To counter these problems some OECD countries as well as the European Union have established specific competitive neutrality frameworks. These frameworks go beyond addressing the anti-competitive behaviour of SOEs, to also establish mechanisms to identify and eliminate such competitive advantages as they may have, including with respect to taxation, financing costs and regulatory neutrality. The experience so far with such formal arrangements is generally encouraging. Jurisdictions that have them have generally been successful in rolling back state subsidies and, on the evidence to date, have obtained significant economic efficiency gains.
The Working Paper concludes that a full implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises would go a long way in ensuring competitive neutrality. The business activities of currently unincorporated segments of the government sector would become much more competitive and accountable if they were made subject to the Guidelines. For incorporated SOEs the Guidelines also include a portmanteau recommendation of a “level playing field”. However, they offer only limited concrete recommendations on how governments are expected to obtain this outcome in practice. The Guidelines are moreover weakly implemented in a number of countries.
