Weekend Edition Nº150

Are Transnational Subsidies Regulated by EU and WTO law?

The General Court has spoken (Case T-480/20 and Case T-540/20)

Luca Nº150 · JULY 15, 2023

Rubini 1

1.Introduction:theissueanditsimportance

On 1 March 2023 the General Court passed its decisions in two important cases (Case T-480/20 Hengshi Egypt Fiberglass Fabrics (2) and Case T-540/20 Jushi Egypt for Fiberglass Industry. (3) ese decisions,takenbytheFirstChamber,initsExtendedComposition,constitutethejudicialreviewoftwoRegulationsadoptedbytheEuropean Commission which imposed countervailing duties on the imports of certain glass bre fabrics originating from Egypt. e signicance of the cases lies in the fact that the General Court conrmed the EU Commission’s interpretation whereby EU countervailing duty laws, represented by Regulation 2016/2037 (also known as ‘basic antisubsidy regulation’), (4) can also cover so-called transnational subsidies,i.e ,thosesubsidieswherethenancialcontributiondoesnotcomedirectlyfromthecountryofexportbutfromadifferentcountry.

ese decisions are therefore of great importance also beyond the EU because they lay down an innovative reading of the very important provision including a denition of subsidy of the multilateral trade rule-book

1. Senior Research Fellow in International Law, University of Turin, Departmentof Law; sometime in the past référendaire in the Chambers of Advocate General FrancisJacobsattheEuropeanCourtofJustice Contact:l.rubini@unito.it.

3.CaseT-540/20JushiEgyptforFiberglassIndustryvsEuropeanCommission

4. oftheEuropeanParliamentandoftheCouncilof8June2016onprotection againstsubsidisedimportsfromcountriesnotmem- Regulation (EU)2016/1037 bersoftheEuropeanUnion,OJL176,30.6.2016,p 55–91.

Given the importance, and, as we are about to see, the troublesome nature of the General Court’s ndings, and theopaquenessofitsreasons,thecurrentlypendingappealisawaitedwithgreatinterest.

2.ebroadercontext:subsidiesinGlobalValueChains

In order to fully appreciate the importance of these decisions, it is necessary to provide the reader with a lile bit ofcontext.

e measures investigated by the Commission, and subject to scrutiny by the General Court, are a prime example of the investment practice of China within the context of the so-called ‘Belt and Road Initiative’ (‘BRI’). It is known that the BRI is a major infrastructure and development strategy to invest in more than 100 countries. In the cases at issue, China had entered into an agreement with the government of Egypt to create the China-Egypt Suez Economic and Trade Cooperation Zone (the ‘SETC-Zone’). Within this context, while Egypt mostly provided land, labour and tax breaks, Chinese companies operating in the zone (and set up under Egyptian law) would run the production facility with their assets and managers and, crucially, China supported the project by making available the necessary nancial means Part of these Chinese nancial contributions directly went to the Chinese rms operating in the zone and then exporting their goods to third markets, including most prominentlytheneighbouringEUinternalmarket

e traditional public subsidy scenario concentrates on a government providing nancial contributions (in various forms, such as equity capital, loans or tax breaks) to companies or industries operating within the jurisdiction of the same government. Clearly, this is not the factual scenario of the cases at hand where the money comes from China to benet companies set up or in any event operating in a different jurisdiction (Egypt). While the idea of cross-national or cross-border subsidies is not new, and was certainly present in subsidy discussions in the 1970s, 1980s and 1990s, a natural reading of the WTO treaty text, i e , the Agreement on Subsidies and Countervailing Measures (‘ASCM’), which reads that ‘ a subsidy shall be deemed to exist if … there is a nancial contribution by a government or any public body within the territory of a Member’ (Article 1 1(a)(1) ASCM) and that such subsidy should be ‘specic to an enterprise or industry or group of enterprises or industries … within the jurisdiction of the granting authority’ (Article 2 1. ASCM), seems to refer to the traditional, and most common, ‘within-jurisdiction’ examples of subsidisation. Moreover, there are no indications that the negotiators of the current WTO rules wanted quixotic cross-border subsidies to be caught by these rules, quite the contrary. e early 1990s, when the nal stages of the Uruguay Round negotiations took place, were still a world wheretradeprevailedoverforeign-direct-investment (5) Inthis context, thepossibilitythatgovernmentswould have nanced ‘foreign’ corporations was not really realistic. As it has recently emerged, (6) the only real target of anextendedcross-nationalsubsidydenitionwouldhavebeenforeignaid,whichwasclearlynotdesirable

5.SeetheWorldBank’sdataonFDIsince1970uptothisday,availablehere

6. See the interesting comments made by Petros Mavroidis in the ‘Eye for an eye. e modern world of subsidies, counter-subsidies and the reactions to them all’webinar,9May2023,availablehere

e key legal issue is whether the rules that we have, negotiated and draed in the early 1990s, can be construed to now include also these types of policy support

Whatever it may be, it is clear that transnational subsidies do now take place and may cause trade frictions as the cases under examination show. e key legal issue is whether the rules that we have, which were negotiated and draed in the early 1990s – when transnational subsidies were not really an issue – can be construed to now includealsothesetypesofpolicysupport.

3.eapplicants’claimsandtheGeneralCourt’sndingsontransnationalsubsidies

e General Court was asked to judge on various claims, from procedural issues (pertaining to the alleged breach of the right to defence of the applicants and Egypt) to substantive issues focusing on the existence and calculation of the subsidies. is Long-Read will exclusively focus on the claims and ndings concerning the transnationalnatureofthemeasuresatissue.

In both cases, the applicants claimed that the interpretation of Article 3(1)(a) of the basic anti-subsidy regulation was not justied under EU law. Article 3(1)(a) reads that ‘[a] subsidy shall be deemed to exist if: 1(a) there is a nancial contribution by a government in the country of origin or export’. According to the applicants, it followed from a literal interpretation of that provision that, not only the government granting the nancial contribution, but also the nancial contribution itself must be within the territory of the country of origin or export. With their second complaint, the applicants challenged the Commission’s reliance on WTO law to interpret EU law. irdly, the applicants criticised the Commission’s interpretation of Article 1.1(a)(1) ASCM because, in their view, it did not comply with WTO case-law as well as public international law. In particular, the Com-

missionhadconstruedthedenitionofsubsidybymakingreferencetothe2001DraArticlesontheResponsibility of States for Internationally Wrongful Acts (‘Dra Articles’) of the International Law Commission (‘ILC’) with the end result of aributing the nancial action of China to Egypt. e Commission had found support to this interpretive approach in the (in)famous use of the Dra Articles by the WTO Appellate Body in theUS–AD/CVDdecision,(8) adecisionwhichhasbeenharshlycriticisedinseveralquarters.(9)

e General Court rejected all these pleas. It noted that a natural reading of EU law, and in particular Article 3(1)(a)aswellasArticle2(b)andrecital5ofthebasicanti-subsidyregulation, do not imply that the nancial contribution must come directly from the government of the country of origin or export. On the contrary, the use of those words [‘there has been a nancial contribution by a government or a public body within the territory of a country’], as the Commission points out, does not preclude the possibility of concluding that the nancial contribution may be aributed to the country of origin or export of the productconcerned.

us, the basic anti-subsidy regulation does not rule out the possibility that, even if the nancial contribution does not come directly from the government of the country of origin or export, that contribution may be aributedtoit.(10)

ese conclusions would be ‘all the more relevant in the specic context of the SETC-Zone’ in which the applicantislocated.(11)

e General Court carried on nding that these conclusions were supported by WTO law, and in particular the provisions of Article 1 ASCM, ‘in light of which the basic anti-subsidy regulation must be interpreted’. (12) Aer noting that Article 3 of the basic anti-subsidy regulation, on the ‘denition of subsidy’, and Article 1 ASCM, also on ‘the denition of subsidy’, are ‘largely identical in their wording and fully identical in terms of substance’, and that there is clearly no intention on the part of the EU legislature to depart from Article 1 ASCM but the former ‘should be rather interpreted, as far as possible, in the light of ‘the laer, (13) the Court offered a momentous interpretationofWTOlaw.Itnoted:

8. United States – Denitive Anti-Dumping and Countervailing Duties on Certain Products om China ( ), decision of 11 March 2011, adopted WT/DS379/AB/R on25March2011.

9. See, e g., MichelCartland,Gérard Depayre, JanWoznowski, ‘Is Something Going Wrong in the WTO Dispute Selement?’,46, 5 (2012) JournalofWorldTrade, pp 979 – 1015; Joost Pauwelyn, ‘Treaty Interpretation or Activism? Comment on the AB Report on United States – ADs and CVDs on Certain Products from China’, 12, 2 (2013) World Trade Review, pp 235-241; DukgeunAhn, Why Reform is Needed: WTO ‘Public Body’ Jurisprudence, Global Policy, London School of Economics and Political Science, vol. 12(S3), pages 61-70, April; Sandra K. Jorgensen,Patrick J. McDonough, Jennifer M. Smith, Terence P. Stewart, ‘e Increasing Recognition of Problems with WTO Appellate Decisions-Making; Will the Message Be Heard?’ 8, 11/12, (2013) Global Trade and Customs Journal,pp 390–412.

10.CaseT-280/20,paras83-84;CaseT-540/20,paras50-51;emphasisadded.

11.CaseT-280/20,para85;CaseT-540/20,para52.

12.CaseT-280/20,para96;CaseT-540/20,para63.

13.CaseT-280/20,paras98-100;CaseT-540/20,paras65-67.

[a]sregards Article1.1(a)(1)oftheSCMAgreement, itshouldbenoted,rst, thatthelaerdenesasubsidyas a nancial contribution by a government or any public body within the territory of ‘a’ Member of the WTO. atwordingdoesnotthereforeprecludethepossibilitythatanancialcontributiongrantedbyathirdcountry may be aributed to the government of the country of origin or export, since it is sufficient that the nancial contributionofthegovernmentoranypublicbodyiswithintheterritoryof‘a’MemberoftheWTO (14)

e Commission was therefore correct in its interpretation of the basic anti-subsidy regulation on the basis of EU and WTO law, making it unnecessary for the General Court to focus also on the ILC Dra Articles (although, as theemphasisedwordsindicatedinthepreviousexcerpts,theCourtdidusealanguageof‘aribution’)

4.Amomentous,unsupported,conclusion

ese ndings of the General Court, and in particular its interpretation of WTO subsidy laws, have raised many eyebrows.

e denition of subsidy in the WTO is one of the most important innovations of the Uruguay Round Negotiations And, it is a hard-fought innovation For many years, it was agreed that it was ‘neither necessary nor desirable’tohaveanexplicitdenitionofsubsidybecausetopinpointinlegallanguagesuchacomplexpolicywouldhaveinevitablyresultedinunder-orover-inclusion (15)

14.CaseT-280/20,para101;CaseT-540/20,para68;emphasisadded.

15. For an account see Luca Rubini, e Denition of Subsidy and State Aid: WTO Law and EC Law in Comparative Perspective, Oxford: Oxford University Press, 2010,p 105.

For many years, it was agreed that it was ‘neither necessary nor desirable’ to have an explicit denition of subsidy because to pinpoint in legal language such a complex policy would have inevitably resulted in under- or over-inclusion

Against this background, Article 1 ASCM is the result of a delicate compromise between different approaches to the subsidy issue It is certainly not a legal provision that can be interpreted – in one direction or the other – lightly Following the prevailing approach in WTO jurisprudence, the wording of the treaty is the start and the end of the hermeneutic process. Panels’ and Appellate Body’s reports have been known for their detailed, perhapstoanexternalobserververbose,argumentativeapparatus.Nosingleissueis disposedofinonesingleparagraph,especiallywithoutanyprecedentorbackingevidence,quitethecontrary.

Liberal interpretations based on desired policy outcomes are not something which is easily accepted. And the, now-defunct, Appellate Body, whichinessencewasavictimofreadingsofthelawconsideredbymanyof theWTOconstituencyastooaudacious,knowsthisverywell.(16)

Itcannotthereforecomeasasurprisehowanybodyconversantwithtrade law has been taken aback when reading the General Court decisions under examination, disposing of such a controversial and impactful issue in the less orthodox direction and with basically only one laconic and selfsupportingparagraph.

5.(Policy)desirevs(legal)reality

e paucity of General Court’s legal reasoning can be contrasted to the huge policy implications of the decision In effect the General Court has signicantly broadened EU anti-subsidy law, and, in the process, ventured to interpret another legal system, i.e , WTO law, in an equally broad way ere is one paragraph in the two decisions, in particular, where policy awarenessandpressurecomeoutprominently eGeneralCourtnoted:

itcannotbeaccepted that an economic and legal construct such as that of the SETC-Zone, conceived in close collaboration between the Government of China and the Government of Egypt at the highest level, is not covered by the basic anti-subsidy regulation, without this undermining thatregulation’seffectivenessoritspurposeandobjectives.(17)

16.

17.CaseT-280/20,para92;CaseT-540/20,para58;emphasisadded.

e General Court has signicantly broadened EU antisubsidy law, and, in the process, ventured to interpret another legal system, i.e., WTO law, in an equally broad way

e reader may rememberthat, following the US veto to the appointmentof new members, the Appellate Body ceased its activities in late 2019 when the minimumnumberofmembersrequired(3members)ceasedtobe.

Unfortunately,thisapproachisturningthecorrectmethodologyinjudicialanalysisupside-down Courts,andin particular international courts (and the General Court is such), need to apply the law as it is, with great circumspection, and largely irrespective of the undesired policy impact of their decisions (18) Not all laws and legal systems are equally responsive to policy re-orientation through interpretation. (19) It is not for the General Court, or the Court of Justice (and perhaps even for the EU legislature), to re-dene the essential boundaries of countervailing duty laws. is is because there is a superior norm in the eld which is the WTO rule-book, which,asseen,istheresultofhard-foughtnegotiationswithakeyroleplayedbytheEU.

Now, if this is correct, and if it is correct that the EU basic anti-subsidy regulation should be read consistently with WTO subsidy laws (which the General Court itself expressly recognises), it is not for EU courts to introduce newpurposesorobjectives to EU laws. is goes beyond their effetutile, it is fundamentally about re-dening the goals ofthelaw is is whattheCommissionrstandtheGeneralCourtaerwards essentiallydidbyre-shaping countervailingdutylawstotacklenewformsofsubsidiesnotoriginallyincluded.

is is not new. e Commission’s imaginative use of the 2001 Dra Articles on State Responsibility to broaden thenotionofsubsidyremindsusofasimilaraempt, atanothercrucialjunctureintime,tobroadenthenotionof EU State aid. at happened in 2001 in PreussenElektra (20) when, before the Court of Justice, the Commission argued, in the alternative to its main argument on how to dene the concept of State aid, that there could be a notion of a measure having an equivalent effect to State aid. ere are obviously differences in the two arguments but the goal of the two aempts is identical: to stretch the law, (i) in one case EU countervailing duty laws; (ii) in the otherEUStateaidlaws,tocapturemoreformsofsubsidiesorStateaid.Inthatcase,whatwasatissuewasthepossibility to govern the then burgeoning support policies in the green energy sector. In the current cases, what is at stake is the possibility to govern one of the new forms of foreign subsidisation which cannot easily t the current rule-book.

Ourunderstandingis,quitesimply,thatcountervailingdutylaws asweknowthem,and,mostimportantly,asdened by the four corners of WTO subsidy laws, do not regulate transnational subsidies is may be sub-optimal in 2023. If so, it is, however, for WTO Members (which include the EU and its Member States) to sit around the negotiating table and reform the law. It would be extremely dangerous for one Member to change the current rulesofthegameunilaterallythroughdubiousinterpretations.

18. In this respect see the illuminating account of the former Appellate Body member Claus Dieter Ehlermann, Six Years on the Bench of the ‘World Trade Court’ Some Personal Experiences as Member of the Appellate Body of the World Trade Organization, 36, 4 (2002) Journal of World Trade, pp 605 – 639. Fast forward almost 20 years, and you can read the powerfully critique of the Appellate Body made by one leaving member of the Appellate Body, omas Graham. efarewellspeechwas deliveredon5March2020andisavailable .here

19. For a case-study on WTO jurisprudence see Luca Rubini, ‘e Good, the Bad, and the Ugly.’ Lessons on Methodology in Legal Analysis om the Recent WTO LitigationonRenewableEnergySubsidies,48,5(2014)JournalofWorldTrade,pp 895–938.

20.CaseC-379/98PreussenElektra

One, certainly more transparent, although not ideal, alternative might be for the EU to devise a completely new tool to tackle transnational subsidies (and countervail imports beneting from them) is has been done with the recently introduced Regulation on Foreign Subsidies (21) that addresses various instances of cross-border subsidisation affecting investment and public procurement (not trade) within the EU internal market Article 32 ASCM, which prohibits to take any action against a subsidy of another WTO Member except in accordance with WTO law, might constitute a serious obstacle in this respect, especially because it arguably conveys the idea that‘subsidies’andtheirdisciplinesarecomprehensivelyregulatedinWTOlaw.

In the current heavily-charged and instable geo-political climate, one can easily predict that a policy move in this direction might easily trigger international reactions. But so would an unwarranted re-orientation of WTO subsidylaws eplusoftheformeroptionwould,however,betransparency

21. Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market, OJ L 330,23.12.2022,p 1–45.

Countervailing duty laws as we know them, and, most importantly, as dened by the four corners of WTO subsidy laws, do not regulate transnational subsidies

6.ependingappeal:‘Dothinktwice,it’snotalright’

e General Court’s decisions have been appealed and they are highly likely to be reversed on the points analysedinthisLong-Read.

e appeal will be an opportunity for an Advocate General to provide a more comprehensive, and hopefully orthodox, analysis of the issue of transnational subsidies within the context of the EU basic anti-subsidy regulation, withthenecessaryreferencetotheGrundnormintheeld(theWTOASCM).eappealwillperhapsalsooffer the opportunity, pace judicial economy, to deal with the very important issue of the relevance of the 2001 Dra Articles in interpreting primary rules such as the denition of subsidy in Article 1 ASCM in in Article 3 of the basicanti-subsidyregulation,anissuewhichhasalreadyraisedheateddiscussionsintradecircles.Finally,andmost importantly, the appeal will perhaps also offer the opportunity for the Advocate General and the Court of Justice to show real leadership by indicating to all stakeholders that the law has limits and that, if we are not happy with it,theEUanditsMemberStateshavetoworktowardsitsreform.

e General Court’s decisions have been appealed and they are highly likely to be reversed

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AG Ćapeta: Court of Justice should set aside General Court’s judgment in EUIPO v. e KaiKai Company Jager Wichmann

ursday 13 July

Advocate General Ćapeta delivered her Opinion in EUIPO v. e KaiKai Company Jager Wichmann (Case C-382/21 P), an appeal whereby the European Union Intellectual Property Office(EUIPO)askstheCourtofJusticetosetasidethejudgment of the General Court in Case T-579/19 (the judgment underappeal).

AG Szpunar: Exclusive jurisdiction of Complaints Board in European Schools’ disputes on repeating school year

Friday 14 July

e Opinion of AG Szpunar was published in the case Scuola europea di Varese (C-431/22) concerning the extent of the jurisdiction of the Complaints Board, which is a body of an international organisation, as regards those decisions and the obligationofthatboardtoapplytheprincipleofeffectivejudicial protection when interpreting the Convention dening the Statute of the European Schools (CSEE) and the implementingtextstowhichthatconventionrefers

Commission Implementing Regulation imposing denitive anti-dumping duty on certain continuous lament glassbreproductsfromChina

Friday 14 July

Official publication was made of the Commission Implementing Regulation (EU) 2023/1452 of 13 July 2023 imposing a denitive anti-dumping duty on imports of certain continuous lament glass bre products (GFR) originating in the People’s Republic of China following an expiry review pursuant to Article 11(2) of Regulation (EU) 2016/1036 of the EuropeanParliamentandoftheCouncil

Joint Statement issued in the aermath oftheEU-JapanSummit

Friday 14 July

AG Medina: Partial seing aside of judgmentinPlanistatEuropeandCharlot v Commission due to failure to verify plausibility of information and falseaccusationclaimsbyOLAF

Friday 14 July

InherOpiniondeliveredinPlanistatEuropeandCharlotvCommission (C-363/22 P), AG Medina proposed the Court to partially set aside the judgment of the General Court in Planistat EuropeandCharlotvCommission(T-735/20)

Commission-designated list of very large online platforms and search engines, publishedintheOJ

Friday 14 July

Official publication has been made of a list, designated by the European Commission, of very large online platforms and very large search engines designated pursuant to Article 33(4) of Regulation (EU) 2022/2065 on a Single Market For DigitalServices(DigitalServicesAct).

Commission adopted Annual Report outlining enforcement actions related to the protection of rights and freedomsofpeopleandbusinesses

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e President of the European Council, the President of the European Commission, and the Prime Minister of Japan met in Brussels for the 29th Summit between the European UnionandJapanand,consequently,issuedajointstatement

Friday 14 July

e European Commission adopted its Annual Report on MonitoringtheApplicationofEULaw,whichoutlinestheenforcement actions that the Commission took in 2022 to guarantee the protection of the rights and freedoms of people andbusinessesacrosstheEU

AG Pitruzzella suggests the seing aside of General Court decision concerning annulmentofCommissionStateaiddecision

Friday 14 July

AG Pitruzzella delivered his Opinion in two joined appeals, EDP España (C-693/21 P) and Naturgy Energy Group (C-698/21 P), where the appellants have asked the Court to set aside the judgment of the General Court, in Naturgy Energy Group v Commission ( T-328/18), by which the General Court dismissed the application for annulment of Commission Decision C(2017) 7733 on State aid SA 47912 (2017/NN) – Environmental incentive measure adopted by Spain in favor of coal-red power plants

Insights, Analyses & Op-Eds

CourtofJusticeruledonthecausalrelationship between an accident and an air passenger injury under the 1999 MontrealConvention:AustrianAirlines(Premier soins à bord d’un

by Cyril-Igor Grigorieff

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Op-Ed on the Court of Justice’s judgment in Austrian Airlines (C-510/21), concerning the interpretation of Article 17 of the Montreal Convention, which prescribes the international air carrier liability, within the context of maladministration of rstaid,followinganaccidentaboardofanaircarrier.

by Catherine Warin

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Op-EdontheCourtofJustice’sjudgmentinCommissairegénéral aux réfugiés et aux apatrides (Réfugié ayant commis un crime grave) (C-8/22), which, according to the author, provides an interpretation of Article 14(4) of the Qualication Directive whichisratherprotectiveofindividuals

Withdrawing refugee status: answers, and open questions on the relationship betweentheCEASandtheGenevaConvention (C-8/22, Commissaire général aux réfugiés et aux apatrides (Réfugié ayantcommisuncrimegrave)

aéronef)

(C-510/21)

by Silvia Rizzuto

Analysis of the Court of Justice’s judgment in Joined Cases C711/21 and C-712/2 where, as the author notes, the Court not only recalls its case law on the function of the procedure laiddown inArticle267TFEUbutalsotakestheopportunity to clarify the core of the ‘test’ of relevance as well as to emphasise the need for each national court to respect the system of judicial dialogue between the Court and the courts and tribunals of the Member States and the principle of sincere cooperation.

by Ula Furgał

Analysis of the Court of Justice’s judgment in case AKM v Canal+ (C-290/21) where the Court conrmed that the country of origin principle provided for in Article 1(2)(b) of the SatCab Directive 93/83 applies not only to the broadcastingorganizationsbutalsotothesatellitepackageproviders.

by Raluca Bercea

Analysis of the European Court of Human Rights’ judgment in Buhuceanuv.Romania concerning the same-sex couples’ legal statute and their marginal recognition in Romania, which, according to the author, offers formal protection more than aneffectiveone.

by John Condon

AnalysisoftheCourtofJustice’sjudgmentinCommissionvIreland (C-444/21), where the author suggests, among others, that the Commission considers recourse to scientic experts, environmental and citizen science organizations and other members of the public to help produce sufficient evidence of theallegedbreachesoftheHabitatsDirective.

National court must have regard to the proper function of the Court under the procedure laid down in Article 267 TFEU (Joined Cases C-711/21 and C712/21)

e country of origin principle applies to satellite package providers (Case C290/21AKMvCanal+)

On the margin: e ECtHR Judgement intheCaseBuhuceanuandOthersv.Romania

e challenges of proving a general and persistent breach of EU nature conservation law (Case C-444/21, CommissionvIreland)

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