This is a guest post from trade lawyer Victor Crochet:
On 15 June 2020, in Regulation 2020/776, the European Commission decided to countervail financial contributions granted to an Egyptian entity by Chinese public bodies. To reach this conclusion, the Commission explained that the government of the exporting country, in this case the Government of Egypt can be “accountable under the SCM Agreement for having actively sought, acknowledged and adopted” subsidies granted by another government. The Commission reasoned as follows:
(685) As the Appellate Body (‘AB’) held in the US-Gasoline case (159), WTO law cannot be read in clinical isolation from general international law. In particular, general international law principles thus form part of the WTO legal order, which is not a self-contained regime (160). In line with Article 3.2 DSU and Article 31(3) (c) of the Vienna Convention on the Law of Treaties (VCLT), “[a]ny relevant rules of international law applicable in the relations between the parties” must be taken into account in the assessment of the context of the terms of a treaty.
(686) These “rules” include customary international law (161), which are by definition binding on all WTO members, including Egypt, China and the European Union. An important branch of customary international law is the rules on State responsibility, which have been codified by the International Law Commission (ILC Articles on the Responsibility of States for Internationally Wrongful Acts) (162) in accordance with its mandate under Article 13(1) (a) of the UN-Charter.
(687) The rules in the ICL Articles are also “relevant” within the meaning of Article 31(3) (c) VCLT because they provide guidance for the interpretation of the notion of attribution, i.e. when certain acts or omission can be attributed to one State, even when those acts or omissions do not emanate from that State directly. In this respect, the notion of attribution becomes relevant to interpret the terms “by the government” in the chapeau of Article 1.1(a)(1) of the SCM Agreement, and more in particular, to determine the correct attribution of a conduct in a situation of cooperation between two States with respect to subsidies, as in the case at hand (163).
(688) The ILC Articles can thus be used to interpret the terms “by the government” in the chapeau of Article 1.1(a)(1)of the SCM Agreement in order to attribute the conduct (granting of a subsidy) to the GOE, even in cases where the financial contribution has not been made directly by the GOE.
(689) In this respect, the Commission noted that Article 11 of the ILC Articles provides, in particular, that “conduct which is not attributable to a State under the preceding articles shall nevertheless be considered an act of that State under international law if and to the extent that the State acknowledges and adopts the conduct in question as its own”. The commentary of the ILC to Article 11 explains that “instances of the application of the principle [of State attribution through acknowledgement and adoption of behavior] can be found in judicial decisions and State practice” (164). As recalled in recital 6 of the same commentary, it is required that a State “identifies the conduct in question and makes it its own”.
According to the Commission, as the Government of Egypt welcomed Chinese investments, it made the Chinese preferential measures its own so that financial contributions by Chinese public bodies were attributable to the Government of Egypt. As a result, the “financial contributions in the form of preferential financing from Chinese public bodies to Jushi and Hengshi Egypt can be attributed to the GOE as the government of the country of origin or export under Article 3.1(a) of the basic Regulation.”
In light of the recent announcements made by European Member States and by the Commission to rein in Chinese subsidies, and in particular “to address the distortive effects of foreign subsidies in the internal market, as foreseen in the EU-China strategy”, this decision seems rather political.
However, I am not convinced by the Commission’s reasoning that Article 11 of the ILC Articles could constitute a “relevant” rule of international law to interpret the term “government” in Article 1.1(a)(1) of the SCM Agreement in the sense of Article 31(3)(c) of the VCLT. First, in US – Anti-Dumping and Countervailing Duties (China), the Appellate Body ruled that Articles 4, 5 and 8 of the ILC Articles constituted a “relevant” rule of international law in the sense of Article 31(3)(c) of the VCLT to interpret the SCM Agreement insofar as Articles 4, 5 and 8 of the ILC Articles reflect the three types of entities whose conduct could be attributed to a government under the SCM Agreement. These entities are organs of the State which are similar to “a government” under Article 1.1(a)(1) of the SCM Agreement (Article 4), entities exercising elements of governmental authority which are similar to “a public body” under Article 1.1(a)(1) of the SCM Agreement (Article 5), and persons directed or controlled by a State which are similar to “a private body” entrusted or directed by the government under Article 1.1(a)(1)(iv) of the SCM Agreement (Article 8). In other words, the Appellate Body did not state in US – Anti-Dumping and Countervailing Duties (China) that Article 11 of the ILC Articles constitutes a “relevant” rule of international law in the sense of Article 31(3)(c) of the VCLT. This is so because Article 1.1(a)(1) of the SCM Agreement does not contain rules with regard to acknowledgment and adoption of a conduct by a State which would be similar to the rules contained in Article 11 of the ILC Articles.
I also have doubts that Article 11 of the ILC Articles is envisaged to be relied upon for attributing actions of a sovereign State to another still existing sovereign State in light of the General Commentary to the ILC Articles and because the attribution of actions of a sovereign State to another sovereign State is expressly envisaged by Articles 16 to 18 of the ILC Articles under Chapter IV which is clearly titled “RESPONSIBILITY OF A STATE IN CONNECTION WITH THE ACT OF ANOTHER STATE”.
Second, as Vineet Hegde and I discussed in a working paper, the term “government” in Article 1.1(a)(1) may well refer to the government of a country which is not the country of export without having recourse to interpretation (unlike under EU law where the Basic Anti-Subsidy Regulation refers to a “government within the territory of the country of origin or export”). The main hurdle under the SCM Agreement to countervail transnational subsidies rather appears to be Article 2.1 which indicates that a subsidy is specific if it is granted to certain enterprises “within the jurisdiction of the granting authority”.
From a policy standpoint, I am also unsure whether the Commission’s approach is warranted. I am afraid that Egyptian workers might end up paying the price of countervailing these subsidies as the Chinese-owned producers under investigation might simply decide to move shop somewhere else along the Belt and Road.
For more on this, you can find our working paper (which received the SIEL/JIEL/OUP Essay Prize) here.
