I. Cross-Sector Pass-Through of Subsidy Benefits: MOFCOM’s Investigative and Determination Practice

Under China’s Regulation on Countervailing Measures, actionable subsidies are not limited to those granted directly to producers of the subject product. MOFCOM has determined in multiple cases that upstream subsidies can pass through to downstream producers via raw material pricing. As a result, MOFCOM now possesses both a consistent methodology and clear precedent for evaluating the transfer of subsidy benefits across different entities and economic sectors.

(A) The Countervailing Duty Investigation into U.S. Broiler Products

In 2009–2010, MOFCOM conducted a countervailing duty investigation into U.S.-origin broiler products. This was not only China’s first such investigation into imported agricultural products, but also the first case to ever examine the pass-through of subsidy benefits.

The Chinese government found that while the U.S. government had long been heavily subsidizing growers of feed crops such as corn and soybeans, the downstream farming, slaughtering, and processing enterprises had not directly received those subsidies. However, because corn and soybean meal were the principal inputs in broiler farming, China reasoned that the subsidy benefits were passed through indirectly. The United States contested this, arguing that it had not been shown that the upstream subsidies were “in part” “passed on to the broiler farming industry.” The U.S. further asserted that “the applicant has not explained how subsidies provided to the corn and soybean farming sectors specifically confer a benefit on broiler producers.” In response, the investigating authority included a dedicated upstream-subsidy pass-through analysis in its final determination. It found that the U.S. broiler industry is highly vertically integrated, with producers purchasing corn and soybean meal directly to make feed. MOFCOM determined that upstream subsidies depressed raw material prices, effectively transferring the benefit to downstream broiler products. Methodologically, MOFCOM established this pass-through by comparing subsidized and unsubsidized product prices, calculating the benefit using each respondent’s actual procurement data. Following a subsequent WTO dispute settlement (DS427), MOFCOM conducted a statutory reinvestigation and partially modified its findings.

(B)The Countervailing Duty Investigation into EU Potato Starch

In 2010–2011, MOFCOM conducted a countervailing duty investigation into imports of EU-origin potato starch. The investigated programs included subsidies granted to growers of starch potatoes (calculated at EUR 66.32 per ton of potato starch). Since direct recipients were the growers, the central issue became whether the subsidy benefit passed through to the starch producers. The responding EU company argued that “the beneficiaries of this subsidy programme are the potato growers, not the potato starch producers.”

Addressing this point, MOFCOM’s approach featured three key elements. First, it established the pass-through by reference to legislative purpose, eligibility conditions, and actual effects. The program’s contribution rate was tied directly to the unit output of potato starch, and growers were only eligible for the subsidy if they had entered into, and performed, cultivation and procurement contracts with starch producers. Consequently, the final determination found that “the programme reduced the potato starch producers' expenditure on procuring potatoes as their raw material, and the potato starch producers obtained a benefit from the financial contribution under the programme.” Second, MOFCOM declined to presume a “full pass-through.” In response to the EU’s challenge, the final determination expressly stated that “the investigating authority did not consider that all of the subsidy benefits received by the growers were passed through to the potato starch producers.” Instead, MOFCOM quantified the benefit as the difference between the benchmark market price (the growers’ EU-prescribed unit total revenue) and the price actually paid by the producers. On this basis, a company with a purely contractual relationship with the growers was found to have received no benefit under the program. Third, MOFCOM applied special treatment to a cooperative with integrated ownership: where all company shareholders were potato growers, MOFCOM deemed  the entities and the growers were “in fact one and the same,” treating the financial contribution received by the shareholders as having been received directly by the company.

(C) The Countervailing Duty Investigation into EU Dairy Products

In 2024–2025, MOFCOM investigated imports of certain EU-origin dairy products, focusing on upstream subsidies for dairy farming and raw milk production. A program added later in the investigation, the “programme of entrusting or directing the raw milk industry to supply raw materials at low prices”, specifically targeted the pass-through channel between upstream raw material prices and downstream processed products.

MOFCOM determined that while EU Common Agricultural Policy payments were nominally made to upstream farmers, the benefits passed through to downstream dairy processors via a number of mechanisms. MOFCOM’s reasoning proceeded along two paths. First, under the cooperative model, farmers are shareholders in the processing enterprises. Because their ultimate product is the externally sold milk and dairy products, farmers and processors form a community of interest, meaning the subsidies benefit the milk and dairy industry as a whole. Second, under the private company model, MOFCOM noted that market demand for raw milk is almost entirely concentrated in downstream processing (approximately 94% across the EU; 99% in France). Because raw milk is highly perishable and requires immediate cold-chain transport, farmers are heavily dependent on processors and hold a weak supply-chain position. The subsidies allow farmers to accept purchase prices that barely cover production costs, with the subsidy benefit passing through to downstream processors rather than remaining upstream.

In summary, spanning more than a decade, these three cases demonstrate MOFCOM’s consistent methodology: tracing the industrial chain to identify pass-through channels, quantifying transmitted benefits via cost verification and benchmark comparisons, and differentiating outcomes based on actual corporate relationships. However, recognizing the possibility of cross-sector pass-through is not equivalent to presuming it; the ultimate touchstone remains whether the subsidy benefit has, in substance, accrued to the investigated commercial activity.

II.MOFCOM’s Official Position on the Cross-Border Subsidy Rules of the EU Foreign Subsidies Regulation

MOFCOM’s response to the EU’s Foreign Subsidies Regulation (the “FSR”) has evolved from case-by-case reactions to a multi-tiered system of institutionalized countermeasures. At the institutional level, upon application, MOFCOM initiated a trade and investment barrier investigation into the EU’s FSR practices in its investigations of Chinese enterprises (including preliminary reviews, in-depth investigations, and unannounced inspections). MOFCOM concluded that “the relevant practices adopted by the EU in its investigations of Chinese enterprises under the Foreign Subsidies Regulation and its implementing rules involve the circumstances prescribed in Article 3 of the Rules on Investigation of Trade Barriers and constitute a trade and investment barrier.” At the countermeasure level, in 2026, acting under the Regulation of the People’s Republic of China on Counteracting Improper Extraterritorial Jurisdiction by Foreign States, the Chinese government determined that the EU’s cross-border FSR investigations into Company N and Company J constituted unlawful extraterritorial jurisdictional measures, resulting in the issuance of prohibition orders. Echoing this stance, a MOFCOM spokesperson stated: “China has consistently opposed the EU’s abuse of unilateral instruments such as the Foreign Subsidies Regulation (FSR) to suppress Chinese enterprises.[1]” Similarly, a Ministry of Justice spokesperson noted that the EU’s investigations are “manifestly targeted and discriminatory, and amount to practicing ‘protectionism’ in the name of ‘fair competition’.[2]”At the individual-case level, when the European Commission launched an FSR investigation into Chinese wind turbine manufacturers in April 2024, a MOFCOM spokesperson characterized “the EU’s approach as textbook protectionism.[3]”

Ultimately, China’s objection is not to the legitimate regulation of subsidies, but to three specific procedural abuses: presuming cross-border pass-through of subsidy benefits in the absence of sufficient evidence; unreasonably demanding extensive, unrelated information from enterprises and banking institutions within China; and applying investigative instruments in a selective and discriminatory manner.

III.Transnational Pass-Through of Subsidies: China’s Position and Supporting Academic Research

(A) Overall Position on the Expansionary Approaches of the United States and the EU to Transnational Subsidies

In March 2024, the U.S. Department of Commerce amended its countervailing duty regulations (19 CFR Part 351), paving the way for the application of transnational subsidies in its countervailing duty investigations. Concurrently, the EU has attributed financing provided by Chinese financial institutions to Chinese-invested enterprises abroad as subsidies from the host states’ governments, notably in countervailing duty investigations into products such as glass fiber fabrics from Egypt and stainless steel cold-rolled flat products from Indonesia. China’s position regarding these expansionary approaches is summarized in three points. First, it insists on the substantive attribution of subsidy benefits: the determination of which government provides the financial contribution and which entity receives the benefit must strictly adhere to the WTO Agreement on Subsidies and Countervailing Measures (the “SCM Agreement”). “Attribution” techniques must not be manipulated to recharacterize one government’s conduct as that of another. Second, the pass-through path must be supported by proof. China opposes any presumption of the transnational pass-through of subsidy benefits in the absence of concrete evidence. Third, remedies must be pursued within the WTO multilateral framework. China firmly opposes the unilateral creation of investigative instruments and the expansion of extraterritorial jurisdiction.

(B) China’s Position in DS616

DS616 (European Union — Anti-Dumping and Countervailing Duty Measures on Stainless Steel Cold-Rolled Flat Products from Indonesia) is a prime illustration of the foregoing position. In its March 2022 final countervailing duty determination, the European Commission found the existence of a subsidy benefit by relying on alleged “inducement” by the Indonesian government. Specifically, the Commission attributed financial contributions made by the Chinese government and Chinese financial institutions to Chinese-invested enterprises in Indonesia directly to the Indonesian government. The Panel Report (WT/DS616/R) ultimately rejected this approach. It found that the categories of government conduct constituting a financial contribution under Article 1.1(a)(1) of the SCM Agreement do not include “intergovernmental inducement,” rendering the Commission’s attribution methodology inconsistent with the SCM Agreement. Subsequently, at the February 2026 regular meeting of the WTO Dispute Settlement Body, China stated that attributing cross-border subsidies to other Members would upset the balance negotiated under WTO rules and generates legal uncertainty.

(C) Relevant Research by Chinese Scholars

Academic research from the University of International Business and Economics reinforces China’s official stance. In their article “Reforming WTO Subsidy Rules: Past Experiences and Prospects[4]”, published in the Journal of World Trade, Li Siqi and Tu Xinquan review the evolution and core controversies of WTO industrial subsidy rules. They emphasize that disputes over subsidies must be evidenced and litigated within the WTO framework rather than through unilateral accusations. While acknowledging that existing rules may need negotiated reforms, they stress that all Members are obligated to comply with the rules currently in force. Additionally, Ma Lin’s article, “Attribution between Governments in Cross-Border Investment Subsidies: Reflections on DS616,” systematically analyzes the attribution methodology by which the EU, through its “inducement” analysis, recharacterizes Chinese subsidies to overseas-invested enterprises into subsidies of the host state, and the rejection of that methodology by the panel in DS616[5].

IV.Conclusions and Practical Implications

First, in cross-sector context, China’s investigative practice regarding upstream-downstream pass-through relies on stable, evidence-based standards. The substantive receipt of the benefit is the touchstone; pass-through must be verified by evidence, and the benefit must be quantifiable. As demonstrated in the Potato Starch case, Company R was calculated to have obtained no benefit under the grower subsidy program, whereas Company A was found to have obtained a benefit due to its ownership integration with the growers—demonstrating that outcomes turn on the actual relationships between the entities concerned, not on blanket categorization.

Second, regarding transnational pass-through, China’s position is clear and consistent: adherence to WTO multilateral rules; insistence that any finding of cross-border pass-through of benefits rests on factual evidence; and opposition to the expansion of extraterritorial jurisdiction. China also emphasizes that the rights of respondent companies must be safeguarded, and it opposes the imposition of unreasonable burdens of proof.

Third, regarding the practical implications for foreign-invested enterprises: first, when responding to a Chinese subsidy investigation, an enterprise should map at an early stage the nature of its relationships with upstream and downstream suppliers (such as arm’s-length transactions versus equity affiliations), and prepare primary data including procurement contracts, pricing documentation, and cost ledgers—because the magnitude of pass-through can be evidenced and contested; second, fund flows and government support arrangements between a China-based operating entity and its overseas parent should be assessed in parallel, to determine whether financial contributions obtained abroad could be passed on to operations in China or elsewhere through internal business, profit, and tax arrangements.

[Note]

[1] The Spokesperson of the Ministry of Commerce Answers Reporters' Questions on the Determination that Relevant Practices in the EU's Foreign Subsidies Investigation Constitute Improper Extraterritorial Jurisdiction Measures，https://www.mofcom.gov.cn/xwfb/xwfyrth/art/2026/art_df1b7dd65f014ea29f7de59bb04e2ebf.html。

[2] The Spokesperson of the Ministry of Justice Answers Reporters' Questions on the EU's Relevant Practices in Foreign Subsidies Investigation Constituting Improper Extraterritorial Jurisdiction, http://trb.mofcom.gov.cn/gzdt/art/2026/art_22d466a21d3f46aa95815e67fb47a160.html.

[3] Ministry of Commerce Regular Press Conference (April 11, 2024), https://www.mofcom.gov.cn/xwfbzt/2024/swbzklxxwfbh2024n4y11r/index.html.

[4] Reforming WTO Subsidy Rules: Past Experiences and Prospects, Journal of World Trade, Volume 54, Issue 6 (2020) pp. 853 – 888.

[5] MA Lin. Government-to-Government Attribution of Cross-Border Investment Subsidies: Reflecting on the DS616[J]. Wuhan University International Law Review‌, 2026(02):140-158.