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5 Eur. St. Aid L.Q. 695 (2006)
The Interface between EU State Aid Control and the WTO Disciplines on Subsidies

handle is hein.journals/estal5 and id is 711 raw text is: EU STATE AID VERSUS WTO DISCIPLINES ON SUBSIDIES - EStAL 412OO6  695

The Interface between EU State Aid
Control and the WTO Disciplines
on Subsidies
Claus-Dieter Ellermann and Martin Goyette*

I. Introduction
The European Union is unique among the members of
the WTO in applying a stringent internal subsidies
regime. In general, this regime is more constraining
on the EU's Member States than the WTO disciplines
on subsidies. This creates both challenges and dilem-
mas for the EU, its Member States, and potential EU
recipients of subsidies and raises the question of the
extent to which the EU may, by virtue of its State aid
regime, be unduly constraining itself and its members
and thereby placing itself at a disadvantage vis a vis
its counterparts, e.g. the other WTO Members. The
question is not theoretical given that the EU, together
with its Member States, is one of the world's largest
donors of subsidies together with the US and, on a
smaller scale the other members of the OECD.'
It is important to understand the relevance of WTO
rules to the State aid regime and to its reform. The EU
has bound itself to significant constraints under the
'WTO regime. One might think that given its relative-
Claus-Dietei Ehleimann is Senior Counsel at Wilmeihaie, Brussels, and former
chairman and member of the  %7O Appellate Body. Martin Guyette ia Senior
Associate at WilmerHale, Brussels This article builds on a presentation by Claus
Dieter Ehiemann at the 4th Experts' Forum on New Developments in Euiopean
State Aid Law 2006 of the Euiopean State Aid Law institute, IS May 2006 The
authors gratefully acknowledge the research assistance of Chiara Galiff and of
Judith Schmidt and the useful insight provided on the E State aid regime by
Stefano Fratta
I It is worth nong that the EC's State aid rules apply to subsidies granted by the
er States of the EU, no' to subsidies gianted by the EU institutions. As it
is, most of the subs des granted in the EU originate Fern the ee States
See the speech by Commissioner Neelie Kroes, 'Reforming Eulope's State Aid
Regime: An Action Plan fo Change', \iimei Cutler Pickeiing Fale and Dor/
University of Leiden joint conerence on European State Ad Reform, Brussels,
14 June 2005. For the tex of the speech, and for more information on the
European Commission's State Aid Action Plan, see European Commission -
D Competition website at http:,/ec.euLopa.euicomm/conpetition/state ad/
overview/sar.hml, last vied 19 June 2006.
3     o her facet of the problem is how the EU iesponds to the granting of subs-
cies by other WTO Members for an overview o' the means the EU -as at its
disposal, and uses, to respond to such subsidies, see BroncKersiGoyette, 'The
EU's Response to Foreign Subscdes: An Overview', in Matsushita/AhniChen,
(eds.), 'The \WTO Trace Remedy Systein: East-As an Perspectives', London,
Cameron May, 2006, pages 145-157.
We do no' examine here the proposals on subsidy discipline tabled during the
Doha Development Round. For a discussion of these proposals, see Magnus,
'VVO Subsidy Discipline: Is ti he Retenchment Round', in Journal of World
'lade, 38(6), (2004), pages 985-i047 We note in any case that the negotia-
tons on subsidy disciplines in industrial goods have not been a prme concern
in the Doha Round. See BroncKersGoytt supra, note 3, pages 148 150.

ly strict internal subsidies regime (the State aid
regime), the EU has little to fear from multilateral dis-
ciplines. However, the EU has been one of the primary
targets of countries challenging foreign subsidies
before the WTO and of countervailing duty measures.
Also, the European Commission is currently in the
process of reforming its State aid rules. The Com-
mission's objective is to render the State aid regime
more efficient and more equitable to arrive at 'less and
better targeted State aid' that will foster innovation,
economic growth, and job creation.2 It seems appro
priate, in this context, to examine what external con
straints or opportunities the EU needs to take into
consideration as part of the State aid reform exercise.
This paper does so by exploring the limits imposed on
EU State aid rules by the WTO disciplines on subsi
This article contains three parts. The first two parts
are descriptive: First, we sketch a summary of the
VTO's rules on subsidies contained in the VTO
Agreement on Subsidies and Countervailing Measures
(SCM Agreement), and compare the definitions of
subsidy under WTO and under EC State aid law. The
second section briefly examines how the WTO rules
have been applied since 1995. These two descriptive
parts are completed by an analytical part in which we
examine a number of scenarios of specific types of
subsidies that are or could be granted by the EU and
the issues that they raise under WTO law.'
II. Overview of the WTO's disciplines
on subsidies
i. Evolution of the disciplines
a. The GATT
The GATT contained rules on subsidies prior to the
entry into force of the WTO. These rules were found in
Article XVI GATT, which has been amended over the
years. First, Article XVI imposed on WTO Members an
obligation to notify subsidies (including any form of
income or price support) that directly or indirectly
operated to increase exports or reduce imports of a


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