Competitive Neutrality of Soes in International Investment Law

Abstract

This paper aims to investigate whether the principle of competitive neutrality of state-owned enterprises (SOEs) may be resorted to by international arbitral tribunals in investor-state dispute settlement (ISDS). This principle posits that the ownership (either public or private) of a given business should not affect its competitive opportunities in the market arena. Although being legally separated from their establishing State, usually independent and autonomous in their self organization, SOEs retain an undeniable vicinity and contact with the public sphere and can and do participate in the exercise of governmental authority at given conditions. This is reflected inter alia by given benefits of SOEs under domestic legal systems such as regulatory immunity from antitrust regulation, fiscal advantages or the exemption from bankruptcy legislation. In ISDS, the mechanism of attribution of conduct of SOEs is generally governed by customary international law, especially as codified by Article 5 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA), which relies on the divide between governmental and commercial activities, similar to the nature test applied in relation to the defence of jurisdictional immunity of foreign States before domestic courts. In the international arbitral practice, this dichotomy is traditionally based on the “private contractor” test, which defines as “sovereign” such activities in which a private party may not engage, and, conversely, as “commercial” such activities that a private party may perform. Upon resort to competitive neutrality considerations, the “private contractor” test may be further extended so that the acts that a private competitor in the market arena could have not executed be considered as falling under the exercise of elements of the governmental authority. The principle of competitive neutrality has been elaborated under the aegis of the Organisation for Economic Co-operation and Development (OECD) through adoption of soft law instruments, such as its ‘Guidelines on Corporate Governance of State-Owned Enterprises’. In addition,the practice of the World Trade Organization (WTO) dispute settlement system (DSS) may also be instructive with regard to the definition of ‘public body’ under Article 1.1(a)(1) of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The Author supports reliance by arbitrators to the principle of competitive neutrality of SOEs in order to strengthen the scope of the rules of attribution codified by ARSIWA, especially under Article 5, so as to foster the accountability of States and SOEs, also in the eyes of their constituencies, and to level the playing field in markets where SOEs and private undertakings compete.

Keywords: State-Owned Enterprises (SOEs), Competitive Neutrality, Organisation for Economic Co-operation and Development (OECD), International Investment Law, Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA)