Guest Post: U.S. Countervailing Duty Rules on Transnational Subsidies: A Creative Departure?

This is a guest post by Huan Zhu of China Trade Monitor and law professor Weihuan Zhou

“Transnational” subsidies have been at the forefront of the ongoing debate about how best to deal with industrial subsidies, as governments increasingly try to police them (each in their own way). Our new paper, recently published in the Journal of International Economic Law, offers the first detailed analysis of how the U.S. adapted its countervailing duty (CVD) framework to target transnational subsidies. We argue that the U.S. practice represents an unorthodox and systemic departure from the current WTO rules.

In March 2024, the U.S. Department of Commerce (DOC) repealed the old territorial limits in 19 CFR § 351.527 that used to prevent the agency from investigating subsidies funded outside a product's country of export, calling the limits “overly restrictive” and “inconsistent with the very purpose of the CVD law.” Soon after, in trade remedy investigations concerning solar products from four countries in Southeast Asia, the DOC targeted Chinese financial backing and inputs (like polysilicon and glass) embedded in solar exports from Cambodia, Malaysia, Thailand, and Vietnam.

Notably, the DOC’s approach is creative and represents a different route than that taken by the EU. In 2025, the EU’s “state-to-state attribution” approach was found inconsistent with WTO rules in the EU–CVD/AD on SSCRFP (Indonesia) WTO dispute. The U.S. was able to avoid the obstacles faced by the EU that guided its approach, partly due to the existing ambiguities in the U.S. statute and the convenience of revising its regulation. Moreover, rather than focusing on the state-to-state attribution method, the DOC seems to have relied on the textual ambiguity of Article 1.1(a)(1) of the SCM Agreement as to whether it requires the recipient of a cross-border subsidy to be located within the territory of the subsidizing WTO Member. 

The DOC’s approach has yet to be tested before the WTO. But it raises at least three major issues under the SCM Agreement: the definition of “subsidy” under Article 1.1(a)(1), the determination of “specificity” under Article 2.1, and the scope of "public body.”

Regarding the definition and scope of “subsidy” under Article 1.1(a)(1), for instance, we argue that ambiguity in Article 1.1(a)(1) requires closer attention to context, object, purpose, and negotiating history.

As observed by the WTO Secretariat in the context of a trade financing discussion back in 2004:

The ASCM [Agreement on Subsidies and Countervailing Measures] is in general drafted to address situations where a WTO Member is subsidizing the production or sale of its own goods, and it is not entirely clear whether or not the Agreement applies where the subsidizing entity is not within the territory of the Member whose goods are allegedly being subsidized.

With this ambiguity in mind, Article 2 serves as a textual gatekeeper for covered subsidies under the SCM Agreement. Article 1.2 stipulates that a subsidy is only subject to the key substantive obligations of the SCM Agreement if it meets the specificity requirement set forth in Article 2,  which restricts covered subsidies to those "specific to an enterprise or industry or group of enterprises or industries … within the jurisdiction of the granting authority." This structural link completes the interpretative puzzle of Article 1.1(a)(1): the SCM Agreement was designed to discipline subsidies granted by a government or public body within a Member’s own territory, and the territorial mandate of Article 2 effectively precludes the expansion of the Agreement to cross-border subsidies. In other words, the “specificity” requirement in Article 2 of the SCM Agreement should be construed as an explicit requirement that the subsidy recipients reside within the territory of the granting authority, reinforcing the conclusion that the SCM Agreement was never designed to encompass transnational subsidies. The negotiating history of the SCM Agreement also supports this interpretation, showing that the phrase “within the territory” was inserted in response to U.S. concerns about its overseas development aid programmes. The text reflects a deliberate decision to exclude subsidies provided beyond a Member’s territory from the scope of the SCM Agreement.

We acknowledge that addressing the distortions of cross-border subsidies is a valid policy goal in an era of intense industrial competition. However, the continued rise of unilateral measures against subsidized goods would only raise trade barriers and uncertainties and further undermine the rules-based multilateral trading system. In the paper, we argued that the WTO remains the best venue for a holistic and systemic reassessment of both cross-border and domestic subsidy disciplines. One option is for WTO Members to initiate dispute settlement proceedings directly against the subsidizing state. In particular, an “adverse effects” claim under Article 5 of the SCM Agreement provides a viable mechanism to address transnational subsidies at the source.  Alternatively, a non-violation complaint based on GATT Article XXIII:1(b) and Article 26.1 of the Dispute Settlement Understanding remains another option. Like “adverse effects” claims, a non-violation complaint can also be brought directly against the subsidizing Member, leaving third countries outside the crossfire.

Negotiations remain the only long-term solution. It is imperative for WTO Members to reach a compromise on how best to deal with cross-border subsidies through opening plurilateral negotiations under Article II:3 of the Marrakesh Agreement or clarifying existing rules. Given the difficulties in concluding multilateral negotiations, plurilateral negotiations offer the most viable institutional path forward. Procedure-wise, the plurilateral framework could incorporate a two-prong notification architecture designed to incentivize compliance. Under-reporting of subsidies has been a longstanding issue and has driven proposals for “sticks” such as penalties or rebuttable presumptions against members that fail to comply with notification obligations. “Carrots” in the form of positive incentives for compliance may also be useful. A “notification-for-safe-harbour” mechanism would grant fully and promptly notified transnational subsidies a legal presumption of non-distortion or non-countervailability in countervailing investigations. Such a linkage provides a concrete incentive for compliance, and the reported data then would form a foundation for further analysis and negotiations. On the other hand, a failure to notify a transnational subsidy would trigger a rebuttable presumption of adverse effects on another Member, therefore shifting the burden of proof to the subsidizing Member to demonstrate that the measure does not induce market distortion or structural overcapacity.