The “Indirect Support” Loophole in the New SOE Norms: An Intentional Choice or Inadvertent Mistake?

Abstract

Recent trade agreements contain new norms on SOEs which set forth detailed provisions to regulate a wide range of activities of contracting parties’ governments and their SOEs. Given the increasing global attention to the operation of SOEs in international trade and investment, and their significant influence, the new norms provide important legal guidance and a useful platform for future discussions in this area. These new norms include: restriction of governmental support for SOEs, restriction of SOEs’ support for other SOEs, and prevention of anti-competitive activities of SOEs, among others. While arguably offering a first stride in the right direction, the new norms also include critical ambiguities and uncertainties as regards key concepts and principles, which could potentially render full implementation of the norms elusive and complex. In particular, these new norms contain provisions that could lead to significant circumvention due to its critical “ASCM-minus” approach. This loophole is arguably capable of undermining the basic objectives of the new SOE norms. This approach should be reconsidered in future formulation of SOE norms in trade agreements including a prospective new agreement on this issue at the WTO.