Republican lawmaker drafts bill to require disclosure of foreign merger grants

Republican lawmaker drafts bill to require disclosure of foreign merger grants

A Republican lawmaker is preparing a bill that would require companies subsidized by foreign governments to disclose this information when pursuing major mergers, subject to U.S. regulatory scrutiny.

The bill, led by Rep. Scott Fitzgerald, R-Wisk, and temporarily named “Withholding of Foreign Government Grants for Mergers,” requires companies backed by public entities to notify regulators of this support. When they report a deal over $ 92 million.

Republican Federal Trade Commissioner Noah Joshua Phillips, who supports the legislation, told CNBC in an interview Wednesday that the additional information could help regulators assess how a company might act after a merger.

“Our beliefs in the law and the way we do our work are fundamentally based on the assumption that companies maximize their profits. They want to make money, ”Phillips said. “But public entities don’t have the pursuit of profit as the ultimate motivation, and therefore, they can’t operate in the same way that businesses we usually see do.”

A company that values ​​certain policy goals over profits may make a different calculation regarding the risk of continuing hostile behavior, such as drastically reducing the prices of its competitors only to raise them later. While Phillips declined to speculate on the types of conduct a public entity might engage in, he said it would be helpful to know their potential incentives to assess the facts of each individual case.

As it stands, regulators may be aware of foreign government grants in the case of mergers, but Phillips said the need to put this information forward would allow them to “develop expertise and ask the right questions “.

The bill builds on a recommendation by the Chinese-US bipartisan Economic and Security Review Commission last year. In its annual report to Congress, the commission recommended that the FTC have a system in place to determine how proposed transactions are affected by such foreign government support.

The commission found that the Chinese government would support the companies it saw as national champions and ultimately led them to expand into the United States and other countries.

“This process helps the Chinese national champion to overtake and replace world market leaders,” the commission wrote in its annual report to Congress.

The commission said that “China’s trade-distorting practices” mean that “American workers and businesses, no matter how innovative and skilled they are, find it difficult to compete when the Chinese government is engaged in the process. Chinese government through various laws and regulations. favor of corporations and the financial system, and when American companies gain access to the Chinese market, it is at the expense of transferring valuable intellectual property to their Chinese counterparts. “

The group warned that the risk is particularly acute when it comes to emerging technologies, where China would seek to “completely outshine and displace the United States.”

“Failure to appreciate the seriousness of this challenge and protect US competitiveness would be serious,” the commission wrote. “As these emerging technologies are the engines of future growth and the building blocks of future innovation, the loss of leadership today risks stunting US economic and technological progress for decades. “

Although Fitzgerald said he was in the early stages of engaging with his colleagues to co-sponsor the bill, he said he believed China’s clear willingness to devote significant resources to business subsidies was a proposal. Can rally MPs on both sides of the aisle.

The bill would not place any national security assessment requirements on antitrust agencies, which Phillips said should be left to the existing agencies responsible for this type of review. For example, the Committee on Foreign Investment in America (CFIUS) within the Treasury Department is already charged with examining the national security implications of mergers with foreign entities.

But Phillips and Fitzgerald said there was a need to assess foreign-subsidized firms for potential harm from a competitive perspective, which is within the purview of antitrust regulators.

Doug Melamed, a professor of law at Stanford University and a former acting deputy attorney general in the Department of Justice’s antitrust division, said a possible consequence of such legislation, if passed, would be mergers with public entities. One will be cold.

“The most important impact of such a requirement may be to prevent acquisitions in the first place,” said Melamed. “Because if the Chinese have an interesting stake in company X which generally does not show up…

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