(Washington, DC, September 21) – The Committee to Support U.S. Trade Laws (“CSUSTL”) supports strong, comprehensive, and enforceable rules governing the conduct of state-owned and -controlled enterprises (“state enterprises”). Renegotiation of the North American Free Trade Agreement (“NAFTA”) provides an important opportunity for the U.S. and its NAFTA partners to implement state enterprise rules that improve upon those proposed in the Trans-Pacific Partnership (“TPP”) and Transatlantic Trade and Investment Partnership (“TTIP”) agreements. Any attempt to weaken such improved disciplines should be rejected.
As the U.S. Trade Representative’s summary of trade negotiating objectives makes clear, “market-distorting practices by state owned enterprises” are a major barrier to U.S. trade. These “market-distorting practices” can drive overcapacity, depress prices, and trigger unemployment in countries that abide by the rules of market-based competition. There is broad consensus that state enterprises benefit from preferential treatment vis-à-vis private competitors, despite an established pattern of inefficiency and weaker financial performance. This is because they often operate in the strategic and political interests of the state, rather than commercial interests, both at home and abroad.
CSUSTL therefore strongly supports the principles articulated in the U.S. Trade Representative’s summary negotiating objectives and urges USTR to (i) improve upon the state enterprise rules in the TPP by, for example, broadening coverage and eliminating exceptions, and (ii) resist any efforts to water down state enterprise rules. Specifically, it is critical that state enterprise disciplines:
- Define state enterprises broadly to include those that are controlled by the government, even where majority ownership may not exist. CSUSTL believes that the levers of government control go beyond ownership and that even nominally “private” enterprises may in fact be state enterprises that create equivalent distortions in certain circumstances.
- Require state enterprises to operate solely in accordance with commercial considerations, and on a non-discriminatory basis. This should include not only purchases and sales of goods and services, but also investments in the economies of other parties to the agreement. Specific rules should also explicitly cover the lending activities of state financial enterprises to prevent subsidies in the form of ordinary “commercial” lending.
- Mandate full transparency and ensure that parties to the agreement have regular and timely access to all relevant information regarding potentially non-commercial activity by state enterprises.
- Prohibit preferential regulatory treatment, whether de jure or de facto, of state enterprises by parties to the agreement.
- Cover state enterprises at all levels of jurisdiction and otherwise minimize opportunities for exceptions and exemptions.
- Authorize equivalent retaliation, including cross-retaliation, when state enterprise operations in violation of the rules damage the interests of another party to the agreement.
“NAFTA renegotiation provides the United States and its closest trading partners the opportunity to set the gold-standard for 21st century trade agreements,” said CSUSTL President Thomas M. Sneeringer. “As foreign governments increasingly use state enterprises to distort competitive forces in their own favor, NAFTA requires state enterprise rules that are broad, strong, and enforceable. These rules should clearly apply to non-NAFTA state enterprises operating in our markets as well.”
Alan Price, former President of CSUSTL, a member of its Executive Committee and Chair of the International Trade Practice at Wiley Rein, LLP said, “Now is the time to draw clear lines to ensure that state enterprises do not continue distorting global markets in furtherance of strategic and political objectives. Contrary to many predictions, as international trade has expanded over the last 20 years, so has the role of the state in some of the world’s major economies. As a result, free trade isn’t actually free or fair at all.”
Terence Stewart, the Immediate Past President of CSUSTL, a member of its Executive Committee and managing partner of Stewart and Stewart added, “The need for effective rules to ensure that trade with and by state owned and state invested enterprises are based on market principles has never been more critical. While many countries have some SOEs and SIEs, an increasing portion of global trade is controlled by such entities with little or no accountability to the trading system. NAFTA provides an excellent opportunity to establish comprehensive and forward looking rules so that our trade agreements benefit all players and do not provide false advantages to SOEs or SIEs.”
The Committee to Support U.S. Trade Laws (“CSUSTL”) is an organization of companies, trade associations, labor unions, law firms, and individuals committed to preserving and enhancing U.S. trade laws and supporting trade policies that benefit the United States-based productive economy. CSUSTL’s members span multiple sectors, including manufacturing, technology, agriculture, mining, energy, and services. We are dedicated to ensuring that the laws against unfair trade are not weakened through legislation or policy decisions in Washington, DC, in international negotiations, or through dispute settlement at the World Trade Organization (WTO) and elsewhere.
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