Of flags and domestic content

While national Olympic uniforms for the US team made in China created a lot of controversy and debate in the US during the London Olympics about which I had blogged here and here, will the news of flags at the US President's inauguration being made in Belgium rather than domestically made create a flutter again?

(A US flag being made in Belgium ..Courtesy yahoo news http://news.yahoo.com/obamas-inauguration-stars-stripes-made-belgium-181946720.html)

The flag bearers of a globalized, interconnected, "made in the world" theory may like this fact, nevertheless...

U.S. challenges India's renewable energy program

It seems to be the week of renewable energy in international trade law circles with the United States requesting consultations with India in relation to domestic content requirements in India's national solar program.

The USTR carried this piece:

"United States Trade Representative Ron Kirk announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the Government of India concerning domestic content requirements in India’s national solar program. India’s program appears to discriminate against U.S. solar equipment by requiring solar energy producers to use Indian-manufactured solar cells and modules and by offering subsidies to those developers for using domestic equipment instead of imports. These forced localization requirements of India’s national solar program restrict India’s market to U.S. imports. Tackling these barriers is a top priority of the Obama Administration. 

... 

On January 11, 2010, India launched its national solar policy, the Jawaharlal Nehru National Solar Mission (JNNSM). Phase I of that national policy is composed of two parts: Batch 1 and Batch 2. Under Batch 1, India required developers of solar photovoltaic (“PV”) projects employing crystalline silicon technology to use solar modules manufactured in India. Subsequently, under Batch 2, India expanded this domestic sourcing requirement to crystalline silicon solar cells as well. In its draft policy for Phase II of the JNNSM, India has stated that it is considering expanding the scope of the domestic content requirements further to include solar thin film technologies, which currently comprise the majority of U.S. solar exports to India. India also offers solar energy developers participating in the JNNSM a guarantee that the government will purchase a certain amount of solar power at a highly subsidized tariff rate, provided that they use domestically manufactured solar equipment instead of imports. 

These elements of India’s national solar policy appear to be inconsistent with India’s obligations under the WTO agreements. These obligations include Article III of the General Agreement on Tariffs and Trade 1994 (GATT 1994), which generally prohibits measures that discriminate in favor of domestically produced goods versus imports; Article 2 of the WTO Agreement on Trade-Related Investment Measures, which prohibits trade-related investment measures that are inconsistent with GATT Article III; Article 3 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which prohibits conditioning a subsidy on the use of domestic over imported goods; and Article 5 of the SCM Agreement, which prohibits causing adverse effects on other WTO Members through subsidies that discriminate against imported goods."

The case has been widely reported here, here and here.With Canada appealing the feed in tariff case at the WTO (that came to a finding that domestic content requirements int he Ontario context were violative of Canada's obligations under TRIMS and GATT) and the US requesting for consultations on this issue, will 2013 be the year where renewable energy support programs around the world will be challenged at the dispute settlement mechanism?

Canada Ontario case - some thoughts before the decision

For followers of the Canada FiT case (DS 412 and DS 426) who have no access to the proceedings of the case at the WTO, the arguments advanced by the concerned parties have been more of an enigma. The WTO website which has an account of all the cases filed does not provide the details of the written submissions made by the parties. The decision of the Panel and Appellate Body would be put up on the website as and when they decide.

However, countries to the dispute can, of their own volition, put up their pleadings in the public domain n the interests of transparency. The EU, which has challenged the Canadian FiT program as being violative of the ASCM, has done so. The submissions are found here. The main thrust of the EU submission has been that the guaranteed FiT is a prohibited subsidy under ASCM due to the local content requirements.

"The European Union considers that the root of the problem in the present dispute is the inclusion of domestic content requirements in the FIT Program. The Government of Ontario, through the FIT Program, requires the utilisation of domestic equipment and components for certain renewable energy generation facilities in order to obtain guaranteed, above-market, long-term pricing for the output of those facilities. The need to counter this blatant discrimination between domestic and imported products crystallised as the national treatment principle in several provisions of the covered agreements and is at the centre of non-tariff barriers that must be eliminated in the context of the WTO's multilateral trading system.The pernicious effects on trade of such discrimination are multiplied by the provision of subsidies in the present dispute. Thus, the European Union considers that the relevant national treatment provisions of the SCM Agreement, the TRIMs Agreement and the GATT 1994 cited in the EU's Panel Request are applicable in this case."

An interesting aspect of the EU submission is the broad interpretation of "income or price support" under Article 1.1 of the ASCM which refers tot he definition of a subsidy. Relying heavily of the ordinary and dictionary meanings of these terms, the EU submission claims that the FiT program is an income or price support to the electricity generators.

"The FIT Program is a measure designed by the Government of Ontario to guarantee the price of the electricity supplied by the FIT Generators for a long period of time (20 years). As explained by Japan in its first written submission in DS412 and by the European Union elsewhere in this submission, the FIT Program operates as a price support system whereby the Government of Ontario, through its agency, the OPA, contractually agrees with the FIT Generators a rate and then pays such a rate directly (through another agency, the IESO) or indirectly (through LDCs) to the FIT Generators. The ultimate cost of the measure is borne by consumers, which contribute to the Global Adjustment when paying the electricity bills. Only in the rare case that the market rate (i.e. MCP/HOEP) goes above the guaranteed rates, the FIT Generator will receive payments for the supply of electricity under market conditions without the additional financial incentive created by the FIT Program. In the other (vast majority of) cases, the FIT Generator will obtain an above-market rate. Thus, the FIT Program provides "price" support (in the sense that agreed rates will always be above or at least at market rates) to electricity generated by the FIT Generators. At the same time, the guaranteed, above-market rates provide for "income" support of FIT Generators. Without those rates, the income or proceeds of the FIT Generators from the same amount of generated electricity supplied into the grid would be lower, following the lower and unsupported market rates."

These submissions made interesting reading since the EU itself has a large number of FiT programs at the national level. Would the stand of the EU be the same if its FiTs are challenged at the WTO? Can a member take positions based on whether it is a complainant or respondent? Obviously the particular facts and circumstances of each case will determine the legal position taken, but the EU submission just got me thinking of the scenario where another member would challenge a EU FiT as a prohibited subsidy. 

No more blogposts abut the Canadian FiT case until the Panel decision is made public!