A NEW CONCEPT IN SUBSIDY INVESTIGATIONS: TRANSNATIONAL SUBSIDIES

Following the implementation of the Agreements on Anti-Dumping Measures, Countervailing Duties and Safeguards after the establishment of the World Trade Organization (WTO) in 1995, many countries began initiating investigations and adopting these measures to protect their domestic producers from the harmful effects of imports. An analysis of countries that have employed these measures, collectively referred to as “trade policy defence instruments”, since 1995 demonstrates that developing countries primarily use safeguard measures, anti-dumping measures are widely applied by both developed and developing nations and countervailing measures are mostly implemented by developed countries (such as USA, EU, Canada, etc.) against developing countries (such as China, India, Türkiye, etc.). CHINA’S RISE AND INCREASING PROTECTIONISM Having fundamentally shifted its foreign trade policy in the 1980s by adopting an export-oriented growth strategy, China began to see the benefits of this shift in the 2000s. In 1970, China’s share of global trade was just 0.6 percent, increasing to 3.2 percent by 2000 and reaching 11.4 percent by the end of 2023.

China’s rise is largely the result of aggressively marketing products produced with low-cost labour to the global market, often without an immediate focus on profit. This occurred within an economy lacking private enterprise, where firms received substantial government subsidies. As a result of these policies, China has likely been the country most frequently subjected to investigations and measures related to trade policy defence instruments since the establishment of the WTO. The globalization and free trade environment, which has expanded globally since the 1980s, has recently given way to trade wars, marked by rising import duties, with or without considering international trade rules. Since the second half of the 2010s, in particular, global protectionism has surged, multilateral trade negotiations have stalled, bilateral and regional trade agreements have proliferated, and the WTO’s Appellate Body has been largely rendered ineffective. Undoubtedly, the primary target of these measures has been China’s unstoppable rise in global exports.

In 2018, the US imposed an additional 25 percent tariff on steel products and a 10 percent tariff on aluminium products, citing national security concerns. Similarly, in 2019, the EU, and in 2021, the UK, imposed 25 percent safeguard measures on steel products. Once more, the EU Commission launched an investigation into subsidies for Chinese electric vehicles at the end of 2023 and implemented provisional measures in July 2024. As of August 2024, the US has imposed additional measures, including a 100 percent tariff on electric vehicles from China and a 50 percent tariff on semiconductors. Canada has also implemented a 25 percent tariff on Chinese steel and aluminium products, as well as a 100 percent tariff on electric vehicles, set to take effect in October 2024.

In response, China announced the “Belt and Road Initiative” project in 2013, aiming to counter the rising protectionism directed against it. In this context, the Chinese government has signed bilateral agreements with over 50 countries to enhance cooperation in logistics and production through mutual investments. The Chinese government has already established Special Economic Zones in Indonesia, Pakistan, Egypt, Ethiopia, Kenya, Sri Lanka, and Cambodia. It also plans to set up these zones in India, Congo, Côte d’Ivoire, Kuwait, Belarus, and the United Arab Emirates in the upcoming years.

A NEW CONCEPT: TRANSNATIONAL SUBSIDIES

Subsidies, or state aid, are government-supported policies, typically in the form of direct income support or tax exemptions, to address market failures or negative externalities and foster industrialization and economic growth. In 1985, during the Uruguay Round of Negotiations, it was determined that significant state subsidies given by a country to its domestic producers could distort international trade and negatively impact producers or exporters from other countries. As a result, countervailing measures could be implemented against such subsidies, leading to signing of the Agreement on Subsidies and Countervailing Measures in 1994, with participation from 123 countries.

Transnational subsidies is a concept that has recently gained prominence, although it was not considered when the Agreement was drafted. Transnational subsidies can be defined as financial support provided by one country to producers in another country. Since the establishment of the WTO, transnational subsidies have not been included as part of any subsidy program in investigations and have generally been excluded until recently. However, recent international investments by China, particularly under the Belt and Road policy, have started to bring the concept of transnational subsidization into subsidy investigations. Transnational subsidies first appeared in subsidy investigations in 2019, when the EU Commission initiated two separate investigations into different types of glass fibre products originating from Egypt.

Transnational subsidies were examined for the second time in the EU Commission’s subsidy investigation launched in February 2021, focusing on stainless steel from India and Indonesia. The Indonesian government raised the issue of the EU Commission’s use of transnational subsidies in subsidy investigations with the WTO Dispute Settlement Body, leading to the establishment of Panel DS616 in September 2023. To date, both Indonesia and the EU have submitted written and oral presentations to the Panel. The Panel report is expected to be published toward the end of the year.

Being the country that applies countervailing measures against subsidies most frequently worldwide, the USA removed the restriction on the US Department of Commerce investigating transnational subsidies within subsidy investigations through legislative amendments made in March this year. It remains to be seen whether the US will incorporate transnational subsidies into its new subsidy investigations in the upcoming period.

RISKS AWAITING THE BUSINESS WORLD

Developing countries, which are advancing their industrialization and logistics infrastructure, have recently been making significant efforts to attract foreign investors. Through the Belt and Road project, China has invested in infrastructure across many developing countries in Asia and Africa, established industrial zones, and facilitated investments by Chinese companies in these regions. Protectionism has surged, particularly in the last 10 years, following the rapid rise of developing countries, especially China, in global trade. In subsidy investigations, transnational subsidies granted by the Chinese government in various countries have been examined in ways never seen before. Whether this new concept falls under the scope of the WTO Subsidy Agreement is still a matter of debate. However, the potential for the EU Commission, the USA, and countries like Canada, Australia, and the United Kingdom—who often follow these countries’ practices—to consider transnational subsidies in upcoming subsidy investigations against developing countries, including Türkiye, is a risk factor that the business world should prepare for.