State Capitalism, State-Owned Banks, and WTO's Subsidy Regime: Proposing an Institution Theory

Abstract

The re-emergence of state capitalism around the world in recent years has challenged the world trade regime in many respects. In particular, the practice of state-owned banks (SOBs), which funds the policy advancement of state capitalist countries, has challenged the subsidy regime of the World Trade Organization (WTO). The concept of “public body” under the Agreement on Subsidies and Countervailing Duties (SCM Agreement) is a critical case in point. The Appellate Body’s finding of a number of Chinese SOBs as public bodies in U.S. – AD/CVD (China) animated the debate.

In this Article, we engage in this debate by conceptualizing the SOBs under the SCM Agreement from both substantive and procedural angles. Substantively, we adopt a contextual approach to engage in the debate over the definition of public bodies. By comparing the case law of public bodies under SCM Agreement Article 1.1(a) and that of government-entrusted or -directed private bodies under SCM Agreement Article 1.1(a)(1)(iv), we propose an institution theory for defining public bodies. Under our institution theory, an SOB is a public body under the SCM Agreement only when it exercises government authority in an institutional manner. By contrast, an SOB is merely a government-entrusted or -directed private body when it exercises government authority on an ad hoc basis. Procedurally, based on the current WTO case law, we identify a number of supplementary evidentiary rules that may alleviate the concern of world investigating authorities. These include the less stringent evidentiary requirements for the finding of government entrustment or direction, the discretion to resort to facts available, as well as the duty of collaboration rules. In combination, we provide a comprehensive proposal for clarifying the discipline on SOBs and state capitalism under the current SCM Agreement.

Keywords: state capitalism, state-owned banks, WTO, SCM Agreement, subsidy, public body, government entrustment or direction