This is a guest post from Luca Rubini, Senior Research Fellow in International Law, University of Turin
This brief post has been triggered by yesterday’s delivery of the Opinion of Advocate General Capeta in the Fiberglass case currently pending before the European Court of Justice.
The key legal issue is whether EU anti-subsidy law (and WTO subsidy law) allow countervailing so-called cross-border subsidies, i.e. subsidies granted by Country A to companies in Country B and exporting their goods to Country C.
The EU Commission has started doing so recently, opining that the notion of subsidy in EU CVD laws (and WTO subsidy laws) can be construed to include such support measures. The Commission’s practice has been provisionally green-lighted by the General Court of the European Union last year (Case T-480/20). The issue is currently subject to dispute settlement in the WTO (DS 616) where Indonesia challenged the EU.
Last summer I wrote a little think piece where I was criticising the decision of the General Court.
The possibility to countervail cross-border subsidies is not a new claim. Seasoned US lawyers will remember that similar attempts had been made in the early 1980s and rejected by the US DOC (see the very illuminating account of Gary Horlick on this). Anecdotal evidence suggests that the issue was not touched in the Uruguay Round negotiations that led to the current WTO subsidy disciplines (I recently interviewed a key negotiator who, to my query about whether they did consider to include cross-border subsidies in the notion of subsidy, replied: "Who would have even thought about suggesting this? They would have said: this guy is crazy! Subsidizing a company out of your jurisdiction!").
I guess the main key take-away from trade law is that subsidy laws are one of the most hard-fought and controversial areas. And right at the centre of all these controversies you have always had the definition of subsidy. The definition that we have in the WTO ASCM is the best that could have been agreed. It has its nuances and deficiencies. Perhaps a better definition could be negotiated and drafted today, in the light of the current challenges including cross-border subsidies. But it is difficult to reconstruct WTO rules now – and the Appellate Body knows it!
It would be very dangerous for any WTO Member to start reconstructing this definition in fundamentally new ways, certainly not contemplated by the negotiators and drafters of the rules – and, most importantly, not necessarily agreed by other WTO Members.
This would be an additional example of dangerous unilateralism which cannot bade well in the current difficult times. Hypothetically, it would be even better to introduce a completely new tool to tackle cross-border subsidies (see the EU Foreign Subsidy Regulation) rather than pretending that the subsidy rules that have been agreed multilaterally can be unilaterally re-interpreted and stretched to include completely new forms of subsidies. Such reinterpretation would be a much worse injury to the rule of law than introducing normative innovations.
The Opinion of the Advocate General is an interesting read (see in particular paras. 27-64). Let’s immediately go to the two key questions.
First, does EU law cover cross-border subsidies? The answer, according to the AG, is yes!
"46. In conclusion, the Basic Anti-Subsidy Regulation is not limited to subsidies granted by the government of a State in its ‘own’ territory.”
Secondly, and perhaps more importantly, is this interpretation in line with WTO law?
"62. Consequently, I consider that Article 1.1(1)(a) of the SCM Agreement does not preclude treating as a subsidy an arrangement whereby one WTO member provides a financial contribution to a product manufactured in the territory of another WTO member."
Yes, you read well. The WTO subsidy definition does NOT preclude to include cross-border subsidies.
It is now likely that the ECJ will follow the AG and firmly conclude that the EU Commission can countervail cross-border subsidies. My understanding is that a similar approach has been aired across the Atlantic in the US (but, perhaps crucially, by suggesting a change in the law rather than reconstructing it judicially).
Realistically, the ball is in the WTO dispute settlement court now. Once again, lacking the Members’ initiative, the pressure is put on a WTO Panel. My guess on what the Panel will decide? Considering the debacle of the Appellate Body, it may do well in adopting a self-restrained approach – which may incidentally pave the way to a clash between ECJ and WTO dispute settlement (and it is clearly the former that has to give way to the latter).
My two cents (but usually I get it wrong!)
