Subsidies WTO (Specificity element)

There are 3 types of specificity within the meaning of the SCM Agreement :
Enterprise-specificity: A government targets a particular company or
companies for subsidization
Industry-specificity: A government targets a particular sector or sectors
for subsidization
Regional specificity: A government targets producers in specified parts
of its territory for subsidization
Note: Prohibited subsidies are deemed to be specific
Specificity:
De Jure: a subsidy is explicitly limited, either by the granting authority, or
by legislation.
De Facto: no explicit limitation of access, but facts demonstrate such a
limitation (e.g. a subsidy programme is operated in practice in a specific
manner)
Article 2.2 of the SCM Agreement provides:
A subsidy which is limited to certain enterprises located within a designated geographical region
within the jurisdiction of the granting authority shall be specific.
the Panel considered that the claims raised by China posed two specific interpretative questions
with respect to the scope and meaning of Article 2.2 of the SCM Agreement, namely:
i.
whether the reference to "certain enterprises" means that, in order for a subsidy to be
regionally specific, there must be a limitation to a subset of enterprises located within
the designated geographical region, or whether, instead, a limitation on a purely
geographical basis is sufficient; and
A limitation on a purely geopraphic basis is sufficient
Panel: the term "certain enterprises" in Article 2.2 of the SCM Agreement refers to
those enterprises located within, as opposed to outside, the designated geographical
region in question, with no further limitation within the region being required.
ii.

whether a "designated geographical region" must necessarily have some sort of formal
administrative or economic identity, or whether any identified tract of land within the
territory of a granting authority can be a "designated geographical region" for the
purposes of a finding of regional specificity.
Panel: a "designated geographic region" in the sense of Article 2.2 of the SCM
Agreement can encompass any identified tract of land/area within the jurisdiction of a
granting authority.

China requests that we:

i.

find that the Panel erred in interpreting Article 2.2 of the SCM Agreement to permit a
finding of specificity based solely on a finding that the financial contributionrather
than the subsidywas geographically limited; and
- Financial contribution is geographically limited ?
The purpose of Article 2 of the SCM Agreement is not to identify the elements of the subsidy as set
out in Article 1.1, but to establish whether the availability of the subsidy is limited inter alia by
reason of the eligible recipients (Article 2.1(a)) or by reason of the geographical location of
beneficiaries (Article 2.2).
We also consider that a limitation on access to a subsidy may be established in many different ways
and that, whatever the approach investigating authorities or panels adopt, they must ensure that the
requisite limitation on access is clearly substantiated on the basis of positive evidence. We
consider that, under Article 2.2, as under Article 2.1(a), a limitation on access to a financial
contribution will also limit access to any resulting benefit, since only those obtaining the financial
contribution can be beneficiaries of that subsidy.
ii.

reverse the Panel's finding that the existence of a "distinct regime" is relevant to a
determination of specificity under Article 2.2. We consider each of these issues in turn.
- The existence of a "distinct regime" is relevant to a determination of specificity ?

The second part of China's appeal under Article 2.2 of the SCM Agreement concerns certain
statements by the Panel.
Panel: allegedly said that a subsidy would be regionally specific if it were provided as part of a
"distinct regime" even if the identical subsidy were also available elsewhere.
Idea: the USDOC had failed to assess whether the provision of land-use rights in the Industrial
Park constituted a "distinct regime"for instance, by virtue of price differencescompared with
the land-use rights outside the Industrial Park. The Panel concluded that the USDOC had not
established that the provision of land-use rights (the financial contribution) was limited, within the
meaning of Article 2.2, to Aifudi.
The Panel scrutinized the USDOC's determination, in the LWS investigation, that the provision of
land-use rights to an investigated company (Aifudi) was regionally specific because the land was
physically located in a designated area (the Industrial Park) within the jurisdiction of the granting
authority (Huantai County). The Panel found that the USDOC had failed to assess whether the
provision of land-use rights in the Industrial Park constituted a "distinct regime"for instance, by
virtue of price differencescompared with the land-use rights outside the Industrial Park. The
Panel further found that record evidence indicated that "there was no separate land policy for land
in industrial zones, and that as long as land was for industrial use, it had to be in accordance with
industrial land policy, which applied whether the land was inside or outside an industrial zone". 1
The Panel concluded that the USDOC had not established that the provision of land-use rights (the
financial contribution) was limited, within the meaning of Article 2.2, to Aifudi.
After reaching its finding that the USDOC's regional specificity determination in the LWS
investigation was inconsistent with Article 2.2 of the SCM Agreement, the Panel expressed some
qualifying statements regarding its regional specificity finding.
1Panel Report, para. 9.160 (referring to Panel Exhibit US-79, p. 8).

the Panel pointed out that it was not making a finding as to whether "the intrinsic
geographic nature of land-use rights would always preclude a regional specificity
finding in respect of the provision of land-use rights".2
- the Panel stressed that it was not making a "factual finding" as to whether the
provision of land-use rights in the Industrial Park did, or did not, constitute a
"unique land-use regime". Rather, the Panel explained, it was simply observing that
the USDOC had not inquired into whether such a "unique regime" existed in the
Industrial Park and that, had evidence relevant to these points been placed on the
USDOC record, "it might have resulted in a finding of regional specificity
consistent with Article 2.2 of the SCM Agreement".3
Problem: a subsidy would be regionally specific as part of a "distinct regime" even if the identical
subsidy is available elsewhere.
China takes issue with the latter statement of the Panel. China views this statement as an
endorsement of an interpretation of Article 2.2 that would lead to a subsidy being regionally
specific if it is provided as part of a "distinct regime" even if the identical subsidy is available
elsewhere.
Alluding to the implications of such an interpretation for the United States' compliance obligations,
China contends that the same subsidy does not become "a different subsidy merely because it is
provided under a distinct 'program' or 'regime'". 4 China adds that such an interpretation would
defeat the clear purpose of Article 2.2 of the SCM Agreement.5
US: Panel expressly stated that it was not making a "factual finding". The scope of appellate review
is limited to issues of law and legal interpretation and that, accordingly, China's appeal is not
properly before the AB.
AB: the statements do not imply that the Panel considered that the mere existence of a "distinct"
regime would enable a subsidy to be found to be specific to a designated geographical region, even
if the identical subsidy were also available to enterprises outside that designated geographical
region.
1.
The United States responds that the Panel did not make any "finding" or "legal
interpretation" that the existence of a "distinct regime" is legally relevant for a specificity
determination under Article 2.2 of the SCM Agreement, and that the Panel expressly stated that it
was not making a "factual finding". The United States submits that the scope of appellate review is
limited to issues of law and legal interpretation and that, accordingly, China's appeal is not properly
before the Appellate Body. In any event, argues the United States, China's concern that the
statements could have a bearing on implementation is unfounded because the Panel did not suggest
ways in which the United States could implement under Article 2.2. The United States adds that

2Panel Report, para. 9.162.

3Panel Report, para. 9.162. The Panel found that the USDOC had not made
inquiries with respect to these issues during the LWS investigation. Therefore,
the Panel clarified that depending on the outcome of those inquiries, "our
conclusions as to the WTO-consistency of the USDOC's regional specificity
finding in respect of the provision of land-use rights to Aifudi might have been
different". (Ibid., para. 9.163)
4China's appellant's submission, para. 267.
5China's appellant's submission, para. 269.

the Panel never discussed what it would have found if an identical subsidy were available
elsewhere in Huantai County.6
2.
At the outset, we note that China's appeal concerns statements made by the Panel in order to
clarify the narrow and fact-specific nature of its finding of violation of Article 2.2 of the
SCM Agreement. These statements identify certain unanswered questions and posit that, if
evidence relevant to those questions existed, and if it had been placed on the record before the
USDOC, this "might have" resulted in a finding of regional specificity consistent with Article 2.2.7
3.
Whether or not these statements by the Panel can be characterized as "findings" on issues of
law or legal interpretations8, they were very much focused on the particular facts of the LWS
investigation, and it is clear to us that they were obiter in nature. What is not at all clear to us,
however, is that these statements somehow imply, as China suggests, that the Panel considered that
the mere existence of a "distinct" regime would enable a subsidy to be found to be specific to a
designated geographical region, even if the identical subsidy were also available to enterprises
outside that designated geographical region. Nor do we think that the statements suggest that "the
Panel would have found the alleged land-use rights subsidy to be regionally specific if it had been
provided as part of a 'distinct regime', even if the identical subsidy was available elsewhere in
Huantai County".
4.
If anything, several elements of the Panel's reasoning appear to us to suggest the opposite.
The Panel stated, for example, that evidence "of differences in land-use prices within and outside
the Industrial Park, [could constitute] possible factual evidence of the existence of a separate landuse regime for the Industrial Park".9 The Panel criticized the USDOC for failing to make "findings
as to any clear basis on which the provision of a financial contribution in the form of land-use
rights differed as between land inside and outside the Park".10 Finally, the Panel observed that:
... had the USDOC made further inquiries into these or similar issues, and depending
on the outcome of those inquiries, our conclusions as to the WTO-consistency of the
USDOC's regional specificity finding in respect of the provision of land-use rights to
Aifudi might have been different.
5.
Accordingly, we do not accept the premise upon which the second part of China's appeal
under Article 2.2 of the SCM Agreement is founded, and it is not necessary for us to consider it
further.
6.
In the light of all of the above, we find that China has not established any relevant error in
the Panel's interpretation of the term "subsidy" in Article 2.2, and we reject China's allegations of
error in respect of the Panel's statement concerning a "distinct regime" in the context of the LWS
6United States' appellee's submission, para. 245.
7Panel Report, para. 9.162.
8We note that, although China's Notice of Appeal and appellant's submission
challenge the Panel's "interpretation" of Article 2.2 of the SCM Agreement in
this regard, the relevant paragraph of the Panel Report cited by China
(paragraph 9.155) is contained in the section of the Panel Report dealing with
the application of Article 2.2 to the USDOC's specificity determination in the
LWS investigation. Neither China's Notice of Appeal nor its appellant's
submission alleges any error in the section of the Panel Report dealing with the
interpretation of Article 2.2 (paragraphs 9.124-9.144).
9Panel Report, para. 9.160.
10Panel Report, para. 9.163.

investigation. We refrain from reviewing other aspects of the Panel's interpretation of Article 2.2,
which have not been appealed by the participants, and on which we express no view.