ChemChina/Syngenta merger concerns remain as EU delays decision

U.S. officials working to block U.S. purchases by Chinese state-owned entities.

The European Commission has pushed back its deadline for making a decision on the acquisition of Syngenta by China National Chemical Co. (ChemChina) to March 29, 2017, Reuters has reported. The commission said the deadline was extended at the request of the parties.

The commission announced Oct. 28 the launch of an in-depth probe to assess whether ChemChina's proposed acquisition of Syngenta is in line with the European Union merger regulation. The announcement came after ChemChina missed an Oct. 21 deadline for submitting so-called remedies in the EU’s early-stage review of the deal. The commission will assess whether the deal may reduce competition in crop protection products and the supply of certain input chemicals.

"This deal would lead to the combination of a leading crop protection company with one of its main generic competitors. Therefore, we need to carefully assess whether the proposed merger would lead to higher prices or a reduced choice for farmers,” commissioner Margrethe Vestager, in charge of competition policy, said when the investigation was opened.

Scrutiny also continues in the U.S. as Sen. Chuck Grassley (R., Iowa) said he remains concerned about the company’s possible use of the Foreign Sovereign Immunities Act. ChemChina recently sent Grassley a letter addressing some of his concerns surrounding the proposed merger.

“China, through state-owned enterprises, has made buying western companies an annual tradition over the last several years.  The transactions involve billons of dollars worth of market share and intellectual property,” Grassley said. “ChemChina’s answers to my questions provide some important insight into its acquisition of Syngenta, but the answer regarding sovereign immunity leaves a number of concerns.”

In its response, ChemChina wrote that Syngenta would be entirely owned by the Chinese state-owned company, meaning that it would be possible for Syngenta to assert sovereign immunity as a defense to claims brought in U.S. courts.  While ChemChina indicated that immunity would not extend to Syngenta’s U.S. business, Grassely said the company failed to note that immunity would otherwise apply to a wholly state-owned entity.

Grassley introduced in September legislation to make sure that state-owned enterprises don’t attempt to skirt responsibility through the U.S. courts. His State-owned entities Transparency & Accountability Reform (STAR) Act legislation would ensure that state-owned companies engaged with American companies and consumers as market participants would have to respond to claims brought in American courts, just like any other foreign company that isn’t owned by a government.

When he introduced the bill, Grassley said some state-owned enterprises have tried to use the Foreign Sovereign Immunities Act to their advantage in the U.S. judicial system.  State-owned enterprises often have complex ownership structures and then, when facing court proceedings, claim that immunity given to foreign sovereign governments in U.S. courts is also available to the state-owned enterprise at various levels of the organization.

Grassley led a Senate Judiciary Committee hearing in September on the seed and agrochemical industry deals that have been proposed.  Representatives from Dow, Dupont, Monsanto, Bayer, and Syngenta testified before the committee, but ChemChina declined the invitation to attend. 

The U.S.-China Economic and Security Review Commission recommended this week that U.S. lawmakers should take action to ban China's state-owned firms from acquiring U.S. companies. In its annual report to Congress, the panel noted the Chinese Communist Party has used state-backed enterprises as the primary economic tool to advance and achieve its national security objectives.

The report recommended Congress change the mandate of the Committee on Foreign Investment in the United States (CFIUS), the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms, to prohibit U.S. acquisitions by such entities.

"The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies," the report said.

CFIUS, led by the U.S. Treasury and with representatives from eight other agencies, has the ability to veto acquisitions from foreign private and state-controlled firms if it finds a deal threatens U.S. national security or critical infrastructure.

The amendment would create a blanket ban on U.S. purchases by Chinese state-owned entities.

Chinese Foreign Ministry spokesman Geng Shuang said the report "has again revealed the commission's stereotypes and prejudices.”

He added, “We ask that Chinese companies investing abroad abide by local laws and regulations, and we hope that relevant countries will create a level playing field.”

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