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Cross country obstacles

A rapid growth in cross-country investments and global trade in goods and services has been a defining feature of the globalisation era. As countries enter into treaties with one another, multilateral institutions such as the World Trade Organisation have overseen the framing of ground rules for such engagement and thereafter ensured their compliance. Practically all countries are now open to foreign trade and investment although the emphasis tended to vary, depending on their overall economic and other perspectives. Globalisation has been given a further push by the conscious decision of most countries to do away with the types of control that confined investments within national boundaries. India, no exception to this trend, has benefited by increasing its share in world trade. Among emerging economies, India has been a major beneficiary of capital inflows. Foreign institutional investors (FIIs) have been by far the largest players in the domestic stock markets. The country has received a reasonable share of global foreign direct investment (FDI) and has been making efforts to attract much more. There is near unanimity that globalisation on these lines will proceed apace conferring larger benefits to all. However, a few recent episodes from the developed world concerning transnational investments suggest that the rules of the game are becoming more complex and are driven by non-economic forces.

A UAE government company, DP World, among the world's largest port operators, which had acquired the right to manage six American ports, has chosen to divest its stake in the face of growing political opposition to the deal from American legislators. Security concerns that were cited to thwart the deal were not expressed when the same ports were managed by the British shipping icon, P&O, whose takeover by the Dubai Company caused this fracas. Last summer a Chinese government company, CNOOC, had to back away from an attempt to takeover an American energy company, Unocal, although it had offered a better deal than what the eventual acquirer, the American giant Chevron did. Political opposition then centred on factors affecting the energy security of the U.S. Within the developed world itself, there have been a number of instances of otherwise attractive cross-border transactions being stymied by politicians and interested parties. Economic patriotism is among the rallying cries in France as the politicians there and in Luxembourg try to frustrate Mittal's attempts to take over Arcelor. In the more recent period, the main driving forces for FDI have been mergers and acquisitions and not a motivation to set up Greenfield projects. Another complicating factor is that large multinational companies can no longer be identified with specific nationalities as their shareholding patterns have become diffused. For India, the lessons to be learnt lie in the direction of imparting greater transparency to the existing FDI rules, while paying heed to genuine security concerns.

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