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eyes on the U.S.

Beers And Monopolies - Don't Mess With Corona

Cheers!
Cheers!

SANTIAGO - The recent decision of the U.S. Justice department to block the acquisition of Mexican beer giant Grupo Modelo by the Belgian Anheuser-Busch InBev came as a surprise.

The $20 billion acquisition was announced last June, and what’s surprising is that neither company involved is technically an American company.

Belgium-based multinational AB InBev is the largest brewer in the world. It was formed in 2008, when Belgium-Brazilian InBev bought American brewer Anheuser Busch. InBev was formed four years earlier, when the Belgian Interbrew and the Brazilian Ambev merged. Ambev had itself been formed by an earlier merger between Brazilian beer brands Antartica and Guarana, giving the Brazilian company a near monopoly on beer sales in Brazil and a huge portion of the South American market.

Grupo Modelo is the largest brewer in Mexico and also has a significant portion of the market share in the U.S., thanks to the success of Corona, America’s number one imported beer. AB InBev already owns half of Grupo Modelo. The U.S. wants to prevent it from buying the other 50%.

What right does the U.S. have to prevent the merger between two foreign corporations? After the acquisition, AB inBev would control more than 50% of the total U.S. beer market, which would allow them to manipulate prices and hurt consumers. The U.S. government is not using anti-trust laws to prevent the acquisition, because it doesn’t have jurisdiction. Instead, it is asking the courts to decide whether the merger should be stopped because it will make price collusion easier, which would hurt U.S. consumers.

It might seem like this case is not relevant to Latin America, but it is, and not only because AB InBev has its hands in Brazil, the third-largest beer market in the world. The truth is that the U.S. market is not the prize in this acquisition - it is Mexico. By buying Grupo Modelo, AB InBev is doing the same thing it did in Brazil – buying the dominant company and then increasing margins by reducing costs.

Fighting monopolies and price collusion

The case is a good example of the complexities involved in globalization. It’s not enough if companies have anti-trust laws as long as some countries – Ecuador and Guatemala come to mind – don’t even have an agency to enforce those laws.

Price collusion tends to happen in small economies where it is difficult for several companies to compete in the same industry. Chile, for example, has a market economy with clear anti-trust laws that are actively enforced, but in spite of that it has had several cases of price collusion in the past couple years. There has been collusion in the price of medicine, for example, which is probably caused because almost all the pharmacies in the country are owned by three companies.

In market economies, the state has the responsibility for making sure that no company has monopoly power. When an industry depends on government concessions for its operations, the government has the responsibility to issue enough concessions to allow real competition.

In both Mexico and Colombia, industries like telecommunications and television are essentially monopolies. The airline industry is another one that certainly needs increased competition.

The U.S. Department of Justice is right to say that the absorption of Grupo Modelo by AB InBev will make the prices go up and paralyze innovation. But Mexico should have been the one standing up to the merger, not the U.S. And that would have happened if the Mexican government was more committed to protecting competition.

The lesson for all of Latin America is that each country should strengthen its defenses against monopolies. At the same time, countries should standardize their practices, so that what is unacceptable in one country will also be unacceptable in another.

Coming back beer – If AB InBev ends up rescinding its acquisition offer; it will have to pay a $650 million breakup fee. If it goes ahead with the deal, it can look forward to a long and costly battle with the U.S. Department of Justice. But the lesson is that when there are mergers that will allow price manipulation, the consumer defender can pop up from the most unexpected places.

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Economy

Lex Tusk? How Poland’s Controversial "Russian Influence" Law Will Subvert Democracy

The new “lex Tusk” includes language about companies and their management. But is this likely to be a fair investigation into breaking sanctions on Russia, or a political witch-hunt in the business sphere?

Photo of President of the Republic of Poland Andrzej Duda

Polish President Andrzej Duda

Piotr Miaczynski, Leszek Kostrzewski

-Analysis-

WARSAW — Poland’s new Commission for investigating Russian influence, which President Andrzej Duda signed into law on Monday, will be able to summon representatives of any company for inquiry. It has sparked a major controversy in Polish politics, as political opponents of the government warn that the Commission has been given near absolute power to investigate and punish any citizen, business or organization.

And opposition politicians are expected to be high on the list of would-be suspects, starting with Donald Tusk, who is challenging the ruling PiS government to return to the presidency next fall. For that reason, it has been sardonically dubbed: Lex Tusk.

University of Warsaw law professor Michal Romanowski notes that the interests of any firm can be considered favorable to Russia. “These are instruments which the likes of Putin and Orban would not be ashamed of," Romanowski said.

The law on the Commission for examining Russian influences has "atomic" prerogatives sewn into it. Nine members of the Commission with the rank of secretary of state will be able to summon virtually anyone, with the powers of severe punishment.

Under the new law, these Commissioners will become arbiters of nearly absolute power, and will be able to use the resources of nearly any organ of the state, including the secret services, in order to demand access to every available document. They will be able to prosecute people for acts which were not prohibited at the time they were committed.

Their prerogatives are broader than that of the President or the Prime Minister, wider than those of any court. And there is virtually no oversight over their actions.

Nobody can feel safe. This includes companies, their management, lawyers, journalists, and trade unionists.

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