Subsidies, direct or indirect, are a major reason why governments are concerned about the participation of SEs in industrial supply chains. Other but more indirect forms of government intervention in the market can also favour state enterprises, such as the non-neutral application and enforcement of competition rules, discriminatory public procurement rules and practices that favour domestic SEs in certain sectors, as well as forced technology transfers that benefit or are enabled by SEs.
State enterprises and subsidies
State enterprises (SEs) play an important role in industrial supply chains and compete internationally through cross-border trade and investment. While government ownership is not problematic in and of itself, a growing concern shared by many countries is where government ownership allows SEs to operate with certain advantages, and thereby distorting the level playing field with private competitors.
Key messages
A significant share of all industrial subsidies tends to be intermediated by or provided through SEs that act as suppliers of energy, financing, or provide parts and components to producers downstream. This implies that companies in which governments are significant shareholders, such as state banks or state power companies, can play a dual role as both recipients and providers of industrial subsidies.
The WTO has to date played a limited role in disciplining the support provided to and by SEs, prompting some governments to incorporate specific disciplines on SEs in their preferential trade agreements. To support the emergence of a consensus at the multilateral level, empirical evidence must be shared more widely, as should the knowledge and experience acquired at the bilateral and plurilateral levels. OECD instruments such as the OECD Guidelines of Corporate Governance on State-Owned Enterprises have a useful role to play in this regard.
Context
State enterprises receive relatively more support than their private competitors
Available evidence for 14 key industrial sectors shows that SEs receive relatively more support than do their private competitors. This is especially the case for government grants and for below-market borrowings. SEs tend to face lower risk spreads on their debt despite higher levels of outstanding debt on their balance sheets, reflecting the presence of implicit loan guarantees built on the assumption of government backing.
