The Relationship between FDI Screening and Merger Control Reviews – IRARRÁZABAL – November 2022 OECD discussion
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Chile and other Latin American countries face tensions between mandatory merger control and lack of foreign direct investment (FDI) screening. While Chilean merger control operates correctly based on competition impacts, it lacks consideration of national interests. This was seen in high-profile cases regarding lithium and electricity acquisitions. There are calls in Chile and Latin America more broadly to develop FDI screening laws and authorities to separately assess investments for national security impacts, while maintaining independent and expert merger control. Future challenges include determining what industries to protect, which agency will conduct screening, and developing screening processes.
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The Relationship between FDI Screening and Merger Control Reviews – IRARRÁZABAL – November 2022 OECD discussion
- 1. What should a competition agency do if it has a mandatory merger control but lacks FDI screening?: Chile and Latin America Felipe Irarrázabal Ph. Director Centro Competencia de la Universidad Adolfo Ibáñez (Chile) OECD, The Relationship Between FDI Screening and Merger Control Reviews November 30, 2022
- 2. 0.Topics I.- Introduction II.- Chile and its regulatory context III.- Chile: Tension between merger control and national security IV.- Latin America faces the same challenge V.- Future challenges in Latin America VI.-Final reflections
- 3. I. Introduction Recent merger control in Latin America (LA) Although is a delicate mechanism, merger control in LA have operated correctly Foreign Direct Investment (FDI) screening on developed countries: complex and important mechanism LA lacks FDI screening
- 4. II.The Chilean context 1 Competition law was enacted in 1959, but mandatory merger control only in 2016 Merger control: SLC test No public interest test or exceptions No national champion argument Exception: Changes of ownership of concessions in social media Also in 2016: the foreign investment law was repealed
- 5. II.The Chilean context 2 In general, no distinction based on nationality (civil code) Exceptions: 1. Land on borders; 2. Maritime cabotage. Leading country in privatization (few SOEs) Many trade treaties
- 6. III. Tensions between merger control and national interest Lithium (2018) A foreign acquisition of a minority interest in a Chilean lithium company A claim filing before FNE by a state agency and two senators Strong political reaction: lithium should only be Chilean FNE made a competition analysis (overlaps and sensitive information among 3 big players) FNE’s report cited OECD (2016) note: “the foreign investment assessment [national interest] is rarely conducted by the competition authority”. FNE reached and agreement with the foreign entity which was approved by the Competition Court (TDLC)
- 7. III. Tensions between merger control and national interest Distribution of electricity-Chilquinta (2020) A SOE acquisition of a distribution electricity company of central Chile Attention from politicians and the media Seller: US and Canada FNE approved the transaction without any reference to national interests and without any condition Importance of the regulation
- 8. III. Tensions between merger control and national interest Distribution of electricity-CGE (2021) A SOE acquisition –same company- of a distribution electricity company in various regions of Chile More attention from politicians and the media More than 50% of the total distribution in the Chile and also a minority interest in transmission and generation (vertical integration issue)
- 9. III. Tensions between merger control and national interest FNE’s decision on CGE of March 31, 2021 “(…) neither the merit nor the plausibility of (…) possible effects on national interest or security, (…) were analyzed, since they exceed the scope of legal powers of this Prosecutor's Office.”.
- 10. III. Tensions between merger control and national interest Congress A bill for reforming the Constitution Required a qualified quorum law for investment of foreign states in public utilities or companies related to national security The Prosecutor was summoned to Congress Column published by two senators: need of express law and political issues with the setting of electricity rates
- 11. III. Tensions between merger control and national interest
- 12. IV. Tensions between merger control and national interest Bidding processes 5G Passports
- 13. V.Latin America challenges No FDI screening law and authority Specific restrictions for arms companies and activity ownership on real estates located at the borders SOE on critical industries
- 15. V.Future challenges in the region Importance of both merger control and FDI screening Possibility to explore successful experiences Essential: 1. what to protect, 2. who is in charge and 3. procedure Nexus: single model, dual and parallel Developing countries: 1. need to keep growing through investments, 2. need to fight against economic concentration, 3. lack of organization that analyzes intelligence and geopolitical issues, 4. lack of public/private confidence
- 16. V.Final reflections Need to have a “simple” FDI screening Specific matters of national security, special body, basic procedural rules Autonomous to merger control Merger control should continue to be seen technical, predictable, connected to international standards Meanwhile: the competition agency should make its autonomy explicit
- 17. Thank you!