Abstract
European Union (EU) state aid policy has an oft-overlooked but politically-charged external dimension that is most clearly witnessed in the linkage with external trade relations. The article seeks to illuminate the issues and potential problems raised by this state aid-trade linkage. When this linkage is made, the EU engages in an array of complex international interactions through which it may pursue two politically-contentious procedures: countervailing duties or dispute settlement. The article argues that an understanding of the EU’s role in these complex interactions must take into account the Union’s institutional landscape and the competing preferences of different private interests. When deciding to impose countervailing duties against foreign state aids (subsidies), private interests play a significant role in initiating investigations and can use their access to EU institutions to encourage the imposition of such measures. While a variety of factors help to explain why the EU prefers pursuing countervailing duties, the Union also actively uses the World Trade Organization’s formal dispute settlement mechanism. Under this alternative, private interests again play an important role, pursuing varying strategies depending on their preferences. The most important determinant of a firm’s preference to pursue countervailing duties or the dispute settlement mechanism appears to be the extent to which the firm is concerned with restoring competition in their home market or with restoring competition in multiple/global markets.
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Notes
While the EU uses the term ‘state aid’, the WTO uses the term ‘subsidy’. Although these two terms share similarities, their precise meanings differ in EC and WTO law. Despite these subtle differences, the terms are often used interchangeably. As this article is more concerned with the political issues and problems that arise from the state aid-trade linkage, it does not engage extensively with the legal discussion of comparative definitions of state aids and subsidies.
See also, Commission Regulation No 800/08 declaring certain categories of aid compatible (General block exemption Regulation).
For other DGs with state aid responsibilities, see Cini and McGowan (2009, 164).
Beyond Tracks I and II, two other instruments may be employed by a state responding to foreign subsidies: matching and retaliatory subsidies. Matching subsidies (as identified in the OECD Agreement on Guidelines for Officially Supported Export Credits) are enacted to offset the harm inflicted by foreign subsidies. Retaliatory subsidies are enacted with the intent to pressure another state to withdraw its own offending subsidies. The use of either of these instruments may be challenged as “prohibited or actionable under Track II or countervailable under Track I if the relevant conditions are fulfilled” (Ehlermann and Goyette 2006, 712). As neither of these two instruments is formally recognised in the SCM Agreement, they remain outside the scope of this study.
The data comes from the semi-annual reports of WTO members to the Committee on SCM Practices (WTO 2010b). In the defensive position during the same period, the EU has been investigated 11 times and had countermeasures implemented against it 9 times, ranking it well below front-runners India and China.
For the formal understanding of a “reasonable amount of time”, see Article 21 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes.
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Damro, C. EU State Aid Policy and the Politics of External Trade Relations. J Ind Compet Trade 13, 159–170 (2013). https://doi.org/10.1007/s10842-012-0139-4
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DOI: https://doi.org/10.1007/s10842-012-0139-4