involving a consideration over ¥100 m, the contracts can be signed as soon as notification is made. The suspense period has to be observed for ‘designated technologies’ of national interest. These include electronic computers, components for ‘next generation’ computers, super-conductive materials, laser processing, aircraft and components, atomic energy, arms, and offshore oil and gas production (see Ministry of Finance, 1980, articles 29 and 30; KPMG Peat Marwick McLintock, 1989; Birembaum and Zackula, 1988). Transactions involving such ‘designated technologies’ are reviewed in a manner similar to that which existed for all transactions prior to 1980. Extensive prenotification negotiations with MITI are essential, and in a number of categories, MITI will request more information concerning the investment than the law itself actually requires for the filing of notification, including information on the contract price, grant backs, cross-licensing, secret conditions, and rights to sublicense technologies (Birembaum and Zackula, 1988). Again, the government’s concern over the highest-technology areas should be highlighted. Even for technologies not on the ‘designated’ list, the same prenotification discussions must take place, and the Ministry must be formally notified of the terms of the transaction and approve them. Definitions are very broad; any transfer of technology between a resident and a non-resident must be reported (ibid.). Hence transactions are still subject to notification if technology exchange or licensing takes place, but would not be if the transfer of another type of asset was involved. In this way, MITI and other relevant ministries can ‘closely monitor the flow of technology’ (ibid.). Once signed, a copy of the contract and a report must be sent to the FTC. As with JVs, it has unlimited time in which to review licensing agreements. The FTC has been using a set of guidelines or prohibitions by which it judges such contracts since 1968, in accordance with the Antimonopoly Act. Such guidelines and procedures were not changed by the 1980 law, and many of them are analogous to those in US Anti-trust laws or those used in the European Community (United Nations, 1985). FTC prohibitions include: territorial or other restrictions on exports; restrictions on the purchase of competing goods or technology; tied purchases of 33


raw materials and components; restrictions on distribution channels; restrictions on the selling price charged to the customer; grantback of technology except on reciprocal terms and on the basis of a continuing obligation of the licensor to provide the licensee with improvements in the licensed technology; payments on royalties on products not using the licensed technology; utilisation of obligatory materials or components; restrictions of any kind on the licensee after termination of the licence agreements; obligation to use the licensor’s trademarks; and the licensor’s right to terminate the agreement unilaterally or at unreasonably short notice (United Nations, 1985). In response to foreign pressure in the late 1980s, particularly from the US, Japan changed its take-over rules which were criticised as a barrier to investment. The rule necessitating the bidder to register ten days in advance was abolished, and the number of days over which the bid could take place was extended. Whilst foreign bidders still had to bid through a Japanese representative, these could now be lawyers or banks in addition to security houses (Financial Times, 31/7/89; 16/11/89). However, it was recognised that even with such a relaxation, there was hardly likely to be a sudden rise in takeovers, as Japanese ‘corporate customs’ such as mutual shareholdings made hostile take-overs extremely difficult. Haruo Matsuda, Deputy Director of the Corporate Finance Division in the Ministry of Finance, stated that relaxations in the early 1970s had done little to promote take-overs. He could recall only two foreign take-overs in Japan since then up to 1989. Despite changes, hostile take-overs remain very difficult (Safarian, 1993), as are unwanted attempts by foreign shareholders to gain a say in the running of Japanese firms (see Pickens, 1991). Apart from easing restrictions, to some extent, in the 1980s, the Japanese government has made a determined effort to be seen to be actively encouraging inward investment. For instance, the government is very aware of its image abroad and wants to be seen to be dismantling barriers. For example, criticism, in particular from the US, has focused on the power of the keiretsu, the Japanese corporate groupings characterised by exclusionary practices such as purchasing only from a closed circle of businesses, interlocking shareholdings and regular meetings of member companies’ executives (Financial Times, 24/5/91). Such cross shareholdings and interlocking directorships enable companies to resist take-overs, and the willingness of group shareholders to accept low dividends also 34

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leaves member companies with more funds for investment (The Scotsman, 11/6/91). Mitsubishi, for example, one of the largest zaibatsu, has divisions with keiretsu of over five hundred associated firms and preferred subcontractors. Given such interconnections between firms, any take-over, whether domestic or foreign, is very difficult. In addition, the balance of interests within the Japanese firm, between labour, management, shareholder and financial interests means that simply buying shares does not yield control (Safarian, 1983). Other barriers to investment include the distribution system (see Safarian, 1993). In the recent Structural Impediments Initiative (SII) talks, the Japanese government recognised that Japanese business practices needed to be made ‘transparent’, and proposed policies for eliminating exclusionary business practices and keiretsu transactions (Hara, 1990). US criticisms over this have been mounting, however; US officials hinted in 1991 that restrictions may be imposed on Japanese-based transnational’ investment opportunities in the US unless more is done in Japan on this (Financial Times, 24/5/91). The Japanese response is that keiretsu are not collusive, but rather encourage the long-term planning and corporate stability lacking elsewhere (Financial Times, 13/6/91). Perhaps more substantively, the Japan External Trade Organisation (JETRO) was transformed from an organisation designed to encourage Japanese exports to one designed to attract inward investment. In addition, MITI created an office for the promotion of foreign investment in Japan, providing guidance on investment matters and arranging introductions to relevant domestic agencies. Furthermore, the Japanese Development Bank established a financing system for foreign investors, providing loans at favourable rates. In 1991 alone, it lent some ¥71 bn (US $529 m) to foreign investors (Japan Development Bank, 1992). This was an attempt to quell the criticism coming from the US and Europe in the late 1980s over the difficulties faced in entering the Japanese market (see, for example, Financial Times, 3/2/90). Japan feared restrictions on its exports and outward investments unless it was seen to be encouraging inward investment. Moreover, the Development Bank has established six ‘Centers for Promotion of Direct Investment in Japan’ in Washington, New York, Los Angeles, London, Frankfurt and Tokyo to encourage inward investment (Japan Development Bank, 1993). These provide market information on Japan, can be consulted by foreign-based 35


firms on investment projects (with visits to potential sites), and provide introductions to possible partner firms in Japan (MITI, 1990a). The objectives of giving financial help through the Bank are to ‘internationalise’ the Japanese economy (i.e., to increase inward investment), to increase imports and to develop Japanese industries. Foreign firms carrying out their first investment in Japan, and foreign affiliates which have already started up in Japan are eligible. However, to be eligible projects must ‘contribute positively to Japan’s international trade policy’, they must not disturb Japanese industrial policy, and must not be located in certain areas. Furthermore, while Japan is offering assistance to transnational investing in Japan, it again has particular concerns over the form of this investment, notably the technology these will bring in. Loans are available over a twenty-five year period, on a 40 per cent loan ratio, and with normal interest rates, except for high technology projects and projects promoting manufactured imports, which are eligible for ‘special interest rates’. The high technology areas targeted by the government as eligible for special interest rates are electronics, advanced systemised machinery, fine chemicals, bio-industry and advanced software development (ibid.). ‘Special interest rate category 3’ applies to such high technology projects for the construction or expansion of manufacturing facilities or R&D facilities. In the former case the projects have to use technologies developed by the foreign firm on its own (in other words, technologies new to Japan), have to ‘effectively supplement’ Japan’s industrial structure, and have to heighten Japan’s industrial technology. In the latter case the R&D facility has to contribute to the further development of foreign technologies already present in Japan, or to the introduction of new R&D activities. Further conditions restrict access to ‘special interest rate category 5’, where projects must also upgrade or expand R&D facilities in the same technological sector as the initial investment, must be undertaken within ten years of the initial investment, and must be large scale, with floor space over 3,000m2 and a minimum investment of ¥900 m excluding land costs (detail from MITI, 1990a). ‘Special interest rates’ also apply to projects expected to promote manufactured imports, a move again designed to improve Japan’s image, in that it will be seen, by the US in particular, to be promoting imports. A separate Finance System for the Hokkaido-Tohoku Development Corporation has similar aims over technology and the importing of manufactured goods for regional enterprises (ibid.). 36

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The Regional Development Corporation is also operating fifty-eight industrial parks, where tax concessions and credits for purchases can be made available from the government and regional public bodies (Japan Update, 1990). Concern over the technology such inward investment will bring is also illustrated by other government initiatives. For example, the government has relaxed restrictions governing the introduction of new technologies, notably computers, electronic components for fifth generation computers, equipment for laser processing and optical communications, new materials, and offshore oil production, with the aim of attracting US and European transnational into Japan with expertise in these areas (Japan Update 1990). MITI’s ‘International Industrial Forum Project’ is another example. Its aim is to develop a complex facilitating the exchange of know-how on R&D, market creation and so on, between foreign-owned and Japanese firms. A US or European firm can in this way co-operate with domestic firms or research centres at Tsukuba Science City to develop new products and to market them. A site was selected at Hitachi Naka in the Ibaragi Prefecture, an area where domestic industries which have a potential for co-operation with foreign firms are concentrated. The success of the project is reflected in the establishment of research centres belonging to foreign pharmaceutical transnationals. Du Pont Japan set up a research centre in Yokohama in 1987, and a year later an agricultural research centre at Tsukuba. By 1989, ten others had set up research facilities there, including Hoechst Japan and Bayer Japan (ibid.). Foreign firms engaging in high technology activities can also obtain tax concessions available to domestic firms under MITI’s Technopolis Law and Cerebral Siting Law, which are targeted at the location of high technology enterprises (ibid.). This can be seen as an attempt by MITI to tie-in foreign transnationals to technological activity in Japan. Thus Japanese interests are still being identified and strategically pursued, albeit in different ways to the past, and in contrast to British policy, for instance, which has been much less selective. It was once feared that transnationals typically locate R&D in the home country, and that this could adversely affect domestic Japanese technological progress. This was seen as a reason for keeping transnationals out. Now, Japan is ready and willing to accept more transnationals, but in doing so government policy still fosters technological development. Potentially, policy can now be very successful in this 37


way because Japan is attractive to transnationals, both because of the size of the potential market and because of the technological expertise on offer. But this strength is itself partly due to past policy on transnationals. The historical perspective is in this sense very important. The evolution of policy from technical licensing, through the opening up of sectors only when they were strong enough, to today’s position has been a controlled process, indicative of the government’s awareness of the costs and benefits transnationals can bring. ESSENTIAL CHARACTERISTICS Some of the above suggests that through the 1980s, Japan has been relatively keen to attract inward investment. It has ‘liberalised’ its controls on foreign investment, and take-overs generally, and has been active in offering greater assistance to foreign investors. Inward direct investment rose slowly up to 1986, but since then has been much higher–US $2,860 m in 1989, against US $940 m in 1986 (MITI, 1990b). However, in 1989, the value of foreign direct investment in Japan was still only one twenty-third the value of Japanese outward investment (Nayashima, 1990). Several writers stress the relative openness of Japan. The 1987 Booz, Allen and Hamilton study stated: ‘Japanese government restrictions no longer have any pervasive impact on direct investment decisions. Regulations still exist in selected industries, but they are no longer the primary barrier in most’. Turner (1987) argues similarly; ‘in many areas, there is probably not a great deal more they can do to welcome foreign investors’. See also Watanabe’s foreword ‘Japan is Now Truly an Open Market’ in Ishizumi (1990). Moreover, in responding to the French Prime Minister Edith Cresson’s criticisms that Japan’s market was closed, Mimura (Mitsubishi’s chairman) stated ‘I shouldn’t say Mrs. Cresson’s attitude is obsolete, but she is clearly not aware of the current situation. What she refers to could have been the central focus five or ten years ago. I feel she should be brought up to date’ (Financial Times, 31/5/91). The stated intent of the government is to apply the foreign investment law in a liberal manner, and indeed it seems to be doing so. For example, whilst the law permits the amendment or suspension of investments in exceptional circumstances, such as if they adversely affect similar domestic enterprises, in practice this is 38

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only applied to the four industries which were exempted from the law (United Nations, 1985). However, it is interesting that in a recent survey of investors by the American Chamber of Commerce in Japan, 31 per cent cited government regulations as a ‘major factor’ in inhibiting further investment, and a further 12 per cent as a ‘minor factor’ (American Chamber of Commerce in Japan, 1991). This hardly suggests a ‘liberal’ climate. Our view is that foreign investors still have to face potentially significant hurdles, for example, the prenotification discussions with MITI and the relevant ministries. Japan has a flexible system which can be used very restrictively where it is deemed necessary. Such flexibility was evident in the Minebea case. Such a view is consistent with past history, and with the United Nation’s conclusions on Japanese policy (1988, our emphasis): the real test for the Japanese authorities will come when a genuinely established foreign company puts in an unwanted bid for a significant Japanese company. Legally there seem to be few barriers to such bids. Doubts, however, remain as to whether Japanese investors would yet be willing to sell equity control to a foreigner in such circumstances, and if they did, whether the Ministry of Finance would authorize the acquisition. In such a case it would seem that the government would have public support for action. A 1989 public survey indicated support for the protection of important businesses such as Nippon Steel, NTT, Toyota, Mitsui and Matsushita (Financial Times, 8/12/89). There are various interesting features about Japanese policy, for example: the slow trend towards liberalisation, the pressure from outside to open up, change more apparent than real on a number of occasions, the flexibility, the case-by-case approach, the monitoring of foreign transnational, and the concern over key sectors and technology in particular. What is crucial in understanding Japanese policy, though, is that Japan has consistently pursued its own interests, rather than giving transnational a free rein. Japan has opened investment doors in response to outside pressure but only when it has felt ready. Barriers have only been eased once the industry concerned was deemed strong enough to compete with foreign investment. Thus ‘liberalisation’ has in fact been a carefully staged process. Moreover, as barriers have come down, the government has remained concerned as to the dangers incoming transnational could bring. In this sense, there is no suggestion that 39

APPENDIX Figure 2.1 Summary of Japanese policy on transnationals

Sources: Birembaum and Zackula (1988); Buckley et al. (1987); Johnson (1981); Safarian (1993); US Senate (1975).


Japanese policy today is any different to Japanese policy twenty to thirty years ago. The whole process has been one of a controlled liberalisation. This can only be understood from a historical perspective. There has been an awareness of potential problems, and policy has changed in a responsive manner vis-à-vis international (particularly US) pressure to open up but, quite appropriately in our view, with Japanese objectives paramount. NOTES 1 In describing how inward investment control has changed, this and the following section draw heavily on US Senate (1975). 2 As one senior MITI official stated (quoted in Safarian, 1993): no application for foreign investment has ever been turned down formally. What happens is that a foreign investor is ‘advised’ to withdraw the application, or more often, to make amendments… if the foreign investor disagrees, the application then simply becomes ‘pending’. Whilst arguing that most investors who wished eventually gained access to Japan, he recognised that the ‘rigorous screening process might have scared potential investors away even before knocking at the door; we have no way of knowing’. 3 It was suggested by the Ministry of Finance that this would apply only to the excepted industries, but could be extended to investments which had an ‘exceptionally detrimental effect’ as allowed by the OECD Code (see Safarian, 1983).

BIBLIOGRAPHY American Chamber of Commerce in Japan (1991) Trade and Investment in Japan: the current environment, Tokyo: The American Chamber of Commerce in Japan. Ames, W.L. (1986) ‘Buying a piece of Japan, inc.: foreign acquisitions in Japan’, Harvard International Law Journal 27, 541–69. Anglo-Japanese Economic Institute (1991) Structural Impediments Initiative: opening doors to Japan, London: The Anglo-Japanese Economic Institute. Averyt, W.F. (1986) ‘Canadian and Japanese foreign investment screening’, Columbia Journal of World Business Winter 1986, 21, 4, 47–54. Behrman, J.N. (1970) National interests and the Multinational Enterprise, Englewood Cliffs, NJ: Prentice-Hall Inc. Bergsten, C.F., Horst, T. and Moran, T.H. (1978) American Multinationals and American Interests, Washington DC: The Brookings Institution. Birembaum, D. and Zackula, S.K. (1988) ‘Foreign investment in Japan: current limits and restrictions’, East Asian Executive Reports October 1988, 9, 15–20.

42

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Booz, Allen and Hamilton Inc. (1987) Direct Foreign Investment in Japan: The Challenge for Foreign Firms, a study for the American Chamber of Commerce in Japan and the Council of the European Business Community, Tokyo: The American Chamber of Commerce in Japan. Buckley, P.J., Mirza, H. and Sparkes, J.R. (1987) British Companies’ Investments in Japan, report submitted to the Great Britain-Sasakaia Fund, Bradford: The Bradford Management Centre. The Economist (1980) ‘Komatsu tries to dump Bucyrus’, 2/2/80, 71. Financial Times (1989) ‘Japan reviews takeover rules’, 31/7/89, 7. ——(1989) ‘Japan to relax rules on takeovers’, 16/11/89, 43. ——(1989) ‘Tokyo tops’, 8/12/89, 22. ——(1990) ‘EC warns Tokyo on investment policy’, 3/2/90, 5. ——(1991) ‘Talking gets tough in Japanese trade debate’, 24/5/91, 5. ——(1991) ‘Mitsubishi chief hits at France’, 31/5/91, 3. ——(1991) ‘US doubts Japan’s market pledges’, 13/6/91, 6. ——(1991) ‘Fujitsu and Hitachi to scrap computer venture’, 31/10/91. Hara, M. (1990) ‘US direct investment in Japan’, Japanese Journal of Trade and Industry 6, 15–17. Ishizumi, K. (1990) Acquiring Japanese Companies: mergers and acquisitions in the Japanese market, Cambridge MA/Oxford: Basil Blackwell. Japan Development Bank (1993) Guide to Direct Investment in Japan, Tokyo: The Japan Development Bank. Japan Update (1990) ‘Direct Investment in Japan: new developments’, Winter, Tokyo: Keizai Koho Center. JETRO (Japan External Trade Organisation) (1989) Setting up a Business in Japan—a Guide for Foreign Businessmen, Tokyo: JETRO. Johnson, C. (1981) ‘The internationalization of the Japanese economy’, in H.Mannari and H.Befu (eds) The Challenge of Japan’s Internationalization, Tokyo/New York: Kwansei Gakuin University/ Kodansha International. Johnson, C. (1982) MITI and the Japanese Miracle, Stanford: Stanford University Press. Kobayashi, N. (1970) ‘Japanese system for foreign investment control’, in I.A.Litvak and C.J.Maule (eds) Foreign Investment: the experience of host countries, New York: Praeger. KPMG Peat Marwick McLintock (1989) Investing in Japan, London: KPMG. Levey, M.M. (1989) Foreign Investment in the United States, New York: John Wiley. MacLachlan, S., Sommer, A. and Matsumoto, K. et al. (1985) ‘Launching a hostile bid overseas’, International Financial Law Review Nov. 1985, 4, 11, 9–15. Matsushita, M. (1986) ‘The legal framework of trade and investment in Japan’, Harvard International Law Journal 27, 361–88. Ministry of Finance (1980) Foreign Exchange and Foreign Trade Control Law, as amended by Law No. 65 dated December 18, 1979, Tokyo: Legal Division, International Finance Bureau, Ministry of Finance.

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MITI (Ministry of International Trade and Industry) (1990a) Measures to Promote Foreign Direct Investment in Japan, Tokyo: MITI (unofficial translation, copy supplied by Steve Kremer at Anglo-Japanese Economic Institute). MITI (Ministry of International Trade and Industry) (1990b) Charts and Tables relating to Foreign Direct Investment in Japan, Tokyo: MITI, International Business Affairs Division. Nayashima, H. (1990) ‘Foreign firms establishing market presence in Japan’, Japan Times, 12/7/90. OECD (Organization for Economic Co-operation and Development) (1979) International Direct Investment: policies, procedures and practices in OECD member countries, Paris: OECD. Ozawa, T. (1973) ‘Technology imports and direct foreign investment in Japan’, Journal of World Trade Law 7, 6, 666–79. Pearl, A.R. (1972a) ‘Liberalization of capital in Japan—Part I’, Harvard International Law Journal 13, 59–87. Pearl, A.R. (1972b) ‘Liberalization of capital in Japan—Part II’, Harvard International Law Journal 13, 245–70. Pickens, T.B. (1991) ‘Foreign investment in Japan’, Vital Speeches 57, 6, 171–2. Robock, S.H., Simmonds, K. and Zwick, J. (1977) International Business and Multinational Enterprises, Homewood Ill: Irwin. Robock, S.H. and Simmonds, K. (1983) International Business and Multinational Enterprises, Homewood Ill: Irwin. Safarian, A.E. (1983) Governments and Multinationals: policies in the developed countries, Washington DC: British-North America Committee. Safarian, A.E. (1993) Multinational Enterprise and Public Policy: a study of the industrial countries, Aldershot: Edward Elgar. Shinmura, T. (1989) ‘A few foreign firms now buying into Japan’, Japan Economic Journal 20/5/89, 3. The Scotsman (1991) ‘Connections that keep companies powerful’, 11/6/91. The Times (1971) ‘Japanese conditions for foreign partners’, 30/10/71, 17. ——(1972) ‘Japan scraps restrictions on investments abroad’, 9/6/72, 17. ——(1972) ‘Investment rules (correction to above article)’, 10/6/72, 17. ——(1972) ‘Japanese open door to foreign technology’, 23/6/72, 19. ——(1972) ‘Tokyo call to free all industries for foreign investors’, 12/9/ 72, 15. ——(1973) ‘Japan may open most of industry to ownership from overseas’, 26/4/73, 19. Turner, L. (1987) ‘Issues for governments’, in The Royal Institute of International Affairs: Chatham House Papers no. 34, Industrial Collaboration with Japan, London: Routledge. United Nations, Centre on Transnational Corporations (1985) Transnational Corporations in World Development. Third survey, New York: United Nations. United Nations, Centre on Transnational Corporations (1988) Transnational Corporations in World development: trends and prospects, New York: United Nations. 44

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US Department of Commerce (1978) Incentives and Performance Requirements in Selected Countries, Washington DC: US Government Printing Office. US Senate (1975) The Regulation of Foreign Direct Investment in Australia, Canada, France, Japan and Mexico, in hearings before the Subcommittee on Securities of the Committee on Banking, Housing and Urban Affairs, Ninety-fourth Congress, Washington DC: US Government Printing Office. US Senate (1981) US Policy Towards International Investment, in hearings before the Subcommittee on International Economic Policy of the Committee on Foreign Relations, Ninety-seventh Congress, Washington DC: US Government Printing Office. Wallace, C.D. (1982) Legal Control of the Multinational Enterprise, London: Martinus Nijhoff Publishers.

45

3 FRANCE

INTRODUCTION We see French policy towards transnational as having been astute, inventive and responsible. France has not left everything to the market. Rather it has pursued a flexible approach, identifying particular concerns and adapting to changing circumstances, with an awareness of potential problems associated with transnational’ presence. In these and other respects recent French policy has similarities to features of the Japanese approach (as discussed in the previous chapter). It cannot be denied that French legislation has undergone considerable changes over the last thirty years. This is reflected in the Appendix, presenting a flow chart of French investment controls. Equally, however, a point that should become very clear in our chronology of events is that on several occasions there has been no real alteration in underlying policy even though superficially there has appeared to have been liberalisation. For example, before 1967 prior authorisation under the exchange controls was required for most foreign direct investments. In 1967 this changed to a declaration procedure. This gave the government a two-month period in which it could request postponement, otherwise a proposal would go through automatically. In effect, little changed: the shift from authorisation to declaration was largely semantic. The government was still screening investments and rejecting them or approving them subject to certain conditions. Similarly in 1971 the government removed the need for European Community investments to be subject to the declaration procedure; another apparent liberalisation. In reality, this merely circumvented the Rome treaty, for such investments were instead subjected to 46

FRANCE

exchange controls and hence needed authorisation. In 1980, the need for approval for Community investments was finally ended. Now they merely required notification. Yet this was again not so much of an opening up as at first it seems. The government retained a two-month period in which it could decide if an investment fell into a series of categories subject to review. Such categories were broadly defined, allowing the government some room for manoeuvre, and the government has been adept at using delaying tactics, even for supposedly free European Community take-over bids, in order to find ‘French solutions’ (Department of Trade and Industry, 1989). A CHRONOLOGY OF EVENTS Up to 1966 Before de Gaulle came to power in 1958, inward investment in France was encouraged. Compared to earlier years, by 1958 it had become more difficult to obtain the approval necessary to invest but the environment was still not very restrictive. Outward investment was tightly controlled, though. Authorisation by the Finance Ministry was needed in order to acquire foreign assets, and the repatriation of all income earned on foreign investments was mandatory (Graham, 1982; Torem and Craig, 1968). Over 1958–63, in spite of de Gaulle’s nationalist concerns, France continued to welcome openly inward investors and ‘there was no single known instance in which the government permanently prevented a foreign investment’ (Bertin, 1970). The welcoming attitude was indicated by Prime Minister Debré’s letter to the Conseil Économique et Social in 1959 where he stated that it was better to have US companies invest in France rather than elsewhere in the European Community (Hellman, 1970). However, this welcoming attitude came to a somewhat abrupt end in 1963, as concern over the activities of US firms grew, and as it was felt that continued inward investment might fuel inflation, the major problem in the booming French economy at that time (US Senate, 1975). A number of events led to the development of anti-US public sentiment at this time (see Hellman, 1970; Gillespie, 1972; US Senate, 1975). These included the layoffs by General Motors (GM) of 685 of the 3,100 employees at its Frigidaire plant in Gennevelliers, and Remington laying off 800 of its 1,200 workers at its Calluire plant 47


in 1962. In addition, in January 1963 Chrysler purchased from Fiat another 38 per cent of the share capital of the French car-maker Simca, taking its share to 63 per cent. This revealed a gap in the Exchange Control Regulations. These required authorisation for inward investment, but not for the acquisition of a French firm by one foreign company from another. This perceived inadequacy was to be addressed by the 1967 legislation. Concern was also accentuated when news broke of Libby McNeill’s proposal to establish a canning factory at Languedoc in southern France, which was to be huge in relation to French canning plants. Public opinion was also ‘inflamed’ because a US firm would be reaping the benefit of government intervention to rehabilitate land, and because it was claimed that Libby would dramatically increase imports of American agricultural produce (Graham, 1982; Dusart, 1965). Finally, the British application to join the European Community (EC) heightened French worries, with the US threat seen through the US-British ‘special relationship’ and by US firms operating in the EC (Gillespie, 1972). The result was a shift in French policy. Over the next few years, the stance became one of much more restrictive regulation of inward investment, particularly from the US. For instance, in January 1963 the Finance Ministry issued a public statement stressing the need for restrictions against investment from non-EC countries and an unsuccessful attempt was made to raise the issue at the European level, by bringing it up at EC Finance Ministers’ meetings (Graham, 1982). This new attitude was typified by the following statement from the Finance Ministry (quoted in Graham): all potential investments are scrutinised carefully to ensure that they contribute substantially to French technology of business know-how, or promote aid to important but expensive lines of research…we just object to anything that looks like speculation, a simple takeover, or an investment which France can perfectly well handle itself. This attitude was possible because all inward investments had to be authorised under the Exchange Control Regulations. As part of this shift, a 1965 policy review by the then Industry Minister, Bokanowski, developed a theory of ‘good’ and ‘bad’ investment applications in deciding whether or not to authorise. ‘Good’ investments were beneficial to the labour market or balance of payments, they raised domestic income and tax revenues, 48

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supplemented domestic investment activity, accelerated modernisation and improved the French competitive position. ‘Bad’ investments endangered competition, sought access to the most lucrative branches of the economy (where they led to disturbances and overcapacities), released French management personnel, were indifferent to the national interests, threatened a deterioration of the long-run trade balance, worsened the dependency on foreign technology, and discouraged national research (Hellman, 1970). The review also highlighted the concern that with extensive foreign penetration there came a danger of French firms being eliminated or turned into satellites (Behrman, 1970). It was feared that this would change the size and nature of the French economy. Underlying this was a belief that the most profitable or advanced production was saved for the foreign parent of a transnational to undertake, with the ‘immigrant enterprise’ limited to producing more common products, or those complementing imports from the foreign parent (ibid.). Similar concerns have been expressed in other countries. For example, the Australian Foreign Investment Review Board in its screening of inward investment considered the effects on competition, efficiency, technical change, the quality of products, exports, employment and taxation, among others. The Foreign Investment Review Agency in Canada also applied similar criteria (Safarian, 1983). Apart from these specific concerns, it seems that France had a ‘strong, if not over-riding’ preference for greenfield over take-over inward investment, and a desire to protect ‘key sectors’ (Gillespie, 1972). Again these have similarities to elsewhere—Japan for example (see previous chapter). However, Gillespie is critical of the French, arguing that in practice the administrative secrecy used for screening and the public interpretations of policy actually reflected a lack of consistent criteria. Their ‘key’ sectors were not publicly defined although they appeared to be those where there was the most rapid technological development. Most obvious is the electronics sector generally and computing in particular. A difficulty with this was that trying to protect ‘key’ sectors conflicted with another aim, namely encouraging investments bringing in new technology, because the key sectors were usually exactly those where French technology was behind. In addition, technologically-superior foreign investors would only invest if they kept control. For example, in 1964 the Finance Minister vetoed the acquisition by General Electric of Machines Bull, the electronics firm. After much delay, a modified agreement had to be accepted by the government, but only after it 49


had concluded that a reorganisation of Bull on a national basis was insufficient to develop a strong computer industry (Hellman, 1970; US Senate, 1975). This problem has been a perennial concern for the French authorities, and we return to it subsequently. Moreover, there seems to have been uncertainties in the government attitude to inward investment, with internal disputes over the right criteria for its assessment. This was reflected in the non-appearance of the guidelines, the ‘bible’ for foreign investors, which the Finance Ministry was known to have been working on at this time (Torem and Craig, 1968). Whatever the exact nature of government concerns, however, there was undoubtedly a policy to block inward investment, notably from the US. The precise method used is unclear. One view is that it was simply by delay: although it was never admitted, ‘it was widely reported that all applications for approval of new investments were blocked—simply by not being acted upon’ (Gillespie, 1972). The policy went as far as allowing one French textile firm to go bankrupt rather than let it be acquired by a US firm (Behrman, 1970). Torem and Craig (1968) state that outright rejection of investment proposals was very unusual and that instead pressure was put on applicants to voluntarily alter or withdraw applications regarded as ‘unsuitable’. Yet this does not seem to square with Manuali’s claim that 47 out of 138 investment applications were denied from January to September 1965 (noted in Torem and Craig, 1968). Whether the method was one of delay, or requesting applicants to withdraw, or outright rejection, inward investments were in fact blocked. In 1965—the year that attempts to discourage US investment were at their height—the result was a large drop in inward investment, especially from the US, and an even bigger fall came in 1966 when the full effect of investment decisions made in 1964/5 came through (Torem and Craig, 1968; Gillespie, 1972).1 Yet policy was seen in France as ineffective, because foreign investors were able to locate elsewhere in the European Community and export to France. Indeed Germany and Belgium experienced a considerable rise in US inward investment at this time. For example, GM established its assembly plant in Antwerp rather than Strasbourg after being ‘rebuffed’ by the French government. Remington, after the Calluire uproar, closed down completely in France and relocated in Holland and Germany. After Ford was also refused permission to build a plant in Strasbourg (Reich, 1989), its decision to locate just over the border in German Saarlouis, and 50

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not French Lorraine, particularly angered the French government (Hellman, 1970; US Senate, 1975). In short, French policy had gone from a very open position to one so restrictive that inward investment flows were simply pushed to other parts of the Community. Thus it is no surprise that the January 1966 replacement of Giscard d’Estaing by Debré as Finance Minister marked yet another shift in policy. Debré relaxed policy; he felt that inward investment was needed for expansion, but also that strict control was necessary and that management positions had to be retained by French personnel (Hellman, 1970). According to Gillespie (1972): whereas formerly one received the impression that foreign investment was presumed to be harmful unless the merits of a particular case were especially strong, official statements now indicated that foreign investment was desirable unless the demerits of a particular case were strong. The preference for greenfield over take-over investment, and the defining of favourable and unfavourable sectors were both abandoned as unworkable. However, concern over the foreign domination of sectors remained explicit (Behrman, 1970). In late 1966, Prime Minister Pompidou argued that a foreign investor’s interests did not have to be fulfilled by the ‘complete colonization of a sector’ or by a French firm becoming merely ‘simply furnishers of hand labor to foreign brains’ (quoted in Behrman, 1970). He went on to state bluntly that ‘we do not wish to be the arms of their heads’ (ibid.). Just one month after his statement, the computer firm Bull—which had been acquired by General Electric – cancelled production of two computers in its range, even though they were already on order by some customers, and laid off workers. Again there was uproar over ‘foreign domination’. Le Monde attacked the decision arguing that Bull was the victim of a decision made on the other side of the Atlantic, and that it made life easier for IBM, whose market position was consolidated. In short, it highlighted ‘the difficulties which can arise from time to time for companies having a dominant foreign participation’. Some trade unions called for Bull’s nationalisation (ibid.). Given the continuation of such concerns despite the more relaxed policy, Debré created the Commission des Investissements Étrangers, an interministerial committee which was to aid the formulation of 51


policy as to the categories of investments to be limited, and to develop case law. The Commission was—and remains—presided over by the Finance Minister, although in practice the Deputy Minister fulfils this role. The thirteen other members are a crosssection of the government, representing interests which may be affected by foreign investments. Members are usually representatives of the ministers involved, and it is not clear how many cases go to ministers as a group. However, the Industry Minister and the Delegate for Regional Planning are particularly important. Their agencies are especially concerned with the effects of new investments. The Commission studies the general problems of inward or outward investment, and gives its opinion on particular cases. Initially it considered all investments over F500,000 (Torem and Craig, 1968). By 1976, de Marsac put that figure at F5 m. The 1966–7 legislation The case-by-case approach was enshrined in a December 1966 law and its 1967 follow-up, applying to both inward and outward investment. This legislation provides the basis for policy right up to the present day, albeit greatly modified. Furthermore, in its administrative application it is the source of the flexibility so evident in French policy. Therefore it is important to consider it in some detail. In doing so, the following description draws heavily on Torem and Craig (1968). The 1966 law provided a skeleton of the controls to follow, and it was fleshed out by decrees and regulations in 1967. Different categories of investment and financing were established. These included ‘direct investments’, to which we will return in a moment, loans, and acquisitions from abroad of industrial property, knowhow, and technical assistance. The aim of controls in this latter category was to protect French industry from any possible ‘weakening or stagnation of its technical competence’ (Torem and Craig, 1968). The Finance Ministry was given forty days to consider proposed agreements upon receipt of a declaration from the French side. The examination covered technical and financial aspects, and any national defence requirements. The French side could be contacted by the Ministry, which might propose and discuss modifications. If these were not accepted, the Minister might not give a favourable opinion. It was not clear what the effect of this would be, however. The 52

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relevant decrees imposed no penalties and it could be argued that the contract was still valid. A decree did state that the decision would be forwarded to the tax and customs authorities. As Torem and Craig (1968) noted, the legal basis for prejudicial tax or customs actions on this basis was doubtful, but the expression of an opinion by the Ministry, and its report to relevant agencies, would probably be enough to dissuade a party from carrying through an agreement without taking account of the Ministry’s view. In addition, annual reports of receipts and expenses under agreements covered by the decree had to be made. Torem and Craig (1968) note that although the decree did not cover receipts, the Minister has asked for such reports as well, even in the face of objections. Loans were specifically exempted from the rules affecting direct investments. Loans from foreign individuals, firms or international organisations remained subject to authorisation by the Finance Ministry, as under the old Exchange Control Regulations, and could not be undertaken unless approved. Loans which in any way represented some form of control were considered direct investments, however, and the new declaration rules applied. Given the complexity of these rules, determining whether the form of financing constituted a loan or a direct investment seemed the main problem facing investors (Torem and Craig, 1968). As for the legislation on direct investments, this was heralded as a liberalisation, because whereas before 1967 there had been a general requirement for prior authorisation, ‘that which is not expressly forbidden is now permitted’ and henceforth ‘to block or delay an investment the government must assume the burden of intervening and expressing its dissatisfaction’ (Torem and Craig, 1968). Under this procedure, foreign individuals and companies (and French companies under foreign control) had to submit a declaration to the Finance Ministry detailing any proposed direct investment. Virtually the same rules applied to outward direct investments also. In addition, non-residents had to declare an acquisition of a direct investment from another foreign individual or company. This reflected concern over the Chrysler purchase of Simca. The same applied if a foreign corporation having a French subsidiary wished to merge with another foreign corporation. The last two requirements were an extension of the scope of investments subject to an approval procedure. In this sense, despite the acclaimed liberalisation, the law actually intensified control (Gillespie, 1972). 53


After receipt of the declaration, the Ministry had a period of two months in which it could request postponement. This postponement could be temporary, to allow further examination or to allow the application to be modified. If the investment was considered undesirable, or the applicant was not able or willing to modify the proposal, the Minister might demand a permanent postponement. Unlike pre-1967, this had to happen within two months, or the investment went through automatically. What constituted a ‘direct investment’? Firstly there was the acquisition, creation, or extension of a business (whether a branch or individual enterprise). Secondly there were other activities to acquire or increase the pre-existing control of a company, or to facilitate the expansion of such a company. However, the law stated that simply acquiring 20 per cent or less of the share capital of a company quoted on the Stock Exchange was not a direct investment. Neither was an increase in capital by the reinvestment of undistributed profits (de Marsac, 1976; US Senate, 1975). Moreover, defining exactly what ‘expansion’ and ‘control’ involved raised difficulties. The decrees and regulations were silent on what constituted control precisely because of the complexity of the issue. There were guidelines, though, from both case law and a Finance Ministry notice regarding declarations. Factors other than the percentage of capital ownership could be considered, including loans or debt instruments held by the investor, real property rights, leases and mining rights, technical assistance agreements, and licences of industrial property rights. Ordinarily these would only be considered an acquisition or an increase of control in conjunction with a certain amount of capital ownership (Torem and Craig, 1968). Given the looseness of the definition, though, the legislation was very flexible. It was quite easy for the government to alter what it defined as ‘control’ to suit its concerns, as indeed happened in 1972. A 1967 Notice from the Finance Ministry spelt out the information desired in their examination of a proposed direct investment. The Ministry wanted details of who was making the investment: their name, address, nationality, and an account of their business activities. This included a balance sheet for the last year at least, stated capital, and bank references, along with similar information for a parent or sister organisation. Details were also desired of the proposed activity in France, including the source of funds, the reason for the investment, and the benefits that would 54

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ensue to the French economy. In particular, the report had to state whether a technical research centre would be created, and details if it did (Torem and Craig, 1968). Encouraging the establishment of research facilities by incoming transnational has been a perennial concern throughout the period we consider, as will be seen with policy in the 1970s. Once the declaration was made, even if the proposal did not go to the Commission, projects were referred to those ministries representing interests which might be affected by the foreign investments. All applications of any significance were therefore scrutinised by departments in addition to the Finance Ministry. A declaration involving an acquisition or the establishment of a new company was also considered by the technical staff in the Industry Ministry. If a new plant was constructed, the Regional Planning Department was also consulted (Torem and Craig, 1968). More sensitive applications might have gone to the Prime Minister’s office or even to the President himself (Safarian, 1993). As the various bodies considered the declaration, the applicant might have been asked for more information, or for explanations. Such meetings might just be for clarification, or the ministries might have asked for alterations to suit their objectives. Where conditions were attached to investments, follow-ups were provided to ensure fulfilment. The monitoring of the behaviour of transnationals in this respect has carried on right through the period under consideration – in contrast to policy in Britain, for example (see OECD, 1982; Safarian, 1983; Chapter 6). It is revealing that processing could be extended beyond sixty days simply by the Ministry demanding a temporary postponement. In this way the decree was implemented in a very flexible manner; the government could deviate from the time limit as it wished. Once a decision had been made, the Ministry either requested permanent postponement, or notified the applicant that it did not request postponement ‘in a document that has all the attributes of an authorisation’ (Torem and Craig, 1968). The ‘authorisation letter’ listed conditions on which the decision not to request postponement was based. Neither the document itself, nor the conditions listed were provided for in the decree. Their use reflected the attitude of Civil Servants implementing the foreign investment rules, with any substantial investment proposal ‘treated as a case for full study as to its desirability and effect on the French economy’ (ibid.). 55


Criteria for considering investments were still not clearly spelt out by the government, but from case studies Torem and Craig (1968) identified a number of factors that were probably considered. Advantages of inward investments were felt to include: stimulating industrial expansion, competition and increased employment; improving the balance of payments; and furthering French technology. Disadvantages were identified as comprising: the domination of a sector by a giant industrial concern; the risk of the foreign-controlled firm not respecting the government’s economic plan; inflationary pressures arising from the investment; worsening of the balance of payments through increased imports, and the payment of royalties, fees and dividends; reliance on foreign technology and R&D; labour practices violating French traditions; export trade being limited by a Foreign government; and a simple fear that decisions affecting French firms might be taken abroad (Torem and Craig, 1968). Accordingly, whilst the legislation was welcomed as a ‘liberalisation’, in that prior to 1967 there was a general requirement for authorisation, it both widened the categories of investment subject to an approval procedure and in its administrative application continued with an authorisation process. Thus inward investments were fully scrutinised for their costs and benefits. In applying the law, outright rejections of investments were rare. Even for investments affecting the ‘national interest’, where the impact was so great that government approval was seen as crucial, the likely result was still ultimate approval. However, the point is that every proposed investment was considered, and in certain cases the disadvantages were seen to outweigh the advantages, leading to rejection. This policy was in stark contrast to that in Britain, where there has been a ‘warm welcome’ for transnational over the last thirty years (Chapter 6). 1967–71 Application of the law was increasingly relaxed soon after its introduction, for instance, after the May 1968 unrest and worsening monetary position. This relaxation was later confirmed by a February 1970 interministerial council held on the issue of foreign investment. However, the selective nature of policy remained clearly visible. For example, the applications of three US data-processing firms for participation in French software firms were rejected. Fiat’s 56

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proposed taking of a ‘large’ interest in Citroën was also blocked by the government in 1968, and Fiat was forced to accept just a 15 per cent stake (Behrman, 1970). Likewise, the transfer of the holding by Baron Empain, a Belgian, in the second largest French electrical equipment firm Jeumont-Schneider to Westinghouse (US) was also blocked in early 1969, even though the firm was having financial difficulties (Hellman, 1970; Behrman, 1970). According to the French Ambassador to the US, Charles Lucet, policy towards investment had not altered: it used to be ‘no, but…’ and was now ‘yet, but…’ (quoted in Kindleberger, 1969). After de Gaulle’s resignation in April 1969, an easing of policy can be seen in Pompidou’s administration. Thus the new premier, Chaban-Delmas, stated (in Graham, 1982): ‘we do not wish to lose any opportunity to develop industrial plants in this country. We are not against, but for foreign investments’. In addition, the Territorial Planning and Regional Development Agency, DATAR, became active in attracting foreign investment, and attempted to channel it to regions outside Paris. DATAR’s position in 1970 was one of welcoming inward investment if ‘it creates new industrial production facilities, offers new jobs in areas of labour surplus, and produces exports’ (DATAR, quoted by Lea and Webley, 1973). Furthermore, in contrast to the earlier refusal to allow GM and Ford to set up plants in Strasbourg, the government began ‘aggressively’ to attract Ford to invest in France (Robock and Simmonds, 1983). Nevertheless the government reserved the right to intervene where a whole sector might come under foreign control (Graham, 1982). Indeed, take-overs in sectors with high foreign participation were rejected, such as the ITT bid for Pompes Guinard or the Helena Rubinstein (US) bid for Parfums Rochas (Hellman, 1970; US Senate, 1975). In addition, the French government encouraged mergers at this time, so as to build larger domestic firms which would hopefully compete more effectively and reduce the inflow of foreign investment (Robock et al., 1977). Two of France’s largest firms were joined in this way in 1989, with Pont-a-Mousson and Saint Gobain joined to create France’s biggest industrial corporation (ibid.). In spite of the aggressive bidding for Ford’s investment, another feature maintained in this period was concern over investment from the US. Graham (1982) refers to ‘arbitrariness’ in the law’s application, because it discriminated against US firms, but it would 57


be wrong to see this as arbitrary; it was deliberate (a point Graham also recognises). There was a rise in British investment in France in this period, just before and just after de Gaulle’s second veto of UK entry to the European Community, and also a rapid growth of German investment, in the form of expanded, industrially-specialised operations at the European level (Berlin, 1977). As Berlin points out, attracting European transnational instead of US ones offered two advantages. Firstly, it conformed strictly to the Rome Treaty. Secondly, it facilitated the construction of much larger, integrated units more able to compete with dominant US transnationals. However, he stresses that this rapid increase in the proportion of non-US investment should not be attributed solely to a ‘volte-face’ on the part of the French government, but more importantly to the completion of the first stage of European Community integration. Despite this, the government’s concern over US investment brought it into conflict with the European Community. France applied its laws to EC investment in an attempt to control ‘backdoor’ investment in France by US firms operating through their European subsidiaries. This led to complaints from the European Commission, which in 1969 took France to the European Court of Justice over the 1966–7 legislation (Gillespie, 1970; Graham, 1982). 1971 and the European Community As a result, in 1971, the law was revised to meet the Commission’s approval in what Safarian (1983) loosely terms a ‘compromise’. Certainly France did exempt EC countries from the normal requirement for prior declaration. At the same time, however, France continued to view direct investments from the EC as within the scope of the Exchange Control Regulations. EC members had to apply to the Finance Ministry before participating in a financial transaction relating to direct investment. Being based on Exchange Control Regulations, this did not contradict the Rome Treaty. As de Marsac (1976) noted, French compliance with the dictates of the Rome Treaty was purely formal and, as long as the Exchange Control Regulations remain in force, the formalistic device will stand and direct investment from other members of the EEC will be treated the same as when they were subject to the specific rules governing foreign direct investment. 58

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1971–80 There were no more changes to legislation during the 1970s although there were changes to policy. As Berlin (1977) notes, policy became more active and selective towards all non-US investment, including that from smaller countries (although typical of the French approach this was not the stated, official position). This represented a movement away from a sole concern over dominant US transnational. With the rapid increase in British and German investment, concern was felt for the national independence of French industry. A need for foreign technology and a fear over domination by EC partner-industry combined to produce a ‘more qualitative approach’, favouring more diversified sources of investment outside Britain and Germany, including a new source, Japan (Bertin, 1977). In 1972 the inherent flexibility in policy was again revealed. Instructions from the government gave existing regulations a more restrictive interpretation (The Times, 23/11/72; US Senate, 1975). When defining control and thus determining whether or not investments had to be declared, banks acting as intermediaries were told to take a more stringent view. In particular, the requirement for share participation was relaxed. It seems that banks acting as intermediaries henceforth had to give greater attention to operations such as loans, loan guarantees, licensing, or options to buy shares, which could be used by foreign investors to gain control. This applied to inward and outward investment although the latter had been eased in May 1972, with investments up to Fl m unregulated. There were also changes in 1974. Transactions up to a specific amount were freed of the need to go through the approval process. Inward investment (and borrowing subject to certain conditions) was unconstrained up to F2 m per French firm affected (The Times, 20/8/74; de Marsac, 1976). More generally, DATAR became progressively more prominent, both in the early 1970s, and during the Giscard d’Estaing administration (Graham, 1982). The outcome of all this was that outward investment was encouraged, French investment in the US growing dramatically over 1974–7 (Graham, 1982). Inward investment was also welcomed. In 1971, for example, the Commission considered approximately 300 ‘major’ investments and only turned down five, the largest being the Heinz bid for the Grey Poupon Mustard Co. (The Economist, 8/1/ 72). Nevertheless policy was not ‘liberal’, as in Britain, say. France insisted on strict observance with the declaration procedure, 59


irrespective of where the investment came from (Lea and Webley, 1973). Worries over inward investment remained; for example, there was concern over Burton’s 1974 closure of its Boulogne plant, which had only been opened in 1969. This prompted DATAR to demand reimbursement of F300,000, that part of the industrial premium it gave to Burton to settle in Boulogne, the first time it had taken such action (The Times, 18/3/74). Concerns over sectoral aspects also existed. The idea of a ‘French solution’ for companies in ‘key’ sectors was by no means dead (The Economist, 8/1/72). Furthermore, there was concern that any single sector could be (or had already been) dominated by foreign interests. This can be illustrated by reference to the food industry. Finance Minister Giscard d’Estaing described British investment in the food industry in 1972 as ‘excessive’, and went on to state that (The Times, 8/11/72): concentrated investments in a single sector of the French economy are not desirable…we wish to see a more moderate development of investments and we will keep the technical means necessary to maintain such a development. There must be no ambiguity on this score. Towards this end, the government tried to seek a ‘French solution’ for biscuit manufacturer Le Brun, which was the target of United Biscuits. This was because US firms had acquired control of all but one of the large French biscuit firms by the mid-1960s. United Biscuits was not the only foreign acquisition vetoed; General Biscuits and Parein had also been stopped from taking over French firms (Bertin, 1977). There had been similar concern earlier in 1972 in the retail sector, when Great Universal Stores acquired ‘100,000 Chemises’, which came right on the heels of Burton’s 1971 acquisition of Saint Remy. The latter had been opposed by the Industry Minister and the Employers’ Federation on the grounds that it did not create any new jobs, but Monad, the delegate-general of DATAR, personally intervened to carry it through (The Times. 18/3/74). Similarly, towards the end of 1975, the Belgian oil producer Petrofina was refused permission to take a major interest in Ripolin, the third largest French paint producer, on the grounds that the two largest French producers were already partially foreign owned (Bertin, 1977). However, as in the 1960s, the sectoral policy had its problems. 60

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The most controversial event in the 1970s was the decision to allow the merger of Honeywell Bull from the US with CII, the French computer firm. The dilemma over the ‘key sector’ approach is strikingly illustrated. The merger was seen as necessary to ensure technological success and to encourage export performance. Whilst it could be claimed that a French majority holding had been retained, the decision divided the government and met with much criticism (Graham, 1982). Government objectives in the computer industry— of achieving national technical independence, developing a ‘modern productive tool’ for France, and of limiting the ‘overwhelming power’ of US-based transnational—had not been successful by the end of the 1970s, with the French taxpayer instead having to bear a considerable financial burden (Bertin, 1977). Government intervention in the telephone-equipment industry was seen as more successful. Here the government was concerned to bring in additional competition, as by 1973 the two US firms LMT and CGTT, both affiliates of International Telephone and Telegraph (ITT), accounted for 55 per cent of the French market. In response, in 1973 the French government initiated a seven-year programme, aiming to treble production capacity, overcome the French capacity lag, increase the domestic share of the market, and to reduce monopolistic prices by increasing the number of producers and stimulating competition (Bertin, 1977). The further entry of US-based transnational was not desired, so the French government looked for new investment from Europe. With British firms uncompetitive, the French government sought proposals from Philips, Siemens and Ericsson. An agreement was reached with the latter, and the company ‘allotted’ a larger share, 15 per cent, of the market. In this way capacity was both increased and the foreign share of the market maintained, but without further US investment (Bertin, 1977). This is a good illustration of policy on inward investment forming a part of overall industrial policy, by which, Bertin notes, the French government has intervened in the operation of industry to encourage more rational or efficient structures. In this case investment from smaller countries was encouraged to counter the dominance of US-based transnational. Bertin (1977) illustrates a different case of this concern over industrial structure. The paper industry was in the process of contraction, and the government desired a foreign presence to assure access to overseas sources of pulpwood. Due to this, and because one French producer, Beghin, was already of international size itself, 61


US and British investments were allowed, but only in limited or specialised branches, for example, thin or special papers or paperboard. Swedish and Canadian firms declined to take part in large-scale production activity after negotiations with the government, but did acquire small, profitable French concerns, and eventually Moore (Canadian) entered into a large-scale joint-venture in France. There remained concern over the technological activities of transnationals in this period. Behrman and Fischer (1980) note that the establishment of local R&D facilities by transnationals was often made a precondition to gaining market access. Given the attractiveness of its market, France was successful in employing such ‘negative inducements’. Arguably this illustrates the significant results that policy towards transnationals can bring about. In one case a transnational established a full-spectrum research centre with a staff of 100 scientists in return for permission to acquire a French firm. On the other hand it could be argued that this really had little value. Executives at the transnational suggested that the research in France was ‘nothing more than a drain on corporate profits for the next twenty years with little practical good coming out of it’ (Behrman and Fischer, 1980). This is not necessarily the attitude of executives in all transnationals, however. Given the scientific and technological capabilities in France, a transnational pressured to locate R&D activity there might make the most of it, profit from that location and subsequently expand its operations. Behrman and Fischer give one example of a transnational which wanted to sell in the French market and was persuaded by the French government to establish a laboratory even though it had no French manufacturing operations. Despite this, the R&D manager stated that ‘the quality of French scientific and technical resources available, and the importance of the Common Market will undoubtedly lead to an evolution of the French laboratory into doing some product discovery research’ (Behrman and Fischer, 1980). If this manager was correct in this case French policy in influencing transnationals’ activities could be seen as laying foundations for future success. 1980 onwards Since 1980 there have been various legislative changes, all moving towards greater relaxation. Moreover, developments in this period 62

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reflect features seen in the March 1981 report by the Conseil Économique et Social (reported in Financial Times, 27/3/81) which portrayed French industry being as deeply penetrated by foreign capital as any other western country, and which saw French policy as no more restrictive than elsewhere. Moreover, French policy attracted criticism, the report argued, because it relied on bureaucratic diktat, and because the government was seen to be interfering, whereas other nations relied on legislation, intermediate instruments (such as banks in West Germany—see Chapter 4) or large defensively-minded industrial groups (such as in Japan—see Chapter 2) (Financial Times, 27/3/81). Legislative change reappeared in 1980, when France relaxed the regulations concerning outward and inward direct investment to and from other European Community countries. These now required prior notification (see Code des Sociétés, 1989, for details). However, the Finance Ministry had a period of two months in which it could notify the firms that they fell within certain categories subject to the review procedure. These categories included: investments relating to public order, health, security and defence materials; investments obstructing the application of French laws and regulations; and investments in sectors participating in the administration of public authority ‘even occasionally’. Thus, although there appeared to be a relaxation for European Community (EC) investments, there was still a screening process, and the government could decide if investments fell into some very broadly-defined categories subject to review. Furthermore, inward investments from EC countries by firms owned by non-EC companies were still subjected to declaration (United Nations, 1985). Of course, the same was true for non-EC investments, although the rules here were slightly changed: investments were now free if they were by non-residents who had already been authorised to participate, if they were financed in foreign currency and if the value of the investments was less than F5 m per year (as long as the percentage of participation was not increased (United Nations, 1985; OECD, 1982)). Important sectors were still protected when it was felt necessary. For example, in the early 1980s, Ford requested permission to site an assembly operation in Lorraine, and the government rejected the proposal (Reich, 1989). According to Reich, the government was keen to keep Ford out of the French market. In this case the government may have been using Ford, with the government trying to find firms to set up in Lorraine, which had been badly hit by 63


layoffs in the steel industry (see Ardagh, 1990). Giscard d’Estaing welcomed Henry Ford at the Elysée and Ford expressed interest in Longwy, a depressed steel town. According to Ardagh (1990), this panicked French car firms into investing, as Giscard had hoped: ‘if you don’t agree now to invest in Lorraine, we’ll sign up with Ford’ was the message to French firms. It worked, with Renault, Peugeot and others investing there, creating around 6,000 jobs by 1983. In reality, the government was probably bluffing. Giscard ‘was almost as keen as the French car firms to keep Ford out if possible’, yet the French firms could not afford to take that risk (ibid.). When the Socialists came to power in 1981, the government was seen as more open than its predecessors. Inward investment was openly encouraged as it was seen as a way of stimulating the economy in a non-inflationary way. Thus there was some shift of emphasis, with greater concern over creating investment and employment (Safarian, 1993), rather than over technology. In contrast to earlier years, the government actively encouraged US investment, and allowed an important project by Mitel, the Canadian telephone company, in an area where previously it would probably have been rejected (Financial Times, 22/1/82). The number of formal rejections of proposals in the early 1980s was ‘zero or practically zero’ (Safarian, 1993). Savary (1984) found only three operations formally blocked during 1981–3. These comprised an association between PUK and Occidental Petroleum, a proposed fertilizer factory by SKF (Dutch), and the transfer of ‘advanced activities’ by Compagnie Générale de Radiologie to the US-based Technicare group. Whilst this small number of rejections might reflect a welcoming attitude by the government, there are several means that the government has used to deter investments without resorting to formal rejections. As in Japan, the government might signal disapproval in early discussions before a formal application was made, or might indicate that conditions would be attached which would be unacceptable to the firm concerned (ibid.). Either way, applications could be informally deterred if the government so desired. The opaque nature of the system enabled the government to behave in this way. It also meant that the criteria the government was using to consider investments were not clear. According to Safarian (1993), there was no formal list of criteria at this time. Different ministries were likely to be concerned over different issues, he felt: the Ministry of Finance most likely emphasised 64

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macroeconomic issues, such as the balance of payments and economic growth; DATAR probably favoured job creation, especially in less-developed regions; and the Ministry of Industry was probably most concerned over employment, exports, technology and competition issues. Indicative of this, Chevènement, then Industry Minister, stated in October 1982 that France welcomed foreign transnational for ‘their contribution to the fight against unemployment, restoring the trade balance, providing training in new technologies and boosting industrial investment’ (quoted in Savary, 1984). Where conditions were attached at this time, they tended to be short term, specific, and capable of being checked (Safarian, 1993). Whilst overall the monitoring system ‘was not well developed’ (ibid.), at least some follow-up efforts were made, in contrast to British experience, for example (see Chapter 6). As part of its more welcoming attitude, the government eased controls in November 1984. Applications of up to F5 m were now to be processed within one month, rather than two. Similarly, one month was allowed to determine whether investments from the EC should be reviewed. Moreover, Finance Minister Bérégovoy claimed there had been a great speeding up of processing applications, with two-thirds being completed within ten days, and in February 1985 there was further relaxation, so that investments of up to F10 m were now to be processed within one month (Financial Times, 27/ 2/85). As with European Community investments, these were now subject to ‘notification’; only investments over F10 m were subject to the declaration procedure (and in effect authorisation) (OECD, 1987). The sale of an interest in a French company between nonresidents remained subject to scrutiny. EC firms had to notify the Treasury Department, which had two months to reply, and nonEC firms still had to go through the declaration process (DATAR, 1989). As regards outward investment, there was some dissatisfaction about controls. In May 1985, the head of the Employers’ Federation criticised the low level of French investment abroad. He argued that outward investment had fallen from F25 bn in 1981 to F16.8 bn in 1985, against an increase in inward investment. A working paper drawn up for the seminar he addressed blamed the discouragement provided by the maintenance of regulations on outward investment, including exchange controls, authorisation procedures, and requirements for the bulk of companies’ outward investment to be financed out of borrowings abroad (Financial 65


Times, 24/5/85). Actually the government was keen to encourage French-based firms—particularly nationalised ones—to develop their international activities, with the Prime Minister stating in October 1981: ‘France needs French-run multinational companies. In a world economy and with troubled but open international trade, the Government will help them play their cards’ (Savary, 1984). Accordingly, the government removed obstacles to outward investments. Exchange controls were initially eased in November 1984. French firms were henceforth allowed to finance up to 50 per cent of their investments within the EC in French Francs. Until then three-quarters had had to be financed through borrowings in foreign exchange. In September 1985 this was extended beyond the EC, and companies with annual revenues of less than F350 m were free to use Francs to cover all foreign investment needs. This relaxation of exchange controls seems to have impacted on outward investment, which grew by 70 per cent in 1986. Exchange controls were eased again in May 1987. French firms were now free to borrow in foreign currency or French Francs. Again this is likely to have been a factor in the rapid growth of acquisitions abroad from F76 bn in 1988 to F108 bn in 1989. Growth was particularly evident in the United States, where French direct investment rose by US $5.3 bn in the first three-quarters of 1989, to £16.7 bn (Financial Times, 14/11/84; 6/9/85; 20/3/87; 22/5/87; 10/3/89; 13/ 1/90). Moreover, a decree of 28/12/89 provided an almost complete liberalisation of exchange controls (Coopers & Lybrand CLC juridique et fiscal, 1991). Over the later half of the 1980s, the government continued to encourage inward investment. In June 1985, administrative procedures for foreign investors were simplified and a single official was appointed to each department to guide foreign investors through the administrative labyrinth (Financial Times, 14/6/85). The sale of the Martell drinks group to Seagram of Canada in a F5.25 bn deal went through the approval process ‘with scarcely a hesitation’ in January 1988 (Financial Times, 13/12/89; 11/1/90). There seems to have been increasing acceptance of foreign acquisitions of French firms at this time, the French attitude being that it would seem unacceptable to block such moves at a time when French firms themselves were particularly active in acquiring overseas assets (Financial Times, 11/4/88). Once more there is an interesting comparison with Britain. Lord Young, then Industry Minister, expressed a similar attitude when Rowntree’s was being 66

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taken over by Nestlé (Financial Times, 26/5/88), yet as can be seen in Chapter 6 such views were part of a quite different policy approach. During the Pearson bid for Les Echos in 1988, Finance Minister Balladur stated the official position on Community investments: ‘as far as EC companies are concerned theoretically, I don’t have the power to oppose bids made by truly European companies, except if they are connected with France’s defence or public health’ (Department of Trade and Industry, 1989, our emphasis). This did not prevent the government from using delaying tactics to try to find a ‘French solution’ for Les Echos. It also left open the question of what constituted a Community investment, again a problem in the Pearson bid. In September 1988, as part of its programme to boost employment, the government dispensed with the declaration process for greenfield investment. Acquisitions still remained subject to the declaration procedure, though (Financial Times, 15/9/88). The easing of restrictions may be reflected in a 30 per cent increase in inward investment in 1989 to F55.8 bn (Financial Times, 26/4/90). It may also be reflected in the December 1989 take-over of Leroy-Somer, the electrical motor producer, by Emerson Electric, a US firm. There was French public concern, and Le Monde described it as a ‘new trauma for French industry’, but there was no government opposition (Financial Times, 13/12/89). There was further streamlining of regulations in 1990 and 1992. In January 1990 notification rules were changed so that investors would be told within two weeks rather than one month whether they fell into categories subject to review. For acquisitions from outside the European Community, firms still had to declare investments over F10 m but would receive a reply within one month. In either case, if there had been no reply within the stipulated time, the investment could proceed automatically. Again, investments relating to defence, public health, order and so on were excluded (Financial Times, 11/1/90; Journal Officiel, 1990). In January 1992 a further relaxation meant that non-EC acquisitions worth less than F50 m of French firms with annual sales under F500 m were now only subject to notification. This covered 90 per cent of non-EC acquisitions in France (Financial Times, 29/1/92, 2). Table 3.1 summarises the position as of June 1992. Even with this increasing liberalisation, however, the government did not have a totally hands-off approach. For example, four 67


Table 3.1 The legislative position as of June 1992

Source: Details mainly from Coopers & Lybrand CLC juridique et fiscal, 1991. 68

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acquisition proposals were delayed by the government in 1990, including plans by Nissan and Toyota to take control of their distributors in France, and the proposed acquisitions of Pathé Cinema by Giancarlo Parretti (Financial Times, 29/1/92, 24). Furthermore in February 1989, President Mitterand denounced the ‘easy money’ being made by financial speculators and promised to protect France against foreign take-overs (Department of Trade and Industry, 1989). The 1989 Department of Trade and Industry (DTI) report on barriers to take-overs in France notes that institutional advisors believe there is little opposition to foreign bids ‘so long as the acquiror can indicate to the relevant authority that the investment will benefit France in terms of increased wealth and employment’ (ibid., our emphasis). Finance Minister Bérégovoy stated prior to the blocking of the 3M (Minnesota Mining and Manufacturing Company) bid for Spontex that ‘France should be open to foreign investments when these are economically profitable to the country: that is, when they are wealth creating’ (Financial Times, 22/3/89, our emphasis). In other words, the government still had to be convinced of the benefits that would accrue from a foreign takeover. The DTI report concludes on this point that given the French government’s concern to see that there is an ‘industrial logic’ to any take-over, ‘the degree of uncertainty engendered by this may itself be seen as a formidable barrier by a would be acquiror’, and that ‘even when management agrees to an offer [of a take-over bid], it is quite possible for there to be sufficient government interference to delay or prevent the success of the offer’. Several examples illustrate government sensitivity to the transnational issue. It seems that in the early 1980s, the government was less welcoming to Japanese investment in the consumer electronics industries, such as television (Financial Times, 22/1/82). (In the case of video recorders, the government also restricted imports, forcing them to enter through the remote Poitiers customs post. This slowed down imports and speeded up the siting of production plants in France, with Philips setting up in 1982, followed by Grundig, Akai and Thomson with JVC (Savary, 1984).) Specific concerns remained; the United Nations noted that ‘foreign takeovers of companies with technological strengths or growth and export prospects are subject to careful scrutiny to safeguard national interests’ (United Nations, 1985). Concerns over foreign involvement were also evidence in the French privatisation process (United Nations, 1985): 69


it is characteristic that, when several French formerlynationalized enterprises, primarily banks, were sold to private parties, great care was taken not to turn them over to foreign interests. The relevant legislation imposed a limit of 20 per cent foreign ownership, at least for the initial stages. More generally, the take-over bid in February 1988 for the Belgian firm Société Générale de Belgique by an Italian bidder raised concern over a possible similar assault in France. A senior Finance Ministry official stated ‘clearly in that sort of circumstance we would have our word to say’ (Financial Times, 19/2/88). Former Finance Minister Bérégovoy went as far as proposing the creation of a special fund which could intervene in take-over battles, similar to the fund proposed by Agriculture Minister Guillaume to defend the food industry, which had seen a number of foreign acquisitions, ranging from Banania and Poulain (chocolate producers) to Lesieur (cooking oils) (Financial Times, 11/4/88). Similarly, government sensitivity was evident in September 1988 when Gillette proposed closing down its Annecy factory with the loss of 7,000 jobs. The government threatened Gillette with unspecified action if it went ahead (Financial Times, 24/9/88). Delaying tactics were still being used, and Finance Minister Balladur was said to regard the most effective weapon against unwelcome take-overs (both domestic and foreign) as the ‘hard cores’ of friendly shareholders created in privatised companies, a practice copied by companies already in the private sector (Financial Times, 19/2/88). The latter approach could go some way to reducing the earlier criticism by the Conseil Économique et Social (noted above) that French policy had relied on bureaucratic interference. Delaying tactics were particularly evident in the 1988 £88 m bid by the British publisher Pearson for the French newspaper group Les Echos, a bid welcomed by the owners of Les Echos. The French Finance Ministry blocked the deal, claiming that Pearson was not a European Community company because 20.5 per cent of Pearson was owned by Rupert Murdoch (an Australian-born US citizen), and that rumours surrounding possible bids for the firm meant that ‘its capital is not stable’ (Department of Trade and Industry, 1989). The owners and staff of Les Echos publicly objected to the government ruling, and eventually the Finance Minister allowed a revised bid whereby Pearson acquired two-thirds of Les Echos, with purchase of the other third delayed for a year. The 1989 DTI report 70

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argued that the government had delayed the bid in an attempt to find a ‘French solution’. The incident also raises the question of what constitutes an EC investment. As the latter report notes, ‘there appears to be some confusion as to what level (between 10 and 50 per cent) non-EC shareholding is viewed by the French government as affecting a company’s own EC status’. Once again, there seems to have been considerable room for government manoeuvre in its definitions affecting foreign investment. It is important to note that European Community take-over bids in some cases have been deterred. This is despite the formal letter of the Rome Treaty, and the French government’s professed intention only to intervene in the interests of defence of public health and safety: ‘it is common practice for the French government to delay take-over bids by an EC company in order that a “French solution” may be found’ (Department of Trade and Industry, 1989, our emphasis). More recently, in June 1990 the French government objected to the purchase of Chapelle Darblay, the French paper producer, by Stora, the Swedish pulp and paper group, in conjunction with Kymmene of Finland, on the grounds that this would give Stora an excessive dominance of the magazine paper market. Stora would have been referred to the Conseil de Concurrence (the Competition Council) but withdrew anyway. The control that the government has retained in its dealings with transnationals was illustrated by the concessions it extracted in allowing the Kymmene part of the bid to go ahead. The 1,170 jobs at Darblay were to be safeguarded, production on its two sites would be maintained, and the necessary plant investment to ensure competitiveness would be carried out. Kymmene also had to agree to repaying the F1.05 bn Darblay owed the French government, and to maintain favoured relations with the French press (Financial Times, 13/6/90). The Conseil de Concurrence can be consulted by the Finance Minister. According to the DTI’s 1989 report, after consultation acquisitions can be challenged on competition grounds, if the acquiror and target have over 25 per cent of the French market, or if they have turnover above F7 bn (or if there are more than two parties, at least two must have a turnover of at least F2 bn). Thus foreign bids which might lead to the ‘excessive’ dominance of an industry can be referred to this body. In 1987, for example, the West German firm Henkel’s plan to set up a joint venture between its newly-acquired Lesieur-Cotelle and Colgate-Palmolive was blocked (Financial Times, 71


19/5/88). In earlier times this would have been achieved using the declaration procedure. So does the Conseil de Concurrence represent a transnational policy by more subtle means? It is a question worth raising, at least, as such a move would not be incompatible with the past evolution of French policy, nor with Safarian’s suggestion (1991) that there is a tendency in different countries to merge domestic policy with that on transnational, in order to reach all transnational firms, wherever owned. The Conseil de Concurrence has already become embroiled in one foreign take-over incident. In September 1988, 3M (Minnesota Mining and Manufacturing Company) announced that it had agreed to purchase Spontex. In an attempt to delay the deal and find a ‘French solution’, the government announced that the purchase would be examined by the Conseil. Whilst the Conseil was considering the take-over, the French government gave ‘indications’ that it would prefer a ‘French solution’, and a counter bid was set up by a French consortium. In March 1989 the Conseil de Concurrence cleared the take-over. However, the French government ignored this, announcing that it would block the 3M bid on the grounds that 3M and Spontex combined would have 76 per cent of the scouring goods market. With the foreign take-over blocked, the French bid could go ahead, and ‘although government officials insisted that the bid was blocked purely on competition grounds, many commentators were unconvinced’ (Department of Trade and Industry, 1989). In short, the government had used the Conseil as a delaying tactic, and then ignored its advice anyway to ensure a ‘French solution’. Even if the government was unsuccessful in finding a ‘French solution’ in such situations, consultations with domestic firms might raise issues which the government subsequently built into conditions on the foreign firm (Safarian, 1993). At other times, domestic firms’ rent-seeking behaviour (such as trying to limit competition) might not appeal to the government. Such attempts to find French solutions are usually unsuccessful, with foreign takeover allowed in most cases (ibid.). Yet another recent case shows that the underlying concern over technology resurfacing. In 1991, newly-appointed Prime Minister Cresson froze talks between the state-owned computer manufacturer Bull and the Japanese firm NEC. NEC wanted to swap its 15 per cent stake in Bull HN, a subsidiary, for just under 5 per cent in Groupe Bull itself, as part of a restructuring package designed to 72

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return Bull to profitability (Bull had made a loss of US $1.2 bn and had shed 1,200 jobs in 1990). Cresson asked Bull for more details on NEC’s intention and their likely impact. The government wanted to be certain ‘that the long-term independence of Bull would be assured’, a senior official stated (Financial Times, 24/4/ 91; 18/5/91; 25/5/91). Once again the French government had to decide whether to trade off national independence in the computer sector for access to the foreign assistance, this time Japanese, which was deemed vital for a successful reorganisation of the French computer industry. Cresson finally concluded that there was no alternative, with a ‘compromise’ in the form of a promise from Bull that it would not allow NEC to gradually take control. In fact this was not necessary, as legislation limited private firms to minority stakes in state-owned firms, with a condition that full government control is retained (Financial Times, 15–16/6/91). Eventually Cresson also agreed a deal with IBM taking a stake in Bull, and Bull gaining access to IBM’s advanced ‘Risc’ technology (Financial Times, 29/1/92). It is also worth reporting that the research by Coopers & Lybrand for the 1989 DTI report further illustrates the extent of the French government’s concern. It suggested that government intervention in mergers, ‘agreed or otherwise’ could be ‘extensive’. An example is given where approval for a take-over was only granted after the British acquiror had agreed not to change the sources of certain suppliers of the firm being taken over. ‘The issue was solely political’ Coopers argue, and although the agreement was not binding, in the form of a letter of intent, ‘the company is aware that it would be wise to abide by it’ (Department of Trade and Industry, 1989). Key sectors have remained a concern; even with a tendency for the intermediaries surveyed by Coopers to ‘downplay the effect of government intervention in bids’—intervention ‘which is all too clear when an analysts of the larger bids is made’—some still felt that in key sectors such as telecommunications, banking and insurance, the government might try to delay approval in the hope of finding a ‘French solution’ (ibid.). Furthermore, in a survey of recent British acquirors in France, Coopers found major barriers commonly cited include ‘French Treasury or French Government authorisation’ (ibid.). This research also makes the point that the French cultural climate has exacerbated foreign firms’ problems when making hostile bids, a situation reminiscent of Japan. According to Coopers, intermediaries believed that French business is 73


both unaccustomed to, fearful and disapproving of contested bids. They believe them to be contrary to the widely held belief in France that, if a company cannot complete a takeover with the co-operation of the management, then it should not be acquired at all. (Department of Trade and Industry, 1989) It seems that the French government has spoken out against the ‘raider attitude’, and is generally opposed to aggressive, hostile takeover attempts, whether domestic or foreign (ibid.). Whilst recent inflows of inward investment in France have grown strongly, reflecting—according to the OECD (Organization for Economic Co-operation and Development)—a favourable government attitude because of the employment opportunities it creates (Financial Times, 1/3/93), issues relating to transnational still flare up from time to time. One recent example came in February 1993, when Hoover relocated a vacuum-cleaner plant from Dijon to Scotland, with the loss of 600 jobs. Ministers were particularly concerned as they felt that Hoover had played off countries against each other so as to maximise investment aid, a claim that Hoover rejected (Financial Times, 29/1/93). In one outburst, Prime Minister Bérégovoy stated: you can see where unfettered liberalism gets you. The Scottish workers, a pistol loaded with job cuts at their heads, have agreed to give up employment rights, the right to strike, and accepted a blow to their pension funds and wage cuts. (Financial Times, 5/2/93) He also warned Grundig not to follow suit and shift production from Creutzwald in north-east France to Vienna (Financial Times, 29/1/93), threatening to protest to the Austrian government, and warning Austria that if it wanted EC entry, ‘it must respect certain rules of the game’. ESSENTIAL CHARACTERISTICS Although the number of cases in which there has been government intervention might have been few, the degree and nature of government activity indicated in this chapter suggests that statements such as those by the OECD—for example: ‘foreign direct investment in France is not normally restricted and, in practice the regime is 74

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liberal’ (OECD, 1979))—or some made by the UN—such as ‘EEC investment is screened only for balance of payments considerations’ (United Nations, 1978)—are somewhat misleading. A clear and important characteristic of the French approach is that the government has not left everything to the market. It is true that the outright rejection rate has been very low and that even where the impact of an investment has been so great that close government consideration of the proposal was viewed as vital, the result was still likely to be ultimate approval. The crucial point, however, is that the government has made those decisions. While one might argue that the government has appeared to have had little impact, it is likely that their policies have influenced the shape and form of investment proposals. If an investment was authorised pre1967, or was not postponed under the 1967 declaration procedure, or passed through the notification system in the 1980s, there was still some kind of screening process. In this respect the French approach has been nearer to that of Japan than Britain. Even in the ‘liberalised 1980s’, there is much evidence of government action. Other similarities with Japan include the development of a ‘more liberal’ attitude, alterations that tend to be more apparent than real, flexibility in policy and a concern over technology. The 1960s witnessed considerable short-run variations around a trend towards a more relaxed approach. There have been less obvious variations more recently, when policy has continued its steady evolution. Throughout, changes have often been deceptively slight. For example the 1966/67 legislation was proclaimed as a liberalisation yet it actually brought a wider range of investments under the approval process, and was applied in a way little different from the former authorisation system. Similarly the emphasis on Exchange Control Regulations for European Community investments after 1971, the introduction of notification in 1980, and perhaps the more recent role of the Conseil de Concurrence suggest different means to achieve similar ends, to control inward investment. In some respects this appears similar to developments in Japan where, for example, even with ‘100% liberalisation’ in the 1970s the government could screen any foreign investment it wished (see the previous chapter). Another key feature of French policy has been its flexibility. There has been scope to implement legislation more or less stringently, as the government saw fit. For instance, the 1972 change in the definition of what constituted ‘control’ gave the existing regulations a more restrictive interpretation. More recently, there 75


has been room for manoeuvre over the definition of a European Community investment, as seen in the Pearson case. More specifically, the French have identified particular concerns and put them at the centre of policy. Especially notable has been the continuing focus on technology; France has tried to protect hightechnology sectors and to evaluate inward investments with regard to the technological improvements they might engender. This remains an ongoing issue, as recently evident in the Bull/NEC case. We suggest that it is dangerous to try to summarise French policy over the last thirty years too succinctly simply because it has so many facets. Nevertheless our overall conclusion is that it would be wrong to characterise France as either obstructionist or liberal. Rather the government has taken a comparatively astute and inventive approach; it has been aware of potential problems associated with transnationals and has designed its policies imaginatively (for instance, by changing form more than substance). It has screened and considered individual investments; it has sometimes left transnationals to do as they wish and sometimes intervened in their activities; and all of this has been in an attempt to pursue French interests. It seems to us that the French authorities appear to have been quite successful in portraying a more liberal attitude to inward investment, whilst retaining the potential to act in a more restrictive manner. This could be interpreted as a more uncertain political and economic environment, itself a barrier to investment. NOTE 1 Our comments on investment flows in this volume are necessarily tentative; a full analysis of flows would need to address many complex factors, see, for instance, Sametz (1972) and Weiss (1972) on Gillespie (1972).

BIBLIOGRAPHY Ardagh, J. (1990) France Today, London: Penguin Books. Behrman, J.N. (1970) National Interests and the Multinational Enterprise, Englewood Cliffs, New Jersey: Prentice-Hall. Behrman, J.N. and Fischer, W.A. (1980) Overseas R&D Activities of Transnational Companies, Cambridge MA: Oelgeschlager, Gunn and Hain. Berlin, G.Y. (1970) ‘Foreign investment in France’, in I.A.Litvak and C. J.Muale (eds) Foreign Investment: the experience of host countries, Cambridge MA/London: The MIT Press. 76

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APPENDIX Figure 3.1 A chronology of recent French investment control

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Bertin, G.Y. (1977) ‘France as host to small country foreign investment’, in T.Agmon and C.Kindleberger (eds) Multinationals from Small Countries, Cambridge MA: The MIT Press. Code des Sociétés (1989) Chapter XXII, ‘Relations financières avec L’étranger, 1433–40. Coopers & Lybrand CLC juridique et fiscal (1991) France: a guide for businessmen and investors, Paris: Coopers & Lybrand. DATAR (Délégation à l’Aménagement du Territoire et à l’Action Régionale) (1989) Doing Business in France, London: Invest in France Bureau, de Marsac, X.T. (1976) ‘Restrictions on foreign investments: France’, International Business Lawyer, 4, 1, 51–8. Department of Trade and Industry (1989) Barriers to Takeovers in the European Community, Volume 2: France, London: HMSO. Dusart, R. (1965) ‘The impact of the French government on American investment in France’, Harvard International Law Journal Winter, 75– 112. The Economist ‘Le défi defiant’, 8/1/72,73. Financial Times (1981) ‘How France curbs foreign take-overs’, 27/3/81,3. ——(1982) ‘Japanese begin to invest in France again’, 22/1/82,3. ——(1984) ‘France approves further exchange control reduction’, 14/11/ 84, 1. ——(1985) ‘Investment rule change in France’, 27/2/85,3. ——(1985) ‘French overseas investment “less than competitors”’, 24/5/ 85, 3. ——(1985) ‘Red tape reduced in bid to boost foreign investment’, 14/6/ 85, 2. ——(1985) ‘Fabius sets sights on presidency’, 6/9/85, 2. ——(1987) ‘French industry boosts investment abroad,’ 20/3/87, 3. ——(1987) ‘Exchange controls eased,’ 22/5/87, 3. ——(1988) ‘France weighs up take-over turmoil’, 19/2/88, 26. ——(1988) ‘Too much of a good thing’, 11/4/88, 18. ——(1988) ‘How companies and countries fend off foreign predators’, 19/5/88, 3. ——(1988) ‘Young sets stage for Suchard counter-bid in battle over Rowntree’, 26/5/88, 1. ——(1988) ‘Rocard ushers in Socialist programme to boost jobs’, 15/9/ 88, 2. ——(1988) ‘France warns Gillette against proposed closure of factory’, 24/9/88, 24. ——(1989) ‘France signals end of foreign exchange controls’, 10/3/89, 2. ——(1989) ‘France blocks proposed Spontex deal with 3M’, 22/3/89, 33. ——(1989) ‘Times change in French bid arena’, 13/12/89, 24. ——(1990) ‘France relaxes controls on foreign investment’, 11/1/90, 2. ——(1990) ‘UK remains leader as foreign direct investment in US grows’, 13/1/90, 2. ——(1990) ‘Foreign investors on French stocks spending spree’, 26/4/90, 3. ——(1990) ‘Voracious appetite for acquisitions’, 13/6/90, 24. ——(1991) ‘NEC says it is in talks over taking stake in Bull’, 24/4/91, 25. 78

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——(1991) ‘Groupe Bull on target to sign accord with NEC’, 18/5/91, 10. ——(1991) ‘Cresson orders rethink on Bull’, 25/5/91, 2. ——(1991) ‘Cresson loosens grip on state sector’, 15–16/6/91, 2. ——(1992) ‘France loosens investor curbs’, 29/1/92, 2. ——(1992) ‘French computer industry thrown a lifeline’, 29/1/92, 24. ——(1993) ‘French move on foreign investors’, 29/1/93, 3. ——(1993) ‘Bérégovoy attacks UK’s “dead-end” economic policy’, 5/2/93, 1. ——(1993) ‘France bucks trend as foreign investment rises’, 1/3/93, 2. Gillespie, R.W. (1972) ‘The policies of England, France and Germany as recipients of foreign direct investment’, in F.Machlup, W.S.Salant and L.Tarshis (eds) International Mobility and Movement of Capital, New York: Columbia University Press. Graham, N.A. (1982) ‘Developed countries and multinational corporations: threat perception and policy response in France and the UK’, in J. Fayerweather (ed.) Host National Attitudes Toward Multinational Corporations, New York: Praeger. Hellman, R. (1970) The Challenge to US Dominance of the International Corporation, New York: Dunellan (translated by Peter Ruof). Journal Officiel (1980) no. 1412, ‘Investissments directs et emprunts à L’étranger, Paris. Journal Officiel (1990) no. 13, ‘Decret No. 90–58 du 15 janvier 1990’, Paris. Kindleberger, C.P. (1969) American Business Abroad: six lectures on direct investment, New Haven and London: Yale University Press. Lea, S. and Webley, S. (1973) Multinational Corporations in Developed Countries: a review of recent research and policy thinking, London: British-North America Committee. OECD (Organization for Economic Co-operation and Development) (1979) International Direct Investment: policies, procedures and practices in OECD member countries. Paris: OECD. OECD (Organization for Economic Co-operation and Development) (1982) Controls and Impediments Affecting Inward Direct Investment in OECD Member Countries, Paris: OECD. OECD (Organization for Economic Co-operation and Development) (1987) Controls and Impediments Affecting Inward Direct Investment in OECD Member Countries, Paris: OECD. Reich, S. (1989) ‘Roads to follow: regulating direct foreign investment’, International Organization, 43, 4, 543–84. Robock, S.H. and Simmonds, K. (1983) International Business and Multinational Enterprises, Homewood, Ill: Irwin. Robock, S.H., Simmonds, K. and Zwick, J. (1977) International Business and Multinational Enterprises, Homewood, Ill.: Irwin. Safarian, A.E. (1983) Governments and Multinationals: policies in the developed countries, Washington DC: British-North America Committee. Safarian, A.E. (1991) ‘Firm and government strategies’, in B.Burgenmeier and J.L.Mucchielli (eds) Multinationals and Europe 1992, London: Routledge. Safarian, A.E. (1993) Multinational Enterprise and Public Policy, Aldershot: Edward Elgar. 79


Sametz, A.W. (1972) ‘Comments’, in W.S.Salant and L.Tarshis (eds) International Mobility and Movement of Capital, New York: Columbia University Press. Savary, J. (1984) French Multinationals, London: Frances Pinter. The Times (1972) ‘Paris alarmed by recent spate of UK investment in French Groups’, 7/11/72, 2. ——(1972) ‘Giscard warning to the UK’, 8/11/72, 22. ——(1972) ‘Bank of France announces tighter controls of foreign investment’, 23/11/72, 24. ——(1974) ‘Not suited?’, 18/3/74, 17. ——(1974) ‘French ease capital investment curbs’, 20/8/74, 20. Torem, C. and Craig, W.L. (1968) ‘Control of foreign investment in France’, Michigan Law Review February, 669–720. United Nations, Economic and Social Council: Commission on Transnational Corporations (1978) Transnational Corporations in World Development: a re-examination, New York: United Nations. United Nations, Centre on Transnational Corporations (1985) Transnational Corporations in World Development: Third Survey, New York: United Nations. US Senate (1975) The Regulation of Foreign Direct Investment in Australia, Canada, France, Japan and Mexico, in hearings before the Subcommittee on Securities of the Committee on Banking, Housing and Urban Affairs, Ninety-fourth Congress, Washington DC: US Government Printing Office. Weiss, M.Y. (1972) ‘Comments’, in W.S.Salant and L.Tarshis (eds) International Mobility and Movement of Capital, New York: Columbia University Press.

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4 GERMANY

INTRODUCTION Nearly all those who have looked at German1 policy towards transnational portray a ‘liberal’ climate (for example, United Nations, 1983; Safarian, 1993). In support of this view, one can note the absence of any formal review process for inward or outward investors, the range of incentives available to inward investors, and the fact that few sectors have been protected from foreign transnationals. Whilst the 1961 Foreign Trade Law (Aussenwirtschaftsgesetz, or AWG) empowered the government to restrict inward and outward investments in order to fulfil its international commitments, to preserve economic stability, and for national security reasons (Brücher, 1967; United Nations, 1983), the Department of Trade and Industry (1989) notes that available powers have not been used. Inward investors have simply had to notify the Bundesbank for statistical purposes if they acquire 20 per cent or more of the shares in a German enterprise (Haggeney, 1976; communication from Dresdner Bank 6/5/92). The degree of penetration of German industry by foreign-owned firms may be seen as further evidence to support this assessment of a liberal climate. For example, Safarian (1993) gives figures on employment and output of foreign-controlled firms in German manufacturing for 1977 at 17 per cent and 26 per cent respectively. Indeed there seems to have been a perception amongst some in Germany that such openness has been a major factor in post-war German economic success (see Haggeney, 1976 as one example). Whilst accepting that essentially the policy stance has been ‘liberal’, we would qualify that statement. A range of concerns over inward investment and more recently outward investment have 81


been evident and at times there has been a lively policy debate, as in the US. In the 1960s, acquisitions by US-based firms aroused concern amongst a number of sections of society and led to calls for government intervention along French lines. In the early 1970s acquisitions by OPEC (Organization of Petroleum-Exporting Countries) governments raised the policy debate once again. Industry responded by protecting itself from take-overs, through such means as limiting voting rights for shareholders. The government considered restrictions, but eventually responded by setting up a notification system for acquisitions by foreign firms and an informal notification procedure for impending foreign acquisitions of domestic firms. In particular, the attempted take-over of DaimlerBenz by Middle East investors in the mid-1970s provoked outcry. However, the resulting government initiatives should not just be seen as a response to OPEC investments, but rather should be positioned as the then latest in a long line of government interventions to protect what it deemed to be ‘strategic’ or ‘key’ sectors. Whilst it is not clear from the literature exactly which sectors were key (e.g. one source identified cars, petrochemicals and electronics2), Reich (1989) gives an interesting history of concern over the car industry. Furthermore, it can be argued that the general framework of legislation and so on gives German firms a degree of protection from unwanted take-overs—whether domestic or foreign. This includes the existence of supervisory boards and workers’ councils in firms, limited voting rights, the role of the banking sector, the level of government ownership in some firms and sectors, and the role of the Cartel Office. Whilst focusing on the competitive effects of mergers, the latter explicitly takes into account transborder activity (Safarian, 1993) and has blocked attempted take-overs by foreign firms on several occasions. It may also consider mergers between foreign firms with a presence in Germany and their effect on competition there, and also outward acquisitions. In this respect the Cartel Office can be a major barrier to transnationals’ acquisition strategies. A HISTORY OF GERMAN POLICY TOWARDS TRANSNATIONALS Unlike the accounts of policy in earlier chapters, we do not identify an evolution of policy as such in Germany, except perhaps in the ‘strategic’ sectors such as cars where there has been ongoing 82

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intervention. Instead there have been a number of events that have aroused concern and that have stimulated debate and action. Thus although policy is characterised as being ‘liberal’, there is a contrast with British experience where there has not been such a series of prominent events, discussions and action. To retain consistency with other chapers we give a chronological account. Despite the absence of an ‘evolution’, such an account is still useful in positioning government action in relation to those strategic sectors. Policy pre-1960s With a moratorium on inward investment lifted in 1949, inward investment soon grew rapidly, especially from the United States (Safarian, 1993). By 1960, the stock of inward investment was twice that of outward. Before the 1960s the Bonn government, under Erhard’s liberal guidance at the Economics Ministry (BWM), is said to have favoured inward investment as a valuable source of capital, with this policy complementing the Marshall Plan (Reich, 1989). However, in key sectors, Reich argues that a dual policy was in operation. Whilst allowing access to foreign firms in these sectors, and encouraging them to increase their investment and employment, discriminatory policies which favoured domestic firms were simultaneously pursued by Schäffer’s Finance Ministry (the BFM). Indeed, it is argued that such an approach had its roots in the Nazi and Allied regimes (Reich, 1989). It is particularly interesting that those latter policies contrasted sharply with American and British domestic policy. For example, Reich illustrates how policy towards the car industry in the British Sector, directed by the Control Council for Germany (CCG), deliberately gave German firms an advantage over US subsidiaries, with VW (seen as strategically most important of all regarding exports) benefiting in particular. Such policies included exclusive contracts for Allied forces and access to scarce raw materials. Later, under the BFM, VW was acquired and protected, and domestic producers, protected from foreign acquisitions, were favoured regarding the allocation of resources (Reich, 1989). The BFM was said to have particularly close links with VW but also intervened to protect other car manufacturers, for example blocking the attempted acquisition by Fiat of NSU, thus ‘treating the protection of domestic producers from foreign purchase as sacrosanct’ (Reich, 1989). With VW, Reich notes that Erhard even 83


intervened personally with representatives of US subsidiaries to ensure that they would not challenge VW in the small car sector in Germany. As in the case of Japan, it is interesting that this policy of protecting domestic industry was built on some form of consensus, with others playing a role. Thus when the British firm GEC tried to acquire BMW in 1960, the Bavarian government blocked the take-over, accepting a bid instead from Maschinenfabrik AugsburgNürnberg Aktiengesellschaft for ‘patriotic reasons’ (Reich, 1989). Later, as we shall see, the banking sector was also involved. Policy during the 1960s Whilst continuing to welcome inward investments through the 1960s, discriminatory policies continued to be pursued to protect domestic firms in key sectors. In the car industry, an attempt by GM to acquire Daimler-Benz was blocked by the government (Reich, 1989). Ford and Opel were excluded from government-backed research and development schemes, and met ‘impenetrable barriers’ when attempting any acquisitions (ibid.). More generally, government and industry were both keen to encourage inward investment in the early 1960s. The large inflows of capital raised concern at the Bundesbank, though, presumably over inflationary pressures (The Times, 29/6/63). By 1965, 16 per cent of the nominal capital of all West German limited companies was foreign owned (see The Times, 12/6/65) with 34 per cent of that from the US. This foreign ownership was concentrated in a few large firms and in a small number of industries, mainly oil processing, steel, vehicles, shipbuilding and machinery, food, chemicals and electricals. These large inflows continued into the late 1960s (see The Times, 14/2/66), and as we saw in the chapter on France, the restrictive climate in France diverted investment flows from the US away from France to other European centres, notably Germany. This rising level of US investment, particularly acquisitions, soon attracted criticisms; ‘almost silently dozens of old German brand companies have been sucked up in recent years’ stated Der Spiegel (1965). The blocking of Britain’s application to join the EC was seen as a reason for further growth in US investments in EC countries, especially Germany (Der Spiegel, 1965). There was a tendency, it was believed, for medium-sized German firms to sell out to US firms as they were heavily under-capitalised and feared being unable to 84

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compete with larger firms in the unfolding of the European Economic Community. Moreover, in sharp contrast with the banking sector’s concern to preserve domestic ownership in key sectors, in the rest of industry banks were said to be anxious to recover their debts and signalled to US-backed firms when German firms were ripe for takeover. In this way, for example, D.H. Baldwin (US-based) acquired the piano manufacturer Bechstein in West Berlin (ibid.). Numerous joint ventures were also arranged in this way in the mid-1960s. They tended to be commercially successful as long as the parties were initially on an equal footing. Otherwise the US side tended to buy out their German partners quite rapidly, with strong pressure from the American side if the German partner was not willing to leave (ibid.). A concentration of acquisitions in packing, petroleum, electrical and the car supply industry led to much public criticism and questions in the Bundestag (Hellman, 1970). After a number of public conflicts between US-management and German workers, the German daily newspaper Frankfurter Allegemaine Zeitung published a ‘Knigge’ (a guidebook of gentlemanly behaviour) for US investors, and the President of the US Chamber of Commerce in Frankfurt set up ‘golden rules’ for US investors to follow (Der Spiegel, 1965). Eventually the Chairman of Deutsche Bank, Herrman Josef Abs, proposed the establishment of a bureau in which all foreign investors would have to register, and it was noted that the Bonn government could learn from French policy on this (ibid.). This illustrates that it was not just labour that was concerned over ‘Überfremdung’ (being under foreign control) in large chunks of German industry but also some leading industrialists. Others opposed any measures. Heinz Nordhoff, head of VW, was particularly outspoken: ‘if we did this we would suicidally damage our exports’, stressing that the German car industry sold 58 per cent of its production abroad in 1969, with VW alone selling 330,000 cars per year to the US (ibid.). The Bonn government also opposed any measures, with Chancellor Erhard stating that ‘we would deny ourselves if we refused US investments’, instead consoling himself with President Johnson’s ‘keep-within-limits’ plea to large US firms in Spring 1965 (ibid.). Amongst political parties, only the newly-formed extreme right-wing party, the NPD (National Party of Germany), favoured any further restrictions on US investments outside the key sectors, favouring limiting foreign ownership of any company to 25 per cent (The Times, 22/11/66). 85


The Bonn government also opposed the attempt by De Gaulle to raise the issue of foreign investment in the EC at the Council of Ministers meeting in 1966. Schiller, Economics Minister under Chancellors Kiesinger and Brandt, opposed any measures going beyond a statistical inventory. In support, Focke, Brandt’s Parliamentary Secretary of State, stressed the beneficial aspects of US investments, particularly as a ‘means to spread technological know-how’ (Hellman, 1970). The government reinforced its position in 1966 in the bulletin of the Federal Government (from Hellman, ibid.): Reserves against foreign capital investments, only because the investor is a foreigner, should not be raised in a country with a free economic system. This may be different in states which regulate their investments according to more or less stringent plan objectives. The often expressed fear of foreign influence at any rate does not fit into our economic reality. In response to a question from a member of the Bundestag, Schiller argued that inward investment did not have detrimental effects on the German economy, but rather strengthened it, through stimulating competition and introducing new ideas and techniques. He acknowledged that a problem might arise if concentrations reached monopolistic levels, but claimed that this had not happened by 1966 (Gillespie, 1972). He admitted, though, that the government was closely watching key industries, such as oil, as we shall see. Thus concern over these key sectors continued. In fact, the government encouraged restructuring to create larger units in the oil and aviation industries, the former apparently to engage in joint oil exploration abroad and the latter to be more competitive with the giant US firms (Hellman, 1970). The government also made subsidies available to German electronic firms for R&D to try to close the gap with US firms (ibid.). A number of factors came together in Germany at this time to heighten concern over inward investments (Hellman, 1970): the acquisition by US firms as already seen; competition for scarce labour from US firms planning large investments; fears over inflation arising from the capital inflows; and concern over key industries. It was the latter which sparked off government intervention in the oil industry. It is important to realise that this was not a concern over concentration, as Schiller had indicated, as it was not clear that 86

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any of the proposed foreign acquisitions would have increased concentration. What it did reveal, however, was that ‘nationalist sentiments, although less of a factor in German policy, are not completely absent’ (Gillespie, 1972). In April 1966, the share price of the German oil firm Deutsche Erdoel Gelsenberg (DEA) rose rapidly, fuelling rumours that a USbased oil firm was buying the shares and would make a formal offer. This provoked much discussion in Germany. Alexander Menne, a director of Hoechst and Chairman of the business committee of the Bundestag, expressed ‘grave misgivings’ over impending US acquisition offers to minority interests in three cases, and warned of rising hostility, if other offers were made. He threatened to begin legislative action in the Bundestag if the offers proceeded. The government was also said to be considering intervention in the DEA case by asking one of the large banks to acquire a blocking minority of shares (The Times, 12/4/66). It soon became clear that the US-based firm Texaco wished to acquire DEA, but would only do so if it was assured of acquiring a minimum of 50 per cent of the share capital. This was not necessarily straightforward as Deutsche Bank and the Haniel family together held a blocking minority interest (The Times, 20/4/66). The Federal Ministry of Economics at first told Texaco that it would take a serious view of the transfer (The Times, 12/5/66) and talks between Texaco and DEA were broken off. Just ten days later, though, the government felt unable to block the deal. A formal statement issued by the Federal Cabinet stated that ‘it could not undertake the considerable financial burden of maintaining an independent German oil industry’ and hence would not oppose the take-over (The Times 12/5/66). The government also stated that it would continue with its friendly policy towards inward investment. It is interesting that the government retained its open policy, yet was clearly unhappy with events. It wanted to maintain domestic ownership in that sector, and saw benefits in doing so, yet felt unable to carry the cost of doing so, whatever those costs were perceived to be. But in making that decision the government weighed up the costs and benefits, and ultimately decided against intervention. Contrast that with some British experience, arguably blinded by the perceived benefits of inward investment and with little or no perception or consideration of costs. In other cases the government did intervene in this sector, and the goal of maintaining a domestic presence was ultimately achieved. 87


Servan-Schrieber (in Reich, 1989) states that the government intervened in 1967 to block Mobil from acquiring more than 28 per cent of the shares in Aral, because of fears over US domination and the loss of national identity, although Behrman (1970) states that the deal did finally go ahead. According to Behrman, these attempted acquisition by Texaco and Mobil prompted the government to issue a ‘friendly warning’ to foreign firms to ‘go slow’. Behrman also quotes an editorial around this time (originally from Der Stern) which stated that ‘West Germany is still tolerant of US investment but there are cases where its tolerance can be strained’. Also in 1967, the government again intervened to ensure that Gelsenkirchner Bergewerk (GBAG), one of the three remaining German-owned oil firms, remained in domestic hands. Dresdner Bank was seeking to sell its 30 per cent share in the firm, and US and French firms were interested in accepting the stake. However, the government blocked the attempt by CFP (a French oil firm) to buy the shares, and actively and successfully sought a German buyer, with Germany’s largest electrical firm eventually taking it over (Gillespie, 1972; Behrman, 1970). Once again we see intervention to protect those sectors deemed to be key. As already noted, the government later strengthened those smaller German oil firms by consolidating them, ‘in a clear effort to regain a domestically owned entity in the petroleum sector’ (Behrman, 1970). Policy during the 1970s This concern over key sectors was again evident in the 1970s with the government blocking a further attempt by GM to acquire Daimler-Benz (Reich, 1989). In the oil sector, concern over the pricing strategies of the transnationals led to a ‘negotiation strategy’3 by the government, with the aim of protecting the independent oiltrade in Germany (Kartte, 1976). Kartte states that this approach was taken because it was feared a more aggressive stance, through the use of regulations under the Cartel Act, would have been counter-productive. Building on the success of this, tougher measures were enacted after 1973, with the objective of minimising prices. The limitations of unilateral policy were evident, though: ‘our guns only fire as far as Aix-la-Chapelle’ stated the Chairman of the responsible Decision Department of the Cartel Office in spring 1974 (noted in Kartte, 1976). Kartte observed that the main problem was the inability of the Cartel authorities to obtain information 88

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from domestic subsidiaries regarding data on the business policy of the parent firm. Kartte states that one success came with a court decision during proceedings against BP, granting the Cartel Office authority to demand information from a foreign group firm regarding an abuse in the domestic market, through the German subsidiary if necessary (Kartte, 1976). At the time of writing, he reported that no such demand for information had been made. Beyond these sectors, policy remained clearly liberal. Capital controls were enacted in the early 1970s, for monetary purposes, but were dismantled through the 1970s. Outward investment grew during the early 1970s, surpassing inward flows. Over the next decade and a half, most of this went to the US (36 per cent) and the rest of EC (40 per cent) (Bundesverband der Deutschen Industrie, 1990), with investment in the US growing in particular over the latter half of the 1970s (United Nations, 1993), despite attempts by the government to encourage investment in developing countries, through tax incentives, guarantees and so on (Safarian, 1993). However, this relative tranquillity was shattered in the mid-1970s with the surge of inward investment from the newly-rich OPEC countries. As in the United States, a lively debate ensued, with calls for government intervention. As Haggeney (1976) notes, the acquisition by Iran and Kuwait of significant shareholdings in Krupp and Daimler-Benz seemed almost impossible before they happened. The firms were considered to be ‘unsaleable and impregnable’ due to their size and market capitalisation, but with OPEC countries having vast sums of money available, and the market value of such firms having fallen, they were now vulnerable. At first, the government welcomed investments, yet it soon became clear that it was not prepared to accept foreign acquisitions of firms in key sectors, and acted accordingly to protect them. That action should be properly interpreted; not solely as a response to OPEC investments (as indicated by Haggeney, 1976, for example), but as the latest in a long series of interventions to protect important sectors. The acquisition in 1974 of a 25.04 per cent stake in Krupp by the Iranian government, costing between DM 200 m and 300 m, was an investment welcomed by the German authorities. Former Chancellor Willy Brandt, for example, was enthusiastic about the move; ‘this is the first time I have heard of the oil money being spent meaningfully’ (Der Spiegel, 30, 1974). The deal was welcomed as Krupp was said to need new capital and investing petrodollars in such needy German firms was seen as preferable to a build-up of 89


international ‘hot-money’ flows. Others did question the consequences of the Iranian government becoming a deciding shareholder4 in an enterprise employing 26,000 workers, and in having access to Krupp’s technology (ibid.). The official line was one of complete approval, though. Matters were quite different when the car industry was threatened with similar moves. This began with the Quandt group deciding to sell secretly its 39 per cent block of shares in Daimler-Benz. Other German shareholders were apparently not interested in purchasing further holdings, being unable to afford such action and fearing how the authorities would interpret it (Der Spiegel, 49, 1974). Dresdner Bank therefore secretly sold 15 per cent of the shares to the Kuwaiti government. Not even the management of DaimlerBenz knew of the transaction until it had been completed. Whilst officially the government neither welcomed nor condemned the move, it ‘touched off a storm’ (Safarian, 1993). Other banks and industrialists were highly critical of the deal in such a key sector. Jürgen Ponto, head of Dresdner Bank, was adamant, however, arguing that ‘our country is short of funds and our large enterprises are confronted with great financing problems. We wouldn’t do either a good service if we limited foreign investments in our country too much’ (Der Spiegel, 51, 1974). There was concern that Daimler-Benz’s technical know-how might in some way be exploited, or that further shareholdings might be acquired to gain an influence over the firm. Ponto claimed, however, that assurances had been given by the investors to the contrary, and that they had no intention of interfering in Daimler-Benz’s management (The Times, 3/12/74). It later became clear that Deutsche Bank intervened in January 1975, acquiring 29 per cent of the shares in Daimler-Benz, in a deliberate attempt to prevent ownership passing into foreign hands (Reich, 1989; The Times, 4/8/75). It was reported that the Iranian government had offered DM 25 bn for the shares before Deutsche Bank stepped in (ibid.). Whether this act was made in conjunction with the government, or independently, it is important to recognise that concern to protect key firms in key sectors extended beyond the government. Commerzbank was also in favour of taking sizeable temporary shareholdings in German firms as protection for them from hostile foreign acquisitions, and saw this as an alternative to government intervention (Safarian, 1993). Deutsche Bank’s strategy through 1975 was then to approach other German firms and 90

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investors, such as Siemens, selling off relatively small lots of shares, thus not affecting Daimler’s market share price. The Bundesbank expressed reservations on deals such as the Kuwaiti investment, but the government officially remained neutral (The Times, 4/12/74). Behind this stand, though, there was a rapid reappraisal of policy. There were expectations of the government introducing controlling measures such as the requirement to report such acquisitions and even an approval system with limitations on foreign voting rights in German firms (ibid.). Just ten days after the deal, Chancellor Schmidt announced that the government would prevent the acquisition ‘by stealth’ of shares in key industries (ibid.). The government was especially concerned over the secretive manner in which the deal took place: ‘we certainly have an objection if such transactions are carried out in the darkness of secret machinations’, going on to state ‘we would also not be happy if perhaps larger, or politically or strategically decisive, parts of our national economy were to come under external, biased supervision’ (ibid.). He said that measures were planned to make such moves more open at least. A debate ensued within government and in public, over whether further measures were needed; whether approval or notification should be required, and over the possibility of prohibiting deals (as under cartel law) where the government learned of foreign acquisition under a voluntary notification system (Haggeney, 1976). Even the head of the Cartel Office, Wolfgang Kartte, was drawn into the debate. He argued that given the range of criticisms levelled at transnational, it might seem obvious that further government powers were needed (Kartte, 1976). However, he noted a dilemma in that whilst ‘private firms must not be allowed to be more powerful than the government’, ‘a persistent conflict strategy of the government vis-à-vis multinational firms cannot serve the welfare of the whole’. In other words, the costs of further unilateral measures outweighed the benefits. He stressed, though, the need for the government to maintain its ‘monitory capacity’, and said that the government could offset its ‘influence deficit’ with transnationals by: co-ordinating policy with other countries, e.g. on tax and competition policy; extending legal influence into other countries wherever possible; and where necessary exerting direct influence on transnational through monetary policy (ibid.). So, although Kartte was opposed to further measures, he arguably came to this decision on the basis of a much deeper appreciation of the subtleties 91


of the relationships between transnationals and governments than policy-makers have typically had in Britain, for example. It is interesting that Kartte also noted other means by which the government could exert influence on transnationals. For example, he noted the sensitivity of such firms to negative publicity and also the connections between the ‘top men’ in such firms and leaders in administration and politics, which ‘makes these firms prepared to make allowances at times even at the cost of short-term sacrifices, for certain interests of the government when pursuing their business policy’ (ibid.). Industry and banks also recognised that the government needed to be supplied with more information. Banks and industrialists agreed that a voluntary scheme should be set up to ‘prevent sensitive sectors of German industry falling under foreign control’ (The Times, 23/1/75). As a first step, it was agreed that banks and industry should contact each other over planned foreign investments in German companies and that impending acquisitions should be notified to the government. They also proposed establishing an ‘advisory body’ to assist in urgent cases where a foreign firm was trying to acquire a key company. The government welcomed these suggestions and the information notification system was duly set up (also noted in Brech and Sharp (1984), although it is not clear if the system was still in operation at that time). Although the government continued to study possible legal controls, ‘within the framework of the widest possible maintenance of free capital movements’ (The Times, 24/1/75), it seemed satisfied with the operation of the notification scheme and no legal measures were taken. The SPD party was not satisfied, however, arguing that existing controls over transnationals were inadequate at the national level and that ‘control instruments’ needed to be established at the international level (Wilms-Wright, 1977). At its 1976 Dortmund Congress, the SPD also called for prior notification of all planned investments (ibid.). Although no further measures were enacted, the government did establish ‘gentlemen’s agreements’ with several OPEC countries, the latter agreeing to notify the German government if they intended to make large share acquisitions in German firms (Safarian, 1993). Safarian notes that the ‘key’ firms that the government was concerned about were not clearly defined, but seemed to be those which were ‘economically important, technologically advanced, or simply much in the public eye’. In a few cases the German 92

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government is said to have ‘quietly encouraged’ purchases by German investors of the equity interests on sale (Christelow, 1979). It should be stressed that outside ‘key’ firms in ‘key’ sectors, policy remained open, although investors could of course still fall foul of the Cartel Office. Indeed, industry felt that it was too vulnerable, and initiated measures to protect itself from unwanted take-overs. The head of Deutsche Bank, Franz Heinrich Ullrich, initiated a plan in 1975 to limit shareholders’ voting rights to only 2 per cent, regardless of the size of share ownership (Der Spiegel, 6, 1975). Deutsche Bank led the process, limiting maximum voting rights in the bank to 5 per cent. Whilst other banks, such as Commerzbank and Dresdner Bank, were sceptical (with Ponto, Head of Dresdner arguing ‘we would make a mistake of historical significance if we… fundamentally changed the hitherto liberal landscape’ (ibid.)), many firms followed suit. Mannesman, Veba, Bayer and BASF were amongst those using such tactics. Other tactics were also used, as illustrated by Haggeney (1976). In GmbH (limited liability) firms, shareholders themselves had much power to shape the shareholders’ rights. A widely-used protection against foreign control was for any transfer of shares being made dependent on the consent of remaining shareholders, with the latter having right of first refusal. Furthermore, the close relationship between banks and industry has itself afforded a degree of protection from unwanted take-over, whether foreign or domestic. In some sense these institutional factors giving firms a degree of protection are reminiscent of the situation in Japan, and we shall return to this in later discussion. In addition to these factors, the role of the Cartel Office is relevant, with Germany having ‘probably the most stringent’ competition policy in Europe (Christelow, 1979). The Cartel Office has control over both domestic and foreign combinations which affect competition (see Department of Trade and Industry, 1989), with advance notice to the Cartel Office having to be given if either of the firms’ sales exceed DM2 bn or if both firms’ sales exceed DM1 bn (ibid.). Furthermore, notice has to be given after the transaction has occurred if a market share of 20 per cent is reached, if one firm already has a market share of over 20 per cent in an unrelated market, or if the newly-merged firm employs over 10,000 workers or has sales over DM500 m (ibid.; see Cooke, 1985, for detail on the operation of the Cartel Office). As already seen in the oil sector, the Cartel Office has been 93


active in looking at transnational’ impact on competition in Germany. These relate not solely to inward investments. In one case the office limited the shareholding that a German firm took in a competing Italian firm as it was concerned over the impact on import prices in Germany (Franko, in Safarian, 1993). On inward investments, some transnational have been blocked from acquiring German firms, and in this sense the Cartel Office has played ‘a far more active role than the [Monopolies and Mergers Commission] in Britain’ (Brech and Sharp, 1984). One example of this came in 1976 when the British-based firm GKN was blocked from acquiring Sachs, a German clutch manufacturer (Der Spiegel, 1976; Tillotson, 1980). After the Supreme Court in 1978 upheld the original decision of the Cartel Office, GKN eventually abandoned its application to the Economics Minister to allow the deal and finally sold the 25 per cent shareholding it had acquired to Commerzbank. However, the head of the Cartel Office stressed that the decision did not change Germany’s basically favourable attitude towards inward investment (The Times, 20/4/78; Tillotson, 1980). The 1980s onwards The willingness of the Cartel Office to block investments continued into the 1980s. In 1982 the Office blocked a merger in Germany arising from the merger abroad of two parent firms (Safarian, 1993). Safarian noted that this power has existed in other countries under investment review procedures, but that ‘in such cases the decision criteria go well beyond competition effects’. In another case in 1982– 3 the attempt by the French-based firm Thompson-Brandt to acquire Grundig was also blocked by the Cartel Office. Whilst blocked on competition grounds, the proposed merger had provoked opposition from trade unionists, politicians, and others in the industry over a range of issues. The industrial metal union IG Metall feared that the result of the take-over would be the loss of German jobs and the relocation of production to France, a trend said to have occurred in takeovers by other French firms (Der Spiegel, 47 and 49, 1982). The decision by Thompson-Brandt in 1981 to close a colour TV tube factory which it had acquired from AEG in Ulm, with 1,600 job losses, was still prominent in people’s minds, prompting them to believe that Thompson’s acquisition of Grundig would not safeguard German jobs (Financial Times, 17/12/82). There was also fear of 94

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the consequences for Grundig’s suppliers in Germany. In particular it was feared that Siemens and Philips might suffer, the latter being a major supplier of TV tubes, if Grundig sourced components from Thompson. For this reason, the Minister for Economic Affairs in Bavaria, Anton Jaumann, stated that he would drag out the takeover for as long as possible and would intervene to support other bids (Der Spiegel, 52, 1982). In addition there was the fear raised in the press that foreign concerns would dominate a ‘key’ industry, for if Thompson was successful, nearly all of the German homeentertainments industry would be foreign controlled, with Grundig, Telefunken, Saba, Nordmende and Dual under French control, Loewe and Philips under Dutch control, ITT and Graetz under US control, Wega under Japanese control and Körting under (then) Yugoslavian control. Only Blaupunkt, Metz and Schneider would be independent, and with only a 10 per cent share of the market, it was feared that any further R&D in the sector might be located in and controlled from abroad (Der Spiegel, ibid.). In other ways, policy during the 1980s remained open. As with other countries, Germany made increasing efforts to attract inward investment. One example came in 1981 when the government ended the ‘reinvestment clause’ that taxed reinvested profits of US-based transnationals at 25 per cent, rather than 15 per cent. It was hoped that this would boost US investment in Germany (Financial Times, 23/9/81). In the early 1980s Germany was also successful in attracting a large share of the Japanese investment coming to Europe (second only to Britain), particularly in video tape and recorder production (Financial Times, 14/2/83). By 1987, Japan had become the largest foreign investor country in Germany (United Nations, 1993). And it could be argued that investments were being attracted to Germany for different reasons than to Britain. The size of the German economy, stable labour relations and the availability of local high-quality components were all said to be factors (see Financial Times, 14/2/83). Outward investment also grew rapidly during the 1980s, far exceeding inward investment, with again nearly all of this going to the rest of the EC and the US (Bundesverband der Deutschen Industrie, 1990; Safarian, 1993). Given the size of outward investment flows, government policy became more similar to that in the US, in that the government sought to protect investments against restrictive government action abroad. Thus the German government pressed the Brazilian government not to extend 95


restrictions on foreign investments there, in an effort to protect German firms’ investments (see Financial Times, 16/5/85). Despite this openness in policy towards inward and outward investment in the 1980s and 1990s, as in Japan there can still be significant barriers to acquisitions in Germany. The degree of protection afforded by firms limiting voting rights has already been noted in discussion of earlier events, as was the role of the Cartel Office. In addition, many German firms are also family owned, making contested bids very difficult, as will be seen in the case of the MCC bid for BIFAB. Other factors said to be relevant here include: firstly, the high level of government shareholdings in certain firms and in certain sectors; secondly, the system of Workers’ Councils and Supervisory Boards; and thirdly, the relationship between industry and the banking sector and the security it engenders. On the first point, it could be argued that with the high level of government ownership in certain firms and certain sectors, foreign firms might hesitate to invest if this brings them into competition with national or ‘Bundesländer’ governments (Safarian, 1993). Despite a privatisation programme introduced in 1983, Safarian notes that part or complete government ownership still covers extensive areas, including banking and other services, mining, manufacturing, utilities and transport. On the second point, it has been argued by some (for example Cosh et al., 1990) that the need to consult workers on important corporate decisions regarding investment and employment, institutionalised through the Co-determination Act (1976) and through the establishment of Supervisory Boards and Workers’ Councils, inhibits the market for corporate control, thus giving firms a degree of protection from take-over, whether domestic or foreign5 (see also Department of Trade and Industry, 1989). In the case of Supervisory Boards, membership must be 50 per cent employee or employee representatives in firms with over 2,000 employees, and 33 per cent in firms with less than 2,000 employees. The Supervisory Board in turn appoints a management board which runs the firm day-to-day. As removal of Supervisory Board members needs the support of 75 per cent of the firm’s shareholders, control does not come automatically with the acquisition of a majority of shares but rather with 75 per cent share ownership (Department of Trade and Industry, 1989). The prominent and active role of the banks6 in intervening to protect German firms from foreign take-overs and in notifying the 96

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government of foreign take-overs has already been seen. The close relationship between industry and the banking sector in general can also be viewed as significant in inhibiting the operation of a vigorous market for corporate control and in giving firms a degree of protection from take-over. German firms are said to be far less reliant on the stock market for raising finance, rather having closer, longer-term relationships with the banks (see Department of Trade and Industry, 1989; Cosh et al., 1990). Out of the 400 or so firms listed on the stock market, only around 30 have actively traded shares (ibid.). The banks themselves are large shareholders in industry accounting for 12–15 per cent of equities in the late 1980s (Safarian, 1993), with half of this held by the big three: Deutsche, Dresdner and Commerzbank (Cosh et al., 1990). For example, Safarian (ibid.) states that Deutsche Bank, in addition to owning 28 per cent of DaimlerBenz, is said to appoint around 400 directors of German firms, and played a major role in reorganising and assisting large firms in the 1980s. This influence through direct holdings is increased by banks acting as proxies for private shareholders, who generally lodge their shares with banks and authorise them to act in their place (Cosh et al., 1990). Adding both direct holdings and proxies together, the banks are said to control a half of all German shares (Safarian, 1993). Banks also take seats on the supervisory boards of firms (Cosh et al., 1990). Cable (1985) cites banks holding 145 seats on the supervisory boards of 61 of the 100 largest firms, with 65 per cent of these held by the big three. The relevance of all this is that the close relationship between banks and firms means that hostile take-overs are much more difficult, whether from abroad or at home. The result is that takeovers tend to be negotiated, rather than hostile, as has been the case in France and Japan. Indeed, the Department of Trade and Industry (1989) notes that it may be difficult for an incoming bidder to obtain advice on a hostile take-over, as German banks may be unwilling to accept the adverse publicity possibly associated with supporting a foreign firm in such a situation. A number of recent examples illustrate the problems faced by inward investors in acquiring German firms. In May 1988 Maxwell Communications Corporation (MCC) made a hostile bid for Bibliographische Institut and FA Brockhaus AG (BIFAB). BIFAB successfully sought out a German ‘white knight’, Langenscheidt KG, to counter the MCC bid, and a deal was agreed. BIFAB was in a strong position to do this, having a majority of its shares safely owned 97


by the Brockhaus and Keyer families. This illustrates the difficulties involved in making a hostile bid for a German firm, particularly familyowned ones (Department of Trade and Industry, 1989). Similarly, in September 1990 the Italian-based tyre manufacturer, Pirelli, made a contested bid for its slightly larger German-based rival Continental. Pirelli’s bid failed in part because Continental, in line with other German firms, had imposed a 5 per cent voting limit on individual shareholders. Even an attempt by Pirelli to form a ‘shareholding pact’ with its advisors, including Mediobanca, Morgan Stanley and Merrill Lynch, only resulted in it managing to control a 33 per cent stake, and it eventually abandoned the bid (Financial Times, 2/12/91; Guardian, 27/3/93). The bid ended in April 1993 with intervention from government, banks and other German firms to ensure that Continental remained German owned. Deutsche Bank, which had advised Continental over Pirelli’s bid, intervened to buy 33 per cent of the 38 per cent stake that Pirelli controlled. It retained 5 per cent itself, taking its own holding to 10 per cent, and sold most of the rest to government and business in Lower Saxony, the state in which Continental is located (Financial Times, 6/4/93). Norddeutsche Landesbank Girozentrale, a bank owned by the Lower Saxony government, took 15 per cent, retaining 5 per cent for itself, with the remainder to eventually go to three local firms, including Preussen Elektra (ibid.; Guardian, 27/3/93, 6/ 4/ 93). The remaining 13 per cent has been taken by the other big German banks and investors. The economics minister of Lower Saxony, Peter Fischer, stated that the move would block ‘possible foreign influence’ over Continental, and would enable the firm to ‘get on with running its business without worrying who its shareholders are’ (Financial Times, 6/4/93). So not only is it extremely difficult to make a hostile bid, but concern to retain ownership in German hands can still be evident. This latter point was reinforced in October 1991 when Krupp purchased a DM500 m, 24.9 per cent stake in the German industrial group Hoesch, explicitly in order to prevent it being acquired by a foreign firm. Krupp’s chief executive, Gerhard Cromme, stated that ‘we wanted to prevent any third parties taking a stake in the company. We believe it is better for a neighbour to do this than someone from a foreign country’ (Financial Times, 11/10/91). Krupp was particularly concerned that if a foreign investor came in, joint plans for collaboration between the two Ruhr-based firms could be jeopardised. 98

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Whilst such concern over control passing abroad can still be evident at various levels, the real issue of debate about transnational in Germany recently has been the perceived decreasing attractiveness of Germany for investment, whether from foreign or German-based firms. As an illustration of this trend, the IDW economic institute in Cologne reported in August 1991 that inward direct investment over 1990–1 amounted to just DM3 bn, against an outward flow of DM30 bn (Financial Times, 17/8/91). Some of this outward investment can be interpreted as ‘corporate strategic shifts’, part of German-based firms’ attempts to become global transnationals. For example, vehicle components manufacturer Heidemann announced in October 1992 that it was establishing a production facility in Spain to supply parts for VW Polo production there, with no suggestion that jobs or output would be reduced at Heidemann’s German plants (Financial Times, 26/10/92). Over a half of the DM51 bn that VW plans to invest up to 1996 will be outside Germany, in low cost sites in Portugal, Spain, Mexico, China and the Czech Republic (Wall Street Journal Europe, 29/1/92). Likewise BMW and Mercedes are both to begin car production in the US (Financial Times, 7/4/93; The Independent on Sunday, 9/5/93). However, there are numerous examples where German-based firms are cutting jobs and output in Germany and directly shifting production abroad, arguing that production costs are too high in Germany. For instance, in 1991 Bosch cut 500 jobs when it closed its German plant and transferred production of car stereo speakers to Malaysia (Wall Street Journal Europe, 29/1/92). It also transferred production of a large proportion of its cassette player components to Mexico and gas gauges to Portugal and Turkey (ibid.; see also Financial Times, 26/10/92). Similarly, BASF is moving much of its processing activity from Germany to the Netherlands (ibid.), and Siemens is moving some of its ‘basic production’ to Eastern Europe and Turkey (Wall Street Journal Europe, 29/1/92). Given such trends, Chancellor Kohl has declared ‘Standort Deutschland’ (Germany as an industrial location) a government priority for the 1990s. Policy on outward investment is in no way becoming less liberal, though. Rather, measures are being taken to boost investment in Germany. These include reductions in marginal rates of corporation tax, relief for the cost of enforcing new environmental regulations and limits on increases in social welfare and other levies on industry (Financial Times, 26/10/92). These also tie in with trying to dampen the effects 99


of recession and encouraging investment in the former East German states. Foreign investment in the East after reunification After reunification in 1990, the Treuhandstalt (or Treuhand) has had responsibility for privatising the 10,000 or so formerly stateowned firms in what was East Germany. In selling off the firms, the government has been keen to attract foreign investment. Generous tax incentives have been available for both domestic and foreign investors in the East (Financial Times, 31/5/90). Despite these, and strenuous marketing efforts by the Treuhand abroad, the initial response of foreign firms has been seen as disappointing (Financial Times, 26/11/91). Given this, the Treuhand and the government have been keen to show foreign investors that they have the chance to acquire East German firms. Hence in 1991 the Treuhand recommended that the Hennigsdorfer steelworks be sold to Riva, an Italian-based steel group, in what was then the largest acquisition by a foreign-based firm in East Germany. Despite a very similar bid by a German consortium comprising Thyssen, Badische Stahlwerke and Saarstahl, it was felt important to demonstrate that foreign-based firms had an equal chance to invest in firms in East Germany (Financial Times, 3/12/91). The decision provoked a strike at Hennigsforfer plant as the German bid was initially perceived to guarantee more jobs. However, enterprises are not simply being sold off to the highest bidder, whether this is domestic or foreign. For example, Klaus Peter Wild, a Treuhand board member, has stressed that privatisation decisions rest not solely on economic factors, but that the Treuhand also takes into account its political responsibility in the newly-formed states (Handelsblatt, 6/5/91). Successful bidders are not those making the highest bids, but those who submit the most convincing plans for the medium- or long-term revitalisation and development of the enterprise concerned (ibid.). For this reason, BP was rejected in its bid for the profitable Minol petrol-filling station group and the Leuna petrochemicals refinery, with a consortium comprising Elf Aquitaine, Thyssen and SB Kauf instead clinching the deal. The Treuhand accepted the latter bid because it felt that the firms involved had a ‘strategic’ interest in moving east, whereas BP was perceived to be only concerned over ‘short-term returns’ (Financial Times, 17/1/92; 28/1/92; Die Zeit, 24/11/92). Thus whilst foreign 100

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investment is very welcome, the Treuhand needs to be assured that the medium- and long-term future of the firm being acquired is guaranteed as far as possible. This concern has even extended to the Treuhand intervening after firms have been sold off. For example, Märkische Faser, a chemical firm and the only industrial employer in Premnitz, was sold by the Treuhand to Alcor, a Swiss-based firm in 1991. After Märkische’s sales to the former Soviet Union dried up, Alcor threatened to close it down. However, the Brandenburg state government and the Treuhand intervened, paying DM25 m to buy land from the firm, as a ‘barely disguised subsidy’, and the Treuhand was still negotiating at the end of 1992 to keep the firm going (The Economist, 7/11/92). SUMMARY Policy on outward investment has been, and remains, liberal. For most sectors of the economy, this has also been the case for inward investment. Even in sectors deemed to be ‘key’ or ‘strategic’, such as the car and petrochemical industries, greenfield inward investment has been welcomed and encouraged. However, governments have systematically intervened to protect domestic firms from foreign take-overs in these key sectors and in the past have pursued discriminatory policies to favour them in order to ensure that they survived and prospered in competition with foreign-based firms. In this sense, in assessing the policy stance, policy cannot be positioned in the same ‘liberal’ category as policy in Britain. Furthermore, a number of events and trends (such as US investments in the 1960s and OPEC investments in the 1970s) have raised concern amongst workers, political parties and the government. At times there has been an active policy debate within and outside of government. In the mid-1970s the government reexamined its policy on inward investment. An informal notification system was set up in conjunction with the banking sector, ‘gentlemen’s agreements’ were signed with a number of countries and there was occasional government intervention to encourage German firms to buy the shares of firms that were for sale. Beyond the federal government, the role of other societal actors, including state governments, other firms and particularly the banks should be noted in protecting German firms from foreign takeover. All have intervened to preserve domestic ownership, as recently 101


as April 1993. Although going well beyond the scope of this study, the question needs to be addressed of why—for most of the time – there has been such a degree of consensus over opposing unwanted take-overs by foreign-based transnational, in contrast to, say, British experience. Perhaps the banks have recognised the value of attracting certain transnationals’ investments and have been against government legislation as they felt such beneficial investments might be deterred by it. Therefore, they may have been willing to intervene at times on behalf of the government to preserve domestic ownership of ‘key’ firms, as an alternative to such legislation. Perhaps the wider, closer relationship between industry and banks is relevant, as may be the longer-term view this is said to engender, with opposition to hostile take-overs of any sort. Whilst the government has steered clear of screening systems and legislation restricting inward investment, it has shown more concern over inward investment than has been the case in Britain, and has been more active, for example, in setting up an early warning system with the banks. Moreover in some ways screening mechanisms have not been needed. Domestic firms have a variety of means of protecting themselves from take-overs, including foreign take-overs (if this is ultimately what is at issue), through limited voting rights, the existence of supervisory boards, the role of the Cartel Office and so on. Such firms also know that, if need be, they can draw on support from others (firms, banks, state governments) for protection. All of this suggests that there can be considerable barriers to certain investments by foreign transnationals. NOTES 1 In this chapter, Germany is taken to mean the Federal Republic of Germany up to 1990, and the unified Germany thereafter. 2 Government of Canada, 1976. 3 This built on an earlier ‘negotiation strategy’ in the 1960s, where the government threatened import restrictions unless the oil transnationals acted with self-restraint in competing with coal. 4 A 75 per cent majority is needed for some enterprise decisions. 5 Whilst this may well be the case, it is difficult to find evidence to show that worker participation in supervisory boards has directly influenced decisions regarding FDI (foreign direct investment). In 1974, trade union and local government officials on VW’s supervisory board strongly opposed VW’s plan to set up a plant in the US, but only managed to delay the move, not to stop it (Safarian, 1993). 6 See Henderson (1993) on the German banking system more generally. 102

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BIBLIOGRAPHY Behrman, J.N. (1970) National Interests and the Multinational Enterprise, Englewood Cliffs, NJ: Prentice-Hall. Brech, M. and Sharp, M. (1984) Inward Investment: policy options for the United Kingdom, London: Routledge & Kegan Paul. Brücher, H. (1967) ‘West Germany’s trade and commerce. The legal aspects’, Journal of World Trade Law 1, 511–39. Bundesverband der Deutschen Industrie (1990) Deutsche Direktinvestitionen im Ausland 1976–1989 (‘German foreign direct investment 1976–1989’), Cologne: BDI. Cable, J. (1985) ‘Capital market information and industrial performance: the role of West German Banks’, Economic Journal 95, 118–32. Christelow, D.B. (1979) ‘National policies towards direct investment’, Federal Reserve Bank of New York Quarterly Review Winter 1979– 80, 27–32. Cooke, T.E. (1985) International Mergers and Acquisitions, Oxford: Basil Blackwell. Cosh, A., Hughes, A. and Singh, A. (1990) ‘Analytical and policy issues in the UK economy’, in Takeovers and Short-Termism in the UK, Industrial Policy Paper no. 3, London: Institute for Public Policy Research. Department of Trade and Industry (1989) Barriers to Takeovers in the European Community, London: HMSO. Der Spiegel (1965) ‘Wir kaufen die ganze deutsche Industrie’ (‘We buy the whole of German Industry’). nos 41, 49. ——(1974) ‘Das ist Musik drin’ (‘There’s music in it’), no. 30, 17. ——(1974) ‘Daimler Benz: Lebt in der Enge’ (‘Daimler Benz: life behind closed doors’), no. 49, 31. ——(1974) ‘Know-how ist nicht verkauft’ (‘Know-how is not sold’), no. 51, 76. ——(1975) ‘Anonymer Verkehr’ (‘Anonymous trade’), no. 51, 64. ——(1976) ‘Letzte Hürde’ (‘The last hurdle’), no. 19, 33. ——(1982) ‘Wenig Verständnis’ (‘Little understanding’), no. 47. ——(1982) ‘Bei den Deutschen herrscht Funkstille’ (‘The Germans aren’t on speaking terms’), no. 49, 99. ——(1982) ‘Wir lassen keine Leichen am Wege zurück’ (‘We don’t leave any dead bodies by the wayside’), no. 50. ——Unerwartete Front (‘Unexpected Front’), no. 52. Die Zeit (1992) ‘Das französische Kraftpaket—Elf und Thyssen übernehmen ostdeutsche Tankstellen’ (‘The French power package—Elf and Thyssen take over East German filling stations’), 24/11/92. The Economist (1992) ‘Private, perhaps’, 7/11/92. Financial Times (1981) ‘Bonn to ease US tax limit’, 23/9/81, 4. ——(1982) ‘Strong West German opposition may jeopardise Grundig takeover’, 17/12/82, 2. ——(1983) ‘West Europe attracts Japanese investment’, 14/2/83, 3. ——(1985) ‘Bangemann set to warn Brazil on investment curbs’, 16/5/85, 5. ——(1990) ‘Bonn urges trade partners to invest in Germany’, 31/5/90, 6.3. 103


——(1991) ‘Germans worried at foreign investment’, 17/8/91, 2. ——(1991) ‘Krupp links with Hoesch could lead to merger’, 11/10/91, 1. ——(1991) ‘Treuhand fans lukewarm British interest’, 26/11/91, 3. ——(1991) ‘Pirelli pays the price for a brave bid’, 2/12/91, 17. ——(1991) ‘Steel workers remain defiant’, 3/12/91, 3. ——(1992) ‘Minol sold to Franco-German consortium’, 17/1/92, 22. ——(1992) ‘BP hopeful of share in East German refinery’, 28/1/92, 3. ——(1992) ‘Foreign competitors use cost advantage to win market share’, 26/10/92 (international edition). ——(1993) ‘Pirelli agrees to sell holding in Continental’, 6/4/93, 21. ——(1993) ‘Mercedes confronts Japan on foreign soil’, 7/4/93, 26. Gillespie, R.W. (1972) ‘The policies of England, France and Germany as recipients of foreign direct investment’, in F.Machlup, W.S.Salant and L.Tarshis (eds) International Mobility and Movement of Capital, New York: Columbia University Press. Government of Canada (1976) ‘Policies of governments toward foreign direct investment’, in K.P.Sauvant and F.G.Lavipur (eds) Controlling Multinational Enterprises, Frankfurt and Boulder: Westview Press. Guardian (1993) ‘Consortium buys continental stake’, 27/3/93 (International edition). ——(1993) ‘Pirelli deflates tyre war’, 6/4/93, 11. Haggeney, B. (1976) ‘Federal Republic of Germany’, International Business Lawyer 4, 1, 59–67. Handelsblatt (1991) ‘Genscher wirbt um Kapital ausländischer Investoren’ (‘Genscher courts foreign investors’ capital’), 6/5/91. Hellman, R. (1970) The Challenge to US Dominance of the International Corporation, New York: Dunellan (translated by Peter Ruof). Henderson, R. (1993) European Finance, Maidenhead: McGraw-Hill. The Independent on Sunday (1993) ‘Nothing finer than a plant in Carolina’, 9/5/93, business section, 14–16. Kartte, W. (1976) ‘Are new instruments needed for government control of the decision-making process in multinational firms?’, German Economic Review 14, 2,93–111. Poeche, J. (1975) ‘Internationale Wettbewerbspolitik und multinationale Unternehmen’ (‘International competition policy and multinational firms’), Der Betrieb 25, 1157. Reich, S. (1989) ‘Roads to follow: regulating direct foreign investment’, International Organization 43, 4, 543–84. Safarian, A.E. (1993) Multinational Enterprise and Public Policy, Aldershot: Edward Elgar. Tillotson, J. (1980) ‘The GKN-Sachs affair: a case study in economic law’, Journal of World Trade Law 14, 39–67. The Times (1963) ‘W.German central bank concern at foreign capital inflow’, 29/6/63, 12. ——(1965) ‘Foreign stake in West Germany’, 12/6/65, 14. ——(1966) ‘Germany attracts big investment’, 14/2/66, 15. ——(1966) ‘Germany may act to block US oil take-over’, 12/4/66, 15. ——(1966) ‘US offer for German oil shares’, 20/4/66, 18. ——(1966) ‘Official welcome for American oil take-over’, 12/5/66, 18. 104

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——(1966) ‘New German party hits out at $ invasion’, 22/11/66, 16. ——(1974) ‘Kuwait’s Daimler deal confirmed’, 3/12/74, 17. ——(1974) ‘Germans on guard after Kuwait deal in Daimler’, 4/12/74, 22. ——(1974) ‘Germany aims to stop oil interests secretly buying into key industries’, 14/12/74, 17. ——(1975) ‘Bonn offered scheme to stop foreign control’, 23/1/75, 22. ——(1975) ‘Bonn greets control curbs scheme’, 24/1/75, 18. ——(1975) ‘Decision on Daimler Benz sale hangs fire’, 4/8/75, 22. ——(1978) ‘Fiat chief says Bonn is blocking joint venture with Daimler Benz’, 20/4/78, 22. United Nations, Centre on Transnational Corporations (1983) National Legislation and Regulations Relating to Transnational Corporations, Volume II. New York: United Nations. United Nations, Centre on Transnational Corporations (1993) From the Common Market to EC92, New York: United Nations. Wall Street Journal Europe (1992) ‘Germany starts to pay a price for high costs of producing there’, 29/1/92, 1. Wilms-Wright, C. (1977) Transnational Corporations: a strategy for control, Fabian Research Series 334, London: Fabian Society.

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INTRODUCTION What is especially interesting about US policy towards transnational is that there has been such a lively public debate on the regulation of such firms, with the administration resisting Congressional calls for a more active stance in monitoring and regulating US and foreign-based transnational. On the one hand, the US has set up a specific agency to examine worrisome inward investments and to develop policy, it has scrutinised a number of investments, it has extended government powers to look at the ‘national security’ implications of investments, and in more than one case the government has gained assurances from incoming transnationals on their activities, and in another intervened to encourage a domestic ownership solution for a US high technology firm that was the target for a foreign transnational. On the other hand, it is clear that these have been isolated examples of action, and that the full potential of the agency looking at inward investments has not been realised. To the consternation of many, the US administration and the Treasury in particular have opposed calls for government action and has failed to carry out the intent of Congress (Spencer, 1991). By offering a historical perspective on US policy, we hope to make these points clear. The United States has traditionally pursued an ‘open-door’ policy towards foreign direct investment and, as can be seen elsewhere in this volume, has been at the forefront in pressing other countries to reduce their use of restrictions and incentives (not surprisingly, given the large number of US-based transnationals). However, there have been concerns from the government, Congress, organised labour and the public over various aspects of transnationals’ activities. 106

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The nature of these concerns has changed over time as the US position in global investment flows has changed. In the 1960s and early 1970s, there was concern over outward investment, its impact on foreign policy, the balance of payments, and—of concern to labour—jobs and investment in the US. In the early 1970s, concern grew over inward investment, which was rising rapidly, particularly from Japan. This was magnified when the Organization of Petroleum Exporting Countries (OPEC) investments came into the US, leading to much Congressional discussion and demands for legislative action. In an attempt to block restrictive legislation calling for screening or even bars on inward investment, the administration agreed to two information-gathering exercises in the mid-1970s. President Ford also set up the Committee on Foreign Investment in the United States (CFIUS) in 1975, to review whether or not investments were in the national interest, to supervise information gathering, and to examine policy options. Despite its broad mandate, CFIUS met irregularly, and did little, coming in for much Congressional criticism. Towards the end of the 1970s and start of the 1980s, calls came from Congress for a re-evaluation of policy, and for considering setting up a similar body to Canada’s Foreign Investment Review Agency. Such calls were fended off by the Carter administration, and although the Reagan government looked at whether a policy change was necessary, it continued the same line. In part this must have been due to the outright opposition of the Treasury and State Departments to any policy change. Through the 1980s, legislative proposals for tighter monitoring and control of inward investment continued, albeit with little chance of success. The first potentially tough piece of legislation came in 1988, with the Exon-Florio amendment to the Omnibus Trade Act. This amendment empowered the government to block acquisitions by foreign transnationals on ‘national security’ grounds, and President Reagan charged CFIUS with implementing the new measure. On notification by the foreign investor, CFIUS was given thirty days to decide whether to investigate the proposed acquisition, forty-five days to make its recommendations, and fifteen days for the President to announce his decision, which was not open to legal challenge. Although a wide-ranging measure, allowing CFIUS and the President to challenge acquisitions on broadly-defined ‘national security’ grounds, the Bush administration interpreted it narrowly, solely in relation to defence issues. This prompted calls that the 107


administration had not adequately protected US firms, especially high-technology ones, from foreign acquisitions. With the lapse of the Exon-Florio provisions in October 1990, Democrats in Congress tried to broaden a re-authorised version to consider the impact of acquisitions from abroad on the US industrial and technological base. Exon-Florio was made permanent in August 1991, but Congress continued to consider modifications to it. Whilst the Bush administration steadfastly opposed such measures, it became an increasingly sensitive political issue (see, for example, Financial Times, 15/10/91). As recently as September 1992 efforts were still being made to tighten Exon-Florio. A HISTORY OF UNITED STATES POLICY AND DEBATE CONCERNING TRANSNATIONALS1 1960–73 According to Robock et al. (1977), the US was alone amongst major ‘home’ countries of transnationals in encouraging the foreign expansion of such firms from the Second World War up to the mid-1960s. If this was the case, it was probably because there were so many US-based transnationals. This began to change in the 1960s, as concern grew over (i) the foreign policy implications of certain outward investments, (ii) the size of capital outflows, and (iii) the impact of outward investment on domestic employment, over which labour became increasingly worried. As early as 1962 concern arose over the foreign policy implications of outward investments by US-based transnationals. Dean Rusk, then Secretary of State, said before the Foreign Relations Committee in 1962 that ‘we, of necessity, must reassure ourselves to the operations, the conduct, the financial structure, and other aspects of those private investors’, in reference to outward investments by US-based transnationals (Robock et al., 1977). The question arose as to whether the US government should take responsibility for screening the expansion plans of its transnationals abroad so as to minimise the impact of any potential damage to US foreign policy, in the same way as it assumed responsibility for representing their interests. This issue assumed greater significance in the late 1960s and early 1970s, culminating in the investigation into ITT in 1972 (see Lea and Webley, 1973). Outward investment was controlled from the mid-1960s because 108

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of rising concern over the persistent balance of payments deficit. An ‘interest equalisation tax’ was established in 1964, up to 15 per cent, paid by US purchasers of foreign shares issued in the US, in an attempt to reduce the capital outflow (Robock et al., 1977). In addition, from February 1965, the amount of capital that US-based transnationals could export was limited. Initially this was voluntary but later had a legal basis, under the auspices of the Office of Foreign Direct Investment in the Department of Commerce (Bergsten et al., 1978). The business community was opposed to such mandatory controls. For example, in 1970, the US Council of the International Chamber of Commerce pressed for their abolition (The Times, 28/7/70). The imposition of such controls also led to retaliation. Brash notes that the ‘decisive factor’ in the Australian government’s decision to restrict foreign transnationals’ borrowing in Australia was the introduction of this US ‘guidelines’ policy restricting capital outflows (Brash, in Robock et al., 1977). The US controls were finally ended in 1974. US Trade Unions tried and failed to use labour law in an attempt to prevent the perceived export of jobs. The International Union of Electrical, Radio and Machine Workers in 1969, and the United Auto Workers in 1970, tried to challenge investments under the National Labor Relations Act which requires all firms to consult with labour regarding investment decisions affecting employees. Both were unsuccessful, being unable to show that the investments reduced US employment, or even that data relating to foreign investment was relevant to the bargaining process. Bergsten et al. (1978) claim that the Act has not been used since by unions in this way. However, trade unions continued to press the government to register, monitor and control the export of US technology (Robock et al., 1977). The United Autoworkers also proposed— unsuccessfully—in 1971 that the government license outward investments made by US-based transnationals. To obtain a licence, it would have to be shown that the proposed investment served US economic interests (with exceptions favouring developing countries) and that it would not have harmful political consequences. Conditions attached to the licence would guarantee US workers compensation if they suffered as a result of the investment through imports or loss of export sales. The licence-holding US transnational would also have to abide by a ‘comprehensive’ code of good conduct regarding the workers employed abroad (Weinberg, 1975; Weinberg 109


does not detail what this code would cover, but states that such a code has been imposed on firms in Sweden if they want government guarantees, and covers (i) collective bargaining rights, (ii) benefits for loss of wages during illness, injury and layoff, (iii) pensions, (iv) other health and welfare matters including racially nondiscriminatory employment policies). Furthermore, the American Federation of Labor-Congress of Industrial Organizations to which many of the national unions are affiliated, sponsored the controversial Burke-Harte Bill. This was introduced in Congress in 1971, but never passed. It attempted to impose constraints on transnational in four areas. Firstly, it aimed to increase the taxation of their foreign income, for example by eliminating the deferral of taxation of foreign income until it is repatriated to the US. Secondly, it called for the President to license all outward investments and technology exports. Presidential approval would depend on a number of criteria, including the employment effect in the US. Thirdly, more complete disclosure of international activities was required. Finally, US imports, notably of goods produced abroad with US components, would be controlled in order to stop US-based transnational meeting domestic demand from production plants located abroad (Robock et al., 1977; Bergsten et al., 1978; for union concerns see Lea and Webley, 1973). Congress and the administration rejected the proposals, US transnational successfully managing to oppose controls on their activities, this time coming together in an ‘Emergency Committee’ to stress their contribution to employment, investment, national income and the balance of payments (The Times, 29/2/72). Some of the bill’s proposals were later picked up by the 1974 Trade Act, and by changes in the US tax code in 1975. In the former, provision was made to give support to communities where layoffs resulted from transnational relocating jobs abroad. Such firms were asked to give at least sixty days notice to employees laid off as a result of relocation abroad, and were called on to make efforts to find workers new jobs (Robock et al., 1977). Whilst the Burke-Harte Bill failed, the early 1970s saw an increase in activity in Congress and the administration itself looking at transnational’ behaviour and its implications. Congressional scrutiny of US transnational began in earnest with the Boggs Subcommittee of the Joint Economic Committee in July 1970, with hearings on ‘The Multinational Corporation and International Investment’, with witnesses from the US and overseas representing labour, businesses, 110

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academia and government (see Barovick, 1970). The Williams Committee, set up in 1971, called for increased efforts to gather and monitor information so that conclusions could be drawn on whether outward investment flows were causing losses of US production, jobs and exports (Lea and Webley, 1973). In 1971 an informal inter-agency committee was reportedly set up to investigate the main issues transnational raise and possible policy options, although nothing was made public (ibid.). In addition, Congress remained concerned with possible conflict between US transnational and US foreign policy. The Latin America Subcommittee of the Senate Foreign Relations Committee, chaired by Frank Church, launched an investigation in 1972 into an alleged attempt by ITT to influence US policy towards Chile. Church went on to chair the Subcommittee on Multinational Corporations, which aimed to undertake a ‘far reaching inquiry into the activities of the US-owned multinationals, as they affect US relations with other nations, as well as the well-being of the American people’ (ibid.). Specifically, it aimed to see whether US transnational’ activities ‘advance the interest of the US people, taken as a whole’, whether transnationals were a ‘constructive force’ within the host countries in which they operated, and whether US transnationals’ interests and US foreign policy objectives in key areas were compatible (ibid.; The Times, 6/12/72). In 1972 the Commerce Department’s Bureau of International Commerce published a three-part study ‘The Multinational Corporation: studies on US foreign investment, volume I, (Lea and Webley, 1973)’. Its first section, ‘Policy aspects of foreign investments by US multinational corporations’, looked at the effects of transnationals on US employment, the balance of payments, and technology transfer, as well as the effects of US controls on foreign direct investment. Whilst it concluded that outward investment was on balance beneficial, it did not ignore the economic and political problems resulting from the conflict between transnationals and the nation state; ‘there is a kind of inchoate uneasiness that economic policy formation is slipping into foreign hands and that something needs to be done to retrieve the levers of economic controls and to reassert political sovereignty’. At the same time, the study offered no policy solutions (Lea and Webley, 1973; The Times, 31/1/72). It also looked at whether the US could benefit exports through limits on technology transfer, but this was felt to be detrimental in the long run, as it 111


was believed that this would prevent US-based transnationals from fully exploiting their technological advantages. Through outward investments, it was argued, US transnationals had been able to extend the useful life of their technologies beyond the time when exports, because of cost considerations, were no longer competitive (Comptroller General of the United States, 1978). In 1971 the Senate Finance Committee’s Subcommittee on International Trade (the ‘Ribicoff Subcommittee’) began to investigate the economic implications of transnationals, and in part to search for policy alternatives to the Burke-Harte proposals. In February 1973, as background for its hearings, it published two major volumes. The first was a 930-page report prepared by the US Tariff Commission, ‘The Implications of Multinational Firms for World Trade and Investment and for US Trade and Labor’ (Lea and Webley, 1973). This made extensive use of the Department of Commerce’s new computer data system on US transnationals. This allowed a much more thorough investigation than anything before, particularly on trade issues. The report was also wide ranging, looking at why US transnationals invested abroad, and the effect on US employment, trade, balance of payments, the international monetary system, technology and research and development, and legal issues (arising, for example, from the extraterritorial application of antitrust laws). The second volume included the views of business and labour and summarised the state of US research on transnationals (Lea and Webley, 1973). These efforts were all concerned with the activities of US-based transnationals. Whilst inward investment from foreign-based transnationals was rising rapidly in the early 1970s, little research looked at its possible adverse effects. For this reason, Lea and Webley (1973) labelled it the ‘non-problem’. Official policy, both Federal and State, was to welcome inward investment for perceived balance of payments and employment effects, and there was little concern in Congress or amongst the public. Worries over inward investment, 1973–80 This position began to change as inward, particularly Japanese, investments began to grow more rapidly. This was amplified when inward investments from OPEC countries began, and speculation over the future scale of OPEC investment in the US heightened public and Congressional concern (although what actually happened 112

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was that much of the investment from OPEC countries went into short-term assets such as bills). In 1973 inward investment surged to $17.7 bn, a 24 per cent increase on 1972, and led to a Congressional re-examination of the traditional ‘open-door’ policy (Gerowin, 1975; Lenrow, 1976, for figures). A number of bills were proposed in the 93rd Congress (see Gerowin, 1975), the most restrictive being the 1973 Dent-Gaydos Bill. This aimed to restrict foreign control of US industry by limiting foreign firms to no more than 5 per cent of the voting shares of a US public company. This was dismissed as far too extreme, but as news of the extent of inward investment in the US grew in 1973, a ‘second wave’ of proposals appeared (see the flow chart of Congressional proposals in Gerowin, 1975). In addition, Gerowin at least hints at Congressional proposals being influenced by moves in other countries at this time to regulate inward investment (for example, Canada and Mexico). Proposals ranged from barring investments over a certain limit, or in defined sectors, or from foreign governments, or implying any foreign control at all, through various screening proposals, including ex-ante notification and ex-post monitoring requirements, to mere reporting measures (ibid.). The Roe Bill, for example, proposed a seven-member Cabinet level commission with discretionary authority to restrict or ban ownership and control. The Gunter Bill proposed a ‘Foreign Investment Regulatory Commission’ with discretionary power to monitor and regulate all inward investment, and would have barred foreign control of any US firm. The Metzembaum Bill, mild in comparison, called for permanent reporting requirements for foreign ownership over 5 per cent. As Gerowin noted, many had important omissions, for example using the Securities and Exchange Commission (SEC) as a screening agency, even though only one in six acquisitions from abroad were in publiclytraded firms. Whilst Congress decided that a change in policy was not necessary at this stage, Congressional hearings revealed a lack of detailed statistical information on the type and scale of inward investment. To rectify this and, more importantly, to fend off more restrictive legislative proposals to which it was deeply opposed, the Ford administration seized on a ‘moderate, one-time, information gathering proposal enacted to facilitate the formulation of an intelligent (foreign direct investment) policy’ (Gerowin, 1975). This was the Inouye-Culver Bill, later to become the Foreign Investment Study Act of 1974. This Act called for a two-year study, with a 113


twelve-month interim report. The Bureau of Economic Analysis (BEA) used a 10 per cent ownership figure to define ‘control’. It sought information on foreign ownership by sector, owner and the owner’s home location, means of financing, net assets, cash flows and profit distribution. The Act’s sponsor himself saw it as a way of sidelining more restrictive legislation (Gerowin, 1975). The 1973 oil price rise and increase in petrodollars available for investment raised different concerns: a fear of political manipulation and ‘economic blackmail’ from the use of government-controlled investments. As Gerowin (1975) noted, the issue became one of differentiating ‘good’ and ‘bad’ investments. The concern was whether government (namely OPEC—Organization of Petroleum Exporting Countries) investors would act as ‘private economically rational investors’ or if they would rather forego maximum profits in the pursuit of other goals, such as gaining control of firms for political purposes and to obtain leverage to influence domestic and foreign policy (Gerowin, 1975). Sensitivity was most acute where desired acquisitions were in high-technology industries, and led in some cases to calls for restrictions. Defence-related industries, the most sensitive of all, were protected under National Security laws. For example, the proposed Kuwaiti acquisition of Grumman was blocked by the Department of Defense in 1974. Although the Treasury Department published ‘guidelines’ on OPEC investments in 1975, over 1974 and 1975 the Ford administration and the Treasury Department re-evaluated the ‘neutrality’ policy and concluded that no change was needed (Gerowin, 1975; US Committee on Government Operations, 1980). Altering policy significantly was perceived as very difficult by some. Gerowin (1975) stressed that the US had a long record of leading the fight to remove incentives and impediments to international investment flows, and faced the ‘unhappy prospect of a sharp break in policy if any extreme measure of control is to be exercised’. Bilateral Treaties might be violated she noted, and more importantly there was the threat of retaliation from abroad to US transnational located there. As the US had more investment abroad than there was foreign investment in the US, it was argued that the US stood to lose the most, a view the Treasury in particular was to emphasise repeatedly over the late 1970s. Nevertheless, inward investment remained a major issue in the 94th Congress. On the first day the Roe Bill was reintroduced, as was the Dent Bill later, and the Metzembaum Bill calling for 114

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permanent investment reporting was reintroduced by Brademas in February 1975 (Gerowin, 1975). This was reworked and extended by Inouye in March 1975. Another reporting proposal came from Senate minority leader Hugh Scott. A much more ambitious proposal came from Senator Williams. He called for a thirty-day prenotification requirement for any foreign acquisition of 5 per cent or more of a US firm with over $1 m in assets. A confidential statement would have to be made by the foreign transnational to the SEC. Details of the identity and nationality of the purchaser would go to the President, who would have the authority to ban any foreign investment in a US firm if he believed the acquisition could have an adverse impact on the domestic economy, foreign policy or national security (Gerowin, 1975; The Times, 28/1/75; for a detailed account of legislative proposals at this time see Lenrow, 1976). This bill did not set maximum ceilings on investment and did not discriminate against particular (i.e. Arab) investments. For this reason, it attracted some support (see Vogl in The Times, 4/2/ 75, for example). The Ford administration attacked the proposals, stressing the economic loss that would result if this discouraged foreign-based transnationals from investing in the US (similar concerns have been expressed in Britain, for instance, over the perceived loss of inward investment that would accrue if the government was to begin to develop a tighter policy towards transnationals—see Chapter 6). It repeated this opposition through 1975, but stated that it was prepared to supplement information-gathering arrangements, again to forestall restrictive legislative proposals and in the hope that the information gathered would allay Congressional and public concern (see The Times, 5/3/75). Some observers felt that the US already seemed well protected against acquisitions by foreign-based transnationals. Multinational Business (1975) argued that ‘the problems many foreign multinationals experience in establishing themselves in the USA are apt to appear, to foreign business minds, to amount to a systemic policy of hindrance or exclusion’. Although there was no legal basis for discrimination against foreign acquisitions except in certain sectors, it argued that ‘many outside the USA have detected such bias operating in a growing number of instances’. In one example cited, the US firm Ronson fended off an Italian bidder, Liquigas, by appealing to the Civil Aeronautics Board as Ronson had a ‘quite incidental’ small helicopter business. The Board stopped the bid. 115


Thus Multinational Business stated ‘all any US company needs to do to protect itself against unwelcome foreign takeover is to engage in some subsidiary air transport business’. Other cases cited demonstrated the power an entrenched management had in opposing a foreign acquisition. Congress was not satisfied that US firms were adequately protected, however. Nor was the Commerce Department, either, it seems. In 1975 it planned to assess inward investment policy and to make recommendations. This was blocked by the Treasury and State Departments (US Committee on Government Operations, 1980). In yet another attempt to forestall restrictive legislation, the administration gave in to a number of measures in the mid- to late 1970s: (1) the creation of the Committee on Foreign Investment in the United States (CFIUS) in May 1975; (2) the passing of Inouye’s Bill as the 1976 Foreign Investment Survey Act, which sought to conduct ongoing, comprehensive surveys of direct and portfolio inward and outward investment; and (3) the 1978 Agricultural Foreign Investment Disclosure Act, which required notification by foreign investors if they purchased agricultural land, forestry or timber industries (Foreign Investment Review Agency, 1982). The Inouye Bill had sought to require the Commerce Department to undertake analysis covering trade, financing, technology transfer, employment, concentration and anti-competitive behaviour, the effects of state investment incentives on economic development and other issues such as the impact of taxes on investment patterns (US Committee on Government Operations, 1980). However, the Office of Management and Budget, and the Treasury and State Departments ‘went to great lengths’ to scale down these areas, and succeeded; in its final form the 1976 Act sought Federal agencies to analyse only net employment, tax payments and R&D expenses of foreign transnational, and only ‘when necessary and feasible’ (ibid.). Even so, the Treasury was still disappointed that there was too much detail as to the information required in the Act. CFIUS, dominated by the Treasury, was also opposed to major aspects of this bill. CFIUS had been set up in May 1975 by President Ford under Executive Order 11585. This inter-agency committee includes permanent representatives of the Department of State, Treasury, Defense and Commerce at a level no lower than Assistant Secretary. The Committee, crucially it seems, is chaired by the Treasury representative. Representatives from other agencies may also take 116

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part. CFIUS was charged in the Executive Order with ‘primary continuing responsibility within the Executive Branch for monitoring the impact of foreign investment in the United States, both direct and portfolio, and for coordinating the implementation of US policy on such investment’ (reproduced in US Committee on Government Operations, 1980). In doing this, CFIUS was to: arrange for the preparation of analyses of trends and significant developments in foreign investment in the US; provide guidance on arrangements with foreign governments for advance consultations on prospective major foreign governmental investments in the United States; review investments in the US which, in the judgement of the Committee, might have major implications for US national interests; and consider proposals for new legislation or regulations relating to foreign investments as may appear necessary (ibid.). If CFIUS decided that an investment had major implications for the national interest, the CFIUS chairman would inform the Economic Policy Group and the National Security Council asking them to agree to notify the foreign government involved in the investment. Whilst CFIUS did not have the power to block or alter a proposed investment, the Treasury was confident that in the case of investments by foreign governments, diplomatic pressure would be enough; it is almost inconceivable that a foreign government would persist in this country over the strong objections of the US government. Even if it were insensitive to the implications, it would realize that the US government could always take action after the fact. (US House of Representatives, 1978) In addition, the Office of Foreign Investment in the United States (OFIUS) was created to support CFIUS. Since 1975 it has been given responsibility for monitoring and analysing the impact of inward investment. OFIUS was given a very broad remit. It was mandated to study a number of areas, comprising: the concentration and distribution of inward investment by industry, area and so on; the impact of inward investment on national security, energy, natural resources, agriculture, environment, real estate, employment, balance of payments and trade; the methods used for the inward investment, for example, whether by acquisition or greenfield, whether by domestic or foreign finance; and government laws and policies and 117


how they affect inward investment. OFIUS was given responsibility for preparing reports and analyses for Congress, the public and itself, and for describing and analysing significant inward investment trends and transactions (see US Committee on Government Operations, 1980). Hence on one level it might seem that CFIUS/OFIUS was an effective means of looking at the entry of foreign transnationals into the US. This was the attitude of Canada’s Foreign Investment Review Agency (FIRA) in 1982, in defending its own position. FIRA’s view was that not only had CFIUS reviewed a number of foreign investments over the years, it also engaged in much more activity than it actually disclosed. In the late 1970s CFIUS reviewed the Romanian government’s investment in a Virginian coal-mine owned by the Island Creek Coal Company, the Iranian government’s proposed acquisition of Occidental Petroleum shares, Shell Oil’s proposed acquisition of Belridge Oil, Renault’s partial acquisition of AMC, Nippon Kokan’s proposed acquisition of Kaiser Steel assets and Société Imetal’s proposed acquisition of Copperweld. In addition there was much more informal activity. As Bergsten, then US Treasury Assistant Secretary for International Affairs stated to a US Congress Subcommittee (US House of Representatives, 1978): one should not, I think, view the formal meetings of the Committee as the only activities of the Committee. Like most committees in government and elsewhere, the formal meetings are usually the tip of the iceberg and a great deal goes on in informal meetings and discussions within the agencies and between the agencies. That is the way business is done. FIRA’s (1982) interpretation of this was that CFIUS had examined many more cases than it publicly admitted, although it found nearly all of them not damaging to the US national interest. However, Congress was highly critical in the late 1970s and early 1980s of government efforts in monitoring inward investment and its policy towards inward investment generally. CFIUS and OFIUS came in for particular criticism. 1980 Report of the Committee on Government Operations In 1980 the Committee on Government Operations reported on the adequacy of the government response to foreign investment. Given that this was a detailed examination of US policy toward 118

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inward investment by a Congressional Committee, its findings are worth considering carefully. The Committee noted a number of areas of concern (US Committee on Government Operations, 1980): Balance of payments There was concern that most inward investment led to little net increase in capital inflows (and hence strengthening of the dollar) because most funds were borrowed in the US. In the long run the repatriation of profits could damage the balance of payments, it was feared. Acquisitions Whilst greenfield investment was seen to bring new capital, increased employment and an improved tax base, with acquisitions the Committee felt these benefits were very doubtful, unless the funds received by the US firm were reinvested. In addition, there might be competitive effects. If the acquisition had not been allowed, the foreign transnational might have gone for a greenfield investment, increasing competition. Secondly, an acquisition could be used to reduce global competition. Thirdly, where two foreign transnational merged, this could have anti-competitive effects on their US subsidiaries. Technology transfer One worry is illustrated by the Fujitsu acquisition of Amdahl, a US computer manufacturer. This gave Fujitsu access to a radical new design of future computers, for sale in foreign markets, ‘with a consequent loss in US competitiveness overseas’. In addition it was feared that the establishment of R&D facilities in the US might result in new technology being developed in the US for transmittal to parent firms abroad, further weakening the US competitive position. Real estate Here there was a fear that foreign acquisitions, for example in farmland, would drive land prices to levels that US farmers could not afford. There was also a fear that control of food supplies might pass into foreign hands. Natural resources Inward investment here raised questions over the export abroad of exhaustible US natural resources. Another area noted in the Committee’s Hearings (see Arpan’s testimony) were the concerns of labour. It was felt that foreign investors might not understand and react to US employees, and that they might attempt to transfer a labour relations philosophy and system which would not be suitable for the US; for instance a visible protest in this respect came from the workers of the US firm 119


Copperweld when threatened with a take-over by the French-based firm Société Imetal. There was also a concern that foreign transnational would prefer non-unionised employees, and would deliberately locate in areas where there was less union activity, or in States which had ‘right to work’ laws. Given these concerns, the Committee found US government action insufficient. OFIUS was heavily criticised for having done little. By 1980 it had prepared just five industry studies (four of which had yet to be published) and only two state studies. It had also failed to develop reliable quantitative techniques or models to measure more precisely the impact of inward investment, as had been noted by the General Accounting Office in 1976, and was inadequate operationally. Problems included poor management, a lack of priorities, misallocated resources and frequent reassigning of staff so that projects were not completed. Such problems were exacerbated by a lack of resources, after drastic cutbacks in 1976. In addition, OFIUS had become engaged in promotional activity, which was not one of its mandated roles; the Invest-in-the-USA Bureau was responsible for this. Most significantly, its own data was incomplete and inadequate. It had to rely on the Bureau of Economic Analysis (BEA) for data, and even this was insufficiently disaggregated and was outdated. CFIUS came in for even harsher criticisms. Firstly, CFIUS had allegedly met rarely and had done little (in contrast to FIRA’s view). It had met only ten times in its first five years. Between mid-1976 and mid-1978 it did not meet at all. This caused much Congressional concern. Senator Inouye wrote to the Treasury in October 1977 expressing regret over the failure to meet, and detailed eight areas that needed to be addressed by a reconstituted CFIUS. The Treasury’s rejection of Inouye’s request was criticised by the Committee on Government Operations; ‘CFIUS never addressed issues raised by Inouye and was not reconstituted until eight months later’. In May 1978 the State Department asked the Treasury to reconstitute CFIUS, because there had been significant developments, notably increased inward investment. The Treasury was again unperturbed. Treasury Secretary Carswell and Assistant Secretary Bergsten were more concerned that reconstituting CFIUS would be read by incoming transnational as a change in policy and suggested an ‘innocuous’ public statement about the ‘routine’ nature of the meeting. This was typical of the Treasury’s position; it was most bothered about foreign transnational’ perceptions and this dominated the way CFIUS operated (US Committee on Government Operations, 1980). 120

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The Committee on Government Operations also doubted Bergsten’s view that much activity took place between CFIUS meetings. CFIUS had become ‘dormant’, it argued, and was solely concerned with the political aspects of foreign investment, and not with what really mattered: its impact on the dollar, employment, and the economy as a whole (ibid.; see also Azevedo’s testimony in the Committee’s Hearings). In fact, CFIUS was seen as specifically set up to enable the administration to keep its liberal position. It had played a central role in efforts to dissuade Congress from enacting new restrictions on foreign investment. A Treasury memo from Bergsten to Carswell cited by the Committee (ibid., our emphasis) was particularly revealing: ‘we have been able to reassure Congress that we could anticipate and deal effectively with any threats in this area, and at the same time maintain our basically liberal policy’. The Treasury was seen as crucial to CFIUS’s failure to function effectively. Despite serious data shortages, such as a lack of knowledge of Japanese acquisitions of US high technology firms, and hence no basis for any decision on whether technology transfers were desirable, the Treasury’s bias was against any change of policy. It was particularly opposed to CFIUS becoming more active. The Committee on Government Operations concluded that the ‘Treasury is extremely reluctant to have CFIUS review investments, irrespective of the implications to the national interest’. More frequent reviews would make CFIUS seem more like a screening agency, the Treasury feared. Due to this Treasury bias against changing policy, the Committee on Government Operations concluded that CFIUS fought efforts to systematically monitor and analyse inward investment, and had ‘grossly neglected its responsibilities to the President, the Congress, and the public’ (ibid.). The Treasury favoured a ‘passive but alert attitude’ for CFIUS, which should ‘simply be prepared to select an investment for review from the passing parade’ (ibid.). This reluctance to review was apparent in the ‘pre-review’ process. The Treasury had to be persuaded that an investment was appropriate for review. Treasury Secretary Blumenthal rejected a Senator’s call for CFIUS to review the acquisition of Financial General Bankshares, arguing this was not of national interest, and refused to present it to CFIUS. The Committee on Government Operations criticised how the Treasury could decide whether an investment was in the ‘national interest’ if CFIUS had never looked at it. 121


Furthermore, under Treasury control, CFIUS had in practice only looked at foreign government investments. As the Committee concluded, how could private and government investments be separated in practice, given greater government/private sector cooperation in other countries? Anyway, it argued, there was ‘no rational basis’ for the belief that a foreign government investment per se was more likely to have national interest implications than a foreign private transnational. Moreover, even when it did look at foreign government investments, CFIUS had not formulated any criteria to examine such investments. According to the Committee, CFIUS had failed to collect all the relevant facts, and was unsure as to their significance anyway. In the Copperweld case, the French ambassador was asked some questions over French government involvement, but there was no further investigation, and the concerns of Copperweld’s workers were ignored by CFIUS. In the unlikely event of CFIUS ever finding an investment undesirable, the Committee was also worried that it had no power to block it anyway. Whilst the Treasury was content that diplomatic pressure would suffice to deter foreign government investments, and government objections would deter any undesirable private investment, the Committee questioned whether the Treasury and CFIUS would ever try to block an investment because of the Treasury and State Departments’ ‘evident bias and implacable position’ (ibid.). Anyway, as CFIUS had never opposed an investment, the Committee was uncertain whether this procedure would work. In such a case the President might have to invoke the Trading With the Enemy Act. This was a ‘drastic’ measure, the Committee argued, requiring the President to declare a national emergency; it felt this would deter much more investment from foreign transnational, both beneficial and harmful, than any registration or screening agency. Given this, the Committee called for a policy reassessment, arguing that most other industrial countries manage foreign investment in a way that benefits their economies and minimises the harmful effect of such investment. There is no valid reason why the United States cannot manage its foreign investments with the same objectives. Firstly, it felt that the impact of inward investment had to be monitored and evaluated before a prudent policy could be 122

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formulated and implemented. At the time the Committee was reporting, data collection was haphazard, unco-ordinated, and duplicated by the several agencies involved. There was even conflict between them; for example, the Treasury had refused to share information on OPEC investments with the US Department of Commerce (1983). The Committee referred to Barnes’s testimony: even if the United States is not ready to screen foreign entry in accordance with criteria which could disallow the least desirable, it is high time that a mechanism of registration be set in place so that all the facts are disclosed and the appropriate policy determined. The Committee went on to reject the Treasury’s line that this would bring retaliation from abroad or would reduce inward investment. In fact, Robock, in evidence to the Committee, had argued that some foreign transnational might actually favour registration. He quoted a senior official from a French-based firm who had stated that in most other countries they had found a door saying ‘enter here to register’, but they were confused when they could not find such a door in the US. In this sense, registration might actually reduce uncertainty to the foreign investor. During the Subcommittee’s July 1979 Hearings the Treasury refused to re-examine policy or to support further data gathering, even with sharply increasing inward investment and rising Congressional and public concern. In the pursuit of its neutrality position, the Treasury had also tried to suppress the Invest-in-theUSA Bureau, which offered minimal assistance to foreign investors, their reasoning being that this would be interpreted as support for such investment and would lead to calls for more restrictive legislation. The rationale underpinning the Treasury and State Departments’ positions was the belief that the free flow of investment would produce the most efficient allocation of resources, that this was most beneficial for the US, and that any restrictive legislation would bring retaliation from abroad and reduced investment in the US. The Committee rejected this, arguing that other countries engaged in such activity, and that this had not stopped US transnational investing there. Restrictions, controls and performance requirements could be imposed in a way that did not discourage foreign investment, the Committee argued. The Committee went much further than simply calling for the registration of inward investment and a reappraisal of policy. It called 123


for the careful scrutiny and perhaps prohibition of foreign government investments in certain sectors, and the encouragement of joint ventures (JVs) between US and foreign firms in certain sectors or if the investment was deemed harmful. The encouragement of JVs could become a Federal goal, it argued, and one of the powers of a screening agency. The setting up of a screening agency, like Canada’s FIRA or Australia’s Foreign Investment Review Board (FIRB), should also be considered by Congress, it argued, with the aim not of excluding foreign investment, but of gaining from it ‘substantial benefit’ for the US economy (US Department of Commerce, 1983). The creation of a US ‘FIRA’, which through negotiations could extract a more beneficial investment, was seen as preferable to ‘the inflexible and often inconsistent statutory prohibitions now existing’. The Committee illustrated the kind of system it desired by reference to Bergsten et al.’s account of what happened in other countries (ibid.; see Bergsten et al., 1978): selectivity everywhere is the key note; from the mass of investments available to the host country, only those likely to promote its national objectives will be permitted. And there is a clear general trend toward negotiating the terms of entry to extract as many benefits as possible without discouraging the investment…virtually all host countries have set up explicit machinery to bargain for them. In terms of detail, the Committee argued that such a screening agency could require the incoming transnational to follow antitrust policies, to produce exports and to meet certain financial conditions. It could also prevent long-term balance of payments problems from arising, such as the excessive repatriation of profits, or could guard against excessive borrowings in the US to finance acquisitions. It might impose stricter standards for acquisitions than greenfield investments, like Australia’s FIRB, and could protect ‘national interest’ sectors. The Committee felt that such a policy reappraisal and establishment of a screening agency would deter inward investment far less than the ‘constantly changing terms and conditions and inconsistent implementation’ of policy. Again, it was felt that this could actually reduce uncertainty for foreign investors. Continuing concern over US transnationals’ investments abroad, 1973–80 Whilst the concern of this Committee was over inward investment, which had come to the fore in the late 1970s, there remained 124

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Congressional concern over outward investment and the activities of US-based transnationals. For example, the Comptroller General of the United States (1978) in a report to a Senate Subcommittee, focused on the effects of outward investment on the balance of trade, taxes, job creation and destruction, raw material supplies and technology transfer. On the technology issue, it noted the concerns of labour, notably the American Federation of Labor— Congress of Industrial Organizations (ALF-CIO). This body had accused US transnationals of closing the technology gap and eroding US competitive advantage by combining technology developed in the US with efficient, low cost foreign operations based on cheap labour. It was argued that these firms then imported such production into the US, or sold it in foreign markets, to the detriment of US exports. The AFL-CIO considered US transnationals major contributors to the rapid and substantial loss of US production in radios, televisions, other electrical equipment, and shoes. The report went on to argue that economists’ varied techniques and assumptions had diffused the focus of policy-makers’ attention, leading to confusion over the issues. It was argued that a priority was to formulate acceptable quantitative techniques or models to measure the full impact of investment abroad, so that policy-makers could identify and address the issues. The report was also very perceptive on how the character of investment could change. It noted that equity participation does not necessarily equate to control. A US investor might supply critical technology, management know-how or products, and could exercise control over the foreign firm through agreements rather than equity participation, and this had to be taken account of in definitions of investment. 1980–8 In the early 1980s CFIUS continued its (in)activity, whilst Congress remained critical of the administration’s policy. For example, a bill introduced in the 96th Congress in 1980 would have amended the 1934 Securities Exchange Act to stop acquisitions by foreign transnationals unless the laws and regulations of the investor’s country were no more restrictive towards US transnationals than US laws were towards incoming foreign transnationals (Shepro, 1986). Between 1980 and 1983, CFIUS reviewed twenty-five cases. None involved a transnational from the private sector. This increase in 125


CFIUS activity was not indicative of a shift in the government’s attitude, Bale argued (1983), but rather reflected the increasing participation of governments abroad in enterprises that were—or were becoming—transnationals. However, one interpretation is that the more active stance may have come in response to Congressional prodding, as Safarian (1983) noted. In July 1981, CFIUS asked the French firm Société Nationale Elf-Acquitaine to delay its acquisition of Texasgulf, to allow CFIUS ‘more time to study the implications’ of the proposed investment (FIRA, 1982). A shortcoming of CFIUS was revealed here, however; CFIUS could not compel delay, it could only request it (Bale, 1983), and in this case Elf-Acquitaine refused (Little, 1982). This led Fry (1989) to note that ‘CFIUS was widely viewed then and continues to be perceived as a toothless paper tiger’. In 1982, CFIUS looked at Seagram’s acquisition of shares in Conoco. It also looked at investments proposed by the Kuwait Petroleum Corporation, including the Corporation’s proposed acquisition of Getty Oil shares, a proposed JV with Pacific Resources, another proposed JV with AZL Resources, and the proposed acquisition of Santa Fe International. CFIUS was also worried over the acquisition of Texasgulf’s Canadian assets by the Canadian Development Corporation, fearing this would have adverse effects on the availability of sulphur and phosphate fertilizers in the US (FIRA, 1982). In the case of Santa Fe, there was a concern over C.F.Braun, a Santa Fe subsidiary engaged in nuclear technology. Braun pulled out of such defence work, although this was not a condition of approval, as CFIUS had no power to set such conditions (Financial Times, 23/12/81). Congress criticised the acquiescence of CFIUS in the Santa Fe take-over. Congressman Rosenthal, in the House Subcommittee on Government Operations, argued that CFIUS should either be disbanded or strengthened as it was in a state of ‘suspended animation’ (US House of Representatives, 1982). Marc Leland, then chairman of CFIUS, stated that strengthening CFIUS’s powers was under consideration (ibid.). He went on to argue that CFIUS served to focus attention on issues regarding a given investment in which various US laws apply, and that the application of these laws might result in the denial of a foreign acquisition (FIRA, 1982). Leland outlined a number of means CFIUS could use to control foreign investments. It ensured that a broad range of departments and agencies focused on a proposed acquisition. Anti-trust laws, national 126

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security laws, and reciprocal limitations through acts such as the Mineral Lands Leasing Act could be used to delay or halt an investment damaging to the national interest, aside from recommending direct executive action to stop an investment. In FIRA’s opinion, Leland’s testimony showed a greater willingness on the part of the Reagan administration to respond to the dangers of inward investment (FIRA, 1982). The former Carter administration had steadfastly opposed any further restrictions on inward investment and had actively encouraged Japanese investment in the car industry to reduce protectionist sentiment in that area (Bale, 1983). It was certainly the case that the Reagan administration undertook a review of policy to see whether CFIUS needed strengthened powers to block or delay acquisitions by foreign transnationals, on grounds other than anti-trust considerations. An inter-agency task force was led by Leland to consider this issue (Financial Times, 23/12/81; US House of Representatives, 1982). It was considered gingerly, again for fear of sending out signals that the government wished to restrict inward investment generally (Bale, 1983). Some argued in the early 1980s that the US already had an active policy of deterring undesirable inward investments. FIRA’s (1982) report has already been noted. FIRA argued that transnationals investing in the US faced a ‘plethora of laws, regulations, agencies, hearings, programmes and ordnances at both state and federal levels’ (it should be noted that many of these apply equally for domestic firms). Rules were ambiguous and there could be unexpected delays in completing procedures, it argued. In addition, the investor had to be prepared to find that regulatory agencies such as the Interstate Commerce Commission, the National Aeronautics Board, or the SEC went beyond their mandates and examined and barred investments ‘precisely because it is not US controlled’. A number of sectors were explicitly protected from foreign investment: ship-ping, aviation, aeronautics, communications, nuclear and hydro-electric power, banks, insurance, real estate, mining, maritime activities and defence—which in itself encompassed a whole range of industries (FIRA, 1982). It argued that with over twenty federal agencies involved in the regulation of foreign investment, all using statutes which define foreign investment or control differently, the foreign investor could understandably be confused and perhaps suspicious ‘that the very ambiguity of his situation is no accident’. Furthermore, FIRA argued that the absence 127


of clear authority left the system open to abuse; regulatory agencies could come out with arbitrary or unfair decisions, and could be pressurised from interest groups (ibid.). The report noted particular uncertainty surrounding anti-trust legislation. The Clayton, Sherman and Federal Trade Commission Acts were all applicable to incoming transnationals. The uncertainties over their application could itself be interpreted as a barrier to inward investment, as the US Department of Justice had recognised in 1977 (ibid.). Given these unclear enforcement policies, the legislation was ‘particularly vulnerable to political pressures’; how thoroughly it was applied depended on the beliefs of the administration in power (ibid.). Patterson (1983) certainly believed the anti-trust legislation had long been applied in a discriminatory fashion against foreign investors (Patterson, 1983; see also Fry, 1983). He went on to argue that an even more effective barrier to foreign investment was the National Security Act and related statutes. These were designed to control foreign ownership in defence industries sensitive to national security, ‘but it has developed into something…which restricts foreign investment in a very large slice of the US corporate economy’ (ibid.). Given the use of such restrictions on a widespread basis, Paterson felt it was ironic that the US government took such an aggressive posture on other countries’ practices which were more transparent (ibid.). In contrast, Bale (1983), then Assistant US Trade Representative for International Investment Policy, argued that those who felt that there were barriers to inward investment in the US ignored the fact that the US was non-discriminatory in its anti-trust and security laws. Also, if US laws and restrictions were as effective as FIRA and Patterson made out, it is doubtful that Congressional concern over government inactivity would have been as high as it was at this time. Furthermore, Patterson’s argument that the low level of foreign investment in the US was a direct result of widespread restrictions ignores the fact that inward investment was rising rapidly in the late 1970s and 1980s. 1981 and 1982 saw inward investment exceed outward investment flows (Bale, 1983). It was this rapidlyincreasing inward investment which prompted many to call for stricter curbs on incoming transnationals in the 1980s. For example, a bill introduced in the House of Representatives in 1983 by Kastenmeier sought to establish a ‘Foreign Investment Commission’ to screen inward investment and to restrict those in ‘sensitive’ areas, including computers, and to ban them in ‘vital’ areas such as 128

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telecommunications. The administration opposed the bill as inconsistent with US policy. The US government’s policy remained one of pressing for reductions in other countries’ controls.2 Along these lines, the US Trade Representative, William Brock, asked the International Trade Commission to investigate the use of performance requirements imposed by host governments abroad (Financial Times, 23/4/82). Similarly, the Trade and Tariffs Act in 1984 aimed to reduce or eliminate barriers to trade and international investment, and called for the development of international rules, including dispute settlement rules, to meet that end (United Nations, 1988). It also called for a series of reports and investigations by US authorities on barriers to US trade and investment. The Act also provided for measures to be taken by the US in response to action taken by foreign governments deemed discriminatory against US interests (ibid.). Meanwhile, concern over inward investment was fuelled by Goldsmith’s abortive bid for Goodyear in 1986. In addition, there was much opposition to Fujitsu’s proposed acquisition of Fairchild Semiconductors in 1986, which CFIUS investigated. There was concern over the possible increased dependency of the US military on foreign suppliers (although Fairchild was already French owned), the large share of the ‘gate array’ (a semi-customised chip) market that Fujitsu would hold, and the prospect that Fairchild’s advanced semiconductor technology would pass to Japanese control. That Fujitsu withdrew was seized on by those stressing that US policies were adequate in dealing with any problematic inward investments. For example, Little (1988) concluded on Fujitsu: in any event, the case does suggest that the US government needs no further ammunition against foreign investments it does not like. It only has to make its opposition known and possibly threaten to withhold government contracts. Foreign investors are most unlikely to proceed in the face of such adamant opposition. Little’s position was basically the same as the Treasury’s and the administration’s: unrestricted investment flows were economically most efficient, and imposing extra controls would bring retaliation. The government policy of pressing for a GATT on foreign investment, to reduce investment impediments abroad, was on the right track, she argued (see also Fry, 1988, although he favoured the setting up of a US body similar to Canada’s FIRA). 129


A quite different perspective is offered by Goldstein and Fishman (1988). They note the growing awareness that inward investment had been specifically targeted on obtaining access to high technology sectors, and that it could pose a serious and lasting challenge to the ability of the US to safeguard its defence and maintain its political and economic position. The semiconductor industry was particularly vulnerable; ‘if nothing substantial changes, the US semiconductor industry will be gone in five years’ (Ferguson, in Goldstein and Fishman, 1988). They noted as well that observers of the semiconductor industry were urging the US to pursue a more ‘Japanese’ approach to investment, fearing that the US could lose its technical edge and market share to Japanese and other foreign firms. The number of foreign take-overs was raising concern. Foreigners were involved in 446 acquisitions in 1988, against 363 in 1987, with the $60.8 bn of funds committed by foreigners in 1988 accounting for 25 per cent of the total dollar value of all take-over activity in that year. Hostile take-overs were also becoming more common. For example, the five largest British investments in 1988 were all hostile (Ayres and Chubb, 1989). Debate was fuelled in particular by the $2.6 bn Bridgestone (Japanese) acquisition of Firestone in 1988, which heightened Congressional and public concern. A survey reported in the Wall Street Journal in March 1988 (in United Nations, 1988) revealed overwhelming public support for tighter legislation on incoming transnational, with 89 per cent of the public in favour of registration, 78 per cent in favour of a law limiting the extent of inward investment, and 40 per cent favouring an outright ban on any further inward investment. Not surprisingly, therefore, a number of amendments to the Omnibus Trade Bill were proposed relating to inward investment in 1988. John Bryant’s amendment would have required foreign transnational to disclose their interest in a US firm if they held a controlling or significant interest. This was later dropped. The ExonFlorio Provision was not dropped, however. The Exon-Florio provision and beyond As in the 1970s, the administration reluctantly agreed to this measure to forestall other proposals calling for the disclosure of all foreign investments in the US (see Financial Times, 28/3/88). Opposed to Exon and Florio’s original proposals, the administration managed to 130

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weaken them to the point where it found them acceptable. In its initial form, Exon-Florio required the Commerce Secretary to investigate proposed inward investments, with a report going to the President, who would evaluate investments according to a broad set of criteria, including the effect on ‘economic welfare’, jobs, government revenues and the level of skills (US Senate, 1987). The then Commerce Secretary, Malcolm Baldridge, attacked the proposals as ‘vast overkill’, arguing that the criteria listed were ‘bad economics, bad policy and fraught with political risk’. In particular, they would deter inward investment; ‘no investor would come here unless they were prepared to discuss how many jobs they were going to create, or save, and what tax revenues they would generate’ (US Senate, 1987; Financial Times, 11/6/87). In contrast the final form of the provision had references to the effects of transactions on ‘essential commerce’ and ‘economic welfare’ deleted, as were references to JVs and licensing. Exon noted that the latter had earlier been quite explicit. The result was a narrower provision than either Exon or Florio had proposed (Ayres and Chubb, 1989; Knee, 1989). Even so, the amendment empowered the government to block acquisitions by foreign transnational on the grounds of ‘national security’. The President was given the authority to decide what ‘national security’ included. The provisions caused alarm amongst business as they were deliberately broad in defining industries where ‘national security’ might be a consideration. The only sectors implied as being safe were toys and games, food, hotels, restaurants and legal businesses. In addition, the rules did not define ‘national security’ or what constituted a threat to it. Elliott Richardson, Chairman of the Association for International Investment, argued that although notification to CFIUS was voluntary, given the uncertainties over the provisions and the fact that investors could be ordered to divest at any time, it was likely that many foreign transnationals might feel constrained to notify (Financial Times, 17/3/89; 19/7/89; 10/10/89). Richardson felt that Exon-Florio’s coverage ‘could turn out to be very much broader than is generally perceived by the business community and could involve serious traps for the unwary’. In effect, Exon-Florio amounted to a voluntary screening system, in contrast to earlier US policy, he argued (Financial Times, 15/9/89). The Treasury and CFIUS were initially given authority to review take-overs under the provisions. This reportedly angered Exon and Florio, as the Treasury was seen as ‘pro’ foreign investment (Ayres 131


and Chubb, 1989). Sole authority was later given to CFIUS (which was expanded to include the Attorney General and the Director of the Office of Management and Budget) but with CFIUS still chaired by the Treasury Secretary, CFIUS—and the application of ExonFlorio—in effect remained under Treasury control (Ayres and Chubb, 1989). After notification by the foreign investor, CFIUS was given thirty days to decide whether to investigate, and forty-five days to investigate and make its recommendations. The President then had fifteen days to announce his decision. The President was empowered to block a proposed acquisition, or to order divestment of a completed acquisition if there was ‘credible evidence that the foreign interest exercising control might take action that threatened to impair national security’ and if other laws could not be used to protect national security (Herzel and Shepro, 1990). In this the President had broad discretion. He only had to decide that there was ‘credible evidence’ that a foreign acquirer ‘might take action’ that threatened to impair US security, a decision that could not be overturned by the courts (Davidow and Stevens, 1990). In addition, if notice was not filed then the time period did not start running and the government had an unlimited period to block the acquisition if it felt it necessary. Whilst in theory only the Federal agencies represented on CFIUS and the parties involved in a deal could initiate an enquiry, it has been reported that in practice Congress and other competitors have intervened, lobbying agencies for an investigation (Financial Times, 15/9/89). ‘National security’ was broadly perceived by James Florio, cosponsor of the bill; ‘a strong economic base is as essential to national security as are weapons’ (Financial Times, 28/3/88). Similarly, Ayres and Chubb (1989) note that Exon viewed national security as ‘a broad, but not limitless, term’, and that national security concerns could be raised by foreign acquisitions of US high technology firms not related to defence, communications or traditionally sensitive industries such as energy. Herzel and Shepro (1990) note that the law pointed to a number of major factors that were to be taken into account; the level of domestic production needed to support the country’s defence, including human resources, products, technology and materials, and the impact of foreign control on US industry’s ability to satisfy such needs. Many in Congress also viewed national security broadly, including some Republicans. For example, Hamilton, a Republican Representative, related the term not only 132

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to defence industries, but also ‘key domestic high technology industries’ which were ‘technology intensive and technology driven’ (Fischler, 1989). The legislation also raised fears that it would be open to ‘abuse’ by US firms trying to fend off hostile take-overs. Knee (1989) points to the broadness of definitions, including what constituted ‘control’ or ‘national security’ (see also Fischler, 1989), the openness of CFIUS to lobbying, and ‘the incentive for target companies to use political procedures to protect themselves from the workings of the international capital market’. He pointed to Minorco’s hostile bid for Consolidated Gold Fields, arguing that Goldfields managed to ‘embroil’ the US government in its defensive strategy by alleging that the take-over could increase US reliance on strategic minerals from South Africa (Minorco’s largest shareholders were South African). This was seen as an example of the tendency for hostile take-over targets ‘to attempt to use (Exon-Florio) for tactical or “defensive” purposes not related to true national security’ (New York State Bar Report in Knee, 1989). CFIUS reviewed the two separate Minorco bids and allowed them to proceed. Knee’s point, though, is that it was not how many hostile bids triggered a fortyfive-day investigation, but that Exon-Florio could disrupt unwanted bids and could be used as a defensive weapon (Knee, 1989). Fullerton (1991) also notes the ‘potential for fragmentation of policymaking, confusion and abuse in contested cases’. And it is not only hostile bids which have been snared by ExonFlorio. In February 1991, Fanuc, a Japanese toolmaker, withdrew its offer to take a 40 per cent stake in Moore Special Tool Company, citing ‘interminable delays and uncertainties in the Exon-Florio process’ after some members of Congress opposed the bid (Graham and Ebert, 1991). Moore’s management ‘expressed serious regret’ at what happened, and others questioned whether Moore could remain viable without Fanuc. Such effects, working through political criticism of foreign investments, may impact most on Japanese investors, who are very sensitive to how they are perceived in host nations. In another case, two proposed joint ventures between Westinghouse and SEA Brown Boveri, a Swiss/Swedish electrical engineering firm, were delayed initially by a CFIUS inquiry and then by the Justice Department threatening to challenge the deals on anti-trust grounds. Eventually it negotiated a ‘consent decree’ which provided for divestiture of some US operations (Fullerton, 1991). 133


The administration tried to ease fears by pointing to how the law was actually applied. Canner, Chairman of CFIUS, illustrated this; of the one hundred voluntary notifications in nearly a year of operation, all but five were approved in the thirty-day initial period. Of the five that did go to the forty-day investigation, three were approved by CFIUS, one was withdrawn, and only in one case was a negative verdict likely. This was Tokuyama Soda’s proposed acquisition of General Ceramics, which made parts for nuclear warheads. In this case CFIUS made it clear it would oppose the acquisition, the bid was withdrawn and restructured to exclude the area of concern, and was then approved (Financial Times, 15/9/ 89). Despite the broadness of the legislation, it seems clear that the administration’s attitude was that Exon-Florio was initiated, and was to be implemented, only as ‘a last resort for protecting US security interests’ (Davidow and Stevens, 1990). Such an attitude is illustrated by CFIUS’s decisions on Nippon Mining’s acquisition of Gould, and the Texaco-Saudi JV. In the former, interest was raised because Gould manufactured mini-super computers and electronic parts. CFIUS cleared the deal without investigation. Similarly cleared was the proposal by the Saudi government to engage in a 50–50 JV with Texaco. Four prominent Congressmen called for review because of the size of the operation, and because it was a ‘concerted effort to expand foreign dominance over US markets’. Although the venture was to own three large refineries, forty-nine terminals, 1,400 owned or leased service stations and 10,000 franchised stations in twenty-three states, CFIUS cleared the proposal without further investigation. (Given that explicit references to JVs had been removed from the Exon-Florio amendment, it was not clear that they actually came under the scope of the provision—Ayres and Chubb, 1989.) Perhaps more interesting is CFIUS’s decision not to block the acquisition of Monsanto by Heuls AG (German), a subsidiary of the Veba AG group. The proposed acquisition raised fears in the Commerce and Defense Departments, as Monsanto was the only remaining major US producer of silicon wafers (used in the production of computer chips). As Ayres and Chubb (1989) note, it would have been no surprise if the deal was blocked, yet CFIUS decided in January 1989 to allow the deal to go ahead. However, what is significant is that in this case, Heuls reportedly made specific commitments over technology transfer and the operation of US facilities; in a sense similar to the performance requirements 134

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transnationals have had to abide by when locating in some other countries. In particular, it was believed that Heuls gave assurances that ‘critical technical data’ would not be exported and that Sematech (the US semiconductor research consortium) would be guaranteed access to the silicon wafers and technology it needed (Ayres and Chubb, 1989). Exon, whilst unhappy over the acquisition, was gratified that through the Exon-Florio procedure, assurances from a foreign acquirer were given that otherwise may not have been forthcoming (Ayres and Chubb, 1989). Similarly, when Toho Titanium acquired the Titanium Metals Corporation (TIMET), it gave assurances that it would not transfer technology abroad (Spencer, 1991). Graham and Ebert (1991) also state that CFIUS sought confidential assurances when they were felt to be necessary. Similarly, Griner (1991) argues that Exon-Florio ‘has given the US government a level to force acquiring firms into negotiations’. Yet Spencer (1991) reports that since the TIMET case CFIUS adopted guidelines precluding it from gaining such commitments from incoming firms. By March 1990, notifications to CFIUS under Exon-Florio were running at around 350 a year, approximately half of all foreign acquisitions over $1 m. Only seven investigations beyond the initial thirty-day period had been undertaken by CFIUS. Of these, two had been withdrawn, four had been approved by the President and only one was stopped. The latter came in February 1990, when President Bush ordered CATIC (the Chinese National AeroTechnology Import and Export Corporation) to sell the US aircraft components manufacturer Mamco, which it had acquired at the end of 1989. The deal was blocked because Mamco made components for Boeing aircraft and CFIUS was concerned over earlier CATIC attempts to gain military technology. CATIC was given three months to dispose of Mamco. The administration stressed that this did not represent a change in US policy, and did not set a precedent on inward investment from China or elsewhere (Financial Times, 3/2/90). Whilst Exon, co-sponsor of the original proposal, hoped that the action ‘would send a very clear signal to all foreign buyers that the Exon-Florio is meaningful’ (Financial Times, 6/2/90), others such as the Economic Strategy Institute (Spencer, 1991) were dismissive: ‘many believe that the CATIC refusal was politically motivated and thus an easy way for the White House to quiet criticism that CFIUS has no teeth’. Whilst the business lobby was pressing for clarification of Exon135


Florio on what constituted ‘national security’ and ‘control’, on the status of foreign lenders, on the need for a ‘fast track’ procedure and on limiting provisions removing the threat of Presidential action against investors not notifying (see Financial Times, 20/3/90), others pressed for more legislation. The Bryant Amendment, dropped from the 1988 Trade Bill, was reintroduced in 1989, aiming to increase disclosure of foreign investment in the US. It was twice passed ‘overwhelmingly’ in the House, but was rejected by the Senate (Richardson and Larschan, 1991). It came in for much administration opposition. Seven cabinet level officials, including Secretary of State Baker and Treasury Secretary Brady, signed a letter stating that if the bill was passed, they would recommend a Presidential veto. Whilst the bill was unsuccessful, it illustrated the rising level of political concern about the scale of inward investment (Financial Times, 17/ 3/89). An identical bill was introduced in the Senate by Harkin, and a watered-down version by Murkowski. Nine states (California, Florida, Hawaii, Illinois, Indiana, Maine, Massachusetts, Oregon and Texas) introduced ‘baby Bryant’ bills; two had become law by the time Knee was writing in 1989. Furthermore, the Sharp Bill in March 1989 toned down Bryant’s amendments. It did not call for more data collection, but sought to allow CFIUS and the General Accounting Office access to detailed, individual firm data, with information shared between Commerce, the Bureau of Economic Affairs and the Census to allow a more complete picture of inward investment to emerge (Financial Times, 19/3/90). This would go some way to address the US Committee on Government Operations’ (1980) criticisms of data handling. At this time a degree of momentum had developed over foreign investment, with four themes ensuring that it continued to arouse interest and debate. These included: foreign investment and national security; foreign influence in the political process; taxation of foreign-owned firms; and prohibitions on foreign access to certain sectors (Richardson and Larschan, 1991). Congress became more concerned in particular over foreign acquisitions of high technology US firms, and through 1990 there was growing pressure on the Bush administration to intervene more actively and to prevent foreign acquisitions in the high technology sector. The Financial Times noted in May 1990 a ‘growing consensus that government scrutiny of foreign acquisitions should be intensified’ (Financial Times, 10/5/90). Congress was not only concerned with data collection, but also the monitoring of acquisitions by foreign transnational, their political activities and 136

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their tax payments. One sign of the increasing hostility came in June 1990, when the House of Representatives voted to exclude JVs with 30 per cent or more foreign participation from new antitrust immunities (Financial Times, 6/6/90). In addition, individual states were moving to make hostile take-overs more difficult. Although such measures did not apply specifically to foreign transnationals, they would have the effect of making acquisitions potentially more difficult (Financial Times, 5/7/90; see Levey 1989 on state anti-take-over measures). At this time it seems that a split in the administration had emerged on screening foreign acquisitions of US firms. The Treasury stuck to its traditional open-door policy, with limited exceptions solely on national security grounds, whilst the Commerce and Defense Departments were reportedly in favour of tighter controls (Financial Times, 22/6/90). Goldstein and Fishman (1988) also note that Commerce seemed ‘amenable’ to some suggestions that there could be screening of inward investments in ‘sensitive’ industries, in contrast to the Treasury line (see also Knee, 1989). Calls for tighter controls were reinforced by a number of proposed foreign acquisitions. The BTR bid for Norton and the Nippon bid for Semi Gas Systems were both surrounded in controversy. BTR’s hostile $1.64 bn bid for Norton attracted criticism at both the State and Federal level. There was alarm in Massachusetts that BTR might move Norton’s headquarters out of the town of Worcester, as it had done when it acquired Worcester Controls in 1986 and moved its headquarters to Mississippi. There was also a fear that in an attempt to reduce labour costs, BTR might close Norton’s Worcester plant, as again happened after a BTR acquisition in Chicago. Norton had always been under local control and was closely linked with the local community, being the city’s largest employer, a sizeable contributor to local charities, a sponsor of schools and arts programmes and so on (Financial Times, 22/3/ 90). This led to the Massachusetts Parliament rushing through legislation specifically aimed at stopping the BTR bid by restricting the number of Norton boardroom seats that could be contested at its annual meeting. The Massachusetts delegation and a hundred other Congressmen also pressed Bush to investigate on national security grounds. Norton eventually agreed to a $2.6 bn counter bid from the French-based firm Saint Gobain (Financial Times, 16/ 5/90). CFIUS approval of Nippon Sanso’s acquisition of Semi Gas Systems 137


stimulated further Congressional calls for tighter regulations.3 The proposed acquisition was in a sensitive high technology sector: Semi Gas produced gas delivery and purification systems used in the production of semiconductors. House Majority Leader Gephardt and three other Members urged Bush to block the acquisition of this ‘irreplaceable and critical US company’ (Fullerton, 1991). Al Gore, then Chairman of the Commerce Subcommittee, also criticised CFIUS for not having undertaken any technical analysis of the sale’s impact, or of assessing the cumulative effect of such sales on the US industrial base. In response, John Niehuss, Senior Deputy Assistant Treasury Secretary, argued that Exon-Florio was solely concerned with national security and was not ‘intended to be used as an instrument of industrial policy’. This prompted Peter Mills, Chief Administrative Officer of Sematech, to argue that CFIUS procedures were inadequate and its definition of national security was too narrow. Gore was considering introducing legislation in the Senate similar to that in the House which would force CFIUS to broaden its criteria to consider the effects on the US industrial and technical base (Financial Times, 11/10/90). In addition, it seems that despite the administration’s line, there was at least some concern within the government that Exon-Florio should be broadened. The Defense Science Board and the General Accounting Office are both known to have been critical of the narrow scope of Exon-Florio (Knee, 1989; Spencer, 1991). The Defense Science Board (1990) argued that CFIUS failed to monitor investments adequately, being ‘undermined by a lack of co-ordinated data on even strategic industry potential and by a predisposition… to favor foreign investment’ (quoted in Spencer, 1991). It concluded that CFIUS failed to take a long-term perspective in looking at foreign ownership and control, even though it was empowered to do so if it so desired, and concentrated on whether a US firm being acquired had defence contracts. The Defense Science Task Force on Foreign Ownership and Control of US Industry came out strongly in favour of performance requirements when key US firms were acquired and noted how prevalent these were abroad (ibid.). Spencer (1991) also notes that D.Allan Bromley, Assistant to the President for Science and Technology, warned that a ‘coherent purchasing program’ from abroad could ‘nibble away’ at US control of strategic industries. The opportunity for Democrats to strengthen CFIUS powers came in October 1990 when Exon-Florio lapsed. CFIUS continued to 138

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receive voluntary notifications of acquisitions, but its formal powers under Exon-Florio expired until it was made permanent in August 1991. Democrats in Congress tried to extend the scope of ExonFlorio to take into account industrial policy considerations (Financial Times, 7/11/90). For example, the Technology Preservation Bill was introduced in the House of Representatives in June 1991 by Cardiss Collins and supported by House Majority Leader Richard Gephardt.4 This bill sought to: (i) redesignate CFIUS by including parties more interested in inward investment; (ii) establish a review and investigation process in which Congress could actively participate; (iii) change the evidence standards, to give greater power to the President to reach subjective decisions, and to shift the burden of proof to the investor; (iv) end Treasury dominance of CFIUS by shifting power to Defense and Commerce and allowing an input from any agency; (v) necessitate CFIUS investigations of all bids involving ‘critical’ technology, as established by the departments of Commerce and Defense; and (vi) seek published performance requirements when such ‘critical’ technology is involved (Graham and Ebert, 1991; Bureau of National Affairs, 1992d). The Energy and Commerce Committee approved this revision to Exon-Florio. It would have required notifications of acquisitions of as little as 25 per cent of shares in firms in some defence-related sectors (Financial Times, 12/12/91). Various other proposals sought to move the chairmanship of CFIUS to the Commerce Department, and to link ‘national security’ with ‘economic security’. Not surprisingly, the Treasury was hostile to such proposals. Furthermore it was not only Democrats who were concerned. For example, Mel Levine (Democrat, California) and Frank Wold (Republican, Virginia) were worried over foreign acquisitions of US high-technology firms. Their bill sought to expand the definition of ‘national security’ to include wider economic issues. It required new factors—such as die concentration of foreign direct investment in the industry in question, the effect on ‘critical’ technologies, and whether the target-firm had received US government funds—to be considered by the administration before approving acquisitions. They also sought to transfer control of CFIUS to the Commerce Department, arguing the Treasury had a conflict of interests in its dual functions of encouraging foreign acquisitions of Treasury bills and screening acquisitions that might affect national security (Financial Times, 14/5/91 and 31/5/91). In the case of the Technology Preservation Bill, the Treasury 139


threatened a veto (see Barreda, 1991). In opposing the bill before a House Subcommittee, Deputy Assistant Secretary of the Treasury Barreda argued that CFIUS already had an efficient review process for investments affecting national security, and that further action was not needed as foreign investment was not ‘bleeding’ the US technological base. He believed that the US actually obtained more technology than it contributed through inward investment. In addition, he argued that the bill would mark a distinct shift in policy and would compromise the policy of welcoming inward investment; it would discourage inward investment and would harm the US economy; it would have a negative effect on US efforts to press for more liberal policies abroad; it would mandate ‘truly extensive government interference’ in the market; it would force federal agencies to disclose confidential company data to the review body, threatening the integrity of the statistical system; and could bring retaliatory action from abroad (ibid.). In particular, he stressed the Treasury line that other countries’ attempts at such policies had failed; ‘attempts of other countries which have actively employed interventionist policies in investment have demonstrated the folly of those policies. We should learn from these experiences, not repeat their mistakes’. In contrast, a report from the Economic Strategy Institute released by Congressmen Levine and Wolf heavily criticised CFIUS in its application of Exon-Florio, arguing that ‘the intent of Congress is not being carried out’ (see Spencer, 1991). This was the first comprehensive, independent review of foreign acquisitions of US high-technology firms since Exon-Florio was initiated. It noted that forty-five US semiconductor firms and thirty-five US semiconductor equipment firms had been sold to foreign buyers, which now dominated these sectors. Similar inroads were being made in the advanced materials industry and in computers. CFIUS had ‘an astonishingly passive record’ the report concluded. It had only reviewed twelve cases out of 540 notifications (by November 1991 the Treasury put this at thirteen out of 638 notifications). In many cases involving high technology investments, there was no evidence that CFIUS was aware of many of them. Even when it was aware, it neglected to investigate. CFIUS’s failure to even look into the Komatsu acquisition of UCC&P, the only US producer of ultrahigh-purity polysilicon, raised particular concerns. CFIUS had defined its scope extremely narrowly, looking solely at military aspects, and in 1990 narrowed it even further by looking only at majority investments (Spencer, 1991). 140

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CFIUS failed, it argued, because notifications are voluntary, so no one knew how many go unnoticed, and because CFIUS does not specify the criteria used in deciding whether to investigate (as had been noted by the Committee on Government Operations in 1980). The report argued that the ineffectiveness of CFIUS was in part due to limitations in the Exon-Florio legislation, but ‘stems largely from a lack of political will’. To bring CFIUS’s work ‘more in line with Congressional intent and with world foreign investment policy’, it recommended a number of policy changes: transferring CFIUS to the Commerce Department; including parties on CFIUS with more active concerns on this issue, such as the National Science Advisor; giving CFIUS the power to suspend deals whilst it investigated; imposing performance requirements on incoming firms if they wish to acquire ‘sensitive’ US firms; and exploring a ‘US ownership solution’ in the case of ‘worrisome’ inward investments. The latter had a precedent, the US government intervening when Nikon announced its intention to acquire Perkin-Elmer, a semiconductor manufacturer. Government talks with US businesses resulted in a consortium between IBM and other US firms taking over Perkin; ‘thus a key US corporation received the new funds it needed to keep its products competitive and the firm in American hands’ (Spencer, 1991). Not surprisingly, the Treasury rejected these criticisms. For example, it argued that CFIUS did review minority investments, and it protected national security as the legislation had intended. It also rejected the use of performance requirements as ‘unnecessary interference by the government’, and repeated the position that such action would deter investment in the US (US Department of the Treasury, 1991a). None of this is to deny that, as in other countries, some inward investments remain welcome to at least the vast majority; greenfield investments bringing new jobs, or acquisitions rescuing US firms that are likely to fail otherwise (The Economist, 10/8/91). However, it is perhaps significant that, at the time the Technology Preservation Bill was one of twenty-four in Congress attempting to restrict the ability of foreign-based transnational to carry out their activities in the US. Although most of these stood little chance of success, together they indicated an ‘emerging consensus’ in Congress that it was legitimate to distinguish between US and foreign firms (The Economist, 10/8/91). Although less intense, Congressional activity to tighten controls over incoming transnational continued during 141


1992. For example, a bill introduced by Steve Gunderson aimed to protect US industry from foreign control that led to ‘downsizing and asset sales’, and sought more stringent reporting requirements and prohibitions on asset sales (Bureau of National Affairs, 1992b). Furthermore, the political activities of foreign-owned firms have also come under scrutiny. Although the Federal Election Commission stopped short of banning foreign-owned firms from running Political Action Committees, which lobby and make political donations (Financial Times, 18/6/91), this is another indication of rising sensitivity to the activities of foreign-based transnational. In December 1991 the Treasury issued its final regulations regarding the implementation of Exon-Florio (see Financial Times, 12/12/91). These clarify its application in a number of areas including bank lending, and the nature of ‘control’, and made it clear that the review process cannot be used to give a target firm time to defend hostile bids (but note Knee’s concerns above). Most controversy, though, centred on Presidential powers over firms that do not submit notifications. This delayed the publication of the regulations and eventually a compromise was adopted, with government agencies limited to a period of three years after the investment takes place to instigate a review. Despite these ‘final’ Exon-Florio provisions, and President Bush’s restating of the government’s open policy towards inward investment in December 1991 (the first US policy statement on the issue since 1983) (Bureau of National Affairs, 1992a), the inward investment issue has remained highly topical. For example, Taiwan Aerospace’s proposed acquisition of a 40 per cent stake in McDonnel-Douglas again raised concerns over foreign ownership in high-technology sectors, particularly in aerospace, where many feel the US still has a competitive edge (Bureau of National Affairs, 1992c). Again there were calls for a CFIUS investigation over possible job losses and technology ‘leakage’. More recently, the failed attempt by Thomson-CSF (60 per cent owned by the French government) to acquire the missile division of LTV Corporation inspired Congress to tighten Exon-Florio. During the final days of the Bush Presidency, in September 1992, a Senate-House of Representatives conference committee reached a compromise agreement (US Information Service, 1992). This would prohibit foreign-owned or controlled firms from acquiring any US firms which supplied over $500 m in goods to the US military (this covered thirty-six firms in 1991), as well as those 142

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engaged in secret development programmes. It would also mandate a forty-five-day investigation of any proposed acquisition of a US firm by a foreign-government-owned firm that might affect ‘national security’. It also called for full Presidential reports to Congress on decisions reached under Exon-Florio, and for CFIUS to report annually to Congress on foreign acquisitions of US hightechnology firms (ibid.). It was not clear, though, whether Bush would have ever signed such legislation (ibid.), nor whether the new President would. However, in out-lining his international economic programme in March 1993, Clinton stressed that whilst foreign firms remain welcome in the US, he will insist that they ‘pay the same taxes on the same income that our companies do for doing the same business’ (US Information Service, 1993). Although it is not yet clear how tax rules for foreign transnationals will be tightened, in doing this Clinton may deflect calls for more general, tighter restrictions on inward investment. CONCLUSION As inward investment flows into the US have risen over the last twenty years, concern over transnationals has shifted from the activities of US-based firms, in particular the impact of outward investment and technology flows on the domestic economy, to those of foreign-based firms, in particular the effects of acquisitions. Whilst the administration has steadfastly opposed limits on the free flow of international investment—with limited exceptions on national security grounds—it has reluctantly agreed to a number of measures relating to inward investment to quell concern that government provisions were inadequate. These included information gathering measures, the creation of CFIUS, and most recently Exon-Florio. Nevertheless, both CFIUS and Exon-Florio have failed to satisfy many in Congress and outside that enough was being done. The policy debate seems to go in cycles: Congressional and public concern mounts, the administration reluctantly agrees to a limited measure to thwart more ambitious proposals, and then implements it in such a narrow manner, with support from the Treasury in particular, that concern soon mounts again that it was inadequate. This has happened with both CFIUS and Exon-Florio. This could suggest that it will be difficult for those pressing for a broader Exon-Florio to be successful; they will need to break out of the 143


cycle. However, with concern over the size of inward investment still prominent, especially over acquisitions by foreign transnationals in sensitive areas such as high-technology sectors, and the advent of a Democratic administration, this may be the best opportunity yet for those pressing for broader powers to control inward investment. NOTES 1 The following review concentrates on national policy, and so ignores some interesting developments at the state level. Whilst generous aid packages are being offered by states to transnationals locating there, several states have also tried to fend off unwanted foreign take-overs. For example, die Wisconsin legislature tried to stop Alan Bond from acquiring G.Heilman Brewing, the Ohio legislature passed a law thwarting Campeau (Canadian) from acquiring Federated Department Stores, and the Kentucky legislature attempted to halt Belzberg (Canadian) from taking over Ashland Oil. In at least one case, Ohio, the hastily-passed legislation was later deemed unconstitutional (Fry, 1989). See Safarian (1993) for more detail on state restrictions on inward investment. 2 The Reagan administration also introduced legislation to repeal state laws which taxed transnationals on their world-wide profits (‘unitary taxes’), after protests over the taxes from transnationals and the British government (Mokhiber, 1986). 3 The deal was allegedly blocked on competition grounds by the Justice Department in January 1991 (Financial Times, 2/1/91). One may question whether the Justice Department was really acting on competition grounds, however. Semi Gas has 38 per cent of the US market, and Nippon Sanso approximately 3 per cent—would a 3 per cent increase in market share ‘substantially lessen competition’ as the Justice Department concluded? (Financial Times, 2/1/91). The Justice Department announcement came after additional lobbying by Sematech, two days of Congressional hearings and a letter from Senators Bingaman and Bentsen to James Rill, the Assistant Attorney General (Fullerton, 1991). In March 1991, however, a District Court Judge decided that the government had failed to prove that die acquisition was anticompetitive and refused an injunction (ibid.). 4 102nd Congress 1st Session. HR 2624. To amend Section 721 of the Defense Production Act of 1950 to clarify and strengthen its provisions pertaining to national security take-overs.

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INTRODUCTION British policy towards transnational since the mid-1950s has been unique amongst the countries studied in this volume. It has combined a warm, welcoming attitude towards inward investment and support for outward investment along with a lack of information over the activities and impact of transnational, whether foreign or British based. The contrasts with the countries at the other end of the policy ‘spectrum’—Japan and France—are obvious, but contrasts with the other so-called liberal countries—Germany and the United States—should also be highlighted. Both of the latter have taken the issues that they perceive as important more seriously than has Britain. More specifically, whether one considers the informal notification system with the banks and the role of the Cartel Office in Germany, or the information gathering measures in the United States, both of these countries have been more actively concerned than Britain with information on transnationals’ activities and impact. Successive British governments since the mid-1950s have essentially assumed that inward and outward investment is beneficial and that therefore they should warmly welcome transnationals and give them a free rein. Yet this position has not been based on a sound footing as there has been little attention given to the collection of information. Indeed it can be argued that this inactivity has rendered attitudes and beliefs self-fulfilling: inward and outward investment has been seen as beneficial; these have thus been given little critical attention and little information has been gathered; hence any negative aspects have not been identified; therefore they have been beneficial. Such inactivity is perhaps most apparent in 149


the cases where the British government is said to have actually intervened. For example, the Chrysler take-over of Rootes in 1967 is often cited as an illustration of where conditions were set by the government for an incoming transnational (for instance, Wallace, 1982). Yet this is the exception rather than the rule; it is one of the few cases where conditions were sought. Furthermore, the government had no power to enforce the conditions, or even to follow up to check that they had been fulfilled. In fact, it has been suggested by some that the conditions were merely a ‘political escape-valve’ enabling the government to reduce the possibility of criticism for allowing foreign take-overs of British firms (Hodges, 1974). More generally it has been argued that through the (now repealed) 1947 Exchange Control Act, the government has been able to screen and control inward investment. It has also been argued that governments have in fact taken a firm line (see, for example, Government of Canada, 1976). In contrast we see little evidence to support this view. To the extent that governments have been concerned over inward investment, they have been primarily interested in the balance of payments effects. Even on this issue, however, rejections of investments have been very small in number, perhaps even non-existent (Gillespie, 1972). It seems that the 1947 Act represented little in terms of a barrier to firms (Hodges, 1974). Virtually the most that can be said is that since the mid-1950s there have been a few cases where undertakings have been sought by the government and that a very small number of investments have been blocked through the 1947 Act or by the Monopolies and Mergers Commission (MMC). However, no follow-ups were ever made to ensure fulfilment of undertakings. Furthermore, where the MMC has blocked investments, cases have been isolated and lacking in any ‘uniting theme’ (Hood and Young, 1981). One view is that it is extremely unlikely that the balance of payments was a determinant of the liberal policy, but rather served to ‘rationalize’ the approach (Gillespie, 1972). Rather, the stock of outward British foreign direct investment is felt to have been too large for Britain to adopt an overtly restrictive policy at home (ibid.). There has been a fear that outward investments might have been subjected to retaliatory measures. Another fear seen as explaining Britain’s approach focuses on deterring investment in Britain (Sugden, 1990); transnational must be warmly welcomed and given a free rein otherwise they will take their investment elsewhere. 150

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Specific instances where these fears have arisen will be highlighted in our chronological account of British policy (in section 2). Another point that will he highlighted is the continuity of policy, one of the key features of Britain’s approach. The advent of a Labour or Conservative government has made little difference to Britain’s easy-going stance. Although the Labour Party has been relatively critical of the liberal policy in opposition, the formation of Labour governments has not caused genuine policy changes. Whilst this has caused some anxiety on the left of the party, and amongst some trade unionists, there has been a notable lack of debate, again in contrast with the United States. A HISTORY OF BRITAIN’S APPROACH Policy before 1964 Much of the official thinking underlying transnationals policy before 1964 (and indeed thereafter) was spelt out in 1929 (Jones, 1990). The occasion was prompted by the initiative of Montague Norman, Governor of the Bank of England, after complaints from the Federal Reserve Bank of New York about discrimination against US shareholders (ibid.). Three points explicitly emerged in 1929. Firstly, whilst there was some fear that industries dominated by US firms might locate all of their R&D in the US, the growth of inward investment was seen as beneficial. Secondly, any restrictions on inward investors were felt to be too risky, because of the size of Britain’s outward stock. Thirdly, concern was expressed that ‘key or strategic industries’ should not fall under foreign control. ‘Key’ or ‘strategic’ was not defined then or thereafter, but Jones (1990) argues that it really related to finance and defence industries. Turning more obviously to the post-war era, it saw two pieces of legislation giving a potential for control over inward and outward investments. The first was the Exchange Control Act in 1947, the second the 1948 Act establishing the Monopolies Commission, which had powers to prevent anti-competitive practices. Whilst the latter’s successor, the Monopolies and Mergers Commission, did block a few inward investments in the 1970s and 1980s, there is little evidence of any action before the late 1960s (Jones, 1990). The 1947 Act was introduced by the Labour government in an attempt to control the effects of external monetary shocks, and reflected a need for ‘crisis management rather than any long-term 151


planning objectives’ (Hodges, 1974). It put the Treasury ‘firmly in the driving seat as far as control of outward investment was concerned’ and had the intention of discouraging investment outside the Sterling Area, with the assumption that sterling invested elsewhere was a net loss to Britain (Stopford and Turner, 1985). However, Stopford and Turner (1985) observe that even under its strictest rules, the Act rarely stopped British transnationals doing whatever they wished, and there were very few proposals turned down by the Treasury. According to Safarian (1993), the Bank of England usually required that two-thirds of net earnings each year be repatriated. He also notes that outward investments were not monitored except for exchange control reasons, and that the government asked British firms planning large outward investments whether they had considered alternatives (ibid.). On the inward side, the Act was wide-ranging, in effect being a blanket ban on almost any financial transaction involving nonresidents or the import of capital for greenfield investments or acquisitions, unless Treasury permission was given (Hodges, 1974). One potentially important loophole was if control of a firm was gained through dealings in the ordinary course of business on the Stock Exchange (Hodges, 1974). Whilst a Board of Trade report stated that this was ‘unlikely to present a serious loophole’, it was actually used as we shall see. The Act was the only piece of legislation at this time specifically directed at foreign investors, either in terms of establishment or subsequent financing of investments. Despite the broadness of the legislation, the Treasury was preoccupied with sterling and the balance of payments, and until 1967 the overriding criterion used in looking at applications was the effect on foreign exchange reserves (Hodges, 1974). The aim here was to try to ensure that the foreign exchange reserves benefited as ‘compensation for the loss of economic control which results from a foreign investment’ (ibid.). The foreign currency inflow resulting from inward investments had to be proportionate to the ‘degree of control’1 by the foreign firm. Thus a 100 per cent controlled subsidiary’s fixed assets had to be 100 per cent financed by the parent through external sources (Hodges, 1974; Steuer et al., 1973). Exceptions were made when possible advantages, such as the setting up of plants in areas of high unemployment, were perceived. Hodges’s (1974) view was that the conditions presented few, if any, obstacles to most investors, and in cases where financial 152

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arrangements did not seem acceptable the Treasury and the Bank of England did ‘their utmost’ to suggest alternative arrangements. Other aspects of investments were considered at this time, but only very briefly. Jones (1990) refers to vague and relatively unimportant ‘industrial efficiency criteria’ which varied between government departments and over time. As can be argued when assessing Japanese and French policy, vagueness may reflect a deliberate attempt to retain policy flexibility and thus may be considered a positive attribute. In having a vague policy as a result of unclear criteria, Britain might have given the appearance of welcoming inward investments, whilst at the same time being able informally to reject or change proposed investments. However, as Jones (1990) notes, the vagueness might in fact have been due to a ‘sheer inability’ to decide on what key or strategic actually meant. We suggest this is the more likely case. Such a view would tie in with the ‘lethargy or perhaps ignorance’ behind the government’s unwillingness both to adopt positive measures to attract inward investment, or even to collect basic information on it (Jones, 1990). A 1949 Treasury memo noted that the ‘right type’ of investments were those which provided otherwise unavailable foreign knowhow and techniques, or those which brought ‘a desirable element of competition into a monopolistic or sleepy industry’, whilst investments should be discouraged if they involved restrictive or cartel arrangements or led to foreign control over strategicallyimportant industries (Jones, 1990). The primary concern was the balance of payments, though. This was evident in the take-over battle for British Aluminium, the largest British aluminium firm, during 1958–9. Two bids for the firm would have brought it under US control, but according to Hodges (1974), the Treasury took a neutral stance, leaving it to the shareholders to decide and without any government evaluation of the national interest. Policy was liberal, it is generally agreed. According to Graham (1982) the atmosphere was ‘open and relaxed… foreign investment was welcome’. He found very few rejections, if any at all. As noted elsewhere in this volume, however, simply looking at the number of rejections ignores proposed investments which might have been discouraged before formal applications were made. Prior to the 1970s, the number of such cases may be significant. For example, Hodges (1974) notes that what tended to happen was that foreign firms contemplating investing in Britain would first contact a British bank. The bank would know of the prevailing criteria through 153


contacts with the Bank of England and the Treasury. A financial plan would be worked out and the bank would apply on behalf of the client firm to the Bank of England for exemption from the exchange controls. In effect there was pre-screening selection, for if an appropriate financial arrangement could not be sorted out, the proposal was normally dropped before a formal application was made. This would help to explain the very low rejection rate reported by some. Hodges, writing in 1974, could find only five rejections since 1945. Such figures are disputed by Jones (1990). He reports significantly higher rejection rates, indicating that a more stringent policy was actually in operation in the first post-war decade. Acknowledging the paucity of information on applications, Jones states that there were a significant number of rejections in these early years. The Board of Trade approved thirty-one applications and rejected fourteen in 1949, and between January and September 1954 accepted sixty-five and rejected nine (ibid.). Insufficient assurances on exports, doubts over the value of technological transfer, concern over the level of local funding, and the presence of numerous British firms in one sector were some of the factors involved in different rejections. Thus there is some evidence to suggest a stricter policy stance up to the mid-1950s than has generally been portrayed in the literature. An arguably significant aspect of policy at this time was the negotiations between incoming firms and the government, with government departments bargaining in order to encourage firms to adjust proposed investments to make them more desirable (Jones, 1990). However, changes made were normally slight in nature. If there was any risk of investments being lost, the government gave in (ibid.). Thus in 1947 the government retreated when the AngloAmerican Oil Company made it clear it was only willing to site a new refinery at Fawley and not at the government’s preferred locations (ibid.). The government was not concerned about ownership. Once established in Britain, foreign firms received equal treatment. A good illustration is the car industry. Here the government was keen to avoid any accusation of bias against US firms, especially in allocating scarce raw materials, in contrast with policy in Germany and France (Reich, 1989). After an ‘unfounded and unsubstantiated accusation’ of bias towards Austin in allocating sheet steel, the government increased resources allocated to Ford and Vauxhall, 154

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reducing British firms’ allocations, even though the original calculations had accurately followed the relevant criteria (Reich, 1989). Ford was looked on by officials as ‘old faithful’ for its export performance (ibid.). There were a few, isolated cases of protection. The banking sector was protected from foreign control (Jones, 1990). Similarly Burmah Oil, which had a large stake in BP, was felt to be too important to come under foreign control, and the Governor of the Bank of England indicated that he would oppose any large US shareholdings in the firm (Jones, 1990). Going into the 1950s policy was apparently eased in a number of ways. For example, in 1950 investors were allowed to repatriate funds from investments and proceeds from the sale of investments (Jones, 1990). Furthermore, in 1954 it was decided that inward investors would no longer have to demonstrate that the investment was advantageous, rather proposals would be approved unless it could be shown that they were ‘positively disadvantageous’ (Jones, 1990). Moreover, from 1956 a new approach emerged, with the government reportedly seeking undertakings (or ‘assurances’) on three investments. The first came in 1956 when Texas Oil acquired Trinidad Oil, the second in 1960 when Ford bought out the minority British shareholders in Ford of Britain, and the third when Chrysler took a minority shareholding in Rootes in 1964 (although there is some disagreement on this as Gillespie states that they were approved ‘unconditionally’) (The Times, 2/8/56; Gillespie, 1972; Hodges, 1974). However, the Conservative governments of the time adopted a very liberal approach to the large inflows of inward investment (Safarian, 1993) and the general nature of these undertakings reflected that. The opposition Labour Party was critical of the government’s approach. For example, James Callaghan, then Shadow Chancellor, was particularly critical of policy towards the car industry, asking in the House of Commons ‘what is the policy of the Government to ensure that the future of the motor car industry in this country is dictated by our national interests and not by the interests of those overseas?’ (Hodges, 1974). Despite this, when a new Labour government was formed in 1964, its policies were not significantly different from its Conservative predecessor. Policy under the Labour governments of 1964–70 Given that the incoming administration advocated much more intervention in the economy than had previously been the case, it 155


might have been anticipated that the government would clash with foreign or British-based transnationals. On outward investment, policy did tighten somewhat during the mid-1960s, with restrictions in 1965 on investment outside the Sterling Area, and voluntary restrictions in 1966 on investment in non-developing countries within the Sterling Area (Hodges, 1974). However, these were purely for balance of payments reasons and not because of any concern over the impact of outward investment more generally. As for inward investment, the government’s attitude remained favourable. As Hodges (1974) notes, foreign firms tended to conform to Labour’s objectives as laid down in its election manifesto, often having higher productivity and better export performance than British-owned firms, and were perceived to bring technological and managerial expertise. On acquisitions by foreign firms, policy was little changed, as the government was still constrained by immediate balance of payments problems, fear that a tougher stance might push investments to other European countries, and fear that retaliatory, restrictive measures against British investments might be enacted abroad (Gillespie, 1972). Furthermore, if there were drawbacks to inward investment ‘they were not readily apparent’ to the government (Hodges, 1974). There existed no machinery for scrutinising transnationals’ activities, and ‘in most areas there was inadequate information on which to base a coordinated policy’ (ibid.). Given that previously transnationals’ activities had not been seen as especially important, it is no surprise that responsibility for overseeing and controlling them was diffused throughout the government. This caused information problems because there was a lack of co-ordination and communication between the government departments involved. In addition there was a positive attitude towards such firms amongst civil servants and a general paucity of information on transnationals anyway (ibid.). This incoherent, inadequate approach was soon illustrated when Chrysler attempted to take over the ailing British car manufacturer Rootes in 1967. Although critical of the previous Conservative government’s attitude towards Chrysler’s initial investment in 1964, the Labour government allowed the take-over, again subject to certain undertakings. Alternative options, such as blocking the takeover, nationalising the firm, or detaching it from Chrysler and forming a partnership with the British-owned car sector were all seen as infeasible (The Times, 18/1/67, 1). The undertakings included 156

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confirmation of expansion plans for various factories, the maintenance of a majority of British directors on the Rootes Board, a progressive increase in exports with the goal of an export performance at least as good as the British car industry as a whole, and a right for the newly-formed Industrial Reorganisation Corporation (IRC) to nominate a director on the board (The Times, 18/1/67, 10). The terms of the deal were seen by the press as making ‘the best of a bad job’, with the undertakings highlighted as safeguarding British interests (The Times, 18/1/67, 13). However, despite the undertakings being much more specific than those sought by previous administrations, no attempt was made by the Treasury or the Ministry of Technology (Mintech) to ensure that the undertakings were met (Hodges, 1974). According to Hodges (1974) this was because the Treasury felt that all that was required to live up to the undertakings was ‘tolerably good behaviour on the industrial scene’ and that the ‘good faith’ and ‘social responsibility’ of the firm concerned was enough. It appears that no information was collected. The government did not know whether undertakings were met, and anyway there were no enforcement provisions. Government powers had little or no force because there was no sanction for breach. It could be argued that the government was trying to control foreign transnational (a view taken by Wallace, 1982) but that the legislation had a gross omission: the absence of enforcement provisions. However, the absence of such powers is such an obvious fault that it raises serious doubts over what the government was really trying to do. Hodges (1974) claims that officials from the Treasury and Mintech have suggested that one reason for the undertakings was that they acted as a ‘political escape-valve’, enabling the government to avoid criticism of allowing British firms to be taken over from abroad. If this was the case, it explains why there was no follow-up; the undertakings were merely a public relations exercise which did not require further action. This interpretation is reinforced by the 1967 Philips take-over of Pye and the Litton Industries take-over of Imperial Typewriters. Again undertakings were given, although they were not made public in the latter case. Philips undertook that it would maintain a majority of British directors on the Pye Board, that any reorganisation would not reduce exports, and that contracts on technical information and patent licences would be ‘fair and reasonable commercially’ 157


(Hodges, 1974). Crucially, however, there was again no follow-up. In short, the undertakings approach was ‘completely ineffective’ (Jones, 1990). In fact, on the Philips take-over the government had no power to act, for Philips exploited the loophole in the 1947 Act by acquiring Pye through the ‘ordinary course of business’ on the Stock Exchange. Some departments, however, seemed more predisposed to act over inward investment than others. In 1969 an attempted takeover of Pollard Ball Bearings by the Swedish firm SKF was dropped after objections from the Industrial Reorganisation Corporation (IRC) and the Ministry of Technology (Mintech), although Hodges (1974) notes that the Treasury would probably have approved it on financial grounds. Eventually the IRC intervened to promote a merger of British ball-bearing firms, in part to preserve domestic ownership (The Economist, 24/5/69), although why the domestic sector should be preserved in this case was not actually discussed (Jones, 1990). Policy did not seem well thought out at all. Similarly, Mintech and the IRC tried to create ‘national champions’ in the computing and car sectors, with the aim of creating a British ‘countervailing force’ capable of competing with US transnationals. This led to the creation of both British Leyland and ICL in 1968. Mintech was also active in pressing the Treasury to broaden its criteria for assessing inward investments under the Exchange Control Act. As a result, a ‘general desirability’ criterion was added to the concern over the balance of payments in 1967. Whilst the terms of the new criterion remained confidential, Hellman (1970) notes that a ‘tightened examination procedure’ was introduced for investments which: (i) led to an important sector being dominated by one or more foreign firms; (ii) can do damage to the development of British technology; or (iii) frustrate ‘an officially sponsored scheme for rationalising an important sector’. However, vagueness remained the order of the day. Hodges (1974) notes that terms such as ‘important sector’ or ‘damage’ were not defined, and one Mintech official stated that ‘it is hard to define an elephant, but I know one when I see it’. Too much should not be read into this new criterion, however. Even with it in place, policy remained open, as various commentators agree. Mintech had very limited influence on the deliberations of the Foreign Exchange Committee, where government decisions about potential investments were formally reached. There was a ‘considerable bias’ as the Bank of England prepared the briefs for the Committee to consider, and was 158

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concerned only about any financial implications of investments (Hodges, 1974). Hodges (1974) found no evidence that the new criterion was used to prevent inward investments. He argues that the speed of the procedures, the reluctance to impose conditions or intervene after investments had occurred, and the confidential nature of the criterion ‘all indicate the desire of the Government to encourage inward investment’. Similarly, Steuer et al. (1973), when writing about this period, concluded: ‘in no case of any importance, where the applicant has been prepared to meet the conditions of finance, has permission for any genuine manufacturing or service investment been refused, and in general refusals of permission have been extremely rare’. Even Mintech, perhaps the most active of the ministries in looking at inward investment, felt that undertakings were not particularly useful. Tony Benn, then Minister of Technology, felt that followups on undertakings were not a good idea as they were too static or rigid, but rather preferred ‘keeping in touch’ with incoming transnational (Hodges, 1974). From 1968 onwards he initiated a series of discussions with the chief executives of transnational, in the hope that ‘through a continuing dialogue, the British national interest is kept in the forefront and that consultation takes place over a whole range of issues that are of concern to us as well as to them’ (Benn, quoted in Hodges, 1974). Whilst Mintech had no direct power over transnational, this dialogue at least started the collection of useful information, and was an important step forward. For example, according to Benn (1988), inquiries by the Industrial Reorganisation Corporation in 1969 found that Philips was using transfer pricing to make it appear that its British subsidiaries were importing more than they were exporting, when really the opposite was true, in order to report higher profits in the Netherlands where taxes were lower. Fritz Philips, Chairman of Philips, agreed to visit Benn, and in May 1969 Benn went to The Netherlands for further talks. A year later, Philips reported a balance of payments surplus in Britain, and Benn felt that this was due to his ‘indication’ to Philips personally that the British government in general, and the Ministry of Defence in particular, would not buy Philips components unless the practice ended. In 1970 even this ‘keeping in touch’ approach came to an abrupt end with the Labour defeat at the general election, and anyway it should be kept in the right perspective. For instance, even Mintech was opposed to a more proactive stance, as Richard Clarke, 159


Permanent Secretary at the Ministry of Technology, revealed in 1970 (Hodges, 1974): the Government of the recipient country must accept that the multinational company must lay out its resources as it thinks right…. The basic question is: do we want foreign investment? If we do, we must accept the consequences. This is a warts-and-all philosophy founded on fear of losing investment; either transnationals are given a warm welcome and a free rein or they will produce elsewhere. It is clear that the government did want foreign investment. Prime Minister Harold Wilson only voiced concern in 1967 when trying to court the goodwill of de Gaulle over European Community entry; ‘there is no future for Europe, or for Britain, if we allow American business and American industry so to dominate the strategic growth industries of our individual countries’ (Graham, 1982). Yet in the 1970 White Paper on the consequences of European Community entry, there was no mention of US domination. The reverse was in fact the case. The importance of US investment for the balance of payments, exports, employment, technical knowledge and the economy in general were all pointed out, along with the danger of not entering the European Community reducing Britain’s attractiveness for such investment. It also stressed: ‘the fact that net additional American investment in this country in 1968 totalled £246 million shows that the stakes are high’ (Hellman, 1970). The overriding goal thus remained the attraction of inward investment. Others voiced disquiet, however. In 1967 Paul Chambers, President of ICI, warned of increasing US domination in Britain and complimented the French on their policy towards US investment (Hellman, 1970). The trade union movement also began to voice concern. A number of motions relating to transnationals were submitted and discussed at Annual Conferences of the Trades Union Congress (TUC) in the late 1960s (Gennard, 1972). Gennard identified a number of fears over transnationals emerging amongst unions at this time: (i) implications for the job security of British trade unionists; (ii) the possibility of resistance to and/or withdrawal of trade union recognition;2 (iii) a change in the balance of power in collective bargaining against British unions; (iv) a problem of trying to locate the real source of decision-making in such firms; and (v) a potential conflict between the interests of foreign firms 160

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and the interests of the British government in maintaining the welfare of its citizens. Other concerns were also expressed by trade union leaders. For example, Clive Jenkins of the Association of Scientific, Technical and Managerial Staffs expressed the fear that transnational might transfer R&D outside Britain thus reducing skill levels (Gennard, 1972). The 1969 TUC Conference asked the TUC General Council to study the problems posed by transnationals. Conclusions were published in the 1970 TUC Economic Review. This called for (from Lea and Webley, 1973): (i) more disclosure of information in accounts of foreign-owned firms operating in Britain; (ii) more information on the import and export performance of foreign-owned firms operating in Britain; (iii) the co-ordination of national economic plans with corporate plans; and (iv) guidelines for both inward and outward investments to be set by governments collectively. The Labour government responded at a meeting of the National Economic Council in April 1970 with a proposal to sponsor international discussions on host nation treatment of transnationals, with the goal of reaching a global agreement (ibid.). According to Graham (1982), by 1970 the Labour government had become sufficiently motivated by trade union and public concern to re-evaluate its relaxed policy towards transnationals. However, this did not get very far, as Labour was soon out of office. One direction in which the government did begin to push, though, was in making initiatives at the international level. The OECD (Organization for Economic Co-operation and Development) was its preferred forum for considering the issue, with Britain serving as Chairman of the OECD Industrial Committee (ibid.). Nevertheless, the government felt that any national or international approaches needed great care. A number of factors were thought to constrain the government at this time; the British economy remained in an unhealthy state and new investment, particularly by export-oriented transnationals, was seen as highly desirable (Graham, 1982). Overall, according to Hodges (1974), inward investment ultimately remained a ‘non-issue’ for the Labour government. He raises a number of possible reasons: the size of the outward investment stock and the danger of retaliatory measures; the positive attitude of civil servants and politicians; the instability of sterling and the balance of payment deficit; organisational barriers with responsibilities divided amongst departments making it unlikely that any overall assessment of transnationals’ impact would be 161


made; and the central role of the Treasury in administering the 1947 Act, with its ‘strong prejudice against impediments to the free flow of capital’. As regards the latter, parallels with the US Treasury Department’s domination of the Committee on Foreign Investment in the United States should be noted (see Chapter 5). It was the dominance of the Treasury which led Hodges (1974) to question the effectiveness of the 1947 Act: ‘the fact that responsibility for administering exchange control lies with the Treasury, which likes inward investment and has no industrial interests means that the Act is not an ideal way of exercising control’. Policy under the Conservative government, 1970–4 If the previous Labour government had perhaps been on the verge of adopting a more active policy towards transnational, the incoming Conservative government certainly did not pursue the approach. The Ministry of Technology ‘dialogues’ with chief executives were abandoned and the Ministry was itself merged with the Board of Trade to create the Department of Trade and Industry (DTI). The Industrial Reorganisation Corporation, which had been behind attempts to create a ‘countervailing force’, was disbanded. This, if anything, weakened the government’s ability to respond to transnationals (Graham, 1982). Moreover, a number of ministerial statements indicated that the welcome to foreign transnationals was ‘perhaps even less qualified’ than previously (Hodges, 1974). For example, the Industrial Development Minister, Christopher Chataway, stressed in 1973 that inward investment was very welcome (The Times, 15/8/73): if Britain is to continue to secure a good share of international investment, for which there is fierce competition, we should guard against some of the sillier nationalistic attempts to cast the multinational company in the role of universal villain. There were also other indications of the welcoming attitude towards inward investment. The government began promoting Britain abroad as an investment location. In 1972 the Secretary for Trade and Industry, Peter Walker, stated in Parliament that Britain should go all out to attract as much foreign investment as was possible (The Times, 13/12/72). Foreign exchange regulations were also eased in 1972, ahead of European Community entry. Inward investors from EC countries were allowed to borrow sterling in Britain without 162

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limit to finance direct investment, as were all foreign-owned firms when making new direct investments in the assisted areas and Northern Ireland. This was a move designed to bring British regulations into line with EC directives on capital flows (Steuer et al., 1973). In addition, whilst the government supported the concept of an EC industrial policy, and campaigned to encourage crossfrontier industrial mergers in Europe, it opposed EC efforts to regulate transnational (Graham, 1982). After visits abroad by Christopher Chataway, a new unit was set up in the DTI in 1973 to deal with investment inquiries, particularly from EC countries (The Times, 3/7/73). The government also made it clear in 1973 that there would be no reciprocal restrictions on Canadian investment in Britain even if Canada did go ahead and place conditions on British investment there (at the time Canada’s Foreign Investment Review Act was being discussed in the Canadian Parliament) (The Times, 17/5/73). Despite the government’s welcoming approach, however, transnational were beginning to receive more widespread attention. In October 1970, the TUC sponsored an international conference at which it pressed the government to develop international guidelines which could be used to negotiate with and supervise transnationals (Trades Union Congress, 1970). It also called for the government to seek guarantees of behaviour from foreign firms locating in Britain and to have regular consultations with such firms on their corporate plans (ibid.). On the issue of transnationals’ recognition of trades unions, Gennard (1972) notes that the 1971 Industrial Relations Act unintentionally went some way to allaying union fears. A procedure through which trades unions could obtain legal backing for recognition was included in the Act. A House of Lords debate in 1971 also centred on transnationals. The Conservative government spokesman, the Marquess of Lothian, acknowledged that it was time to study transnationals but felt that there was no need for either greater national control of transnationals’ activities, or attempts at comprehensive international control. Others questioned this. For example, Lord Kennet argued in favour of greater disclosure of information to governments, guidelines on behaviour, inter-governmental co-operation to counter transnationals playing countries off against each other, and only allowing investments if governments were allowed to take shareholdings and appoint representatives on subsidiaries’ boards (House of Lords Official Report, 1971). 163


A number of events at this time led to US transnational receiving much negative publicity. For example, during the 1971 Ford strike, Henry Ford threatened to halt both further investment in, and exporting of components from, Britain (Wilms-Wright, 1977; Graham, 1982). Prime Minister Heath met Henry Ford to try to resolve issues (The Times, 7/4/71) but Ford eventually carried out a threat to construct a planned new plant on the continent, with Belgium ‘winning’ after much country versus country bidding (Graham, 1982). Similarly, the government’s toothless approach was illustrated when Chrysler threatened to cease production in Britain and to dismiss 6,000 workers during disputes at Coventry and Linwood (Wilms-Wright, 1977). Former Labour ministers Benn and Wilson alleged that Chrysler was defaulting on the undertakings made when it had acquired Rootes in 1967 (Graham, 1982). In opposition, Labour was again taking a more critical line. It criticised the government’s relaxed policy, pledging that a Labour government would impose tighter controls and pursue international responses (Graham, 1982). Peter Shore went as far as arguing that enormous damage was being done to Britain by allowing too much foreign investment, and cited North Sea oil as one example (The Times, 13/12/72). Tony Benn, formerly Minister of Technology and then Chairman of the Labour Party, argued that considerable changes were required to bring transnational’ power under control and to increase accountability (Sunday Times, 23/1/72). He advocated a framework of controls over transnationals, ‘constructed at various levels from the United Nations right down to the plant level’ (quoted in Graham, 1982). The Labour Party National Executive Committee also published three ‘Opposition Green Papers’ related to transnationals. These, along with Labour’s Programme in 1973, called for increased information disclosure and the establishment of a National Enterprise Board, partly designed to control British firms so that they could challenge transnationals (Graham, 1982). Nevertheless the government was encouraged in pursuing its open policy by Steuer et al.’s 1973 report for the Department of Trade and Industry on the impact of inward investment. This found no economic case for a limit on inward investment and played down concern over the balance of payments, monopoly, technology and so on (although it recognised that for ‘political considerations’ some might wish to limit inward investment). However, its conclusions 164

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were heavily qualified, given the lack of information, and the report called for ‘a much more intensified monitoring of… foreign activity’ in Britain, regarding a close watch on inward investment as ‘a minimal sensible policy’ (Steuer et al., 1973). It found existing institutional arrangements for monitoring to be inadequate. That nothing was done to address these shortcomings in policy indicates just how relaxed the government really was over transnational. Behind this inactivity lay the overriding belief amongst British MPs and civil servants that transnational were beneficial for Britain. The belief was revealed in surveys conducted by Graham in 1973 (and contrasted with the more negative perceptions of elite groups in France) (Graham, 1982). Similarly Hodges’s (1974) concludes that civil servants interviewed over 1970–1 all saw inward investment as conferring net benefits (see also Fayerweather, 1982). In short, elite groups saw inward investment as beneficial even though they did not have adequate information on which to make that judgement. Policy under the Labour governments 1974–9 The creation of a new Labour administration in March 1974 under Prime Minister Wilson gave Labour the chance to deliver on the pledges that it had made whilst in opposition to tackle transnational more seriously. As in the 1960s, however, policy towards transnational ‘did not change precipitously’ under Labour (Graham, 1982). There were some initial moves. The Department of Trade and Industry was split into two departments, with responsibility for all government policy towards transnationals allegedly centralised in the new Department of Industry, under Tony Benn. Within this department an Industrial and Commercial Policy Division was set up to co-ordinate different aspects of government policy, in an attempt to counter the ‘diffusion of responsibility…that had characterized the previous two administrations’ (Graham, 1982). In addition the Industry Act of 1975 gave the government the power to prevent any important manufacturing firm falling under foreign control if this served the national interest. Under the Act, the government had the power to prohibit a take-over or to make a compulsory purchase of all or part of the firm concerned. The Act also set up a National Enterprise Board (NEB), designed to foster industrial efficiency and competitiveness, and which had a ‘potential 165


for a significant impact on responding’ to transnational (Graham, 1982). Finally, according to Wilms-Wright (1977), industrial legislation passed over 1974–5 provided for greater disclosure of information by firms, including transnational. However, none of these measures really altered the policy stance. Policy towards transnational remained fragmented. Even the Labour Party (1977) admitted that ‘a coherent description of the present chaotic, confusing, overlapping powers and bodies is virtually impossible’. In addition, the potential of the Industry Act was hardly exploited. In fact, Young et al. (1988) reported that its provisions have never been used. The Act is also limited anyway. Young et al. (1988) note at least 30 per cent ownership is needed to constitute foreign control. It is generally agreed that control of a firm can come with much less than 30 per cent. If there had been real concern over foreign control, presumably this figure would have been much lower. Contrast this with Japanese experience, where there was initially a 7 per cent limit on individual foreign shareholdings during the period of Japan’s so-called liberalisation (see Chapter 2). Policy clearly remained open and welcoming towards inward investment. What concern there was still centred on the balance of payments. According to Safarian (1993), investment proposals in the late 1970s ‘were treated quickly, informally and pragmatically, without stated criteria (beyond exchange control provisions) and most often without formal meetings’. Steuer et al.’s conclusions on the late 1960s–where refusals were rare and no important proposal was denied as long as financial conditions were met—could also be applied to the late 1970s (ibid.). In fact, controls were eased further. In 1977 all foreign investors in manufacturing were allowed to borrow sterling to finance investments (Safarian, 1993). The government also campaigned for new inward investment and in 1977 established the Invest in Britain Bureau (IBB) to promote Britain as an investment location. This began producing glossy booklets marketing Britain, stressing, for example, low labour costs (see Invest in Britain Bureau, 1991). Even on the attraction of investment, though, the approach remained confused and fragmented (we return to this point later). At the international level, in 1974 the government opposed the UN Charter of Economic Rights and Duties of States which stipulated that each state had the right to ‘regulate and supervise the activities’ of transnational, and to ‘regulate and exercise authority over foreign investment’ (Wilms-Wright, 1977). Similarly, 166

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in the statement of views and proposals submitted by the government on a UN Code of Conduct for transnationals it was clear that the government wanted to maintain national controls as the dominant approach (Graham, 1982). Graham felt that this related to the government’s desire to protect British-based transnationals’ activities abroad. The government was also hostile to moves by the European Community to regulate transnationals, having perhaps the most negative response of any member state to the Commission’s 1973 proposals (Graham, 1982). However, the government was active in backing the 1976 OECD Declaration on International Investment and Multinational Enterprises, although it ‘strongly supported’ the view that the guidelines should be voluntary, again to ensure that primary responsibility for control remained at the national level, according to Graham (1982). Given that the government was so keen to retain power to control transnationals at the national level, it might have been expected that the government would wish to use that power effectively. In fact, on the basis of attempts to foster a British presence in the oil sector, it might be argued that this was achieved. After the oil price shocks in 1973–4, the incoming Labour government established the British National Oil Corporation (BNOC) in 1975 with powers over exploration, transportation and production, and participation in licences (Safarian, 1993). In issuing licences to national and transnational firms, the government took into account the contribution the firm had made to the British economy, reciprocity in other countries, and the opportunity for local firms to compete for orders (Safarian, 1993). The issuing of such licences gave the government considerable power, and exercising that power involved ‘significant monitoring’ of the oil firms, including the transnationals (Safarian, 1993). However, the true nature—and inadequacies—of Britain’s general approach are more accurately reflected in the final acts of the Chrysler farce. In 1975 Chrysler threatened to cease production in Britain unless it received considerable financial aid from the government. Harold Wilson claimed that the firm was effectively ‘holding a pistol to their head’ (quoted in House of Commons Expenditure Committee, 1976).3 After initially refusing Chrysler’s demands, the government eventually agreed to an aid package worth up to £162.5 million (The Times, 23/1/76). This was not without much criticism, and was seen to go against the government’s new industrial policy. Chrysler had made the threat even though it had made undertakings to Tony 167


Benn in 1967 that it would maintain production in Britain. This was a firm with which the government was supposed to have had close contacts, indeed even nominating a director on the board. Yet the government did not see what was happening because it failed to monitor. The shortcomings of policy were underlined when, after having been given massive aid, Chrysler sold up to Peugeot just two years later and ‘the British government was left to read about the sale in the newspapers’ (Jones, 1990). As for the undertakings Chrysler had made, ‘not one of the commitments had been honoured’ (Dunning, in Stopford and Turner, 1985). The Chrysler case is one of the few ‘causes célèbres’ in British policy towards transnationals. Indeed, bearing in mind the lack of co-ordination and inadequacies in Britain’s approach, we tend to agree with the view that the absence of such cases in itself reveals just how uncontroversial inward investment really is in Britain (Stopford and Turner, 1985). Nevertheless, the case contains important lessons and led to calls for change. For us, one of the most important points arising from the affair concerns the information issue. Eric Varley, who had replaced Tony Benn as Industry Secretary, was quoted in the House of Commons 1976 Expenditure Committee Report on Chrysler as saying that the government could only rely on the information given to it by Chrysler. The obvious response to this is: why not obtain and analyse information for itself? As the Committee stated, when noting the ‘passive role’ of the government (House of Commons Expenditure Committee, 1976): their resources of information and expertise must in practice have meant that they were put in a position where it was very much easier to access information and plans which Chrysler were proposing rather than for themselves to suggest feasible alternatives. Of course, even if the government had monitored all along, it could not necessarily have forced Chrysler to maintain production in Britain. However, it could have been much more aware of what was happening, giving it the chance at least to develop its own approach rather than being surprised by Chrysler’s ‘stark choice’ and rushed into giving aid. Not surprisingly, government policy was heavily criticised at this time, particularly by the Left, which put forward a number 168

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of proposals for reform. For example, in 1975 the Tribune Group called for a new economic strategy, criticising government inaction in controlling transnationals (Graham, 1982). The Labour Party itself made various suggestions. In 1976, Labour’s Programme advocated that the existing Foreign Exchange Committee be turned into a specialised unit capable of monitoring all inward and outward investment, with planning agreements with the top 100 British-based firms by 1978 (The Times, 28/6/ 76; Wilms-Wright, 1977). Similarly, Labour’s 1977 document entitled International Big Business raised concern over various aspects of transnationals’ activities, noting the possible loss of economic power, firm’s pricing strategies, and their impact on the balance of payments and trade, R&D, and trade unions. It called for: more effective use of the government’s existing powers (under public sector procurement, the Exchange Control Act, monopoly and mergers policy, and so on); new and effective information disclosure legislation; planning agreements with transnationals; and the creation of a ‘Foreign Investment Unit’, a centralised governmental body with responsibility for all dealings with transnationals (Labour Party, 1977). Wilms-Wright (1977) also called for greater supervision of inward and outward investment, planning agreements with transnationals and new legislation on information disclosure. In addition, the TUC called for a new agency to examine inward and outward investment (The Times, 26/4/78). This prompted a meeting between the Prime Minister and Senior Cabinet ministers with the TUC and Labour Party leaders, but there was no agreement on setting up any new machinery. Prime Minister Callaghan argued that in office Labour had to accept the ‘real world’ of international economic activity and hence make compromises. In defending its position, the government identified Ford and Chrysler as foreign-based transnationals which provided jobs and output by their investment in Britain (ibid.). Yet Chrysler’s lack of commitment to Britain has already been seen, with its exit from British production just a few months after the Prime Minister’s statement. Ford was also undertaking ‘a massive shift away from British investment in the 1970s’, contributing to both unemployment and the trade deficit (Reich, 1989). Again this raises the question of information. If the government had been monitoring these firms, it would not have perceived their effects as being so beneficial. 169


Policy since 1979 The incoming Conservative government of 1979 swept away the remaining exchange control legislation. The government’s positive attitude towards inward investment was reflected in a 1982 statement by the then Secretary of State for Industry, Patrick Jenkin (in Stopford and Turner, 1985): this government, like its predecessors, welcomes inward direct investment into the UK. Since the lifting of exchange controls in 1979, non-residents have needed no official permission to invest in this country other than those, such as planning consent, which are required of all investors. Foreign investors are assured of receiving equal treatment with their UK counterparts and are eligible for the full range of incentives and benefits provided to investors generally. Although the TUC called for the introduction of a government agency to monitor outward investment flows, and conditions under which foreign-based firms could invest in Britain (Financial Times, Confederation of British Industry (CBI) also called for ‘more positive monitoring’ of foreign-based firms operating in Britain 4/2/82), this remained a relatively uncontroversial issue. The (ibid.) and agreed with the government on criteria for judging the value of foreign investments (Financial Times, 4/9/81). These were that investors should make major use of British-produced goods, export their produce to the European Community, and that there should be a net increase in employment (Financial Times, 4/9/81). However, these were not binding criteria: the government had no powers or machinery to enforce them. Rather, they were merely desirable features of investments that the government was keen to see. More generally, the government made increasing efforts to attract foreign firms. For example, the Industry Secretary undertook a marketing visit to Japan in January 1983 (Financial Times, 14/2/83). Even the Environment Department was involved, with a campaign to persuade foreign firms to build offices and factories in Britain (Financial Times, 29/10/82). An Invest in Britain Bureau report in 1983 indicated that Britain was attracting more inward investment than any other European Community country, with 600 decisions to invest in Britain in the four years to 1982 (Financial Times, 11/3/83). By 1984, Britain had been the recipient of over half of all Japanese investment in the Community (Brech and Sharp, 1984). 170

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The level of assistance being offered to incoming foreign firms at this time was substantial. Brech and Sharp (1984) estimate that in 1981–2 the overall level of financial assistance offered to inward investors, including tax relief and other expenditures benefiting foreign-controlled firms, amounted to £1,500 m.4 In fact, it could be argued that the government favoured incoming foreign firms over British ones when it came to giving assistance to invest in development areas. Questioned in 1984 on whether there was a difference between British and foreign firms investing in such areas, then Trade and Industry Secretary Norman Tebbitt argued (Financial Times, 7/6/84): of course there is a justification for particularly attractive terms to bring to this country internationally mobile projects which otherwise might have arrived in, for example, another part of the European Community and would have free access to our market, but would not provide any jobs. The question was in part stimulated by the £130 m of public subsidies going to support Nissan’s new plant in Sunderland, whilst the nearby North East Shipbuilders was refused assistance to continue in existence (Stone, in Garrahan and Stewart, 1992) and whilst BL’s Bathgate plant in West Lothian was threatened with closure (Financial Times, 7/6/84). On aid given to inward investors through Regional Selective Assistance, doubts were expressed in the late 1980s over the quality of monitoring of the fulfilment of conditions agreed by incoming transnationals (see National Audit Office, 1988; Bachtler, 1990). It is certainly true that an easy-going approach on monitoring such assistance would be in line with the welcoming attitude more generally. On the evaluation and control of inward investment, it remained the case that policy instruments ‘could not be effectively described, let alone evaluated’ because of the overlapping and unco-ordinated responsibilities of different departments (Young et al., 1988). Even on the attraction of inward investment the overall approach remained complex and open to the criticism of being fragmented (ibid.). As a response to such criticism, a Committee on Overseas Promotion (COP) was established in 1980. Chaired by the Invest in Britain Bureau, it included important national departments and regional interests and attempted to ‘coordinate by consensus’ (ibid.). In 1984 the Bureau moved to bring regional and local development agencies under tighter 171


control (Financial Times, 10/4/84) and to reduce the level of competition between different regional agencies, such as that between the Scottish and Welsh Development Agencies (Dicken, 1986). The stance of the Monopolies and Mergers Commission at this time reinforces the impression of openness to inward investment. As Young et al. (1988) note, it needs to be recognised that it is possible to over-emphasise the significance of the MMC in this area, as MMC reports are publicly available, contributing one of the few sources of data on government policy. Of the ten cases involving foreign firms during 1975–86, there were just four rejections (Young et al., 1988). Three of these attempted acquisitions were during the 1980s: Hiram Walker and Highland Distillers in 1980, Royal Bank of Scotland in 1982, and the Enserch bid for the Davy Corporation in 1981. It has been suggested that the first two rejections were due mainly to arguments put forward by the Scottish Development Agency and the Scottish Economic Planning Department, such as over the loss of decision-making authority, and these arguments would not have been put so forcefully in other regions of Britain (Young et al., 1988). In the third case, the MMC rejected the bid because it was felt that British exports and employment would be harmed, through the loss of Davy’s national character as a British bidder in overseas markets, the lengthening of the chain of management, and the effects of US legislation (Financial Times, 11/9/81). This was very much a casespecific decision, and was no indication of any general policy line. Indeed, just two years later Enserch successfully acquired Humphreys and Glasgow, a smaller contracting firm (Young et al., 1988). Young et al. (1988) conclude that where less than 3 per cent of all proposed British mergers and acquisitions since the 1960s have been referred to the MMC, and where just 2 per cent have been directly stopped, ‘it is unlikely that much could be made of the impact of the MMC on the foreign-owned sector’. This is not to say that some MMC decisions may affect transnationals. For example, in 1988 the MMC recommended that the state-owned Kuwait Investment Office reduce its shareholding in BP from 21.6 per cent to 9.9 per cent, because of fears of a potential conflict of interest, Kuwait being a member of OPEC (Financial Times, 5/10/88). In general, though, the MMC is not seen as a significant potential barrier for incoming transnationals making acquisitions, unlike the Cartel Office in Germany (see Chapter 4). There have been proposals to extend the role of the MMC so that it could more effectively scrutinise acquisitions by foreign firms 172

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(see, for example, Brech and Sharp, 1984). Related to this point, a 1985 survey of senior executives in British firms by Market and Opinion Research International (MORI) revealed some interesting views. Asked whether foreign take-over bids should be automatically referred to the MMC, 51 per cent either ‘strongly agreed’ or ‘tended to agree’. The bidding firm’s proposed investment programme in Britain was an important criterion for consideration by the MMC, 95 per cent of those polled felt, as was the track record of the bidder (92 per cent), the financial strength of the bidder (91 per cent), the future prospects of the British firm (90 per cent), employment guarantees (77 per cent) and reciprocity in investment (70 per cent) (Financial Times, 27/3/85, 6). These results are particularly interesting as they came before a number of events which illustrated Britain’s openness to foreign investment and particularly foreign acquisitions. For example, the government was quite willing to sell Austin-Rover to either General Motors (GM) or Ford until the ‘political furore’ over the proposals forced their abandonment in 1986 (Financial Times, 3/8/87; Safarian, 1993). Similarly, in 1989 the government abruptly waived its ‘golden share’ in the privatised car firm Jaguar, in effect dumping the firm in the market for corporate control (see Financial Times, 9/11/89). This came despite pleas from John Egan, Jaguar’s Chairman and Chief Executive, who had hoped to maintain Jaguar’s independence through a tie-up with GM. Egan had spent nine months negotiating with GM over it taking a minority interest in Jaguar on the assumption that the golden share would remain in place, thus giving Jaguar protection from take-over. In waiving the share, the government put Jaguar ‘into play’, and Ford of Britain successfully acquired the firm with a £1.6 bn bid. Two years later, Jaguar was in turn sold to Ford’s US parent, in order to reduce the burden of debt on the British firm. Although ownership moved to the US, the government accepted the view that this was merely a ‘technical change’ (Financial Times, 27/11/91). The point here is not whether Ford’s bid was ultimately the most attractive financially to Jaguar’s shareholders, but that the Jaguar management had wanted to retain the firm’s independence through a link with GM and had been working towards that end. Contrast the British government’s approach with that in Germany and the protection from foreign take-over given to German car manufacturers—see Chapter 4. In Britain, moreover, the 1980s also saw the sale of Aston Martin to Ford and Lotus to General Motors (Reich, 1989). 173


Perhaps the most controversial foreign take-over of a British firm came in 1989 with the Nestlé bid for the chocolate producer Rowntree. There were cross-party calls for a referral to the Monopolies and Mergers Commission and opposition calls for use of the 1975 Industry Act to block the bid (Financial Times, 28/4/ 88; 26/5/88, 9). Local MPs of both main parties were concerned over the effects on employment and the local economy if one of the few leading firms with its headquarters in the north of England came under foreign control (Financial Times, 26/5/88, 9). Some were concerned over reciprocity, with Swiss firms not seen as vulnerable to similar foreign bids (see Safarian, 1993, on barriers to hostile take-overs in Switzerland). To others there seemed little to be gained in terms of economic efficiency anyway, with Rowntree, which had skilfully built up new brands throughout Europe, falling victim to Nestlé, ‘which had conspicuously failed to match Rowntree’s record in its attempts to build new confectionary brands in the UK’ (Plender, 1990). Nevertheless, the government opposed any referral, arguing that British firms were investing heavily overseas and that a referral could threaten such investments. That the government was so keen to encourage such an asset build-up abroad was illustrated when the then Trade and Industry Secretary, Lord Young, boasted (Financial Times, 26/5/88,1): ‘we are creating our third empire. We are buying up the world. It would be wrong to send out a signal that we’re protectionist on artificial grounds’. Similarly, Kenneth Clarke, then Industry Minister, argued that Britain was the main beneficiary from free investment flows. His logic was that Britain’s position as the ‘main overseas predator’ justified not blocking foreign bids in Britain (Financial Times, 26/5/88, 1). Such events indicate how open British governments really have been to inward and outward investment. The government has seen the latter as advantageous in the creation of a ‘third empire’ and has given British transnational a free rein. Meanwhile foreign transnational have been very welcome in Britain, and in entering the country through acquisitions their moves may have been made easier by the existence of a very active market for corporate control where takeovers can be accomplished relatively easily (in contrast to Japan and West Germany) (see Cosh et al, 1990). Apart from the Financial Services Act of 1986, which gave the government the power to block foreign entry in some financial service sectors on reciprocity grounds (Safarian, 1993), the 174

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government’s only concern over incoming transnational very recently has been acquisitions by foreign state-owned firms. Under Peter Lilley, then Trade and Industry Secretary, five attempted acquisitions of British firms by foreign state-owned firms were referred to the MMC, ‘without competition issues in the strict sense’ being relevant, according to the European Community (Financial Times, 11/6/91). These included Credit Lyonnais’s attempt to acquire a 45 per cent stake in Woodchester Investments, Kemira Oy’s bid for ICI’s nitrogenous fertilisers business, Elf-Acquitaine’s £300 m bid for Amoco’s British petrol stations, and a proposed merger of Thompson-CSF and British Aerospace’s guided weapons business (Financial Times, 26–7/1/91; 31/1/91; 11/6/91; 13/6/91). Even this limited concern was soon abandoned, however, after Credit Lyonnais complained to the European Commission that it was de facto discrimination against foreign firms (Financial Times, 31/10/91). Moreover, the basis of the concern was not really transnational corporations, rather it was public ownership. Looking back over recent Conservative policy, it is not clear that a Labour government would have done anything fundamentally different. On the one hand, the Labour Party stated in 1987 that, if returned to office, it would set up a ‘Multinationals Monitoring Unit’ in the Department of Trade and Industry to monitor foreign firms’ activities (Guardian, 2/6/87). John Smith, then Shadow Trade and Industry Secretary, argued that Labour would insist on conditions from transnational before giving regional aid or Industry Act assistance (ibid.). Similarly, in its 1987 New Industrial Strength for Britain, Labour stated that under its influence the Department of Trade and Industry would monitor inward investment and that a unit would be established to ‘monitor closely the business performance and practice of multinational corporations within the UK’. It also called for a ‘European-wide strategy for cooperation on policy towards multinationals’. Yet around this time, during the Caterpillar dispute, the Labour leadership, as captured on audiotape, felt that stricter controls on foreign transnational would be too extreme (Woolfson and Foster, 1988). In addition, the then Labour leader Neil Kinnock stressed in 1990 the importance he attached to inward investment: ‘foreign investment brings resources…but perhaps more important, foreign companies often introduce best practice technology, work organisation and industrial relations’ (Financial Times, 5/5/90). Similarly, in 1991 he argued that if Britain stood outside moves towards European Union, inward 175


and British investors would not give priority to investment or development in Britain (Financial Times, 21/11/91). Adding to this the lesson from continuity of policy across different governments in the past, despite Labour’s pronouncements in opposition, then the indications are that Labour would also have continued the warm welcome and free rein in the 1980s and 1990s. CONCLUSION: A BRITISH CONSENSUS In this chapter we have chronicled policies that Britain has pursued towards transnational corporations over recent years. Our history began with a consideration of policy until 1964, looking in particular at the 1947 Exchange Control Act. Although this legislation conferred potentially wide-ranging powers, they were not used by governments in an attempt to control transnational’ activities in general, either before or after 1964. We depicted an open and relaxed attitude which has essentially continued to the present day. Turning to the Labour administrations of the 1960s, we focused on the absence of government machinery for scrutinising transnationals’ activities and pointed to an incoherent, fragmented approach. These are themes we observed throughout the period studied. There is a suggestion that, by 1970, the Labour government was leaning towards a tightening of policy but, whether or not this is true, the 1970 election of the Conservatives ensured that this did not come about. Moreover the advent of Labour administration in the midand late 1970s changed policy very little. In discussing the latter we commented on the 1975 Industry Act, international initiatives, the oil sector and, once again, Chrysler. We went on to observe that more recent governments have made increasing efforts to attract inward investors. Referrals (or lack thereof) to the Monopolies and Mergers Commission were also discussed. Our overall conclusion is that policy towards transnational corporations seems to be an area where there has been little genuine controversy between the main political parties in Britain. Not only have successive governments adopted a liberal, easy-going stance, there has been a lack of any real debate on the subject. In short there has been, and still is, a cosy consensus. The general policy line has essentially been one of openness and free rein for inward and outward investors. There have been dissenting, critical voices, as we have reported. However, these have rarely disturbed the quiet waters of transnationals’ policy. What seems to us to be especially 176

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significant, however, is that this consensus has been founded on government ignorance about transnational’ activities; governments have generally not had information on the performance and impact of such firms! An implication is that if British governments have been pursuing an appropriate policy, this has been by luck rather than judgement.

NOTES 1 Meaning the percentage of shares owned, in our understanding. See Hodges (1974), Steuer et al. (1973). 2 This fear was perhaps heightened by the long-running dispute involving the US-owned Roberts-Arundel, which withdrew trade union recognition in 1967 (The Times, 7/12/67). 3 For a detailed account of the Chrysler case at this time, see Young and Hood (1977). 4 Excluding the tax relief, the figure is £370 m. Even though most of the assistance was not specific to inward investment, Brech and Sharp questioned both whether such incentives were too generous (in that projects would have gone ahead anyway), and the emphasis placed on employment generation. This, they argued, was leading Britain into low wage, low productivity industries; it was attracting footloose assembly operations which only remained if wages were low. Instead they advocated, for instance, greater selectivity in aid and promotion, and encouraging the reinvestment of retained earnings by firms already operating in Britain.

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Financial Times (1981) ‘Accord on value of foreign investment’, 4/9/81, 6. ——(1981) ‘Why Britain blocked Enserch’, 11/9/81, 18. ——(1982) ‘TUC leaders qualify agreement on companies’ investment overseas’, 4/2/82, 7. ——(1982) ‘Foreign investors sought’, 29/10/82, 7. ——(1982) ‘Japanese “provided few jobs”’, 14/2/83, 1. ——(1983) ‘Britain tops EEC for overseas’ investment’, 11/3/83, 8. ——(1984) ‘Tighter grip sought on promoting UK’, 10/4/84, 44. ——(1984) ‘Incentives better for foreign companies’, 7/6/84, 8. ——(1985) ‘Concern indicated at foreign takeover bids’, 27/3/85, 6. ——(1985) ‘Campaign aims to draw investment to Britain’, 27/3/85, 7. ——(1987) ‘Ford “still interested” in acquiring Austin Rover’, 3/8/87, 6. ——(1988) ‘Merger reference on Rowntree bid urged’, 28/4/88, 10. ——(1988) ‘Young sets stage for Suchard counter-bid in battle over Rowntree’, 26/5/88, 1. ——(1988) ‘MPs on both sides join in denunciation of Swiss bid decision’, 26/5/88, 9. ——(1988) ‘Kuwaitis angry at being told to halve BP stake’, 5/10/88, 1. ——(1989) ‘Jaguar plea on golden share refused’, 9/11/89, 10. ——(1990) ‘Kinnock urges ERM entry as the prerequisite for stability’, 5/ 5/90, 12. ——(1991) ‘Credit Lyonnais files complaint about takeover policy in the UK’, 26–7/1/91, 7. ——(1991) ‘French deal revives controversy at home’, 31/1/91, 7. ——(1991) ‘UK is challenged over state group purchases’, 11/6/91, 4. ——(1991) ‘Tebbit Doctrine returns to competition policy’, 13/6/91, 7. ——(1991) ‘UK gives way on foreign takeover bids’, 31/10/91, 2. ——(1991) ‘Opting out “would mean losing out”, Kinnock says’, 21/11/ 91, 14. ——(1991) ‘Ford moves Jaguar ownership to US’, 27/11/91, 7. Garrahan, P. and Stewart, P. (1992) The Nissan Enigma, London: Mansell. Gennard, J. (1972) Multinational Corporations and British Labour: a review of attitudes and responses, London and Washington DC: BritishNorth America Committee. Gillespie, R.W. (1972) ‘The policies of England, France and Germany as recipients of foreign direct investment’, in F.Machlup, W.S.Salant and L.Tarshis (eds) International Mobility and Movement of Capital, New York: Columbia University Press. Government of Canada (1976) ‘Policies of governments toward foreign direct investment’, in K.P.Sauvant and F.G.Lavipur (eds) Controlling Multinational Enterprises, Frankfurt and Boulder: Westview Press. Graham, N.A. (1982) ‘Developed countries and multinational corporations: threat perception and policy response in France and the UK’, in J.Fayerweather, (ed.) Host National Attitudes Towards Multinational Corporations, New York: Praeger. Guardian (1987) ‘Labour plan for special unit to police multinational firms’, 2/6/87. Hellman, R. (1970) The Challenge to US Domination of the International Corporation, New York: Dunellan (translated by Peter Ruof). 178

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Hodges, M. (1974) Multinational Corporations and National Government, Westmead, Farnborough: Saxon House. Hood, N. and Young, S. (1981) ‘British policy and inward direct investment’, Journal of World Trade Law 15, 231–50. House of Commons Expenditure Committee (1976) Public Expenditure on Chrysler UK Ltd, Eighth Report from the Expenditure Committee, Session 1975–6, together with the minutes of evidence taken before the Trade and Industry Sub-Committee in session 1976 and Appendices, Volumes I and II, HC 596-I and HC 596-II, London: HMSO. House of Lords Official Report (Hansard) (1971) International Companies: relations with states, 320, 587–687, London: HMSO. Invest in Britain Bureau (1991) Britain the Preferred Location, London: HMSO. Jones, G. (1990) ‘The British government and foreign multinationals before 1970’, in M.Chick (ed.) Governments, Industries and Markets: aspects of government-industry relations in Great Britain, Japan, West Germany and the United States of America since 1945, Aldershot: Edward Elgar. Labour Party (1977) International Big Business. Labour’s Policy on the Multinationals, London: The Labour Party. Labour Party (1987) New Industrial Strength for Britain, London: The Labour Party. Lea, S. and Webley, S. (1973) Multinational Corporations in Developed Countries: a review of recent research and policy thinking, London and Washington DC: British-North America Committee. National Audit Office (1988) Department of Trade and Industry, Scottish Office and Welsh Office: arrangements for regional industrial incentives, London: HMSO. Plender, J. (1990) ‘Some policy options’, in Takeovers and Short-Termism in the UK, Industrial Policy Paper no. 3, London: Institute for Public Policy Research. Reich, S. (1989) ‘Roads to follow: regulating foreign investment’, International Organisation 43, 4, 543–84. Safarian, A.E. (1993) Multinational Enterprise and Public Policy, Aldershot: Edward Elgar. Steuer, M.D., Abell, P., Gennard, J., Perlman, M., Rees, R., Scott, B. and Wallis, K. (1973) The Impact of Foreign Direct Investment on the United Kingdom, London: HMSO. Stopford, J.M. and Turner, L. (1985) Britain and the Multinationals, Chichester: John Wiley. Sugden, R. (1990) ‘The warm welcome for foreign-owned transnational from recent British governments’, in M.Chick (ed.) Governments, Industries and Markets: aspects of government—industry relations in Great Britain, Japan, West Germany and the United States of America since 1945, Aldershot: Edward Elgar. Sunday Times (1972) ‘Global boardrooms prepare to fight’, 23/1/72, 60. The Times (1956) ‘Trinidad oil agreement’, 2/8/56, 5. ——(1967) ‘Chrysler takeover of Rootes approved’, 18/1/67, 1. ——(1967) ‘Chrysler agree to 8 points on Rootes takeover’, 18/1/67, 10. ——(1967) ‘American investment in Britain’, 18/1/67, 13. 179


——(1967) ‘Fear of violence over three women’, 7/12/67, 3. ——(1971) ‘Consultation with worldwide firms’, 7/4/71, 12. ——(1972) ‘Mr Walker’s drive to attract foreign capital’, 13/12/72, 22. ——(1973) ‘No reciprocal investment curb’, 17/5/73, 26. ——(1973) ‘DTI steps up service to foreign investors’, 3/7/73, 20. ——(1973) ‘Study upholds benefits to Britain of investment by foreign companies’, 15/8/73, 17. ——(1976) ‘“No strikes” proviso in Chrysler aid deal’, 23/1/76, 1. ——(1976) ‘Labour call to vet foreign investment rebuffed’, 28/6/76, 19. ——(1978) ‘Government and TUC study call to monitor international capital flows’, 26/4/78, 21. Trades Union Congress (1970) International Companies, London: Trades Union Congress. United Nations, Centre on Transnational Corporations (1983) National Legislation and Regulations Relating to Transnational Corporations, Volume II, New York: United Nations. Wallace, C.D. (1982) Legal Control of the Multinational Enterprise, London: Martinus Nijhoff Publishers. Wilms-Wright, C. (1977) Transnational Corporations: a strategy for control, Fabian Research Series 334, London: Fabian Society. Woolfson, C. and Foster, J. (1988) Track Record—the Story of the Caterpillar Occupation, London: Verso. Young, S. and Hood, N. (1977) Chrysler U.K. A Corporation in Transition, New York: Praeger. Young, S., Hood, N. and Hamill, J. (1988) Foreign Multinationals and the British Economy: impact and policy, London: Croom Helm.

180

7 ISSUES OF CONCERN

INTRODUCTION Previous chapters in this volume have examined various governments’ policies towards transnational corporations over recent years. We have concentrated in turn upon Japan, France, Germany, the US and Britain. Our focus has been on practical details. We have provided a chronological analysis for each country and described various initiatives and debates. Although our interest has been with the attitudes of governments, we have also reflected wider concerns and acknowledged the roles that other parties have played in the development of countries’ policies. We have presented details of legislation, cases and issues which have been important and interesting. Moreover, in doing so we have mentioned comparisons between different countries. In contrast this chapter considers a specific area of interest in relation to all five of the so-called developed countries in our study. The specific area we focus upon is the issues associated with transnationals which appear to have (or by implication have not) concerned various governments. We will consider the issues in relation to experience in Japan, France, Germany, the US and Britain over the last thirty years (approximately). Our reason for examining issues of concern is partly that this topic is fundamental to a consideration of policies towards transnationals. For example, if a government begins to contemplate the design of a transnationals policy it faces a basic question: what, if any, are the issues of concern associated with these firms? Of course, this is not to deny that there are other important topics and indeed there is another, more pragmatic reason for our focus in this 181


chapter. It is simply that the research underlying this volume is part of a wider project examining the idea of creating monitoring bodies to process and analyse information on the impact and performance of transnational corporations (see especially Bailey et al., 1994). One of the questions we have had to address in the project is: if transnational should be monitored, what are the issues that monitoring bodies should concentrate upon? As a contribution towards discussing this question, we have considered the issues causing concern to various governments in the past. It is our analysis of this topic that we will now report. Hence the subject matter of the chapter is drawn on our interpretation of government concerns and there is no doubt that other topics might be more relevant to other researchers and to other projects. The structure of the chapter is as follows. The main aim of pages 182–3 is to list the issues that our analysis revealed to be of interest in the five countries over the last thirty years. We then discuss problems we encountered in analysing the issues, and then present our results. By way of conclusion these will be also briefly discussed on pages 222–5. ISSUES OF CONCERN A list of issues In this chapter we present, for each country, a detailed matrix indicating those issues which appear from our reviews to have been of interest to its governments. Given the lively debate in Germany and the US, the matrices relating to these countries also include non-government concerns, such as those expressed by trade unions, business and political parties. Each matrix is divided into various periods which reflect particular events, for instance points where there was real or apparent policy change. As a result the matrices are all for a similar thirty-year period but are divided into different sub-periods according to the timing of events in the appropriate country. Each matrix is, however, similar in that it considers whether the same issues have been of concern over the period. Thus each matrix records issues of concern under eighteen headings, as shown in Table 7.1 In addition, each heading is analysed into subheadings which capture more specific matters, as shown in Table 7.2. This framework is based on the items our analysis revealed to be of interest in the five countries over the full thirty-year period. 182

ISSUES OF CONCERN

Table 7.1 Issues of concern

Before presenting and briefly describing the matrices, we will first of all discuss problems with their compilation. Problems with the country matrices The matrices are based on the chapters detailing country policies. This basic source of information (the chapters) clearly involves a selection of sources to consult, value judgements in the reading of sources and implicit judgements in the selection, analysis and reporting of issues. We sought to overcome this problem so far as was possible by examining each others’ work. For example, the drafting of the initial framework for analysis and recording of issues was undertaken by one researcher and checked by another using the same source material. A number of differences resulted and these were discussed before finalising the framework. The application of the agreed framework was also checked, with initial preparation by one researcher being scrutinised in full by another. Again differences were identified, discussed and resolved. However, it is fair to say that different researchers are likely to have produced different matrices, even if using the same basic source papers. We also experienced difficulty in classifying some matters which appeared to us to fit under a number of headings—for example, technology, productivity and a nation’s competitive position—and 183


Table 7.2 Issues of concern (sub-headings)

184

ISSUES OF CONCERN

Table 7.2 (continued)

185


Table 7.2 (continued)

there is little doubt there are connections between issues in some expressions of interest. Ultimately we had to decide whether a matter should be recorded under one heading or another. The matrix presentation encourages one to view the issues separately yet our experience suggests a great deal more connection and overlap than is evident by such a presentation. One particular problem we faced is that, despite some emphasis on costs and benefits, little explicit explanation by governments of the impact of transnational corporations appears to have taken place or been publicised. In such absence we had to look at expressed concerns at a more general level in order to see the relative importance of particular issues. There were also problems of language. Inevitably differences in the vocabulary used to describe concerns in different countries at different times meant that some judgement was used when classifying issues. Moreover, since we dealt primarily with English language sources, it may well be that our reviews of France, Japan and Germany are less complete and accurate than those of Britain and the US.1 In the main we relied on English language academic research and government reports, supported by business journals and newspapers. This limitation should be recognised. Our reviews also rely on apparently differing levels of available evidence. For example, we were struck by relatively little information being available for France over the period 1980–8, and for Japan over the period 1973–80. This also raised the problem of continuity. Our matrices initially revealed some discontinuity in concern regarding certain issues in some countries. We were left with the choice of ignoring the likelihood of continued concern, or of recording but clearly identifying this likelihood. We chose the latter 186

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approach. Thus our matrices contain clearly identified assumptions, where we thought it was very likely that concern over certain issues existed during a period because interest was noted before and after that period. A further difficulty, in some respect the opposite of the last, was in deciding whether something was a genuine government concern when it was in fact raised. For example, in the United States, the Committee on Foreign Investment in the United States (CFIUS) was stated to be concerned over a range of issues, including employment, balance of payments and environment, yet there have been serious doubts as to whether CFIUS was really interested. The undertakings in Britain in the late 1960s are another example. In most cases our knowledge of government concerns is second-hand, being based on commentators’ opinions, and we have no knowledge of private communications not reported in the media. Yet clearly what matters ultimately is whether the relevant government really was concerned about a particular matter. What is important is not necessarily what is said to matter or what is reported to matter. This would seem to work both ways. What we have recorded may include issues of little or no importance and what was of importance may be omitted. Thus it is potentially significant that there are times when governments were silent in a way that may indicate the possibility of a hidden agenda—recall the absence of guidelines in France or the lack of information on prenotification discussions in Japan. We cannot hope to have captured such an agenda in full; we may have failed to capture such an agenda at all. Related to this, there are certain instances where governments were vague, for example, in referring to national security. In the United States, for example, a concern over ‘national security’ may in practice have meant protection for key firms or industries at certain times. Indeed we suggest that such vagueness was intentional on occasions in order to retain policy flexibility. Our aim was to classify in as detailed a manner as possible, yet deliberate vagueness makes this extremely difficult. Likewise there are suggestions that for some of the period covered, certain governments were keen not to inform the outside world of their policies, or at least were keen to emphasise the form rather than the substance of their approach. For example, Japan has been eager to appear ‘liberal’ and ‘open’ whereas in fact we suggest that there can still be significant barriers for investors. Such instances made our task problematic and suggest our results should be treated with caution. 187


Finally, our matrices are, even without the various problems outlined above, concerned with quantity rather than significance. We have recorded each individual concern in our workings, before recording as a single mark on the appropriate matrix where it was a concern. Thus the matrices do not reflect the number of times we recorded the issues to be of interest. To do so might be an indication of the importance (or significance) of the concern. Yet our view is that this is not necessarily the case. Since the matrices are based on such diverse sources as individual case reports in financial newspapers to specific government statements, we feel that quantity cannot be trusted as an indicator of importance or significance. Despite such caveats and problems, however, what we now offer is a reasonably detailed and accurate overall picture which indicates the kind of concerns expressed by the various governments. We feel that this detail helps in appreciating the issues various governments have seen as important. Furthermore we suggest that the identified concerns are likely to be of interest both to other nations and to policy-makers in at least some of the five countries we focus upon, because of the opportunity to learn from each other. Indeed we argue in Bailey et al. (1994) that they are relevant to British and other European policy-makers. Results for each country Matrix 1 reveals government concern with issues in Japan, Matrix 2 covers France, 3 covers Germany, 4 the US and 5 Britain (with Matrices 3 and 4 also including non-government concern). A summary, covering all countries, is presented in Matrix 6, though only in respect of the overall issues headings. Although helpful as a quick comparison, only the detailed country matrices can really provide the necessary information for a full comparison.

188

ISSUES OF CONCERN

[Matrix 1: Issues of concern in Japan]

189


Matrix 1: Japan (continued)

190

ISSUES OF CONCERN


191



192

ISSUES OF CONCERN


193



Source: Chapter 2 of this volume.

Key to matrices 1–5 √ indicates an issue of concern to the government X indicates an issue of concern to non-government groups (including trade unions, business, political parties, parliamentary reports) (o) indicates an issue of concern relating solely to outward investment (c) indicates an assumed continuity of concern

194

ISSUES OF CONCERN

Matrix 2: Issues of concern in France

195


Matrix 2: France (continued)

196

ISSUES OF CONCERN


197



198

ISSUES OF CONCERN


199




200

ISSUES OF CONCERN

Matrix 3: Issues of concern in Germany

201


Matrix 3: Germany (continued)

202

ISSUES OF CONCERN


203



204

ISSUES OF CONCERN


205




206

ISSUES OF CONCERN

Matrix 4: Issues of concern in the United States

207


Matrix 4: US (continued)

208

ISSUES OF CONCERN


209



210

ISSUES OF CONCERN


211




212

ISSUES OF CONCERN

Matrix 5: Issues of concern in Britain

213


Matrix 5: Britain (continued)

214

ISSUES OF CONCERN


215



216

ISSUES OF CONCERN


217




218

ISSUES OF CONCERN

Matrix 6: Issues of concern in Japan, France, Germany, the United States and Britain

Key to matrix 6 √ = Government concern X = Non-government concern (labour, industry, banks, political parties, press, non-central government (e.g. länder governments)). (o) = Concern over outward investments only (c) = Assumed continuity of concern 219


Matrix 6: Japan, France, Germany, United States and Britain (continued)

220

ISSUES OF CONCERN

Matrix 6: Japan, France, Germany, United States and Britain (continued)

221


Discussion of results It is notable from Matrix 6, our summary of the detailed country matrices, that there has been some consistency of interest in respect of a number of issues across the countries we have studied. For example, there appears to have been quite a widespread interest in at least three countries over the period in respect of: ownership and control competitive implications research and development/technology employment and industrial relations balance of payments/international trade compliance/co-operation with wider industrial and economic policy ‘basic’ issues political issues Furthermore, various issues have appeared less widespread in their interest. For example, in each of the following cases there was often either interest in only one country, or there was sporadic interest in a number: impact on productivity and efficiency impact on the Exchequer impact on national ‘competitive position’ regional impact/relation to regional development policies use of national/local components and resource processing ‘fairness’ ‘cultural issues’ openness/information gathering/disclosure environmental impact ‘patriotic reasons’ An obvious point arising from the matrices more generally and that needs to be highlighted, however, is that many of the issues that have continued to cause concern have done so notwithstanding apparent policy changes. For example, even though we characterise a trend towards ‘liberalisation’ in Japan and France, policy-makers in these countries have remained concerned over issues such as research and development and the technological implications of transnational’ activities. In addition, France has remained concerned over ownership and control, managing to find ‘French solutions’ in 222

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some cases, even though European Community membership has constrained such activity. Thus, despite apparent liberalisation, the focus of policy may not have changed significantly in several of the countries. Having said this, whilst issues such as ownership and control, competitive implications and so on feature consistently over the period of our study, countries have given different emphasis to them. For example, Japan has considered a range of issues but has appeared to attach greatest significance to the technological implications of transnationals’ activities, although it is not clear exactly what this means; it was suggested in Chapter 2 that, in focusing on technological implications, the Japanese government may have felt that it was in turn realising other objectives, such as improving productivity and efficiency, which may have been considered more explicitly in other countries. This is an example of the problem of overlap between issues. In contrast, France has also focused on the technological aspects of transnationals’ activities but it has been suggested that other issues have received similar attention, for example, the effects on ownership and control, competition, the balance of payments and investment. In Germany, emphasis has centred on the ownership and control issue and the competitive implications of transnationals’ activities; in the US on ownership and control, research and development, employment and industrial relations, the balance of payments, information and political issues. This is in contrast to British experience, where there have been no central issues that have caused concern throughout the period of the study. While the balance of payments was the dominant, if not sole, concern before the 1970s, it was seen in Chapter 6 that this diminished when Exchange Controls were relaxed considerably through the 1970s and finally abandoned in 1979. Hence there was more apparent concern at the beginning of the period and minimal concern at the end. As can be seen, the matrices bring together groups of issues under categories. It should be stressed that countries have tended to concentrate on certain facets of these groups of issues. For example, in the ownership and control category, the most important concern has centred on foreign (especially hostile) acquisitions generally, and acquisitions in key sectors particularly. The latter was highlighted when detailing policy in Germany, where there has been systematic intervention to protect key firms from foreign takeovers (see Chapter 4). In the research and development and 223


technology category, the focus has again been on the concern to protect key sectors, along with the processes transnational bring from or take abroad, and the issue of ownership of technology and dependence. In the competitive implications category, the emphasis has been on the concentration/market share/industrial structure issue. Furthermore, even where an issue can be identified as having been emphasised by several countries, the underlying causes for concern and the approaches taken by governments have also differed significantly (see again the discussion of a policy spectrum in Chapter 1). For example, some have welcomed inward investments for the additional competition it allegedly brought, whilst others have feared the monopoly power of transnationals. Generally an objective of policy has been to encourage competition, whereas in Chapter 2 it was seen that early on in Japan there was said to be a fear over ‘excessive’ competition. Consider also the research and development and technology issue. Some have welcomed inward investment for the technological advances it can apparently bring, whilst others have feared losing technological independence. In terms of attracting and retaining technological activities, approaches have also differed. Japan initially relied on licensing to secure technology from abroad, moving later to a range of incentives for attracting high technology activity and much emphasis on providing an infrastructure that ties in transnational R&D activities with Japanese efforts. In contrast, France, through its screening of investments, has encouraged firms to locate R&D facilities in the country. In the US, firms in high technology sectors have on occasions been protected from foreign take-over by the government, which has—in a few cases—set out conditions in allowing take-overs. However, calls continue in the US for a broader interpretation of ‘national security’ to afford greater protection for high technology firms (see Chapter 5). In Germany, protection of firms in key sectors, including those with technologically advanced products and production methods, has come through government intervention to block take-overs, or through support from other firms and banks. These contrasts reflect differences in overall policy approaches—a point raised by France’s Conseil Économique et Social and noted in Chapter 3. Another interesting feature of the matrices is that they indicate how relaxed Britain’s attitude towards transnationals has been, in the sense of few issues having been considered as important. If we look at the other countries in the study, a much wider range of issues has been considered (and, as can be seen from Chapters 1– 224

ISSUES OF CONCERN

5, other countries have been more inclined to discuss and act upon this wider range of issues). Leaving aside the effectiveness of policies in Japan, France, Germany and the United States, this at least indicates that Britain’s approach has not been uncontroversial. Hence if policy-makers in Britain do begin to raise questions over the impact of transnationals they will not be doing anything particularly radical. Rather, they will be falling into line with policymakers in other developed countries. NOTE 1 The French and Japanese analysis is certainly different in that we make less reference to concerns of wider constituencies.

BIBLIOGRAPHY Bailey, D., Harte, G. and Sugden, R. (1994) Making Transnationals Accountable: a significant step for Britain, London: Routledge.

225

INDEX

Abegglen 8 Abs, H.J. 85 acquisitions: in France 52, 67; in Japan 11, 40–1; in USA 119, 130 Agricultural Foreign Investment Disclosure Act (USA, 1978) 116 American Chamber of Commerce in Japan 39 American Federation of Labor (AFL) 110, 125 Ames, W.L. 31 anti-trust legislation, USA 128–9 Antimonopoly Act (Japan) 26, 33 approval process on investments: case-by-case, France 52; case by-case, Japan 23; France 47, 52, 55, 59, 64; Japan 11–12, 20, 22 Ardagh, J. 64 Association of Scientific, Technical and Managerial Staffs 161 Austin—Rover 173 automobile industry: in France 57; in Germany 83–4, 90; in Great Britain 156–7, 173; in Japan 18–19 Averyt, W.F. 7–9, 10, 19, 27 Ayres, M. 130–2, 134–5 Bachtler, J. 171 Baker, J. 136

balance of payments issues 182–3, 185; in France 48, 56, 197–8, 220; in Germany 203–4, 220; in Great Britain 150, 153, 156, 215–16, 221; in Japan 11, 191– 2, 219; in United States 109, 111–12, 119, 209–10, 221 Baldridge, M. 131 Bale, H.E. Jr 126–8 Balladur, Edouard 67, 70 Bank of England 154, 158 banks: investment in Germany 90–1, 96–7; support for investment in Britain 153–4 Barovick, R. 111 Barreda, W.E. 140 basic issues 182–3, 185; in France 199, 220; in Germany 205, 220; in Great Britain 217, 221; in Japan 193, 219; in United States 211, 221 Behrman, J.N. 15, 49, 50–1, 57, 60, 88 Benn, Tony 159, 164–5, 168 Bérégovoy, P. 65, 69, 70, 74 Bergsten, C.F. 14, 23–6, 109, 110, 118, 120–1 Bertin, G.Y. 47, 58–60 BIFAB take-over attempt by MCC 97–8 Birembaum, D. 27, 29–30, 33 BMW 84 Booz, Allen and Hamilton 32, 38 Brandt, W. 89 Brech, M. 92, 94, 170–1, 173

226

INDEX

Bridgestone take-over of Firestone 130 British Aluminium take-over (Great Britain) 153 British National Oil Corporation (BNOC) 167 Brock, William 129 Bromley, A. 138 Brücher, H. 81 Bryant, J. 130 Buckley, P.J. 25 Bull take-over attempt by NEC 72–3 Bundesverband der Deutschen Industrie 89, 95 Bureau of National Affairs 139, 142 Burke-Harte Bill (USA) 110 Bush, President George 138, 142 Cable, J. 97 Callaghan, James 155, 169 Canada, Government of 150 Cartel Act (Germany, 1973) 88 Cartel Office (Germany) 88–9, 93–4 CATIC corporation 135 Chambers, P. 160 Chappelle Darblay 71 Chataway, Christopher 162–3 Chèvenement, J.P. 65 Christelow, D.B. 93 Chrysler Motors: in France 53; in Great Britain 156, 164, 167–8; in Japan 19 Chubb, J. 130–2, 134–5 Church, Frank 111 Clarke, Kenneth 174 Clarke, R. 159 Clayton Act (USA) 128 Co-determination Act (Germany, 1976) 96 Commerce, Department of (USA) 111, 116, 123 Commission des Investissements Étrangers (France) 51 Committee on Foreign Investment in the United States (CFIUS) 107, 116–18, 120–2, 125–7,

129; and Exon-Florio amendment 131–43 competitiveness issues 182–3, 184; in France 49, 56, 195–6, 200; in Germany 93–4, 201–2, 220; in Great Britain 213–14, 221; in Japan 18, 189–90, 219; in United States 207–8, 221 see also national competitiveness computer industry:in France 72; in Japan 19 Confederation of British Industry (CBI) 170 Congress of Industrial Organizations (CIO) 110, 125 Conseil de Concurrence (France) 71 Conseil Économique et Social (France) 63 Consolidated Gold Fields 133 Continental take-over attempt by Pirelli 98 control:in France 195, 220;in Germany 93, 99, 201, 220;in Great Britain 158, 213, 221; as issue 182–3, 184; in Japan 189, 219;in United States 113, 136, 207, 221 Control Council for Germany 83 Cooke, T.E. 93 Coopers & Lybrand 66 Cosh, A. 96–7, 174 Craig, W.L. 47, 50, 52–6 Cresson, Edith 38, 73 Cromme, Gerhard 98 cultural issues 182–3, 185;in France 199–200, 220; in Germany 205–6, 220; in Great Britain 218, 221; in Japan 193–4, 219; in United States 212, 221 Daimler-Benz 84, 88–90, 97 Davidow, J. 132, 134 De Gaulle, Charles 57, 86, 160 de Marsac, X.T. 54, 58–9 Debré 51 Dent-Graydos Bill (USA, 1973) 113, 114 227

INDEX

Dicken, P. 172 direct investment see foreign direct investment Dusart, R. 48 Ebert, M.E. 133, 135, 139 Economic Analysis, Bureau of (USA) 114 economic policy: in France 56, 198, 220;in Germany 204, 220; in Great Britain 216, 221; as issue 182–3, 185; in Japan 12, 21, 192, 219;in United States 210, 221 Economics Ministry (Germany) 83, 87, 94 Economist, The 32, 59–60, 101, 141, 158 efficiency issues 182–3, 184; in France 196, 220; in Germany 202, 220;in Great Britain 214, 221;in Japan 190, 219; in United States 208, 221 Egan, John 173 employment issues 182–3, 184–5; in France 56, 197, 220; in Germany 94–5, 203, 220;in Great Britain 152–3, 160–1, 215, 221; in Japan 191, 219; in United States 109, 111–12, 119, 209, 221 environmental impact: in France 200, 220; in Germany 206, 220; in Great Britain 218, 221; as issue 182–3, 186; in Japan 194, 219; in United States 212, 221 Erhard 83, 85 European Community: and France 50, 58, 63, 67–8; and Germany 85 Exchange Control Act (UK, 1947) 150–1, 158, 162, 169 Exchange Control Regulations (France) 53, 58 Exon—Florio amendment, Omnibus Trade Act (USA, 1988) 107–8

Fair Trade Commission (Japan) 21, 32–3 fairness issues 182–3, 185; in France 199, 220; in Germany 205, 220; in Great Britain 217–18, 221; in Japan 11, 193, 219; in United States 211–12, 221 Fayerweather, J. 165 Federal Trade Commission Act (USA) 128 Fiat take-over by NSU 83 Finance, Ministry of (Japan) 14, 29 Finance Ministry, France 47–8, 51–3, 69, 71 Finance Ministry (Germany) 83 Financial Services Act (UK, 1986) 174 Financial Times:and France 61, 64–7, 69–74;and Germany 94– 6, 98–100; and Great Britain 170–6; and Japan 20, 34–5, 38–9;and United States 108, 127, 129, 130–2, 134–9, 142 Fischer, Peter 98 Fischer, W.A. 62 Fischler, L.F. 133 Fishman, C.L. 130, 137 Florio, James 130–43 Ford, Henry 164 Ford, President Gerald 107, 116 Ford Motors:in France 50–1;in Great Britain 155 Foreign Affairs, Ministry of (Japan) 22 foreign direct investmenti:in France 52–4, 68; in Great Britain 160–3; in Japan 12–13, 16; in United States 111 Foreign Direct Investment, Office of (USA) 109 foreign exchange:and investment, Great Britain 152; surpluses, Japan 23 Foreign Exchange and Foreign Trade Control Law (Japan, 1949) 10, 20, 28

228

INDEX

Foreign Investment Council (Japan) 24 Foreign Investment Law (Japan, 1950) 10, 13, 16, 20 Foreign Investment Review Act (Canada) 163 Foreign Investment Review Agency (Canada) 49, 107, 116, 118, 120, 124, 126–7 Foreign Investment Review Board (Australia) 49, 124 Foreign Investment Study Act (USA, 1974) 113 foreign ownership issues 182–3, 184; in France 195, 220; in Germany 201, 220; in Great Britain 154–5, 213, 221; in Japan 12, 16–17, 40–1, 189, 219;in United States 113, 207, 221 Foreign Trade Law (Germany,1961) 81 Foster, J. 175 France:acquisitions in 52, 67; anti-US opinion 47–8; approval process on investments 47, 52, 55, 59, 64; automobile industry in 57; balance of payments in 48, 56, 197–8, 220; British investment in 57– 8, 59; competitiveness in 49, 56, 195–6, 200; European Community 58; economic policy in 56, 198, 220; employment in 56, 197, 220; foreign direct investment in 52–4, 68; German investment in 57–8, 59; greenfield investments in 49, 51, 67–8; industrial policy in 61–2, 198, 220;investment, chronology of 77;investment issues, matrix of 195–200, 220;inward investment into 47–8, 50–2, 56–60, 64–7;legislative position, June 1992 68; liberalisation of transnational investment in 53–6; outward investment from 47, 52, 59;

protected industries in 49; taxation in 48, 196–7, 220; technology in 49, 55, 62, 64, 196, 220;telecommunications industry in 61; transnational control, characteristics of 74–6 Fry, E.H. 126, 128–9 Fullerton, L.R. 133 Garrahan, P. 171 General Ceramics 134 General Motors:in Great Britain 173;in Japan 19 Gennard, J. 160–1, 163 Gephardt, R. 138–9 Germany:automobile industry in 83–4, 90;banks’ investment in 90–1, 96–7;competitiveness in 93–4, 201–2, 220;control of industry 93, 99, 201, 220; employment and investment 94–5, 203, 220; government intervention in 87–8; hostile take-overs in 97; inward investment in 83–4, 86, 89, 95; issues, matrix of 201–6, 220; Japanese investment in 95; joint ventures in 85;oil industries in 87–8; outward investment from 89, 95; production abroad 99; protected industries in 83, 92; research and development in 87, 95, 202, 220;after reunification 100–1; US investment in 84, 86 Gerowin, M. 113–15 Gillespie, R.W. 47–50, 53, 58, 86–8, 150, 155–6 Gillette, in France 70 Goldstein, D.J. 130, 137 Gore, A. 138 government intervention, Germany 87–8 Government Operations, US Committee on 116, 119, 120 Graham, E.M. 133, 135, 139 Graham, N.A. 47–8, 57–60, 153, 161, 163–7, 169

229

INDEX

Great Britain: assistance for foreign firms 170–1; automobile industry in 156–7, 173; balance of payments in 150, 153, 156, 215–16, 221; control in 158, 213, 221; employment in 152–3, 160–1; foreign direct investment in 160–3; foreign ownership in 154–5, 213, 221; industrial policy in 153, 216, 221; investment issues, matrix of 213–18, 221; inward investment into 152–3, 156, 159; Japanese investment in 170–1; licensing in 167; outward investment from 151– 2, 156; protected industries in 155; technology in 158, 214, 221; trade unions in 160–1, 163; transfer pricing in 159; US investment in 160, 164 greenfield investments: in France 49, 51, 67–8; in Japan 16–17, 28, 40–1 Grundig take-over attempt by Thompson—Brandt 94–5 Guardian, The 98, 175 Gulf Oil Company 20 Gunderson, S. 142 Gunter Bill (USA) 113 Haggeney, B. 81, 89, 91, 93 Handelsblatt 100 Hara, M. 35 Heath, Edward 164 Hellman, R. 47, 49–51, 57, 85–6, 158, 160 Herzel, L. 132 HM Treasury (UK) 151–2, 157 Hodges, M. 150, 152–62 Hollerman 10 Hood, N. 150 Hormats, R. 8, 25 hostile take-overs: in Germany 97; in United States 130, 133, 137 House of Lords 163 House of Lords (UK) 163 IBM 19–20

Independent on Sunday, The 99 industrial policy issues 182–3, 185; in France 61–2, 198, 220; in Germany 204, 220; in Great Britain 153, 216, 221; in Japan 192, 219; in United States 210, 221 industrial relations: in France 197, 220; in Germany 203, 220; in Great Britain 215, 221; as issue 182–3, 184–5; in Japan 191, 219; in United States 209, 221 Industrial Relations Act (UK, 1971)163 Industrial Reorganisation Corporation (IRC, UK) 157–9 Industry Act (UK, 1975) 165–6, 174 information disclosure: in France 53–5, 67, 200, 220; in Germany 91–2, 206, 220; in Great Britain 156, 218, 221; as issue 182–3, 186; in Japan 14, 16, 194, 219; in United States 130–1, 212, 221 Inouye-Culver Bill (USA) 113, 115–16, 120 international trade: in France 197–8, 220; in Germany 203– 4, 220; in Great Britain 215– 16, 221; as issue 182–3, 185; in Japan 191–2, 219; in United States 112, 209–10, 221 International Trade and Industry, Ministry of (MITI, Japan) 9– 10, 13–14, 17–22, 24–5, 27–9, 33, 35–8 Invest in Britain Bureau (IBB) 166, 170–1 investment see foreign direct investment; inward investment; outward investment inward investment: into France 47–8, 50–2, 56–60, 64–7; into Germany 83–4, 86, 89, 95; into Great Britain 152–3, 156, 159, 164, 168; into Japan 10,

230

INDEX

16, 28–9, 34–6; into United States 112–18, 127–30 Ishizumi, K. 30–1, 38 Island Creek Coal Company (USA) 118 Jaguar Motors take-over 173 Japan: acquisitions in 11, 40–1; approval process on investments 11–12, 20; automobile industry in 18–19; balance of payments in 11, 191–2, 219; competitiveness in 18, 189–90, 219; economic policy in 12, 21, 192, 219; fairness in 11, 193, 219; foreign direct investment in 12–13, 16; foreign exchange surpluses 23; foreign ownership in 12, 16–17; greenfield investments in 16–17, 28, 40–1; investment issues, matrix of 189–94, 219; inward investment into 10, 16, 28–9, 34–6; joint ventures in 12, 18– 19, 21, 32; liberalisation of transnational investment in 7–8, 15, 22–3, 26; licensing in 13, 15, 32–3; national competitiveness in 31, 192, 219; notification system in 30– 1, 33, 39; outward investment from 23–4, 28; ownership in 12, 40–1, 189, 219; portfolio investment into 10, 16, 22; regional policies in 36–7, 192– 3, 219; research and development in 36–7, 190, 210; restricted industries in 11, 16, 19, 24–6; subsidiaries in 11; taxation in 37, 190–1, 219; technology in 16, 20, 33, 36–7, 190, 219; transnational control, characteristics of 38–42 Japan Development Bank 35 Japan External Trade Organisation (JETRO, Japan) 35 Japan Update 37 Jaumann, Anton 95

Jenkin, Patrick 170 Jenkins, C. 161 Johnson, C. 8, 10, 18–20, 22, 24– 5, 30–1 Johnson, Lyndon B. 85 joint ventures: in France 71–2; in Germany 85; in Japan 12, 18– 19, 21, 32; in United States 124, 133–4 Jones, G. 151, 153–5, 158, 168 Journal Officiel 67 Kartte, W. 89, 91–2 keiretsu (Japan) 34–5 Kindleberger, C.P. 57 Kinnock, Neil 175 Knee,J.A. 131, 133, 137–8, 142 Kobayashi, N. 12, 21 Kohl, Helmut 99 KPMG Peat Marwick McLintock 32–3 Krupp (company) 89 labour market, France 48 Labour Party 169 Larschan, B.R. 136 Le Brun take-over attempt by United Biscuits 60 Lea, S. 60, 108, 111–12, 161 Leland, Marc 126 Lenrow, J.L. 113 Les Echos bid by Pearson 67 Levey, M.M. 28, 137 Levine, M. 139–40 Libby McNeill (company) 48 liberalisation of investment: in France 53–6; in Japan 7–8, 15, 22–3, 26 licensing: in Great Britain 167; in Japan 13, 15, 32–3 Lilley, Peter 175 Little, J.S. 126, 129 Litton Industries take-over (Great Britain) 157 loans: in France 53 Lucet, Charles 57 Machines Bull take-over by General Electric 49–50, 51 Marshall Plan 83

231

INDEX

Martel take-over by Seagram’s 66 Matsuda, H. 34 Menne, Alexander 87 Metzembaum Bill (USA) 113, 114 Minebea take-over attempt by Trafalgar 30–1 Ministries see under specific names Mitel (company) 64 Mitsubishi Corporation 19, 35 Mitterand, Francois 69 Monopolies and Mergers Commission (UK) 150–1, 172, 174 Monopolies Commission (UK) 151 Monsanto take-over by Heuls AG 134 Multinational Business 115–16 Murdoch, R. 70

oil industry: in Germany 87–8; in Japan 20 Omnibus Trade Act (USA, 1988) 107, 130, 136 OPEC countries’ investment: in Germany 89, 92; in United States 107, 112, 114 Organization for Economic Cooperation and Development (OECD) 14, 22, 27, 55, 63, 74–5, 161, 167 outward investment: from France 47, 52, 59, 66; from Germany 89, 95; from Great Britain 151–2, 156; from Japan 23–4, 28; from United States 108–9, 112, 124–5 ownership see foreign ownership Ozawa, T. 13, 22

National Audit Office 171 national competitiveness issues 182–3, 185; in France 198, 220; in Germany 204, 220; in Great Britain 216, 221; in Japan 31, 192, 219; in United States 210, 221 National Enterprise Board (NRB, UK) 165 National Labour Relations Act (USA) 109 national/local resource issues 182–3, 185; in France 199, 220; in Germany 205, 220; in Great Britain 217, 221; in Japan 193, 219; in United States 119, 211, 221 national security concerns, United States 132–6 Nayashima, H. 38 Nippon Kokan (company) 118 Nordhoff, H. 85 Norman, M. 151 notification system: in Japan 30– 1, 33, 39

Parretti, Giancarlo 69 patriotic issues 182–3, 186; in France 200, 220; in Germany 206, 220; in Great Britain 218, 221; in Japan 194, 219; in United States 212, 221 Patterson, N.J. 128 Pearl, A.R. 15, 18–20, 22 Philips: in France 69; in Great Britain 157, 159 Philips, Fritz 159 Pickens, T.B. 34 Plender, J. 174 political issues 182–3, 186; in France 200, 220; in Germany 206, 220; in Great Britain 218, 221; in Japan 194, 219; in United States 212, 221 Pompidou, Georges 51, 57 Ponto, Jürgen 90, 93 portfolio investment: into Japan 10, 16, 22 productivity issues 182–3, 184; in France 196, 220; in Germany 202, 220; in Great Britain 214, 221; in Japan 190, 219; in United States 208, 221 protected industries: France 49; Germany 83, 92; Great Britain 155; Japan 19, 24–6; USA 127

Office of Foreign Investment in the United States (OFIUS) 117– 18, 120

232

INDEX

regional policies: in France 198–9, 220; in Germany 204–5, 220; in Great Britain 217, 221; as issue 182–3, 185; in Japan 36– 7, 192–3, 219; in United States 210–11, 221 Reich, S. 51, 63, 82–4, 90, 154–5, 169, 173 Renault Motors 118 research and development issues 182–3, 184; in France 196, 220; in Germany 87, 95, 202, 220; in Great Britain 214, 221; in Japan 36–7, 190, 210; in United States 112, 208, 221 restricted industries, Japan 11, 16, 24–5 Richardson, E.L. 131, 136 Robock, S.H. 12–14, 18, 23–4, 57, 108–10, 123 Roe Bill (USA) 113, 114 Ronson (company) 115 Rootes Motors 156, 164 Rowntree take-over by Nestlé 174 Rusk, Dean 108 Sachs take-over attempt by GKN 94 Safarian, A.E.: on France 49, 55, 64–5, 72; on Germany 81–3, 90, 92, 94–5, 97; on Great Britain 152, 155, 166–7, 173– 4; on Japan 11, 13, 24, 26– 30,32, 34–5; on United States 126 Saint Remi take-over by Burton’s 60 Savary, J. 66, 69 Schäffer 83 Schiller 86 Schmidt, Chancellor 91 Scotsman, The 35 Scott, Senator Hugh 115 SEA Brown Boveri 133 Securities and Exchange Commission (SEC, USA) 113, 115 Securities Exchange Act (USA, 1934) 125

Semi Gas System take-over by Nippon Sanso 137–8 Servan—Schrieber, J.J. 88 Sharp, M. 92, 94, 170–1, 173 Shell Oil 118 Shepro, R.W. 125, 132 Sherman Act (USA) 128 Shinmura, T. 30 Shore, Peter 164 Simmonds, K. 14, 23–4 Smith, John 175 Societé Nationale Elf—Acquitaine 126 Der Speigel 84–5, 89–90, 94–5 Spencer, L. 106, 135, 138, 140–1 Spondex take-over by 3M 72 Standard Radio Corporation takeover by Superscope 20 Der Stern 88 Steuer, M.D. 152, 159, 163–6 Stevens, P.Schott 132, 134 Stewart, P. 171 Stopford, J.M. 152, 168, 170 Structural Impediments Initiative (SII, Japan) 35 subsidiaries: in Japan 11 Sugden, R. 150 Sunday Times 164 taxation: in France 48, 196–7, 220; in Germany 202–3, 220; in Great Britain 215, 221; as issue 182–3, 184; in Japan 37, 190–1, 219; in United States 110, 208–9, 221 Tebbit, Norman 171 Technology, Ministry of (UK) 157–60, 162, 164 technology issues 182–3, 184; in France 49, 55, 62, 64, 196, 220; in Germany 202, 220; in Great Britain 158, 214, 221; in Japan 16, 20, 33, 36–7, 190, 219; in United States 110–12, 125, 208, 221 Technology Preservation Bill (USA) 139 telecommunications industry: in France 61

233

INDEX

Territorial Planning and Regional Development Agency (DATAR, France) 57, 59–60, 65 Texas Instruments 19 Texas Oil take-over (Great Britain) 155 Tillotson, J. 94 Times, The 59–60, 84–5, 87, 90– 2, 94; and Great Britain 155– 7, 162–5, 167, 169; and Japan 20, 23–4; and United States 110–11, 115 TIMET take-over by Toho Titanium 135 Torem, C. 47, 50, 52–6 Trade, Board of (UK) 154 Trade Act (USA, 1974) 110 Trade and Industry, Department of (UK) 47, 69, 70–4, 81, 93, 96, 98, 162, 165, 175 Trade and Tariffs Act (USA, 1984) 129 trade unions: Great Britain 160–1, 163; United States 109 Trades Union Congress (TUC, UK) 160–1, 163 transfer pricing, Great Britain 159 Treuhandstalt 100 Turner, L. 152, 168, 170 United Kingdom see Great Britain United Nations 28, 33–4, 39, 63, 69, 75, 81, 89 United States: acquisitions, concern over 119, 130; antitrust legislation 128–9; balance of payments 109, 111–12, 119, 209–10, 221; control of industry 113, 136, 207, 221; employment and investment 109, 111–12, 119, 209, 221; Exon-Florio amendment 130–43; foreign direct investment in 111; foreign ownership in 113, 207, 221; foreign policy implications of investment 108, 111; Government Operations, Report of

Committee 117, 118–24; hostile take-overs in 130, 133, 137; international trade 112, 209–10, 221; investment issues, matrix of 207–12, 221; inward investment into 112– 18, 127–30; Japanese investment in 112–13, 127; national security concerns 132–6; outward investment from 108–9, 112, 124–5; protected industries in 127; research and development in 112, 208, 221; resources, concern over 119, 211, 221; taxation in 110, 208–9, 221; technology and investment 110–12, 125, 208, 221; technology transfer 111, 119; transnationals’ investments abroad 124–5 United States Department of Commerce 26 United States Department of the Treasury 141 United States House of Representatives 117–18, 126 United States Senate 131; Finance Committee, International Trade Subcommittee 112; Foreign Relations Committee, Latin American Subcommittee 111; on France 47, 50–1, 54, 59; on Japan 7–8, 10–12, 14–17, 21– 3 Varley, Eric 168 Volkswagen 83–5 Walker, Peter 162 Wall Street Journal 130 Wall Street Journal Europe 99 Wallace, C.D. 22, 150, 157 Wang Hsiang-tsang 30 Webley, S. 60, 108, 111–12, 161 Weinberg, N. 109–10 Westinghouse company 133 Wild, Klaus Peter 100

234

INDEX

Wilms-Wright, C. 92, 164, 166–7, 169 Wilson, Harold 160, 165, 167 Wolf, F. 139–40 Woolfson, C. 175

Young, Lord 174 Young, S. 150, 166, 171–2 Zackula, S.K. 27, 29–30, 33 zaibatsu (Japan) 35

235

Transnationals and Governments: Recent Policies in Japan, France, Germany, the United States and Britain

Environmental Politics in Japan, Germany, and the United States

The United States and Britain in Prophecy

The Research Foundations of Graduate Education: Germany, Britain, France, United States, Japan

The Research Foundations of Graduate Education: Germany, Britain, France, United States, Japan

Becoming a Physician: Medical Education in Great Britain, France, Germany, and the United States, 1750-1945

States Against Migrants: Deportation in Germany and the United States

United States Government Information: Policies and Sources

The Ramparts of Nations: Institutions and Immigration Policies in France and the United States

Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s

Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s

Altered States: The United States and Japan since the Occupation

Censoring history: citizenship and memory in Japan, Germany, and the United States

Manufacturing Possibilities: Creative Action and Industrial Recomposition in the United States, Germany, and Japan

Government Policy towards Industry in the United States and Japan

Confronting Captivity: Britain and the United States and Their POWs in Nazi Germany

Minimum Wage Policy in Great Britain and the United States

Transparency in Public Policy: Great Britain and the United States

Pharmacopolitics: Drug Regulation in the United States and Germany

Preschool in three cultures: Japan, China, and the United States

Government Policy towards Industry in the United States and Japan

Handbook of Public Policy in Europe: Britain, France and Germany

Conflicts of Interest and the Future of Medicine: The United States, France, and Japan

Conflicts of Interest and the Future of Medicine: The United States, France, and Japan

Immigration and the Nation-State: The United States, Germany, and Great Britain

Criminal Defence and Procedure: Comparative Ethnographies in the United Kingdom, Germany, and the United States

Employment Research and State Traditions: A Comparative History of the United States, Great Britain, and Germany

Citizenship and Nationhood in France and Germany

Intellectual property protection, direct investment, and technology transfer: Germany, Japan, and the United States

Ageing And Employment Policies: France

Transnationals and Governments: Recent Policies in Japan, France, Germany, the United States and Britain

Environmental Politics in Japan, Germany, and the United States

The United States and Britain in Prophecy

The Research Foundations of Graduate Education: Germany, Britain, France, United States, Japan

The Research Foundations of Graduate Education: Germany, Britain, France, United States, Japan

Becoming a Physician: Medical Education in Great Britain, France, Germany, and the United States, 1750-1945

States Against Migrants: Deportation in Germany and the United States

United States Government Information: Policies and Sources

The Ramparts of Nations: Institutions and Immigration Policies in France and the United States

Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s

Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s

Altered States: The United States and Japan since the Occupation

Censoring history: citizenship and memory in Japan, Germany, and the United States

Manufacturing Possibilities: Creative Action and Industrial Recomposition in the United States, Germany, and Japan

Government Policy towards Industry in the United States and Japan

Confronting Captivity: Britain and the United States and Their POWs in Nazi Germany

Minimum Wage Policy in Great Britain and the United States

Transparency in Public Policy: Great Britain and the United States

Pharmacopolitics: Drug Regulation in the United States and Germany

Preschool in three cultures: Japan, China, and the United States

Government Policy towards Industry in the United States and Japan

Handbook of Public Policy in Europe: Britain, France and Germany

Conflicts of Interest and the Future of Medicine: The United States, France, and Japan

Conflicts of Interest and the Future of Medicine: The United States, France, and Japan

Immigration and the Nation-State: The United States, Germany, and Great Britain

Criminal Defence and Procedure: Comparative Ethnographies in the United Kingdom, Germany, and the United States

Employment Research and State Traditions: A Comparative History of the United States, Great Britain, and Germany

Citizenship and Nationhood in France and Germany

Intellectual property protection, direct investment, and technology transfer: Germany, Japan, and the United States

Ageing And Employment Policies: France

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