Subject to statutory restrictions, State-owned enterprises can be undertaken at any level of the State apparatus, from central or federal governments, to regions, provinces or municipalities. In terms of corporate governance, the State can retain managerial powers, or merely hold a number of shares or stocks. Most of the State-owned enterprises take the form of private limited liability companies and, in second place, of joint stock companies.2 Some organize themselves as conglomerates, with subsidiaries and affiliates in different countries, and others keep a small size and a marginal share in a domestic market. Whatever their form and size, their raison d’être should be carrying out an economic activity for the public interest.
State entrepreneurship has a long history. It exists since the age of Ancient Egypt, where the pharaoh was the master of all and everything the sun went around. In modern times, State-owned enterprises have been the flagship of planned economies, but they have thrived in free-market economies too, not only combatting market failure, where the social costs of production could not be reflected in the price, but also retaining leverage of the commanding heights of the economy. This latter function has been described as follows: “Since private enterprise assuredly could not raise the capital necessary for development, the government would mobilize and direct resources through the state-owned companies. They would serve as the engines of modernization, the drivers of economic growth, the mobilizers of development, the mechanisms for achieving a better future.”3
Not everyone looks at State-owned enterprises in the same way, not even from the liberal thinking. For example, in the 1930s, Roosevelt saw them as partners, saying they are “clothed with the power of government, but possessed of the flexibility and initiative of a private enterprise”.4 Conversely, in the 1980s, Thatcher started a crusade against them, and her Secretary of State, Keith Joseph, declared that “getting a State-owned enterprise to ‘imitate’ a private firm was much like trying ‘to make a mule into a zebra by passing stripes on its back.’”5
The bottom line in investment law is that a State-owned enterprise is separate and legally independent from the State,6 and, therefore, it should be treated “in the same manner as a private enterprise, being neither privileged nor disadvantaged by its relation to the State.”7 However, logical this statement may sound, it is not always entirely reflected in the arbitral practice. Two different scenarios can arise:
Generally, States foster foreign private investment through corporate vehicles or conglomerates that are, ultimately, formed by State-owned enterprises. Eventually, these can commit wrongful acts that, under certain circumstances, should be attributed to the States.8 By attributing the acts of State-owned enterprises to States, foreign investors may establish State liability, and, in doing so, gain access to treaty-based resolution mechanisms. So, State attribution becomes, in a way, a passage to investor-state dispute settlement. In essence, it is a rule of customary international law,9 but one can find special rules (lex specialis) on State attribution in investment treaties too. For example, the Energy Charter Treaty contains State attribution rules when it deals with “State and Privileged Enterprises” in Article 22;10 and so does the ICSID Convention when it refers to “any constituent … agency of a Contracting State”.11
State-owned enterprises can make investments in third States, and, therefore, they can become foreign investors too.11 In doing so, they may act commercially as non-State actors, or they may act under the color of the constituent State. If, in that particular instance, it turns out that they are acting in the capacity of the State, then they should be treated as such. In other words, where they act as the alter ego of a State, they should therefore be deprived of all the treaty-based benefits that are otherwise available to nationals.
In the case of ICSID, for instance, a State could never qualify as a “national of another Contracting State” under Article 25(1) or (2)(b) of the ICSID Convention, and rationae personae jurisdiction should never be afforded to a claimant State.12 To assert the (State or non-State) capacity in which a State-owned enterprise is acting, Broches puts forward the following argument: “[I]n today’s world the classical distinction between private and public investment, based on the source of the capital, is no longer meaningful, if not outdated. There are many companies which combine capital from private and governmental sources and corporations all of whose shares are owned by the government, but who are practically undistinguishable from the completely privately owned enterprise both in their legal characteristics and in their activities. It would seem, therefore, that for purposes of the Convention a mixed economy company or government-owned corporation should not be disqualified as a ‘national of another Contracting State’ unless it is acting as an agent for the government or is discharging an essentially governmental function.”13
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