Council of the European Union General Secretariat …...2020/02/15 · again, protected by trade secrets and non-disclosure obligations. Fifth, providing a list of state-owned enterprises

RESTREINT UE/EU RESTRICTED

Council of the European Union General Secretariat

Brussels, 20 February 2015


WTO

MEETING DOCUMENT

from : FR Delegation

to : Trade Policy Committee

Subject : Transatlantic Trade and Investment Partnership (TTIP) – France’s comments, firstly on the state-owned enterprise texts (particularly the US’s post-round six partial text on that subject) and, secondly, the document entitled “Competition policy - Replies to questions from Member States regarding negotiations with the United States, Japan, Vietnam and Thailand” (m.d. 426/14)

Delegations will find attached a note by the FR Delegation on the above-mentioned subject.

____________________________

NB: This document contains information classified RESTREINT EU/EU RESTRICTED

whose unauthorised disclosure could be disadvantageous to the interests of the

European Union or of one or more of its Member States. All addressees are therefore

requested to handle this document with the particular care required by the Council's

Security Rules for documents classified RESTREINT UE/EU RESTRICTED.


Le 19 février 2015

MEMORANDUM FROM THE FRENCH DELEGATION

RE: Transatlantic Trade and Investment Partnership (TTIP) – France’s comments, firstly on

the state-owned enterprise texts (particularly the US’s post-round six partial text on that

subject) and, secondly, the document entitled “Competition policy - Replies to questions from

Member States regarding negotiations with the United States, Japan, Vietnam and Thailand”

(m.d. 426/14).

The French delegation thanks the European Commission for all the documents concerning draft

texts on competition policy in general, pursuant to talks on the TTIP with the US. With an eye to

future rounds of discussions, France would like to provide the Commission with its initial

comments.

1. State-owned enterprises

The French delegation also thanks the Commission for answering its questions in document m.d.

426/14. It would like, however, to highlight the issues set out below.

Overall, the delegation welcomes the Commission’s determination to promote the offensive and

defensive interests of EU businesses during negotiations. It particularly acknowledges the

Commission’s work to better factor in subsidies granted to non-European companies by non-EU

countries. Lastly, the delegation insists on the fact that the chapter on state-owned enterprises

(SOEs) is highly sensitive and that European interests in various economic sectors are at stake.

First, the French delegation believes that, as regards the provisions on transparency, the issue is not

so much about whether the agreement will add to State aid rules in force within the EU, which is

open to debate1, but to know what the Commission considers to be the tangible assurances and

commitments that the US side is willing to give or undertake to ensure similar transparency of

information on State aid in the US. In this respect, we should mention that EU law provides for the

online publication by Member States of information on the identity of the beneficiary and the

amount of aid received. Under the draft agreement, US companies could use this information to the

detriment of an EU Member State. As the talks currently stand, European businesses do not have

direct access to this information in the US.

It would appear that the Commission has not given a clear reply to the French delegation’s question

which, unless we are mistaken, has also been asked by the German, Spanish and Finnish

delegations. We need to be very vigilant concerning American proposals on this subject.

To uphold the defensive and offensive interests of all European businesses, it is vital to make access

to the information, as stipulated in the draft agreement, conditional upon a true and binding

commitment from the US to roll out an information system that is the same as that provided for by

EU law.

1 See comments hereinafter on Article 7 of the draft agreement put forward by the Commission.


In addition, the French delegation would like to point out that the information obligations proposed

by the Commission are more wide-reaching than the obligations binding on Member States.

Second, the delegation will be very closely monitoring talks with the US on the State Action

Doctrine.

Third, the delegation would like to once again draw the Commission’s attention to the matter of

possibly extending the talks to cover “subsidies” granted to companies other than SOEs.

a) General comments

In-depth analysis of the American proposal appears to be required. The delegation feels that in light

of the proposal’s content (especially Articles 1 and 6 containing provisions on State aid), the

chapter on SOEs should be included in the general chapter on competition.

b) Concerning the draft texts, particularly the partial text tabled by the US

- Article 1: Definitions [US proposal]

As matters stand, the French delegation has the following comments:

“Non-commercial assistance”: the delegation notes that this concept uses the material definition of

a number of initiatives that could include State aid components. It further notes that the suggested

definition excludes access to general infrastructure on more favourable terms (point (c) and

wonders why this is the case.

“State-owned enterprise”: the delegation questions the US side’s decision to exclude enterprises

owned by a Party’s sub-central government entities and points out that the corresponding concept

under EU law is much broader and also covers sub-central government entities. The delegation

thanks the Commission for having been attentive to this issue in its proposal and asks it to request

explanations from the US side. This should also be of interest to the German delegation and perhaps

to other delegations as well.

The French delegation would like to see a definition of private companies included in this

agreement as the latter seems to discriminate between SOEs and private companies.

“State enterprise”: the delegation wants this definition to be explained. It is difficult to see why the

US have made such a distinction.

- Article 2: Scope [US proposal]

The French delegation believes that the US should justify all the suggested exclusions to clarify the

reasoning applied. The exclusions should not make the chapter on SOEs inoperative. The delegation

especially questions the exclusion of government procurement (point (d)).

- Article 3: Delegated Authority [US proposal]

This Article appears in line with definitions and EU case law.


- Article 4: Non-Discriminatory Treatment and Commercial Activities [US proposal]

On an initial reading, this Article does not contain any major stumbling blocks.

- Article 5: Courts and Administrative Bodies [US proposal]

The French delegation would like the Commission’s Legal Service to provide the delegations with

its interpretation of the first paragraph of this Article which appears to make the agreement directly

enforceable before the civil courts. The Commission is requested to explain the ramifications of this

provision in both EU and domestic law.

- Article 6: Adverse Effects [US proposal]

The delegation is pleased to note that the American proposal begins to move things forward as

regards non-commercial assistance to which state-owned enterprises and private companies are

entitled, albeit with narrower scope than under EU law. It thanks the Commission for its action in

this respect and encourages it to continue talks on this basis. It does, however, advise the

Commission to be highly attentive to the US side’s reasoning behind these provisions.

In substance, the French delegation wonders why the US have excluded private companies from

paragraphs 1 and 4 of this Article in spite of the fact that the Parties could, very possibly, provide

the same benefits to private companies. This Article appears to discriminate between SOEs and

private companies. This should be regarded as unacceptable by the Commission in light of Article

345 TFEU and EU case law, and cannot be justified by the fact that this is a chapter on state-owned

enterprises. The delegation would also like to understand why the US limits the means of providing

proof of assistance.

- Article 7: Injury [US proposal]

As for Article 6, the French delegation wonders why this Article is restricted to state-owned

enterprises. The provisions clearly discriminate between SOEs and private companies. The

delegation also notes that this Article is not consistent with the notion of banning State aid under

EU law as it appears to allow non-commercial assistance to any enterprise whatsoever without

detailing the context. This comment also holds true for Article 6, paragraph 1, as suggested by the

US.

- Article 7: Transparency and Corporate Governance [EU proposal] and Article 8:

Transparency [US proposal]

The French delegation would like to repeat its general observations on the need to avoid giving

access to too much information to the detriment of European enterprises. This should be the case

unless the US side were to introduce a transparent information system equivalent to that provided

for under EU legislation in respect of State aid rules, regardless of the Commission’s goals in terms

of EU law. The fact that the provisions only refer to an exchange of information between the Parties

does not give adequate assurance that the interests of European businesses will be upheld and

promoted. Information gathered under these stipulations could be used by the US to benefit its own

companies. This could compromise trade secrets and change the conditions for competition,

specifically between SOEs and private companies.


In substance, first, the delegation asks the Commission to justify (with respect to the legal basis, in

particular) the inclusion of the obligation to provide information which is as detailed as that set out

in Articles 7 and 8 [US proposal] in an international agreement with a third party. In this respect,

the Commission should ensure that the information which may be disclosed is consistent with the

proposal for a Directive on Trade Secrets which is currently on the table.

Second, the French delegation requests the Commission to specify whether the list of information to

be provided is exhaustive. This would not appear to be the case.

Third, the delegation states that although listed companies must report certain information to the

market pursuant to regulations, unlisted companies are not bound by this obligation. The agreement

appears to introduce an information disclosure system for unlisted companies that is not provided

for either under domestic or EU law.

Fourth, in respect of the information itself, the French delegation asks the Commission to justify

disclosure of all the information items set forth in these two Articles and the scope of the

information to be provided to the US side. Communication of this information must not undermine

the essential and business interests of the Member States and European companies.

Disclosure of the identity of government officials serving as officers or members of the board of

directors of enterprises does not seem to be a requirement under either EU or domestic law. As for

voting rights, if the effect of these provisions was to reveal the existence and content of a

shareholders’ agreement, this would very probably prejudice the commercial interests of the

company in question. The majority of these agreements are protected by trade secrets and are

confidential. Similarly, information on arrangements to safeguard the essential interests of EU

Member States should only be able to be disclosed in highly specific cases that need to be clearly

delineated. Such arrangements can also be set out in shareholders’ agreements which are, once

again, protected by trade secrets and non-disclosure obligations.

Fifth, providing a list of state-owned enterprises appears burdensome to implement and the annual

timeline for supplying an updated list is too frequent.

Lastly, the Commission will find appended hereto a comparative analysis and

recommendations concerning the current transparency arrangements in the US and within

the EU.

- Article 9: Committee on state-owned enterprises and Designated Monopolies,

Article 10: Exceptions and Article 11: Dispute Settlement + Annex [US proposals]

An in-depth review of the US proposals is ongoing.

2. European Commission’s answers to France’s questions regarding competition policy (m.d.

426/14)

2.1 Question regarding subsidies

As the EU is the only party with State aid regulations, France asked for clarification regarding

checks carried out by the Commission into the possible risk associated with promoting an exchange

of information between the Parties that might be imbalanced and therefore pose a threat to

European interests.


The Commission replied as follows: “regarding the possible risk associated with promoting an

exchange of information on state subsidies between the Parties that might be imbalanced and

therefore pose a threat to European interests, the Commission can reassure France that the

proposal for transparency does not go beyond the obligations that Member States are already

subject to in the context of the State Aid Modernisation exercise.” It also stated: “Looking at the

new Regional aid guidelines, for instance, Member States must publish on a website the text of the

aid scheme and its implementing provisions, granting authority, individual beneficiaries, aid

amount per beneficiary, and aid intensity. Such information must be published after the granting

decision has been taken and must be available to the general public for at least ten years”.

This reply does not reassure the French authorities.

The very fact that the EU is the only party with State aid regulations and stringent transparency

obligations for its Member States is what will lead to an imbalance in the agreement that could

harm EU’s interests. The US has no regulations prohibiting State aid. Similarly, it has no legal

provisions that require companies, public or private, to be transparent in relation to State aid

granted.

2.2 Question regarding state-owned enterprises

France has already pointed out to the Commission that, for state-owned enterprises, the US has

regulations conferring federal and local immunity (particularly the State Action Doctrine) that grant

state-owned enterprises (federal and sub-federal) immunity from competition law.

The EU has a diametrically opposite approach which subjects state-owned enterprises to very strict

procedural rules implemented by competition authorities.

France therefore asked the Commission to pay extremely close attention to ensure that information

requests under Article 7 do not go in one direction only, i.e. from the EU to the US, given the limits

imposed by the State Action Doctrine.

The Commission replied that it is aiming at negotiating symmetrical provisions in the chapter on

state enterprises. In reference to the State Action Doctrine, it also said that it was aware of the fact

that companies – public or private – may escape competition law scrutiny under certain

circumstances in the United States. During the negotiations, it intends to clarify whether or not the

State Action Doctrine would affect the EU’s rights regarding obtaining information on US state-

owned enterprises.

France welcomes the fact that the Commission will look into questions regarding the agreement’s

balance. It would like a solution to be found during the negotiations to ensure that European

companies are not discriminated against due to the tougher regulations they are subject to.

In addition, and as mentioned in detail in the Appendix to this Memorandum, France notes that the

European Commission has not provided any information regarding the other US doctrines providing

immunity, such as the Noerr-Pennington Doctrine, the McCarran-Ferguson Act (insurance) and the

Capper-Volstread Act (agriculture).

***


Appendix: current situation, comparative US/EU analysis regarding, for example,

“transparency” and recommendations

1.1 The US proposals in paragraphs 1 and 2 of Article 7, “Transparency and Corporate

Governance”, diverge considerably from those made by the Commission

The Commission proposes the following: “The Parties shall ensure that enterprises referred to in

1(a) and 1(b) shall observe high standards of transparency and corporate governance in

accordance with the OECD Guidelines on Corporate Governance of state-owned enterprises”.

The US proposes that “Each Party shall provide to the other Party a list of its state-owned

enterprises within 180 days after the date of entry into force of this Agreement, and thereafter shall

provide an updated list annually”.

We must not agree to this proposal as it will penalise the EU by introducing an imbalance in

the agreement in favour of the US.

This is because the US boasts regulations that grant federal and local immunity (the Sovereign

immunity doctrine and the State Action Doctrine) to state-owned enterprises (federal and

sub-federal) from competition law.

Under European law, the opposite is true, and state-owned enterprises are subject to very strict

procedural processes overseen by competition authorities.

The State Action Doctrine is constitutional and this has been reaffirmed by the US Supreme Court.

It could not therefore be challenged by the President of the United States during these negotiations.1

The United States has other forms of immunity, such as the Noerr-Pennington Doctrine

established by the Supreme Court in 1961, that offer enterprises immunity from all liability in

relation to any efforts made to influence public officials to pass a law that may contravene federal

antitrust laws. The MacCarran-Ferguson Act of 1945 is an example which gives the federal states

exclusive authority in the insurance sector that cannot be usurped by an Act of Congress. Lastly, for

specific economic reasons, the Capper-Volstead Act (1922) exempts agricultural cooperatives

from prosecution under antitrust laws.

All of these Doctrines contrast sharply with EU competition law which imposes relatively strict

conditions on state-owned enterprises.

It is therefore highly likely that a large number of US state-owned enterprises will not feature on the

list that the US will supply. In contrast, due to the transparency of the EU system, the very strict

competition rules applied to EU state-owned enterprises and the existence of EU state aid

legislation, the list of EU state-owned enterprises will correspond to reality.

Consequently, the US will need to ascertain whether transparency obligations similar to those

imposed on EU state-owned enterprises can be imposed on their US counterparts as part of

this agreement.

Should it not be possible, immunity for certain European state-owned enterprises must be

written into the agreement.

1 US Supreme Court case-law upholds the State Action Doctrine which grants immunity from federal competition

law, and in particular from the Sherman Antitrust Act of 1890, to certain practices adopted in federal states

(Parker vs Brown, 1943) or certain federal or sub-federal state enterprises. The Supreme Court has confirmed

that this Doctrine applies equally to the rights and freedoms protected by the US Constitution.


1.2 The proposals made by the US in paragraph 3 of Article 8 do not have the same scope as

those made by the Commission

The Commission proposes the following: “A Party which has reason to believe that its interests

under this Agreement are being adversely affected by the operations of an enterprise or

enterprises (granted special or exclusive rights or privileges) of the other party may request the

Party to supply information about the operations of its enterprise”.

The US proposes that “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:”.

It is not until paragraph 5 of Article 8 that it states: “Each Party shall include in any written

requests under paragraphs 3 and 4 an explanation of how the activities of the state-owned

enterprise may be affecting trade or investment between the Parties”.

A Party must only be able to ask the other Party for information regarding its state-owned

enterprises if it can show that its interests may be adversely affected.

This condition must be outlined in a preliminary paragraph prior to the provisions governing

requests for information. In this respect, it would be preferable to use the Commission’s

proposal rather than the proposal made by the US.

1.3 In paragraph 4 of Article 8, the US proposes that on the written request of the other Party, a

Party shall promptly provide a list of information concerning assistance received by any of its

state-owned enterprises.

A Party must only be able to ask the other Party for information regarding its state-owned

enterprises if it can show that its interests may be adversely affected.

Given that the EU boasts State aid legislation which in turn encourages transparency and that no

such legislation exists in the US, the proposals made by the US in paragraph 4 of Article 8 will

lead to an imbalance in the agreement in favour of the US.

France reserves the right to amend or add to these comments as necessary.

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Documents

Council of the European Union General Secretariat …...2020/02/15 · again, protected by trade secrets and non-disclosure obligations. Fifth, providing a list of state-owned enterprises