- The Washington Times - Sunday, September 11, 2005

PARIS (AP) — French plans to vet foreign takeovers in newly defined “strategic” sectors are coming under fire from a growing number of critics, including companies that the government had vowed to protect.

A soon-to-be-published decree, touted by ministers after rumors of a Pepsico Inc. bid for French food company Danone SA provoked a political outcry in July, would give the government a veto over takeovers in 10 industries deemed sensitive to national security.

Sectors on the list, already confirmed by the Finance Ministry, include several over which most states retain tight control, such as arms manufacturing and encryption.

But the decree also covers companies with activities in biotechnology, data security, casinos and antidote production, fueling concern that it could lead to a broader kind of protectionism.

Prime Minister Dominique de Villepin, who vowed publicly to defend Danone from U.S.-based Pepsico in July, announced the measures just days later in a speech in which he also called for greater “economic patriotism.”

Charlie McCreevy, the European Union’s commissioner for the internal market, fired a shot across France’s bows earlier this month, telling an economic forum in Italy that he would “vigorously pursue” breaches of EU law resulting from attempts to thwart foreign takeovers.

Neelie Kroes, the European Union’s competition chief, reinforced the warning in a speech to the same gathering.

“Member states are sometimes tempted to seek to protect their industrial or financial crown jewels from takeovers by companies from other countries,” Miss Kroes said. “We have seen such signals from France just recently.”

Such measures would lead to a “1930s-style downward spiral” of protectionism, the Dutch commissioner added, “be they ‘economic patriotism,’ illegal state subsidies to keep companies artificially afloat or placing companies off-limits to foreign takeovers.”

For France’s conservative government, however, it is the criticism at home that has carried the most sting.

The call for economic patriotism “results from an archaic vision of the world,” Henri de Castries, chief executive of French insurance giant Axa, told financial daily La Tribune.

“We should be on our guard against using new words to dress up old ideas,” he said, “especially bad ones.”

The head of Medef, France’s main employers organization, also sought to warn the government away from protectionist temptations, likening some of the rhetoric to the massive concrete border fortifications that spectacularly failed to stop Germany’s World War II invasion.

“Economic patriotism is fine so long as it doesn’t become a Maginot Line,” Laurence Parisot told the daily Le Figaro, referring to the fortifications on France’s border with Germany and Italy after World War I. “We can’t congratulate ourselves when our companies make foreign conquests and then try to stop the reverse happening.”

France is not alone in seeking to guard its homegrown corporations from foreign raiders. China National Offshore Oil Corp. last month dropped its bid for U.S.-based Unocal Corp., citing opposition from Congress.

Some observers see signs that the French government is softening its stance in response to the pressure. Finance Minister Thierry Breton, the only senior government figure who did not rush to Danone’s defense, took charge of the dossier last week, effectively retrieving it from Industry Minister Francois Loos.

The Finance Ministry said the decree will merely bring “more precision” to the current law, which allows the state to block investments in any companies deemed sensitive to “public order, public safety or national defense interests.”

Clara Gaymard, globe-trotting head of the government agency that promotes foreign investment in France, said the move will increase transparency for investors.

But the Danone affair has muddied the water, she said. “It certainly wasn’t the best timing.”

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