Regulation of Subsidies to State-Owned Enterprises and Undertakings: WTO and EU perspective

Размещено на http://www.allbest.ru/

Regulation of Subsidies to State-Owned Enterprises and Undertakings: WTO and EU perspective

Fokina N.

graduate master of international law, Institute of International Relations, Taras Shevchenko National University of Kyiv (Kyiv, Ukraine)

Regulation of subsidies to state-owned enterprises is one of key issues for effective functioning of bilateral and multilateral trade relations between WTO and EU members in view of their differing political and economic systems that give rise to very sensitive issues having major multidimensional implications. The most critical is striking delicate balance between subsidized state-owned enterprises and purely commercial enterprises. The regulation of State trading in the WTO is aimed at dealing with potentially distorting effects of the operations of STEs on trade. From the latest WTO dispute settlement practice, it appears that what is of critical importance in this issue is not enterprise's shareholders, but whether the enterprise acts by instruction or direction from the government.

It is clearly indicated in US - Carbon Steel (India): “mere ownership or control over an entity by a government, without more, is not sufficient to establish that the entity is a public body.” [1] economic trade political

In terms of WTO system, the General Agreement on Tariffs and Trade (GATT) 1947 was the fists to introduce the first multilateral rules on state enterprises. It sets a notion of state trading enterprises.

The basis for including rules was the recognition that a Member could avoid complying with their commitments by simply establishing an enterprise, clothing it with the appearance of being a private enterprise, but then use this enterprise to circumvent their commitments.

Article XVII of the GATT requires that if a Member establishes or maintains a state enterprise, wherever located, or grants to any enterprise, formally or in effect, exclusive or special privileges, then such an enterprise shall, for its exports or imports, act in accordance with two principles (1) non-discriminatory treatment and (2) commercial considerations. [2]

However, the question still remained from the GATT 1947 as to what particular entities these two criteria of non-discrimination and functioning pursuant to commercial considerations applied. To make it more understandable in the course of the Uruguay Round negotiations, members adopted the Understanding on the Interpretation of Article XVII. The Article XVII Understanding set forth the activities to be notified:

Governmental or non-governmental enterprises, including marketing boards, which have been granted exclusive or special rights or privileges, including statutory or constitutional powers, in the exercise of which they influence through their purchases or sales the level or direction of imports or exports [3]

It is a working definition of state trading enterprise.

Three core elements are provided for in this “working definition”, namely:

(i) a governmental or non-governmental entity, including marketing boards;

(ii) the granting to the enterprise of exclusive or special rights or privileges; and

(iii) a resulting influence, through the enterprise's purchases or sales, on the level or direction of reports or exports. [4]

What really is important is that there is no requirement for an enterprise to be State owned; there is no requirement of it having a monopoly position in order for it to fall under Article XVII and for WTO rules on STEs to be applicable to it. The vital characteristics are that an enterprise holds exclusive or special rights or privileges, and that in carrying out those rights and privileges the enterprise exerts influence on imports or exports by its buying and selling activities.

As of now, the most critical issues if subsidies to state owned enterprises arise in connection with China and its overcapacity in economic terms, which further led to trade tensions with the US and even became an underlying problem of current WTO Appellate Body crisis.

The notion of state-owned enterprises became a vital issue because if they are interpreted as public bodies, then government support thereof will amount to subsidy in the meaning of SCM Agreement.

In United States -- Countervailing Duty Measures on Certain Products from Chinathere was a huge discussion on what is public body and whether Chinese state- owned enterprises can be regarded as being public bodies. In this context the concept of government was raised as well. “The term "government", as defined in Article 1.1(a)(1) of the SCM Agreement, encompasses both the government in the "narrow sense" and "any public body within the territory of a Member" [5]

In the context of determining whether a benefit has been conferred by a government's provision of goods, Article 14(d) of the SCM Agreement establishes that investigating authorities are required to determine whether such provision of goods by the government has been made for less than adequate remuneration. [6]

In US - Anti-Dumping and Countervailing Duties (China)the Appellate Body examined a claim by China relating to the USDOC's rejection of in-country private prices in China as benchmarks for hot-rolled steel provided by certain SOEs to the investigated companies. In that dispute, the findings by the Appellate Body did not hinge on whether or not the entities that provided hot-rolled steel constituted "public bodies" within the meaning of Article 1.1(a)(1) of the SCM Agreement but, rather, on whether the USDOC had correctly reached the conclusion that price distortion in the market, due to governmental intervention, warranted recourse to an alternative benchmark. [7] Abovementioned provisions show how difficult, important and comprehensive provision of subsidies to state owned enterprises is. In the light of such special circumstances, in my view it would be feasible to set specific benchmarks for state subsidies which can be provided to enterprises, especially if goods are intended for export so as to curb overcapacity problem. If the benchmarks are met, the enterprises will be able to trade their goods in international markets. If no, such goods are to be consumed domestically only. In EU perspective, subsidies to SOEs are governed by state aid. It should be mentioned that in EU state aid covers not only SOEs, but a much wider range of entities which are called undertakings. ECJ jurisprudence extends this legal category to different entities. State aid in the EU acts as one of the mechanisms for achieving the programmatic goals of establishing and functioning of the internal market, enhancing pan-European competitiveness, economic development, creation and preservation of jobs, drawing on EU program documents. The transformation of the state aid institution is carried out together with the strategic goals and documents. At the same time, the postulates, as defined by Article 107 of the TFEU, remain unchanged regarding the incompatibility of state aid with the internal market insofar as it affects trade between EU Member States.

Neither the TFEU nor the European Commission formally define the concept of "state aid to undertakings". Instead, the European Commission has developed a Notice that clarifies and details the criteria that the measure must meet in order to be state aid. Currently, EU legislation in the field of state aid (its "substantive" norms) is divided into horizontal and sectoral. At the same time, the European Commission considers that the provision of horizontal state aid has a lesser effect on competition and trade between EU member states in the domestic market. Additional, but not less important are the provisions of the GBER, the regulation of specific state aid instruments (forms) (state guarantees, loans, insurance, etc.), de minimis rules, rules for compensation for FDI, financing, privatization and restructuring state enterprises and temporary rules on the financial crisis. Of course, the legislation contains procedural rules for ensuring the effective monitoring and control of state aid.

One of the most important elements for evaluating the eligibility of state aid is the so-called balancing test, which, among other things, implements economic instruments. The balancing test specifies the goals and principles of state aid. Main differences between WTO and EU approaches are that in the EU state aid must be assessed and rendered compatible before any state aid scheme is implemented in any EU Member State (preliminary ex-ante assessment), in the WTO subsidies and countervailing measures institute is activated only upon complaint from a Member State alleging a measure by another Member State to be inconstant with the provisions of the Agreement on Subsidies and Countervailing Measures and ex post assessment is conducted. Another major difference is that, if such a measure is rendered to be inconsistent with the provisions of the Agreement on Subsidies and Countervailing Measures, no compensation or recovery of funds is provided for, there will only be an obligation to stop such an inconsistent measure.

References

1. Appellate Body Report, US - Carbon Steel (India), para. 4.10. [electronic source] // The World Trade Organization website. - access date 20 April 2020 - Access mode:https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/DS/436ABR.pdf&Open=True

2. The Treatment of State Enterprises in the WTO & Plurilateral Trade Agreements by Kirk Haywood, Adviser, Trade Competitiveness, Commonwealth Secretariat Emerging Issues Briefing Note (3) March 2016 [electronic source] // The Commonwealth Secretariat website. - access date 20 April 2020 - Access mode: https://thecommonwealth.org/sites/default/files/inline/StateOwned%20EnterprisesTPP1008.pdf

3. Uruguay Round Understanding on Interpretation of Article XVII [electronic source] // Organization of American States website. - access date 20 April 2020 - Access mode:http://www.sice.oas.org/Trade/ur round/UR07E.asp

4. Technical Information on State Trading Enterprises [electronic source] // The World Trade Organization website. - access date 20 April 2020 - Access mode: https://www.wto.org/english/tratop e/statra e/statra info e.htm

5. Appellate Body Report, US - Anti-Dumping and Countervailing Duties (China), para. 286 [electronic source] // The World Trade Organization website. - access date 1 May 2020 - Accessmode:https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=Q:/WT/DS/379A BR.pdf&Open=True

6. Appellate Body Report, US -- Countervailing Measures (China), para 4.42[electronic source] // The World Trade Organization website. - access date 5 May 2020 - Access mode: https://www.wto.org/english/tratop e/dispu e/437abr e.pdf

7. Appellate Body Report, US -- Countervailing Measures (China), para 4.54 [electronic source] // The World Trade Organization website. - access date 5 May 2020 - Access mode:https://www.wto.org/english/tratop e/dispu e/437abr e.pdf

Размещено на Allbest.ru