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 (see Bridges Trade BioRes, 28 March 2012).
The interim report, circulated to the parties by the panel on 20 September, now confirms the view that the scheme’s “local content requirement” violates the WTO’s non-discrimination principle enshrined in the General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Trade-Related Investment Measures (TRIMS). 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.
The case has been widely portrayed as an environmental dispute, concerning the extent to which authorities can favour domestic producers and suppliers in promoting green energy. At the earlier hearing, however, the arguments from the parties principally focused on the investment aspects of the FIT provisions.
Claimed by Ontarian officials to encourage clean energy production, the local initiative offers incentives to energy producers to use electricity from renewable sources. Provisions of the programme, however, also require that to be eligible for such incentives, renewable energy projects include a minimum quota of goods and services deriving from Ontario – in the case of wind, 25 percent, and for solar projects, 60 percent.
Such a, “discriminatory measure,” said Japan in its statement before the panel in March this year, “is designed to promote the production of renewable energy generation equipment in Ontario rather than to promote the generation of renewable energy.”
Canada, on behalf of Ontario, instead portrayed the measure as government procurement necessary to facilitate a move toward green energy production. If the argument was accepted, the measure would not have been subject to WTO provisions on non-discrimination.
In addition to their arguments that the measures were discriminatory, the EU and Japan also argued that the provisions constituted a prohibited subsidy inconsistent with the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
It is understood that both arguments have now failed, with the Panel ultimately condemning the Ontario rules on the grounds they are discriminatory against foreign suppliers of equipment and components for renewable energy generation facilities.
Both parties have now had an opportunity to submit comments on the interim report. Following the example of most WTO panels to date, however, the panel is not expected to substantially depart from its preliminary findings when it issues its final ruling in November. In a communication from June this year, the panel informed the parties that it expects to finalise its work by late November 2012.