Study of specific provisions of the Subsidies Agreement and countervailing measures relating to the issue of separateness

Article 2 of the WTO Agreement on Subsidies and Countervailing Measures (SCM) provides for the “specificity” of a subsidy. Accordingly, according to Article 2.1, a subsidy is considered specific if it is applied exclusively to certain enterprises within the jurisdiction of the competent authority. In this case, the signs to consider a subsidy as specific are as follows:

(a) When the competent authority granting the subsidy or the regulation it implements explicitly limits the scope of certain enterprises that can benefit from the subsidy.

(b) When the competent authority granting the subsidy or the regulation it implements sets objective criteria or conditions for the subsidy or the amount of the subsidy, it is not considered specific if the eligibility for the subsidy is automatic and those criteria and conditions are strictly complied with (clearly expressed in a law, regulation or other official document, so that it can be verified).

(c) Even if the subsidy does not appear to be specific as a result of the application of the principles set out in subparagraphs (a) and (b), if there are reasons to believe that the subsidy may in fact be specific, other factors may be taken into account. These factors include: the limited number of enterprises benefiting from the subsidy, its predominant use by certain enterprises, the granting of a large differential amount of the subsidy to certain enterprises, and the authority exercising broad discretion in deciding on the subsidy. In applying this point, the degree of diversification of economic activities within the jurisdiction of the authority granting the subsidy should be taken into account, as well as the duration of the subsidy programme.

The following study will focus on the analysis of the concept of “specificity” and some related concepts according to subparagraphs a, b, c of the provisions of Article 2.1 based on the conclusions of the WTO Dispute Settlement Body.

I. Article 2.1(a)

1.1 "legislation pursuant to which the granting authority operates"

In United States - Large Civil Aircraft (Complaint 2) (Article 21.5 - EU), the Panel interpreted the term "legislation pursuant to which the granting authority operates" in Article 2.1(a) to mean "the law determining the criteria for eligibility for a subsidy" based on the Appellate Body's statement in United States - Carbon Steel (India) that "eligibility is key to the consideration of separateness under subparagraphs (a) and (b) of Article 2.1 of the SCM Agreement'".

1.2 De jure separateness

"The language in subparagraphs (a) and (b) requires the investigating authority to scrutinise any apparent restrictions on access to the subsidy or to look for the existence of objective conditions or criteria governing eligibility for the subsidy. Where an examination of the nature and content of the measure under challenge indicates that access to the subsidy is explicitly restricted to certain enterprises or where there are 'criteria or conditions' governing eligibility for the subsidy set out in a law, regulation or other official document, the investigating authority will normally begin by examining this evidence under subparagraphs (a) and (b) to determine whether the subsidy is de jure separate. This analysis under subparagraphs (a) and (b) may lead the investigating authority to conclude that the subsidy is de jure separate within the meaning of Article 2.1(a), or that the subsidy is not distinct because of objective criteria or conditions explicitly set out in a law, regulation or other official document."[1]

1.3 "explicitly limited"

The Panel in EC v. Certain Member States - Large Civil Aircraft defined the term "explicitly limited" in Article 2.1(a) as follows: "The principle of distinctness set out in Article 2.1(a) focuses on whether the granting authority, or the law under which the granting authority operates, explicitly limits the access to a subsidy for certain enterprises. This is in the ordinary sense of the word 'explicit' that it is not any limitation on the access to a subsidy for certain enterprises that would make it distinct within the meaning of Article 2.1(a), but only a limitation that is 'explicitly expressed; leaving nothing to be merely implied or suggested'; a limitation that is 'clear' and 'not ambiguous'. In United States – Upland Cotton, the Panel found that the concept of specificity under Article 2.1 of the SCM Agreement concerns whether a subsidy is 'available sufficiently broadly throughout the economy so as not to benefit a specifically limited group of producers of certain products'. However, it is not simply a limitation to 'a group of producers of certain products' that is central to the concept of specificity. The concept of specificity extends to whether a subsidy is available sufficiently broadly throughout the economy so as not to benefit 'certain enterprises' as defined in Article 2.1 - that is, a specific enterprise or industry or a specific group of enterprises or industries. A finding of specificity under Article 2.1(a) therefore requires establishing the existence of a limitation that clearly restricts the ability of a subsidy to be provided to ‘certain enterprises’, and thus does not make the subsidy ‘widely available throughout the economy’.”

Similarly, the Panel in United States — Large Civil Aircraft (Second Appeal) stated that: “In other parts of the SCM Agreement, such as Article 3, the Panel and the Appellate Body have distinguished between de jure and de facto analysis by stating that de jure analysis should be limited to the text of the relevant law or text at issue. Although Article 2.1(a) of the SCM Agreement does not refer to separateness in law, Article 2.1(c) refers to separateness ‘in fact’, presumably as a means of distinguishing the analysis required under Article 2.1(c) from that required under Article 2.1(a).

However, since Article 2.1(a) provides that ‘where the subsidy granting authority, or the law under which it is granted, explicitly limits the availability of a subsidy’, it is clear that there is a clear limitation in the law under which the subsidy granting authority operates, or in the statements or other means by which the subsidy granting authority expresses its intention.”

In EC v. Certain Members – Large Civil Aircraft (Article 21.5- United States), the Panel agreed with the complainant’s unchallenged claim that each subsidy in question was “separate”. Because “each of the financial contributions at issue was negotiated and provided to the relevant Airbus subsidiary, with the parent company … in some cases acting as co-contractor or guarantor”, the Panel concluded that “the subsidies granted under each contract were expressly limited to ‘certain enterprises’ within the meaning of Article 2.1(a) of the Agreement SCM provisions."

In the context of the analysis of unwritten subsidies, the Appellate Body in United States — Countervailing Measures (China) observed: "While it does not exclude that there may be cases where 'unwritten measures' providing subsidies may be analyzed according to the principles set out in subparagraphs (a) and (b), the analysis under these provisions focuses on the explicit limitation of access to the subsidy for certain enterprises. Although the subsidy at issue may not be written, to be considered as distinct in terms of law, the subsidy-granting authority or the law to which the subsidy-granting authority complies must explicitly limit access to the subsidy at issue. Such explicit limitation will normally be found in written documents. This is provided in subparagraph (b), which requires that the criteria or conditions governing eligibility for a subsidy under this provision ‘must be clearly specified in a law, regulation, or other official document’. In contrast, the de facto separateness analysis under subparagraph (c) would appear to be most appropriate and useful in the context of a subsidy involving eligibility or access limitations that are not clearly specified in a law or regulation.”

In United States – Softwood Lumber VII, the Panel rejected Canada’s argument that a limitation on access to a small number of excluded activities was not a “clear” limitation of the relevant subsidy program (class 29 program) to certain enterprises or industries: “An impartial and objective agency may consider, as USDOC did, based on the text of the Income Tax Regulations, that access to the class 29 program is limited. Article 2.1 does not specify ‘any minimum or maximum threshold’ required to qualify as ‘a certain class of enterprises or industry’ or ‘certain enterprises’. The phrase ‘certain enterprises’ means that the enterprises concerned must be ‘known and specified’, but not necessarily ‘clearly identified’. The Panel therefore rejects Canada’s argument that the limitation on access is not ‘clear’ because the exclusion is limited to a small number of activities.”

1.4 Are individual payments under a general scheme necessarily separate?

In the context of a dispute concerning the investigating authorities' determination of de jure separateness, the Panel in Japan – DRAMs (Korea) addressed the concern that, if the investigating authorities focused on individual payments made under a subsidy scheme, rather than the subsidy scheme itself, a finding of separateness would always follow: "In considering Korea's claim, the Panel carefully considered Korea's argument that the JIA's approach to separateness would mean that the investigating authorities would no longer need to show that the schemes were separate, but could focus on specific transactions under those schemes. In general, however, if the investigating authorities focused on an individual transaction and that transaction came from a normally available subsidy scheme whose normal operation would generally result in a financial contribution on predetermined terms (and thus not tailored to the recipient firm) subsidy), that individual transaction would not be 'distinct' within the meaning of Article 2.1 simply because it was provided to a particular company. However, a single transaction would be ‘distinct’ if it resulted from a framework programme whose normal operation (1) would not normally result in a financial contribution and (2) did not predetermine the terms on which any resulting financial contribution might be provided, but instead required (a) conscious decisions as to whether or not to provide a financial contribution (to one applicant or another), and (b) conscious decisions as to how the terms of the financial contribution should be tailored to the needs of the recipient company.”

The Panel in Japan – DRAMs (Korea) also found that the relevant restructuring subsidy was provided at the behest or direction of the government, justified in part by the government’s intention to save the recipient company. This led the Panel to conclude: “Generally speaking, subsidies provided at the behest or direction of the government are motivated by the purpose of saving a company from insolvency may be considered to be specific to that company."

II. Article 2.1(b)

2.1 "Objective criteria or conditions"

In United States - Softwood Lumber VII, the Panel rejected Canada's argument that the class 29 program was not specific within the meaning of Article 2.1(a) of the SCM Agreement because the program established "objective criteria or conditions" within the meaning of Article 2.1(b) of the SCM Agreement. The Panel stated: “Given that the Income Tax Regulations explicitly exclude enterprises engaged in certain activities from the Class 29 program, the Panel finds that the USDOC correctly determined that the Income Tax Regulations favor certain enterprises over others, and that the eligibility criteria for the subsidy are therefore not objective. The Panel therefore rejects Canada’s claim that the criteria governing eligibility for the Class 29 program do not favor certain enterprises over others and are ‘objective’ within the meaning of Article 2.1(b).”

2.2 Consider the Broader Legislative Framework for Determining Non-Separability

The panel in United States – Softwood Lumber VII also rejected Canada’s argument that, because activities excluded from the class 29 program are eligible for other tax deductions and credits under the Income Tax Act, USDOC should have examined the potential separateness of the class 29 program in the context of other provisions of the Income Tax Act.

The Panel agreed with the parties that it may be appropriate to consider the broader legislative framework in the analysis of separateness in certain cases, for example, as Canada pointed out, in United States – Large Civil Aircraft (Complaint 2), both the Panel and the Appellate Body held that the allocation of patent rights under NASA/USDOD R&D contracts must be considered in the broader context of the allocation of patent rights to contractors under all R&D contracts with other government agencies. This is because ‘the allocation of patent rights or exemptions under NASA/USDOD contracts and Agreements operates within the framework of laws and regulations applicable to R&D activities performed by all enterprises for agencies and departments of the United States Government’. The Appellate Body supported the Panel’s conclusion that the allocation of patent rights under the NASA/USDOD contracts was not separate. The Appellate Body explained that both under the general rule and under the NASA exemption, ownership of the invention would be vested solely in the contractor, even though the mechanism for the initial allocation of patent rights is different. In other words, the outcome of the NASA patent rule is the same as under the general rule, even though the formal procedure is different.”

However, the Panel also considered that a subsidy does not become “non-specific” simply because the relevant legal framework also provides for other forms of subsidies to other enterprises: “At the same time, the Appellate Body cautioned that the test for specificity under Article 2.1 should not cover subsidies other than those to which the complaining Member complained. In particular, according to the Appellate Body, a subsidy, access to which is restricted to ‘certain enterprises’, does not become non-specific simply because there are other subsidies provided to other enterprises under the same law. In the present case, Canada argues that USDOC should have considered other deductions and tax credits under the Income Tax Act applicable to activities excluded from the class 29 program. As noted above, during the investigation, a Canadian interested party raised certain tax exemptions for individuals engaged in farming and fishing, as well as deductions for the mining, and oil and gas industries. Even if these tax exemptions benefit the excluded activities, Canada did not explain how these tax benefits relate to the type of subsidy at issue, i.e., the class 29 program, or how these tax benefits lead to the same result as the class 29 program. The subsidy at issue, investigated by USDOC, is ACCA for class 29 assets. The evidence before USDOC shows that businesses and industries that do not qualify for the class 29 program are subject to the standard depreciation rate under class 43. Based on the above, the Panel finds that Canada has not demonstrated that the test for other tax benefits is warranted in this case, or how assessing the class 29 program in the context of other tax benefits would lead to a result that is not separate. "

III. Article 2.1(c): De facto separateness

3.1 Some general information

“In a situation where the evidence suggests that a subsidy is not specifically specific in law because the conditions set out in subparagraph (b) are satisfied, subparagraph (c) of Article 2.1 clarifies that the specificity inquiry need not end there because, “although it appears not to be specifically specific” by the application of Article 2.1(a) and (b), a subsidy may nevertheless be considered specifically specific in “fact”.[2]

The investigating authority should focus on evidence relating to the factors listed in that provision, namely: (i) the use of the subsidy scheme by certain enterprises; (ii) the predominant use by certain enterprises; (iii) the granting of large differential subsidies to certain enterprises; and (iv) the manner in which the granting authority exercised discretion in determining the subsidy.

In United States-Softwood Lumber IV, Canada argued that a subsidy only “specific” when the government “deliberately restricts” access to certain enterprises. This argument was rejected by the Panel on the grounds that Article 2 of the SCM Agreement deals with distortions created by a subsidy that is not available in law or in fact. Furthermore, in the Panel’s view, there is no basis in the text of Article 2, and in particular in Article 2.1(c) of the SCM Agreement, for Canada’s argument that if the inherent characteristics of the good supplied limit the availability of a subsidy to a particular industry, the subsidy is not specific unless access to the subsidy is limited to a subset of that industry, that is, to some of the enterprises among the potential users of the subsidy engaged in the production of like products. "

3.2 "Other factors that may be considered"

Regarding Canada's argument that the investigating authority must examine all four factors referred to in Article 2.1(c) to determine de facto specificity, the Panel in United States - Softwood Lumber IV stated that Article 2.1(c) provides that if there is reason to believe that a subsidy may in fact be specific, other factors "may" be taken into account. In the Panel's view, the use of the verb "may," rather than "will," indicates that if there is reason to believe that a subsidy may in fact be specific, the competent authority may wish to consider any of the four factors or indicators of specificity.

3.2.1 "the use of a subsidy program by a limited number of enterprises"

In the context of determining de facto separateness, in United States-Countermeasures (China), the Appellate Body held that the reference to “the use of a subsidy scheme” in Article 2.1(c) “suggests that it is necessary to consider whether the subsidy was provided to the recipient under a scheme”. The Appellate Body emphasized the evidentiary nature of the analysis required to consider this factor: “the fact that the first element in Article 2.1(c) refers to a ‘subsidy programme’ does not mean that a de facto specificity inquiry requires the identification of a clear subsidy programme implemented through a law or regulation or through other explicit means. Rather, the inquiry relating to the first of the ‘other factors’ in Article 2.1(c) seeks to determine whether the subsidy at issue is truly specific by considering whether the subsidy scheme concerned is used by a limited number of enterprises. By its nature, such an analysis often focuses on evidence other than that found in documents or that represents explicit acts or statements by the competent authority.”

As for evidence of the existence of such a programme, the Appellate Body explained that it can be found in various forms: “Evidence of the nature and scope of a subsidy programme may be found in various forms, such as in the form of a law, regulation or other official document or act setting out the criteria or conditions governing eligibility for a subsidy. A subsidy scheme or programme may also be evidenced by a systematic series of actions under which financial contributions conferring benefits have been provided to certain enterprises. This is particularly the case in the context of Article 2.1(c), where the investigation focuses on whether there is reason to believe that a subsidy is, in fact, exclusive, despite the absence of any explicit limitation on the availability of the subsidy in the law, regulation or other official document.”

In United States – Countervailing Measures (China), the Appellate Body added that, in addition to this evidence, the examination of the existence of a scheme or programme relating to the use of the subsidy at issue may also require an assessment of “the operation of the scheme or programme over a period of time”. The Appellate Body agreed with the Panel that “in the absence of any explicit statement or statement, evidence of ‘systematic operation or series of operations’ may provide a sufficient basis to demonstrate the existence of an informal subsidy programme in the context of the assessment of de facto separateness under the first element of Article 2.1(c) of the SCM Agreement”.

Furthermore, the Appellate Body cautioned that “the fact that financial contributions have been made to certain enterprises is not, however, sufficient to establish that such contributions have been made pursuant to a plan or programme for the purposes of Article 2.1(c) of the SCM Agreement”. Instead, “the investigating authority must have adequate evidence of the existence of a systematic series of practices under which beneficial financial contributions are made to certain enterprises”.

In a similar vein, the Panel in United States-Turkey Steel Pipes held that a list of transactions “may be potential evidence that a systematic pattern of practices exists”. However, “a list alone is not sufficient evidence, particularly where the prices of the transactions vary with some prices above the benchmark and some below the benchmark”. “The number or frequency of subsidies provided under an alleged subsidy scheme must be analysed before a systematic nature of the subsidy can be determined”.

In examining the use of a subsidy by certain enterprises, the Panel in United States-Carbon Steel (India) (Article 21.5 - India) agreed with India's argument that there was a "contradiction" in the USDOC's Preliminary and Final Determinations regarding "limited users" of the challenged subsidy that resulted in an internal conflict regarding the rationale for determining de facto separateness under Article 2.1(c). The USDOC's Preliminary Determination defined the challenged subsidy program as "direct supplies" to "Indian [steel producers] in exchange for a fee". On the other hand, the Final Determination extended the finding of "limited users" of the subsidy program exclusively for domestic steel producers to domestic steel producers and independent mining companies. The Panel could not conclude that USDOC had provided a reasonable and adequate explanation for USDOC's finding that the iron ore mining leases were in fact exclusive under Article 2.1(c). The Panel noted: "The United States failed to reconcile these aspects of USDOC's explanation. On the one hand, the United States argued that USDOC's decision was based on 'limited use' by 'two industries, namely steel producers and mining companies.' On the other hand, the United States 'argued that' the use of iron ore from the leases was limited to steel companies. The Panel agreed with India that nothing in USDOC's decision provided a reason for the limited nature of the challenged program with respect to 'independent mining companies,' as compared to steel producers."

With respect to the question of whether an informal subsidy program exists, the Appellate Body in United States — Countervailing Measures (China) (Article 21.5 — China) agreed with the Panel's view that "the fact that financial contributions have been made to certain enterprises is not sufficient to establish that such financial contributions have been made pursuant to a plan or program for the purposes of Article 2.1(c)." The Appellate Body explained that “in demonstrating an informal subsidy scheme, there must be sufficient evidence of a systematic series of actions under which beneficial financial contributions are made to a number of enterprises”, adding that: “In particular where the existence of an informal ‘subsidy scheme’ is demonstrated on the basis of a ‘series of actions’, it is important that the investigating authorities provide a reasonable explanation of why they consider the series of actions to be ‘systematic’, in order to provide evidence of the existence of a de facto programme or scheme. This helps to avoid the possibility that the repeated actions of upstream producers supplying inputs to downstream recipients would lead to a finding of de facto separateness, which would undermine the legal requirements of Article 2.1(c).”

However, a member of the Appellate Body in this case argued that the Panel and the remaining members of the Appellate Body in this case had given the term “subsidy program” a meaning that was not supported by the text and was inconsistent with previous decisions of the Appellate Body. According to this member, the terms used in Article 2.1(c) were intended solely to give a “conceptual form to financial contributions and benefits by calling them ‘subsidy programs’” and did not impose an additional requirement on the investigating authority to “examine the volume and/or frequency of transactions conferring ‘benefits’ to determine whether ‘subsidies’ have been granted ‘systematically’ under a ‘subsidy program.’” This member stated that “once a subsidy program has been identified, the question becomes whether there has been “the use of [that] subsidy program by certain enterprises.””

3.2.2 “predominant use”

In EC v. Certain Member States – Large Civil Aircraft, the Panel discussed the meaning of the phrase “predominant use” in the context of Article 2.1(c). The Panel held that: “The second element of distinctiveness identified in Article 2.1(c) is ‘predominant use by certain enterprises’. When read in the light of the first element of distinctiveness (‘use of a subsidy scheme by a limited number of certain enterprises’), it is clear that this element indirectly refers to ‘predominant use’ of ‘a subsidy scheme’. The ordinary meaning of the word ‘predominant’ includes ‘constituting the main or most powerful element; predominating’. Thus, ‘mainly use of {a subsidy scheme} by certain enterprises’ can simply be understood as a situation where a subsidy scheme is used mainly by certain enterprises. In considering whether there is ‘mainly use of [a subsidy scheme] by certain enterprises’ for the purpose of drawing a conclusion on specificity, the final sentence of Article 2.1(c) requires consideration of: (i) ‘the degree of diversification of economic activities within the jurisdiction of the subsidy granting authority’; and (ii) ‘the period over which the subsidy scheme has been in operation’. As with determining whether a subsidy is granted ‘in disproportionately large quantities’, the relevance of these two factors to understanding whether there is ‘mainly use of {a subsidy scheme} by certain enterprises’ will depend on the particular facts. Thus, for example, where a subsidy program operates in an economy that consists of only a few industries, the fact that those industries may be the main beneficiaries of the subsidy program may not necessarily indicate ‘dominant use’. Instead, the use of the subsidy program by those industries may reflect only a limited diversification of economic activities within the jurisdiction of the grantor. On the other hand, the same subsidy program operating in a highly diversified economy that is used primarily, or largely, by only a few industries will tend to indicate ‘dominant use’.

Similarly, when taking into account the ‘length of time the subsidy program has been in operation’, the use of a subsidy program by certain firms may not necessarily indicate ‘dominant use’ in the context of a relatively new subsidy program that has not been in operation long enough for its full impact on the economy to be understood. Furthermore, it may not always make sense to determine whether there is a ‘dominant use’ over the entire life of a subsidy program, where the program has been in operation for decades that have seen significant changes in the importance of the subsidized activities in the economy and/or the economic priorities of the subsidizing agency. As with determining whether a subsidy is granted under a long-standing subsidy program in a “disproportionately large amount,” determining whether there is a ‘dominant use’ of a long-standing subsidy program should take into account the extent to which it would be reasonable and appropriate to determine whether the subsidy in question is in fact sufficiently available throughout the economy so as not to benefit ‘some firms’ over the entire life of the subsidy program or some shorter period.”

3.2.3 “disproportionately large”

In EC v. Certain Member States – Large Civil Aircraft, the Panel discussed the meaning of a “disproportionately large” subsidy in the context of Article 2.1(c). The Panel held that: “Something may be said to be disproportionately large” when it is “out of proportion”. The ordinary meaning of the word “proportionate” includes “a part, a portion, especially in relation to the whole”, “a relative amount or figure”, “a comparative or proportional relationship between things in terms of size, number, quantity, etc.” These implications suggest that the inquiry to be made when assessing whether a subsidy is ‘disproportionately large’ will involve determining the relationship between the amount of the subsidy claimed and something else that is ‘the whole’, and determining whether that relationship demonstrates that the subsidy is larger than the amount of the subsidy that would be required to be proportionate – that is, not under-proportionate. … … The language of Article 2.1(c), when interpreted in its proper context, in light of its object and purpose, suggests that if the subsidy claimed has been granted under a subsidy scheme, that scheme should normally be used for the purpose of determining the ‘base’ or ‘reference data’ required to carry out the disparity analysis. However, as the United States has pointed out, the absence of any explicit reference to ‘subsidy scheme’ in the language of Article 2.1(c) suggests that the provision does not require that a subsidy scheme be used for this purpose in each particular circumstance.”

3.3 “account be taken of”

“The final sentence of Article 2.1(c) provides that: ‘In applying this subparagraph, account shall be taken of … the period during which the subsidy scheme has been in operation’. To take something into account means to take something into account or into account; to bear something in mind. Thus, in the context of the third element of distinctiveness, the final sentence of Article 2.1(c) requires that the period during which the relevant subsidy scheme has been in operation form part of the consideration or calculation of whether the amount of subsidy granted to a number of enterprises under the same subsidy scheme is disproportionately large no."[3]

3.4 "The period during which the subsidy program has been in operation"

In the United States-Countervailing Measures case (Article 21.5-China), China argued that the USDOC had failed to take into account the period during which the subsidy program had been in operation and that, therefore, the USDOC's de facto separateness determinations were inconsistent with Article 2.1(c) of the SCM Agreement.

First, the Panel noted that it “does not preclude that an investigating authority may, in some cases, be required to consider more than individual subsidy transactions during the period of investigation to take into account the period over which the relevant subsidy program has been in operation.” However, the Panel pointed out that an investigating authority may demonstrate that the duration of the program is not the reason for the limited number of subsidy recipients, without determining the total duration of the program. Noting that “the de facto separateness analysis under Article 2.1(c) appears most appropriate and useful in the context of subsidies involving eligibility or access restrictions that are not expressly provided for in law or regulation,” the Panel noted that there may be inherent limitations in the ability of an investigating authority to assess the total duration of such a subsidy program. The Panel stated that: “It is for this reason that Article 2.1(c) ‘recognizes a certain flexibility for the investigating authority to consider the distinctiveness of certain factual situations that may arise’ when determining de facto distinctiveness, while ‘the last sentence of Article 2.1(c) functions as a safeguard to control this flexibility’. Depending on the different factual situations that may arise, it is not excluded that an investigating authority may comply with the obligation to consider ‘the period during which the subsidy scheme has been in operation’ without determining the total duration of the programme in question.

Based on the foregoing, the Panel does not consider that Article 2.1(c) in all cases imposes a requirement to demonstrate the total duration of the subsidy scheme. Rather, to comply with the requirement of the last sentence of Article 2.1(c), it would be sufficient to show that the scheme has been in operation for a period of time which does not itself take into account the ‘use of the subsidy by a limited number of certain enterprises’. “

The Panel in United States – Steel Pipes (Türkiye) confirmed that not only the period over which the subsidy has been in operation, but also the degree of economic diversification are two mandatory factors and must therefore be taken into account whenever an investigating authority makes a determination of de facto separateness. This is regardless of whether a party in the proceedings has raised the relevance of the two factors. Accordingly, the investigating authority need not explicitly consider these two factors”.

When considering separateness under Article 2.1(c), the Appellate Body in United States – Large Civil Aircraft (2nd Complaint) (Article 21.5 – EU) held that the period over which the subsidy has been in operation must also be taken into account. However, according to the Appellate Body, “it does not follow that the entire period during which the programme has been in operation must necessarily be selected as the relevant period for determining whether, under the second sentence of this provision, a disproportionately large amount of subsidy has been granted to certain enterprises.”

The Appellate Body in United States – Countervailing Measures (China) (Article 21.5 – China) considered whether the investigating authority could be found to have complied with the requirement, set out in the third sentence of Article 2.1(c) of the SCM Agreement, to take into account “the period during which the subsidy programme has been in operation” if the competent authority failed to identify a subsidy programme. According to the Appellate Body and contrary to what was suggested by the United States, “considering the duration of a subsidy program appears to presuppose that the relevant program has been properly identified” or, in other words, “the requirement to demonstrate the existence of a subsidy program is part and parcel of the obligation to consider the period over which the subsidy program has been in operation.”

3.5 Relation to subparagraphs 2.1(a) and 2.1(b)

In United States – Countervailing Measures (China), China argued that the first sentence of Article 2.1(c) sets out the test for de facto separateness where “there appears to be no indication of separateness by the application of subparagraphs (a) and (b). The Appellate Body disagreed with this view, stating: “The ‘if’ in the first sentence of subparagraph (c) refers to the phrase ‘there are reasons to believe that the subsidy may in fact be separate’, and not to the subparagraph ‘although it does not appear to be separate by the application of the principles set out in subparagraphs (a) and (b)’. Therefore, the application of the principles in subparagraphs (a) and (b) does not necessarily constitute a condition for fulfilling the ‘other factors’ test under subparagraph (c).”