FiT ruling, government purchase and some interesting findings

The much awaited Canada FiT Appellate Body report is out. For those interested in a  quick look at the findings, here it is. The detailed 145 page decision for those die hard WTO fans is here. The IELP blog bringing out the aspect of the domestic policy space available for countries to implement renewable energy schemes had this initial reaction.

The implications of the decision for FiT programs based on local content requirements worldwide is important. One would also wait and see how the province of Ontario and Canada would respond in terms of compliance.

My initial reading of the summary and quick read of the decision indicates:

1. The mandatory local content requirements violate Article III:4 GATT and Article 2.1 of TRIMS.

2. They are not saved by the government procurement exception in Article III:8 GATT exception since there is no governmental purchase of renewable energy equipment. perhaps the striking feature of this decision is the distinction made between the electricity produced and the renewable energy equipment. The link that the Panel had found was over ruled.

"5.79. We have found above that the conditions for derogation under Article III:8(a) must be understood in relation to the obligations stipulated in the other paragraphs of Article III. This means that the product of foreign origin allegedly being discriminated against must be in a competitive relationship with the product purchased. In the case before us, the product being procured is electricity, whereas the product discriminated against for reason of its origin is generation equipment. These two products are not in a competitive relationship. None of the participants has suggested otherwise, much less offered evidence to substantiate such proposition. Accordingly, the discrimination relating to generation equipment contained in the FIT Programme and Contracts is not covered by the derogation of Article III:8(a) of the GATT 1994.530 We therefore reverse the Panel's findings, in paragraphs 7.127, 7.128, and 7.152 of the Panel Reports, that the Minimum Required Domestic Content Levels of the FIT Programme and related FIT and microFIT Contracts are laws, regulations, or requirements governing the procurement by governmental agencies of electricity within the meaning of Article III:8(a) of the GATT 1994. Instead, we find that the Minimum Required Domestic Content Levels cannot be characterized as "laws, regulations or requirements governing the procurement by governmental agencies" of electricity within the meaning of Article III:8(a) of the GATT 1994."

3. The Appellate Body did not come to the conclusion that the measure was a prohibited subsidy under Article 3.1 (b) of the ASCM.

Hence, though the program mandating local content was found to be in violation of GATT provisions it was not held to be a prohibited subsidy under the ASCM.

EU and Japan also appeal - Ontario case becomes more interesting

I have blogged about the Canadian FiT case at the WTO case here, here and here. News of Canada appealing the matter was reported here. It was not surprising since Canada had lost the case and was contesting the finding of the panel report that it had violated the provisions of the TRIMS and GATT.

Reports of the EU and Japan cross-appealing caught my attention. This would presumably be mainly on the interpretation of the provisions of the ASCM, especially the definition of a subsidy and benefit.

It is clear that the Appellate Body would decide the legal contours of this dispute, especially the compatibility of local content requirements with WTO law in the context of governments guaranteeing a minimum feed in tariff. With a number of countries across the world, both developing and developed, having massive renewable energy support programs (many of them with local content requirements), the AB ruling all be keenly awaited. One hopes that going by timeframe of the Antigua and Airbus-Boeing cases at the WTO dispute settlement, the wait for a closure is not too long!

Local content, renewable energy and the WTO

The FiT ruling in the WTO case (DS 412) of Canada's (more specifically Ontario's) renewable energy program is eagerly awaited. I had blogged about a preliminary report of the WTO Panel here. It will surely be appealed against. What implication does the prohibition of "local content" requirements in renewable energy programs have on programs around the world?

A well written piece on the history and implications of a WTO ruling is found here.

Many questions:

1. What is the implication for countries following "local content' requirements in their FiT or renewable energy programs? Will domestic policy require a thorough revamp?

2. Is there a difference between "mandating" local content and "incentivizing" local content? Is the latter more acceptable?

3. Would the applicability of Article XX GATT general exceptions (protecting the environment) not be available in the case of local content rules?

4. Will we see a splurge of trade disputes wherein renewable energy programs across the world based on local content requirements will be challenged at the dispute settlement mechanism? Will countries take this path or will a negotiated settlement for a renewed multilateral agreement on renewable energy be worked out?

Will keenly await the Panel ruling and the reactions to it.

Renewable energy, WTO and local content - China takes on the EU

In signs of increased disputes in the renewable energy sector at the WTO, China filed a complaint against the EU and certain EU member states against certain Feed in Tariff programs that it alleged violated the GATT, ASCM and TRIMs. The WTO reported the filing of the complaint here. Though details of the complaint and the grounds of challenge are not yet clear, it seems that "local content" requirements are the main ground for he challenge.It was reported here.The NYT reported it here. Surprisingly, China has not filed a case against the U.S. with regard to which China connected a detailed investigation into State specific renewable energy programs recently. Many countries provide preferential tariff on generation of renewable energy and also mandate the use of locally produced products for this generation. Some countries provide an incentive on the tariff (additional tariff) on the condition that local products are used. 

EU and Japan have already challenged Canada's (Ontario's, more specifically) Feed-in tariff program as being violate of GATT law since it treats imported products less favourably than local products. The decision of the WTO Panel in this case is awaited in November. I had blogged about the dispute recently here.

With a number of countries implementing renewable energy programs of varying degrees and varieties, with and without local content requirements, the disputes at the WTO will offer some interesting insights on where the lines are to be drawn in balancing environment protection and trade.

Ontario Feed in Tariff - Not a prohibited subsidy but violative of GATT provisions?

Breaking news of an interim WTO panel ruling on the Ontario Feed in Tariff case is coming in. The Globe and Mail reported it here. The EU and Japan had challenged the FiT program for renewable energy of Ontario which mandated use of locally manufactured Ontario products on the grounds that it violated the "local content" rules of the ASCM, TRIMS and GATT. I had earlier blogged about it here, here and here.

The WTO website has no official confirmation of the interim decision (the website is normally uptodate on decisions and happenings in the WTO). ICTSD has a detailed note on the interim decision:

"According to a confidential interim WTO dispute settlement report, a three-member panel has sided with the EU and Japan in their challenge of renewable energy support provided by the Canadian province of Ontario, sources told BioRes this week. The two countries had argued that the feed-in-tariff (FIT) system - put in place in 2009 - violates WTO rules because it requires participating electricity generators to source up to 60 percent of their equipment in Ontario. 

According to a confidential interim WTO dispute settlement report, a three-member panel has sided with the EU and Japan in their challenge of renewable energy support provided by the Canadian province of Ontario, sources told BioRes this week. The two countries had argued that the feed-in-tariff (FIT) system - put in place in 2009 - violates WTO rules because it requires participating electricity generators to source up to 60 percent of their equipment in Ontario .However, based on what is currently known about the confidential document, assertions by Brussels and Tokyo that the programme also amounted to illegal subsidies - dependent on use of locally produced equipment - have been rejected. At the time BioRes went to press, the ruling was not available."

If I understand this right, the panel has decided that the local content requirements are violative of WTO obligations of non-discrimination under GATT and TRIMS. However, they do not constitute a "prohibited subsidy" under Article 3 (1) (b) of the ASCM. Does this imply that an FiT as implemented in Ontario is not a subsidy as defined by the ASCM and hence does not amount to a "prohibited" subsidy? Or does it not have the characteristics of a prohibited subsidy as defined under Article 3 of the ASCM? The other major implication of this distinction of not amounting to a prohibited subsidy is the applicability of the general exception of Article XX of GATT. If it was declared a prohibited subsidy it would have been more difficult for Canada to justify its measure under Article XX of the GATT. This distinction has a major implication for renewable energy programs, especially FiTs, worldwide.

WIll eagerly await the November panel ruling.

Lenz Blog and Renewable energy subsidies

It was encouraging to be personally referred to by Prof.Karl-Friedrich Lenz in his blog Lenz Blog referring to few of my questions on Feed in Tariffs and WTO law. His analysis on the German FIT is very interesting and raises pertinent questions about renewable energy subsidies and WTO law compatibility in the wider context of climate change and trade rules. His blog piece on the issue  is here.