Local content and the Chinese challenge - sustainable?

I had earlier blogged about the Chinese challenge to the EU renewable energy FiT programs, particularly of Italy and Greece. While one awaits the Canadian FiT case Panel decision, China's request for consultation in this case offers opportunities for the development of WTO jurisprudence in the are of renewable energy, local content and permissible domestic policy space.

China challenged the "Italian Legislative Decree of 3 March 2011, for the incentivizing of the production of electrical energy from photovoltaic solar installations, generally, and Article 25(10) thereof, specifically" and also "the 7 August 2012 version of the "Implementing Rules" pertaining to, inter alia, the administration of the Italian Feed-In Tariff, promulgated by the Italian Gestore Servizi Energetici (Regole Applicative per l’Iscrizione ai Registri e per l’Accesso alle Tariffe Incentivanti), generally, but including in particular Article 4.4 ("Premium for installations that use main components produced within EU/EEA States"), and all pertinent past and future versions thereof." On the Greek measures, China challenged the "Development of the Athens former international airport Hellinikon - Project HELIOS - Promotion of the use of energy from renewable sources as well as the "primary Greek legislation on renewable energy sources, i.e. Act No. 3468/2006 on "Electricity Production from Renewable Energy Sources." 

The main legal basis for China's request for consultation is found in the following arguments:

"China considers that the above-mentioned measures are inconsistent, both as such and as applied, with, among others, the following obligations under the following provisions:

• Article III:1 of the GATT 1994, because the measures are laws, regulations and requirements affecting the internal sale of products in such a way that they afford protection to domestic production;

• Article III:4 of the GATT 1994, because certain measures accord less favorable treatment to imported equipment for renewable energy generation facilities over like products produced in the EU and the European Economic Area ("EEA");

• Article III:5 of the GATT 1994 because the measures constitute quantitative regulations relating to the use of products in amounts or proportions which requires, directly or indirectly, that a specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources; 

• Article I of the GATT 1994, because certain domestic content restrictions impede other WTO Members, including China, from enjoying the full benefit of the measures while other WTO Members do not face similar restrictions. These include but are not limited to certain WTO Members which are Members of the European Economic Area (EEA) but not the EU;

• Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures include subsidies within the meaning of Article 1.1 of the SCM Agreement that are prohibited as they are provided contingent upon the use of domestic over imported goods;

• Articles 2.1 and 2.2 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 condition the receipt of the full advantage of the measure on the use of domestic goods."

While the GATT challenge may be more easily sustainable if local goods are favored over imported goods, the finding of a prohibited subsidy under the ASCM may be a little more arduous because of the definitional requirements of what constitutes a subsidy including financial contribution, benefit and specificity. This opens up another debate about the applicability of Article XX GATT which provides for general exceptions to the GATT provisions on the grounds, inter alia, of the environment.

One would have to way and watch the journey of the Canadian FiT case and the arguments in the China challenge. The rulings will have immense implications for renewable energy programs around the world that are dependent on local content requirements.