State-owned enterprises (“SOEs”) – that is, entities in which a government or the State has some form of direct or indirect ownership or control – occupy an increasingly important share of the global economy and international commerce. SOEs commonly operate like, and therefore can be considered in much the same way as, any other enterprise in either national or international markets. However, to the extent that they are controlled by a State, SOEs may pursue government policy objectives, rather than, or in addition to, the strictly commercial interests of the enterprise itself.2 Moreover, a State’s investment in an SOE can create incentives for the State to give preferential treatment to the SOE when compared to other economic actors. Given these dynamics, the presence of SOEs in a given market potentially generates a range of issues for governments and for actual or potential competitors of the SOE.

One of the concerns surrounding state-owned enterprises (SOEs) in the international trade context is that they may acquire a competitive edge through “hidden subsidies or other advantages that would not be available to private firms.” The Organisation for Economic Co-operation and Development (OECD) report exemplifies the advantages that SOEs can enjoy. These are (a) outright subsidization, such as the creation of favorable tax regimes or conferring of in-kind benefits; (b) concessionary financing and guarantees, e.g. granting of credit at below-market interest rates; (c) other preferential treatment by governments, including exemptions from antitrust enforcement and building permit regulations; (d) monopolies and the advantages of incumbency; (e) captive equity, namely, the advantages that SOEs may enjoy thanks to the inability of their owners to transfer ownership rights; and (f) exemption from bankruptcy rules and information advantages. Through such means, SOEs may gain a competitive advantage merely by virtue of their state-owned status.