Mandelson and India warn the French over Mittal

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India launched an outspoken attack yesterday on French politicians for trying to scupper a £13bn takeover of Arcelor, the European steel maker, by a company owned by the Indian tycoon Lakshmi Mittal.

Kamal Nath, India's commerce minister, hinted the move against Mittal Steel could trigger a trade war between the two countries just as world trade negotiations were hanging on a knife-edge.

Peter Mandelson, the EU trade commissioner, also issued veiled criticism of the intervention by France and Luxembourg, saying any Commission inquiry into the deal would be decided on competition grounds alone.

Speaking after a bilateral EU/India meeting, Mr Nath said: "India is watching closely this issue of the takeover of Arcelor by Mittal and the comments being made and reaction by the French government on this.

"India has a good relationship with France - but we are watching this situation with concern."

He contrasted the French reaction with India's decision to approve the takeovers of some of its cement operations by Lafarge of France.

Asked whether this would impede negotiations to open up countries such as India to foreign investment, he said: "We are talking about globalisation and investment access so there should be nothing that negates that or is a contradiction to that."

Mittal Steel, which is majority owned by Lakshmi Mittal, made its hostile offer for Arcelor last week. The deal would create a giant controlling 10 per cent of the world's steel production. The combined company, with 320,000 workers in four continents - of whom 32,000 are in France and Luxembourg - would pour three times more steel than its closest rival.

Mr Mandelson said he had spoken with Mr Mittal on Tuesday. "If and when the issue is referred to the Commission we will determine it to see if it contravenes European competition rules. We will determine it on its commercial and not its political merits - and not the personal views of the individuals concerned."

Arcelor's rejection of the Mittal bid has been supported by politicians across Europe. Jean-Claude Juncker, the Prime Minister of Luxembourg, which has a 5.6 per cent stake in Arcelor, said: "This hostile bid by Mittal calls for a reaction that is at least as hostile."

François Loos, the French industry minister, told MPs: "We have an industrial policy. We are opposed to this Mittal takeover."

On Tuesday, Dominique de Villepin, the French Prime Minister, called the bid a "problem" because it included "no industrial project". The finance minister Thierry Breton said he had never seen such a "badly prepared" bid.

Mr Nath appeared visibly angered by the comments, brandishing a sheaf of newspaper reports. "We have brought to Peter Mandelson's notice our concerns over the comments emanating from the governments."

Meanwhile, Arcelor outlined part of its financial defence against the bid, which it said was designed to allow Mittal to get its hands on Arcelor's €3bn cash flow to invest in dilapidated mills in eastern Europe and the US.

Mittal immediately responded, saying it had "a very strong cash flow which has supported a strong investment programme over a number of years".

Mr Mittal was in Brussels yesterday to meet Neelie Kroes, the Competition Commissioner, and has been on a whirlwind tour of European state capitals. Jonathan Todd, the competition spokesman for the European Commission, said: "Member states cannot intervene on competition grounds on mergers of European dimension."

After the bilateral talks, Mr Nath and Mr Mandelson said they had made progress on industrial tariffs and services, two of the key issues in the World Trade Organisation negotiations. Mr Mandelson said: "I think that we are both somewhat more encouraged by what can be achieved in this round than I, certainly, have been in the past."