A WTO panel was established today in the Canadian "Feed in Tariff" case (DS412). From AFP:
The World Trade Organization said on Wednesday it will rule on a Japanese claim that a Canadian province's renewable energy programme flouts international trade law.
"A panel was established," a spokesperson from the world trade body said, referring to a team of arbitrators.
At the heart of the dispute is the government of Ontario's "feed in tariff" (FIT) programme, which guarantees electricity prices from renewable energy facilities.
According to the Power Authority of Ontario website, to benefit from the programme, wind projects greater than 10 kilowatts and all solar projects must include a minimum amount of goods and services that originate from the province.
Japan claims that such support is a form of subsidy which discriminates against foreign producers, thereby violating WTO regulations, to which Canada is a party.
"Japan considers that the measures at issue are inconsistent with Canada's (WTO) obligations," the Japanese mission to the WTO said in a statement.
Canada rejected the charge.
"Feed-in-tariffs have been used by several WTO Members to encourage the use and development of renewable sources of energy," the Canadian mission to the WTO said in a statement, but without giving any examples.
"Ontario's feed-in tariff is no different," it added.
The consultations request is here; the panel request is here. From the panel request:
The measures that are the subject of this request are those taken by the Government of Canada or its provinces relating to the FIT Program established by the Canadian province of Ontario in 2009 providing for guaranteed, long-term pricing for the output of renewable energy generation facilities that contain a defined percentage of domestic content. ...
...
These measures are inconsistent with Canada's obligations under the SCM Agreement, the GATT 1994, and the TRIMs Agreement because they constitute a prohibited subsidy, and also discriminate against equipment for renewable energy generation facilities produced outside Ontario. In particular, Japan considers that these measures are inconsistent with the following provisions:
1. Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures are subsidies within the meaning of Article 1.1 of the SCM Agreement that are provided contingent upon the use of domestic over imported goods, namely contingent upon the use of equipment for renewable energy generation facilities produced in Ontario over such equipment imported from other WTO Members such as Japan;
2. Article III:4 of the GATT 1994, because the measures accord less favourable treatment to imported equipment for renewable energy generation facilities than accorded to like products originating in Ontario; and
3. Article 2.1 of the TRIMs Agreement, in conjunction with paragraph 1(a) of the Agreement's Illustrative List, because the measures are trade-related investment measures inconsistent with Article III:4 of the GATT 1994 which require the purchase or use by enterprises of equipment for renewable energy generation facilities of Ontario origin.
Here's a very timely ICTSD study on the issue: http://ictsd.org/downloads/2011/07/fits_wilke.pdf Among other things, here's one key issue the author identifies:
Whether Article XX GATT can be invoked as a defence to non-GATT claims continues to be a controversial issue. The question is whether a country that has found to be in violation of a WTO agreement other than GATT can refer to Article XX GATT as a potential justification, even if the non-GATT agreement in question does not specifically refer to GATT Article XX. In the China-Audiovisuals case from late 2009, the Appellate Body for the first time implicitly ruled on the issue. It found that Article XX GATT was indeed available as a defence to certain violations of accession protocols despite a lack of an explicit reference to Article XX GATT. However, the case only concerned one specific clause in China’s accession protocol referring to ‘in accordance with the WTO agreement’ which was the basis for the Appellate Body’s decision in favour of the applicability of Article XX GATT. In a 2011 decision, on the other hand, a panel denied the availability of Article XX GATT as a defence to a breach of China’s accession protocol as the provision in question, unlike the one analyzed by the Appellate Body in China – Audiovisuals, did not refer back to the WTO agreements. Likewise, the Appellate Body carefully avoided any general statement that would support the argument that, in turn, Article XX GATT is available to all WTO claims including to claims under those WTO agreements that make no reference to Article XX GATT, such as the Customs Valuation Agreement or the SCM Agreement.
Here's more on the general issues involved from Aaron Cosbey: http://www.globalsubsidies.org/subsidy-watch/commentary/renewable-energy-subsidies-and-wto-wrong-law-and-wrong-venue
In addition to the WTO complaint, a U.S. company is starting up a NAFTA Chapter 11 complaint against the same measures:
Mesa Power Group LLC, a Texas-based renewable energy development company, has initiated the first step in a legal claim against the Canadian government for violations of the North American Free Trade Agreement (NAFTA) while the company was pursuing 565 megawatts of wind energy projects in western Ontario.
In its filing, Mesa Power specifically noted Canada’s failure to meet its international law obligations contained in NAFTA with respect to Ontario’s Green Energy Act and subsequent Feed-In Tariff Program (FITP).
“Mesa Power was surprised by unanticipated and last-minute rule changes to the Ontario Power Authority process that allowed wind projects to move from one region to another and interconnect with long, high voltage transmission lines,” said Cole Robertson, a company executive. “This clear favoritism disadvantaged Mesa, as well as other wind developer, and clearly violates the spirit, goals and objectives of the North American Free Trade Agreement.”
In its filing, Mesa Power cites a handful of other NAFTA violations by Ontario in the regulation of renewable energy. It also notes violations with the province’s “buy local” contract requirements within the FITP and challenges the preferential treatment given to certain participants in the program, including Korean-based Samsung C&T.
Specific violations cited in the claim include:
- NAFTA Article 1105, by the provincial government directing the Ontario Power Authority to change the rules for awarding Power Purchase Agreements under the FIT Program.
- NAFTA Article 1106, by imposing a variety of prohibited Canadian and Ontario content requirements and “buy local” performance requirements.
- NAFTA Article 1102, by providing more favorable treatment to a domestic company in like circumstances.
- NAFTA Article 1103, by providing more favorable treatment to a non-NAFTA party in like circumstances.
“We believe our projects are among the most advanced wind projects in Ontario,” Robertson said. “Our first two projects have completed their environmental studies, have a favorable position on existing transmission infrastructure and can be in operation by the end of next year. We also have a firm agreement to purchase wind turbines from a leading manufacturer and have selected an engineering and construction firm. These two strategic relationships would have quickly created jobs within the province. Other projects that received contracts under the disputed rules will take years to complete and will require extensive planning of new, expensive and unnecessarily long transmission lines.”
Mesa Power expects to file a formal NAFTA Notice of Arbitration at any point after October 3, 2011. The filing of this second notice formally begins an international arbitration that will review the fairness and propriety of the government actions in Canada.
