ARTICLES

BEYOND APPLE: STATE AID AS A MODEL OF A

ROBUST ANTI-SUBSIDY RULE

LILIAN V. FAULHABER*

ABSTRACT
In 2016, the European Commission ordered Ireland to recover over €13
billion in back taxes from Apple. This decision was met with outrage in the
United States, where many lawmakers and academics were unfamiliar with the
European Union’s prohibition on state aid. This prohibition, which has existed
since the founding of the European Coal and Steel Community in the early
1950s, aims to uphold competition within the European Union by preventing
EU Member States from providing subsidies to specific undertakings.
This Article uses Apple and other recent state aid investigations to illustrate
the broad scope and strong enforcement provisions of the EU prohibition on state
aid. In response to calls for a more robust anti-subsidy regime at the WTO level,
this Article sets out state aid as a model of one such regime. This Article does not
argue that the WTO needs a more robust anti-subsidy regime but instead points
to the EU’s state aid prohibition as an example of such a regime for reformers who
have themselves called for greater international prohibitions on subsidies.
This Article also argues that, for reformers who want stronger anti-subsidy
rules, the WTO is in many ways a more appropriate space for anti-subsidy rules
than the European Union. Imposing the state aid prohibition at the WTO level
could remove many of the legitimacy concerns that are at the root of the recent
criticisms of the state aid prohibition. Because the European Union and its
Member States are WTO members, this could also obviate the need for a state aid
prohibition at the EU level. These conclusions do not mean that the prohibition
on state aid is without its weaknesses, and this Article does not suggest that all
elements of the prohibition should be adopted by other jurisdictions. But the
European Union takes a very different approach to policing subsidies than does
the WTO, and the differences between the state aid prohibition and the WTO’s
anti-subsidy rules illustrate how the latter could be strengthened by choosing some
elements of state aid doctrine and leaving the rest.

* Associate Professor of Law, Georgetown University. The author wishes to thank Stephen
Cohen, Jennifer Hillman, Gary Horlick, Benjamin Leff, Eloise Pasachoff, and the participants in
the Biennial Conference of the American Society of International Law’s International Economic
Law Interest Group for comments on the talk that contributed to this Article and earlier versions
of the Article. Charles Bjork and Cassandra Vangellow provided excellent research assistance.
© 2017, Lilian V. Faulhaber.

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I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
II. EU STATE AID RULES: ROBUST, TARGETED, AND ENFORCED . . . . 386
A. Enforcement Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . 387
B. Scope of the State Aid Prohibition. . . . . . . . . . . . . . . . . . . . 388
C. Recent State Aid Investigations . . . . . . . . . . . . . . . . . . . . . 391
III. WTO ANTI-SUBSIDY RULES: WEAKER, LESS TARGETED, AND
DEPENDENT ON INDIVIDUAL COUNTRIES . . . . . . . . . . . . . . . . . . 393
A. Enforcement Mechanisms and Scope . . . . . . . . . . . . . . . . . 393
B. Weaknesses of the WTO’s Anti-Subsidy Rules . . . . . . . . . . . 395
C. Strength of the WTO Anti-Subsidy Rules: Greater
Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
IV. LESSONS FROM EU STATE AID RULES . . . . . . . . . . . . . . . . . . . . 400
A. Lessons for the WTO from the EU . . . . . . . . . . . . . . . . . . . 400
B. Limits to the Lessons from the EU . . . . . . . . . . . . . . . . . . . 403
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

I. INTRODUCTION
Over the past two years, many American lawmakers were surprised to
discover the European Union prohibition on state aid, which they
quickly concluded was lawless, unprecedented, and inconsistent with
international legal obligations.1 Even though the European Union’s
prohibition on governmental subsidies has existed for over fifty years,
the concept was little known to most U.S. observers until the European
Commission handed down first its Starbucks decision in October 2015
and then its Apple decision in August 2016.2 In these decisions, the
Commission declared that tax rulings provided to U.S. companies by
the Netherlands and Ireland, respectively, were illegal subsidies and
that the companies needed to repay up to ten years in back taxes (plus
interest) to the governments that had provided the rulings. The
Commission suggested that these recovery payments would equal ap-

1. See, e.g., Europe’s ’Unfair’ Apple Tax Ruling Sparks US Anger, BBC NEWS, (Aug. 30, 2016),
http://www.bbc.com/news/business-37226101 (quoting Senator Charles Schumer calling the
Apple decision “a cheap money grab”); David Morgan & Jason Lange, EU Ruling on Apple Stirs Calls
for U.S. Tax Reform, REUTERS, (Aug. 30, 2016), http://www.reuters.com/article/eu-apple-usa-
idUSL1N1BB1P1 (citing House Ways and Means Chairman Kevin Brady calling the Apple
decision “a predatory and naked tax grab”).
2. European Commission Press Release IP/16/2923, State Aid: Ireland Gave Illegal Tax
Benefits to Apple Worth up to €13 Billion (Aug. 30, 2016) [hereinafter Apple Press Release];
European Commission Press Release IP/15/5880, Commission Decides Selective Tax Advantages
for Fiat in Luxembourg and Starbucks in the Netherlands are Illegal under EU State Aid Rules
(Oct. 21, 2015) [hereinafter Starbucks Press Release].

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

proximately €30 million for Starbucks and €13 billion for Apple.3
The response to these decisions was immediate and negative, particu-
larly in the case of Apple. Both Starbucks and Apple issued critical press
releases,4 and the Netherlands and Ireland both pledged to appeal the
decisions to the Court of Justice of the European Union (CJEU).5 U.S.
Treasury Secretary Lew sent a sternly worded letter to the President of
the European Commission,6 the Obama administration expressed
concern about the investigations that led to the decisions,7 and U.S.
politicians on both sides of the aisle claimed that the decisions were
illegal and inconsistent with international tax law.8 American academ-
ics and commentators chimed in, with many suggesting that the
decisions were technically incorrect, inconsistent with international
trade law, discriminatory toward U.S. companies, and threatening to
Member State sovereignty.9
This Article uses these recent criticisms as further evidence that the
EU’s state aid prohibition is a robust anti-subsidy regime, the likes of
which does not exist in other international contexts.10 As shown by the
outcry in the United States over the recent decisions, the prohibition
on state aid is a strong tool against subsidies. This Article argues that,

3. Apple Press Release, supra note 2; Starbucks Press Release, supra note 2.
4. Press Release, Tim Cook, A Message to the Apple Community in Europe (Aug. 30, 2016),
http://www.apple.com/uk/customer-letter/; Press Release, Starbucks, Starbucks Response to
European Commission State Aid Decision on the Netherlands, https://news.starbucks.com/views/
response-to-european-commission-state-aid-decision-on-the-netherlands (last visited Oct. 18, 2016).
5. Apple/State Aid—Irish Cabinet Appeals European Commission Decision, EVERSHEDS INT’L (Sept.
9, 2016), http://www.eversheds.com/global/en/what/publications/shownews.page?News⫽en/
ireland/apple-state-aid; Case T-760/15, Netherlands v. Comm’n (Dec. 30, 2016). Note that, in the
interest of simplicity, this Article uses the term “CJEU” to refer to both the Court of Justice of
the European Union, which includes both the General Court and the Court of Justice, and the
European Court of Justice, which is the previous name for the Court of Justice.
6. Letter from Jacob J. Lew, Sec’y of the Treasury, Dep’t of the Treasury, to Jean-Claude
Juncker, President of the European Comm’n (Feb. 11, 2016).
7. See U.S. DEP’T OF THE TREASURY, THE EUROPEAN COMMISSION’S RECENT STATE AID INVESTIGA-
TIONS OF TRANSFER PRICING RULINGS (2016), https://www.treasury.gov/resource-center/tax-policy/
treaties/Documents/White-Paper-State-Aid.pdf [hereinafter TREASURY WHITE PAPER].
8. See, e.g., REUTERS, supra note 1.
9. See, e.g., Itai Grinberg, A Constructive U.S. Counter to EU State Aid Cases, TAX NOTES INT’L 167
(Jan. 11, 2016).
10. This Article does not enter into the ongoing debate about whether the recent decisions
(as well as ongoing investigations of state aid granted by Luxembourg to Amazon and McDon-
ald’s) are consistent with precedents set by the Commission and the CJEU. For more on that
debate, see Ruth Mason, Special Report on State Aid—Part 3: Apple, TAX NOTES 735 (Feb. 6, 2017) and
Daniel N. Shaviro, Friends Without Benefits? Treasury and EU State Aid, TAX NOTES 1,681 (Sept. 19,
2016).

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although the recent decisions may highlight the dangers of such a tool,
they also show how the state aid prohibition could be a model for
reformers responding to demands from academics and practitioners
for a more robust anti-subsidy rule at the World Trade Organization
(WTO) level.
This Article does not intend to enter the debate over whether the
WTO needs a more robust anti-subsidy rule. This Article acknowledges
that, although economic theory views subsidies as inefficient tools that
distort resources and shift prices and supply away from their equilib-
rium level,11 this does not necessarily translate to a strong argument in
favor of a robust rule that applies to all subsidies.12 And yet govern-
ments and commentators have long called for more robust anti-subsidy
rules, arguing that the WTO’s anti-subsidy regime is too weak to
achieve the WTO’s goal of liberalizing trade.13 In 2007, for example,
the U.S. Trade Representative called for stronger rules against indus-
trial subsidies and stated, “[i]n an increasingly global economy, foreign
government subsidies provide a distinctly unfair competitive advan-
tage,”14 and there is an existing literature of commentators criticizing
the weakness of the WTO anti-subsidy regime in a variety of contexts.15

11. See, e.g., Alan O. Sykes, Subsidies and Countervailing Measures, in THE WORLD TRADE
ORGANIZATION: LEGAL, ECONOMIC AND POLITICAL ANALYSIS 83–107 (Patrick F.J. Macrory et al. eds.,
2005) [hereinafter Sykes on SCM].
12. See, e.g., Alan O. Sykes, The Limited Economic Case for Subsidies Regulation, INT’L CTR. FOR
TRADE & SUSTAINABLE DEV., March 2015, at 1.
13. See, e.g., Press Release, U.S. Trade Representative, U.S. Proposes Strengthened Subsidy
Rules to the U.S. Trade Organization (June 2007), https://ustr.gov/about-us/policy-offices/press-
office/press-releases/archives/2007/june/us-proposes-strengthened-subsidy-rules-world (note that
this Article uses the terms “anti-subsidy rules” and “anti-subsidy regime” rather than “subsidies
discipline” when referring to the WTO in order to make the comparison between the WTO’s rules
and the EU’s state aid prohibition easier to understand).
14. See id.
15. See generally, Sachhidanada Mukherjee, Debashis Chakraborty & Julien Chaisse, Curtailing
Subsidy Wars in Global Trade: Revisiting the Economics of World Trade Organization Law on Subsidies, 42
SYRACUSE J. INT’L L. & COM. 1, 18 (2014) (discussing “the necessity to improve the regulation on
subsidies at the multilateral level”); Oliver Delvos, WTO Disciplines and Fisheries Subsidies—Should the
“SCM Agreement” Be Modified?, 37 VICTORIA U. WELLINGTON L. REV. 341 (2006); Nils Meier-
Kaienburg, The WTO’s “Toughest” Case: An Examination of the Effectiveness of the WTO Dispute
Resolution Procedure in the Airbus-Boeing Dispute over Aircraft Subsidies, 71 J. AIR L. & COM. 191 (2006).
There have also been authors who have argued against a more robust anti-subsidy regime in
certain contexts. See, e.g., Paolo Davide Farah & Elena Cima, The World Trade Organization,
Renewable Energy Subsidies, and the Case of Feed-in Tariffs: Time for Reform toward Sustainable Develop-
ment?, 27 GEO. INT’L ENVTL. L. REV. 515 (2015) (arguing that renewable energy subsidies should be
permitted under the WTO’s anti-subsidy regime); Rick A. Waltman, Amending WTO Rules to
Alleviate Constraints on Renewable Energy Subsidies, 23 WILLAMETTE J. INT’L L. & DISPUTE. RES. 367

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

The purpose of this Article is to provide a background on EU state aid

law for WTO reformers interested in implementing a stronger anti-
subsidy regime at the WTO level.
In response to calls for a more robust anti-subsidy regime at the WTO
level, this Article therefore sets out the prohibition on state aid as a
model of one such regime. This Article also argues that, for reformers
who want stronger anti-subsidy rules, the WTO is in many ways a more
appropriate space for anti-subsidy rules than the European Union.
Imposing the state aid prohibition at the WTO level could remove
many of the legitimacy concerns that are at the root of the recent
criticisms of the state aid prohibition. Because the European Union
and its Member States are WTO members, this could also obviate the
need for a state aid regime at the EU level. These conclusions do not
mean that the prohibition on state aid is without its weaknesses, and
any such weaknesses should not be adopted by other jurisdictions. But
the European Union takes a very different approach to policing
subsidies than does the WTO, and the differences between the prohibi-
tion on state aid and the WTO’s anti-subsidy rules illustrate how the
latter could be strengthened by choosing some elements of the state
aid prohibition and leaving the rest.
In keeping with the title of this conference, Integrating Disciplines
and Broadening Policy Choices, this Article does not intend to provide
a comprehensive comparative analysis of state aid law and the WTO
anti-subsidy regime. Such an analysis has been provided in several
existing works.16 Instead, this Article builds on the EU’s recent state aid
decisions to illustrate the robustness of the state aid prohibition and to
identify the elements of this prohibition that would be most appropri-
ate for adoption by the WTO should WTO members decide to heed
calls for reform. This Article acknowledges that any reform of the

(2016) (arguing that renewable energy subsidies should be permitted under the WTO’s anti-
subsidy regime); Francisco Aguayo Ayala & Kevin P. Gallagher, Subsidizing Sustainable Development
under the WTO, 10 J. WORLD INV. TRADE 131 (2009). Many authors both argue for a stronger
anti-subsidy discipline in certain contexts and more leniency in others. See, e.g., Gary Horlick &
Peggy A. Clarke, Rethinking Subsidy Disciplines for the Future, INT’L CTR. TRADE & SUSTAINABLE DEV.
AND WORLD ECON. FORUM, Jan. 2016, at 1, 9 (setting out proposals for reforming the WTO’s
anti-subsidy regime by strengthening enforcement and expanding the categories of both per se
impermissible subsidies and non-actionable subsidies).
16. See, e.g., LUCA RUBINI, THE DEFINITION OF SUBSIDY AND STATE AID: WTO AND EC LAW IN
COMPARATIVE PERSPECTIVE (2009); Gustavo E. Luengo Hernández de Madrid, Conflicts Between the
Disciplines of EC State Aids and WTO Subsidies: Of Books, Ships and Aircraft, 13 EUR. FOREIGN AFF. REV. 1
(2008); RAYMOND H. C. LUJA, ASSESSMENT AND RECOVERY OF TAX INCENTIVES IN THE EC AND THE
WTO: A VIEW ON STATE AIDS, TRADE SUBSIDIES, AND DIRECT TAXATION (2003).

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WTO’s anti-subsidy regime is unlikely in the short term, but it sets out
the state aid prohibition as a potential model that responds to demands
from observers and commentators who have identified the need for
stronger anti-subsidy rules at the WTO level.
In Part II, this Article first sets out the EU prohibition on state aid,
providing an overview of its history, scope, application, and enforce-
ment. In Part III, this Article compares the state aid prohibition to the
limits on subsidies enshrined in the General Agreement on Tariffs and
Trade (GATT 1994) and the WTO Agreement on Subsidies and
Countervailing Measures. Part IV argues that certain elements of the
state aid prohibition could provide a model for reformers who have
called for more robust anti-subsidy rules at the WTO level. This Part
also argues that WTO reforms could adopt only portions of EU state aid
law while keeping those elements of WTO anti-subsidy regulation that
would respond to recent criticisms of the EU rules. These reformed
WTO rules would in turn eliminate much of the need for special
EU-level rules, which could in the long term provide the ultimate
response to critics of the EU’s recent spate of state aid decisions.

II. EU STATE AID RULES: ROBUST, TARGETED, AND ENFORCED

Ever since the first European treaties went into effect in the 1950s,
they have included a prohibition on state aid.17 Now enshrined in
Article 107 of the Treaty on the Functioning of the European Union
(TFEU), this prohibition states that “any aid granted by a Member State
or through State resources in any form whatsoever which distorts or
threatens to distort competition by favoring certain undertakings or
the production of certain goods shall, in so far as it affects trade
between Member States,” shall be “incompatible with the internal
market.”18 This Article refers to this as the “Article 107 prohibition.”
The concept underlying the Article 107 prohibition is that a true
internal market cannot exist if states have the ability to provide benefits
only to certain companies because such benefits will both undermine
free trade and distort competition.
This Part introduces readers to the Article 107 prohibition. The first
two subsections set out the enforcement mechanisms included in
Article 107 and the scope of Article 107, and the third subsection

17. See Treaty Instituting the European Coal and Steel Community art. 4(c), Apr. 18, 1951,
261 U.N.T.S. 140.
18. Treaty on the Functioning of the European Union art. 107, May 9, 2008, 2008 O.J. (C.
115) 47 [hereinafter TFEU].

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

illustrates the enforcement and scope of Article 107 by way of recent

state aid investigations.

A. Enforcement Mechanisms
The Directorate-General for Competition (DG Competition) is
charged with enforcing Article 107, and there are two paths for
enforcement.19 First, under Article 108, all Member States are required
to notify the Commission of “any plans to grant or alter aid” so that the
Commission can provide comments before the aid goes into effect.20
Second, even if a Member State does not provide notice and puts the
aid into effect without Commission approval, the Commission (through
DG Competition) can bring an investigation that will result in a
decision as to whether the aid is incompatible with the internal
market.21 The Member State must then abolish or alter the aid,
although it also has the right to appeal the decision first to the General
Court and then to the Court of Justice.22 If the Member State does not
abolish or alter the aid within the period set by the Commission, then
either the Commission or another interested Member State may chal-
lenge the aid-providing Member State before the General Court.23
Along with abolition of the measure providing aid, the TFEU also
provides for a further penalty. In most circumstances, the Commission
can demand recovery of up to ten years of illegal state aid (plus
interest).24 This recovery will be paid back to the Member State that
provided the aid, and it is intended to restore effective competition.25
The Article 107 prohibition therefore provides both a prospective
remedy (the abolition of the aid) and a retrospective remedy (the
recovery of aid already provided), and it is this retrospective remedy
that has met with the most resistance in the United States. Observers
have argued that this is inconsistent with international legal norms,
that it undermines legal certainty, and that this is essentially rewarding

19. EUROPEAN COMMISSION, COMPETITION, http://ec.europa.eu/competition/index_en.html

(last visited Oct. 18, 2016).
20. TFEU, supra note 18, art. 108(3).
21. TFEU, supra note 18, art. 108(2).
22. Id.
23. Id.
24. Council Regulation 2015/1589 of July 13, 2015 Laying Down Detailed Rules for the
Application of Article 108 of the Treaty on the Functioning of the European Union, art. 16(1)
2015 O.J. (L 248) 9 [hereinafter Procedural Regulation] (indicating that recovery shall not be
required “if this would be contrary to a general principle of Union law”).
25. Procedural Regulation, supra note 24, ¶ 25.

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the Member States that provided the state aid because they are the ones
who eventually get to add it to their coffers.26 While there is some
short-term truth to these complaints, the purpose of retrospective
recovery is to remove any benefit from state aid and therefore discour-
age Member States from providing it (or companies from demanding
it) in the future.

B. Scope of the State Aid Prohibition

Along with setting out the general prohibition on state aid, Article
107 also lists several types of aid that either will definitely not be
considered to be illegal state aid or could potentially not be considered
to be illegal state aid. There are three categories of aid that will
automatically not be considered to be inconsistent with the internal
market. First, “aid having a social character, granted to individual
consumers, provided that such aid is granted without discrimination
related to the origin of the products concerned” will be permitted.27
Aid to certain low-income workers and aid to airlines that fly to areas
that would not otherwise receive service have been found to fall within
this exception.28 Second, “aid to make good the damage caused by
natural disasters or exceptional occurrences” will also be permitted.29
One example of aid that falls within this exception is German aid
targeted to small and medium enterprises that were affected by floods,
hurricanes, and thunderstorms.30 Finally, “aid granted to the economy
of certain areas of the Federal Republic of Germany affected by the
division of Germany, in so far as such aid is required in order to
compensate for the economic disadvantages caused by that division”
will also be permitted,31 but only two measures have been found to fall
within this exception since the reunification of Germany.32

26. See Grinberg, supra note 9; TREASURY WHITE PAPER, supra note 7.
27. TFEU, supra note 18, art. 107(2).
28. European Commission Press Release IP/11/217, State Aid: the Commission Approves
France’s Scheme to Support Supplementary Social Welfare Cover for Local Government Staff
(Feb. 23, 2011); European Commission Notice, State Aid: United Kingdom Aid of a Social
Character Air Services in the Highlands and Islands of Scotland, No. N 169/2006 (2006).
29. TFEU, supra note 18, art. 107(2).
30. State Aid: Germany Scheme on Granting of State Aid to Compensate for Damage Caused
by Natural Disasters in Rheinland-Pfalz, No. N 386/A/2009, 2009 O.J. (C).
31. TFEU, supra note 18, art. 107(2).
32. See Answer Given by Commissioner Vestager on Behalf of the Commission in Response to
Parliamentary Question, Eur. Parl. Doc. E-102371/15 (Oct. 20, 2015) http://www.europarl.europa.
eu/sides/getAllAnswers.do?reference⫽E-2015-012371&language⫽EN. Note that article 107(2)
provides that the Council could repeal the third category of compatible state aid starting on

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

Along with the three exceptions that definitely will be found consis-
tent with the internal market, there are five further categories of
exceptions that may potentially be found compatible with the internal
market. First, “aid to promote the economic development of areas
where the standard of living is abnormally low or where there is serious
underemployment”33 may be permitted, and this exception has been
found to apply to regional aid to parts of Romania and Greece and all
of Croatia.34 Second, “aid to promote the execution of an important
project of common European interest or to remedy a serious distur-
bance in the economy of a Member State” may be permitted.35 This
exception was found to allow aid to the banking sector of multiple
Member States in the wake of the 2008 financial crisis.36
Third, “aid to facilitate the development of certain economic activi-
ties or of certain economic areas” may be permitted,37 and examples of
measures that have fallen within this exception include regional aid to
all of Malta and the areas of Greece and Romania not covered by the
first category of aid.38 Fourth, “aid to promote culture and heritage
conservation where such aid does not affect trading conditions and
competition in the Union to an extent that is contrary to the common
interest” may be permitted.39 Examples of measures permitted by this
fourth exception include aid provided by Hungary to modernize its

December 1, 2014, but the Commission has not yet made a proposal for such repeal. TFEU, supra
note 18, art. 107(2)(c).
33. TFEU, supra note 18, art. 107(3)(a). This exception also includes aids to promote the
economic development “of the regions referred to in article 349, in view of their structural,
economic and social situation,” which include Guadeloupe, French Guiana, Martinique, Réunion,
Saint-Barthélemy, Saint-Martin, the Azores, Madeira and the Canary Islands. TFEU, supra note 18,
art. 349.
34. European Commission Press Release IP/14/662, State Aid: Commission Approves Croa-
tia’s Regional Aid Map 2014 –2020 (June 11, 2014); European Commission Press Release IP/14/
527, State Aid: Commission Approves Greek Regional Aid Map 2014 –2020 (May 7, 2014);
European Commission Press Release IP/14/409, State Aid: Commission Approves Regional Aid
Map 2014 –2020 for Romania (Apr. 9, 2014).
35. TFEU, supra note 18, art. 107(3)(b).
36. Philip Lowe, State Aid Policy in the Context of the Financial Crisis, COMPETITION POL’Y NEWSL.
2009, at 3.
37. TFEU, supra note 18, art. 107(3)(c).
38. European Commission Press Release IP/14/528, State Aid: Commission Approves Mal-
tese Regional Aid Map 2014 –2020 (May 7, 2014); European Commission Press Release IP/14/
527, State Aid: Commission Approves Greek Regional Aid Map 2014 –2020 (May 7, 2014);
European Commission Press Release IP/14/409, State Aid: Commission Approves Regional Aid
Map 2014 –2020 for Romania (Apr. 9, 2014).
39. TFEU, supra note 18, art. 107(3)(d).

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cultural centers, museums, and public libraries and aid provided by

Italy to its film industry.40 Finally, Article 107 provides a blanket
exception for any other categories that the Council specifies as being
compatible with the internal market.41 The Commission has approved
several measures as examples of the fifth category, including measures
to facilitate the closure of uncompetitive coal mines42 and those to
extend support to Member State shipyards in response to competition
from outside the European Union.43
These Article 107 exceptions are, however, the only limitations on
the scope of state aid. Apart from these areas, the Article 107 prohibi-
tion applies to all aid that meets four requirements. First, prohibited
aid must be granted by a Member State or through Member State
resources in any form whatsoever, and the Commission and CJEU have
found that both direct spending and tax expenditures can be consid-
ered prohibited state aid.44 Second, prohibited aid must be granted to
an undertaking, but the term “undertaking” is defined broadly, and no
industries or sectors are explicitly excluded. In fact, many areas that
observers may have previously thought were outside the scope of state
aid (such as infrastructure and higher education) have been found to
have undertakings that fell within the scope of Article 107.45 Even
agriculture is included within the scope of the Article 107 prohibi-
tion.46 Third, prohibited aid must favor certain undertakings or the

40. State Aid: Hungary Aid for Multifunctional Community Cultural Centres, Museums,
Public Libraries, SA. 37043 (2013/N), 2013 O.J. (C 337); State Aid: Italy Film Investment &
Distribution Tax Incentives: State Aid Approval, C 25/2009 (ex N 673/2008), 2009 O.J. (C 5512).
41. TFEU, supra note 18, art. 107(3)(e).
42. See, e.g., State Aid for the Closure of Hard Coal Mines and Notification of Aid to Coal for
2011, SA 33766, 2013 O.J. (C 122); State Aid: Poland Coal Plan for the Period 2011–2015 (Pomoc
państwa dla sektora górnictwa we˛gla kamiennego w latach 2011–2015), SA 33013 (2011/N), 2011
O.J. (C 8280).
43. State Aid: Italy Extension of the Three-Year Delivery Period for Tankers Built by Cantiere
Navale Giacalone, N 68/2008 and N 69/2008, 2008 O.J. (C 4356); State Aid: The Netherlands
Shipyard Hoekman Cargoships—Extension of the Three-Year Delivery Period, No. N 206/2008,
2008 O.J. (N 206).
44. See Case C-387/92, Banco Exterior v. Valencia, 1994 E.C.R. I-902; Case 173/73, Italy v.
Comm’n, 1974 E.C.R. 710. This does not mean that the Commission and CJEU are consistent in
when they treat a tax expenditure as state aid. See Lilian V. Faulhaber, Charitable Giving, Tax
Expenditures, and Direct Spending in the United States and the European Union, 39 YALE J. INT’L L. 87
(2014).
45. See Commission Notice on the Notion of State Aid as Referred to in Article 107(1) of the
Treaty on the Functioning of the European Union, 2016 O.J. (C 262) 1 [hereinafter 2016 Notice].
46. EUROPEAN COMMISSION, STATE AID IN THE AGRICULTURAL AND FORESTRY SECTORS AND IN RURAL
AREAS (2016), http://ec.europa.eu/agriculture/stateaid/index_en.htm.

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

production of certain goods, which the Commission and CJEU have

interpreted to mean that it must provide a “selective advantage.”47 The
third requirement looks at whether the aid was provided only to
specific industries or undertakings, and the concept of “selective
advantage” is similar to the WTO concept of specificity in the context of
subsidies.48 Finally, prohibited aid must distort or threaten to distort
intra-Community competition, but the Commission generally pre-
sumes that any aid that meets the first three criteria also distorts
intra-Community competition.
None of these requirements places any limits on scope. Article 107
applies to any type of aid provided out of state resources, provided that
it meets the requirements above. There are no industries that are
excluded, nor are any types of undertakings excluded. Furthermore,
the aid can be provided to products as well as services.

C. Recent State Aid Investigations

The broad scope of the Article 107 prohibition can best be illustrated
by the state aid cases that have received the most recent international
attention: those that apply to tax rulings. In 2014, the Commission
initiated investigations of several tax rulings that were provided to
multinational companies, including Apple, Amazon, and Starbucks.49
Tax rulings are a fairly common feature of many tax systems, and they
are intended to provide taxpayers with certainty as to how transactions
or arrangements will be taxed.50 As shown by LuxLeaks, however,
where hundreds of Luxembourg tax rulings were made public, they
can also be used to provide taxpayers with dramatically reduced
effective tax rates, so they are viewed by some observers as creating

47. 2016 Notice, supra note 45, at 15– 40 (setting out the Commission’s understanding of the
state of the law in regards to both selectivity and advantage).
48. Compare 2016 Notice, supra note 45, at 27– 40 with SCM Agreement, infra note 59, art. 2.
Selectivity and specificity do not overlap entirely. For a discussion of some of the differences, see
Allison Christians and Marco Garofalo, Using Tax as an Investment Promotion Tool (forthcoming),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id⫽2796126.
49. European Commission Press Release IP/14/1105, State Aid: Commission Investigates
Transfer Pricing Arrangements on Corporate Taxation of Amazon in Luxembourg (Oct. 7, 2014);
European Commission Press Release IP/14/663, State Aid: Commission Investigates Transfer
Pricing Arrangements on Corporate Taxation of Apple (Ireland) Starbucks (Netherlands) and
Fiat Finance and Trade (Luxembourg) (June 11, 2014).
50. ORG. ECON. COOP. & DEV. (OECD), COUNTERING HARMFUL TAX PRACTICES MORE EFFEC-
TIVELY, TAKING INTO ACCOUNT TRANSPARENCY AND SUBSTANCE, ACTION 5—FINAL REPORT 46 (2015),
http://dx.doi.org/10.1787/9789264241190-en.

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opportunities for tax avoidance.51

The Commission’s investigations into tax rulings provided to multi-
nationals received attention for many reasons. First, many of the
companies were based in the United States, so some U.S. observers
argued that they were discriminatory, while others expressed surprise
that the state aid prohibition could apply to U.S. companies.52 Second,
although the Commission had previously found entire ruling regimes
to constitute impermissible state aid, these investigations seemed no-
table because they focused on individual rulings provided to specific
companies. In other words, rather than applying to an entire adminis-
trative regime, they applied to just one exercise of administrative
authority.53 Finally, the investigations that have resulted in decisions
attracted attention because of the significant amount of money at stake,
ranging from €20-30 million for Starbucks to €13.4 billion for Apple.54
The Netherlands and Ireland have already announced their inten-
tion to appeal the decisions to the General Court,55 and the General
Court’s judgment is likely to be appealed to the CJEU. The ultimate
outcome of these cases therefore remains to be seen, as do the
outcomes of other outstanding investigations. What these investiga-
tions show, however, is just how broad the scope of the state aid
prohibition is. It applies not only to statutory tax incentives, but it also
applies to individual exercises of authority by tax administrations.
Furthermore, these investigations and the orders for recovery that
resulted from them illustrate that the Article 107 prohibition is not
limited to subsidies for goods and that its remedy is both prospective
and retrospective. Although many of these characteristics have been
criticized by U.S. observers in the context of the rulings decisions, they
could also be seen as responses to some existing weaknesses in other
anti-subsidy rules. Part III outlines some such weaknesses in the WTO
context, and the following Part IV highlights how elements of the state
aid prohibition could address those weaknesses.

51. INT’L CONSORTIUM OF INVESTIGATIVE JOURNALISTS, Luxembourg Leaks: Global Companies’

Secrets Exposed, https://www.icij.org/project/luxembourg-leaks (last visited Oct. 18, 2016).
52. See, e.g., Grinberg, supra note 9.
53. See, e.g., TREASURY WHITE PAPER, supra note 7. Note that, although it is correct that these
were the first investigations of individual rulings, many previous state aid investigations had
focused on state aid to individual beneficiaries, so they were not necessarily unprecedented.
54. At the time of this writing, the Amazon and McDonald’s investigations are still to be
concluded.
55. See EVERSHEDS, supra note 5.

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

III. WTO ANTI-SUBSIDY RULES: WEAKER, LESS TARGETED, AND DEPENDENT

ON INDIVIDUAL COUNTRIES

While the European Union uses the Article 107 prohibition to limit
subsidies in order to ensure free competition throughout the EU, it is
not the only organization that has identified subsidies as raising policy
concerns. The WTO has also identified subsidies as domestic provisions
that can harm free trade. This Part briefly introduces readers to the
WTO’s anti-subsidy rules, and it then compares these rules to the
Article 107 prohibition set out above in Part II. While it determines that
the WTO anti-subsidy rules are in many ways significantly weaker than
the Article 107 prohibition, this Part also concludes that the WTO’s
rules have greater legitimacy when applied to certain subsidies than
does the Article 107 prohibition.

A. Enforcement Mechanisms and Scope

The WTO addresses subsidies in multiple ways. GATT 1994 has
several provisions that consider subsidies, although none of them sets
out an explicit prohibition. Articles II, III, and VI permit the use of
countervailing duties, which Article VI defines as “special dut[ies]
levied for the purpose of offsetting any bounty or subsidy bestowed,
directly, or indirectly, upon the manufacture, production or export of
any merchandise.”56 In other words, these articles do not focus on
subsidies but rather on the permitted response to subsidies. While
Article XVI does focus on subsidies, it requires countries to notify one
another of their subsidies,57 and it further applies a prohibition on the
use of export subsidies that apply to “any product other than a primary
product.”58 GATT 1994 therefore does not prohibit subsidies entirely,
but it does prohibit export subsidies on manufactured products. It also
requires exchange of information regarding subsidies and permits
countries that are affected by subsidies to impose countervailing duties.

56. General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194
[hereinafter GATT] art. VI, ¶ 3. GATT art. II:2(b) allows the use of countervailing duties even if
these result in higher tariff rates, so long as they comply with the rules set out in art. VI. Art.
III:8(b) also allows the use of countervailing duties even if these result in a violation of the national
treatment requirement, again so long as the countervailing duties comply with the rules set out in
art. VI.
57. GATT, supra note 56, art. XVI(1).
58. GATT, supra note 56, art. XVI(4). Note that some countries have entered reservations to
this revised version of art. XVI.

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The WTO Agreement on Subsidies and Countervailing Measures

(the SCM Agreement) also sets out definitions of subsidies and divides
them into prohibited subsidies, which are not permitted in WTO
countries, and actionable subsidies, which are not automatically prohib-
ited but may be actionable due to their adverse economic effects.59
These subsidies have been termed “red light” (prohibited) or “yellow
light” (actionable) subsidies.60 Under the SCM Agreement, both types
of subsidy require two elements: there must be “a financial contribu-
tion by a government or any public body,” and this contribution must
confer a benefit.61 In order to be either prohibited or actionable, a
subsidy must also be specific to an enterprise or industry or group
thereof.62 The SCM Agreement identifies subsidies that are explicitly
limited to certain enterprises or that have the effect of being limited to
certain enterprises as being specific, and all prohibited subsidies are
deemed to be specific.63 Prohibited subsidies are those that are contin-
gent upon export performance or upon the use of domestic over
imported goods.64 Actionable subsidies include any other subsidies
that have adverse effects on the interests of other WTO Members.65
The remedy for either prohibited or actionable subsidies is a dispute
resolution panel, which determines whether the subsidies need to be
eliminated.66 This panel requires a complaining country to request
consultations with the subsidizing country and thereby commence the
dispute settlement process. In the context of prohibited subsidies, this
determination need only conclude that the subsidy exists, while the
dispute settlement panel must determine in the context of actionable
subsidies both whether the subsidy exists and whether it causes adverse

59. Agreement on Subsidies and Countervailing Duties, Marrakesh Agreement Establishing

the World Trade Organization, Annex 1A, Apr. 15, 1994, 1869 U.N.T.S. 14 (1994), arts. 3–7
[hereinafter SCM Agreement].
60. See Sykes on SCM, supra note 11, at 83–107. The SCM Agreement also includes a section
on “green light,” or non-actionable, subsidies, but this section is no longer in force. See SCM, supra
note 59, arts. 8 –9.
61. SCM Agreement, supra note 59, art. 1.
62. SCM Agreement, supra note 59, art. 1–2.
63. SCM Agreement, supra note 59, art. 2. Note that art. 1 requires subsidies to be specific in
order to be subject to either the provisions addressing prohibited subsidies or those addressing
actionable subsidies, but art. 2 then states that any subsidies defined as prohibited subsidies in art.
3 will be deemed to be specific.
64. SCM Agreement, supra note 59, art. 3.
65. SCM Agreement, supra note 59, art. 5.
66. SCM Agreement, supra note 59, art. 4 (for prohibited subsidies), art. 7 (for actionable
subsidies).

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effects.67 If the dispute settlement panel reaches such conclusions,

then the country providing the subsidy must either withdraw it (in the
case of a prohibited subsidy) or either withdraw it or remove the
adverse effects (in the case of an actionable subsidy).68 In either case,
the complaining country can implement countervailing measures
against the subsidizing country if the latter does not eliminate the
subsidy or its adverse effects.69

B. Weaknesses of the WTO’s Anti-Subsidy Rules

On their face, GATT 1994 and the SCM Agreement share similarities
with Article 107: both target government subsidies, and both focus to
some degree on the selectivity or specificity of a measure to determine
whether it is permissible. Beyond those facial similarities, however, the
WTO anti-subsidy regime and the EU prohibition on state aid differ
significantly. This subsection sets out several differences between the
two regimes: (1) the definition of impermissible subsidies is generally
narrower in the WTO context than in the state aid context; (2) the
WTO anti-subsidy regime lacks the targeting of the state aid prohibi-
tion; (3) the procedures for challenging subsidies are different in the
two regimes; and (4) the remedies required once a subsidy is deemed
to be a violation of the relevant anti-subsidy rule are different in the two
regimes. Examining these differences demonstrates that both the
procedure and substance of the WTO anti-subsidy regime make it
significantly weaker than the state aid prohibition.
First, the definition of impermissible subsidies is generally narrower
in the WTO context than in the state aid context. Under Article 107, all
impermissible state aid is prohibited, and there is no option to main-
tain the measure in exchange for being subject to countervailing
duties. Furthermore, impermissible state aid includes measures of all
sorts, including those that apply to both goods and services. As shown
by the recent Apple and Starbucks investigations, the definition is so
broad that it includes individual exercises of administrative discretion.
In contrast, the WTO only includes limited categories of subsidies in
its anti-subsidy rules. Under GATT 1994, only export subsidies on
manufactured goods are explicitly prohibited, and the SCM Agree-
ment only prohibits export subsidies and subsidies that prioritize

67. Marco Bronckers, Gary Horlick, & Ravi Soopramanien, WTO Regulation of Subsidies, in
LEIGH HANCHER, TOM OTTERWANGER, & PEIT JAN SLOT, EU STATE AIDS 210, 219 (4th ed. 2012).
68. Bronckers et al., supra note 67, at 219.
69. Bronckers et al., supra note 67, at 210.

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domestic inputs. This means that many subsidies are permitted to

continue to exist, either with countervailing duties if they are deemed
harmful or without if they are not. Moreover, neither GATT 1994 nor
the SCM Agreement prohibits agricultural subsidies or subsidies that
affect the market for services. In terms of agricultural subsidies, Article
5 of the SCM Agreement explicitly excludes agricultural subsidies from
the scope of actionable subsidies.70 Therefore, as long as agricultural
subsidies are not contingent on export performance or on the use of
domestic over imported goods, they will be outside the scope of
subsidies addressed by the SCM Agreement. The WTO does have an
Agreement on Agriculture, so these subsidies are not entirely unregu-
lated, but observers have pointed out that this agreement “falls far short
of the disciplines contained in the SCM Agreement” and that it was
designed to “facilitate a gradual reduction in such subsidies over time”
rather than prohibit them immediately.71 In terms of service subsidies,
Article VI of GATT 1994 defines subsidies to include only those that
apply to the “manufacture, production or export of any merchan-
dise.”72 This means that subsidies for services are not included, and the
General Agreement on Trade in Services (GATS) does not include a
prohibition on subsidies in this context.73
This narrow definition of subsidies in the WTO context is compli-
cated by the WTO procedure for challenging subsidies. Reliance on the
dispute resolution mechanism means that there is little guidance on
when certain measures will be viewed as subsidies. With regard to tax
reductions, for example, even though Article 1 of the SCM Agreement
states that a financial contribution includes “government revenue that
is otherwise due [that] is foregone or not collected,” the limited
number of tax subsidy cases that have actually been brought means that
the limits of this prohibition are not yet fully known.74
Second, even though the definition of subsidies is narrower in the
WTO context, the WTO anti-subsidy regime also lacks the targeting of
the state aid regime. In the state aid context, Article 107 provides

70. SCM Agreement, supra note 59, art. 5.

71. Sykes on SCM, supra note 11, at 83–107.
72. GATT, supra note 56, art. VI.
73. See, e.g., Rudolf Adlung, Export Policies and the General Agreement on Trade in Services (World
Trade Org., Working Paper ERSD-2014-09, 2014). Note that this article makes no claims about
whether the tax rulings given to Apple by Ireland would be subsidies under the WTO regime if
they had been provided to a manufacturer of goods.
74. SCM, supra note 59, art. 1. That said, the requirement of specificity does mean that
certain broadly applicable types of subsidies (e.g., those to disadvantaged social groups, broadly
based worker support, general infrastructure, disaster relief, and more) will not be actionable.

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explicit exceptions for specific types of subsidies that are designed to

achieve certain approved policy goals. In the WTO context, there are
no such policy exceptions. If a subsidy does fall within the definition in
Article 1 of the SCM Agreement, there is no exception for environmen-
tal subsidies, subsidies to offset financial crises, subsidies to support
workers’ rights, or similar policy-based subsidies.75 This is consistent
with an overall weakness of the WTO system, which critics have identi-
fied as failing to prioritize human rights or other policy goals.76
Third, the procedures for challenging subsidies are very different in
the two regimes. In the EU, the Commission (in the form of DG
Competition) chooses which subsidies to investigate. While this may be
due to requests by other Member States, it could also be in response to
requests from competitors or on the Commission’s own initiative. With
regard to the recent Apple and Starbucks cases, many observers believe
that the Commission selected the rulings because Apple, Starbucks,
Amazon, and other U.S.-based multinationals were in the news due to
legislative hearings on tax avoidance.77 While this is consistent with the
Commission’s charge to “examine information regarding alleged unlaw-
ful aid from whatever source,”78 it may also raise questions about
whether the Commission is itself really a neutral party in the context of
state aid. Choosing to go after U.S. multinationals was not necessarily a
completely apolitical decision, particularly because the recovery led to
billions of euros being paid into Member State coffers.
In the WTO, by contrast, countries challenge one another’s subsi-
dies, and these challenges ultimately end up before a dispute resolu-
tion panel. This focuses enforcement on the countries providing the
subsidy (as opposed to the companies receiving the subsidy) and
involves a neutral arbiter, but it also requires non-neutral countries to

75. See, e.g., GARY CLYDE HUFBAUER ET. AL., GLOBAL WARMING AND THE WORLD TRADING SYSTEM
109-110 (2009) (proposing that certain climate measures be excluded from the scope of
prohibited or challenged subsidies in the context of a plurilateral agreement).
76. See, e.g., Steve Charnovitz, The (Neglected) Employment Dimension of the World Trade Organiza-
tion, in SOCIAL ISSUES, GLOBALIZATION AND INTERNATIONAL INSTITUTIONS: LABOUR RIGHTS AND THE
EU, ILO, OECD AND WTO 125 (Virginia Leary & Daniel Warner eds., 2006) (suggesting ways that
the WTO could support provisions that support workers); Joost Pauwelyn, New Trade Politics for the
21st Century, 11 J. INT’L ECON. L. 559, 572 (2008) (highlighting the demands for the WTO to do
more to “protect the environment, labour and human rights” and proposing that the WTO should
respond more to consumer and citizen requests of this sort).
77. See, e.g., Offshore Profit Shifting and the U.S. Tax Code—Part 2 (Apple Inc.) Before the Permanent
S. Comm. on Investigations, 113 Cong. (2013); Starbucks, Google and Amazon Grilled Over Tax
Avoidance, BBC NEWS (Nov. 12, 2012), http://www.bbc.com/news/business-20288077.
78. Procedural Regulation, supra note 24, art. 12(1).

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make the decision to bring a challenge. As other commentators have

pointed out, this reliance on country enforcement means that the
number of subsidy cases may be artificially low, because countries may
have a disincentive to start the dispute settlement procedure if they
themselves believe that they have subsidies that could also be
challenged.79
Fourth, these regimes differ in terms of the required remedy once a
subsidy is found to be inconsistent with the relevant anti-subsidy rule.
In the EU, there is both a prospective and a retrospective remedy. The
prospective remedy requires elimination of the subsidy: it is not enough
to remove the harmful effects, nor are countervailing duties permitted
to excuse the maintenance of a subsidy. The retrospective remedy
requires recovery of the subsidy for up to ten years. Not only does this
focus on previous payments under the subsidy, but this remedy is
enforced against the recipient of the subsidy, rather than the country
providing it. In fact, the country that violated the Article 107 prohibi-
tion could be seen as benefiting from this remedy, at least in the short
term, because it receives revenue that it otherwise would not have
received.
In the WTO, a country is encouraged to eliminate the subsidy or the
harmful aspect of the subsidy, but GATT 1994 and the SCM Agreement
provide for the possibility that the subsidy will be maintained and
countervailing duties will be imposed. Both of these remedies are
prospective: they apply after the subsidy has been determined to be
impermissible. Furthermore, economists have pointed out that using
countervailing duties as a remedy may reduce overall welfare. This
argument, as stated by Alan Sykes, is based on the idea that, although
subsidies may create economic loss for the taxpayers in the country
providing the subsidy (the exporting country), they may still increase
welfare for the consumers in the country receiving the subsidized
goods (the importing country). Countervailing duties, however, offset
this welfare increase in the importing country while not increasing
welfare in the exporting country.80 That said, this criticism of counter-
vailing duties may be weakened if they in fact have the long-term effect
of discouraging countries from implementing subsidies in the first

79. See Gary N. Horlick, Subsidies Discipline Under WTO and US Rules, in EUROPEAN COMPETITION
LAW ANNUAL: 1999, SELECTED ISSUES IN THE FIELD OF STATE AID 593, 601– 02 (referring to the
“glass-house problem,” countries are not willing to bring cases against one another for fear of
retaliation).
80. Sykes on SCM, supra note 11, at 23.

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place,81 but Sykes points out that prohibiting subsidies outright could
have the same effect without the possible short-term economic loss.82
The WTO regime, therefore, defines prohibited subsidies in a way
that is narrower and yet less targeted. It also relies entirely on countries
to challenge one another’s subsidies, which reduces the number of
challenged subsidies due to concerns about retaliation, and its rem-
edies are less robust and possibly economically inefficient. In compari-
son to the state aid rules, the WTO anti-subsidy regime seems far from
the robust regime that reformers have been demanding.

C. Strength of the WTO Anti-Subsidy Rules: Greater Legitimacy

While the state aid prohibition may be significantly stronger than the
WTO regime, the recent criticisms by U.S. companies and lawmakers
shows that it lacks one thing that the WTO regime has: legitimacy. The
WTO anti-subsidy rules are set by the WTO in its entirety, which means
that they represent the interests of all 164 countries that will be subject
to them. This provides the rules with greater legitimacy, because the
countries to which they apply are countries that have agreed to the
rule.
In the context of the EU, only the Member States of the European
Union agreed to the state aid prohibition. As shown by Apple and the
other recent state aid investigations that focused on multinational
corporations, however, the prohibition on state aid can have conse-
quences for countries outside the EU. Because of the broad scope and
strong enforcement of the Article 107 prohibition, countries such as
the United States that did not agree to Article 107 and do not have any
say in its development or reform can still have their companies sub-
jected to the Article 107 prohibition. This means that the state aid
prohibition lacks some of the legitimacy that a WTO-level anti-subsidy
rule would have. This lack of legitimacy is illustrated in many of the
criticisms leveled against the Apple decision, with both policymakers
and academics suggesting that the Commission was applying its law
extraterritorially in violation of international legal norms because the
companies that were subject to that law were based in countries that
had not agreed to it.83

81. Id. at 24.

82. Id. at 25.
83. See, e.g., Grinberg, supra note 9; David Morgan & Jason Lange, EU ruling on Apple stirs calls
for U.S. tax reform, REUTERS (Aug. 30, 2016, 4:52 PM), http://www.reuters.com/article/eu-apple-usa-

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Given this balance of strengths and weaknesses, what can critics of

the WTO anti-subsidy rules learn from the EU state aid rules? And is
there anything that state aid critics can learn from the WTO? Part IV
considers both how WTO rules could be reformed to incorporate the
more robust elements of the state aid prohibition and how this would
affect the state aid prohibition in the long term.

IV. LESSONS FROM EU STATE AID RULES

As outlined in Part III above, the WTO anti-subsidy regime is weaker
than the EU state aid prohibition, but the former is also seen as more
legitimate than the latter. These two conclusions are not unconnected.
As shown by the Doha Round of negotiations, reaching agreement with
the over 160 WTO member countries is not easy. The lack of a robust
anti-subsidy regime at the WTO level is not due to some failure of the
WTO to achieve the goals of all of its members, but rather the lack of
interest on the part of at least some of its members in a stronger
anti-subsidy regime. All of the elements of the WTO system that were
outlined above as examples of weakness can also be seen as benefits to
countries that do not want their own subsidies to be challenged: a
narrow definition with vague borders that relies on country challenges
for enforcement and that only provides for prospective remedies is
much easier to work with than a strong regime with an outside arbiter
that can challenge all forms of aid and demand retrospective relief.
It is therefore unlikely that the WTO will implement stronger
anti-subsidy rules in the near future. This unlikelihood, however, has
not prevented commentators from arguing that the lack of such a
robust regime is one of the main weaknesses of the WTO as it currently
stands. This Article responds to those demands for a stronger anti-
subsidy regime by pointing to an existing regime as a model. Given the
differences between the WTO and EU approaches to subsidies, what
can WTO reformers learn from the state aid prohibition?

A. Lessons for the WTO from the EU

Given how controversial the Apple decision and other recent investi-
gations were, this Article does not propose that the WTO adopt the
Article 107 prohibition entirely. There are, however, four key areas
where reformers can learn from the European Union: (1) the scope of

idUSL1N1BB1P1 (citing House Ways and Means Chairman Kevin Brady calling the Apple
decision “a predatory and naked tax grab”).

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what constitutes state aid; (2) the mechanisms for enforcement; (3) the
notification procedures; and (4) the methods of recovery.
One area where reformers could learn from the European Union is
the scope of what constitutes state aid. Under Article 107, the scope of
illegal subsidies is both broader and narrower than what is prohibited
under GATT 1994 and the SCM Agreement—and both the broadening
and narrowing seem to respond to recent criticisms of the WTO’s
approach to subsidies. To the extent that the EU has a narrower
definition of subsidies, this is due to the explicit exceptions laid out in
Article 107. These exceptions have been used to permit states to, for
example, provide financial assistance to companies in the wake of the
2008 financial crisis, support regions with lower levels of economic
development, respond to natural disasters, and encourage conserva-
tion of local culture.84 The Commission and Court have, however,
interpreted these exceptions narrowly so as not to allow them to
overtake the state aid prohibition, and they have therefore refused to
allow these exceptions to undermine the Article 107 prohibition.
Similar exceptions could be built into the WTO system in response to
criticisms that the WTO is not sufficiently responsive to human rights
and environmental concerns. The WTO could, for example, exclude
subsidies for environmental protection or those that protect workers’
rights so long as those exceptions were defined in sufficiently narrow
manner.
The EU also, however, defines subsidies more broadly than the WTO
in that it explicitly includes all possible types of aid in the definition of
state aid. The CJEU has even gone so far as to say that the “concept of
[state] aid is more general than that of a subsidy,”85 and the Commis-
sion has held measures ranging from direct payments to tax expendi-
tures to constitute impermissible state aid. As shown by the most recent
tax ruling decisions, the Commission even believes that exercises of
administrative discretion can constitute illegal state aid.86 This broad
view of what can constitute state aid is based on the idea that any state
measure can rise to the level of a subsidy, no matter its form, which
makes it harder for states to escape anti-subsidy rules just by recharacter-
izing the aid. The WTO also has a facially broad definition of subsidies,
but its reliance on Member State enforcement means that the actual
breadth of this definition remains unclear, and it is not certain that aid

84. See supra notes 27– 43.

85. Case C-143/99, Adria-Wien Pipeline GmbH v. Finanzlandesdirektion für Kärnten, 2001
E.C.R. I-8395.
86. See supra notes 52–55 and accompanying text.

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such as a tax ruling would ever be considered to be a subsidy. This in

turn means that WTO members have an incentive to recharacterize
their subsidies in order to escape the SCM Agreement.
A second area where reformers could learn from the European
Union is in the context of enforcement.87 Unlike in the WTO, where
only countries can bring claims against other countries, the EU prohibi-
tion on state aid is enforced by the European Commission. The
Commission is charged with investigating all possible state aid mea-
sures, and it may initiate investigations on its own or in response to
requests from competitors or Member States.88 In contrast, the WTO
anti-subsidy rules rely on countries to bring challenges against each
other, which likely reduces the number of challenges given that indi-
vidual countries have a fear of retaliation. In theory, if no countries
bring challenges against one another, then no subsidies will ever be
struck down. The WTO’s approach means that anti-subsidy challenges
are more politicized and less numerous, which in turn undermines the
effectiveness of the anti-subsidy rules. Were the WTO to instead have a
neutral arbiter responsible for bringing the challenges, the WTO
would have a more robust anti-subsidy rule, as well as more guidance as
to what does or does not constitute a prohibited subsidy.
A third area where reformers could learn from the European Union
is in the context of notification. Given the extremely broad scope of
what constitutes state aid and the Commission’s narrow interpretation
of the Article 107 exceptions, Member States are understandably
concerned that any possible expenditure could constitute illegal state
aid. Article 108 therefore provides for a notification procedure, pursu-
ant to which states are expected to submit any potential aid to the
Commission for approval in order to ensure that it will not be chal-
lenged. Although many measures are not submitted, this procedure
does provide possible guidance both for the Member State notifying
the Commission of aid and for other Member States with similar aid.
A fourth area where reformers could learn from the EU is in the area
of recovery. This is a controversial claim, because the ten-year retroac-
tive recovery is one of the main sticking points in the most recent tax
ruling decisions.89 But requiring that the past aid be recovered is the
only way to essentially undo the subsidization, and the threat of such
recovery is a much stronger deterrent to states granting subsidies— or

87. See Horlick, supra note 79, at 601 (identifying the EU state aid prohibition as “the most
aggressive [externally imposed] subsidies discipline structure”).
88. Procedural Regulation, supra note 24, ¶ 9, 1; art. 2.
89. See, e.g., TREASURY WHITE PAPER, supra note 7.

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 STATE AID AS A MODEL OF A ROBUST ANTI-SUBSIDY RULE

companies accepting them—than any prospective recovery. Further-

more, an explicit requirement that the aid be eliminated, rather than
that it be offset by countervailing duties if it is retained, would be a
more effective anti-subsidy remedy as well. It should be noted that
retroactive recovery has been considered in the WTO context in the
past. In Australian Leather, the United States initially asked that recipi-
ent companies of an interest-free loan from the Australian government
repay the foregone interest,90 but the United States then withdrew this
demand, apparently having realized the far-reaching consequences
such recovery could have on future subsidy cases.91 This shows, how-
ever, that retroactive recovery is not necessarily prohibited under WTO
law, but instead that it has just never been enforced. If the WTO were to
move toward enforcement by an international body, it could also widen
the remedies available for violation of the anti-subsidy provisions to
include recovery of the subsidy.

B. Limits to the Lessons from the EU

This is not to say, however, that reformers should call for the WTO to
implement all of state aid doctrine in its entirety, because there are
several significant problems with the EU prohibition. First, although
state aid is prohibited in a treaty signed by only twenty-eight countries,
it can affect third countries. This disconnect raises significant concerns
about its legitimacy. Second, the Commission is not necessarily an
entirely neutral arbiter, which raises concerns about the political
elements of state aid enforcement. Third, any guidance on or evolution
of the doctrine is effectuated by the institutions of the European
Union, which only represents the EU Member States. This again raises
concerns about the lack of third party involvement in the development
of this doctrine.
Yet none of these concerns would exist were the WTO to incorporate
the strong anti-subsidy elements of the state aid prohibition into its own
anti-subsidy rules. For example, if the WTO were to broaden the
definition of subsidies, provide narrow exceptions in response to
demands from civil society, provide guidance on the meaning of this
definition, and initiate investigations itself through a subsidiary body,

90. Dispute Settlement, Australia—Subsidies Provided to Producers and Exporters of Automotive

Leather, WTO Doc. WT/DS126/11G/SCM/D20/2 (July 31, 2000) (mutually acceptable solution
on implementation notified on July 24, 2000); Panel Report, Australia—Subsidies Provided to
Producers and Exporters of Automotive Leather, WTO Doc. WT/DS126/RW (Jan. 21, 2000).
91. Rubini, supra note 16, at 356; Luja, supra note 16, at 144.

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 GEORGETOWN JOURNAL OF INTERNATIONAL LAW

many of the concerns about legitimacy and politics would be signifi-

cantly weakened. Unlike in the context of state aid, a country that was
not a member of the WTO would be very unlikely to be affected by the
anti-subsidy rules without having any say in their evolution, and no
country that signed on to these new rules could claim to be unaware of
them. This could in turn make the recovery more palatable because it
would be imposed on companies in countries that had signed on to the
prohibition. Finally, the use of a subsidiary body to investigate subsidies
would likely be less political than the system that currently exists, where
countries are unwilling to bring subsidy claims against other countries
that they believe could retaliate against them and where countries
often default to imposing countervailing duties against one another
rather than actually challenging one another’s subsidies.
If the WTO were to incorporate elements of EU state aid rules into
the WTO’s rules, this could have the benefit of undercutting criticisms
of state aid rules as well. This is because there would no longer be a
need for the EU—which is itself a member of the WTO along with its
Member States—to have its own separate set of rules, so the WTO could
become the locus of anti-subsidy enforcement, which would in turn
increase the legitimacy of such enforcement.

V. CONCLUSION
For reformers interested in strengthening the WTO’s subsidies
discipline, the EU’s prohibition on state aid could pave the way for a
more robust anti-subsidy regime at the WTO level. Given the current
criticisms of the EU’s investigations of Starbucks, Apple, Amazon, and
other U.S.-based multinationals, it may seem surprising to view the
doctrine underlying those investigations as a model for the interna-
tional trade regime. But one reason that the EU brought those investi-
gations is that state aid is the only tool that the EU had to challenge tax
benefits that it believed to be undercutting fair trade and competition
within the single market. Not only is this the only tool that the EU has,
but the EU is also the only entity to have such a tool. The WTO did not
challenge these rulings because it does not have an anti-subsidy regime
that enabled it to do so. While these investigations and decisions have
been met with outrage in the United States, they provide insight into
the weaknesses of other international anti-subsidy rules as well as the
weaknesses of state aid doctrine.
It is, of course, unlikely that WTO members will support a move from
the current anti-subsidy regime to a much more robust regime mod-
eled on the state aid prohibition. Many WTO members have an interest
in maintaining the current system, where no outside force can investi-

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gate their subsidies, where only individual countries have the right to
challenge one another, and where the scope of subsidies remains vague
enough for countries to believe that their aid measures fall outside that
scope. But what this Article aims to illustrate is that, were WTO
members to decide to reform their rules, a model for such reform
already exists. Although many observers have focused on the limits and
weaknesses of the state aid prohibition, particularly as applied to tax
rulings granted to non-EU companies, the prohibition on state aid is in
many ways a model for the weak anti-subsidy regime of the WTO.
Where the WTO lacks enforcement capabilities and fails to provide a
compelling definition of subsidies given the current economic climate,
the European Union is being challenged for defining subsidies too
broadly and being too aggressive in its enforcement. Were the WTO to
reform its anti-subsidy rules by incorporating many elements of state
aid doctrine, it could respond to criticisms of its own weaknesses, and it
could also improve upon state aid doctrine by adding the international
legitimacy that the EU’s state aid prohibition currently lacks. This in
turn could obviate the need for the EU to have its own separate
anti-subsidy rules, which in the long run could respond to many of the
current criticisms of state aid.

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