Privatization and the Definition of Subsidy: A Critical Study of Appellate Body Texturalism

Abstract

Analysis of the Appellate Body's (AB) treatment of a particular legal question often provides insight into issues of more general importance. In this article, examination of the AB's treatment of a particular subsidy issue is used to explore the Agreement on Subsidies and Countervailing Measures’ (SCM Agreement) definition of subsidy and to question the efficacy of the AB's reliance on texturalism. The legal question analyzed arose when European governments challenged the US's imposition of countervailing duties (CVDs) on steel manufactured by ‘privatized’ steel companies. The US claimed the CVDs were proper since subsidies provided prior to privatization had ‘passed through’ to the privatized companies. The AB, relying heavily on the meaning of words rather than on consideration of ‘object and purpose’, found that the US had violated its obligations under the SCM Agreement. An analysis of the AB's logic and the authorities cited demonstrates that neither justifies the AB's conclusion. A heuristic model of the definition of subsidy is used to show that the question raised by privatization implicates issues of causation, overlooked by the AB, that are important in correctly interpreting the SCM Agreement. The problems arising from AB texturalism are contrasted with the justifications given for that approach, suggesting that a change in approach may be warranted.