Shaping world trade

But much more is at stake than just clearing the way for easier trade between two stubborn but relatively like-minded trading partners.  The European Union and United States are also looking outward.  Not since the end of World War II has there been so great an opportunity to shape the future of the international trading system.  Buried in the formal EU mandate for the trade talks is a clause that states that the agreement should address state monopolies, state-owned enterprises and enterprises entrusted with special or exclusive rights.  This is not as obscure as it sounds.  European and American companies compete daily with state-owned and state-backed enterprises.  These state-owned enterprises (“SOEs” in trade jargon) account for 10 percent of the largest 2000 companies in the world from 37 countries, doing US$3.6 trillion in business in 2011 (exceeding the gross national income of UK, France, Germany or Mexico); their sales amount to almost 6 percent of world GDP; and these state companies make up 80 percent of the value of the stock market in China, 62 percent in Russia and 38 percent in Brazil.

State enterprises are often, not surprisingly, favored by their governments both through financing and regulation, but this often comes at the expense of private competitors.  And the operations of SOEs, as well as the favors their governments grant them, are anything but transparent.  The reason disciplines for state enterprises are on the EU and U.S. negotiating agendas (also a key objective of the United States in the Trans-Pacific Partnership negotiations) is not that either the European Union or United States has new complaints about any state enterprises the other may have, but that their companies face this form of competition globally – across many sectors, including energy, minerals, airlines and financial services.  State ownership can be a means of circumventing many existing trade obligations – whether through closing a market, limiting the supply of essential raw materials or seizing market share in other parts of the world.

{mosads}New international trade agreements are not going to dictate the shape of any country’s economy, but they can level the playing field for international trade and investment by curbing the advantages given to government-owned and favored enterprises when they engage in commerce.  New rules can require that these entities not discriminate in their purchases and sales, that they act in accordance with commercial considerations, and that they are more transparent.  Trade agreements can require that patron ministries, bent on boosting the commercial success of the companies they own, cannot also be their regulators, removing conflicts of interest that show up in discriminatory regulation. 

State capitalism is not a shrinking phenomenon; it is growing.  But the good news is that the governments of Vietnam and Malaysia and others welcome international disciplines over state-enterprises as an aid to domestic reforms.  Across-the-board negotiations in Geneva at the World Trade Organization have stalled out, but there are various combinations of like-minded trading partners working to build what can become a new international architecture for world trade.  It is imperative that they succeed.

In America, trade agreements are a more contentious domestic political issue than in prior times.  But there is one area on which there is general agreement, across the private sector and labor and on a bipartisan basis in Congress: Any new trade agreement the United States enters into must contain strong effective disciplines on state-owned enterprises.

Wolff is chairman of the National Foreign Trade Council, the oldest broad American trade association dedicated to opening world markets.