Does WTO law really not regulate ‘foreign subsidies’?
This post considers whether it is in fact true, as stated by the European Commission in its White Paper targeting ‘foreign subsidies’ [see White Paper], that WTO law offers no recourse against subsidies granted by countries to companies operating in other jurisdictions.
In relation to subsidies providing an advantage to products, Article 1 of the Subsidies Agreement (the SCM Agreement) defines a ‘subsidy’ as ‘a financial contribution by a government or any public body within the territory of a Member’, and Article 2 requires that such subsidies be ‘specific’ to enterprises or industries ‘within the jurisdiction of the granting authority’. This is usually taken as meaning that subsidies only apply when granted within the territory of the country granting the subsidy. However, it is at least arguable that ‘within the territory’ in Article 1 does not refer to the location of the recipient of the subsidy, and ‘within the jurisdiction of the granting authority’ is not limited to territorial jurisdiction, but could extend to personal jurisdiction based on nationality.1
It is perhaps more arguable that ‘foreign subsidies’ are governed by the national treatment obligation in Article XVII of the General Agreement on Trade in Services (GATS), which prohibits WTO members from discriminating against the ‘like’ services and service suppliers of other WTO members, at least in respect of services in which commitments have been taken.2 There is no reason why those service services and service suppliers are limited to those located in the territory of the other WTO member. To the contrary, Article XXVIII(2)(g) and (m)(ii) of GATS expressly define the service suppliers ‘of a WTO Member’ to include suppliers incorporated or otherwise established elsewhere so long as they are owned or controlled by its own nationals, and Article XXVIII(f) defines ‘services of another Member’ to include services supplied by its own service providers.
Usually, this is relevant for ensuring that a host country does not discriminate against the services and service suppliers of another WTO Member. But there is no prima facie reason why these definitions, and the national treatment obligation in Article XVII, should not also require a home country not to discriminate in favour of its own services and service suppliers and against the services and service suppliers regardless of where they are located.
It is also true that footnote 10 to Article XVII states that ‘[s]pecific commitments assumed under this Article shall not be construed to require any Member to compensate for any inherent competitive disadvantages which result from the foreign character of the relevant services or service suppliers.’ This means that there is no need to take additional steps to compensate for differences between foreign and national services or service suppliers, such as when a foreign supplier is located abroad but a national supplier is not. But in the case at hand, both the foreign and national services and service suppliers are located in the same territory – it just so happens that the territory in which they are both located is abroad.
In short, there are arguments, even if rather untested, that ‘foreign subsidies’ are not unregulated by WTO law, both in relation to goods and services. If so, the European Commission may have more options for targeting these subsidies than it has currently envisaged.
Written by Lorand Bartels.