Mittal's Merry Piper

India has every reason to be proud of Lakshmi Mittal, the head of the world's largest steel company, Mittal Steel. Beginning with two small steel plants in India, Mittal went abroad in 1976 to build a state-of-the-art steel plant in Indonesia. He was only 24 then. In the three decades that have elapsed since, he has set up new plants and turned around others to build the largest steel empire in the world. No one should, therefore, be surprised if the Indian government wishes him well and is predisposed to helping him further his meteoric career. But Kamal Nath, the commerce and industries minister has taken partisanship a good deal too far.

He has written to the European Commission's trade commissioner, Peter Mandelson, castigating the attempt being made by some governments to prevent Mittal from taking over Arcelor, Europe's largest steel company and casting doubt on the sincerity of the EC's commitment to the WTO to extend 'national treatment' to all companies. He has also threatened the government of Luxembourg that India would stop negotiations on a draft double taxation agreement if it continues to canvas support from other EC governments to oppose the takeover bid.

Had Kamal Nath been doing this for an Indian firm, say the Tatas, it would still have been an excessively strong expression of displeasure. When a far more fierce outburst of American jingoism stopped the China National Offshore Oil Company from buying the American oil giant Unocal, Beijing contented itself saying, (through the company) that this "unprecedented political opposition...was regrettable and unjustified".

But in this case, Kamal Nath has no legal or even moral excuse for lodging protests on behalf of Mittal. For, while Mittal is an Indian citizen, his company is not. Mittal Steel is headquartered in Rotterdam and managed out of London. This takeover battle is, therefore, entirely a European affair.

Kamal Nath may have been incensed because the media in Europe has played up Mittal's Indian identity and depicted the takeover bid as another example of a newly- industrialised country flexing its new found financial muscle in the ailing European market. There is sufficient tinge of racism in some of these accounts to give offense to Indians. But the minister should have sifted truth from perception before taking umbrage and issuing threats. The truth is that the takeover bid has raised fears of large-scale job losses among Arcelor workers in at least three countries where most of its assets are concentrated—France, Belgium and Luxembourg. Mittal has made a determined effort to allay these fears but in the bleak economic climate that prevails in Europe, it's hardly surprising that the trade unions do not feel reassured. It's difficult, therefore, for democratic governments to ignore their anxiety.

Despite that, the EC has warned its member nations to rein in their protective instincts and allow the normal processes of the market to decide the outcome of the bid. An EC spokesman singled out France and said: "Europe and France have vastly benefited from open markets. We can't go back to an old-style industrial policy of the 1970s and be propping up hand-picked industrial players by protecting them, intervening in markets or subsidising them."

Even the French finance minister, Thierry Breton, who voiced France's 'deep concern' and said after meeting Mittal that he doubted whether the cultures of the two groups would allow them to function together, made it clear that his government would not interfere with the takeover bid in any way.

Kamal Nath's threat not to sign a double taxation agreement with Luxembourg is in bad taste, to say the least. Luxembourg has more reason to be concerned than any of the other EC countries. With 5.6 per cent of the shares, not only is it the single largest shareholder in Arcelor, but the company is by far the largest industrial enterprise in that tiny country with 6,000 jobs. Were its plants in Luxembourg to be closed for any reason, it would tear the heart out of the country's industrial base.

On balance, these fears may not justify taking legislative action to prevent the takeover bid. The EC has been a staunch supporter of the initiatives to increase market access and provide national treatment to foreign direct investment in the developing countries so it cannot change the rules when the shoe begins to pinch. But the fact is that no European country has done so. The fact also is that this is the wrong case to take a stand because Mittal Steel is not an Indian company.

Finally, it's strange to hear an Indian commerce minister quoting national treatment to the Europeans when this is one of the so-called 'Singapore' issues that India first opposed and later insisted should be taken up only after the industrialised countries have fulfilled the commitments they made during the Uruguay round of trade negotiations.

By intervening so forcefully, Kamal Nath has broken the very rule that he is asking France, Luxembourg and other EC countries to follow—of not intervening in the working of the capital markets. He has also invoked a principle that India is not prepared to abide by itself. For not only is the Indian share market hedged with rules that are designed to prevent hostile takeovers by foreign firms, but its simply inconceivable that it would allow sail or even Tata Steel to be taken over. One must, after all, practice what one preaches.