A recent Canadian decision to scupper the plans of BHP Billiton to take over Canada’s Potash Corp, the largest producer of potash in the world, raises an interesting argument of how countries may use investment policy norms to ensure that government’s revenue models are not adversely impacted and domestic industry is kept alive. Some analysts, according to news reports, think the reasons for the Canadian government’s position on the Billiton takeover was the fear that the Canadian potash cartel would crumble and the price of potash would decrease as would the revenues of the Canadian government.
Following the blocking of the takeover bid Canadian Industry Minister Tony Clement stated that Ottawa would seek to compel foreign investors to make public their undertakings on jobs, local processing, technology transfers, competition and other commitments typically made to meet the “net benefit” test that is required under the Investment Canada Act.
The potash issue is of interest to India because the country is a large importer of potash for the fertiliser industry and does not have any deposits of this mineral. Canada, Russia and Belarus control over 80 per cent of the world market for potash and are known to work through a cartel. The three large Canadian producers, including Potash Corp, which account for a well over 30 per cent of the market, work through a joint sales firm called Canpotex. The only country where the Canadian producers do not reportedly use Canpotex for sales is the United States for fear of US anti-trust laws.
Since India is a large user of potash based fertiliser, it may want to look into the import of potash from these cartels. The Indian Competition Law, too, allow for investigating the presence of cartels. This could have an effect on the downstream industry in India. India imported nearly $3 billion worth of potash in 2009. Section 32 of the Competition Act, 2002 of India states that the Commission has the power to inquire into agreements or abuse of dominant position or a combination if such a position would have an appreciable adverse effect on competition in the relevant market in India. This power extends to agreements or enterprises that are also outside India.
The recent global recession and its adverse impact is now forcing countries to start focusing on the whole issue of “net benefit” for the country in trade and business. The debate will soon move towards the issue of “policy space” available to countries for protecting domestic interests. The issue will get complicated when interests and policy space would clash. This could, for example, happen when a cartel would benefit the Canadian government through higher revenues while it would hurt the downstream potash users industry in India, which would be denied a competitive price owing to the presence of cartels in this industry.
Such issues would now need to figure in the negotiations for free trade agreements (FTAs) that India has with several countries. India is also in the process of negotiating an FTA with Canada and this can be a part of the discussion. What is important to note is that industry primarily focuses on market access while responding to government requests for feedback on issues for FTA negotiations. Industry may now need to look at the whole issue of building synergies with FTA partners, under which, besides access to the other market, issues such as investment and policies adversely impacting competitiveness may need to be studied in detail.
Investment is an important part of the comprehensive negotiations with other FTA partners for India. It will be important for industry to understand the investment policy in other countries with which India is negotiating an FTA. For instance, the Canadian policy of net benefit needs to be understood fully as it can foil any plans of building synergies between companies after an FTA is put in place.
In Australia, too, there has been concern about Chinese companies taking over energy and mining companies. Reportedly, there is a fear of the loss of price control over commodities. Canberra is also planning to examine foreign ownership of the country’s rural land and agricultural food production in response to a spate of takeovers that have triggered anxiety about job losses and broader concerns about food security. India plans a comprehensive FTA with Australia as well.
The author is Principal Adviser, APJ-SLG Law Offices
