Airbus-Boeing dispute - public screening

For those interested in the Airbus Boeing subsidy case, the WTO panel hearing the compliance proceedings in DS316 is making parts of the proceeding public by showing a video recording of the proceedings as announced here. Another step in moving towards transparency? The next step could perhaps be an online video of the proceeding for those who cannot reach Geneva?

I have blogged about the Airbus Boeing dispute earlier here, here, here and here.

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!

Canada finally appeals in Feed in tariff case

As expected Canada has appealed against the Panel decision (DS412 and 426) in the Ontario Feed in tariff case. It has been reported here in the WTO website. The Panel had ruled against the local content requirement that was mandated by Canada's law and regulations in relation to feed in tariff.

I have blogged about this far reaching decision in the renewable energy sector here, here, here and here. Hopefully the Appellate Body (AB) would settle the complex issues of law in relation to the interpretation of a "subsidy" under the ASCM as well as whether local content requirements violate the "national treatment" principle both under the GATT and TRIMS. It would be interesting to see if the AB accepts the "minority" reasoning of the Panel with respect to conferment of a benefit under the ASCM? Countries with massive renewable energy support programs, especially feed in tariffs will be watching very closely.

Over to the AB now...

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.

 

Ontario feed-in tariff case countdown begins

WTO watchers are keenly awaiting the end of November decision of the Panel hearing the Ontario Feed-in tariff case against Canada (DS 412). The decision will be the first case at the WTO that lays down the jurisprudence relating to local content and applicability of WTO law (especially the nondiscrimination rule as well as subsidies) in the context of renewable energy programs. I have blogged about it recently here. With many countries implementing renewable energy  programs the decision will be awaited eagerly. The Panel decision is likely to be appealed against. It will also be judicially dissected and critically analyzed by the legal fraternity, especially at the IELP blog. The stakes are high for the renewable energy sector, which is one of the most subsidized sectors in both the developing and developed world.

Anticipating the decision in November reports are predicting the fall out of the case.The Globe and Mail had this piece outlining the possible impact of the Panel decision.

"A crucial ruling from the World Trade Organization, expected as early as this week, could force a dramatic rethink of Ontario’s green energy policies. 

The WTO will decide whether to side with complaints from Japan and the European Union that insist Ontario’s “local content” rules breach international trade law. Those rules force firms that sell premium-priced renewable energy to the province to buy a proportion of their equipment and services in Ontario. The policy, part of the province’s Green Energy Act passed in 2009, was designed to try to create a 21st-century manufacturing sector with an emphasis on renewable technology."

WIll the WTO decision force a rethink across the world about support for local content in renewable energy projects? Will mandating local content become taboo or will countries continue to implement local content programs? Will the issue of whether mandating or incentivizing local content being a prohibited subsidy (subsidy contingent on the use of local over imported goods) under Article 3 of the ASCM also be settled in the decision? Is this going to be a long drawn battle which will go upto the Appellate and compliance stage like the Airbus-Boeing Subsidies case that has engaged the dispute settlement mechanism for more than seven years now? 

Over to the Panel now for a decision.

Compliance in Boeing - A legal quagmire

I had blogged here about the recourse to Article 21.5 of the DSU by the EU against the U.S. in relation to the issue of compliance in the Boeing dispute here. More submissions dated 12th October by the EU here.

 The gist of the legal claim is here:

"28. The European Union considers that, after the end of the implementation period, the United States maintains a series of subsidies, within the meaning of Article 1.1 of the SCM Agreement through each of the measures listed in Section I, above. Each of those measures provides a financial contribution within the meaning of Article 1.1(a)(1), as detailed further in Section I, and confers a "benefit" within the meaning of Article 1.1(b) by providing the financial contribution on terms more favourable than would be available on the commercial market. Those subsidies are specific, within the meaning of Articles 1.2 and 2 of the SCM Agreement, as detailed further in Section I. 

29. Those specific subsidies presently benefit the development, production and sale of Boeing’s 737NG, 737 Max, 747, 767, 777 and 787 families of LCA, as well as any other future derivatives of these LCA families, including of the 777. Collectively, and under the conditions of competition present in the LCA markets, the subsidies listed in items I.A to G cause present adverse effects, in the form of serious prejudice, and threat thereof, to EU interests, inconsistently with Articles 5(c), 6.3(a), 6.3(b) and 6.3(c), including Articles 6.4 and 6.5, of the SCM Agreement. The effects of those subsidies adversely impact sales, market shares and prices of Airbus’ A320, A320neo, A330, A350XWB and A380 families of LCA. Specifically, the subsidies cause present serious prejudice, or threat thereof, to EU interests, in the form of: (i) displacement and impedance of EU imports into the United States, within the meaning of Article 6.3(a) of the SCM Agreement; (ii) displacement and impedance of EU exports to other third country markets, within the meaning of Article 6.3(b) of the SCM Agreement (including on the basis of Article 6.4 of the SCM Agreement); and, (iii) significant price undercutting, price suppression, price depression, and lost sales, within the meaning of Article 6.3(c) of the SCM Agreement (including on the basis of Article 6.5 of the SCM Agreement).  

30. In addition, the subsidies provided through the measures listed in items I.A to G are contingent, in law or in fact, on actual or anticipated export performance, and accordingly, are inconsistent with Articles 3.1(a) (including footnote 4) and 3.2 of the SCM Agreement. 

31. Moreover, the subsidy measures listed in items I.A to G are contingent, in law or in fact, on the use of domestic over imported goods, such that they are, accordingly, inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.  

32. Through those same measures listed in items I.A to G above, the United States accords treatment less favourable to imported products than that accorded to like products of US origin, in law or in fact, inconsistently with Articles III:4 of the GATT 1994, and maintains internal quantitative regulations that require, directly or indirectly, that specified amounts or proportions of products be supplied from domestic sources, in law or in fact, inconsistent with Article III:5 of the GATT 1994. Moreover, the United States otherwise applies such regulations in a manner contrary to the principles set forth in paragraph 1 of Article III, including the principle that such laws, regulations and requirements and internal quantitative regulations should not be applied to imported or domestic products so as to afford protection to domestic production. 

Both the disputes (Airbus and Boeing) offer an opportunity for rich juriprudential churning in the area of subsidies under the WTO. It also highlights the complexity of claims, the intertwining of fact and law as well as the extent to which domestic policy is impacted by international law. From local city measures to national subsidy policy, the entire gamut of subsidy measures have been challenged by the EU. This dispute also tests the efficacy of the dispute settlement mechanism. WIll the U.S. comply with the Appellate Body order? What constitutes compliance? If nothing else, the complex quagmire of legalese is an international lawyers goldmine.

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.