WTO Rules Against EU’s Attribution Method, Avoids Definitive Ruling on Legality of Transnational Subsidies

On October 2, the World Trade Organization (WTO) panel in EU - CVD/AD on SSCRFP (Indonesia) issued its report addressing for the first time the legality of the imposition of countervailing duties (CVD) on so-called transnational subsidies (i.e., subsidies granted by a government or public body to enterprises located in a different jurisdiction). The panel found that the specific method used by the European Union (EU) in the underlying proceedings to attribute alleged Chinese subsidies to Indonesia is not permitted by Article 1.1(a)(1) of the Subsidies and Countervailing Measures (SCM) Agreement. However, the panel left open the question of whether transnational subsidies may be countervailed in other circumstances.

Background

The panel proceedings concerned countervailing and anti-dumping duties imposed by the EU on Indonesian stainless steel cold-rolled flat products, as well as the investigation process that led to these measures. The dispute was initiated by Indonesia in response to the EU’s measures, which it claimed were inconsistent with WTO obligations. The panel was established on May 30, 2023.

In the underlying CVD investigation, the EU found that certain Chinese grantors provided financial contributions to the Indonesian exporting producer. Contributions by certain Chinese grantors were found to involve loans and credit lines from Chinese state-owned banks, inter-company loans from Chinese shareholders, in-kind capital equipment from Chinese shareholders and capital investment support from the China-Association of Southeast Asian Nations (ASEAN) Investment Cooperation Fund. The European Commission treated these financial contributions as having come from the Government of Indonesia (GOID) by attributing them to the latter. The Commission’s attribution determination turned on its conclusions that the GOID had “proactively sought” or “induced” the Government of China (GOC) to provide the financial contributions at issue and had “acknowledged and adopted” those financial contributions as its own.

While the panel reviewed various elements of the EU’s investigation, the most significant issue centered on how the EU addressed the subsidies provided by Chinese grantors.

The Panel’s Findings

The Panel chose to focus its assessment on the legality of the specific method of attribution used by the European Commission in the underlying proceedings. The Panel framed the interpretative question before it as: “Whether the phrase ‘by a government’ in Article 1.1(a)(1) of the SCM Agreement may be interpreted to permit the Commission to have attributed the Chinese-origin financial contributions to the GOID based on the Commission’s finding that the GOID ‘induced’ the GOC to provide those contributions.”

The Panel concluded that the specific method of attribution employed by the Commission is not permissible. More specifically, the Panel found that “government-to-government inducement does not constitute a financial contribution for purposes of the SCM Agreement”. The Panel noted that government-to-government inducement does not expressly appear in the list of government conduct that constitutes a financial contribution in Article 1.1(a)(1)(i)–(iv). It also observed that: “(a) the use of the words ‘i.e. where’ in the chapeau suggests to us that this list is a ‘closed’ list; and (b) that closed list includes subparagraph (iv) of Article 1.1(a)(1), the text of which indicates that the ‘inducement’ of certain entities (government-to-private body inducement) does, in fact, constitute a financial contribution.”

Therefore, the Panel concluded that Article 1.1(a)(1) of the SCM Agreement precluded the Commission from employing the particular method it used to attribute to the GOID the Chinese-origin financial contributions, relying solely on its finding of “inducement”. As a result, it found that the EU contravened Article 1.1(a)(1) of the SCM Agreement by relying on this method to attribute to the GOID the financial contributions in question that certain Chinese grantors provided to the exporting producer in Indonesia, and by considering these attributed financial contributions to be subsidies within the meaning of that provision.

Importantly, the Panel deliberately avoided ruling on the broader question of whether the SCM Agreement permits WTO members to countervail subsidies provided by a WTO member outside its territory. Also, by focusing its assessment on the specific method of attribution used by the Commission, the Panel left open “the possibility that [state-to-state] attribution may be permissible in some factual circumstances.”

Significance of the Panel’s decision

In recent years, a number of countries have implemented new policies aimed at addressing the challenges posed by transnational subsidies. Accordingly, several members submitted third-party arguments, which the Panel considered in reaching its final decision. Australia, Chinese Taipei, Canada and the United States supported the European Union’s position and advocated for its interpretation of the SCM Agreement, while Argentina, China, Egypt and South Korea presented arguments in favor of Indonesia’s stance.

There is a broader trend toward strengthening legal frameworks and enforcement mechanisms aimed at countering the perceived effects of transnational subsidies. As illustrated in the Indonesia WTO dispute, the European Commission has chosen to address the issue by attributing the subsidies to the exporting country. In the United States, the Department of Commerce issued in March 2024 a regulatory change that enables it to target transnational subsidy programs in CVD proceedings. In the regulation, Commerce eliminated a previous regulatory provision governing transnational subsidies (19 C.F.R. § 351.527), which limited the agency’s ability to countervail subsidies provided by a foreign government “other than the country in which the recipient firm is located.” When the regulation was proposed, Commerce noted that “instances in which a government provides a subsidy that benefits foreign production are far more prevalent.” In April 2025, Commerce made its first affirmative findings of transnational subsidies in CVD investigations of solar panels from Cambodia, Malaysia, Thailand and Vietnam. Currently, the cases are being contested in the U.S. Court of International Trade.

Conclusion

Transnational subsidies have been a contested issue in international trade as governments try to mitigate their effects in their domestic markets, including through the use of countervailing measures. In light of the panel’s narrow ruling, the legality of countervailing actions against transnational subsidies will continue to be highly disputed.