The State-Owned Enterprises Issue in China’s Prospective Trade Negotiations

Abstract

China, in the next few years, faces the prospect of major regional and bilateral trade negotiations possibly including the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership with the Association of Southeast Asian Nations (ASEAN) and Japan, Korea, India, Australia and New Zealand and separate negotiations with India, Korea and Japan, potentially the United States and even possibly the European Union. A likely key element in such negotiations, and one already raised by the United States in the TPP negotiations, 1 is that of trade arrangements involving state-owned enterprises (SOEs). China is viewed from outside as having a large SOE sector, and large SOEs are viewed as having a protected monopoly position in domestic Chinese markets. This paper discusses some of the key sub-issues potentially arising with SOEs in these negotiations. These include: arrangements for SOEs under China's antitrust laws as well as the operation of these arrangements in practice via case law, and how trade is affected by them; the potentially large increase in Chinese coverage of the World Trade Organization (WTO) government procurement code if Chinese SOEs were to be included under it; the implications of the changing relative size of SOEs and private sectors in China for the "non-market" economy (NME) designation, which China consented to upon WTO accession; and claimed subsidization of SOEs through various devices. These issues arise prominently in the Chinese case, but are similar to SOE issues in other negotiations, including in the emerging US-EU Transatlantic Trade and Investment Partnership negotiation. Reference will thus be made to similar issues and precedents elsewhere. The aim is to lay out a potential negotiating issues list for SOEs to better focus debate and outline possible approaches to accommodation, rather than definitively resolve the issues.