Key Details
The OECD Trade Policy Paper, How Preferential Trade Agreements Address Market Distortions from State Enterprises, examines how preferential trade agreements (PTAs) regulate companies owned or controlled by governments. Its dataset covers 386 PTAs in force as of December 2025.
Limited coverage: Only 95 agreements, or approximately 24%, contain dedicated state-enterprise disciplines.
Commercial conduct: Some PTAs require state enterprises to base purchases and sales on commercial considerations and avoid discrimination.
Government support: More advanced provisions cover grants, favourable loans, guarantees, equity support and goods or services supplied on non-commercial terms.
Transparency: Certain agreements require lists of state enterprises or allow requests for information on ownership, finances and government assistance.
Remaining gaps: Provisions may exclude subnational enterprises, lack enforceable disclosure requirements or omit subsidies provided to private firms.
Geographic reach: China and the Gulf Cooperation Council economies have not concluded PTAs containing dedicated state-enterprise disciplines.
India reference: The paper cites the India–United Arab Emirates Comprehensive Economic Partnership Agreement for its treatment of abnormally low government-procurement bids. It does not assess India’s wider public-enterprise sector or PTA framework.
Preferential Treatment Can Allow State Enterprises to Reshape Competition
Government-owned or controlled companies can affect competition when they receive preferential finance, subsidies, regulatory advantages or inputs on non-commercial terms. They can also transmit support to other businesses through favourable loans, purchases, investment or pricing.
A state-owned bank, for example, may provide below-market finance, while an energy supplier may sell inputs at preferential prices. State enterprises can therefore act as both recipients and providers of support, influencing costs and competition throughout manufacturing supply chains.
Government ownership alone is not the issue examined by the paper. The trade concern arises from the financial advantages, market conduct or preferential treatment associated with that ownership.
PTAs Are Extending Trade Rules Beyond Existing WTO Coverage
World Trade Organization agreements regulate some subsidies, government procurement and state trading. PTAs increasingly add a dedicated framework for the ownership, conduct and government support of state enterprises.
This can simplify the treatment of state-linked companies. Under WTO subsidy rules, a complaining country may need to establish that an entity exercises governmental authority before treating it as a “public body”; state ownership by itself may not be sufficient.
PTAs can instead define covered state enterprises directly and apply obligations tailored to their conduct. The most developed agreements combine:
broad tests of government ownership or control;
commercial decision-making requirements;
non-discrimination between domestic and foreign firms;
restrictions on specified forms of non-commercial assistance; and
disclosure of ownership, finances and government support.
Wider Adoption Has Yet to Produce Comprehensive Coverage
Only one-quarter of the PTAs examined contain dedicated state-enterprise rules, and the obligations differ considerably among those agreements.
Some provisions exclude companies owned by provincial, state or local governments. Others allow information requests without requiring comprehensive public disclosure or lack a mechanism for enforcing transparency obligations.
Rules focused on support received by state enterprises may also miss subsidies directed towards private companies. This matters in semiconductors, telecommunications equipment and clean energy, where industrial support can be substantial even when government ownership is limited.
Geographic Concentration Limits the Rules’ Practical Reach
PTAs containing advanced state-enterprise disciplines are concentrated among OECD and selected Asia-Pacific economies. China and the Gulf Cooperation Council countries remain outside such agreements, despite the importance of state-linked firms in their industrial sectors.
PTA rules apply only among participating economies. Their effectiveness in addressing global distortions therefore depends on whether countries with major state-enterprise activity ultimately accept comparable obligations.
India Appears Through a Procurement Provision, Not a Wider Assessment
The paper identifies the India–United Arab Emirates Comprehensive Economic Partnership Agreement as an example of a PTA addressing abnormally low bids in government procurement.
Such provisions allow a procuring authority to examine whether an unusually low-priced offer can meet the contract requirements. Some international agreements go further by asking whether a low bid reflects incompatible subsidies.
What Is a Preferential Trade Agreement?
A preferential trade agreement (PTA) gives participating economies trade access or rules more favourable than those generally available to other countries. A free trade agreement is one form of PTA.
Policy Relevance
India has interests on both sides of this debate. Its central and state public enterprises could face stronger obligations under future PTAs, while Indian exporters could benefit from rules addressing preferential support received by competitors in partner markets.
Definitions determine which Indian entities are covered: PTA provisions may extend beyond majority-owned companies to enterprises controlled indirectly through voting rights, board appointments or chains of government ownership.
India’s federal structure affects implementation: Including state-level enterprises would create disclosure and compliance responsibilities across State governments. Excluding them could leave a substantial part of public ownership outside the agreement.
Public-service mandates require clear treatment: Commercial-conduct rules need to distinguish competitive business activity from expressly assigned public functions. Well-defined exceptions can preserve legitimate services without creating broad exclusions.
Transparency can support India’s exporters: Information about foreign state ownership, favourable financing and non-commercial assistance can help Indian firms and trade authorities identify distortions in partner markets.
Negotiating choices require a domestic inventory: India would need to map ownership structures, financial support and public mandates across affected enterprises before accepting disclosure, subsidy or commercial-conduct obligations.
The trade-off is not simply between stronger rules and domestic policy freedom. The relevant question is which disciplines would protect Indian firms from state-supported competition while preserving clearly specified public purposes at home.
Follow the Full Paper Here: How Preferential Trade Agreements Address Market Distortions from State Enterprises