Transnational Subsidies and State Responsibility

As the strategic competition between the United States and China intensifies, the U.S. has strengthened its checks on China’s increasingly aggressive foreign policy. In particular, the U.S. and the European Union alike expand CVD investigations into transnational subsidies, as China pursues the Belt and Road Initiatives as a strategy to resolve its domestic industrial excess capacity. However, the most striking feature of transnational subsidies, unlike traditional subsidies, is that transnational subsidies assume subsidizing country and exporting country are different. This divergence may impose structural limitations on the WTO Agreement on Subsidies and Countervailing Measures(hereinafter ‘WTO SCM Agreement’) when it is applied to transnational subsidies. Therefore, it is of importance to examines whether the WTO SCM Agreement can adequately regulate transnational subsidies, especially regarding attribution and State responsibility issues caused by transnational subsidy measures. In this context, this paper critically analyzes the legal rationale behind the U.S. and EU CVD investigations into transnational subsidies and reviews whether transnational subsidies can be regulated under international law. Firstly, this paper examines the legal frameworks developed by the U.S. and the EU to regulate transnational subsidies. In order for that, this paper analyzes the novel interpretation on the subject of financial contribution, as well as the legal rationale to attribute the transnational subsidy-granting acts to the exporting country. Secondly, this paper explores the attribution issue of transnational subsidies. In order to examine applicable attribution principles, this paper reviews the governmental authority principle under the ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts as customary International law and the territorial control principle prescribed in the WTO SCM Agreement as a lex specialis. In addition, this paper looks into whether transnational subsidy-granting acts can be attributed to the exporting country by applying the ILC Draft Article 11. Lastly, this paper addresses the state responsibility issue of transnational subsidies. This paper, in particular, examines whether transnational subsidies can satisfy the specificity requirement under the WTO SCM Agreement, as it is closely linked to the invocation of state responsibility for such subsidies.