When the Leviathan goes to the market: A critical evaluation of the rules governing state-owned enterprises in trade agreements

Abstract

AbstractState-owned enterprises (SOEs) have long constituted, and are likely to remain, an important instrument in any government’s toolbox for a variety of economic and societal goals. However, the significant extent of state ownership among the world’s top companies, and the quantitative and qualitative transformation and hybrid nature of SOEs, raises the issue of their impact on international trade flows and the competitive process. This article addresses the question of how international trade agreements regulate SOEs, with a view to furthering the international contestability of markets, while, at the same time, allowing governments to provide support to SOEs as a means of dealing with market failures and the pursuit of public goals. After a brief introduction to contemporary state capitalism, the argument is developed in three main parts. The first part situates SOEs within the GATT and WTO frameworks and elaborates on the findings of previous literature with a view to highlighting the main shortcomings of such discipline. The second part re-examines the notion of ‘competitive neutrality’ by locating contemporary trade agreements within the larger contextual relationships between the state, the market, and the social, and thus reconstructs the normative rationales and general policy implications of the disciplines under examination. Against this background, the third part critically assesses the new disciplines on SOEs in recent preferential trading areas (PTAs). The main conclusion is that the search for binding rules has not led to balanced regimes and, despite the wider scope of the new rules, notable problems that have emerged within the WTO context remain unsolved.