Australian WTO Reform Submission Calls for SOE Disciplines

A couple months ago, I mentioned a new EU paper on WTO reform, in which the EU argued for stronger WTO disciplines on the behavior of certain state enterprises, seeking to extend the GATT obligations that apply to state-trading enterprises so they will apply to state-owned and state-invested enterprises as well.

Now Australia seems to be joining the cause, putting forward the following argument in its own WTO reform communication:

2.5. State-owned enterprises (SOEs) have come to play an increasingly prominent role in global markets compared to when the Uruguay Round was concluded. This has increased the importance of ensuring competitive neutrality between SOEs and other enterprises.

2.6. GATT Article XVII on state trading enterprises only disciplines activities related to their purchases and sales involving either imports and exports. Similarly, the SCM Agreement has limited application, including due to the Appellate Body's legal interpretation of the term "public body", and only disciplines the provision of subsidies. Existing disciplines do not adequately capture the ways governments can use ownership, control and direction to undermine competitive neutrality principles, tipping the playing field in their favour.

2.7. Actions which Members could consider include:

a. developing a definition of an SOE under WTO rules, including a definition of ownership and control that addresses indirect control;

b. strengthening SOE transparency requirements through agreed notification processes, including information on ownership, activities, control, governance, state support and noncommercial assistance;

c. ensuring the disciplines of the SCM Agreement extend to SOEs, including where government ownership, control or direction enables trade-distorting support;

d. ensuring administrative tribunals, regulators and other public authorities do not favour SOEs over private enterprises, and that SOEs do not perform regulatory functions in sectors in which they compete with the private sector;

e. strengthening cooperation and sharing of best practices on SOEs;

f. requiring SOEs to engage in activities in accordance with commercial considerations, except where delivering a clearly defined public service objective;

g. committing to competitive neutrality between SOEs and private enterprises, to ensure SOEs compete with private enterprises on merit without receiving unfair advantages from the governments that own or control them; and

h. ensuring procurement rules and practices do not favour SOEs or state-linked suppliers over other suppliers, including through discriminatory access or abnormally low tenders.

Everything Australia says here seems sensible to me. As I said in the earlier post, I've always thought it was odd that there are general GATT obligations that apply to state-trading enterprises, but nothing similar for state-owned or state-invested enterprises. In my view, this gap in the rules should be closed. (It's worth noting that the EU mentioned both state-owned and state-invested enterprises, while Australia referred only to state-owned. I'm not sure if Australia's narrower terminology was intended to limit the scope of the exercise, or if Australia would include both under the broader category of state-owned.)

Australia and the EU are on board, but I have questions about the reaction this will generate from other WTO Members. Will China, which is already subject to similar disciplines through its accession commitments, join the cause because it would like others to be covered as well? In China's own WTO reform paper, it did not explicitly address the issue of state-owned/state-invested enterprises, but it did say: "WTO accession commitments are highly Member-specific and should not be mechanically extrapolated to the wider Membership." To me, that came across as pushing back against the suggestion in the EU reform paper to extend the accession commitments on state-owned/state-invested enterprises to the broader membership, but perhaps I'm reading too much into it.

Also, how about India and Brazil, or Canada and the UK, or the least developed countries? What do others think about these issues?

And, of course, there is the U.S. What will the Trump administration think of all this now that the federal government is actively taking equity stakes in a wide range of private companies? I can imagine that under para. 2.7(a) above, the Trump administration would push for a definition that excludes its equity stakes from coverage. And then what will a post-Trump U.S. trade policy look like, and how will those folks approach the WTO in general and SOE discussions in particular? For some on the left, Trump's use of equity stakes is an opening to do more of this in support of their favored policies, whereas others may be more skeptical.

With all of the various viewpoints out there, it's likely to be difficult to make much progress on this issue at the WTO, as it is with most things these days. At the least, though, the exercise will be useful in order to map out where everyone stands, and that will give us a sense of what is possible here.