Substance of Accession Negotiations

5.2 Rules

State ownership and privatization

Many applicants were in the process of transformation from a centrally-planned economy to a market economy. This section has given Working Parties an opportunity of learning more about the process of transformation and drawing appropriate conclusions. It was not originally designed to deal with the more limited question of the application of the GATT rules governing the trading activities of State trading enterprises and the GATS rules on Monopolies and Exclusive Service Suppliers, which are examined in the sections “State trading Enterprises” and “Trade in Services”. There has nevertheless been a certain overlap between the discussions under the present heading and the specifically rule-based discussions in these later sections. In some cases, the discussion on State trading has been merged with this section.

When examining the policies of applicants with privatization programmes, WTO Members have been particularly interested in understanding the extent to which the State is still an actor in the marketplace, the extent to which the changes made have increased competition, how much remains to be done under the programme, and the length of time that it will take to complete.

It is important therefore that applicants provide full information concerning any privatization programme that they have adopted, the legal framework for that programme, the progress already made in implementing it and expectations for the future. Each entity in which the State has an interest should be listed, together with details of State participation, and a privatization plan and schedule for each. They will be asked to improve the information supplied where necessary and to update it during the accession process in order to demonstrate that the programme is being actively pursued. They may expect to be asked whether foreigners can invest in entities being privatized.

One early Working Party is particularly significant. A number of its members noted that while the acceding country was constructing the legal framework for equality of treatment of private enterprises with State firms and the eventual separation of former State firms from government association after privatization, the current rules for the management of State-owned firms contemplated a State role in enterprise operations. It was also their view that the acceding country was facing a huge task as the number of firms involved was very large and that the setting up of an economic basis independent of the State would be a long-term project. The relationship between the State and its trade and industry had to be clear and as a minimum they expected transparency and dialogue as its economic transition progressed.

The applicant concerned stated that it could not undertake commitments exceeding the regular membership obligations but was committed to fulfil the notification requirements ensuing from the existing procedures in the WTO agreements. It also confirmed that the former State monopoly in foreign trade had been abolished and that no restrictions existed on the right of foreign and domestic individuals and enterprises to import and export goods and services, except as provided for in WTO agreements. It agreed that it was important to ensure full transparency and to keep WTO Members informed of progress in transforming its economic and trade regime. Its government would provide, every 18 months to WTO Members, information on developments in its programme of privatization along the lines of that provided to the Working Party, and on other issues related to its economic reforms as relevant to its obligations under the WTO.¹⁴⁵

This case set a pattern that was followed in later accessions of countries in the course of transformation to a market economy. In these, a standard commitment provides for transparency of the process of transformation which is supplemented where appropriate with commitments specific to the case in question. The transparency commitment is along the following lines: “The representative of [X] confirmed its readiness to ensure the transparency of its ongoing privatization programme and to keep WTO Members informed of its progress in the reform of its transforming economic and trade regime. He stated that his government would provide annual reports, along the lines of that provided to the Working Party, to WTO Members on developments in its programme of privatization as long as the privatization programme would be in existence. He also stated that his government would provide annual reports on other issues related to economic reforms as relevant to its obligations under the WTO.”  ¹⁴⁶ The baseline commitment provides for annual reports, except that one LDC is to make reports “periodically” rather than every year.¹⁴⁷ The above text states that reports on privatization programmes would be made only as long as these are in existence. It is less clear as to how long reports would continue to be made on “other issues” and a few of the Protocol commitments add an end-date for these.¹⁴⁸

States that intervene to a large extent in the economy have not only been asked to accept a commitment to ensure the transparency of the privatization process but also substantive commitments. Some of these commitments deal with a complex of different measures that do not fit into the standard headings and are therefore dealt with here. For instance, one acceder committed itself to bring the operations of its tobacco and wine monopoly in the area of international trade and domestic distribution into conformity with GATT 1994 and the other obligations of the WTO. It also agreed that any special privileges granted to this monopoly in the domestic distribution and international trade of alcohol and tobacco products would be eliminated from the date of accession and that both domestic and foreign firms would be eligible to participate in the distribution and trade of these products on an equal basis. Further commitments relate to the binding of its domestic subsidies on tobacco and grapes, equal access to inputs for all firms producing tobacco and alcohol products on its territory, participation of new entrants under the reform programme, fees charged, annual reports, disposal of contraband imports.¹⁴⁹

A tendency is emerging of borrowing language from Article XVII of GATT 1994, which deals with trade in goods, and applying it to enterprises that supply goods and/or services. Such commitments fit better under the present heading than under corresponding headings in the sections devoted to goods and to services.

One acceder accepted a Protocol commitment to ensure that from the date of accession, 17 enterprises identified by the Working Party as State-owned or -controlled, or enterprises with special or exclusive privileges “would make purchases of goods and services, which are not for government use, and sales in international trade in accordance with commercial considerations, including price, quality, availability, marketability and transportation, and would afford enterprises of WTO Members adequate opportunity, in conformity with customary practice, to compete for such purchases or sales”.¹⁵⁰

In the case of two acceding countries, Members considered that the influence of the State on their economies made it necessary to obtain supplementary commitments of a more general nature. In the first of these cases, the acceding government confirmed that “[it] would ensure that all State-owned and State-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, [it] would not influence, directly or indirectly, commercial decisions on the part of State-owned or State-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement”. This acceding country also confirmed that “all laws, regulations and measures relating to the procurement by State-owned and State-invested enterprises of goods and services for commercial sale, production of goods or supply of services for commercial sale, or for non-governmental purposes would not be considered to be laws, regulations and measures relating to government procurement. Thus, such purchases or sales would be subject to the provisions of Articles II, XVI and XVII of the GATS and Article III of the GATT 1994.”¹⁵¹ Once again, wording was taken from GATT 1994 and applied to both goods and services. The commitments of the second of these countries are very similar.¹⁵²

Pricing policies

This section deals with laws and regulations that regulate the prices or profit margins that may be charged for goods and services. Governments may limit the price of certain goods or services, for instance to cap the price of essential foodstuffs or medicines or to restrain monopolies.

The basic GATT rule is that any laws and regulations to regulate internal prices must provide national treatment for imported goods. More precisely, imports must be accorded no less favourable treatment than that accorded to like products of national origin. However, it also recognized that domestic maximum price controls, even if applied on a national treatment basis, may adversely affect imported products. While the relevant provision does not give further explanation this might very well be the case for foreign products that command a premium because they are heavily advertised or because they are protected by patent. Concerns have also been expressed that some countries could maintain prices below market levels in order to limit imports.¹⁵³ In such cases, Members applying the measures have an obligation to take account of the interests of exporting Members “with a view to avoiding to the fullest practicable extent such prejudicial effects.”¹⁵⁴ These provisions do not prevent the payment of subsidies exclusively to domestic producers. Some agricultural subsidies involve the payment of minimum prices for domestic produce but the subject of agricultural policies is dealt with in a separate section below.

Minimum import prices that apply only to imported goods would have to be enforced by a prohibition of imports priced below the minimum or by levying a supplementary charge in order to bring the price of imports up to the minimum. Prohibitions are contrary to GATT rules and the Agreement on Agriculture saw minimum import prices for agricultural products replaced by tariffs. The possibility of levying supplementary charges on non-agricultural products is limited by the existence of bindings in Goods Schedules.

The provisions relating to domestic regulations affecting trade in services are somewhat different. Here, Members have an obligation to accord national treatment to services and service suppliers of any other Members only in sectors where they have undertaken specific commitments and then only subject to any conditions and qualifications included in the Schedules. There are no provisions dealing specifically with price controls in the services area.¹⁵⁵

It has been noted that governments may regulate the price at which monopolies buy or sell goods and services. Members have an obligation under GATT 1994 to ensure that State trading enterprises buy and sell goods “solely in accordance with commercial considerations”.¹⁵⁶ The GATT rules on State trading enterprises are dealt with in a separate section below. Under GATS, Members are obliged to ensure that a monopoly supplier of services does not abuse its monopoly position in a manner inconsistent with their specific commitments.¹⁵⁷

Applicants will be asked if they maintain any price controls on goods and services and, if so, to provide details. Members would like to see a list of all goods (by HS number) and services subject to price or profit controls, a citation of the legal authority for these requirements, an account of the conditions under which such controls are normally applied, and a description of any plans for changing their scope of application. Members have shown an interest in all forms of price control, including more informal forms such as administrative guidance on pricing.¹⁵⁸

In many cases the list of goods subject to price controls has been rather short. Controls are perhaps more frequent in the services sector. Applicants can expect detailed discussions to take place in Working Parties if their list of price-controlled items is relatively long or if Members believe that they have a significant effect on conditions of competition.¹⁵⁹

While the precise wording of Protocol commitments has varied, the following is typical: “The representative of [X] confirmed that in the application of price controls now or in the future” [X] would apply such measures in a WTO-consistent fashion, taking into account the interests of other WTO Members as provided for in Article III:9 of the GATT 1994 and in Article VIII of the General Agreement on Trade in Services (GATS). “[X] would publish a list of the goods and services subject to State controls and any that are introduced or re-introduced in the future in its Official Journal, including any changes in the list provided of current requirements in place.”¹⁶⁰ In one case, the applicant accepted an additional commitment stating specifically that its pricing policy would be applied in compliance with the provisions of the WTO Agreement, including Article III:4 and XI:1 of GATT 1994 and Article 4 of the Agreement on Agriculture.¹⁶¹

Other Working Party Reports include additional Protocol commitments: to remove the exemption of local agricultural and fish products from price-control¹⁶², to reduce the incidence of price controls in the economy¹⁶³; to ensure that price controls would not have the effect of limiting or otherwise impairing market access commitments on goods and services¹⁶⁴.

Competition policies

Governments’ competition policies are an integral part of the context within which the WTO operates and applicants are asked to supply information on this subject. Among the main points that they should deal with are whether they have a law on competition or not. If not, whether they have any plans to introduce such a law. If they have, they should submit the text of the law, summarize its main provisions including those permitting exceptions, the arrangements made to supervise its implementation, and the penalties foreseen for breaches of the law.

The WTO is, of course, essentially concerned with limitations on competition created by trade measures. Certain provisions of GATT 1994 have a direct bearing on competition policies. For instance, Article XX:d) contains an exception relating to the enforcement of monopolies permitted under Articles II:4 and XVII, the protection of patents, trademarks and copyrights (which grant their holders limited monopoly rights). The GATS provides that Members must ensure that monopolies or exclusive service providers do not act in a manner inconsistent with their MFN and specific commitment obligations. It also recognizes that certain business practices of services suppliers may restrain competition and therefore restrict trade in services. It provides for a measure of transparency.¹⁶⁵ The TRIPS Agreement strikes a balance between the interests of holders of the monopoly rights created by intellectual property rights and the public interest.

There is however no WTO agreement on competition polices as such. While the interaction between trade and competition policies was the subject of work in WTO following the 1996 Ministerial Conference, no consensus was reached at the 2003 Ministerial Conference on further action to be taken on the subject and the subject has effectively been dropped from the organization’s agenda.¹⁶⁶

WTO Members have demonstrated their interest in obtaining information on this subject¹⁶⁷ but no applicant that has acceded has undertaken a Protocol commitment on this subject.

 

Notes:

145. For the full text, see Bulgaria, paras 24 to 26. This illustrates, inter alia, the relationship between economic transition and trading rights. For a discussion of trading rights, see the section below on that subject. back to text
146. Viet Nam, para 95; the former Yugoslav Republic of Macedonia, para 37; Armenia, para 23; Chinese Taipei, para 155; Moldova, para 30; Lithuania, para 19; Croatia, para 26; Albania, para 30; Georgia, para 24; Estonia, para 21; Latvia, para 18; Kyrgyz Republic, para 14; Mongolia, para 35. back to text
147. Cambodia, para 25. back to text
148. Estonia, para 21; Latvia, para 18. back to text
149. Chinese Taipei, paras 158 and 160. back to text
150. Saudi Arabia, para 52. back to text
151. China, paras 46 and 47. back to text
152. Viet Nam, paras 78 and 79. back to text
153. China, para 63. back to text
154. GATT 1994, Article III :4 and 9. back to text
155. GATS, Article XVII. See also Article VI. back to text
156. GATT 1994, Article XVII :1. back to text
157. GATS, Article VIII. back to text
158. China, para 57; Viet Nam, para 100. back to text
159. See, for instance, Saudi Arabia, paras 28 — 33, pricing of natural gas and natural gas liquids and paras 34 — 36, pharmaceuticals; Chinese Taipei, various products, paras 11 and 12. back to text
160. Tonga, para 35; Saudi Arabia, para 37; Cambodia, para 27; Nepal, para 20; the former Yugoslav Republic of Macedonia, para 45; Armenia, para 29; Moldova, para 34; Lithuania, para 22; Croatia, para 33; Oman, para 25; Albania, para 34; Georgia, para 26; Jordan, para 32; Estonia, para 25; Latvia, para 21; Kyrgyz Republic, para 21; Panama, para 10; Bulgaria, para 16. back to text
161. Viet Nam, para 103. back to text
162. Tonga, para 35. back to text
163. Moldova, para 34. back to text
164. China, paras 18, 60, 62, 64, Protocol I.9. back to text
165. For details, see GATS Articles VIII and IX. back to text
166. WTO document WT/L/579, para 1g: “no work towards negotiations on [this issue] will take place within the WTO during the Doha Round”. back to text
167. For a sample of questions asked in Working Parties, see Moldova, para 37; Croatia, para 34; Oman, para 26; Estonia, para 26; Latvia, para 22. back to text