Freitag, 4. Januar 2013

WTO-Panel rules against Ontario’s Feed-In Tariff local content rules

(LEXEGESE) - The World Trade Organization released on December 19, 2012 its decision on complaints by Japan and the European Union regarding Ontario’s Feed-In Tariff local content rules.

I. Background 

The dispute concerns the domestic content requirements that must be complied with in the design and construction of certain electricity generation facilities utilizing solar photovoltaic and windpower technology in order to qualify for guaranteed electricity prices offered under the Feed-In Tariff (“FIT”) Programme, adopted by the Government of the Province of Ontario, as well as all individual FIT and microFIT Contracts implementing these requirements since the FIT Programme's inception in 2009 (“the challenged measures”).

The European Union claimed that the domestic content requirements provided for and implemented under the challenged measures place Canada in violation of: (i) the national treatment obligation under Article III:4 of the GATT 1994; (ii) the prohibition that is set out in Article 2.1 of the TRIMs Agreement on the application of any trade-related investment measures that are inconsistent with Article III of the GATT 1994; and (iii) the prohibition on import substitution subsidies prescribed in Articles 3.1(b) and 3.2 of the SCM Agreement.

II. Summary of key findings

The WTO-Panel upheld European Union's claims under Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994. After noting that the trade-related investment measures described in paragraph 1(a) of the Illustrative List found in the Annex to the TRIMs Agreement are considered to be inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994, subject to the operation of inter alia Article III:8(a) of the GATT 1994, the Panel set about determining: (i) whether Canada could rely upon Article III:8(a) of the GATT 1994 to remove the challenged measures from the operation of Article 2.1 of the TRIMs Agreement; and if not, (ii) whether the challenged measures were of the kind described in paragraph 1(a) of the Illustrative List. 

The Panel found that Canada had not established it was entitled to rely upon Article III:8(a) of the GATT 1994 because the Government of Ontario's procurement of electricity under the FIT Programme was undertaken “with a view to commercial resale”. The Panel furthermore found that the challenged measures fell within the scope of paragraph 1(a) of the Illustrative List. The Panel thereby concluded that the European Union had demonstrated that the challenged measures were inconsistent with Canada's obligations under Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994.

As regards the European Union's prohibited subsidy claims under Articles 3.1(b) and 3.2 of the SCM Agreement, the Panel delivered a divided ruling. 

The Panel majority dismissed the European Union's allegations on the grounds that European Union had failed to establish the existence of a subsidy. Among the Panel majority's key findings in support of this assessment was that the Hourly Ontario Electricity Price (“HOEP”) that was at the centre of the European Union's main benefit arguments could not serve as an appropriate benchmark against which to determine whether the challenged measures confered a “benefit” within the meaning of Article 1.1(b) of the SCM Agreement, because: (i) the HOEP did not result from the operation of a competitive wholesale electricity market, but rather a market that was significantly influenced by government regulation; (ii) the economics of competitive wholesale electricity markets in general suggest that they will rarely attract the degree of investment in generation capacity needed to secure a reliable electricity system; and (iii) the prevailing conditions of supply and demand in Ontario suggest that a competitive wholesale electricity market would fail to achieve this outcome in Ontario. Thus, the Panel majority concluded that there was no basis to uphold the European Union's subsidization arguments. 

After having rejected the European Union's arguments, and in response to the European Union's specific request, the Panel majority set out its own observations on one approach it considered could have been validly pursued in these disputes to determine the existence of “benefit” under the terms of Article 1.1(b) of the SCM Agreement. The Panel majority described the approach it contemplated as one that would involve making a comparison between the relevant rates of return of the challenged FIT and microFIT Contracts with the average cost of capital in Canada for projects having a comparable risk profile to the FIT and microFIT projects. The Panel majority went on to explain that, while this comparison would have been useful for the “benefit” analysis, it would have been necessary to explore a number of important questions and factual issues in order to apply it.

Finally, one member of the Panel expressed a dissenting opinion on the European Union's subsidization claims, finding that the European Union had demonstrated that the challenged measures conferred a “benefit” under the terms of Article 1.1(b) of the SCM Agreement. For this member of the Panel, the challenged measures were subsidies because the pricing offered to relatively high cost and less efficient FIT and microFIT generators under the FIT and microFIT Contracts enabled them to enter the wholesale electricity market, when they would otherwise not have been able to in the absence of the FIT Programme implemented by the Government of the Province of Ontario.

III. Comment

It is very likely that the WTO decision will have an impact on other countries with similar renewable energy programs. China already filed a similar WTO complaint. It alleges that certain measures affecting the renewable energy generation sector relating to the feed-in tariff programmes of EU member states, including but not limited to Italy and Greece, include domestic content restrictions and are inconsistent with the GATT 1994, the Agreement on Subsidies and Countervailing Measures and the Agreement on Trade-Related Investment Measures.


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