Monday, February 13, 2012

Impermissible Subsidization of State-Owned Enterprises (SOE's)

Alternative Methods of Assessing in the WTO Dispute Settlement Body
By John R. Forbush

John Forbush, a third year student at Albany Law School, is a senior editor on the Albany Law Review. He is a graduate of Union College and Carnegie Mellon's Heinz School.
He prepared this paper for Professor James Gathii's course, International Business Transactions, Fall 2011.

A March 2011 World Trade Organization (WTO) Appellate Body decision, overturning the United States’ issuance of countervailing duties on specific Chinese imports, established that a mere showing of a firm’s majority “state-owned” status is not, on its own, sufficient to justify the imposition of countervailing measures. The prominence of state-owned enterprises (SOEs) in the Chinese economy presents challenges to established methods for deciphering, calculating, and punishing foreign subsidization of U.S.-bound imports.

Although the decision wisely accommodates the existence of state-owned enterprises, this evidentiary standard is devoid of guidance in terms of delineating when state ownership and support of firms “crosses the line” and becomes “actionable” by way of countervailing measures. For countries seeking to impose countervailing measures on SOE imports, the lack of transparency that characterizes many SOEs poses significant challenges in assessing when an SOE is being impermissibly subsidized and used as an instrumentality of the state.

This paper examines how application of alternative legal standards might produce different and, ideally, more satisfactory results for the United States in efforts to defend the future imposition of countervailing measures against subsidized state-owned enterprises.
To read the entire paper, open HERE.