Disciplines on State-Owned Enterprises in International Economic Law: Are We Moving in the Right Direction?

Abstract

State-owned enterprises (SOEs) are a specific kind of enterprise with specific characteristics and inherent competitive advantages. However, they continue to play a considerable role in twenty-first century trade. The first section of this article will address the question of why and how SOEs must be regulated in international economic law. It will shortly review the characteristics of SOEs and link these to the question whether there is a need for specific disciplines to remedy the potentially trade and investment distorting behaviour of SOEs. In the second section of the article, the existing provisions on SOEs in international economic law will be elaborated upon. Several issues surround the currently existing disciplines on SOEs, including the lack of a clear definition and scope, limited specific disciplines, and problems of enforcement. The article will try to answer several questions: How well do currently existing rules address the issues surrounding SOEs? Is the specific chapter in the Trans-Pacific Partnership (TPP) new and groundbreaking? Are current gaps being addressed? What about the negotiations in other mega-regional agreements? This article evaluates the existing rules and the new rules found in TPP regarding five elements that should necessarily be included in any chapter on SOEs: (i) a clear definition and broad scope; (ii) general obligations and rights; (iii) specific disciplines on trade-distortive practices by SOEs and specific exceptions; (iv) provisions to improve transparency; and (v) rules regarding enforceability and dispute settlement.

INTRODUCTION

Contrary to what might be expected, state-owned enterprises (SOEs) still play a role in twenty-first century trade. More importantly, the (possibly) competition distortive behaviour of SOEs is no longer only affecting the domestic markets, but has expanded to international trade. While less economies are relying on SOEs to provide goods and services, those SOEs that still exist increasingly affect international trade. Because of global value chains, globalization, and the opening up of WTO Members’ markets, the possible trade and investment distorting effects of SOE participation in international trade have entered the limelight.

SOEs are a specific kind of enterprise with specific characteristics and inherent competitive advantages. The first section of this article will address the question of why and how SOEs must be regulated in international economic law. It will shortly review the characteristics of SOEs and link these to the question of whether there is a need for specific disciplines to remedy the potentially trade and investment distorting behaviour of SOEs. In the second section of the article, the existing provisions on SOEs in international economic law will be elaborated upon. Both the provisions at the multilateral level, including the GATT 1994 and the GATS, and those in several more recent free trade agreements (FTAs), will be discussed. Do these provisions lead to a level playing field in which SOEs and privately owned enterprises (POEs) can compete? Do they adequately address existing concerns regarding the participation of SOEs in international trade? Do the rules in the FTAs fill any gaps left at the multilateral level and how do they compare to each other?

The second section of the article does not aim at merely critiquing the existing provisions, but also evaluates possibilities for the future. It departs from the premise that any SOE chapter that intends to reduce the inefficiencies that currently characterize the disciplines on SOEs must contain five main elements: (i) a clear definition and broad scope; (ii) general obligations and rights; (iii) specific disciplines on trade-distortive practices by SOEs and specific exceptions; (iv) provisions to improve transparency; and (v) rules regarding enforceability and dispute settlement. This article is structured according to this suggestion and will evaluate the existing provisions in international economic law accordingly.

The Trans-Pacific Partnership (TPP) is a FTA concluded between a very diverse group of negotiating countries in several aspects: level of economic development, sectoral strength, and use of SOEs (e.g. Vietnam is still an avid user of SOEs). ¹ As a so-called ‘mega-regional’ agreement, TPP is one of the biggest regional trade agreements between some of the largest economic players in the world. ² This agreement, like some other FTAs that came before it, contains a chapter on ‘State-Owned Enterprises and Designated Monopolies’. As the TPP was anticipated to be a groundbreaking agreement, with the opportunity for countries like Australia and the USA to influence possible new international economic rules on SOEs, special consideration will be given to its provisions on SOEs. ³ Additionally, wherever possible, reference will be made to the negotiations on two other mega-regional trade agreements: the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA).

I. WHY AND HOW SHOULD WE REGULATE SOES?

A. The characteristics of SOEs

There is no universal definition of what the term ‘state-owned enterprise’ encompasses. This problem does not arise for ‘privately owned enterprises’ as this term covers all enterprises that are not owned or controlled by the state, in whatever form or size. Closely linked to this lack of universal definition of SOEs is the lack of coherent international disciplines. As will be shown in the second section of this article, international rules do exist, but they are limited in scope, are ineffective, or are toothless. Different multilateral, plurilateral, and bilateral agreements have incorporated different rules, without effective international guidance that could lead to coherency.

Three main differences in characteristics between SOEs and POEs can be identified. First, POEs and SOEs often have different guiding objectives. Where private companies are mainly focused on profit maximization, state ownership is seen as a way of correcting market failures. Governments depart from the principle of competitive neutrality with the purpose of remedying market failures. Examples can be found in cases where natural monopolies exist or where SOEs are used as agents for developmental policies. ⁴ Secondly, SOEs are characterized by their inherent competitive advantages. As will be explained below, the need for specific rules is created by the competitive advantages that are enjoyed by enterprises solely because of their state ownership, financial participation by the state, government control through rules or practices on the functioning of the enterprise, or because they are a government-designated monopoly. As a last element in this comparison, reference can be made to the differences in decision-making and regarding accountability. SOEs, especially those that are uncorporatized, are often burdened with unincentivized top management, with very limited accountability but with decision-making concentrated in a limited amount of hands. ⁵ However, it should be taken into account that SOEs exist in a wide range of different corporate forms and with different characteristics and that especially this last characteristic can vary immensely between different types of SOE, influencing the potential for trade distortion.

These characteristics help explain why SOEs often inhibit a competitively neutral market. Where governments pursue their objectives through SOEs, trade and investment can be significantly impaired. Therefore, the need for specific rules is created, in order for SOEs to exist without distorting international trade.

B. The rationales behind maintaining SOEs

State ownership of commercial enterprises often exists for several reasons, including a mixture of social, economic, and strategic interests. ⁶ The Organization for Economic Co-operation and Development (OECD) points out that there are several reasons why a government would consciously want to depart from competitive neutrality in certain sectors. First, to maintain public service obligations, e.g. with regard to postal services, telecommunications services, and providing essential utilities. ⁷ ‘Public services’ meaning services which the state is concerned with providing at prices and/or locations that are accessible to all citizens. This preference is frequently motivated by public concerns. SOEs can be a major source of employment, often with very generous social benefits attached to them. ⁸ State ownership could also allow for cross-subsidization, enabling a state business that is earning excessively in a lucrative sector to pay for public services in another sector. ⁹ Secondly, the desirability to use SOEs as tools for industrial policy. SOEs are used to develop certain capabilities, technologies, and knowledge in the broader countries’ interest, without being limited by commercial considerations. However, this objective only maintains its legitimacy where societal value is attached to the maintenance of the SOE in a specific sector. ¹⁰ Thirdly, SOEs can generate large profits that can be considered necessary to maintain government expenses. Fourthly, the political economy of SOEs: where a government feels the need to protect SOEs because of pressure from the general public or interest groups. ¹¹ Especially in the earlier stages of economic development, many reasons exist to justify a higher degree of government involvement. ¹² International economic law should not intervene where state ownership or control is the most efficient to reach certain policy objectives (e.g. ensure universal service provision). However, where the government has the interest to ensure that its SOE succeeds in a competitive market (thereby no longer solely focusing on the justifiable policy objectives), competition with (foreign) POEs can be severely distorted. ¹³ It is the creation of an uneven playing field that must be remedied.

C. The role of SOEs in twenty-first century trade

The OECD 2013 Trade Policy Paper, looking at the business year of 2010–11, identified 204 out of the world’s 2000 biggest companies as majority SOEs, recording a combined sales of USD 3.6 trillion in that business year. ¹⁴ Additionally, the OECD compares both ‘Countries’ SOE shares’ (CSS) (reflecting the weighted averages of SOE shares of sales, assets, and market values among each country’s top 10 companies ¹⁵ ) and ‘Sectoral SOE shares’ (SSS), thereby providing more detailed information on the countries with the biggest state-owned companies and the sectors in which SOE presence is highest. ¹⁶ Moreover, a recent OECD policy paper stated that the economic effects of preferential treatment by foreign governments extend beyond foreign markets, also affecting the sales and investment in domestic markets. ¹⁷ These raw numbers demonstrate the undeniable influence and power of SOEs both in world trade and in several important countries and sectors. The high relevance of these state-owned companies in international trade begs the question whether the existing rules adequately address the (inherent) competitive advantages enjoyed by these companies and whether more needs to be done.

D. Competitive advantages allow a departure from competitive neutrality

It should be made clear from the outset of this article that the main concern is not the existence of or the international trading by SOEs, but the (potential) absence of competitive neutrality in markets where POEs and SOEs (could) compete. ¹⁸ Competitive neutrality requires ‘that government business activities should not enjoy net competitive advantages over their private sector competitors simply by virtue of public sector ownership’. ¹⁹ Competitive neutrality aims at limiting the advantages that SOEs derive merely from the fact that they are government-owned. Provisions addressing SOEs should therefore aim at providing a ‘level playing field’ for competition between SOEs and private enterprises, thereby promoting efficient competition. ²⁰

The need for specific rules on SOEs is thus created by their competitive advantages (see supra). Even though various anticompetitive practices can also be undertaken by private actors, the effects of anticompetitive practices are enlarged by the specific characteristics of SOEs. ²¹ When considering these competitive advantages in more detail, it becomes clear that all of those described amount to a direct or indirect subsidization, through a lowering of fixed or variable costs of production.

Three main categories of competitive advantages can be identified. ‘Regulatory favouritism’ is granted to SOEs when governments use policy instruments to change market results. ²² This can translate into a more favourable treatment of SOEs, which often includes different and/or less strict regulatory disciplines. Examples given by the OECD include: disclosure requirements and exemptions from antitrust enforcement, building permit or zoning regulations and specific bankruptcy rules or even an exemption from these rules. ²³ Market distortion through ‘financial support’ occurs when non-market financing or guarantees provided by government policy allow the SOEs to operate without economic considerations. ²⁴ This can take several forms. First, through state subsidization: often SOEs receive direct financial support from the state or indirect support through favourable tax regimes or other benefits like land usage and rights of way. ²⁵ Secondly, SOEs often have easy access to financing, through credit from governments, through state-owned financial institutions, or through implicit/explicit state guarantees. ²⁶ This lowers their costs of borrowing and puts them again at a competitive advantage compared to private enterprises. Apart from the other advantages listed above, ‘competitive non-neutrality’ can be caused by, first, more favourable treatment by the government that takes the form of preference in public procurement and information asymmetries. ²⁷ Secondly, governments may entrust SOEs with exclusive or monopoly rights with regard to universal or public services. When these rights are given in markets where natural monopolies exist, this may have little consequences for market competition, but this is not the case when SOEs operate in network industries and operate as vertically integrated structures with incipient monopolies in their value chains. ²⁸ In the latter case, relative competition can be distorted and market entry can be prevented. Thirdly, the fact that ownership and control are less easily transferred in SOEs than in private firms. This is caused by the fact that SOEs’ equity is often locked in and it is very hard to transfer the ownership rights. This benefits SOEs in several ways: (i) it can absolve them from the obligation of paying dividends to shareholders; (ii) as there is no fear of dropping stock prices, such SOEs can pursue anticompetitive, exclusionary pricing strategies; and (iii) there is less incentive to efficiently operate the company, as inefficient management will not translate into the normal disciplinary effects of capital markets.

Because of these competitive advantages and their unique position in the market, SOEs often have the possibility to use specific ‘restrictive business practices’. These practices can involve preventing other companies from importing/exporting at lower prices; administering import regimes and determining price or quantity of imports; subsidizing trade, domestic production, or distribution; favouring domestic producers for the purchasing of commodities; holding or disposing of stocks; establishing or controlling product standards or minimum prices; and owning and operating production and processing facilities. ²⁹

E. Addressing concerns on SOEs

Special rules with regard to SOEs are necessary because of the inherent differences between SOEs and POEs. Especially the different guiding objectives of SOEs warrant for specific disciplines. This can be illustrated by the fact that the rules of the GATT 1994 are enacted on the assumption that they apply to enterprises that are driven by economic incentives, arguably not covering several activities of SOEs. ³⁰ The GATT and the WTO have succeeded greatly at reducing tariff barriers in both developed and developing countries. Therefore, the barriers to trade are increasingly situated behind the border, some of them related to state ownership. All of the above elements help to explain the inadequacy of the current rules with regard to SOEs in the GATT 1994. Because Article XVII GATT 1994 was enacted in a time where the focus of trade liberalization lay elsewhere (lowering of tariffs), the rules no longer suffice, taking into account the position of SOEs in our globalized world. Trade distortions through SOEs on the international market entail a higher welfare cost than distortions caused by SOEs in a closed domestic market. Evidently, firms that are exposed to international competition are often more efficient, cost-effective, and advanced. ³¹

Moreover, it is important to ensure competitive neutrality in order for enhanced allocative efficiency in the economy. ³² When different players in the market do not operate under the same competitive terms, goods and services may no longer be produced by those that are most efficient at it, ultimately to the detriment of the consumer. The competitive advantages of SOEs allow for a distortion of trade and investment. It is, therefore, deemed necessary to ensure a level playing field through specific legislation.

However, this need for specific disciplines must be nuanced in various ways: SOEs exist in a wide spectrum of government involvement. On the one hand, there are the enterprises fully owned and controlled by the government, and on the other hand, there are enterprises that seem to act completely separately and distinctly from the government. ³³ Additionally, the corporate form of SOEs differs widely across countries and sectors. This will significantly impact their characteristics. For example, a listed company that has the state as its majority shareholder will have much less scope to pursue non-commercial objectives than a fully state-owned enterprise that is not listed on the stock exchange. The ‘corporatization of SOEs’ in some (OECD) countries has already led to more competitive neutrality. ³⁴ Moreover, only where SOEs compete (or potentially compete, if competition is being prevented through regulation or restrictive business practices of the SOE itself) with POEs, does the issue of competitive neutrality come into play. It is not the existence of SOEs in themselves that causes the call for more specific regulation, but rather their distortive practises when engaging in commercial competition. Regarding the performance of both POEs and SOEs, ownership does not matter as long as the trading happens in competitive environments. ³⁵

This article does not argue a need to diminish the amount of internationally trading SOEs. Trade negotiations are concerned with trade and investment distorting effects of SOEs, not with their motives or guiding objectives. It is, however, the behaviour of the government that enables the competitive advantages of SOEs, mostly through (indirect) subsidization. Therefore, international, intergovernmental, plurilateral regulation of these matters does make sense. In order to regulate SOEs sensibly, five main elements must be reflected in the provisions: (i) a clear definition and well-defined scope; (ii) clear general obligations and rights; (iii) specific disciplines on trade-distortive practices by SOEs and specific exceptions; (iv) provisions to improve transparency; and (v) rules regarding enforceability and dispute settlement. Existing rules on SOEs in international economic law will be examined, taking into account these five elements.

II. SOES IN INTERNATIONAL ECONOMIC LAW

A. Definition and scope

One of the main issues regarding the disciplines on SOEs is the lack of a clear and consistent definition of this category of companies in international law. This section will look at the existing definitions in international economic law, including various FTAs and the recently concluded TPP.

1. At the multilateral and bilateral level

The GATT 1994 contains a definition of ‘state trading enterprise’ in Article XVII, describing it as ‘a state enterprise, wherever located, and any enterprise that has been granted, formally or in effect, exclusive or special privileges’ , including marketing boards and import monopolies. ³⁶ The ‘working definition’ found in the Understanding on the Interpretation of Article XVII is, however, more narrow than the legal definition in Article XVII itself, imposing two requirements: (i) ‘granted exclusive or special rights or privileges, including statutory or constitutional powers’ and (ii) ‘in the exercise of which they influence through their purchases or sales the level or direction of imports or exports’. ³⁷

The scope of Article VIII GATS is narrower than the provision in the GATT because it only applies to monopoly suppliers and exclusive service suppliers. Article XXVIII(h) elaborates on the concept of ‘monopoly supplier’ stating that the service supplier needs to be ‘authorized or established formally or in effect by that Member as the sole supplier of that service’, thereby requiring some direct government involvement. The panel in China–Electronic Payment Services explained the concept of ‘exclusive services supplier’ as ‘one of a small number of suppliers in a situation where a Member authorizes or establishes a small number of service suppliers, either formally or in effect, and that Member substantially prevents competition among those suppliers’. ³⁸

It is unclear whether the Agreement on Subsidies and Countervailing Measures (SCM Agreement) applies directly to SOEs. Article 1, containing the definition of a subsidy, states that a subsidy is ‘a financial contribution by a government or any public body within the territory of a Member’. ³⁹ Can a SOE be qualified as a ‘public body’? After an elaborate analysis, the Appellate Body in US–Anti-dumping and Countervailing Duties (China) came to the conclusion that a public body within the meaning of the SCM Agreement ‘must be an entity that possesses, exercises or is vested with governmental authority. Yet, just as no two governments are exactly alike, the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State, and case to case.’ ⁴⁰ Therefore, SOEs might fall within the definition of ‘public body’, but this will always have to be determined on a case-by-case basis, evaluating the core features of the entity concerned.

In its SOE Guidelines, the OECD clarifies that when it uses the term ‘SOE’ it refers to enterprises ‘where the state has significant control, through full majority, or significant minority ownership’. ⁴¹ The OECD thus focuses on the concept of control, stating that different degrees of ownership can involve ‘significant control’. Therefore, where the GATT is unspecific as to the precise definition of a state trading enterprise, the definition provided by the OECD is clearer. Another definition or clarification by the OECD can be found in its reports regarding competitive neutrality, where it applies the framework to ‘all types of government-owned bodies that are actually or potentially competing with private operators in any given market and that can be considered as a “commercial entity”’, ⁴² thereby requiring both (i) state-ownership and (ii) being a commercial entity.

The US–Singapore FTA dedicates a separate chapter to SOEs. Chapter 12 entitled ‘Anticompetitive Business Conduct, Designated Monopolies and Government Enterprises’ contains specific provisions applicable to the conduct of ‘government enterprises’. Article 12.8 defines a ‘government enterprise’ as (i) for the USA: an enterprise owned, or controlled through ownership interest, by the government; and (ii) for Singapore: an enterprise in which the government has decisive influence. Interestingly, the Parties to this FTA could apparently not agree on a definition for government enterprises, with the USA focusing more on ownership while Singapore focuses more on decisive influence.

2. TPP

The definition of a ‘state-owned enterprise’ in Chapter 17 of the TPP contains two elements: (i) the enterprise is principally engaged in commercial activities; and (ii) a Party either directly owns more than 50% of the share capital of the enterprise; or controls through ownership interests, the exercise of more than 50% of the voting rights; or holds the power to appoint a majority of Members of the board of director or an equivalent management body. This definition lacks a consideration of effective influence. ⁴³ An additional criterion of some degree of ‘control’ as proposed by the OECD would have broadened the scope and would have addressed the problem of de facto SOEs. Even though the criterion on the power to appoint the majority of the board of directors in a way remedies this problem, it does not sufficiently do so. This definition is markedly different from the simpler and broader USA definition in the US–Singapore FTA . However, it does provide for one single definition applying to all the Parties, which should be preferred over the two definitions in the FTA.

The definition of SOEs and thereby the scope of the specific provisions should not focus on being as broad as possible. It is, however, imperative that all problematic entities (i.e. all entities benefitting from comparative advantages due to state ownership or control) are covered. This also implies those entities that are not state-owned in the classical sense, but where the government exercises a sufficient degree of control, thereby attributing these inherent competitive advantages to such enterprises. The limitation of the definition to those SOEs that are engaged in commercial activities, already indicates that Chapter 17 does not aim at limiting the opportunities for SOEs to exist and operate in international markets, but rather at levelling the playing field.

This definition, that is sufficiently broad but for the missing element of control, is however considerably limited by the provisions in Article 17.2 regarding the scope of the Agreement. The Article contains several predictable provisions such as the exemption of government procurement, the ‘right’ of the Parties to establish or maintain SOEs, and the exemption of services supplied in the exercise of governmental authority (with an explicit reference to the GATS). ⁴⁴ However, several other exemptions are included that might not have been expected: the exemption of activities for the purpose of the resolution of a failing or failed financial institution (paragraph 4), the exemption for pension funds (paragraph 6) and the non-applicability of the obligation of non-discrimination and commercial considerations to sovereign wealth funds (paragraph 5). Additionally, services supplied by a SOE within its domestic market are exempted from the obligation not to provide non-commercial assistance. ⁴⁵ Insofar as these exemptions include service sectors or certain goods that are not provided in competition with other services suppliers, such limitations of scope arguably do not hinder reaching the overall objective of this chapter.

B. Disciplines on SOEs: general obligations and rights

1. At the multilateral level and bilateral level

A chapter on SOEs in any broad FTA should start by setting out the general obligations and rights of the Parties regarding these specific enterprises. Inspiration can be drawn from the obligation in Article XVII GATT 1994, which requires that ‘state trading enterprises’ (STEs) act ‘in a manner consistent with the general principles of non-discriminatory treatment ’ for ‘governmental’ measures that affect imports and exports by private traders. However, the application of this Article is flawed as it is quite general and toothless and only disciplines discriminatory behaviour. The panel in Canada–Wheat Exports and Grain Imports confirmed that this included the most-favoured nation (MFN) treatment obligation, but declined to take a position on whether this also included the national treatment obligation. ⁴⁶ This implies that where companies act in violation of the national treatment obligation or where the action cannot be considered a government measure, Article XVII is unable to sanction this behaviour. In relation to this, the AB has held that compliance with Article XVII must be assessed ‘by means of a market-based analysis, rather than simply by determining whether an STE has used the privileges that it has been granted’. ⁴⁷ Under the GATT 1994, state trading enterprises, like private actors, may exploit the advantages they enjoy due to their economic benefits. ⁴⁸ Moreover, Article XVII.1(b) clarifies the provision of subparagraph (a), stating that STEs shall ‘make any purchases or sales solely in accordance with commercial considerations’. It has been argued that the Ad note to Article XVII (1) leaves state trading enterprises ample room for price discrimination. ⁴⁹ However, this is only possible insofar as different prices are charged for commercial reasons. ⁵⁰

The GATS only contains a specific provision applying to monopoly suppliers and exclusive service suppliers. Article VIII GATS stipulates that they cannot act in a manner inconsistent with a Member’s obligation under Article II (containing the MFN treatment obligation) and its specific commitments. Because the national treatment obligation under the GATS is limited to those sectors where a Member has undertaken commitments, ⁵¹ monopoly suppliers will not be subject to this obligation in sensitive sectors. Like Article XVII GATT 1994, the GATS does not prohibit state monopolies as such, but only prohibits the abuse of a monopoly position.

At the bilateral level, several general obligations and rights can be identified. For the purpose of this article, we identified three main examples. First, several FTAs contain the explicit right to maintain and establish SOEs. ⁵² For the sake of legal certainty and to set the scene for the rest of the chapter, it is important to stress that it is not the existence of SOEs that is problematic.

Secondly, several FTAs include the obligation of non-discrimination, but with a varying scope: the US–Chile FTA (and various other FTAs) obliges its Parties to ‘ensure that any state enterprise that it establishes or maintains accords non-discriminatory treatment in the sale of its goods or services to covered investments’. ⁵³ The scope of this obligation in CETA is broader, as it requires non-discriminatory treatment of investment, goods, or services in the purchase or sale of a good or service. ⁵⁴ Moreover, Article 12.3 of the US–Singapore FTA applies a different scope to the obligation for both Parties: USA SOEs, on the one hand, are obliged to accord non-discriminatory treatment in the sale of goods or services to covered investments. Singaporean SOEs, on the other hand, are required to provide non-discriminatory treatment to covered investments, USA goods, and USA service suppliers, in both its purchases and sales.

Thirdly, the obligation to act in accordance with commercial considerations can only be found in two FTAs: CETA and the US–Singapore FTA , where it moreover only applies to Singaporean SOEs. ⁵⁵ This obligation, however, helps prevent restrictive practices that limit SOEs’ effectiveness. It can, therefore, be observed that before the enactment of the TPP, only the short chapter on SOEs in CETA contained all three identified general obligations and rights, applying equally to all its Parties.

2. TPP

The TPP does deserve merit for clearly setting out the basic rights and obligations of the Parties regarding SOEs. Article 17.2.9 TPP contains the right of Parties to establish and maintain SOEs. The obligations of non-discriminatory treatment and to act pursuant to commercial considerations can be found in Article 17.4. The obligation to act in accordance with commercial considerations applies to every purchase or sale of a good or service. The requirement of non-discrimination is explicitly extended to both the sale and purchase of a good or service, including when supplied to an investment in Article 17.4.1, subparagraphs (b) and (c). Both subparagraphs describe a national treatment and MFN obligation, avoiding the confusion that exists on Article XVII GATT. Taken together, these subparagraphs of Article 17.4 go significantly further than the equivalent obligations in most previously mentioned FTAs. Additionally, the same obligations apply to both Parties, thereby avoiding the dual approach in the US–Singapore FTA.

C. Disciplines on SOEs: specific disciplines and exceptions

The rules on SOEs at the multilateral level are characterized by their lack of specific disciplines. None of the Articles in GATT, GATS or any other Covered Agreement impose a specific discipline going further than general obligations and weak transparency mechanisms. However, apart from the general obligations, there is a need for specific disciplines that address specific concerns with regard to SOEs. As to the exceptions, a limited number of sector- and company-specific exceptions should be preferred because these allow countries to protect the sectors that are deemed most important to further their economy or meet public needs and avoid exceptions that are too wide. Any sector-specific exceptions would need to be limited in scope and countries have to specify which of the specific obligations do not apply to the specified sectors. In principle, however, all SOEs that do not provide a public service should be subject to all specific obligations.

1. Specific disciplines

a. At the bilateral level

The US–Australia FTA contains specific obligations on anticompetitive practices by SOEs at the sub-federal level for the USA and on competitive neutrality at all government levels for Australia. ⁵⁶ Additionally, the US–Singapore FTA contains several provisions that might be considered as ‘more specific disciplines’ on SOEs because they go further than setting out the non-discrimination obligation or the obligation to act in accordance with commercial considerations. Singapore has engaged itself to ensure that SOEs do not ‘enter into agreements among competitors that restrain competition on price or output or allocate customers for which there is no plausible efficiency justification’. Additionally, it is obliged to ensure that its SOEs do not engage in exclusionary practices that substantially lessen competition to the detriment of consumers. ⁵⁷ None of these obligations apply explicitly to the USA. The same goes for the obligation on Singapore to take no action or attempt to influence or direct decisions of its SOEs. ⁵⁸ In this FTA, the specific rules on telecommunications and investment apply to both SOEs and private enterprises. Another specific discipline can be found in the telecommunications chapter that contains provisions on competitive safeguards, preventing major suppliers from engaging in anticompetitive conduct. ⁵⁹ Additionally, the chapter requires an independent regulator that cannot be partly owned or influenced by the Parties’ government, to monitor the public telecommunication service supplier. ⁶⁰ Where a government has an ownership interest in a supplier of public telecommunications services, it shall notify the other Party and privatize this supplier as soon as feasible. ⁶¹ Whereas most FTAs do not contain SOE-specific disciplines, specific obligations can sometimes be found where rules in other parts of the FTA, such as a chapter on telecommunications, are applicable to both POEs and SOEs.

Another source of specific disciplines could be the applicability of competition law. Several FTAs refer to rules of competition law in provisions on SOEs, using existing competition law to remedy the trade distortive effects that can be associated with SOEs. ⁶² This is very obvious at the bilateral level, where the rules on ‘state enterprises’ are almost invariably found in the chapter containing the competition law provisions. Similarly, the OECD 2012 Report on Competitive Neutrality and some national laws refer to competition law as the way to deal with SOEs. ⁶³ However, applying competition law to the behaviour of SOEs has significant drawbacks. Traditionally, competition law is focused on preventing restrictions on competition, thereby assuming profit maximization as the driving force behind the enterprises at issue. However, the main anticompetitive conduct of SOEs will be considered ‘non-recoupment predation’, ⁶⁴ which is often not captured by competition law. ⁶⁵ Competition law provides for a way to deal with anticompetitive practices only after they have taken place ( ex post remedy) and will only apply to those SOEs that are sufficiently big, have sufficient power on the market, and that do not fall within a specific exclusion. ⁶⁶ Moreover, the activities of SOEs often find their basis in law or are justified by public policies. Therefore, even though applied less and less, the state defence doctrine allows for the exclusion of liability where the conduct of the enterprise is dictated by laws or regulations. ⁶⁷ These observations give rise to the question of whether turning to competition law is the appropriate method of dealing with the trade and investment distorting behaviour of SOEs. It should also be taken into account that competition law is still very much a national issue. Applying national competition laws will lead to fragmented rules on SOEs, instead of the required consistency and predictability.

b. TPP, TTIP, and TiSA

In Chapter 17, the closest the Parties come to any kind of specific disciplines can be found in the Articles related to non-commercial assistance. These are aimed at preventing governments from providing non-commercial assistance (read: subsidies, the text of these provisions is extremely reminiscent of the language in the SCM Agreement ) to their SOEs with respect to the production and sale of goods or the provision of services through the first or third mode of supply. ⁶⁸ Article 17.7 TPP elaborates on the concept of ‘adverse effects’, including price undercutting and displacement or impedance of imports, production, or supply of services. Furthermore, Parties did commit to engage in technical cooperation on the issue of SOEs, which includes the exchange of information and the sharing of best practices on policy approaches combined with the establishment of a ‘Committee on State-Owned Enterprises and Designated Monopolies’. ⁶⁹ It can only be hoped that, through this cooperation, the excellent example of Australia in addressing competitive neutrality can seep through to the national policies of other Parties, including the USA. Moreover, article 1.3 TPP, containing the general definitions, defines ‘enterprises’ as ‘any entity constituted or organized under applicable law, whether or not for profit, and whether privately or governmentally owned or controlled, including any corporation, trust, partnership, sole proprietorship, joint venture, association, or similar organization’. Therefore, all specific provisions in the rest of the TPP that apply to ‘enterprises’, apply equally to SOEs, unless provided otherwise.

For the reasons set out above, the lack of any reference to national competition law in Chapter 17 of the TPP should be considered an improvement compared to earlier FTAs. It should, however, be taken into account that the chapter on competition policy states that: ‘Each Party shall endeavour to apply its national competition laws to all commercial activities in its territory. ’⁷⁰ Therefore, where an SOE is engaged in a commercial activity, national competition law can be applied under TPP. This does, however, not detract from the fact that more specific disciplines on SOEs can be found in this Agreement. As described above, many of the inherent advantages of SOEs boil down to an (indirect) subsidization by the government. The fact that the TPP includes the specific disciplines on non-commercial assistance, will, arguably, effectively contribute to levelling the playing field for SOEs and POEs in competition with each other. By including the subsidization of trade in services into its scope, Article 17.6 TPP goes beyond anything stipulated under the Covered Agreements.

Looking at future mega-regional trade agreements, in the negotiations on TTIP and TiSA, some proposals were made with regard to specific disciplines on the trade-distorting effects of SOEs. First, the European Union (EU), in an initial position paper on TTIP, proposed a prohibition on cross-subsidization of a non-monopolized market for both goods and services. ⁷¹ A similar prohibition on cross-subsidization was proposed in the draft text on the Annex on Competitive Delivery Services and the Annex on Telecommunications in TiSA. ⁷² Additionally, Articles 3.1 and 3.2 of the Annex on Telecommunications require the telecommunications regulatory body to be independent of any supplier of (public) telecommunication services and that such a regulatory body cannot accord more favourable treatment to a service supplier because it is government owned. ⁷³

2. Exemptions and exceptions

a. At the multilateral and bilateral level

Exceptions regarding SOEs exist at all levels studied in this article. Article XXVII GATT contains two exemptions, excluding government procurement and ‘privileges granted for the exploitation of national natural resources but which do not empower the government to exercise control over the trading activities of the enterprise in question’ from its scope. ⁷⁴ Article XX(d) GATT contains the exception for ‘measures necessary to secure the compliance with laws or regulations which are not inconsistent with the provisions of this agreement … related to the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII’. The GATT panel in Japan–Restrictions on Import of Certain Agricultural Products held that Article II.4 and XVII would become meaningless if the exception in Article XX(d) would be interpreted as exempting these import monopolies from the scope of the GATT. The import monopolies are still required to be consistent with all other provisions of the GATT. ⁷⁵ Moreover, in the proposal on Article XX(d) it was stated that the list in this subparagraph only contains examples and that the example of state trading monopolies was only included to make it clear to delegates that, if these were consistent with all provisions of the GATT, they could necessitate certain measures that can fall under the exception of Article XX(d). ⁷⁶

At the bilateral level, very limited exemptions exist. The US–Singapore FTA exempts the ‘activities or services forming part of a public retirement plan or statutory system of social security’ from the scope of the chapter on Financial Services. ⁷⁷ Additionally, ‘nondiscriminatory measures of general application taken by any public entity in pursuit of monetary and related credit policies or exchange rate policies’ are excluded from the obligations on financial services, telecommunications, electronic commerce, etc. ⁷⁸

b. TPP, TTIP, and TiSA

During the negotiations on the TPP, it became clear that the negotiating countries had differing views regarding the exceptions. Vietnam and Malaysia were looking to obtain broad carve-outs that would exempt them from having to comply with new TPP disciplines on SOEs. ⁷⁹ Vietnam had even tabled a ‘huge’ list of companies it wanted to see exempted from the SOE disciplines. ⁸⁰ The USA, on the other hand, would benefit most from very narrow, company-specific exemptions, together with the exclusion of all subcentral SOEs. However, as the USA had to list several of its SOEs in the exemptions, it became difficult to convince other countries to limit their number of SOEs in the carve-out. The result of these differing views is reflected in the text of the TPP, with Vietnam listing a considerable number of exceptions and the USA succeeding in its wish to obtain a (close to) general exception for SOEs at the subcentral level.

Numerous exceptions can be found in various Articles and Annexes to Chapter 17 of the TPP. First, an exception is made for small SOEs (i.e. those that do not generate annual revenue above a threshold amount calculated in Annex 17-A). This is an important exception, as small SOEs will be much less likely to distort trade or investment. Secondly, Annex 17-D contains a list, indicating per country the articles that do not apply to SOEs and designated monopolies at the subcentral level. For almost all Parties, the main obligations on non-discrimination, commercial considerations (Article 17.4), and non-commercial assistance (Article 17.6) do not apply to any subcentral SOEs. This considerably limits the scope of application of this Agreement, as many countries (including the USA) have numerous subcentral SOEs that are equally capable of severely distorting international trade. Thirdly, both Singapore and Malaysia have attached an Annex to Chapter 17, containing several specific exemptions. These allow SOEs from both countries to ‘shrug off the new TPP obligations, provided that they adhere to certain guidelines’. ⁸¹ Fourthly, Annex IV contains the Parties’ Schedules with their ‘non-conforming activities’. These Schedules list the obligations concerned (either Article 17.4 or 17.6 or both), the entity for which the obligations do not apply, the scope of non-conforming activities and a list of the measures pursuant to which the SOE engages in the non-conforming activity. All Members, except Singapore and Japan, have included such a Schedule, ranging from a minimum of one non-conforming activity (Australia) to a maximum of fourteen non-conforming activities (Vietnam). Even though it is laudable that the Members have agreed to be as specific as possible regarding the contents of the Schedules, most Schedules are not company-specific, but apply to ‘all existing and future SOEs at the central level of government’ or apply to specific sectors or industries. ⁸² Apart from the fact that several of these Schedules go quite far in exempting sectors from the application of Articles 17.4 and 17.6, some Party-specific comments can be made.

Looking at the Schedule of Australia, this Party seems to stay true to its domestic approach on competitive neutrality. The sole non-conforming activity that Australia lists is the more favourable treatment to indigenous people. Regarding SOEs at the subcentral level, however, Australia does list the same reservations as the other countries: the non-applicability of (i) the obligation of non-discrimination and commercial considerations, (ii) the provision on non-commercial assistance, and (iii) the obligation to make public a list of all SOEs. The Schedule of New Zealand is also fairly limited, containing two general exclusions related to the physical infrastructure supporting communication and air and maritime transport services, and one company-specific exclusion, on the production and sale of coal within its territory. Canada, on the other hand, drafted a very detailed Schedule. Even though most non-conforming activities scheduled apply to specific companies, the Schedule includes the words ‘and any new, reorganized or transferee enterprise related to’, leading to the exception being much more sector-specific than company-specific. Malaysia’s Schedule contains an extensive carve-out from the obligations in Chapter 17. Its Schedule allows all of its SOEs and designated monopolies to treat more favourably Bumiputera enterprises (and SMEs) in the purchase of goods. Additionally, non-commercial assistance can be granted to the Bumiputera enterprises. Interestingly, a note to this first part of the Schedule clarifies that ‘Malaysia reserves the right to accord and grant Bumiputera status to eligble [ sic ] companies.’ Malaysia’s other non-conforming measures relate mainly to the petroleum industry and the financial sector. Mexico includes in its Schedule several development banks and enterprises related to electricity, petroleum, and natural gas. Chile included petroleum and minerals, but also ventured into passengers’ transport, national television, and banking. Peru’s Schedule is very limited, containing only a company-specific exception for exploitation, refining, production and sale of oil products, and a general exception regarding minority and ethnic groups. Both the Schedules of Brunei Darussalam and Vietnam contain an exception that will cease to have effect after respectively three and (at the latest) five years after entry into force of the TPP. ⁸³ Brunei Darussalam’s Schedule contains exceptions with regard to the petroleum industry, the supply of natural gas, and investment funds. Vietnam scheduled the longest list of exceptions, most of which apply to all SOEs, ranging from the provision of funding necessary for the restructuring of any SOE to providing public goods and promoting economic development. The company-specific exceptions relate to oil, gas, electricity, coal, national security, air and maritime transport, coffee, and telecoms.

During the TPP negotiations, much attention was accorded to the USA’s position on the negotiated exceptions. The USA has traditionally been a country with an ideological aversion to government-owned enterprises participating in its market but with, at the same time, an opportunistic welcome of such enterprises at all levels of government. Especially at the subcentral level, the USA has a particular interest in including a carve-out, in addition to the specific exceptions it scheduled for several of its financial institutions. ⁸⁴ As noted by Sylvestre Fleury and Marcoux, a certain imbalance seems to exist between the broad carve-outs obtained by the USA and the negative list approach relied upon by the other Parties. ⁸⁵

Looking at what is set out above, it seems at first glance that the exceptions included in the TPP, although transparent and sometimes industry- or enterprise-specific, go quite far and include a wide range of enterprises in the different Parties’ territories. The addition of a general statement such as ‘The services provided by this Entity are not intended to displace or impede … services provided by privately owned enterprises from the relevant market’ do not seem to adequately remedy the potentially trade distortive effects of these exempted entities. The question can be asked whether the totality of all exemptions and exceptions contained within the TPP does not render the substantial provisions rather useless or whether the exceptions should not have been drafted differently, with more consistency between what the different Parties have scheduled. When considering a redrafting, several of the specific exceptions listed in the Parties’ Schedules could be replaced by one general exception regarding the supply of a public service. This would limit the use of the exempted enterprises and sectors to the actual fulfilment of e.g. a universal service obligation. ⁸⁶ Any activities of the SOE going further than or not related to this obligation would still remain subject to the substantial obligations in TPP.

In the negotiations on TTIP, the EU, on the one hand, calls for leaving room for ‘narrowly defined legitimate exceptions’, thereby referring to its own ‘services of general economic interest’. ⁸⁷ More specifically, the EU proposes an obligation on SOEs to ‘act according to commercial considerations’, with an exception for SOEs that are fulfilling the purpose for which special or exclusive rights or privileges have been granted, or in the case of a state enterprise, when fulfilling its public mandate. ⁸⁸ The USA, on the other hand, seems to have included a (long) list of exclusions. In a leaked memo containing a commentary on the USA’s proposal on SOE disciplines, the French delegation asked the EU to request the USA to justify these exceptions as ‘[the] exclusions should not make the chapter on SOEs inoperative.’ ⁸⁹

The draft text of the Annex on Competitive Delivery Services in the TiSA negotiations contains a provision regarding the ‘universal service obligation’, stating that this obligation must be transparent, non-discriminatory, competitively neutral, and no more burdensome than necessary and limited and proportional. ⁹⁰ The universal service obligation is often cited as an important exception to the obligations applying to SOEs, which goes back to the core of the reasons for SOE regulation. As stated before, where SOEs are used to achieve certain (justifiable) policy objectives, they should be exempted from these specific disciplines. Only where they operate in competition with private service suppliers do the obligations and specific disciplines come into play.

D. Transparency

An important element that complicates possible distortive practices by SOEs is the inherent lack of transparency that comes with it. For example, in the case of financial support by governments to SOEs, the former often do not want to be held accountable to the public, other governments, or international organizations for the actions of the SOEs that they supply resources to. ⁹¹

1. At the multilateral and bilateral level

The Understanding on the Interpretation of Article XVII GATT contains the notification duty for Members of ‘all governmental and non-governmental enterprises which have been granted exclusive or special rights or privileges’. Article IX GATS contains obligations on consultations and transparency, regarding business practices of service suppliers that may restrain competition and thereby restrict trade in service. The US–Singapore FTA focuses on the importance of transparency with regard to government enterprises, stating that the Parties will publicly make available information on SOEs at the request of the other Party. ⁹² However, its provision does not specify what information needs to be made available, only referring to the term ‘public information’, which can easily be suspected to be a very limited amount of information. At the supranational level, an interesting example is the EU Transparency Directive, which requires public undertakings to be transparent about and report on their financial relations with public authorities. ⁹³

2. TPP and TTIP

The provision in TPP on transparency contains much more extensive obligations and provides more detailed information on the specific information that needs to be provided by a Party on the written request of another Party. With regard to SOEs, a Party will have to provide information about a specific enterprise on: percentage of shares and the percentage of votes under government ownership; a description of special shares, voting, or other rights; government titles of government officials serving as Member of a board of directors; the annual revenue and total assets; exemptions or immunities accorded to the entity under national law; and additional information that is publicly available. Article 17.10.3 thereby requires the supply of more information than the equivalent Article in the US–Singapore FTA . Additionally, Parties are required to provide the other Parties with a list of its SOEs. ⁹⁴ Brunei Darussalam, Vietnam, and Malaysia are exempted from this obligation for the first five year safter the date of the TPP's entry into force. However, during these first years, these countries have to provide a list of SOEs with a specified minimum capital. ⁹⁵

These requirements on transparency in TPP are similar to the rules proposed by the EU in the TTIP negotiations. In its proposal, the EU allows Parties to request that other Parties make information concerning specific enterprises available. ⁹⁶ This is, however, only possible when the requesting Party can prove that there are indications that the enterprise at issue is engaged in anticompetitive practices. Such a requirement avoids the problems that the WTO has encountered with regard to the notification obligation. Countries are not eager to provide such information and it does not seem absolutely necessary for countries to know which enterprises are state-owned or controlled. As long as there are no indications of anticompetitive advantages or practices, SOEs should be treated like any other enterprise. The requirement to prove these indications will avoid abuse. In the event that Parties do agree on a system of notifications for all SOEs, it is absolutely necessary that sanctions are applied to ensure that Parties provide adequate notification. Inspiration might be drawn from the EU’s system on state aid: the Commission needs to be notified on all new state aid in the EU and authorization needs to be granted prior to it being put into effect. Where there is no notification or authorization, the aid is deemed unlawful and must be paid back, with interest. ⁹⁷

E. Enforcement

1. At the bilateral level

For all of these proposed provisions to be made actionable, there is a need for a dispute settlement mechanism that provides jurisdiction in these matters. The majority of FTAs dealing with SOEs do not contain specific provisions regarding the adjudication of disputes on these matters. The US–Singapore FTA contains the very short Article 12.7 that indicates that Parties do not have recourse to dispute settlement under the FTA for any matters that arise regarding ‘anticompetitive business conduct’, ‘cooperation’, and ‘consultations’. No provisions regarding jurisdiction on the substantive provisions under Chapter 12 of that FTA have been included. General dispute settlement rules can be found in Chapter 20, referring a case first to the Joint Commission and if not resolved, thereafter to ‘a dispute settlement panel’. ⁹⁸ Other FTAs either contain a very similar provision to Article 12.7, or they do not contain any reference to dispute settlement with regard to SOEs. ⁹⁹

2. TPP and TTIP

Chapter 17 of TPP does contain an explicit reference to jurisdiction on claims regarding SOEs. Article 17.5 TPP states that each Party ‘shall provide its courts with jurisdiction over civil claims against an enterprise owned or controlled through ownership interests by a foreign country based on a commercial activity carried on in its territory’. This Article thus explicitly allows for adjudication of disputes regarding the provisions on SOEs before domestic courts. However, the Article contains the indication that a Party is not required to provide jurisdiction where it does not provide such jurisdiction over similar claims against private enterprises. Article 17.5 does not contain an exclusive jurisdiction clause, which implies that Parties can bring a dispute based on Chapter 17 before investor–state dispute settlement (ISDS) (where appropriate) or the dispute settlement mechanism that is provided in chapter 28 TPP. Therefore, preliminarily it can be concluded that adequate enforceability is ensured under TPP, as breaches of any provision in Chapter 17 can be brought before a domestic court, ISDS or the dispute settlement mechanism of TPP. The adequacy and efficiency of this enforcement will hopefully become clear over time, as soon as the first cases based on Chapter 17 TPP arise.

In the negotiations on TTIP, the USA proposed that domestic courts be given jurisdiction, but this was received with some hesitation by the EU. ¹⁰⁰ Solely engaging domestic courts in these (often) international matters does not seem to be the most appropriate solution. Some might argue that adjudications on a highly sensitive area such as that of SOEs should not be decided by (foreign) national courts. The home state of the SOE will probably prefer the neutrality of an international dispute settlement mechanism that can adequately address the sensitivities and guarantee efficient, impartial, transparent and reliable adjudication.

III. CONCLUSION: IS THIS THE WAY FORWARD?

When assessing the rules on SOEs (or the lack thereof), the usefulness of disciplines on SOEs should be critically assessed and not supposed. Even though this article has already set out the reasons why SOEs do need specific rules, it is also important to not be blind to the negative impact rules on SOEs could have. As far as developing countries are concerned, there are only a few cases where exporting SOEs might be seen as posing a serious constraint to more ‘open’ trading in international markets. In addition, it would be unfortunate if future negotiations led to binding provisions that circumscribed the ability of developing country SOEs to operate effectively as these can play an important policy role (e.g. on food security). Even though this is an element that definitely needs to be taken into account, these considerations in and of themselves do not outweigh the need for efficient rules in scenarios where practices by SOEs do distort trade. However, when designing new rules on SOEs, the interests of small developing countries will have to be taken into account and they cannot be deprived of the right to use state trading as a way of furthering economic development and social welfare. As stated eloquently by Kawase: ‘We should explore an ideal code of conduct that can effectively regulate SOEs based on a thorough understanding of their anti-competitive nature as well as of their positive social and economic functions.’ ¹⁰¹

Even though the WTO Covered Agreements have set out some very limited basic obligations regarding state-trading enterprises, it became clear to its Members that further specific provisions were necessary. This is reflected in the more detailed disciplines that can be found in several FTAs. The negotiations in TPP regarding rules on SOEs have led to a clear and extensive chapter, containing new rules and specific obligations on the Parties when dealing with their or other Parties’ government-owned enterprises. Nothing should prevent us from complimenting the Parties on at least agreeing to several provisions that go further and are more specific than what can be found in any previous FTA. However, the extensiveness of Chapter 17 cuts both ways, as it includes for almost all Parties an extensive list of exceptions, next to the general exemptions that can be found in the text of the chapter itself. Only time will tell whether these new disciplines can sufficiently remedy any trade and investment distorting behaviour of SOEs in the territories of the TPP Parties. It also remains to be seen whether other mega-regional agreements, like TTIP and TiSA will be able to incorporate some limited, well-defined, and effective disciplines regarding SOEs.

In this context of the issue of trade distorting effects of SOEs, China is often mentioned, mostly because of the fact that the SOE share in its most imported traders is highest among all countries. ¹⁰² China’s accession protocol already stipulated a phasing out of three specific subsidies: those provided to SOEs running at a loss, those giving priority on obtaining loans, and foreign currencies based on export performance and those providing preferential tariffs for automotive production based upon localization rate. ¹⁰³ In recent years, much has been changed to China’s approach to SOEs, including the new Chinese Corporate Law which created the supervision institution of SASAC, controlling some of the major decisions of wholly state-funded corporations. The law also stipulates that state-controlled and state-invested enterprises are subject to the general rules of the Chinese Corporate Law. ¹⁰⁴ Moreover, China’s Competition Authorities have increasingly applied competition law to SOEs. ¹⁰⁵ Regardless of these improvements, the Chinese government can still significantly interfere with SOEs’ behaviour in the international markets, with possible trade and investment distortive effects. Therefore, it is important to assess the effect of the SOE chapter in an important agreement like the TPP. Speculating on the possibility of China later acceding to the TPP, it is important to note that these new disciplines on trade-distortive behaviour of SOEs do entail a step forward in levelling the playing field for international trade. ¹⁰⁶

Regulating SOEs behaviour is arguably not the only way to remedy the trade distortive practices of SOEs. Where the requirements of the Anti-Dumping Agreement or the SCM Agreement are fulfilled, room is always left for the unilateral imposition of trade remedies. However, the author would argue that allowing countries to impose unilateral anti-dumping duties or countervailing measures is not the most constructive way of dealing with the widespread presence of SOEs in international trade. Like in competition law, the imposition of trade remedies would only result in ex post and ad hoc solutions. Setting out Members’ general obligations and rights, together with specific disciplines and requirements of transparency regarding SOEs specifically, would further the cause of competitive neutrality much more. It should not be expected that SOEs will soon be a thing of the past. At the same time, the premise that SOEs must be privatized at all cost, in order for countries to develop economically and to avoid market distortions by SOEs, is severely outdated. The actors in international economic law, therefore, should prefer, as they seem to be doing more and more considering Chapter 17 in TPP, specific obligations and disciplines to remedy trade and investment distortive behaviour of SOEs.

I am very grateful to Prof. Gary Horlick for his valuable comments on the research paper that served as the basis for this article. All errors and opinions are the author’s own

1 William Krist, Negotiations for a Trans-Pacific Partnership Agreement , Wilson Center, http://www.wilsoncenter.org/publication/negotiations-for-trans-pacific-partnership-agreement (visited 26 May 2016), at 6–7. Members to the TPP are: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA, and Vietnam.

2 The economic importance of this Agreement can be illustrated by the fact that the combined economies of these 12 countries amounted to a GDP of USD 28.065 billion in 2014, which is 36% of the world’s GDP. Source of countries’ GDP: World Bank: http://data.worldbank.org/data-catalog/GDP-ranking-table (visited 26 May 2016).

3 Ming Du, ‘Explaining China’s Tripartite Strategy Towards the Trans-Pacific Partnership Agreement’, 18 Journal of International Economic Law 407 (2015), at 413.

4 Antonio Capobianco and Hans Christiansen, ‘Competitive Neutrality and State-owned Enterprises: Challenges and Policy Options’, OECD Corporate Governance Working Paper No. 1 (2011), at 7.

5 See for an elaboration: Daniel Sokol, ‘Competition Policy and Comparative Corporate Governance of State-owned Enterprises’, Brigham Young University Law Review 2009(6), 1713 (2009) and Capobianco and Christiansen, above n 4.

6 OECD, OECD Guidelines on Corporate Governance of State-owned Enterprises (Paris: OECD Publishing, 2005), at 10.

7 Capobianco and Christiansen, above n 4, at 8.

8 Ibid, at 9.

9 Ibid, at 8.

10 Ibid.

11 These four reasons partially overlap with the illustrative list in: WTO Secretariat, ‘Operations of State Trading Enterprises as They Relate to International Trade’, Background Paper, G/STR/2 (26 October 1995), at para 6.

12 Przemyslaw Kowalski and Kateryna Perepechay, ‘International Trade and Investment by State Enterprises’, OECD Trade Policy Paper No. 184 (2015), at 24.

13 Sokol, above n 5, at 1730.

14 Przemyslaw Kowalski et al., ‘State-owned Enterprises: Trade Effects and Policy Implications’, OECD Trade Policy Paper No. 147 (2013), at 6.

15 Ibid.

16 The top 10 countries with the highest CSS being: China, the United Arab Emirates, Russia, Indonesia, Malaysia, Saudi Arabia, India, Brazil, Norway, and Thailand. The five sectors with the highest SSS share are: mining support activities, civil engineering, land transport and transport via pipelines, mining of coal and lignite, and the extraction of crude petroleum and gas.

17 Kowalski and Perepechay, above n 12, at 21.

18 Capobianco and Christiansen, above n 4, at 4.

19 Commonwealth Competitive Neutrality Policy Statement by the Australian Government (June 1996), at 5, http://archive.treasury.gov.au/contentitem.asp?ContentID=275 (visited 26 May 2016); A very similar and clear definition can be found in: OECD, Competitive Neutrality: Maintaining a Level Playing Field Between Public and Private Business (Paris: OECD Publishing, 2012), at 15.

20 This was also recommended by the OECD in its Guidelines on Corporate Governance of SOEs, above n 6.

21 E.g. their easy access to finance, their preferential treatment, and strong position in the market.

22 Global Services Summit, ‘ 21 ^st Century’ Trade Issues: The Challenges to Services Trade and Investment from the State-owned/assisted Enterprises, Restrictions on Data Flows, and Forced Localization, Washington DC, 2011, at 3.

23 Capobianco and Christiansen, above n 4, at 6.

24 Global Services Summit, above n 22, at 5.

25 Capobianco and Christiansen, above n 4, at 5.

26 Ibid, at 6.

27 Ibid.

28 Ibid.

29 Ernst-Ulrich Petersmann, ‘GATT Law on State Trading Enterprises: Critical Evaluation of Article XVII and Proposals for Reform’, in Thomas Cottier and Petros C. Mavroidis (eds), State Trading in the Twenty-First Century (Michigan: University of Michigan Press, 1999), at 72.

30 William J. Davey, ‘Article XVII GATT: An Overview’ in Cottier and Mavroidis, ibid, at 21.

31 Ibid, at 15.

32 OECD (2012) above n 19, at 19.

33 WTO Secretariat Background Paper, above n 11, at para 9. See the Background Paper for a more detailed list of the different types of SOEs.

34 Capobianco and Christiansen, above n 4, at 9.

35 Mohammed Omran, ‘The Performance of State-Owned Enterprises and Newly Privatized Firms: Does Privatization Really Matter?’, 32 (6) World Development 1019 (2004), at 1038.

36 See Interpretative note to Article XVII, para 1 General Agreement on Tariffs and Trade 1994 [hereinafter GATT].

37 Petersmann, above n 29, at 72.

38 Panel Report, China - Electronic Payment Services (DS413), para 7.587.

39 Article 1.1(a)(1) Agreement on Subsidies and Countervailing Measures. For a more elaborate study of this term, see Ru Ding, ‘“Public Body” or Not: Chinese State-owned Enterprise’, 48 Journal of World Trade 1, 167 (2014).

40 AB Report, US - Anti-dumping and Countervailing Duties (China) (DS379), para 317.

41 OECD (2005), above n 6, at 11.

42 OECD (2012), above n 19, at 17.

43 Contrary to what is concluded in: Julien Sylvestre Fleury and Jean-Michel Marcoux, ‘The US Shaping of State-Owned Enterprise Disciplines in the Trans-Pacific Partnership’, 19 Journal of International Economic Law 2 (2016, forthcoming).

44 Respectively Article 17.2.7, Article 17.2.9, and Article 17.2.10 of the Trans-Pacific Partnership, 4 February 2016, https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text (visited 26 May 2016) [hereinafter TPP].

45 Article 17.6.4 TPP.

46 Panel Report, Canada - Wheat Exports and Grain Imports (DS276), paras 6.48 and 6.50.

47 AB Report, Canada - Wheat Exports and Grain Imports (DS276), para 149.

48 Ibid, para 149.

49 Gary Clyde Hufbauer and Cathleen Cimino-Isaacs, ‘How will TPP and TTIP Change the WTO System?’, 18 Journal of International Economic Law 3, 679 (2015), at 686.

50 Ad note to Article XVII(a) GATT 1994: ‘The charging by a state enterprise of different prices for its sales of a product in different markets is not precluded by the provisions of this Article, provided that such different prices are charged for commercial reasons, to meet conditions of supply and demand in export markets.’

51 Article XVII General Agreement on Trade in Services [hereinafter GATS].

52 Article 1503.3 North American Free Trade Agreement, 17 December 1992, 32 I.L.M 289 (entered into force on 1 January 1994) [hereinafter NAFTA]; Article 12.3.2(a) United States–Singapore Free Trade Agreement, May 2003, 42 I.L.M. 1026 (entered into force on 1 January 2004) [hereinafter US–Singapore FTA]; Article 16.4.1 United States–Chile Free Trade Agreement, 6 June 2003, 42 I.L.M. 1026 (entered into force on 1 January 2004) [hereinafter US–Chile FTA]; Article 16.3.2 United States–South Korea Free Trade Agreement, 30 June 2007, 46 I.L.M 642 (entered into force on 15 March 2012) [hereinafter KORUS FTA]; Article 11.4.2 European Union–South Korea Free Trade Agreement, 16 September 2010, OJ L 127, 14 May 2011 (entered into force on 1 July 2011) [hereinafter EU–Korea FTA]; and Article 18.3 Comprehensive Economic and Trade Agreement between Canada and the European Union, http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf (visited 26 May 2016), not yet signed nor entered into force [hereinafter CETA].

53 See Article 16.4.3 US–Chile FTA. Similar: Article 1503 NAFTA; Article 14.4.1(b) United States–Australia Free Trade Agreement, 18 May 2004, 43 I.L.M. 1248 (entered into force on 1 January 2005) [hereinafter US–Australia FTA]; Article 13.6.1 of the United States–Peru Trade Promotion Agreement, 12 April 2006, https://ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/final-text (visited 26 May 2016) (entered into force on 1 February 2009) [hereinafter US–Peru FTA]; Article 13.6.1 of the United States–Colombia Trade Promotion Agreement, 22 November 2016, https://ustr.gov/trade-agreements/free-trade-agreements/colombia-fta/final-text (visited 26 May 2016) (entered into force 12 May 2012) [hereinafter US–Colombia FTA]; and Article 16.3 KORUS FTA.

54 Article 18.4.1 CETA. It can, therefore, be questioned whether a broad scope of non-discrimination obligations re SOEs is solely ‘an integral part of the evolving practice of the USA’. As stated in: Sylvestre Fleury and Marcoux, above n 43.

55 Article 18.5.1 CETA and Article 12.3 US–Singapore FTA.

56 Article 14.4 of the US–Australia FTA.

57 Article 12.3.2(d)(ii) of the US–Singapore FTA.

58 Ibid , Article 12.3.2(e).

59 Ibid , Article 9.4.2.

60 Ibid, Article 9.6.3.

61 Ibid , Article 9.6.3.

62 E.g. Article 1502 NAFTA (1994); Article 179, section 2 of the European Union - Chile Association Agreement (2002); Article 14.8 of the Korea - Chile Free Trade Agreement (2004); Articles 11.1, 11.2, and 11.4 of the European Union - Korea Free Trade Agreement (2011).

63 OECD (2012), above n 19, at 26; e.g. Consolidated Version of the Treaty on the Functioning of the European Union Article 106, 2008 OJ C 115/47 [hereinafter TFEU].

64 ‘Non-recoupment predation’ exists when the company, after it deterred or eliminated competition through predatory practices, will not collect enough profit to recover the losses it sustained during the predatory attack.

65 Kowalski et al., above n 14, at 36.

66 Capobianco and Christiansen, above n 4, at 22.

67 Ibid, at 25–26.

68 Relevant Articles being 17.6, 17.7, and 17.8 of the TPP.

69 Articles 17.11 and 17.12 of the TPP.

70 Article 16.1.2 of the TPP.

71 European Commission, DG Trade, TTIP-Rules Group, ‘Anti-trust & Mergers, Government Influence and Subsidies’, Initial Position Paper, 19 June 2013, http://www.iatp.org/files/TPC-TTIP-non-Papers-for-1st-Round-Negotiatons-June20-2013.pdf (visited 26 May 2016).

72 Trade in Services Agreement - Annex on Competitive Delivery Services, 16 April 2014, https://wikileaks.org/tisa/delivery/TiSA%20Annex%20on%20Competitive%20Delivery%20Services.pdf (visited 26 May 2016) [hereinafter TiSA Annex on Competitive Delivery Services]; Article 12.3 Trade in Services Agreement - Annex on Telecommunication Services, April 2015, https://wikileaks.org/tisa/telecommunication/04-2015/ (visited 26 May 2016) [hereinafter TiSA Annex on Telecommunication Services]

73 Articles 3.1 and 3.2 TiSA Annex on Telecommunication Services, April 2015, https://wikileaks.org/tisa/telecommunication/04-2015/ (visited 26 May 2016)

74 Article XVII.12 GATT 1994 and Ad note to Article XVII.1(a) GATT 1994.

75 GATT Panel Report, Japan - Restriction on Import of Certain Agricultural Products , L/6253, adopted on 2 February 1988, 35S/163, 229-230, para 5.2.2.3.

76 WTO, Analytical Index of the GATT 1994, ‘Article XX GATT: General Exceptions’, at 581, https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art20_e.pdf (visited 26 May 2016).

77 Articles 10.1.3(a) and 10.10.2 of the US–Singapore FTA.

78 Ibid , Article 10.10.2.

79 ‘Under the Radar, TPP Parties Wrestle Over Carve outs On Services, SOEs’, 25 July 2014, 32 Inside US Trade 30.

80 Ben Hancock, ‘TPP Countries Face Vietnamese Demand For Extensive SOE Exceptions’, 12 September 2014, 32 Inside US Trade 36.

81 ‘Reach of TPP’s SOE Disciplines Limited by Definition, Scope, Exceptions’, 6 November 2015, Inside US Trade.

82 E.g. Australia’s sole non-conforming activity applies to ‘all existing and futures SOEs’; six of Chile’s non-conforming activities apply to specific enterprises such as Empresa Nacional del Petróleo or Televisión Nacional de Chile.

83 Part three of the Schedule of Brunei Darussalam and part eight of the Schedule of Vietnam.

84 The first part of the USA’s Schedule covers the federal mortgage landers Fannie Mae, Freddie Max, and Ginnie Mae. The second and third part covers respectively the Federal Financing Bank and ‘a national infrastructure bank’, safeguarding the ability to create such a bank in the future. See ‘Reach of TPP’s SOE Disciplines Limited by Definition, Scope, Exceptions’, 6 November 2015, Inside US Trade.

85 Sylvestre Fleury and Marcoux, above n 43.

86 Inspiration could be drawn from the negotiations on the Annex on Competitive Delivery Services in TiSA. See proposal of the EU in the Annex on Competitive Delivery Services in the Trade in Services Agreement (TiSA), 16 April 2014, https://wikileaks.org/tisa/delivery/TiSA%20Annex%20on%20Competitive%20Delivery%20Services.pdf (visited 26 May 2016).

87 European Commission, DG Trade, TTIP-Rules Group, ‘Anti-trust & Mergers, Government Influence and Subsidies’, Initial Position Paper, 19 June 2013, http://www.iatp.org/files/TPC-TTIP-non-Papers-for-1st-Round-Negotiatons-June20-2013.pdf (visited 26 May 2016).

88 European Commission, Possible Provisions on State Enterprises and Enterprises Granted Special or Exclusive Rights or Privileges , Textual Proposal, 7 January 2015, , at Article 5, http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153030.pdf (visited 26 May 2016).

89 Council of the EU, General Secretariat, Memorandum from the French Delegation , 19 February 2015, at 2, https://s3.amazonaws.com/s3.documentcloud.org/documents/2162241/15-02-20-ttip-fra-comments-geschwarzt.pdf (visited 26 May 2016).

90 TiSA Annex on Competitive Delivery Services, above n 72.

91 Global Services Summit, above n 22, at 5.

92 Article 12.5 of the US–Singapore FTA.

93 Article 1 of Commission Directive of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings, 2006/111/EC, OJ L 318, 17 November 2006.

94 Article 17.10.1 of the TPP.

95 Chapter 17 of the TPP, fn 28 and 29.

96 European Commission, Textual Proposal, above n 88, at Article 7.4.

97 European Commission, DG Competition, State Aid Procedures , 29 May 2015, http://ec.europa.eu/competition/state_aid/overview/state_aid_procedures_en.html (visited 26 May 2016).

98 See Article 20.4 of the US–Singapore FTA.

99 Article 16.8 US–Chile FTA; Article 14.4 US–Australia FTA; and Article 16.8 KORUS FTA.

100 The French delegation requests the Commission’s Legal Service to supply its interpretation of this paragraph and explain the ramifications of these provisions in EU and national law. See Memorandum from the French Delegation , above n 89.

101 Tsuyoshi Kawase, ‘Trans-Pacific Negotiations and Rulemaking to Regulate State-Owned Enterprises’, 22 April 2014, RIETI Policy Update 053, http://www.rieti.go.jp/en/special/policy-update/053.html (visited 26 May 2016).

102 Kowalski et al., above n 14, at 31.

103 WTO, ‘Accession of the People's Republic of China’, WT/L/432 , 23 November 2001, Annex 5B.

104 For an elaboration on the different kinds of Chinese SOEs and the applicable laws, see: Ding, above n 39.

105 Phil Taylor, ‘China Enforces Competition Law Against State-Owned Enterprises’, International Bar Association (2011), http://www.ibanet.org/Article/Detail.aspx?ArticleUid=c3a3f619-80ac-455a-aae1-ae1dbf9f63a3 (visited 26 May 2016).

106 As already highlighted in: Sylvestre Fleury and Marcoux, above n 43.