On 1 March 2023, the EU's General Court delivered its judgment in Case T-540/20, Jushi Egypt for Fiberglass Industry v Commission, ruling that the EU's anti-subsidy Regulation does not preclude the countervailing of subsidies that are granted by a foreign state to companies in a third country, which can be attributed to the government of the country of origin or export of the products concerned. The Court's ruling confirmed the Commission's interpretation in Implementing Regulation (EU) 2020/870, which imposed a definitive countervailing duty on imports of continuous filament glass fibre products ('GFR') originating in Egypt.

The action for annulment against Regulation 2020/870 was brought by an Egyptian producer and exporter of GFR, whose shareholders are Chinese entities, and which is established in the China-Egypt Suez Economic and Trade Cooperation Zone ('the SETC-Zone') within the territory of Egypt. The SETC-Zone was set up by the governments of Egypt and China and, according to the Commission, was the subject of close cooperation between the two governments during the period considered.

The subsidies investigated by the Commission had been allegedly granted to the applicant by Chinese public bodies. However, the Commission considered that these subsidies could be attributed to the government of Egypt, as the latter had acknowledged and adopted them as its own in the context of the close cooperation with China in the SETC-Zone. To reach this conclusion, the Commission relied on an interpretation of the basic Regulation in light of the corresponding provisions of WTO law, specifically the Agreement on Subsidies and Countervailing Measures ('SCM Agreement') and Article 11 of the International Law Commission's Articles on State Responsibility ('ILC Articles').

Thus, in the Commission's view, as upheld by the General Court, the subsidies at issue were covered by the EU's basic anti-subsidy Regulation and could be made subject to countervailing measures.

Arguments raised by the applicant before the General Court

The applicant raised three main arguments to challenge the Commission's interpretation that the financial contributions at issue granted by Chinese public bodies were "subsidies" within the meaning of the basic Regulation. Article 3(1)(a) of the latter defines a "subsidy" as a "financial contribution by a government in the country of origin or export". According to the applicant:

  • First, it follows logically from a literal interpretation of this provision, as well as in view of other provisions of the basic Regulation, that the financial contribution must take place within the territory of the country of origin or export;
  • Second, the Commission was wrong to interpret this provision in light of WTO law, given that Article 3(1)(a) of the basic anti-subsidy Regulation is worded differently than the corresponding provision of the WTO's SCM Agreement;
  • Third, in any event, the Commission's interpretation of the SCM agreement as covering the kind of cross-border subsidies at issue was wrong.

The Court's findings

The Court began its assessment with an analysis of the text of the basic anti-subsidy Regulation and concluded that the Commission had interpreted it correctly. Specifically, the Court considered that the definition of a "subsidy" in Article 3(1)(a) does not rule out the possibility that, even if the financial contribution does not come directly from the government of the country of origin or export, that contribution may be attributed to it (para. 51 of the Court's judgment). Regarding the term "government', which is defined in Article 2(b) of the basic Regulation, the Court clarified that this provision is limited to defining that concept as including the government or public bodies of the country of origin or export, without, however, excluding the possibility that the financial contribution may be attributed to the latter.

The Court further supported this interpretation by reference to the object and purpose of the basic Regulation. According to the Court, interpreting the basic Regulation as not covering the subsidies at issue would undermine the Regulation's effectiveness. The Court stressed the economic and legal relevance of the SETC-Zone and pointed out that the close cooperation between the governments of China and Egypt in setting up this zone enabled the Chinese authorities to confer "directly all the facilities inherent in the 'Belt and Road' initiative on the Chinese undertakings established in that zone". Given that context, the Court concluded that "it cannot be accepted that an economic and legal construct such as that of the SETC-Zone, conceived in close collaboration between the Government of China and the Government of Egypt at the highest level, is not covered by the basic anti-subsidy regulation, without this undermining that regulation's effectiveness or its purpose and objectives" (paras. 58-59 of the Court's judgment).

When it comes to the second argument, the Court disagreed with the applicant that the relevant provisions of the basic Regulation should not be interpreted in light of Article 1 of the SCM Agreement. Of note, the latter provision does not refer to a financial contribution granted by "the government in the country of origin or export" but rather defines a subsidy as a financial contribution by a government or any public body within the territory of 'a' WTO Member. Nevertheless, despite this difference in wording, the Court considered that Article 3 of the basic Regulation and Article 1 of the SCM Agreement are "largely identical in their wording and fully identical in terms of their substance" (para. 65 of the Court's judgment). Accordingly, the Court, like the Commission in the contested Regulation, relied on the SCM Agreement to support its interpretation of the basic Regulation, noting that under Article 1.1(a)(1) of the SCM, it is sufficient that the financial contribution by a government or any public body is within the territory of 'a' Member of the WTO. This wording, therefore, did not preclude the possibility that a financial contribution may be attributed to the government of the country of origin or export.

Finally, given that the Commission's interpretation of the basic Regulation could be upheld on the basis of the foregoing, the Court considered that whether or not the Commission relied on the ILC Articles was irrelevant.

The Court's findings will have a significant impact on future anti-subsidy investigations, as it appears that the Commission is seeking to rely on this approach as its standard practice in similar situations where cross-border subsidies have been granted, especially in cases where such subsidies have been granted by Chinese government entities. Notably, in the Jushi case, the Court only looked into whether the countervailing of transnational subsidies was possible under the basic Regulation as such, without questioning whether the Commission did so correctly in the specific case at hand. Indeed, the Court did not examine whether the Commission correctly applied the relevant legal standard to conclude that the subsidies could be "attributed" to the government of Egypt. As such, the Court did not directly address the issue of the precise threshold for finding that such "attribution" can be established.1 This is an issue that has been raised, however, in another recent case brought before the Court and challenging the Commission's practice of countervailing cross-border subsidies, namely Case T-348/22 PT Indonesia Ruipu Nickel and Chrome Alloy v Commission ('IRNC'), with some differences to be highlighted below.

Case T-348/22 PT Indonesia Ruipu Nickel and Chrome Alloy v Commission2

In Implementing Regulation (EU) 2022/433, which imposed definitive countervailing duties on imports of stainless-steel cold-rolled flat products originating in India and Indonesia, the Commission attributed to the Government of Indonesia subsidies allegedly provided by China, claiming that Indonesia "acknowledged", "adopted", and "proactively induced" the Government of China to grant these subsidies. According to the Commission, the Government of China's subsidies occurred in the context of the bilateral cooperation between the two countries that "culminated with the establishment and operation of the Morowali Park" in Indonesia, an industrial park located in the Central Sulawesi Province in Indonesia where steel producers operate.

As it did in the GFR case, the Commission based its arguments on an interpretation of the basic Regulation in light of WTO law and the ILC Articles on State Responsibility. In its action for annulment against the Regulation, the applicant contested the Commission's interpretation, relying on arguments similar to those raised by the applicant in the Jushi case. Given the Court's position in the Jushi case that "the basic anti-subsidy regulation does not rule out the possibility that, even if the financial contribution does not come directly from the government of the country of origin or export, that contribution may be attributed to it", one can expect that the General Court will reach a similar conclusion on this point in IRNC. The final word will be with the Court of Justice, if the judgement is appealed.

However, the applicant in IRNC did not only challenge the Commission's practice as being as such inconsistent with the basic Regulation, but also claimed that, even assuming that the Commission could in theory attribute transnational subsidies to the country of origin or export (in this case Indonesia), the Commission in that specific case failed to correctly apply its own legal standard. In other words, the Commission failed to show that Indonesia indeed "acknowledged" and "adopted" the financial support granted by the government of China to the IRNC.

The essence of the applicant's arguments under this ground of appeal is that, even if it is recognized that the Commission could rely on its attribution theory to countervail transnational subsidies, there should be some limits to its ability to do so and a high standard of proof for the Commission to demonstrate that a foreign government has "acknowledged" and "adopted" as its own the subsidies granted by another government. In the case at hand, as the applicant argued, the Commission's evidence consisted of nothing more than examples of bilateral economic and investment cooperation between the governments of China and Indonesia, which was insufficient to meet the high threshold that should apply in such cases. The applicant also challenged some other aspects of the Commission's assessment, including questioning the evidence for some of its factual conclusions as well as its considerable reliance on Article 28 of the basic Regulation to reach those conclusions.

Even if this aspect was not analyzed in detail in Jushi, the Court did highlight the "special legal and economic features" of a construct such as that of the SETC-Zone, conceived "in close collaboration between the Government of China and the Government of Egypt at the highest level", when concluding that the subsidies granted in such a context should, in the Court's view, be covered under the basic anti-subsidy Regulation. These comments strongly suggest that, according to the Court, the issue of whether the transnational subsidies can actually be attributed to another government should not be simply assumed, but rather demonstrated on the basis of concrete and objective evidence. If not, there would hardly be any limits to the situations of bilateral cooperation that the Commission could consider as leading to transnational subsidies.

Looking ahead

Following the judgment of the Court in Jushi, the Commission's ability to rely on its attribution theory to countervail transnational subsidies will probably be eventually decided in an appeal before the Court of Justice.

It remains to be seen whether the General Court's judgment in IRNC will instead shed some light as regards the appropriate threshold for demonstrating that a subsidy can be "attributed" to the government of the country of origin or export. In this respect, it will be interesting to see whether the General Court will set any limits to the Commission's ability to countervail transnational subsidies.

Footnotes

1. However, the Court's findings in paras. 53-59 arguably indicate that the Court would have probably accepted that in that case the Commission correctly concluded that the subsidies could be attributed to Egypt, given the close cooperation of the two governments in setting up the SETC-Zone.

2. The authors of this article represent PT Indonesia Ruipu Nickel in the action for annulment brought against Commission Implementing Regulation (EU) 2022/433.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.