Research On Regulation Of State-owned Enterprises In International Trade Agreements

As a matter of domestic law,a special mode of enterprise,state-owned enterprise(hereinafter referred as SOE),has garnered much attention in international trade rules relatively early on.At different levels and stages of development,countries are entitled to choose the model for economic development that is appropriate for them.As with subsidies,SOEs themselves are not the root cause of the current unfair competition in global markets.With the deep involvement of SOEs in the global value chains,on the one hand,SOEs have a huge pulling effect on global economic development,while on the other hand,some SOEs engaging in commercial activities are likely use subsidies,privileges and other government-granted advantages to distort market competition.Against the backdrop,there have been calls from developed economies,such as Europe and the US,to establish new rules on competitive neutrality for SOEs in global competition.The issue of SOEs has gained much significance in the WTO modernization and reform,the US-China trade war and the negotiation of free trade agreements.The provisions on SOEs are frequently found in regional free trade agreements,which differ from each other while sharing commonalities.As for China,its commitment to covered entities in the China-EU CAI and General Secretary Xi Jinping's proposal that China will actively consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership are indications that it will proactively consider the demands of its trading partners and address the issue of SOEs.Accordingly,this thesis will examine what are the differences between the connotations and extensions of the rules concerning SOEs in international trade agreements.What disciplines will SOEs be subject to under the legal framework of international trade agreements? What are the opportunities and challenges for China to participate in the modernization and reform of the WTO and the negotiation of free trade agreements? The final attempt of this thesis is to construct an international regulatory system for SOEs that is both universally accepted and better able to safeguard China's national interests and security,with a view to proposing a solution in negotiation on SOE provisions.Based on this,this thesis is divided into five chapters to discuss,analyze,and evaluate each of the above issues.The first chapter acquaints readers to the theoretical foundations and sources of the SOE rules.It begins with a portrayal of the need for new rules regulating SOEs.The Interface Theory inspired by John Jackson set a precedent for SOEs to be regulated differently from private enterprises.Drawing on the theory of competitive neutrality,it has been proposed that SOEs gain an undue competitive advantage unavailable to private enterprises simply by virtue of government ownership or control,and consequently distort trade and markets when engaging in commercial activities.As a result,SOE provisions have been included in CETA,TPP,USMCA and EU-Japan EPA,which have formed a regulatory system for SOEs at its core and have begun to move towards significant international rules.Currently,there are two main models of SOE provisions,namely the US-led SOE provisions and the EU-led SOE provisions.Both include a definition of SOEs,provisions on non-discriminatory treatment and commercial consideration as well as transparency.The difference between the two lies in that the US-led SOE provisions focus more on subsidies for SOEs,while the EU-led SOE provisions are more concerned about their advantages from domestic regulation.The second chapter probes into the scope of SOEs to be regulated.The SOE provisions in the new generation of regional FTAs have been designed to regulate SOEs directly,complementing the regulatory deficiencies of WTO covered agreements.For one thing,SOEs are defined as government-owned or controlled enterprises in order to include a wider range of enterprises connected to the government.For another,the SOE provisions introduce a series of exceptions like varied party-specific exceptions,which may largely undermine the effectiveness of the substantive provisions.Gradually,the SOE definition has gained much more consensus worldwide.However,the boundaries of government actions captured by the SOE definition may implicate the risk of being over-and under-inclusive.In order to make the sphere of the application of the SOE provisions more predictable,the definition of SOE should further clarify the meaning of government control and provide for more consistent exceptions.The third chapter looks into the overall expansion of the non-discriminatory treatment and commercial considerations,which are core obligations for SOEs engaging in commercial activities.State trading enterprises are only subject to nondiscriminatory treatment under the GATT.Commercial considerations only serve as one criterion for determining whether the enterprises involved are in breach of nondiscriminatory treatment.Non-discriminatory treatment explicitly includes most favored nation treatment and it is not clear whether it includes national treatment as well.While in new generation of regional FTAs,SOE provisions not only make commercial considerations a separate obligation,but also extend the nondiscriminatory treatment to embrace national treatment and apply to trade in services and investment.However,it is pointed out that the non-discriminatory treatment provision for SOEs is a quasi-governmental obligation while the commercial considerations provision for SOEs is an obligation for market participants.Compliance with both obligations in commercial activities may give rise to conflicting behaviors.For this reason,the non-discriminatory treatment and commercial considerations provisions delineate the scope of application.SOEs may grant differential treatment on the basis of commercial considerations.When engaging in commercial activities,SOEs shall act in accordance with commercial considerations in its purchase or sale of a good or service,except to fulfil any terms of its public service mandate.The dual attributes of SOEs are what make the regulation of SOEs difficult.It should be noted that the provisions on non-discriminatory treatment and commercial considerations can be seen as a possible regulatory approach to the participation of dual-attribute SOEs in commercial activities.It does,however,also place greater demands on the part of SOEs in commercial activities.The fourth chapter analyses the reshaping of SCMA by the provisions on noncommercial assistance(hereinafter referred as NCA provisions).Pioneered by the TPP and replicated by the USMCA,the NCA provisions create an obligation specifically for SOE-received subsidies.To start with,the NCA provisions bypass the determination of“public body” under Article I of SCMA and directly target SOEs as subsidy providers.Second,the determination of whether a benefit is conferred is simplified,giving the investigating authorities more discretion in refusing the domestic prices of the subsidygranting country and in choosing alternative benchmarks.Third,the NCA provisions provide a SOE-based specificity test.In general,the NCA provisions strengthen the constraints on the commercial activities of SOEs and reduce the burden of proof on the investigating authorities.The lack of definition of key terms,however,may reduce the predictability of application and lead to abuse of countervailing measures.The NCA provisions treat SOE-received subsidies differently from those granted to private enterprises without rationality or any support from economic theories.Besides,the SOE-based specificity test in the NCA provisions is again at odds with government subsidy neutrality.Future rules should capture subsidies that are granted to SOEs by virtue of government ownership or control,and take full account of the policy objectives that SOEs may undertake.The last chapter proposes legal recommendations for China's participation in the negotiation of the SOE provisions.As the SOE provisions take shape,it is clear that they will become an obstacle to late-stage advantage and a new rule-based barrier for emerging economies.Whether China joins the TPP or not,it will have a huge impact on the participation of Chinese SOEs in international competition.In particular,there is already a certain global consensus on the SOE provisions based on competitive neutrality,the high standard of which will create additional costs to Chinese SOEs' participation in global trade.Although it is true that the SOE provisions contain deeper motivations for developed economies to balance the rapid development of emerging economies and to reshape international rules,competitive neutrality is not inconsistent with China's economic reform aiming at a level playing field.Also,the SOE provisions can serve to force China to reform its SOEs as well.In light of China's WTO Accession Protocol and its commitments on SOEs in the China-EU Comprehensive Agreement on Investment,this thesis proposes that China should take the initiative to participate in the negotiation of the SOE provisions by adhering to the principles of multilateral consultation,equality between large and small countries as well as rule-based approach.Propose a definition of SOEs that is consistent with national conditions;make good use of exceptions to exclude specific SOEs;accept non-discriminatory treatment of SOEs and commercial considerations in general;promote criteria for the identification of behaviorally differentiated “public bodies”;oppose the SOE-based specificity test;strictly limit the application of alternative benchmarks for subsidy benefits.In summary,the SOE provisions have responded to the inadequacy and controversy of the regulation of SOEs in the WTO covered agreements and pre-TPP FTAs.But in order to make the SOE provisions more scientific and rational,there is still room for further development and adjustment in the definition and scope of SOEs,provisions on non-discriminatory treatment and commercial considerations as well as SOE-related subsidies.As a major trading nation with many large SOEs,China should assume its international responsibilities,take the initiative to maintain free trade and a level playing field,and participate in and lead the formulation of the SOE provisions.