Source: YI CAI 

Author: Feng Difan

Recently, the U.S. Department of Commerce issued final determinations in the countervailing duty investigations on photovoltaic products from Malaysia, Vietnam, Thailand, and Cambodia, imposing countervailing duties of up to 3403.96% on solar products from Cambodia. Unsurprisingly, the U.S. once again brought China into the picture in its ruling. Among the 3403.96% duty rate, the investigating authority determined that 1940.23% of the rate was attributable to "transnational subsidies" originating from China. This astronomical ruling has once again broken the world record for countervailing duty rates and has also broken through the lower bound of the U.S.'s disregard for WTO rules in its countervailing duty investigations.

I. Abuse of "Adverse Facts Available"

In the jargon of international trade law, this duty rate is what is known as "AFA," an acronym for "Adverse Facts Available." In layman's terms, it was artificially calculated by the U.S. Department of Commerce based on "adverse facts available." Among the 17 subsidy programs that the final determination found Cambodian companies to have received, seven programs were assigned an identical subsidy rate of 471.25% through AFA. This astonishing subsidy rate implies that for every dollar of solar products exported by a Cambodian company, the Cambodian government would have to subsidize that company by thirty-four dollars. Not only is the Cambodian government incapable of providing such a level of subsidy, but even a country as financially powerful as the United States, capable of printing money at will, would not have the fiscal capacity to subsidize any enterprise at such a level.

WTO panels and the Appellate Body have repeatedly emphasized in numerous cases that the purpose of investigating authorities using "facts available" is to fill in missing information, not to punish the responding companies. Furthermore, investigating authorities have an obligation when using "facts available" to ensure the reasonableness and relevance of the alternative data they choose to use and to provide reasons for their choice. In this case, the U.S. Department of Commerce, without any reflection, deliberately applied the 471.25% subsidy rate, which was "AFA-ed" for one specific subsidy program, to six other subsidy programs, completely disregarding the factual differences in the nature, method, and purpose between that program and the six other alleged subsidy programs. In its final determination, the U.S. Department of Commerce repeatedly emphasized not how to obtain reasonable facts relevant to the case to fill in missing information, but rather how to select an available "highest" rate and, by accumulating the figures from multiple programs, calculate a prohibitive countervailing duty rate to punish the responding companies. This approach completely disregards WTO rules and constitutes an abuse of "adverse facts available."

II. Wanton Use of Transnational Subsidy Investigations

The subsidy program that was first assigned the 471.25% AFA rate is named "Chinese government's provision of wafers to Cambodian enterprises through cross-border means." This marks the first time since the amendment to the U.S. countervailing duty regulations took effect in April 2024 that the U.S. Department of Commerce has initiated a transnational subsidy investigation targeting raw materials and loans from China in a countervailing duty investigation involving another country. In stark contrast to its previously strictly limited approach to transnational subsidy investigations, the U.S. Department of Commerce, after amending its countervailing duty regulations, has completely opened the door to such investigations. To date, it has initiated transnational subsidy investigations targeting China in at least nine countervailing duty cases.

The transnational subsidy investigations launched by the U.S. potentially violate the territoriality limitations set forth in the WTO's Agreement on Subsidies and Countervailing Measures (ASCM). The ASCM was never intended to apply to so-called "transnational subsidies." Articles 1.1(a)(1) and 2.1 of the Agreement establish clear territorial limits for the determination of countervailable subsidies through phrases such as "within the territory of a Member" or "within the jurisdiction of the granting authority." If any doubt remained, footnote 62 of the Agreement explicitly states that "the beneficiary firm should be located in the territory of the Member providing the subsidy." This means that the entity providing the subsidy and the beneficiary firm must be located within the territory of the same Member. By treating loans obtained by Chinese-invested enterprises located in other countries from state-owned banks within China, or raw materials obtained from state-owned enterprises within China, as subsidies, the U.S. Department of Commerce is potentially violating the territoriality limitations in the ASCM.

In a forced attempt to link this to China, the U.S. Department of Commerce dredged up the "Interim Measures for the Administration of Overseas Investment by Central Enterprises," a regulation that has been defunct since 2017 and has no connection whatsoever to the privately-owned Chinese photovoltaic companies involved in the case. Based on these defunct "Interim Measures," and citing the existence of a minuscule amount of state-owned investment funds in a few privately-owned photovoltaic companies, the U.S. has determined that these privately-owned Chinese photovoltaic companies are state-controlled or state-invested enterprises. From this, it draws an absurd conclusion: that these privately-owned Chinese enterprises located in Southeast Asia all fall within the jurisdiction of the subsidy-granting authorities—China's state-owned banks and state-owned enterprises.

III. Disrupting International Economic and Trade Cooperation

The international rule-of-law environment for cross-border trade and investment is rooted in trust and reasonable expectations regarding multilateral rules. The U.S. abuse of adverse facts available and its wanton use of transnational subsidy investigations introduce immense uncertainty and impact on cross-border trade and investment activities. For Chinese-invested enterprises overseas, once they purchase production inputs from China or obtain loans from Chinese banks, they risk being found by the U.S. Department of Commerce to have received a transnational subsidy. This practice is a veiled requirement for Chinese enterprises going global to "de-Sinicize" their capital chains and supply chains, causing significant disruption to the evolving global industrial and supply chains.

Transnational subsidy investigations also exacerbate the U.S. abuse of countervailing duty investigations against other WTO Members, disrupting local business environments. For instance, the four Southeast Asian countries involved in this U.S. countervailing duty investigation on photovoltaic products have been major destinations for Chinese enterprises expanding overseas in recent years. The U.S. is copying wholesale some of its unreasonable and unlawful practices from its countervailing duty investigations targeting China and applying them to Chinese-invested enterprises in Southeast Asia. This not only harms the interests of Chinese enterprises but also severely undermines the predictability of the investment environment in these Southeast Asian countries. If this practice is allowed to proliferate, every WTO Member could become a victim of transnational subsidy investigations, and normal economic and trade exchanges between countries will be hindered.

IV. Conclusion

As one of the earliest adopters of countervailing duty systems, the United States once led and promoted the development and evolution of this system within multilateral rules, playing an irreplaceable role in maintaining a fair and competitive international trading environment. However, in recent years, with WTO rules unable to effectively constrain the U.S., it has abused "adverse facts available" and wantonly employed transnational subsidy investigations, reaching "new heights" in the tariff numbers game. This approach not only fails to comply with legal provisions but also defies the most basic principles of economic common sense, disrupting the global industrial landscape and market division of labor, and hindering normal international economic and trade cooperation.