International Discipline on SOEs: Development of fair competition rules

Author Name TOJO Yoshizumi (Rikkyo University)
Creation Date/NO. March 2016 16-J-011
Research Project Comprehensive Research on the Current International Trade/Investment System (pt.II)
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This paper analyzes a recent development of international discipline on state-owned enterprises (SOEs) and enterprises that were granted exclusive rights or privileges, especially focusing on fair competition rules.

One traditional rationale for disciplining SOEs is to prevent sovereign states from circumventing their international obligation through SOEs (an anti-circumvention rule). In addition, a recent criticism has targeted unfair/anti-competitive practices by SOEs which enjoy various competitive advantages granted by the government (a fair competition rule). While a legal nature of regulation on SOEs under the World Trade Organization (WTO) law is principally an anti-circumvention rule, competition chapters of preferential trade agreements (PTAs) have developed fair competition rules.

Examining what kind of fair competition rules should be applied, it is important to distinguish between inbound/outbound competition markets. In an inbound competition market, the rule should pay certain respect to SOEs' legitimate practices because SOEs are often entrusted with tasks to attain public policy goals such as public services. In contrast, in an outbound competition market, it would be understandable that the artificial competitive advantages of SOEs should be offset and trade distortion should be eliminated more straightforwardly.

The European Union's TFEU Article 106(2) model offers a rule which has flexibility to grope for an appropriate balance between the public interest of the state in establishing SOEs and the interest of fair competition in inbound competition markets.