What does the CPTPP mean for state-owned enterprises?
The CPTPP will promote a level playing field between state-owned enterprises (SOEs) and their private competitors. This means that Canadian businesses operating in or seeking to expand into CPTPP markets will be able to compete fairly with government-owned companies. At the same time, the CPTPP also preserves the Canadian government’s ability to support domestic SOEs that provide public services.
The agreement does this through two key principles:
- addressing trade distortions that favour SOEs engaged in commercial activities
- ensuring that such activities are based on commercial considerations, in particular by addressing discrimination and trade-distorting subsidies
How the CPTPP will benefit Canadian companies
- SOEs have become more prominent in the global economy over the past decade, competing in a wide range of sectors and markets.
- The purpose of the CPTPP’s chapter on SOEs is to limit the ability of CPTPP governments to distort trade or hinder investment through state ownership of an enterprise.
- The CPTPP commits parties to ensuring SOEs compete fairly with private companies, without undue advantages given them by their government owners, such as preferential financing or selective regulation.
- By promoting fair competition and preventing market distortion by governments, the CPTPP chapter on SOEs will create new opportunities for Canadian businesses and workers.
State-owned enterprises explained
State-owned enterprises (SOEs) are commercial entities that are owned or controlled by governments. They are different from entities that operate on a cost-recovery or not-for-profit basis (for example, public transportation systems). SOEs exist in many countries, including Canada and, particularly, in the Asia-Pacific. Some SOEs deliver public services, but many others operate in competition with private companies and are motivated by profit.
- SOEs are also known as government business enterprises, public sector undertakings and Crown corporations (here in Canada).
- Canadian examples include Canada Post, the Canadian Broadcasting Corporation (CBC and Via Rail).
Canada seeks rules concerning controls in two situations where governmental conduct could affect international trade. The first is when the state itself operates a commercial enterprise—an SOE. The second is when the state gives official authorization to a monopoly. An SOE that has an official monopoly would fall under both situations.
- An official monopoly is an entity designated by government as the sole provider or purchaser of a good or service.
- Canadian examples include the provincial and territorial liquor boards.
SOEs and monopolies may receive various forms of commercial advantage from government, such as regulatory or financial preferences. These advantages can have trade-distorting effects and can give SOEs an unfair advantage when they compete with private companies in the market.
State-owned enterprises in the CPTPP
SOEs are already subject to general rules at the World Trade Organization. These rules aim to regulate an entity that is formally separate from government but whose conduct will still be attributed to the latter. The CPTPP builds on these existing rules, with provisions that provide a more level playing field for Canadian companies.The CPTPP focuses on the following four areas to help level the playing field for Canadian businesses:
- Commercial considerations: SOEs are to act in accordance with commercial considerations except when providing a public service; this rule would only apply when the SOE is engaged in commercial activities
- Non-discrimination: SOEs are to buy and sell goods and services in a non-discriminatory manner; this rule would apply only when the SOE is engaged in commercial activities
- Non-commercial assistance: No CPTPP country is to cause harm to another CPTPP country through the use of non-commercial assistance provided to its SOEs; this rule would not apply to services supplied at home
- Transparency: CPTPP countries are required to disclose certain information regarding their SOEs. These transparency rules are designed to encourage good corporate governance
The CPTPP chapter on SOEs includes exemptions from the rules, such as exemptions for SOEs with revenue below a certain dollar threshold and country-specific exclusions. Additionally, Canada and most other CPTPP countries have exemptions from certain rules for any SOE that is owned or controlled by a provincial, territorial or local government.
These exemptions and exclusions mean that all Canada’s existing Crown corporations will be able to continue operating as they do today.
How the CPTPP will impact SOEs
- Canada seeks to ensure a level playing field when SOEs compete with private companies in the market, while at the same time preserving the ability of Crown corporations to provide public services.
- The CPTPP will not affect an SOE’s delivery of domestic public services; the agreement applies only to the commercial activities of SOEs, allowing CPTPP countries to support SOEs that deliver domestic public services.
- The SOEs provisions will allow existing crown corporations, such as Canada Post and the CBC, to continue operating as they do currently.
- Provincial and territorial SOEs will be subject to limited new rules. These rules are primarily related to sharing non-confidential information with other CPTPP countries so as to encourage transparency and good corporate governance. Provinces and territories can continue using SOEs to provide domestic public services and will retain the ability to create new SOEs.
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