March 6 (Bloomberg) -- A global backlash against foreign corporate investment may end up holding down growth worldwide, economists say.

The mounting opposition to multinational mergers comes as more than $475 billion in takeovers, half of them cross-border deals, have been announced worldwide in 2006, the busiest start for any year since 2000. Behind the moves to raise barriers is a desire to protect against terrorism, coupled with angst about globalization and its potential to destroy domestic jobs.

``If it starts to cascade from one country to another, it will reduce the efficiency of the global economy and slow down the pace of activity,'' says Robert Hormats, vice chairman of Goldman Sachs International in New York.

In the U.S., lawmakers are threatening to block the acquisition of six U.S. port facilities by state-owned DP World of Dubai. In France, authorities sought to thwart an Italian firm's takeover of Paris-based utility company Suez SA by helping arrange a merger with state-controlled natural gas company Gaz de France SA. Britain last month warned Russia's OAO Gazprom, the world's largest gas supplier, not to bid for Centrica Plc, the U.K.'s biggest power company.

Foreign direct investment soared almost 30 percent last year to $897 billion, according to data from the United Nations Conference on Trade and Development. The splurge in recent years helped power the world economy to growth of 4.5 percent last year and 5.1 percent the year before, the highest since 1973, according to the Economist Intelligence Unit, a London-based research group.

Snow's Concern

U.S. Treasury Secretary John Snow says he's concerned at ``what we see happening in Italy, where we see local companies being protected from acquisition, where we see France developing these so-called national champions, Russia making sure mergers with foreign companies are pre-empted with mergers with domestic companies.''

The trend ``isn't healthy from the point of view of the global economy,'' Snow said in a March 2 interview.

Business leaders say they are also disturbed. ``There has to be a balanced approach, which first satisfies our need for security and at the same time makes sure we allow reasonable access to foreign investors to the United States,'' says Hank McKinnell, chairman of the Business Roundtable and chief executive officer of New York-based Pfizer Inc., the world's biggest pharmaceutical company.

`Peevish Tenant'

Henri de Castries, chief executive officer of Paris-based Axa SA, Europe's second-largest insurer, says doors may close because of French government efforts to block foreign bidders. ``In the house of Europe,'' France is ``becoming a peevish tenant,'' says de Castries, who has engineered 35 transactions, 18 of them outside of France, since 2000. ``One day we'll have to pay.''

The French government is opposing the $23 billion bid by Rotterdam-based Mittal Steel Co., owned by Indian-born billionaire Lakshmi Mittal, for rival steelmaker Arcelor SA, which has 26,000 employees in France. And it isn't the only European country raising barriers. The Spanish government favors Barcelona-based Gas Natural SDG SA's bid for Madrid-based utility company Endesa SA over a rival bid from Germany's E.ON AG. The Polish government is blocking UniCredito Italiano SpA's acquisition of a Polish bank.

Unlike in trade, where the World Trade Organization has clear-cut guidelines for what countries can do to protect their markets from foreign competition, rules governing international investment are amorphous and diverse. Countries generally reserve the right to block foreign takeovers on national-security grounds -- with varying interpretations of what that entails.

Chinese Wall

China invokes national security to bar foreign investment in Chinese television networks and publishing houses ``because those involve the sensitive question of how information is disseminated,'' says Wen Xiaoguang, a Beijing-based official at the China Association of Enterprises with Foreign Investment.

In India, telecommunications company Videsh Sanchar Nigam Ltd. of Mumbai urged its government to respond in kind after the company was forced to sign a security agreement with the U.S. government to enter the U.S. market. The Indian company later bought Tyco International Ltd.'s global undersea cable network.

Canadian lawmakers last year considered a measure to have the government review any foreign investment that might compromise national security. The effort was spurred in 2004 by news that China Minmetals Corp. was in talks to acquire Noranda Inc. of Toronto, then Canada's biggest mining company by sales. The measure died after Canada's Liberal government was ousted in January.

U.S. Lawmakers

In the U.S, Dubai-based DP World agreed on Feb. 26 to a 45- day security review of its takeover of six U.S. port facilities after lawmakers protested the deal.

``The American people don't want the deal delayed,'' Representative David Scott, a Democrat from Georgia, said at a March 1 hearing. ``They want it stopped.''

The government's review panel, the Committee for Foreign Investment in the U.S., or CFIUS, includes representatives of the Homeland Security Department and the Defense Department, and is headed by the Treasury.

This isn't the first time that lawmakers have kicked up a fuss over a proposed foreign takeover of a U.S. company. Cnooc Ltd., China's third largest oil producer, in August withdrew an offer to buy El Segundo, California-based oil company Unocal Corp., citing opposition from Congress.

As long as opposition to the ports deal remains rhetorical, its impact on foreign investment in the U.S. will likely be limited and fleeting, analysts say.

Chilling Effect

But ``if Congress overreacts, that will have a chilling effect on foreign investment,'' says Todd Malan, president of the Organization for International Investment, a Washington-based group representing foreign companies in the U.S.

Lawmakers are considering changes in the CFIUS process including expanding the definition of national security to include economic or energy security; giving Congress a greater say in the process; putting Homeland Security or the Commerce Department in charge of the committee instead of Treasury; and extending time limits for review to longer than 45 days.

Such changes increase the risk that foreign companies will shy away from investing and that foreign governments might be tempted to retaliate, some experts say. ``Politicization of the CFIUS process will encourage other countries to impose restrictions on U.S. investors abroad,'' says David Marchik, a partner at the Washington law firm Covington & Burling and author of a soon-to-be published book on the subject.

Diverting Funds?

Already, Arab investors warn they may divert funds from the U.S. to Europe and Asia because of opposition to DP World's purchase of London-based Peninsular & Oriental Steam Navigation Co., which operates the six U.S. ports.

``This may have a very negative effect on Arab investment,'' Egyptian billionaire Naguib Sawiris said in a Feb. 22 interview. ``What the U.S. is doing is very dangerous.''

United Arab Emirates economy minister Sheikha Lubna al- Qasimi agrees. ``This was a business deal that turned political,'' she said in a Feb. 28 interview. It ``raises concerns not only here, but worldwide, because all of a sudden the entry barriers have increased, not decreased.''

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

Last Updated: March 6, 2006 00:27 EST