Globalisation

Written by Sajjad Karim MEP is Parliament's Rapporteur on EU-India Economic and Trade Relations and published in New Europe on Tue 13th Jun 2006

The consolidation of one of the chief industries fuelling globalisation has been reduced to a bitter fight in a tiny corner of Europe. News that Arcelor's latest defensive move against Indian-origin entrepreneur, Lakshmi Mittal is to try to ram through a merger with Russian steel mogul, Alexei Mordachov's Severstal, has taken many by surprise. In playing favourites over the jewel in the nation's corporate crown, the Grand Duchy of Luxembourg has become "the mouse that roared."

Arcelor's argument that Mittal's Achilles' heel remains its corporate governance structure, fail to hold water against its preference for an oligarchic billionaire. The suggestion governance at a Russian conglomerate listed in Moscow is superior to that of a company listed in Amsterdam and New York, where listing requirements are particularly stringent, is highly questionable. Moreover, whilst an impressive industrialist, Mordachov's close relations with Vladimir Putin, are a cause for concern that could easily deteriorate into weakness when a new President takes the Kremlin in two years.

Analysts agree the Russian deal is inferior to what Mittal has put on the table. The merger of Arcelor and Severstal, with two thirds of its sales in Europe, could hardly amount to a global concern. The truth is: Arcelor needs Mittal if it is to have any hope of improving its position in the emerging markets. With an extensive distribution network, wide geographical reach and striking market clout, Mittal can offer Arcelor footholds in US and Asia, which this quintessentially European company needs to become a universal powerhouse.

Shareholders have realised Arcelor is desperate to escape from Mittal at whatever cost. The question they are asking now, is why Arcelor prefers a creeping takeover by Severstal to the open €25.8-billion bid made by Mittal? Is it as straightforward as Arcelor wanting to be predator rather than prey? If Arcelor's Directors were simply manoeuvring to get a better price from Mittal, that would be one thing. But as the Indian steel magnate has made clear he is unlikely to sweeten his bid, shareholders increasingly feel Chief Exec, Guy Dolle, is driven by wounded pride, rather than cutting the best deal for his investors.

The treatment of the Mittal bid, both by Arcelor and others in Europe, compounds the pervasive sentiment in Indian society that Europe has an enduring colonial mindset in its attitude towards all things Indian. After all, India had no objections to French-owned Lafarge becoming a giant of the Indian cement industry. With the French treating India as a garbage bin by sending the asbestos-ridden aircraft-carrier, Clemenceau, to the scrap-yards of Gujarat, it is little wonder the Indian media is hostile to the EU's paternalistic rhetoric. And they have had a field day with the Mittal affair: slating the double standards of an EU, always geared up to play the capitalist game when it suits, but refusing to roll the dice when it does not.

While this fiasco puts Luxembourg at the centre of protectionist suspicions, it is part of a larger European malaise. This is an era of globalisation, of cross-border investment and liberalisation, not one in which investors are judged by the colour of their skin, in possible breach of WTO norms. The handling of this bid is only fuelling growing concern in India that non-tariff barriers are being erected across Europe, which will slow its emergence as an economic power. Protectionist forces within the EU must wake up to the real challenges of the rise of India and China and not just offer their industries short-term shields.