Analysis of the Canadian FiT case: Interpretation of Article III:8(a) GATT - Part II

Can the Ontario Feed-in tariff measure be justified under Article III:8(a) GATT? In other words, can a violation of the national treatment principle enshrined in Article III:4 GATT and Article 2.1 TRIMS be justified on the ground that the exception of Article III:8(a) GATT is applicable?

Article III:8(a) GATT states:

"8.       (a)      The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale."

The Ontario Power Authority purchases electricity from the renewable energy generation producers who are eligible for the guaranteed tariff which is conditioned on the purchase of domestic renewable energy generation products. Thus, there are two products in question: "electricity" produced and "renew be energy generation equipment". The panel dismissed the distinction of the two in the context of interpretation of Article III:8(a) GATT thus:

" 7.127 As already mentioned, the "Minimum Required Domestic Content Level" is a necessary prerequisite for the alleged procurement by the Government of Ontario to take place, and to this extent, we are of the view that such requirements "govern" the alleged procurement. Furthermore, we observe that the electricity allegedly procured by the Government of Ontario under the FIT Programme is produced using the renewable energy generation equipment that is the subject of the "Minimum Required Domestic Content Level". Thus, to the extent that the "Minimum Required Domestic Content Level" relates to the very same equipment that is needed and used to produce the electricity that is allegedly procured, there is very clearly a close relationship between the products that are affected by the relevant "laws, regulations or requirements" (renewable energy generation equipment) and the product that is allegedly procured (electricity)."

Regarding the interpretation of "commercial resale" in Article III:8(a) GATT requiring a profit element, the Panel held:

"7.151 Having found that Hydro One and the LDCs sell electricity in competition with private-sector licensed retailers and that the Government of Ontario and the municipal governments profit from the resale of electricity purchased under the FIT Programme to consumers, it is clear to us, for purposes of these disputes, that the nature of the resale of electricity purchased under the FIT Programme is "commercial". In coming to this conclusion, we emphasize that this does not mean we agree with Canada's understanding that a "commercial resale" will always necessarily involve profit, as there may well be situations where a resale of a product purchased by a governmental agency may not involve a profit but still may be "commercial" for the purpose of Article III:8(a) of the GATT 1994. Indeed, it is a fact that loss-making sales can be, and often are, a part of ordinary commercial activity. However, in the present factual situation, we have concluded that it is sufficient, for the purpose of finding that the Government of Ontario purchases electricity under the FIT Programme "with a view to commercial resale", that the Government of Ontario and the municipal governments not only profit from the resale of electricity that is purchased under the FIT Programme, but also that electricity resales are made in competition with licensed electricity retailers. In the light of the foregoing considerations, we find that the Government of Ontario's procurement of electricity under the FIT Programme is undertaken "with a view to commercial resale".

Thus, the Panel held that the Ontario measure did not fall into the ambit of Article III:8(a) GATT and hence was violative of Article III:4 GATT. It also held the measure incompatible with Article 2.1 TRIMS.

"7.152 We have concluded above that: (i) the Government of Ontario's purchases of electricity under the FIT Programme constitute "procurement", within the meaning of that term in Article III:8(a); (ii) the "Minimum Required Domestic Content Level" prescribed under the FIT Programme, and effected through the FIT and microFIT Contracts, is one of the "requirements governing" the Government of Ontario's "procurement" of electricity; and (iii)the Government of Ontario's "procurement" of electricity under the FIT Programme is undertaken "with a view to commercial resale". In the light of this latter conclusion, we find that the measures at issue are not covered by the terms of Article III:8(a), and that consequently, Canada cannot rely on Article III:8(a) of the GATT 1994 to exclude the application of Article III:4 of the GATT 1994 to the "Minimum Required Domestic Content Level" that the complainants challenge."     

I found this observation of the Panel interesting in the context of availability of domestic policy space in international economic law and policy:

"7.153 In coming to this conclusion, we express no opinion about the legitimacy of the Government of Ontario's objective of promoting the use of renewable energy in the production of electricity through the FIT Programme. Our conclusion that the Government of Ontario purchases electricity under the FIT Programme "with a view to commercial resale", within the meaning of Article III:8(a), must be understood only as a judgement about the extent to which Canada is entitled to rely upon Article III:8(a) of the GATT 1994 to maintain a measure that is alleged to discriminate against imported products under the terms of Article III:4."

In other words, the broad objective of promoting renewable energy though support programs is not being questioned but the discrimination to imported electricity generation equipment. The latter is not protectionism but the latter is. While renewable energy programs around the world are put through this rubric it would be interesting to see the results. Some would be blatant violations while others would be walking the tight rope. The interesting part (worrying for some) is that al this would be decide in the international arena if a country chooses to. Hence, defending one's national programs in the context of international trade rules becomes evidently critical.The debate would become even more engaging when we analyze the interpretation of the ASCM and whether the measure is a subsidy incompatible with WTO law.

That is for Part III of this series.