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WTO and SOEs: Article XVII and Related Provisions of the GATT 1994

  • ANDREA MASTROMATTEO (a1)
Abstract
Abstract

By acting as a trader, a government may influence the direction of international trade through its purchases and sales decisions without resort to other more direct means of trade regulation. The GATT recognizes that governments may choose to participate in international commerce in competition with private firms, but it does not leave them with a free hand when it comes to carrying out trading operations. The core rules regulating a State's trading activities are found in Article XVII and related provisions of the GATT. In the 70 years since their adoption, developments in both the GATT 1947 and the WTO have delineated a set of relatively limited disciplines rooted in the principle of non-discrimination, raising doubts about their effectiveness to address the kinds of problems caused by ‘State trading’ today. It remains true, however, that while State trading enterprises continue to operate across the world, and fundamental questions about the full reach and scope of the existing disciplines endure, opportunities to clarify their role in the modern trading system may well arise in the future practice of WTO Members.

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*Email: Andrea.mastromatteo@wto.org
Footnotes
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A longer version of this paper was presented during the 2016 Columbia Law School Trade Seminar Series on State-Owned Enterprises in China: Trade and Competition Issues. Any views expressed are solely attributable to the author and not the WTO Secretariat.

Footnotes
References
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1 Jackson J. H., Davey W. J., and Sykes A. O., Legal Problems of International Economic Relations: Cases, Materials and Text, 6th edn, St Paul, MN: West Academic Publishing, 2013, pp. 2230 and 228; Jackson J. H., World Trade and the Law of the GATT, Indianapolis: Bobbs Merrill, 1969, pp. 329330 .

2 Articles XX(d) and XXXVII of the GATT also deal with State trading. Article XX(d) prescribes that nothing in the GATT shall prevent the adoption or enforcement by any Member of measures necessary to ensure compliance with laws or regulations relating to inter alia the enforcement of monopolies operated under Articles II:4 and XVII. Article XXXVII:3(a), which is part of Part IV of the GATT and deals with ‘Commitments’, states that developed country Members shall make every effort, in cases where a government determines the resale price of products wholly or mainly produced in the territories of developing country Members, to maintain trade margins at equitable levels. Neither of these provisions is specifically examined in this paper.

3 Proposals for Expansion of World Trade and Employment, Developed by a Technical Staff within the Government of the United States in Preparation for an International Conference on Trade and Employment and Presented for Consideration by the Peoples of the World, US Department of State, November 1945 (United States 1945 Proposals).

4 United States 1945 Proposals, p. 2.

5 Letter from William L. Clayton, Assistant Secretary of State, to the United States Secretary of State, 1 November 1945, United States 1945 Proposals, p. IV.

6 United States 1945 Proposals, Section E, State Trading, p. 17.

7 Suggested Charter for an International Trade Organization of the United Nations, US Department of State, September 1946 (United States Suggested Charter).

8 Report of the First Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, EPCT/33, p. 3.

9 For a succinct account of how the GATT developed in tandem with the Havana Charter for an International Trade Organization, see Jackson et al., Legal Problems of International Economic Relations, pp. 230–233.

10 Preparatory Committee of the International Conference on Trade and Employment, Verbatim Report of the Fifth Meeting of Committee II, London, 30 October 1946, EPCT/CII/PV5 (London Preparatory Committee, EPCT/CII/PV5), p. 36.

11 London Preparatory Committee, EPCT/CII/PV5, pp. 36–37.

12 Ibid., p. 37.

13 Second Session of the Preparatory Committee of the International Conference on Trade and Employment, Report to Commission A by Sub-Committee on Articles 31 and 32, 9 August 1947, EPCT/160, p. 8. It appears that one of the main reasons why this proposal was dropped is because the Soviet Union (at the time considered to be the only large trader that was likely to operate a complete monopoly of its import trade) did not participate in the meetings of the Preparatory Committee. See, Wilcox C., A Charter for World Trade, London: Macmillan Company, 1949, pp. 101102 ; and Dam K.W., The GATT: Law and International Economic Organization, Chicago, IL: Chicago University Press, 1970, p. 316 .

14 Report of the Drafting Committee of the Preparatory Committee of the United Nations Conference on International Trade and Employment, New York, 5 March 1947, EPCT/34, p. 28.

15 EPCT/160, Note 12, p. 6.

16 See, e.g., EPCT/CII.36, p. 11 (United States); ECPT/A/PV.15 pp. 15–23 (various); and EPCT/CII/37, pp. 1–4 (various).

17 Interpretative Notes Ad Article XVII:1.

18 See, e.g., discussion in Notifications of State-Trading Enterprises, Final Report adopted on 24 May 1960, 9th Supp. BISD 179 (1960 Notifications Panel Report), p. 180

19 See, e.g., Article XVII (State Trading Enterprises), Note by the Secretariat, Negotiating Group on GATT Articles, MTN.GNG/NG7/W/15, 11 August 1987, paras. 13–17.

20 Understanding on the Interpretation of Article XVII, para. 1.

21 See, e.g., Petersmann, E.-U., GATT Law on State Trading Enterprises: Critical Evaluation of Article XVII and Proposals for Reform, in Cottier T. and Mavroidis P. (eds.), State Trading in the Twenty-First Century, University of Michigan Press, 1998, pp. 7196 at pp. 86–87.

22 According to Davey, this omission represents a possible element of vagueness in the definition. Davey, W., Article XVII GATT: An Overview, in Cottier and Mavroidis (eds), State Trading in the Twenty-First Century, p. 25.

23 The same clarification was made in the 1960 Notifications Panel Report.

24 Understanding on the Interpretation of Article XVII, para. 5.

25 Illustrative List, para. 2.

26 Illustrative List, para. 6.

27 Illustrative List, para. 8.

28 Ibid., para. 9 (emphasis added).

29 See, e.g., Davey, Article XVII GATT, pp. 17–33.

30 Cf. Roessler, who argues that the ‘national treatment provisions of Articles III:2 and III:4 … are sufficiently broadly worded to capture the denial of national treatment to imported products through state trading operations’. Roessler F., ‘Comment: Canada–Wheat: Discrimination, non-commercial considerations, and the right to regulate through state trading enterprises’, World Trade Review, 7(1) (2008), pp. 6769 at p. 69.

31 United States Suggested Charter, Article 26.

32 First Session of the Preparatory Committee held in London in 1946. London Report, First Session of the Preparatory Committee, EPCT/33 (London Report), p. 32.

33 GATT Panel Report, Belgian Family Allowances, G/32, adopted 7 November 1952, BISD 1S/59 at p. 60 para. 4.

34 GATT Panel Report, Canada – Administration of the Foreign Investment Review Act, L/5504, adopted on 7 February 1984, BISD 30S/140 (Canada–FIRA); GATT Panel Report, Canada – Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, L/6304, adopted on 22 March 1988, BISD 35S/37; and GATT Panel Report, Canada – Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, adopted on 18 February 1992, DS17/R, BISD 39S/27.

35 GATT Panel Report, Canada–FIRA, p. 163, para. 5.16.

36 State Trading: Proposal by the United States, MTN.GNG/NG7/W/55, 13 October 1989, at p. 2.

37 Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled, or Frozen Beef (Korea–Various Measures on Beef), DS161/DS169, para. 770.

38 Ibid., para. 780.

39 Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, (Canada–Wheat Exports), DS276, paras. 4.182–4.188.

40 Ibid., para. 6.52.

41 Ibid., paras. 6.58–6.59.

42 Appellate Body Report, Canada–Wheat Exports, para. 89.

43 A similar view is expressed in GATT Panel Report, Canada–FIRA, para. 5.16.

44 The second Interpretative Note that is relevant to the notion of ‘commercial considerations’ is the specific Interpretative Note Ad Article XVII:1(b), which provides that a ‘country receiving a ‘tied loan’ is free to take this loan into account as a ‘commercial consideration’ when purchasing requirements abroad’. According to Jackson, this Interpretative Note was introduced in response to Chinese concerns that many countries in need of loans would not be able to obtain them in the absence of an exception to the ‘commercial considerations’ requirement. Jackson, World Trade and the Law of the GATT pp. 347–348.

45 Panel Report, Canada–Wheat Exports, paras. 6.48–6.49.

46 Ibid., paras. 6.74–6.76 and 6.90–6.91.

47 Ibid., paras. 6.86–6.87.

48 Ibid., para. 6.103.

49 Appellate Body Report, Canada–Wheat Exports, para. 145.

50 Ibid., para. 149.

51 Ibid., para. 150.

52 Panel Report, Canada–Wheat Exports, para. 6.61.

53 Ibid., para. 6.69.

54 Appellate Body Report, Canada–Wheat Exports, para. 157 (emphasis original, footnote omitted).

55 GATT Panel Report, Canada–Provincial Liquor Boards (EEC), p. 86, para. 4.10.

56 Ibid., p. 87, para. 4.13.

57 GATT Panel Report, Canada–Provincial Liquor Boards (US) p. 81, para. 5.19.

58 GATT Panel Report, Canada–Provincial Liquor Boards (EEC), p. 87, paras. 4.15–4.16.

59 GATT Panel Report, Japan – Restrictions on Imports of Certain Agricultural Products, L/6253, adopted 2 March 1988, BISD 35S/163 (Japan–Agricultural Products), p. 229, para. 5.2.2.2.

60 GATT Panel Report, Canada–Provincial Liquor Boards (EEC), para. 4.24.

61 Panel Report, Korea–Beef, para. 766.

62 Reports Relating to the Review of the Agreement, Other Barriers to Trade, adopted 3 March 1955, BISD 3S/222 at 228 (1955 Working Party Report).

63 1955 Working Party Report, at 228.

64 See above, at 3.

65 See, in general, Davey, Article XVII GATT, pp. 32–34.

66 Protocol for the Accession of Poland, BISD 15S/46 at 52; and Protocol for the Accession of Romania, BISD 18S/5-10.

67 Protocol for the Accession of Hungary, BISD 20S/3-8.

68 Protocol on the Accession of the People's Republic of China, WT/L/432 (China Accession Protocol) p. 4. China's trading rights commitments were the subject of a WTO dispute brought by the United States in 2007 with respect to certain Chinese measures concerning inter alia films for theatrical release and unfinished audiovisual products. The Chinese measures were found to be inconsistent with China's obligations. See, Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/R and Corr.1, adopted 19 January 2010, as modified by Appellate Body Report WT/DS363/AB/R, DSR 2010:II, p. 261.

69 China Accession Protocol, p. 5 and Annex 3A pp. 43–60.

70 Report of the Working Party on the Accession of China, 1 October 2001, WT/ACC/CHN/49 (China Working Party Report), para. 215.

71 China Working Party Report, para. 212.

72 Ibid., para. 217.

73 Ibid., para. 46.

74 See, generally, discussion in Jackson, World Trade and the Law of the GATT, pp. 333–334.

75 Compare Article XVII:4(b) with Article 31.3 Havana Charter; and Interpretative Note Ad Article XVII:4(b) with Articles 31:3 and 31:4 Havana Charter.

76 Understanding on the Interpretation of Article XVII, para. 4. Thus far, only one counter-notification has been reviewed in the Working Party – the United States' August 2014 counter-notification of State trading enterprises allegedly operating in China. Counter-Notification of the State Trading Enterprises of China Pursuant to Paragraph 4 of the Understanding on the Interpretation of Article XVII, G/C/W/701-G/STR/Q1/CHN/2, 14 August 2014.

77 See above, at 12 and 15.

78 Chapter V, Restrictive Business Practices, Havana Charter. Article 54 defines ‘public commercial enterprises’ as ‘agencies of government insofar as they are engaged in trade’ and ‘trading enterprises mainly or wholly owned by public authority’.

79 The United States requested consultations with the government of Canada in the Canada–Wheat Exports dispute on 17 December 2002, WT/DS276/1.

A longer version of this paper was presented during the 2016 Columbia Law School Trade Seminar Series on State-Owned Enterprises in China: Trade and Competition Issues. Any views expressed are solely attributable to the author and not the WTO Secretariat.

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