Foreign Direct Investment
Competition policy

The substantial rise in foreign direct investment (FDI) into the US and the European Community over the last decade has provoked controversy and concern. In Discussion Paper No. 798, Research Fellow Damien Neven and Georges Siotis assess its implications for competition policy and find that the market failures associated with FDI are often too general to warrant policy intervention, although such investments undertaken to source domestic technology may justify concern. Patterns of FDI across EC industries are consistent with such technology sourcing by non-EC firms, which may warrant some monitoring. Consequent intervention would not fall naturally within the scope of competition policy, however, and it might be better considered as part of trade or technology policy.

Neven and Siotis note that FDI flows also affect competition policy, more conventionally defined, through their effects on market structure. Such transactions may involve several antitrust authorities, so there is potential for conflict among national authorities. Current international arrangements do not adequately address the problems of overlapping jurisdictions and extra-territoriality in the control of FDI that involves mergers. The authors discuss several possible improvements and conclude that an agreement on the allocation of jurisdictions in cases of conflict (as found in the EEA agreement) is preferable to centralization. EC competition policy concerns control of governments as much as firms in the control of state aids to FDI; while the subsidies European governments award to attract such investment are certainly large, they are not excessive in comparison with the distortions in some domestic labour markets.

Foreign Direct Investment in the European Community: Some Policy Issues
Damien Neven and Georges Siotis

Discussion Paper No. 798, June 1993 (AM)