In The Definition of Subsidy and State Aid, Luca Rubini does a masterful job at breaking his subject down and building it back up again, skillfully placing the constituent elements of subsidy and state aid in the legal, economic, and policy contexts in which they operate. While the legal perspective enjoys primacy, Rubini has produced a book offering valuable insight not only for lawyers, but for a broader, inter-disciplinary audience seeking to understand the rules as they are, as well as how they could be.
The book benefits from a well-organized structure that keeps the reader's eye on the forest and the trees alike. The book's 14 chapters are divided into five parts, representing natural divisions between the subjects treated. Roadmaps for the reader abound; each part begins with an overview, and each chapter with a tight summary of the ground the author intends to cover. Case studies are used throughout the volume, to convert the conceptual into the concrete. An exhaustive index, partnered with page-directed tables of EU, GATT, and WTO cases and legislation cited throughout, make the volume an efficient resource for the practitioner.
The author's principal objective is to explore the definition of subsidy and of state aid, as a gateway concept demarcating the scope of the subsidy and state aid rules in the WTO and the EU. The disciplines applied to subsidy and state aid falling within that scope are not the book's focus, although the interaction between the scope of the rules and the disciplines those rules impose are also explored.
The author takes an element-by-element approach to the definition of subsidy and state aid. Because the book covers both WTO subsidy and EU state aid, each of which has its own peculiarities, the author's first task is to reduce those differences down to a common lexicon to express concepts commonly reflected in the varied definitions. Those concepts are: the forms of governmental action, the provision of an advantage to a beneficiary, and an impact on competition.
Before addressing particular aspects of the author's analysis of these elements and concepts, the comparative aspect of the book deserves mention. The author's approach is not comparison for comparison's sake. He does not merely identify the similarities and differences between the WTO subsidy and EU state aid rules, but instead explores the relative merits of each set of rules, and the practical impact differences between those rules can have on stakeholders simultaneously subject to both jurisdictions.
The first element explored by the author is the ‘form of government action’ covered by the rules. Spending little time on non-controversial forms of government action, Rubini instead runs toward the ambiguities. Can actions not classically considered attributable to a government nonetheless qualify as subsidy or state aid? The author exhaustively explores the difficult questions of whether indirect government action that incentivizes or induces private action of a type that would – if taken directly by the government – constitute subsidy or state aid is within the scope of the rules, and, if so, how proximate the relationship between the government's action and the private action must be to bring the private action within the scope of the rules.
The second element assessed by the author is the ‘advantage analysis’. In keeping with his search for a common lexicon, Rubini describes the core of the advantage analysis as a search for ‘derogations’ from the ‘norm’. The author explains that the norm varies depending on the form of government action at issue. Separating economic from non-economic government action, Rubini posits that economic action confers an advantage if it derogates from norms set by the market, while non-economic action confers an advantage if it derogates from norms setting out the standard treatment due a recipient.
In exploring the assessment of economic government action, the author critically explores the logic underlying the market benchmark, not least because the concept of what constitutes the market, and just how efficient that market really is, has been put to the test in the current economic crisis. Given the Appellate Body's early identification of the market as ‘an’ (rather than ‘the’) appropriate benchmark against which to assess ‘advantage’, Rubini's critical analysis may be long overdue. In any event, he seizes the opportunity to explore a variety of instances in which pure devotion to market logic is called into question in the application of the rules.
For example, the author asks: what approach to take where the market otherwise available to serve as the benchmark is fundamentally distorted by government action itself? In other words, how ‘pure’ must the market be to serve as a valid norm against which to judge whether a departure has occurred and an advantage conferred? If the market is not sufficiently pure, what alternatives are available to serve as stand-in norms against which to test whether a departure has occurred?
Even where reliance on the market as benchmark is not called into question per se, the author recognizes the challenges, in the complex business environments in which firms operate, of deciding which market benchmark should apply. The book asks whether the advantage from, for example, a government loan, must always be judged against the terms for a market loan. Instead, may the terms for the array of market instruments available to meet the recipient's particular funding needs – other forms of debt, or cover, or equity, etc. – legitimately serve as a relevant market benchmark? The author's nuanced view of decision-making by sophisticated firms faced with an array of market options available to meet their financing needs marks a welcome departure from the simplistic view of corporate finance too often reflected in the case law.
The author tackles the difficult question of ‘pass-through’, which, when applied to so-called ‘input’ subsidies, addresses how to treat ‘indirect’ advantages conferred on beneficiaries downstream from the ‘direct’ recipient of government funds. Deciding how to treat ‘indirect’ advantages under subsidy and state aid rules raises a related question of whether some advantages are too ‘remote’ to be considered.
Consider, for example, the multiple advantages conferred by a government loan, extended at a below-market interest rate, to finance the purchase of exports. The loan provides an advantage to the recipient in the form of subsidized interest, as suggested by Article 14(b) of the WTO Subsidies Agreement, but may also enable the recipient to purchase more exports than it would have had the loan been provided on market-based terms. The additional quantity purchased constitutes a clear advantage for the exporter, but is that advantage too ‘remote’ to be considered a subsidy under the relevant rules? The answer is important, bearing in mind, as Rubini aptly notes throughout the book, that a single definition of ‘subsidy’ applies to relief sought under both the multilateral and unilateral (countervailing duty) remedial ‘tracks’ included in the Subsidies Agreement.
The author's application of his otherwise well-conceived conceptual framework to the WTO services context suffers. Rubini starts from the proposition that ‘the GATS does not feature any substantial disciplines on subsidies’ (p. 330); even if such disciplines applied, it would be critical to ‘find[] an appropriate definition’ of a ‘services subsidy’ (p. 331, emphasis in original).
This proposition appears to sell short the reach of the GATS. Under the GATS, the applicability of the disciplines does not turn on whether a particular measure is in the form of a ‘subsidy’, however defined. Instead, the relevant question is whether a Member has adopted a measure ‘affecting trade in services’ (GATS, Article 1.1). Thus, a measure affecting trade in services, whether or not meeting some definition of ‘subsidy’, could lead to treatment less favourable than accorded to domestic services or service suppliers, contrary to Article XVII of the GATS, if national treatment limitations covering such a measure have not been scheduled.
This is a distinctly minor oversight, however. Rubini's book offers a fresh and comprehensive take on definitions that serve as gateways to WTO and EU disciplines on what are often considered the instruments of choice for pursuing government policy. The Definition of Subsidy and State Aid offers valuable tools and a common language for policy-makers, lawyers, and economists alike to carry forward the debate on the current and potential scope of the subsidy and state aid rules.
