Source: YI CAI 

Authors: Feng Difan ▪ Gao Ya

On April 22, 2025, the U.S. Department of Commerce issued the results of its countervailing duty investigation on photovoltaic products from four Southeast Asian countries, imposing countervailing duties of up to 3403.96% on solar products from Cambodia. This marks the first ruling on transnational subsidies by the United States since it amended its countervailing duty regulations in 2024. In fact, as early as 2019, the European Union had already begun initiating transnational subsidy investigations, and the relevant rulings have also sparked considerable controversy, particularly regarding whether the Agreement on Subsidies and Countervailing Measures (ASCM) can be applied to transnational subsidies.

I. WTO Provisions

A careful reading of the provisions of the ASCM reveals that this agreement is not applicable to transnational subsidies, as it requires that the provider and recipient of a subsidy must be located within the territory of the same WTO Member. For instance, Article 1.1(a)(1) of the ASCM stipulates that a subsidy is deemed to exist if there is a financial contribution by a government or any public body "within the territory of a Member." Article 2.1 requires that a subsidy, to be considered specific, refers to a subsidy granted to an enterprise or industry or group of enterprises or industries "within the jurisdiction of the granting authority." In fact, footnote 63 of Annex IV to the Agreement explicitly states that "the beneficiary firm should be located in the territory of the Member providing the subsidy." Therefore, in principle, only when a WTO Member provides a subsidy to enterprises located within its territory can other Members initiate countervailing duty investigations against it under the ASCM.

Of course, the United States and the EU also have different interpretations of Articles 1.1(a)(1) and 2.1. For example, both the US and the EU believe that the phrase "a Member" does not explicitly limit the scope of financial contribution to the territory of the providing Member; the US also argues that "jurisdiction" is not limited to territorial jurisdiction but may also include other forms of legal "personal jurisdiction."

II. EU Regulations and Practices

The EU is the first WTO Member to apply the ASCM to transnational subsidies in its countervailing duty investigation practices. To date, the EU has conducted transnational subsidy investigations and made determinations in countervailing duty cases against countries such as Egypt, Morocco, India, and Indonesia, involving subsidy programs including policy-based loans, capital injection support, credit insurance, and provision of goods at below-market prices.

Reading Article 3.1(a) of the EU's Basic Anti-Subsidy Regulation, one is surprised to find that it explicitly stipulates that a "financial contribution" is provided "by a government in the country of origin or export." This actually further confirms the requirement that the subsidy provider and recipient must be located in the same country or within the same territorial scope.

However, even with such limitations in EU law itself, the European Commission's creative approach is not hindered. In June 2020, the Commission made its first determination on "transnational subsidies" in the countervailing duty investigation concerning glass fiber fabrics imported from Egypt. The Commission invoked customary international law and the provisions on attribution of state responsibility in the Draft Articles on Responsibility of States for Internationally Wrongful Acts, arguing that through political declarations, economic cooperation zone agreements, and the Egyptian government's active participation in business activities within the economic zone, the Egyptian government "acknowledged and adopted" the financial support from the Chinese government as its own conduct. Therefore, the financial contributions provided by the Chinese government to enterprises within Egypt could be "attributed" to the Egyptian government, and these financial contributions could be considered as provided by the Egyptian government, ultimately determining that the relevant transnational subsidies provided by the Chinese government constituted countervailable subsidies. On March 1, 2023, in its judgment on the lawsuit filed by the Chinese-invested enterprises concerned against the Commission regarding this countervailing duty investigation, the General Court of the European Union explicitly endorsed the Commission's practice of attributing the financial contributions granted by the Chinese government to the Egyptian government. On November 28, 2024, the Court of Justice of the European Union dismissed the appellants' claims on appeal, upholding the judgment of the General Court.

Through the "attribution" approach, the Commission determines that the ultimate provider of the subsidy (the attributed Egyptian government) and the recipient (Chinese-invested enterprises in Egypt) are still located within the territory of the same WTO Member, seemingly not completely breaking through the ASCM provision that does not apply to transnational subsidies.

III. US Regulations and Practices

The United States has long maintained a strictly restrictive attitude toward investigating "transnational subsidies," but since the revision of its regulations in 2024, it has completely removed restrictions on investigating "transnational subsidies." To date, the U.S. Department of Commerce has initiated transnational subsidy investigations on items such as policy-based loans and provision of raw materials at below-market prices in cases involving photovoltaic products, paper file folders, float glass, and trailer chassis from multiple countries including Southeast Asia and Mexico.

Prior to the U.S. Department of Commerce's formal amendment of the antidumping and countervailing duty regulations on April 24, 2024, Section 351.527 of the U.S. Code of Federal Regulations provided that, except as otherwise provided in Section 701(d) of the Tariff Act of 1930 (subsidies provided to international consortia) and Section 771A (upstream subsidies), no subsidy exists if it is determined that the subsidy is provided by a government of a country other than the country in which the recipient firm is located as part of a program or project. However, the US removed this provision prohibiting the initiation of transnational subsidy investigations through the amendment. The Department of Commerce considered that Section 701 of the Tariff Act of 1930 does not set any geographic limitations on countervailing duty investigations; additionally, the trade environment faced by legislation twenty-five years ago has significantly changed compared to the present. At that time, the focus was primarily on foreign aid in cross-border transactions, whereas today's transnational subsidies more often appear in forms such as cross-border capital injections, provision of funds and loans. Therefore, it was necessary to delete the restrictions of Section 351.527 to provide more comprehensive protection for U.S. industries.

The definition of financial contribution in Section 701 of the Tariff Act of 1930 and the definition of specificity for domestic subsidies in Section 771(5A)(D) are basically consistent with the ASCM, both containing phrases such as "within the territory of a country" and "within the jurisdiction of the authority providing the subsidy." Of course, as mentioned earlier, the Department of Commerce does not believe these phrases contain any territorial restrictions, instead emphasizing that the subsidy-granting authority and the subsidy recipient need not be in the same territory.

In the recent countervailing duty investigation on photovoltaic products from four Southeast Asian countries, unlike the European Commission's approach, the Department of Commerce directly identified loans and raw materials provided by Chinese public bodies to the four Southeast Asian countries as financial contributions, without attempting to argue through "attribution" theory that these financial contributions were granted by the Southeast Asian countries. On the specificity issue, to argue that these Chinese-invested photovoltaic enterprises in Southeast Asia fell "within the jurisdiction of the authority providing the subsidy," the Department of Commerce cited a defunct interim measure concerning overseas investment by centrally administered enterprises, attempting to suggest that "jurisdiction" need not be achieved through "territorial jurisdiction" but could also be achieved through "personal jurisdiction" that might exist in such legal documents. However, this interim measure is not only defunct, but even its subsequent updated version applies only to centrally administered state-owned enterprises and has no connection whatsoever with these privately-invested photovoltaic enterprises in Southeast Asia. The Department of Commerce even classified all these photovoltaic enterprises as state-owned enterprises based on the minimal, freely tradable shares held by state funds in the Chinese parent companies of these privately-invested photovoltaic enterprises.

IV. Summary

The EU's approach to determining transnational subsidies is relatively ingenious and creative. However, whether this approach will be recognized by WTO panels remains uncertain. The U.S. Department of Commerce's methodology for determining transnational subsidies is both simplistic and crude, even going so far as to distort facts deliberately to establish the specificity of transnational subsidies. This approach has significant legal flaws and awaits challenge through domestic courts or multilateral mechanisms.