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Lawful Remedy or Illegal Response? Resolving the Issue of Foreign Subsidization under WTO Law

Published online by Cambridge University Press:  01 April 2021

Victor Crochet  and
Marcus Gustafsson
Victor Crochet*
Affiliation:
Van Bael and Bellis - Trade, 166 chaussée de la hulpe, F Van Bael and Bellis, Brussels1170, Belgium
Marcus Gustafsson
Affiliation:
Van Bael and Bellis - Trade, 166 chaussée de la hulpe, F Van Bael and Bellis, Brussels1170, Belgium
*
*Email: [email protected]; [email protected]
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Abstract

Discontentment is growing such that governments, and notably that of China, are increasingly providing subsidies to companies outside their jurisdiction, ‘buying their way’ into other countries’ markets and undermining fair competition therein as they do so. In response, the European Union recently published a proposal to tackle such foreign subsidization in its own market. This article asks whether foreign subsidies can instead be addressed under the existing rules of the World Trade Organization, and, if not, whether those rules allow States to take matters into their own hands and act unilaterally. The authors shed light on these issues and provide preliminary guidance on how to design a response to foreign subsidization which is consistent with international trade law.

Keywords

SubsidiesEuropean UnionChinaextraterritorialityWTO
Type
Original Article
Information
World Trade Review , Volume 20 , Issue 3 , July 2021 , pp. 343 - 366
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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Footnotes

†

Associates at Van Bael & Bellis, Brussels. We thank Gary Horlick, Jesse Kreier, Vineet Hegde, and Akhil Raina for their valuable input. We would also like to thank Elyse Kneller for her editorial assistance. All opinions and errors are the authors’ own.

References

1 V. Crochet and V. Hegde (2020) ‘China's “Going Global” Policy: Transnational Production Subsidies under the WTO SCM Agreement’, Journal of International Economic Law 23, 841.

2 European Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, COM(2020) 253 final, 17 June 2020, https://ec.europa.eu/competition/international/overview/foreign_subsidies_white_paper.pdf. See also the European Commission's recent inception impact assessment concerning ‘proposal(s) for Regulation(s) of the European Parliament and the Council to address distortions caused by foreign subsidies in the internal market generally and in the specific cases of acquisitions and public procurement’, 1 October 2020, Ref. Ares(2020)5160372.

3 Ibid., at 4.

4 Ibid., at 42.

5 A. Bradford (2020) The Brussels Effect: How the European Union Rules the World. New York: Oxford University Press. See further section 5 infra.

6 Ibid., at 131.

7 WTO, ‘Expert Group Meeting on Trade Financing – Note by the Secretariat’, 16 March 2004, WT/GC/W/527, at 5.

8 WTO, ‘Subsidies for Services Sectors: Information Contained in WTO Trade Policy Review’, 12 December 2000, S/WPGR/W/25/Add.2.

9 WTO (2006) WTO Trade Report 2006, Exploring the Links between Subsidies, Trade and the WTO, www.wto.org/english/res_e/booksp_e/anrep_e/wtr06–2d_e.pdf.

10 M. Benitah (2019) The WTO Law of Subsidies: A Comprehensive Approach. Alphen aan den Rijn: Kluwer Law International, 605.

11 G. Horlick (2013) ‘An Annotated Explanation of Articles 1 and 2 of the WTO Agreement on Subsidies and Countervailing Measures', Global Trade and Customs Journal 8, 278, at 297.

12 M. Stothard (2016) ‘France: The Politics of State Ownership’, Financial Times, www.ft.com/content/9be75d5c-a72e-11e6-8898-79a99e2a4de6; P. Toral (2008) ‘The Foreign Direct Investments of Spanish Multinational Enterprises in Latin America, 1989–2005’, Journal of Latin American Studies 40, 513.

13 Commission Decision 97/257/EC of 5 June 1996, OJ 1997 L 102/36; Commission Decision 97/240/EC of 5 June 1996, OJ 1997 L 96/15; Commission Decision 97/241/EC of 5 June 1996, OJ 1997 L 96/23.

14 United Nations Conference on Trade and Development (UNCTAD) (2019) World Investment Report 2019: Special Economic Zones, https://unctad.org/en/PublicationsLibrary/wir2019_en.pdf.

15 E. Ng (2019) ‘More Chinese Industrial Firms Are Building Their Factories in Europe, Says Regional Head of Germany's Exyte’, South China Morning Post, www.scmp.com/business/article/2189414/more-chinese-industrial-firms-are-building-their-factories-europe-says-head; A. Tartar et al. (2018) ‘How China Is Buying Its Way Into Europe’, Bloomberg, www.bloomberg.com/graphics/2018-china-business-in-europe/.

16 A notable recent example is the construction of a large bridge in Croatia by a Chinese state-owned enterprise. See L. Jukić (2020) ‘Connecting Croatia on a Bridge Built by China’, Politico, www.politico.eu/interactive/connecting-croatia-on-a-bridge-built-by-china/. See also the recent report by the European Court of Auditors documenting increasing Chinese investments in the EU. ‘Review No 03/2020: The EU's Response to China's State-Driven Investment Strategy’ (2020) www.eca.europa.eu/en/Pages/DocItem.aspx?did=54733.

17 P. Sauvé and M. Soprana (2015) Learning by Not Doing: Subsidy Disciplines in Services Trade, http://e15initiative.org/wp–content/uploads/2015/04/E15_Subsidies_Sauve–and–Soprana_final.pdf.

18 See further on this issue, G. Hufbauer, T. Moll, and L. Rubini (2008) ‘Investment Subsidies for Cross–Border M&A: Trends and Policy Implications’, Occasional Paper No. 2, The United States Council Foundation¸ New York.

19 Ibid.

20 T.P. Stewart (1993) The GATT Uruguay Round – A Negotiating History (1986–1992) – Volume Ia: Commentary. Kluwer Law International, 817.

21 Tartar et al., supra note 15.

22 WTO, ‘Expert Group Meeting on Trade Financing’, supra note 7, at 5.

23 See Article XVI GATS.

24 See further on this issue Hufbauer, Moll, and Rubini, supra note 18.

25 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 5; Monopolkommission (2020) ‘Chinese State Capitalism: A Challenge for the European Market Economy’, Biennial Report XXIII of the Monopolies Commission, www.monopolkommission.de/images/HG23/Main_Report_XXIII_Chinese_state_capitalism.pdf, paras. 747–752.

26 Netherlands, Non–Paper Strengthening the Level Playing Field on the Internal Market, 9 December 2019, www.permanentrepresentations.nl/documents/publications/2019/12/09/non-paper-on-level-playing-field.

27 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 9.

28 Ibid., at 10, 13.

29 Ibid., at 5.

30 Ibid., at 13–14.

31 Ibid., at 15–17.

32 Ibid., at 19–20.

33 Ibid., at 22–24.

34 Ibid., at 28–29.

35 Ibid., at 30.

36 Ibid., at 31.

37 Ibid., at 34.

38 Ibid., at 21, 29.

39 Ibid., at 18, 20, 29, 32.

40 R.R. Rivers and J.D. Greenwald (1979) ‘The Negotiation of a Code on Subsidies and Countervailing Measures: Bridging Fundamental Policy Differences’, Law and Policy in International Business 11, 1447.

41 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 42.

42 Ibid., at 41.

43 As discussed below in section 3.1, the SCM Agreement only applies to subsidies granted for the production of goods.

44 The difference between the GATT and the GATS is further discussed infra in footnote 109 and accompanying text.

45 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 47.

46 Panel Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (US–Anti–Dumping and Countervailing Duties (China)) , WT/DS379/R (22 October 2010), para. 8.67.

47 Ibid.

48 Crochet and Hegde, supra note 1.

49 Panel Report, Brazil – Export Financing Programme for Aircraft (Second Recourse by Canada to Article 21.5 of the DSU) (Brazil–Aircraft (Article 21.5 DSU–Canada II)), WT/DS46/RW2 (26 July 2001), at footnote 42.

50 As discussed below in section 3.2.1, remedies against actionable subsidies are only available when the recipient is located within the territory of the granting authority under Article 2 of the SCM Agreement. Similarly, in accordance with Article 13 and 18 of the SCM Agreement, countervailing duties do not appear to be available when the subsidizing Member is not also the exporting Member.

51 See, Article 14 SCM Agreement. See for a more detailed analysis, Crochet and Hegde, supra note 1.

52 Panel Report, United States – Countervailing Measures Concerning Certain Products from the European Communities (US–Countervailing Measures on Certain EC Products), WT/DS212/R (31 July 2002), para. 7.54. See further on this issue, Hufbauer, Moll, and Rubini, supra note 18.

53 Appellate Body Report, United States – Countervailing Measures Concerning Certain Products from the European Communities (US–Countervailing Measures on Certain EC Products), WT/DS212/AB/R (9 December 2002), para. 112.

54 Ibid. See also, GATT, Article VI and SCM Agreement, at footnote 36.

55 Panel Report, US–Countervailing Measures on Certain EC Products, para. 7.52.

56 We similarly note that Article XVI of the GATT, which refers to subsidies by a WTO Member which operates ‘to increase exports of any product from, or to reduce imports of any products into, its territory’. However, this provision of the GATT only discusses what became ‘prohibited subsidies’ under Part II of the SCM Agreement concerning which the SCM Agreement considerably strengthened the applicable disciplines. Appellate Body Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany (US–Carbon Steel), WT/DS213/AB/R (28 November 2002), para. 73.

57 For a detailed analysis of this question, please refer to Crochet and Hegde, supra note 1.

58 Panel Report, Brazil – Export Financing Programme for Aircraft (Brazil–Aircraft), WT/DS46/R (14 April 1999), paras. 2.1–2.6, 4.19–4.20, and 4.40–4.48.

59 Oxford English Dictionary, Jurisdiction. See also V. Crochet and V. Hegde, supra note 1.

60 The Case of the S.S. Lotus France v Turkey, Judgment, 7 September 1927, PCIJ Series A no 10, ICGJ 248 (PCIJ 1927), para. 45.

61 A. Mill (2014) ‘Rethinking Jurisdiction in International Law’, British Yearbook of International Law 84, 187.

62 Multilateral Trade Negotiations the Uruguay Round, Meeting of 6 November 1990 Note by the Secretariat, 29 November 1990, MTN/GNG/NG10/24, para. 3.

63 Multilateral Trade Negotiations the Uruguay Round, ‘Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations’, 20 December 1991, I.2, MTN.TNC/W/FA.

64 Multilateral Trade Negotiations the Uruguay Round, Trade Negotiations Committee: Thirty-Third Meeting, 29 November 1993, MTN.TNC/37, para. 25.

65 See Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products (US–Shrimp) WT/DS58/AB/R (12 August 1998), para. 133.

66 Panel Report, United States – Tax Treatment for ‘Foreign Sales Corporations’ (Article 21.5 DSU) (US–FSC (Article 21.5 DSU)), WT/DS108/R (8 October 1999), at Annex F–3, para. 108 where the US explained that ‘[i]n the case of an alleged subsidy taking the form of a tax measure, it would seem appropriate to interpret the term “jurisdiction” as referring to the taxing jurisdiction of the Member in question’.

67 Furthermore, even if it was accepted that a subsidy granted to an entity established in the territory of a Member which is not the subsidizing Member is specific, it would be difficult for the Member where the subsidized entity is established to show that it has suffered adverse effects in accordance with Article 5 of the SCM Agreement. In order to demonstrate that it has suffered adverse effects, a Member must establish that its domestic industry or its products have been negatively affected by the subsidy. However, according to Article 16 of the SCM Agreement, this Member's domestic industry would encompass the subsidized entity and the subsidized entity's products would constitute ‘products' of the Member where it is located under Article 6.3 of the SCM Agreement. Thus, any attempt to show adverse effects would be rather odd.

68 Hufbauer, Moll, and Rubini, supra note 18, at Annex C.

69 Crochet and Hegde, supra note 1.

70 Concerning the question of whether a WTO Member can impose countervailing measures against imported products subsidized by a government other than that of establishment of the producing entity, please see Crochet and Hegde, supra note 1.

71 GATT, Subsidies/Countervailing Measures, Outline of an Arrangement, 10 July 1978, MTN/NTM/W/168; D. Coppens (2014) WTO Disciplines on Subsidies and Countervailing Measures – Balancing Policy Space and Legal Constraints. Cambridge: University Press Cambridge, at 27; Rivers and Greenwald, supra note 40.

72 Article 19, Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariff and Trade (the ‘Subsidies Code’).

73 In this regard, we note that a paragraph indicating that ‘[n]o measures other than anti-dumping or countervailing duties shall be applied by any contracting party in respect of any product of the territory of any other contracting party for the purpose of offsetting dumping or subsidization’ was put forth during the negotiations of the GATT 1947 but was not included in the final draft (see reference in Panel Report, United States – Anti-Dumping Act of 1916 (US–1916 Act (EC)), WT/DS136/R (31 March 2000), footnote 444). While this provision's wording is similar to that of Article 32.1 of the SCM Agreement, Article 32.1 of the SCM Agreement's prohibition is broader insofar as it is not limited to measures against products.

74 Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000 (US–Offset Act (Byrd Amendment)), WT/DS217/AB/R; WT/DS234/AB/R (16 January 2003), para. 251.

75 Ibid., para. 252.

76 Ibid., para. 272.

77 Ibid., para. 273.

78 Ibid., para. 236.

79 Ibid. See also Appellate Body Report, United States – Anti-Dumping Act of 1916 (US–1916 Act (EC)), WT/DS136/AB/R; WT/DS162/AB/R (28 August 2000), paras. 122, 130.

80 Panel Report, European Communities – Measures Affecting Trade in Commercial Vessels (EC–Commercial Vessels), WT/DS301/R (22 April 2005), para. 7.112. See also Appellate Body Report, US–Offset Act (Byrd Amendment), para. 244.

81 Appellate Body Report, US–Offset Act (Byrd Amendment), para. 240. See also Panel Report, EC–Commercial Vessels, para. 7.113.

82 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 41.

83 Ibid., at 47.

84 Ibid., at 10 and 41–42.

85 Appellate Body Report, US–Carbon Steel, para. 73.

86 Namely, GATT, Articles VI, XVI and XXIII.

87 Panel Report, Brazil–Aircraft (Article 21.5–Canada II), para. 5.28; Appellate Body Report, US–Countervailing Measures on Certain EC Products, para. 112.

88 Hufbauer, Moll, and Rubini, supra note 18, at Annex C.

89 Appellate Body Report, US–Offset Act (Byrd Amendment), para. 251; Hufbauer, Moll, and Rubini, supra note 18, at Annex C.

90 In case of import substitution subsidies under Article 3 of the SCM Agreement.

91 Appellate Body Report, US–Offset Act (Byrd Amendment), para. 240. See also Panel Report, EC–Commercial Vessels, para. 7.113.

92 Appellate Body Report, US–Offset Act (Byrd Amendment), para. 254.

93 Panel Report, United States – Continued Dumping and Subsidy Offset Act of 2000 (US–Offset Act (Byrd Amendment))), WT/DS217/R; WT/DS234/R (16 September 2002), para. 7.46.

94 Panel Report, EC–Commercial Vessels, para. 7.164, Panel Report, United States – Anti-Dumping Act of 1916 (US–1916 Act (Japan)), WT/DS162/R (29 May 2000), para. 6.231.

95 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 19–20.

96 This is often referred to as the ‘Brussels effect’. See Bradford, supra note 5, at 99. (‘In addition to shaping the global marketplace through the extraterritorial enforcement of its own competition law, the EU has been remarkably successful in exporting its regime abroad.’)

97 L. Rubini (2017) ‘The Age of Innocence: The Evolution of the Case–Law of the WTO Dispute Settlement. Subsidies as Case–Study’, in M. Elsig et al. (eds.), Assessing the World Trade Organization. Fit for Purpose? Cambridge: Cambridge University Press. See also Panel Report, Brazil–Aircraft, para. 7.26; Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea (US–Countervailing Duty Investigations on DRAMS), WT/DS296/AB/R (27 June 2005), para. 115.

98 L. Bartels (2004) ‘The Separation of Powers in the WTO: How to Avoid Judicial Activism’, International & Comparative Law Quarterly 53, 861.

99 Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 DSU) (Thailand–Cigarettes (Article 21.5 DSU)) WT/DS371/R (15 November 2010), para. 7.744.

100 See C. Tran (2010) ‘Using GATT, Art XX to Justify Climate Change Measures in Claims under the WTO Agreements’, Environmental and Planning Law Journal 27, 34. See also Coppens, supra note 71, at 192.

101 Appellate Body Report, China – Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum (China–Rare Earths), WT/DS431/AB/R; WT/DS432/AB/R; WT/DS433/AB/R (7 August 2014), para. 5.74.

102 Ibid., para. 5.55.

103 Ibid.

104 Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (China–Publications and Audiovisual Products), WT/DS363/AB/R (21 December 2009), para. 223.

105 Panel Report, US–1916 Act (EC), para. 6.199, regarding Article 18.1 of the Anti–Dumping Agreement whose wording mirrors that of Article 32.1 of the SCM Agreement.

106 Report of the Working Party on Modifications to the General Agreement on 1–2 September 1948, BISD Vol. II, p. 41 (1952).

107 Panel Report, Thailand–Cigarettes (Article 21.5 DSU), para. 7.755.

108 Ibid., quoting Appellate Body Report, US–Countervailing Duty Investigations on DRAMS, para. 115.

109 Article I:2 GATS. Commercial presence is defined in Article XXVIII(d) GATS as ‘(i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of supplying a service’. It is important to note that whereas the GATT mostly apply to goods themselves, the GATS also apply to service suppliers. Therefore, in contrast to the situation of a goods producer under the GATT, a foreign owned subsidiary would not be considered to be part of the domestic industry of the WTO Member in which it is established. There are suggestions in the White Paper that the measures could also be extended to services suppliers established outside the EU. See Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 46. A unilateral measure targeting these suppliers could also affect the cross–border supply services under Mode 1.

110 Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry (Canada–Autos), WT/DS139/AB/R; WT/DS142/AB/R (31 May 2000), paras. 170–171.

111 Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services (Argentina–Financial Services), WT/DS453/AB/R (14 April 2016), para. 6.24.

112 Ibid., para. 6.111.

113 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas (EC–Bananas III), WT/DS27/AB/R (9 September 1997), para. 234.

114 Panel Report, European Union and its Member States – Certain Measures Relating to the Energy Sector (EU–Energy Package), WT/DS476/R (10 August 2018), paras. 7.488–7.491.

115 Panel Report, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products (EC–Seal Products), WT/DS400/R; WT/DS401/R (25 November 2011), para. 7.597; Appellate Body Report, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products (EC–Seal Products), WT/DS400/AB/R; WT/DS401/AB/R (22 May 2014), paras. 5.95–5.96. See also Panel Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas (EC–Bananas III), WT/DS27/R/ECU (22 May 1997), para. 7.336. In the oft–quoted Canada–Automotive Industry dispute, the Appellate Body did not clearly explain whether de facto discrimination arises in situations in which any good from any WTO Member is given less favourable treatment compared with a good from another WTO Member, as opposed to whether the majority of goods from one WTO Member is given less favourable treatment than the majority of goods from another WTO Member. See WorldTradeLaw.net (2014) Dispute Settlement Commentary: Canada – Automotive Industry, www.worldtradelaw.net/document.php?id=dsc/ab/canada–autos(dsc)(ab).pdf. EC–Seal Products appears to settle the question in favour of the latter, and more permissive, standard.

116 According to WTO statistics, China was targeted in 123 countervailing duty investigations between 2005 and 2019, compared to a combined total of 88 times for other countries. See WTO, Subsidies and countervailing measures, www.wto.org/english/tratop_e/scm_e/scm_e.htm.

117 D. Rusche (2018) ‘US Cities and States Give Big Tech $9.3bn in Subsidies in Five Years’, The Guardian, www.theguardian.com/cities/2018/jul/02/us-cities-and-states-give-big-tech-93bn-in-subsidies-in-five-years-tax-breaks#:~:text=Giant%20technology%20companies%20in%20the,struggling%20schools%20and%20broken%20budgets; (2016) ‘Orange: pas d'aide illégale de l'État’, Le Figaro, www.lefigaro.fr/flash-eco/2016/11/30/97002-20161130FILWWW00115-orange-pas-d-aide-illegale-de-l-etat.php; W. Williams et al. (2020) ‘Germany Reaches EU Deal on $9.9 Billion Lufthansa Bailout’, Bloomberg, https://www.bloomberg.com/news/articles/2020-05-29/germany-and-eu-said-to-reach-deal-over-lufthansa-bailout.

118 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 6.

119 Ibid., at footnote 10.

120 Bundeministerium für Wortschaft und Energie, Pressestament von Peter Altmaier und Bruno Le Maire zu aktuellen Wirtschaftsthemen und zur Corona–Pandemie, 22 June 2020, www.bmwi.de/Redaktion/DE/Videos/2020/20200622-pressestatement-altmaier-le-maire.html. The White Paper also makes specific reference to Chinese investment funds, such as Sino–CEEF. See Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at footnote 10.

121 D. ab Iago (2020) ‘EU mulls tougher stance on foreign investments', Argus, www.argusmedia.com/news/2115229-eu-mulls-tougher-stance-on-foreign-investments?amp=1.

122 How a WTO Panel may approach this question may in part be influenced by the broader systemic debate of whether the GATT and WTO is a system based on liberal market principles, or whether the WTO can and should accommodate certain levels of State intervention. For recent discussions of these issues, see, e.g., A. Lang (2019) ‘Heterodox Markets and “Market Distortions” in the Global Trading System’, Journal of International Economic Law 22, 677; P. Mavroidis and A. Sapir (2019) ‘China and the WTO: Towards a Better Fit’, Bruegel Working Paper, Bruegel, Brussels, https://bruegel.org/wp-content/uploads/2019/06/WP-2019-06-110619_.pdf.

123 Panel Report, Argentina – Measures Relating to Trade in Goods and Services (Argentina–Financial Services), WT/DS453/R (30 September 2015), para. 7.448.

124 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2.

125 This would be the case since the instrument targeting only foreign subsidies could not be said to be an implementing measure of the regime targeting domestic subsidies, and it would be difficult to argue that the two regimes operate in an integrated way. See Appellate Body, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products (Article 21.5 DSU) (US–Tuna II (Article 21.5 DSU)), WT/DS381/AB/RW (3 December 2015), para. 7.13; Panel Report, EC–Seal Products, paras. 7.25–7.27.

126 Article XVII:3 GATS clarifies that the national treatment obligation covers de facto violations.

127 Article XVII:1 GATS.

128 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (US–Gambling), WT/DS285/AB/R (7 April 2005), para. 291. See also Appellate Body Report, Argentina–Financial Services, paras. 6.203–6.204; Appellate Body Report, Colombia–Measures Relating to the Importation of Textiles, Apparel and Footwear (Colombia–Textiles), WT/DS461/AB/R (7 June 2016), footnote 270.

129 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2.

130 Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline (US–Gasoline), WT/DS2/AB/R (29 April 1996), para. 22.

131 See Panel Report, EU–Energy Package; Panel Report (Colombia–Ports of Entry), WT/DS366/R (27 April 2009); Panel Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear (Colombia–Textiles), WT/DS461/R (27 November 2015); Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Korea–Beef), WT/DS161/R; WT/DS169/R (31 July 2000). See also T. Cottier et al. (2008) ‘Article XIV GATS: General Exceptions' in R. Wolfrum et al. (eds.), WTO – Trade in services, Max Planck commentaries on World Trade Law, No. 6. Leiden: Martinus Nijhoff Publishers.

132 In this regard, in Panel Report, Argentina–Financial Services, at paras. 7.637–7.643, the Panel concluded that the measures at issue sought to secure tax collection and avoid tax evasion.

133 Article 107 TFEU only applies to aid or ‘State resources’ granted by or imputable to EU Member States, which is the reason the Commission considers a new measure to be necessary. See Monopolkommission, supra note 25, paras. 747–752; Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 6.

134 Under US law, a similar argument could be made under the ‘Dormant Commerce Clause’ as this provision has been held to prevent US states from taking measures that restrict inter–state commerce. However, this principle has so far not been held to prohibit state subsidisation. See Sykes, A. (2010) ‘The Questionable Case for Subsidies Regulation: A Comparative Perspective’, 2 Journal of Legal Analysis 473, at 477–479.

135 Panel Report, EU–Energy Package, paras. 7.625–7.626 (not reversed on appeal) and Panel Report, Colombia–Ports of Entry, para. 7.529.

136 Panel Report, Korea–Beef, para. 658.

137 Panel Report, EU–Energy Package, paras. 7.637–7.643.

138 Panel Report, US – Tariff Measures on Certain Goods from China (US–Tariff Measures), WT/DS543/R (15 September 2020), paras. 7.113–7–153.

139 Appellate Body Report, EC–Seal Products, para. 5.214.

140 See section 2 supra and section 4.3.2 infra.

141 This principle forms part of the Dutch proposal. See Netherlands, supra note 26. See also comments in Monopolkommission, supra note 25, paras. 905–907, 910–915. Similar red flag systems are used in the EU Financial Regulation, see section 23 of Annex I of Regulation (EU, Euratom) 2018/1046, OJ 2018 L193, Article 10.11 of the EU–Japan FTA and Article 17.6 of CETA, which provide that EU contracting authorities can refuse subsidized tenders in procurement procedures if prices appear to be abnormally low.

142 Appellate Body Report, US–Shrimp, para. 150.

143 Appellate Body Report, EC–Seal Products, para. 5.302; Appellate Body Report, US–Shrimp, para. 165.

144 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 46.

145 See Commission, ‘Notice on the Notion of State Aid as Referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ 2016 C 262.

146 Article 1.1(a)(1)(iv) SCM Agreement.

147 The concept of ‘entrusted and directed’ is routinely used by certain trade defence investigating authorities to find that certain private or public companies, such as banks, have offered subsidies in the form of loans at below market rates.

148 Commission, ‘Notice on the Notion of State Aid’, supra note 145, para. 60.

149 The need for a consistent application of exceptions was discussed in Appellate Body Report, EC–Seal Products, para. 5.338.

150 Commission Regulation (EU) 651/2014, OJ 2014 L187. The consolidated version of the GBER is available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014R0651-20170710 and the Commission's Practical Guide to the GBER is available at https://ec.europa.eu/competition/state_aid/legislation/practical_guide_gber_en.pdf.

151 Commission, ‘Commission Notice on the recovery of unlawful and incompatible State Aid’, OJ 2019 C 247.

152 See Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 19.

153 Ibid.

154 In accordance with Article 109 TFEU, the Council may adopt regulations for the application of Articles 107 and 108 TFEU, and determine the conditions under which the prior notification procedure is to apply. In particular, the Council may decide that certain categories of aid are exempt from the prior notification procedure.

155 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 18, 31.

156 Ibid., at 18.

157 These effects would be exacerbated by the suggestion in the White Paper to use ‘facts available’ when certain information cannot be obtained similar to the trade defence context. See Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 18 and see Article 12.7 SCM Agreement. Facts available can, however, be used to shift part of the burden of proof to the investigated company by demanding information the investigated company may have difficulty accessing. See further R. Updegraff (2018) ‘Striking a Balance between Necessity and Fairness: The Use of Adverse Facts Available in Dumping and Subsidies Investigations’, Georgetown Journal of International Law 49, 709.

158 Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres (Brazil–Retreaded Tyres), WT/DS332/AB/R (3 December 2007), para. 232.

159 Appellate Body Report, US–Gasoline, para. 22.

160 For instance, in US–Gambling, the Appellate Body upheld the Panel's finding that the United States’ failure to treat foreign and domestically supplied online betting services in a “consistent manner” resulted in arbitrary and unjustifiable discrimination. Appellate Body Report, US–Gambling, paras. 348–351.

161 Appellate Body Report, EC–Seal Products, para. 5.299.

162 Appellate Body Report, US–Shrimp, paras. 164–165.

163 Regarding the UK's intention to develop its own subsidy control regime, see Zekaria, S. (2020) ‘UK to adopt WTO subsidy regime for state aid post–Brexit’, MLex, www.mlex.com/NewTI/DetailView.aspx?cid=1221330&siteid=197&rdir=1. See also Sykes, supra note 134.

164 Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products (Article 21.5 DSU) (US–Shrimp (Article 21.5 DSU)), WT/DS58/AB/RW (22 October 2001), para. 144.

165 Appellate Body Report, US–Shrimp, paras. 166–169.

166 Commission, ‘Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan,’ the United States and the European Union, 14 January 2020, https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158567.pdf.

167 Although we note that the EU has, in its most recent FTAs, included provisions to reject subsidized tenders. See Article 10.11, EU–Japan FTA; Article 17.6, CETA.

168 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, p. 3.

169 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, p. 2.

170 The United States has a tradition of bipartisan commissions, such as the International Trade Commission and Securities Exchange Commission, which hear legal arguments and in the latter case also writes and enforces its own rules. In the EU, the European Anti–fraud Office conducts fraud investigations and has its legal independence guaranteed under Article 3 of Commission Decision of 28 April 1999 establishing the European Anti–fraud Office (OLAF), OJ 1999 L136.

171 Commission, ‘Notice on the Notion of State Aid’, supra note 145, para. 60.

172 Commission, supra note 155.

173 See Zekaria, supra note 163, in this sense for the UK's intention to enact its own domestic subsidy rules. See also Sykes, supra note 134.

174 The recent high–profile dispute in which both the Panel and the Appellate Body confirmed the WTO–consistency of Australia's controversial plain packaging regulations on tobacco products demonstrates the rewards from a strategy of a carefully designed measures from the outset. See Appellate Body Report, Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Australia–Tobacco Plain Packaging), WT/DS435/AB/R; DS441/AB/R (9 June 2020).

175 Commission, ‘White Paper on Levelling the Playing Field as Regards Foreign Subsidies’, supra note 2, at 19–20.

176 See Bradford, supra note 5 and accompanying text.

177 In the field of environmental regulation, the Commission in 2016 backed down from extending its carbon emissions trading scheme to airline travel outside EU airspace. Furthermore, Indonesia recently brought a WTO action concerning the EU's revised Renewable Energy Directive, and the EU will likely face further litigation if it proceeds with a planned carbon border tax. See further M. Gustafsson and V. Crochet (2020) ‘At the Crossroads of Trade and Environment: The Growing Influence of Environmental Policy on EU Trade Law’, in A. Orsini and E. Kavvatha (eds.), EU Environmental Governance: Current and Future Challenges. Abingdon: Routledge, 190–193.

178 See  section 4.3.2.