August 9, 2011

U.S. Ramps Up Multilateral Attention on State-Owned Enterprises

Senior U.S. officials are pressing governments in the Asia-Pacific region and elsewhere to develop multilateral rules to rein in state-owned enterprises, which are often favored by their home governments and increasingly compete against U.S. firms in third countries.  Speaking in Hong Kong in July, Secretary of State Hillary Clinton urged Asia-Pacific governments to pursue multilateral agreements over bilateral economic pacts, develop rules in a fair and transparent manner, and avoid providing unfair advantages to state-owned enterprises.

Business Urges U.S. to Restart India Investment Talks: USCIB joined a number of industry groups in encouraging the U.S. government to re-engage India in discussions toward a bilateral investment treaty (BIT).  In a letter to Secretary of State Hillary Clinton and U.S. Trade Representative Ron Kirk, the business groups stated: “Negotiating a strong and high-standard BIT with India will produce substantial increases in productive investments by U.S. companies, U.S. exports and other new market opportunities for the United States.  BITs are a vital tool to protect important U.S. investments overseas that promote U.S. exports and economic growth.”  A related association letter was submitted to India’s ministry of commerce in response to a discussion paper on India’s investment policy, in particular the use of equity caps.  The business letter urged India to phase out these caps, which are expected to be an issue in any potential BIT with the United States.

“There is now a danger of creating a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies and dizzying complexities,” Secretary Clinton said.  “A small electronics shop, for example, in the Philippines might import alarm clocks from China under one free trade agreement, calculators from Malaysia under another, and so on — each with its own obscure rules and mountains of paperwork — until it no longer even makes sense to take advantage of the trade agreements at all. Instead, we should aim for true regional integration.”

Secretary Clinton said the U.S. wants to focus attention on state-owned enterprises via Trans-Pacific Partnership talks.  “We are working to ensure that the TPP is the first trade pact designed specifically to reduce barriers for small and medium-sized enterprises.  After all, these are the companies that create most of the world’s jobs, but they often face significant challenges to engaging in international trade.  So, the TPP aims to ensure fair competition, including competitive neutrality among the state-owned and private enterprises.”

These themes were echoed in remarks by Deputy U.S. Trade Representative Demetrios Marantis in Washington, also in July.  Mr. Marantis told a conference convened by the Coalition of Services Industries that, as USTR develops a proposal for dealing with state-owned enterprises in the TPP talks, negotiations, it is using work already underway in the Organization for Economic Cooperation and Development as a guide.

He said that the U.S. approach on SOEs in the TPP talks would be based upon OECD work on fostering “competitive neutrality” between SOEs and private firms.  “We are working right now on determining what our best negotiating proposal can be in the Trans-Pacific Partnership that covers this issue.”

 Contact: Eva Hampl or Shaun Donnelly

From the President: Dealing With State-Owned Enterprises (Winter 2010-2011)

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