Canada's renewable energy program challenged

The disputes in the renewable energy sector are knocking on WTO's doorstep. Reuters reported that EU has decided to seek establishment of a Dispute panel at the WTO against Canada with respect to the Feed-in Tariff program (FIT program) of the Canadian province of Ontario.

"The European Union has escalated a trade dispute over Canadian provincial rules for solar and wind energy subsidies by asking the World Trade Organization to set up a panel to rule on the case, the WTO said on Wednesday.

The EU's decision to resort to legal measures against Canada, after the failure of direct talks to settle the dispute, will come as little surprise because Japan has already trodden the same path in an identical case. 

The EU and Japan say the Canadian province of Ontario is illegally restricting trade by giving an subsidy to local producers of renewable energy equipment and services. 

The scheme guarantees above-market energy prices for renewable power that uses a certain amount of Canadian-made equipment or services, a provision that the complainants say is against the WTO's rules."

 The FIT Program of the Ontario Power Authority essentially encourages power generation projects using renewable sources of energy by providing a guaranteed pricing structure for renewable energy production. As part of this program, to avail its benefits power generation products have to source a certain percentage of their products that are produced domestically in Ontario. 

The domestic content requirement is as follows:

"The FIT contract requires wind projects greater than 10 kilowatts (kW) and all solar PV projects to include a minimum amount of goods and services that come from Ontario. You will be required to develop a plan that demonstrates how you intend to meet these domestic content requirements.

The minimum required amount of Ontario-based content will increase over time and is determined by the milestone date for commercial operation of your project, not the date that your project reaches commercial operation. The minimum requirements are set out below.

Wind projects over 10 kW 

Minimum domestic content level	Milestone date for commercial operation
25 percent	before January 1, 2012
50 percent	on or after January 1, 2012

 Solar PV projects over 10 kW and less than or equal to 10,000 kW 

Minimum domestic content level	Milestone date for commercial operation
50 percent	before January 1, 2011
60 percent	on or after January 1, 2011

This has been challenged by the EU in the WTO on the ground that Canada is violating its WTO obligations as reported here. The EU had earlier sought for consultations in the matter in the WTO. Failure at the consultations led the the demand for setting up of a dispute panel. The main assertions of the EU were:

" The European Union claimed that the measures are inconsistent with Canada's obligations under Article III:4 and III:5 of the GATT 1994 because they appear to be laws, regulations or requirements affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of equipment for renewable energy generation facilities that accord less favourable treatment to imported equipment than that accorded to like products originating in Ontario; that the measures could be internal quantitative regulations relating to the mixture, processing or use of a specified amount or proportion of equipment for renewable energy generation facilities which require that equipment for renewable energy generation facilities be supplied from Ontario sources; and that the measures appear to require the mixture, processing or use of equipment for renewable energy generation facilities supplied from Ontario in specified amounts or proportions, being applied so as to afford protection to Ontario production of such equipment, contrary to the principles of Article III:1 of the GATT 1994.

The European Union also claimed that the measures appear to be inconsistent with Article 2.1 of the TRIMs Agreement because they appear to be trade-related investment measures that are inconsistent with the provisions of Article III of the GATT 1994.

Finally, the European Union alleged that it appears that a subsidy is granted under the measures because there would be a financial contribution or a form of income or price support, and a benefit is thereby conferred.  It is also claimed that the subsidy would be a prohibited subsidy under Articles 3.1(b) and 3.2 of the SCM Agreement because it appears to be 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 countries such as the European Union."

The three broad issues relating to mandating of domestic content requirement in the FIT program that the EU contentions raise are:
1. It is violative of the national treatment principle which is one of the underlying principles of the WTO. In other words, there are laws/regulations that accord a less favourable treatment to imported goods as compared to locally produced renewable energy products.
2. It violates the national treatment principle in the TRIMS Agreement.
3. The program offers  a "prohibited subsidy" since a subsidy (price support) would be provided to power generation projects contingent upon the use of domestically produced equipment which is not permitted by the Subsidies and Countervailing measures Agreement.


Similarly, Japan has also challenged the FIT program as violative of Canada's commitments which is before the Dispute panel of the WTO, in which the EU is a Third Party. Both these cases will be keenly watched since it will have a bearing on other potential disputes that concern the Chinese, American and Indian renewable energy sectors.