Domestic content requirements that require some generators to source up to 60% of equipment from the Canadian province of Ontario under its feed-in-tariff (FIT) program are inconsistent with international trade rules, officials from the World Trade Organization’s (WTO’s) highest court said on Monday.
The high-profile renewables trade dispute began in September 2010 when Japan requested consultations with Canada, disputing the legality (under international trade law) of Ontario’s local content requirements as set down under the Ontario Green Energy Act of 2009. Experts say the pivotal case could shed light on the extent to which government authorities can favor domestic producers and suppliers in promoting renewables.
Ontario’s law mandates that certain generators must source at least 25% of goods and services from Ontario for wind projects and at least 60% for solar projects to qualify for guaranteed prices offered under the FIT. But Japan claimed that this local content requirement is a “discriminatory measure” that bars foreign competition in Ontario. The U.S. and the European Union (EU) separately joined the consultations disputing Ontario’s requirements in September 2010. Canada countered that the measure seeks only to encourage production of clean energy by incentivizing producers to use renewable power.
Last December, a WTO dispute settlement panel sided with the EU, Japan, and the U.S., concluding that Ontario’s program discriminated against imports and was inconsistent with WTO rules. But Canada filed an appeal to the case in February 2013, asking WTO judges to review certain points of the law. The EU and Japan later also filed their own cross-appeals.
On Monday, finally, the WTO’s appellate body issued a report that confirmed previous conclusions that “local content requirements accord preferential treatment to products made in Ontario by requiring the purchase or use of products from domestic sources, which is prohibited in the illustrative list of the [Trade-Related Investment Measures, or TRIMS] Agreement, and therefore places Canada in breach of its national treatment obligation under [the General Agreement on Tariffs and Trade, or GATT] Article III and TRIMS Agreement Article II,” the report said.
Significantly, the appellate body also rejected Canada’s rebuttal that the local content requirements should be considered as “government procurement,” which can be exempted from the national treatment obligation.
The ruling “made clear that the use of quality, cost-effective technologies should not be hampered by protectionist measures,” said EU Trade Spokesman John Clancy in a statement on Monday. Japan’s Minister of Economy, Trade, and Industry Toshimitsu Motegi, meanwhile, lauded the WTO body’s decision, saying: “Japan considers this ruling can be highly evaluated from the viewpoint of preventing protectionism in the renewable energy sector, which can be regarded as a major growth industry.” Motegi pointed out, “This is the first case that a measure providing preferential treatment to domestically manufactured goods under the Feed-in Tariff Program is WTO-inconsistent.”
Canada, which represented Ontario in the WTO proceedings, said it would “comply with its obligations,” but pointed out that the specifics would be determined by Ontario’s provincial government.
Decisions to boost the growth of renewables through subsidies by many governments have prompted several international trade disputes. As POWER’s April 2013 BIG PICTURE shows, the EU and the U.S. are facing complaints from several countries about their own domestic content requirements.
Last month in WTO filings, India asked the U.S. to justify incentives offered to U.S. companies to use local products in renewable power and water projects. The U.S. had in February alleged that India’s local content requirement for a 2010-launched solar program discriminates against foreign solar equipment makers. Several U.S. environmental groups have asked the U.S. Trade Representative to reconsider the WTO challenge to India’s solar domestic content rules and subsidies, saying they allow India to support and build its domestic solar industry. The Solar Energy Industries Association, a prominent U.S. solar industry group, has backed the trade representative’s proceedings against India, however.
The increasing number of trade disputes related to renewables showed the WTO was badly in need of forward-looking discussions on associated trade implications, WTO Director-General Pascal Lamy told attendees at a workshop on trade and energy issues last week. “A discussion on the trade-related aspects of measures to promote clean energy, which is both rooted in political reality and informal, remains almost completely absent from the WTO in spite of the existence in the organization’s institutional structure of dedicated fora for such discussions,” he said.
For an in-depth analysis of Ontario’s energy policies—including the province’s ambitions to phase out coal by the end of 2013—see POWER’s May 2013 cover story, “Ontario Goes Coal-Free in a Decade.”
Sources: POWERnews, World Trade Organization, EU Trade, Japan Ministry of Economy, Trade, and Industry, POWER
—Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)