The Netherlands has one of the most open economies in the world, but its economic policies are becoming increasingly nationalistic. The Dutch government is currently working on a legislative package to protect Dutch companies against undesirable foreign influence or hostile foreign takeovers. The final piece of legislation is the adoption of the Undesirable Control of Telecommunications Act by the House of Representatives early this month, in order to protect Dutch digital infrastructure against cyber espionage or digital warfare. The key question of 2020 is how the Netherlands will find a balance between an open economy on the one hand, and protective measures on the other hand. What does this development mean for telecom companies that (aspire to) do business in the Netherlands?
The Dutch business community as well as Dutch politicians were surprised by the imminent takeover of national pride KPN by Mexican América Móvil in 2013. And, in 2017, attempts were made to acquire AkzoNobel and Unilever. The question that emerged was: how can Dutch companies be protected against financially powerful competitors from abroad, especially in economic downturns? In addition, due to transnational issues such as geopolitical tensions, cyber espionage and digital warfare, there has been a growing desire to better protect telecommunications services against undesirable influences from abroad.
This has resulted in various measures, such as the Undesirable Control of Telecommunications Act (Wozt), an Investment Test for risks to national security, a reflection period for listed companies and the implementation of the European Foreign Direct Investment (FDI) screening regulation. A robust arrangement of measures to protect Dutch companies and interests. The Wozt in particular led to many discussions in the Dutch parliament as well as amongst employers’ organizations. The Act gives the Dutch government new far-reaching rights to actively intervene in takeovers.
Protecting vital infrastructure
The purpose of the Wozt is to protect providers of certain telecommunication services, such as data centers, hosting providers, telecoms services, domain names, communication networks and internet nodes. In the event of a takeover or a merger, the Ministry of Economic Affairs must be notified. If the takeover affects national security, the Minister has the legal power to block a takeover. Specifically, in the case of engaged geopolitical interests in the takeover, such as a foreign authority that wishes to strengthen its position to the detriment of the Netherlands. Under certain conditions, it is even possible to dissolve a takeover with retroactive effect if geopolitical relations change, such as the election of a newly elected foreign leader that implements a policy that is not beneficial for Dutch interests.
Extending powers causes criticism
Thus, the law gives the government far-reaching powers to intervene in ownership relations. In March 2019, this resulted in 16 pages of critical questions from the House of Representatives. It lasted more than six months until State Secretary Keijzer (Economic Affairs) formulated a response to all the questions and announced her amendment proposals. Despite the changes, the employers’ organisation VNO-NCW and the sector association DDA (Dutch Data Center Association) remained critical. Both organisations acknowledged the importance of the law, but the proposal had to be ‘in balance with the open economy (…) and the possibility of retrospective intervention in the ownership relationship is at odds with this’.
VNO-NCW is concerned about the executive powers of the minister that allow interventions, as well as about insufficient guarantees. Moreover, it is unclear whether the power to intervene after a takeover already has a precedent in other European countries. Business association VNO-NCW does not want the Netherlands to occupy an exceptional position in this respect. The organisations fear that the legislative proposal will have a negative impact on the Dutch investment climate.
A majority of the House of Representatives shared these concerns; seven motions and four amendments in total were adopted to improve the proposal. The House of Representatives wanted stronger safeguards related to the exceptional powers of the Minister. For example, Mr. Weverling (VVD – Conservative Liberals), asked parliament to be reluctant in the retroactive intervention in ownership relations. Additionally, he argued that affected companies should be able to submit their position to the ministry in order to improve the involvement of companies in the process. Ms. Van den Berg (CDA) asked for an annual report on the application of the law and the prohibition power, for an evaluation of the law after five years, and does not want directors to be held liable when they have to carry out assignments related to unwinding a takeover.
These motions and amendments were adopted with broad support from the House of Representatives. By demanding additional guardrails, the House of Representatives is demanding the minister to be more cautious. Moreover, with the implementation of evaluations and annual reporting, the House of Representatives constantly keeps its finger on the pulse of the implementation of the law. This demonstrates that measures that affect the openness of the Dutch economy can count on a critical look from left as well as right parties in the House of Representatives.
The proof is in the pudding
The Cabinet is in a hurry to implement the draft legislation, as it fears that the corona crisis will make Dutch telecom companies extra vulnerable to foreign takeovers. The bill has passed the Senate this week, but this will not be the last time that we will hear from the Wozt. Although most large Dutch telecom companies are owned by foreign parent companies, there are still a few smaller Dutch data companies as well as Dutch telecom company KPN.
We also have to ask the question; what will happen if such a foreign parent company is taken over and this leads to undesirable influence in the eyes of the Dutch minister? At that point, the Dutch minister can block the takeover of the Dutch subsidiary, and hence the Dutch government also gains indirect influence in takeovers of foreign companies. Or suppose a takeover has to be reversed retroactively by order of the Ministry? In any case, these situations will lead to a lot of attention and discussion in domestic and foreign politics and media and may even lead to increased geopolitical tensions. After all, it is not easy wanting to be an open economy and at the same time protect national interests in a globalized world!
Public Matters advises many companies that are active in the tech sector or that are directly related to technological developments such as the Wozt. Check this page for more information