Article 9.10. Non-Application of Dispute Settlement
A Party shall not have recourse to dispute settlement under Chapter 27 (Dispute Settlement) for a matter arising under this Chapter.
Chapter 10. STATE-OWNED ENTERPRISES AND DESIGNATED MONOPOLIES
Article 10.1. Definitions
For the purposes of this Chapter:
Arrangement means the Arrangement on Officially Supported Export Credits or a successor undertaking that has been adopted by at least 12 original WTO Members that were Participants to the Arrangement as of 1 January 1979;
commercial activities means activities that an enterprise undertakes with an orientation toward profit making and that result in the production of a good or supply of a service that will be sold to a consumer in the relevant market in quantities and at prices (1) determined by the enterprise. Activities undertaken by an enterprise that operates on a not-for-profit basis or on a cost recovery basis are not activities undertaken with an orientation toward profit making;
commercial considerations means price, quality, availability, marketability, transportation, and other terms and conditions of purchase or sale, or other factors that would normally be taken into account in the commercial decisions of a privately owned enterprise in the relevant business or industry;
covered investment has the same meaning as in Article 15.1 (Investment – Definitions);
designate means to establish, name, or authorize a monopoly, or to expand the scope of a monopoly to cover an additional good or service;
designated monopoly means a privately owned monopoly that is designated after the date of entry into force of this Agreement and any government monopoly that a Party designates or has designated;
financial service supplier, financial institution, and financial services have the same meaning as in Article 18.1 (Financial Services – Definitions);
government monopoly means a monopoly that is owned, or controlled through ownership interests, by a Party or by another government monopoly;
independent pension fund means an enterprise that is owned, or controlled through ownership interests, by a Party that:
(a) is principally engaged in the following activities:
(i) administering or providing a plan for pension, retirement, social security, disability, death, or employee benefits, or any combination thereof for the benefit of natural persons who are contributors to this plan and their beneficiaries; or
(ii) investing the assets of these plans;
(b) has a fiduciary duty to the natural persons referred to in subparagraph (a)(i) or to depositors representing those natural persons; and
(c) is not subject to investment direction from the government of the Party. Investment direction from the government of a Party does not include general guidance with respect to risk management and asset allocation that is not inconsistent with usual investment practice and is not demonstrated solely by the presence of government officials on the enterprise's board of directors or investment panel;
market means the geographical and commercial market for a good or service;
monopoly means an entity, including a consortium or government agency, that in any relevant market in the territory of a Party is designated as the sole provider or purchaser of a good or service, but does not include an entity that has been granted an exclusive intellectual property right solely by reason of the grant;
non-commercial assistance means assistance to a state-owned enterprise by virtue of that state-owned enterprise’s government ownership or control, where:
(a) assistance means:
(i) direct transfers of funds or potential direct transfers of funds or liabilities, such as:
(A) grants or debt forgiveness;
(B) loans, loan guarantees, or other types of financing on terms more favourable than those commercially available to that enterprise;
(C) equity capital inconsistent with the usual investment practice, including for the provision of risk capital, of private investors;
(ii) the provision of goods or the supply of services other than general infrastructure, on terms more favourable than those commercially available to that enterprise; or
(iii) the purchase of goods on terms more favourable than those commercially available to the enterprise;
(b) by virtue of that state-owned enterprise’s government ownership or control means that the Party or any of the Party’s state enterprises or state-owned enterprises:
(i) explicitly limits access to the assistance to the Party’s state-owned enterprises;
(ii) provides assistance which is predominately used by the Party’s state-owned enterprises;
(iii) provides a disproportionately large amount of the assistance to the Party’s state-owned enterprises; or
(iv) otherwise favours the Party’s state-owned enterprises through the use of its discretion in the provision of assistance; and
for the purposes of this definition:
(c) in determining whether the assistance is provided by virtue of that state-owned enterprise’s government ownership or control, account must be taken of the extent of diversification of economic activities within the territory of that Party, as well as of the length of time during which the non-commercial assistance program has been in operation; and
(d) non-commercial assistance does not include a Party’s transfer of funds, collected from contributors to a plan for pension, retirement, social security, disability, death, or employee benefits, or any combination thereof, to an independent pension fund for investment on behalf of the contributors and their beneficiaries;
public service mandate means a government mandate pursuant to which a state-owned enterprise makes available a service, directly or indirectly, to the general public in its territory. A service to the general public includes the distribution of goods and the supply of general infrastructure services;
sovereign wealth fund means an enterprise owned or controlled through ownership interests by a Party that:
(a) serves solely as a special purpose investment fund or arrangement for asset management, investment, and related activities, using financial assets of a Party. The Parties understand that the word “arrangement” herein as an alternative to “fund” allows for a flexible interpretation of the legal arrangement through which the assets can be invested; and
(b) endorses the Generally Accepted Principles and Practices (“Santiago Principles”) adopted by the International Working Group of Sovereign Wealth Funds in October 2008, or other principles and practices as may be agreed to by the Parties, or is a Member of the International Forum of Sovereign Wealth Funds, and includes any special purpose vehicles established solely for the activities described in subparagraph (a) wholly owned by the enterprise, or wholly owned by the Party but managed by the enterprise; and
state-owned enterprise means an enterprise that is principally engaged in commercial activities in which a Party:
(a) directly or indirectly owns more than 50 percent of the share capital. For the purposes of this definition, the term “indirectly” refers to situations in which a Party holds an ownership interest in an enterprise through one or more state enterprises of that Party. At each level of the ownership chain, state enterprises either alone or in combination with other state enterprises must own, or control through ownership interests, another enterprise;
(b) controls, through direct or indirect ownership interests, the exercise of more than 50 per cent of the voting rights;
(c) holds the power to control the enterprise through any other ownership interest, including indirect or minority ownership. For the purposes of this definition, a Party holds the power to control the enterprise if, through an ownership interest, it can determine or direct important matters affecting the enterprise, excluding minority shareholder protections. In determining whether a Party has this power, all relevant legal and factual elements must be taken into account on a case by case basis. Those elements may include the power to determine or direct commercial operations, including major expenditures or investments; issuances of equity or significant debt offerings; or the restructuring, merger, or dissolution of the enterprise; or
(d) holds the power to appoint a majority of members of the board of directors or any other equivalent management body.
Article 10.2. Scope
1. This Chapter applies to the activities of state-owned enterprises and designated monopolies of a Party that affect trade or investment between Parties within the free trade area. This Chapter also applies to the activities of state-owned enterprises of a Party that cause adverse effects in the market of a non-party, as provided in Article 10.5.
2. This Chapter does not apply to:
(a) the regulatory or supervisory activities, or monetary and related credit policy and exchange rate policy, of a central bank or monetary authority of a Party;
(b) the regulatory or supervisory activities of a financial regulatory body of a Party, including a non-governmental body, such as a securities or futures exchange or market, clearing agency, or other organization or association, that exercises regulatory or supervisory authority over financial services suppliers; or
(c) activities undertaken by a Party or one of its state enterprises or state-owned enterprises for the purpose of the resolution of a failing or failed financial institution or any other failing or failed enterprise principally engaged in the supply of financial services. (2)
3. This Chapter does not apply with respect to a sovereign wealth fund of a Party, except:
(a) Article 10.5.1 and Article 10.6.1 apply with respect to a Party’s indirect provision of non-commercial assistance through a sovereign wealth fund; and
(b) Article 10.5.2 applies with respect to a sovereign wealth fund’s provision of non-commercial assistance.
4. This Chapter does not apply with respect to an independent pension fund of a Party, or an enterprise owned or controlled by an independent pension fund of a Party, except:
(a) Article 10.5.1 and Article 10.6.1 apply with respect to a Party’s direct or indirect provision of non-commercial assistance to an enterprise owned or controlled by an independent pension fund; and
(b) Article 10.5.1 and Article 10.6.1 apply with respect to a Party’s indirect provision of non-commercial assistance through an enterprise owned or controlled by an independent pension fund.
5. This Chapter does not apply to government procurement.
6. This Chapter does not prevent a state-owned enterprise of a Party from providing goods or services exclusively to that Party for the purposes of carrying out that Party’s governmental functions.
7. This Chapter does not prevent a Party from:
(a) establishing or maintaining a state enterprise or a state-owned enterprise; or
(b) designating a monopoly, nor require it to undertake those measures.
Article 10.3. Non-discriminatory Treatment and Commercial Considerations
1. Each Party shall ensure that each of its state-owned enterprises, when engaging in commercial activities:
(a) acts in accordance with commercial considerations in its purchase or sale of a good or service, except to fulfil any terms of its public service mandate that are not inconsistent with subparagraph (c)(ii);
(b) in its purchase of a good or service:
(i) accords to a good or service supplied by an enterprise of the other Party treatment no less favourable than it accords to a like good or a like service supplied by enterprises of the Party or of a non-party; and
(ii) accords to a good or service supplied by an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to a like good or a like service supplied by enterprises in the relevant market in the Party’s territory that are investments of investors of the Party or of a non-party; and
(c) in its sale of a good or service:
(i) accords to an enterprise of the other Party treatment no less favourable than it accords to enterprises of the Party or of a non-party; and
(ii) accords to an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to enterprises in the relevant market in the Party’s territory that are investments of investors of the Party or of a non-party.
2. Each Party shall ensure that each of its designated monopolies:
(a) acts in accordance with commercial considerations in its purchase or sale of the monopoly good or service in the relevant market, except to fulfil any terms of its designation that are not inconsistent with subparagraphs (b), (c) or (d);
(b) in its purchase of the monopoly good or service:
(i) accords to a good or service supplied by an enterprise of the other Party treatment no less favourable than it accords to a like good or a like service supplied by enterprises of the Party or of a non-party; and
(ii) accords to a good or service supplied by an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to a like good or a like service supplied by enterprises in the relevant market in the Party’s territory that are investments of investors of the Party or of a non-party; and
(c) in its sale of the monopoly good or service:
(i) accords to an enterprise of the other Party treatment no less favourable than it accords to enterprises of the Party or of a non-party; and
(ii) accords to an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to enterprises in the relevant market in the Party’s territory that are investments of investors of the Party or of a non-party; and
(d) does not use its monopoly position to engage in, either directly or indirectly, including through its dealings with its parent, subsidiaries, or other entities the Party or the designated monopoly owns, anti-competitive practices in a non-monopolised market in its territory that negatively affect trade or investment between the Parties.
3. Paragraph 1 does not apply with respect to the purchase or sale of shares, stock, or other forms of equity by a state-owned enterprise as means of its equity participation in another enterprise.
4. Paragraphs 1(b), 1(c), 2(b) and 2(c) do not preclude a state-owned enterprise or designated monopoly from:
(a) purchasing or selling goods or services on different terms or conditions including those relating to price; or
(b) refusing to purchase or sell goods or services,
provided that this differential treatment or refusal is undertaken in accordance with commercial considerations.
Article 10.4. Courts and Administrative Bodies
1. Each Party shall provide its courts with jurisdiction over civil claims against an enterprise owned or controlled through ownership interests by a foreign government based on a commercial activity carried on in its territory. This paragraph does not preclude a Party from providing its courts with jurisdiction over claims against enterprises owned or controlled through ownership interests by a foreign government other than those claims referred to in this paragraph. This paragraph does not require a Party to provide jurisdiction over these claims if it does not provide jurisdiction over similar claims against enterprises that are not owned or controlled through ownership interests by a foreign government.
2. Each Party shall ensure that any administrative body that the Party establishes or maintains that regulates a state-owned enterprise exercises its regulatory discretion in an impartial manner with respect to enterprises that it regulates, including enterprises that are not state-owned enterprises. The impartiality with which an administrative body exercises its regulatory discretion is to be assessed by reference to a pattern or practice of that administrative body.
Article 10.5. Adverse Effects
1. A Party shall not cause adverse effects to the interests of the other Party through the use of non-commercial assistance that it provides, either directly or indirectly, to any of its state-owned enterprises with respect to:
(a) the production and sale of a good by the state-owned enterprise;
(b) the supply of a service by the state-owned enterprise from the territory of the Party into the territory of the other Party; or
(c) the supply of a service in the territory of the other Party through an enterprise that is a covered investment in the territory of that other Party.
2. Each Party shall ensure that its state-owned enterprises do not cause adverse effects to the interests of the other Party through the use of non-commercial assistance that the state-owned enterprise provides to any of its state-owned enterprises with respect to:
(a) the production and sale of a good by the state-owned enterprise;
(b) the supply of a service by the state-owned enterprise from the territory of the Party into the territory of the other Party; or
(c) the supply of a service in the territory of the other Party through an enterprise that is a covered investment in the territory of that other Party.
3. For the purposes of paragraphs 1 and 2, it must be demonstrated that the adverse effects claimed have been caused by the non-commercial assistance. The non-commercial assistance must be examined within the context of other possible causal factors to ensure an appropriate attribution of causality.
4. A service supplied by a state-owned enterprise of a Party within that Party’s territory is deemed not to cause adverse effects. This paragraph does not apply to a service that itself is a form of non-commercial assistance.
5. For the purposes of paragraph 1, indirect provision of non-commercial assistance includes the situation in which a Party entrusts or directs an enterprise that is not a state-owned enterprise to provide non-commercial assistance.
6. For the purposes of paragraph 1 and 2, adverse effects arise if the effect of the non-commercial assistance is:
(a) that the production and sale of a good by a Party’s state-owned enterprise that has received the non-commercial assistance displaces or impedes from the Party’s market imports of a like good of the other Party or sales of a like good produced by an enterprise that is a covered investment in the territory of the Party;
(b) that the production and sale of a good by a Party’s state-owned enterprise that has received the non-commercial assistance displaces or impedes from the market of a non-party imports of a like good of the other Party;
(c) a significant price undercutting by a good produced by a Party’s state-owned enterprise that has received the non-commercial assistance and sold by the enterprise in:
(i) the market of a Party as compared with the price in the same market of imports of a like good of the other Party or a like good that is produced by an enterprise that is a covered investment in the territory of the Party, or significant price suppression, price depression, or lost sales in the same market; or
(ii) the market of a non-party as compared with the price in the same market of imports of a like good of the other Party, or significant price suppression, price depression, or lost sales in the same market;
(d) that services supplied by a Party’s state-owned enterprise that has received the non-commercial assistance displace or impede from the market of the other Party a like service supplied by a service supplier of that other Party; or
(e) a significant price undercutting by a service supplied in the market of the other Party by a Party’s state-owned enterprise that has received the non-commercial assistance as compared with the price in the same market of a like service supplied by a service supplier of that other Party, or significant price suppression, price depression or lost sales in the same market.
7. The purchase or sale of shares, stock, or other forms of equity by a state-owned enterprise that has received non-commercial assistance as a means of its equity participation in another enterprise is not, in and of itself, construed to give rise to adverse effects as provided for in paragraph 6. Consistent with paragraph 2, if the state-owned enterprise provides equity capital to another state-owned enterprise, depending on the facts, the production and sale of a good or the supply of a service by the recipient enterprise could give rise to adverse effects.
8. For the purposes of paragraphs 6(a), 6(b), and 6(d), the displacing or impeding of a good or service includes any case in which it has been demonstrated that there has been a significant change in relative shares of the market to the disadvantage of the like good or like service. “Significant change in relative shares of the market” includes any of the following situations:
(a) there is a significant increase in the market share of the good or service of the Party’s state-owned enterprise;
(b) the market share of the good or service of the Party’s state-owned enterprise remains constant in circumstances in which, in the absence of the non-commercial assistance, it would have declined significantly; or
(c) the market share of the good or service of the Party’s state-owned enterprise declines, but at a significantly slower rate than would have been the case in the absence of the non-commercial assistance.
The change must manifest itself over an appropriately representative period sufficient to demonstrate clear trends in the development of the market for the good or service concerned, which, in normal circumstances, is at least one year.
9. For the purposes of paragraphs 6(c) and 6(e), price undercutting includes any case in which the price undercutting has been demonstrated through a comparison of the prices of the good or service of the state-owned enterprise with the prices of the like good or service in the relevant market.
10. Comparisons of the prices in paragraph 9 must be made at the same level of trade and at comparable times, and due account must be taken for factors affecting price comparability. If a direct comparison of transactions is not possible, the existence of price undercutting may be demonstrated on some other reasonable basis, such as, in the case of goods, a comparison of unit values.
11. Non-commercial assistance that a Party provides before the date of entry into force of this Agreement is deemed not to cause adverse effects.
12. For the purposes of paragraphs 1(b) and 2(b), the initial capitalization of a state-owned enterprise, or the acquisition by a Party of a controlling interest in an enterprise, that is principally engaged in the supply of services within the territory of the Party, is deemed not to cause adverse effects.
Article 10.6. Injury
1. A Party shall not cause injury to a domestic industry of the other Party through the use of non-commercial assistance that it provides, either directly or indirectly, to any of its state-owned enterprises that is a covered investment in the territory of that other Party in circumstances where:
(a) the non-commercial assistance is provided with respect to the production and sale of a good by the state-owned enterprise in the territory of the other Party; and
(b) a like good is produced and sold in the territory of the other Party by the domestic industry of that other Party. In situations of material retardation of the establishment of a domestic industry, it is understood that a domestic industry may not yet produce and sell the like good. However, in these situations, there must be evidence that a prospective domestic producer has made a substantial commitment to commence production and sales of the like good.
2. For the purposes of paragraph 1, the term “domestic industry” refers to the domestic producers as a whole of the like good, or to those domestic producers whose collective output of the like good constitutes a major proportion of the total domestic production of the like good, excluding the state-owned enterprise that is a covered investment that has received the non-commercial assistance.
3. For the purposes of paragraph 1, the term “injury” means material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of that industry. A determination of material injury must be based on positive evidence and involve an objective examination of the relevant factors, including the volume of production by the covered investment that has received non-commercial assistance, the effect of that production on prices for like goods produced and sold by the domestic industry, and the effect of that production on the domestic industry producing like goods. The periods for examination of the non-commercial assistance and injury must be reasonably established and must end as closely as practical to the date of initiation of the proceeding before the panel pursuant to Chapter 27 (Dispute Settlement).
4. With regard to the volume of production by the covered investment that has received non-commercial assistance, consideration must be given as to whether there has been a significant increase in the volume of production, either in absolute terms or relative to production or consumption in the territory of the Party in which injury is alleged to have occurred. No one or several of these factors can necessarily give decisive guidance.
5. With regard to the effect of the production by the covered investment on prices, consideration must be given as to whether there has been a significant price undercutting by the goods produced and sold by the covered investment as compared with the price of like goods produced and sold by the domestic industry, or whether the effect of production by the covered investment is otherwise to depress prices to a significant degree or to prevent price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give decisive guidance.
6. The examination of the impact on the domestic industry of the goods produced and sold by the covered investment that received the non-commercial assistance must include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, such as actual and potential decline in output, sales, market share, profits, productivity, return on investments, or utilization of capacity; factors affecting domestic prices; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments and, in the case of agriculture, whether there has been an increased burden on government support programs. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance.
7. It must be demonstrated that the goods produced and sold by the covered investment are, through the effects of the non-commercial assistance, set out in paragraphs 4 and 5, causing injury within the meaning of this Article. The demonstration of a causal relationship between the goods produced and sold by the covered investment and the injury to the domestic industry must be based on an examination of all relevant evidence. Any known factors other than the goods produced by the covered investment which at the same time are injuring the domestic industry must be examined, and the injuries caused by these other factors must not be attributed to the goods produced and sold by the covered investment that has received non-commercial assistance. Factors which may be relevant in this respect include, among other things, the volumes and prices of other like goods in the market in question, contraction in demand or changes in the patterns of consumption, and developments in technology and the export performance and productivity of the domestic industry.
8. A determination of a threat of material injury must be based on facts and not merely on allegation, conjecture or remote possibility and must be considered with special care. The change in circumstances which would create a situation in which non-commercial assistance to the covered investment would cause injury must be clearly foreseen and imminent. In making a determination regarding the existence of a threat of material injury, there should be consideration of relevant factors and of whether the totality of the factors considered lead to the conclusion that further availability of goods produced by the covered investment is imminent and that, unless protective action is taken, material injury would occur.
9. In making a determination regarding the existence of a threat of material injury referred to in paragraph 8, a panel established pursuant to Chapter 27 (Dispute Settlement) should consider factors, among other things, such as:
(a) the nature of the non-commercial assistance in question and the trade effects likely to arise therefrom;
(b) a significant rate of increase in sales in the domestic market by the covered investment, indicating a likelihood of substantially increased sales;
(c) sufficient freely disposable, or an imminent, substantial increase in, capacity of the covered investment indicating the likelihood of substantially increased production of the good by that covered investment, taking into account the availability of export markets to absorb additional production;
(d) whether prices of goods sold by the covered investment will have a significant depressing or suppressing effect on the price of like goods; and
(e) inventories of like goods.
Article 10.7. Transparency
1. Each Party shall provide to the other Party a list of its state-owned enterprises no later than six months after the date of entry into force of this Agreement, and thereafter shall update the list annually.
2. Each Party shall promptly notify the other Party the designation of a monopoly or expansion of the scope of an existing monopoly and the terms of its designation.
3. On the written request of the other Party, a Party shall promptly provide the following information concerning a state-owned enterprise or a government monopoly, provided that the request includes an explanation of how the activities of the entity may be affecting trade or investment between the Parties:
(a) the percentage of shares that the Party, its state-owned enterprises or designated monopolies cumulatively own, and the percentage of votes that they cumulatively hold, in the entity;
(b) a description of any special shares or special voting or other rights that the Party, its state-owned enterprises or designated monopolies hold, to the extent these rights are different than the rights attached to the general common shares of the entity;
(c) the government titles of any government official serving as an officer or member of the entity’s board of directors;
(d) the entity’s annual revenue and total assets over the most recent three-year period for which information is available;
(e) any exemptions from which the entity benefits under the Party’s law; and
(f) any additional information regarding the entity that is publicly available, including annual financial reports and third party audits, and that is sought in the written request.
4. On the written request of the other Party, a Party shall promptly provide, in writing, information regarding any policy or program it adopts or maintains that provides for non-commercial assistance, provided that the request includes an explanation of how the policy or program affects or could affect trade or investment between the Parties.
5. If a Party provides a response pursuant to paragraph 4, the information it provides must be sufficiently specific to enable the requesting Party to understand the operation of and evaluate the policy or program and its effects or potential effects on trade or investment between the Parties. The Party responding to a request shall ensure that the response it provides contains the following information on condition that the other Party has requested it: