With multinationals going up against government-owned firms around the world, how can we ensure “competitive neutrality”?
By Peter M. Robinson
Around the world, companies face the challenge of competing with state-owned enterprises (SOEs), which are often favored by their governments in official policy and through less obvious means. In China, for example, state-owned companies often enjoy preferential treatment in such areas as government procurement, subsidies, taxation, export financing, and the application and enforcement of regulations.
And it’s not just China – such practices are unfortunately still common in many countries. This is problematic enough when the competition is on the SOE’s home turf. But multinational firms are increasingly going up against SOEs in third markets, with governments sometimes lending strong support for bids. In such circumstances, how can we ensure fair and equal treatment?
This is a high-priority issue for the U.S. government. In addition, the 34-nation Organization for Economic Co-operation and Development is investigating the possibility of building upon its existing guidelines for governments on SOEs, which underscore the importance of “competitive neutrality.” With many emerging nations increasingly drawn to models of “state capitalism” in the wake of the financial crisis, this work is taking on new urgency.
In December, we hosted an in-depth discussion of the challenge of SOEs with OECD Secretary General Angel Gurría and U.S. Under Secretary of State for Economic Affairs Robert Hormats. The get-together provided a timely opportunity for USCIB members to voice their views and share intelligence on a topic not generally tackled by other industry groups.
Mr. Gurría drew attention to a recent report on investment protectionism from the OECD and the UN Conference on Trade and Development. That report notes that, while barriers to cross-border investment worldwide have not increased in an overt manner, there are signs that countries are becoming more insular – by rejecting deals, by imposing capital controls and through regulations.
Recent OECD work has produced a stocktaking of concerns about competitive neutrality. These include: available remedies to counter anti-competitive behavior; reasons why SOEs may operate on an uneven playing field; and discussion of the relevance of the existing OECD guidelines to ensure competitive neutrality in such cases.
At the meeting, USCIB members readily provided examples of how U.S. companies have been squeezed out of national markets, and specific deals, by state-owned enterprises, and encouraged enhanced attention to this issue in the OECD.
Mr. Hormats reiterated the importance of this problem to the U.S. government, saying it was moving faster than discussions of policies on how to deal with SOEs. He welcomed the thoughts of members to press forward in the OECD and elsewhere to establish disciplines and raise awareness.
USCIB and our affiliate BIAC (Business and Industry Advisory Committee to the OECD) have urged that this subject be accorded higher priority on the OECD agenda – a point reiterated by USCIB members at our meeting with Messrs. Gurría and Hormats.
For example, we would like to see the OECD define competitive neutrality in detail. Other options being considered include monitoring the implementation of the SOE guidelines, leading to peer review and best practices, and possibly inviting non-member countries to participate in further OECD work, including monitoring.
Such actions could help bridge a broad gap between the rules applied to the private sector and those applied to state-owned firms in many key markets. Stay tuned.
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