August 30, 2025
Very glad to be returning soon to Center for Transnational Legal Studies in London to present a paper on transnational subsidies.
Few thoughts on WTO DS616 and my paper in progress on “Regulating the unsaid between domestic and international law: the case of transnational subsidies”.
As you know, Indonesia took the EU to the WTO (DS 616) on the former’s CVDs on imports subsidised “transnationally”. The practice to countervail financial contribution taking place beyond the jurisdiction builds on an innovative re interpretation of EU CVD and WTO CVD laws, and has been controversially validated by the General Court and the Court of Justice of the EU. You can find my immediate reactions to these various decisions in various posts published in this blog.
In my paper, I look at the different legal approaches of the various EU actors as well as cross the Atlantic to consider the recent US practice. This comparative analysis tells a lot about how different jurisdictions approach international law. I delve into the use of legal interpretation, what is legally said (and unsaid) and the relevance of policy considerations in legal analysis. I finally speculate on how the WTO Panel – that is supposed to deliver its report in the final quarter of the year – will approach the issue.
This case significantly resembles the Canada – Renewable Energy/FIT dispute which took place before WTO DS 10 years ago. The main similarity is that both disputes require the examination of controversial interpretations of subsidy laws, and notably of its definition which, as Bob Hudec reminded us, is an extremely “pliable” concept. Both disputes are heavily charged from a policy perspectives. In the renewable energy cases, the DS was caught between a rock and hard place – to chastise the bad local content requirement while saving the good green incentive. In the current dispute, against a widespread recognition that WTO subsidy laws are not up to the job, and the development of “new” types of subsidies, the DS is caught once again between Scylla and Charybdys. On the one hand, you have those that push for enabling WTO subsidy laws to capture newly recurring forms of cross-border subsidisation. On the other hand, those that are alleged to be indulging in these practices and will inevitably argue that to capture them now is tantamount to “judicial creativity” (does this sound familiar?). I don’t envy the three Panelists! But his happen when the principals – i.e. the Members – do not act and log roll all responsibility (and possibly blame) to the agents.
On a legal plane, one of the main findings is that the case cannot be 100% solved on the basis of the famous (and famously vague) rules of interpretation of Article 31 and 32 of the VCLT. Depending on the directions the Panel (or other actors) take, different policy considerations contribute to the result. And, while squarely belonging to the “reasoning” of the relevant actors, these considerations do not necessarily show themselves in the “statement of reasons”.
What will the Panel decide? I don’t know.
What I can do is to advance my preferred approach. Note: Many of the considerations below stand as background to formal VCLT legal interpretation.
· WTO subsidy laws do not explicitly refer to transnational subsidies
· Silence always means something. It is wrong as a matter of method to say silence does not mean anything and necessarily leave any option open
· The overall purpose of introducing a definition of subsidy and the specificity test in the rules was to limit the forms of action that could be subject to action or countervailing duties
· It is also well known that Members were particularly careful in repeating twice in the WTO DSU that no ruling can add rights or obligations – this is a call for self-restraint or, as the late former AB Member Ehlermann noted, “circumspection”
· It is clear that the standard scenario prevailing at the period the rules were negotiated was one of in-jurisdiction-only financial contributions
· There is no evidence that the issue of transnational subsidies was formally discussed – or even contemplated – in the negotiations (a key former negotiator of the rules told me: “They would have thought we were mad if we were proposing to catch them!”)
· The only attempts to countervail transnational subsidies took place in the US before the negotiations and were soon curtailed (see the account of Gary Horlick)
· There are now two alternative scenarios. The issue of transnational subsidies was / was not considered in the negotiations.
· First scenario. If the issue was considered but the parties stayed silenced, this should mean, at the very least, that no position was taken.
· Second scenario. The parties did not consider the issue.
· In both scenarios, the big question for the Panel is: how are we going to treat this – either intentional or unintentional – silence? Can we fill it in, perhaps with a dubious use of the VCLT or of teleology or of evolution? Or, relying on self-restraint and circumspection, shall we take the safe line, take note of this silence and the fact that, because transnational subsidies do not constitute the standard subsidy scenario, it is likely the parties would have been more explicit if they wanted to regulate them?
· This stance is more courageous than resorting to dubious teleological or evolutive interpretations
· The Panel can show the same judicial leadership shown by the AB in a famous final paragraph in the US – Shrimps case (“What we did in this case …. What we did not do …”).
· Most importantly, the Panel can make the reasoning above fully express and go beyond what statement of reasons based on the VCLT normally include. It would be a clear indication that the Panel is fully conscious of its position and of the fact that it is for Members to craft the rules that regulate their behaviour.
lucaslaws 