Written evidence submitted by the Centre for Competition Policy (BFA0014)
This consultation response has been drafted by the named academic members of the Centre, who retain responsibility for its content.
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The Centre for Competition Policy (CCP)
CCP is an independent research centre established in 2004. CCP’s research programme explores competition policy and regulation from the perspective of economics, law, business and political science. CCP has close links with but is independent of, regulatory authorities and private sector practitioners. The Centre produces a regular series of Working Papers, policy briefings and publications. An e-bulletin keeps academics and practitioners in touch with publications and events, and a lively programme of conferences, workshops and practitioner seminars takes place throughout the year. Further information about CCP is available at our website: www.competitionpolicy.ac.uk
CCP Response to House of Commons Foreign Affairs Committee - blocking foreign asset stripping of UK companies
1. This note has been prepared by several faculty from the Centre for Competition Policy (CCP) at the University of East Anglia. The CCP is a leading inter-disciplinary research centre with a longstanding focus on competition, regulation and consumer policy. The faculty members involved with preparing this response are Tola Amodu, Andrea Calef, Sean Ennis and Andreas Stephan.
2. What role should the FCO play in guiding UK Government decisions on intervening in foreign takeovers of UK companies, where there may be national security risks?
2.1. Bodies outside of the standard competition-focused merger review framework can play an appropriate role in international mergers, particularly to the extent that impacts assessed are outside of those considered by the competition law. For national security risks, FCO’s knowledge of geopolitical concerns is material to safeguarding the interests of the nation. Ensuring FCO has a strategic role to play in decision-making about national security risks related to foreign takeovers is reasonable. The question then becomes how to most efficiently and effectively implement such a role. There may be conflicts from having a supervisor focused on competition in exclusive charge of making national security evaluations and interventions. This has led, in the U.S. for example, to a situation in which a ministry focused on broad national interest has chairing responsibilities for reviewing acquisitions of stakes by foreign entities. The U.S. formal structure for reviews of foreign interests is governed by the Committee on Foreign Investment in the United States (CFIUS), chaired by the Treasury.1 The Department of State is involved and the competition authorities are also involved (via involvement of the Department of Justice).
2.2 Some other foreign jurisdictions use less formal processes for exerting influence, such as state ownership stakes in strategic enterprises or direct ministerial intervention, without a public written record, to stop deals. We believe a more formal structure is most appropriate in the UK system. To the extent that competition authorities have staff with the appropriate security clearances and informed views on national security, it may be valuable to involve them.
3. How does the FCO assess whether a potentially hostile party is seeking to secure significant influence or control over a UK company?
3.1 No comments.
4. In what circumstances should the FCO seek to intervene in decisions on takeovers on the grounds of the impact on bilateral relations or the UK’s geopolitical interests?
4.1 Whatever process is adopted in the UK, it is important that it be effective while also not being turned into a blunt instrument of political policy and international trade. The current framework in the UK has not seen frequent use of national security grounds in blocking mergers. Assigning such decisions to a secretary of state with highly constrained criteria may make intervention decisions less likely. In contrast, giving them to a committee of officials with interest in national security, and full access to relevant evidence, may lead to more frequent use of such powers. Constraining the definition of national security in advance may be difficult, due to the breadth and unpredictable nature of national security interests; yet the instrument should not become one that can be unduly applied.
4.2 The need for judicial review may, unfortunately, limit the information that can be used in such reviews. The ability to use highly classified information may be essential for national security reviews. In the U.S., the decisions of the CFIUS are not judicially reviewable, facilitating consideration of such information. In the UK, that option might not be possible; Parliament may usefully consider appropriate structures for bringing confidential information to bear in such matters.
5. What safeguards are required in the forthcoming National Security and Investment Bill to ensure that the FCO has a full role in the decision-making process in relation to interventions?
5.1 We wonder whether it is worth considering a committee process, that meets in closed session and can consider a broad array of highly classified information, without risk of that information becoming public. Such a committee could make a recommendation to a relevant ministry about how to proceed or a decision.
5.2 Avoiding risk of public release of information used may be made more complex in the context of possible appeals and likely judicial reviewability of decisions. Being clear about the level of confidentiality of information used in recommendations or decisions may help to facilitate review by appropriate persons.
5.3 The FCO is in a better position to access and evaluate such information than standard competition evaluators. As a result, the FCO could usefully have an active role in such a committee, and perhaps a leading role in identifying matters to consider and agenda setting for such a committee.
5.4 We have no views on which ministry, if any, should be made responsible for either leading such a committee or issuing the determination of an intervention.
September 2020
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