The Application of Non-discrimination Obligations to Monopolies and State (Trading) enterprises

This memorandum provides an analysis of the scope of non-discrimination obligations upon monopoly state enterprises (MSEs) and state (trading) enterprises under the General Agreement on Trade in Tariffs 1994 (GATT 1994), the North American Free Trade Agreement (NAFTA), and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Specifically, this memorandum answers the question as to whether there is one obligation for non-discriminatory treatment or two in each of the three agreements.
 
 
 

Executive Summary

 

This memorandum is a non-confidential summary of a confidential memorandum prepared for a Beneficiary in the International Trade and Investment Law Practicum course taught by Professor Debra P. Steger in the Fall 2016 semester at University of Ottawa, Faculty of Law. Meghan Blom, Paul Burbank, and Hunter Fox were the student team who research and prepared both the original memorandum for the Beneficiary in the course as well as prepared this summary.

 

This memorandum provides an analysis of the scope of non-discrimination obligations upon monopoly state enterprises (MSEs) and state (trading) enterprises under the General Agreement on Trade in Tariffs 1994 (GATT 1994), the North American Free Trade Agreement (NAFTA), and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Specifically, this memorandum answers the question as to whether there is one obligation for non-discriminatory treatment or two in each of the three agreements.   

 

Section one of the memorandum answers the first legal question on the scope of non-discrimination obligations in GATT Article XVII. That is, whether the non-discrimination obligation is a separate obligation from “acting in accordance with commercial considerations”. The results of interpretation are that Article XVII:1(a) and (b) contain only one obligation. The analysis suggests that the non-discrimination obligations under GATT Article XVII:1(a) and (b) incorporate both MFN and national treatment-type obligations. These obligations are tempered by “commercial considerations”. In this way, the non-discrimination principles of Articles I and III are modified for Article XVII to allow state enterprises to function effectively. Moreover, an examination and interpretation of the language in subparagraphs 1(a) and (b) reveals that the two subparagraphs are necessarily linked.

 

Section two explains how the non-discrimination obligations of NAFTA Chapter 15 differ from GATT Article XVII. NAFTA Chapter 15 establishes a similar relationship with respect to non-discrimination for monopolies. NAFTA Article 1503 requires that state enterprises provide non-discriminatory treatment, defined as the better of MFN and national treatment, in its sale of goods to investors of another party. Unlike GATT Article XVII, acting “in accordance with commercial considerations” does not operate to satisfy a state enterprise’s non-discrimination obligations.

 

Article 1502, however, contains a single obligation for monopolies: a monopoly must not discriminate in its purchase or sale of the monopolized good or service. This single non-discrimination obligation can be satisfied in two ways. Firstly, a party can prove that it is not discriminating by showing that it is acting “in accordance with commercial considerations”. In this respect, acting “in accordance with commercial considerations” is one way that a monopoly is not discriminating in its purchase and sale of the monopolized good or service. Secondly, the monopoly can depart from acting “in accordance with commercial considerations” in its purchase and sale of the monopoly good or service, but only if it is complying with terms of its designation that are neither discriminatory nor lead to certain types of anti-competitive conduct.

 

Section three examines the non-discrimination obligations imposed on MSEs under CETA Chapter 18. Chapter 18 incorporates elements from Article XVII of the GATT and follows a similar interpretative analysis as found in NAFTA Chapter 15. As similarly found in Article XVII, Chapter 18 affirms that the relationship between non-discrimination and commercial consideration, as it prescribes that all enterprises captured by its ‘covered entity’ definition, accord non-discriminatory treatment, which is the better of national treatment and MFN. All entities except for monopolies, are deemed to meet the non-discrimination obligations when they act “in accordance with commercial considerations”.

 

In contrast to GATT Article XVII and NAFTA Chapter 15, Chapter 18 contains an explicit ‘commercial considerations exception,’ whereby in specific circumstances, monopolies and state enterprises are not required to act “in accordance with commercial consideration”. The exceptions use general language, perhaps broadening the scope of their application. As the most recent agreement, it appears that CETA Chapter 18 resolves some of the ambiguity in NAFTA Chapter 15 and GATT Article XVII, and affirms the single obligation relationship between non-discriminatory treatment and commercial considerations.

 

Context

 

This memorandum will assess the scope and content of the non-discrimination obligations imposed on MSE’s under three agreements: GATT 1994 (Article XVII), NAFTA (Chapter 15) and CETA (Chapter 18). Specifically, the memorandum will respond to the specific legal questions:

 

- What is the scope of the non-discrimination obligations in Article XVII of the GATT 1994? 
- What does the obligation to act in a manner consistent with the “general principles of non-discriminatory treatment” in GATT 1994 require?
- In particular, is the requirement only that a state enterprise or MSE “act solely in accordance with commercial considerations” a separate obligation or is it part of the obligation to act in a manner consistent with the “general principles of non-discriminatory treatment” in GATT 1994?
- How does the scope of the non-discrimination obligations imposed on state enterprises/MSEs under Article XVII of the GATT 1994 differ from the non-discrimination obligations imposed on state enterprises under: 
 
1. Chapter 15 of the NAFTA; and
2. Chapter 18 of the CETA?
 

Section one answers the first legal question through a process that addresses the second and third questions. First, the scope of the non-discrimination obligations will be assessed in relation to the requirement to act “in accordance with commercial considerations”. Second, this assessment will allow us to conclude on whether acting “in accordance with commercial considerations” in its purchases and sales satisfies MSE’s non-discrimination obligations.

 

Sections two and three answer the fourth legal question through an interpretation of the non-discrimination obligations in NAFTA Chapter 15, and CETA Chapter 18 respectively. As in section one, this analysis clarifies the relationship between the non-discrimination obligations and the requirement to act “in accordance with commercial considerations”. In arriving at these conclusions, the meaning of “in accordance with commercial considerations” will be parsed out to provide clarity on how a particular state enterprise’s commercial considerations will be assessed. Sections two and three both conclude by highlighting the differences between the scope of the non-discrimination obligations under those agreements and GATT 1994.

 

The individual sections that analyse each agreement’s relevant material — GATT Article XVII, NAFTA Chapter 15, and CETA Chapter 18— will begin with their own introductory road map detailing the interpretive process that we take. The individual sections will conclude with express responses to the legal questions set out above.

 

The full redacted report can be read here.

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