The Reform Of Chinese State-owned Enterprises In The Context Of WTO Modernization

Industrial competition is the core of competition among the major powers today,also industrial policies and state-owned enterprises(“SOEs”)are important tools for China to achieve its national strategic goals.In recent years,the SOEs rapidly developing,widely engaged in profit-making activities,accelerating the expansion of overseas business,occupying more and more top 500 seats in the world’s top 500 companies,has made Western Countries concerned and widely use countervailing measures on imported products from China.Meanwhile,as China enters the international high-end industrial chain,and its competitiveness in the high-tech industry is increasing,developed countries like U.S.that were originally at the top of the industrial chain become worried and vigilant,which makes them expand jurisdiction of CFIUS to review the investment from China.Some countries suppose that various preferential treatments given to SOEs accord China’s SOEs artificial advantages,making SOEs sell products at low prices.Therefore,SOEs are in an advantageous position in domestic and international market,and they cause industrial overcapacity problems.However,the problem of overcapacity in key areas has negative effects to farmers,workers and enterprises in other countries,leading to market distortions,disruption of the development and application of innovative technologies,and disruption of the normal operation of international trade.Notably,the developed countries headed by the United States believe that the WTO agreements has insufficient capabilities to effectively restrain the impact of "national capitalism" led by China all over the world,and they face an unfair competition environment in the WTO dispute settlement mechanism.Consequently,they consider it necessary to formulate stricter regulations on industrial subsidies and SOEs,to ensure that emerging developing countries do not circumvent the rules’ application,and to establish additional obligations on SOEs,including the requirement of transparency.Under the background of this,the latest free trade agreements(“FTA”)are reached.In such case,the United States attempts to use USMCA high standard SOEs rules as a model for future rules’ negotiations,and then promotes it to more FTAs,especially at the WTO level,to reshape the international economic and trade system that is beneficial to the United States.From my perspective,we need to start from the definition of SOEs,substantive and procedural obligations,and the external environment of the enterprises.Because the discussion of the latest chapter on SOEs in the existing international agreements,or the modernization of WTO’s SOEs rules,or the further reform of China’s SOEs should cover these sides.As a result,this paper is divided into four chapters,respectively discussing the concept of SOEs,subsidies related to SOEs,the substantive and procedural obligations of SOEs,and the external business environment of SOEs.Firstly,There is no widely accepted standard for the definition of SOEs in the world,which is different in different legal and policy contexts.In international agreements,from State trading enterprises(“STEs”)in GATT to the definition of SOEs based on the government’s ownership,to the first introduction of the detailed definition of SOEs in CPTPP,and then to the addition of "control right" in USMCA,the scope of SOEs has been expanded again and again,including more enterprises related to the government.As there is no official definition of SOEs in China’s legal documents,I suggest that the definition of SOEs should be based on the government’s "controlling interest" and the "appointment right" to the board of directors.Secondly,the discussion of substantive and procedural obligations of SOEs can be divided into two chapters.One is subsidies related to SOEs and the other is substantive obligations.Because the subsidies related to SOEs are the focus of the world’s concern,and also the root cause of overcapacity.As a provider of subsidies,whether SOEs are "public body" is a controversial question.Several cases of the Appellate Body of WTO have gradually made a clear criteria for judging "public body".However,the United States is dissatisfied with this complex standard,so it puts forward the principle of "non-commercial assistance" in the free trade agreement,forbidding SOEs from becoming the providers and recipients of subsidies.As for me,China should propose the "institution theory" to define "public body",and promote the reform of introducing mixed ownership to SOEs and the reform of the authorized operation mechanism for state capital,weaken the ownership background of SOEs,and strengthen the independent management rights of SOEs to comply with the high standard rules of SOEs in the future.In addition,the obligations of "non-discrimination treatment","business consideration" and "transparency" have been implemented since GATT 1994.Nevertheless,with the development of international practice,higher requirements and enforceability have been put forward for SOEs.According to the international standards and the actual domestic situation,the Chinese government and SOEs should strengthen the information disclosure,such as the notification of subsidies for SOEs,the disclosure of annual reports,financial statements and executive compensation of SOEs to improve the transparency.Finally,it is the most critical thing of the SOEs’ reform in China that is Chinese government creating a fair competition environment for SOEs,private enterprises and foreign-invested enterprises.The principle of "competition neutrality",first proposed by Australia,popularized by OECD and then implemented by the United States in a number of FTAs,is a good institutional choice to help Chinese government create a clean and effective market environment.All in all,China should advocate “ownership neutrality” in combination with China’s domestic conditions,introduce China’s version of "competition neutrality" principle and SOEs rules in the world,and adhere to China’s position in the WTO reform negotiations.