Eva Cheng
The June 23 US$18.5 billion proposal by China National Offshore Oil Corporation (CNOOC) to take over US oil firm UNOCAL, an attempt to outbid a US$16.4 billion offer from the US's second biggest oil company ChevronTexaco, triggered an instant hostile reception in Washington. Dozens of members of the US Congress immediately started calling for President George Bush to block the Chinese bid.
Scrambling for justifications, many opponents of the Chinese bid have demanded the offer be scrutinised by the Committee on Foreign Investment in the United States (CFIUS), which can block any deal on "national security" grounds. In the 17 years since the CFIUS has taken on this job, it has never defined national security. CNOOC announced on July 1 it has already formally invited the CFIUS to review its bid.
On June 30, in a paradoxical move, the House of Representatives voted 328-91 to deny the CFIUS funding to review the CNOOC bid. On its own, the vote isn't sufficient to stop a CFIUS review. However, the move seems to indicate that those trying to stop the bid are no longer confident that a CFIUS review will be adequate to block the Chinese bid.
This raised the question of whether national security is a genuine concern, or simply a handy pretext to strangle the bid.
On July 19, the UNOCAL board decided to recommend shareholders accept the Chevron cash-and-stock offer, which has been increased to $17 billion, against CNOOC's pure cash proposal. The UNOCAL shareholders are due to make a decision on August 10.
Scrambling for pretexts
Why, all of a sudden, are cross-border takeovers so scary? After all, according to the World Investment Report 2000 produced by the UN, in 1998 and 1999 alone, $1251.7 billion worth of cross-border mergers and acquisitions had taken place globally, of which $250 billion were driven by US capital.
Corporate investments can involve starting a company from scratch or — through mergers and acquisitions — buying into an existing company. Unsolicited takeover offers, like CNOOC's, are an everyday commercial reality, as is the existence of more than one bidder.
Opponents of the Chinese bid also pointed to the "danger" of UNOCAL's energy reserves falling into foreign hands. However, at the end of 2003, UNOCAL's global oil and gas reserves were 1759 million barrels of oil equivalent (BOE), of which only 583 million BOE was located in North America. It also wasn't a concern when British Petroleum (BP) took over Amoco Corp in 1998 for $61.7 billion and again gobbled up Atlantic Richfield in 2000 for $33 billion.
Of course, BP was backed by British PM Tony Blair, who's a loyal US ally, while Washington is constantly accusing Beijing of being recalcitrant.
Some other opponents of the CNOOC bid argue that because the company is 70% government-owned and partly government-funded, the bid isn't a genuine commercial deal. They express particular concern that this "controlling" government is a "communist dictatorship".
State backing
These critics seem to suggest that the firms from capitalist countries receive little, if any, government support. This is certainly untrue with the advanced capitalist countries. The European Union, Japan and the US back their capitalists, including their overseas ventures, with significant resources — especially in export credit, export subsidies, and the research and development of technology.
According to the OECD, for example, the average US farmer receives a government subsidy of $29,000 a year. The Export-Import Bank of the United States proudly announced on its website that "with more than 70 years of experience, Ex-Im Bank has supported more than $400 billion of US exports". In the last five years alone, the bank's support for US exports totalled $65.5 billion in 11,000 transactions, through "partnership with 42 state and local governments".
It's also interesting that China's political system has not been a barrier for the US firms that have, according to the US Department of Commerce, invested $55 billion in China between 1999-2003, which yielded $7.5 billion in total income.
But when it comes to foreign capital seeking to enter the US, the imperialist "superpower" is always prepared to reinvent the rules. The CFIUS review is an example: The committee is supposed to scrutinise takeover bids only on national security grounds, but there's no mechanism to prevent it from stretching the rule. Some members of Congress recently proposed to broaden the CFIUS's jurisdiction.
China and the US are competing for energy resources. But so are significant energy consuming economies like Japan and the European Union. To block the UNOCAL deal, Washington has to invent other excuses.
Imperialism's edge
There are other reasons that the US ruling class wants to block the Chinese bid. To start, the CNOOC is seeking to outbid Chevron, which undoubtedly has pulled a lot of strings in recent weeks. According to an April 4 Bloomberg report, acquiring UNOCAL will boost Chevron's daily output by 16% to 3 million BOE, which will halt a three-year production slide. Many of Chevron's fields are aging.
UNOCAL's end of 2003 energy reserves of 1759 million BOE is especially significant because Chevron's reserves are declining, by 6% in 2004, and reserves are key to oil companies' future profit.
The dominant position of US Big Oil, especially in the strategic Caspian region, will be undermined if UNOCAL is absorbed by the CNOOC.
According to UNOCAL, its 2003 reserves did not include resources from previously announced major discoveries such as Gehem, Gula and Gendalo in Indonesia; Vietnam; Arthit in Thailand; Bibiyana in Bangladesh; Xihu Trough in China; and the Champlain, Trident, St Malo and Puma deepwater discoveries in the Gulf of Mexico, which are all in active appraisal. UNOCAL produces oil and gas in seven countries outside North America and is involved in exploration and production projects in Thailand, Indonesia, Bangladesh, Burma, the Netherlands, Azerbaijan, the Congo and Brazil. In 2004, its international operations accounted for 62% of its natural gas production and 56% of its liquids production.
It also owns 8.9% of the Baku-Tblisi-Ceyhan (BTC) Pipeline that seeks to get oil from the Caspian Sea to the world market. With construction started in 2003, the pipeline is a US/British-led initiative to avoid relying on Russian pipelines to get that oil out. UNOCAL also owns 10.28% of a 10-member Azerbaijan International Operating Co., which seeks to develop the significant offshore oil and gas reserves of the Caspian Sea.
From Green Left Weekly, July 27, 2005.
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