Japan, US and the EU Face-Off against Ontario's Renewable Energy Program at the WTO

20 décembre 2010

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The debate over Ontario’s feed-in-tariff Program (the FIT Program)was elevated to a new level in September, when Japan launched a dispute settlement proceeding against Canada at the World Trade Organization (WTO). On September 16, 2010, Japan filed a request for consultation with the WTO Dispute Settlement Body (DSB) regarding Canada’s measures relating to the domestic content requirements in the Ontario FIT Program. Less than two weeks later, the US and the EU followed suit and requested to be joined in the consultations. In its submission to the WTO, the EU argued that “[the] renewable energy generation sector is of key interest for the EU importers, exporters and investors" The US stated that, as a major innovator of renewable energy and related technologies, and as a primary source of Canadian imports of products used in the production of renewable energy, it has “substantial trade interests in these consultations.”While these requests for consultation represent the first of many steps in the WTO settlement dispute process, it nonetheless signals a desire by the challenging parties to push back on Canada’s domestic content requirements that they feel are having a negative impact on the export of their renewable energy products into Canada. 

Snapshot of the WTO Dispute Settlement Process

The WTO Dispute Settlement process is a multi-stage process, with consultation being the initial stage before the establishment of a DSB panel. During the consultation stage, the parties to the dispute are required to reply to one another, with the objective of resolving the dispute without the need to advance to a panel review. After 60 days, if no resolution has been reached, the complainant may request the DSB to establish a panel1;The parties are then given up to 20 days to discuss the terms of reference and the composition of the panel. Ultimately, with the parties’ input, a panel of three to five independent experts will be chosen to examine the complaint. Examinations involve meetings with the parties, third parties and may also include an expert review group, and may take up to nine months to conclude. The final report, containing the panel’s findings and recommendations, are provided to the parties within six months of the completion of examinations. Any decision of the panel may be appealed to the WTO Appellate Body. If a complaint is upheld, then once all appeals have been settled, the losing party must inform the DSB of its proposed measures to implement the recommendations. If it is impractical to comply immediately, the losing party will be given a “reasonable period of time” for implementation, which can be determined by the DSB based on either the losing party’s proposal, agreement between the disputing parties, or through arbitration. If the losing party fails to act within the defined “reasonable period of time”, it is obliged to enter into compensation negotiations with the complainant, subsequent to which, the DSB may authorize the implementation of retaliatory trade sanctions by the complainant(s) against the losing party.2

Japan’s Complaint against Canada

The Japanese complaint targets the domestic content requirements in the Ontario FIT Program, arguing that such requirements discriminate against equipment for renewable energy generation facilities produced outside Ontario, and also constitutes a prohibited subsidy. Japan and the other complainants are arguing that, by providing guaranteed, long-term pricing for the output of the renewable energy generation facilities that contain a defined percentage of domestic content, the FIT Program is inconsistent with Canada’s WTO obligations. In particular:

  • Under Articles III.4 of the General Agreement on Tariffs and Trade (GATT), Japan is to be accorded treatment no less favourable than that accorded to like products of national original in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. Further, under Article III.5, Canada shall not establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportion of equipment for renewable energy generation facilities that require equipment to be supplied from Ontario sources. Japan is arguing that the measures imposed by the FIT Program afford protection to Ontario production of renewable energy generation equipment in a manner contrary to the principles of the GATT3
  • Under Article 2 of the Agreement on Trade-Related Investment Measures (TRIMs), Japan also argues that the measures imposed by the FIT Program appear to be trade-related investment measures that are inconsistent with Article III of the GATT, and therefore also inconsistent with the TRIMs. 
  • Under Article 3 of the Agreement on Subsidies and Countervailing Measures, Canada shall neither grant nor maintain subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. Japan argues that the measures imposed by the FIT Program (requiring the use of equipment for renewable energy generation facilities to be produced in Ontario) appear to be a subsidy because they represent a form of income or price support that confers a benefit;

Japan has requested a reply from the Government of Canada, and has reserved the right to request production of further information and documents regarding the measures imposed by the FIT Program. Following the DSB consultation procedure, Canada has until the middle of November to settle the matter before Japan may return to the DSB to request the establishment of a panel. Both the Government of Canada and the Government of Ontario have taken the position that Ontario’s Green Energy Act is consistent with Canada’s international trade obligations under the WTO, and will defend the policy accordingly

In January 2010, Ontario signed a deal with a South Korean consortium led by Samsung C&T Corp, which agreed to build four wind and solar power manufacturing facilities in Ontario with a combined power-generating capacity of 2.6 gigawatts by 2016. In exchange, Ontario has agreed to provide the Samsung consortium premium energy prices, access to the transmission system and CDN$437 million in incentives tied to the timely completion of the manufacturing facilities. Samsung is trying to establish itself as a key renewable energy player that will compete directly with existing Japanese companies such as Sharp, Mitsubishi and Kyocera. Some critics have speculated that Japan chose to target Ontario in response to the deal with the Samsung consortium.   

1 The DSB must strike a panel no later than the second time it sits to consider the panel request, unless there is consensus against the decision by the DSB.

2 Kindred, Hugh M., Karin Mickelson, Ted L. McDorman, et al. eds. International Law Chiefly as Interpreted and Applied in Canada, 5th ed (Toronto: Emond Montgomery Publications Limited, 2000). For more information on the WTO DSB, please refer to The World Trade Organization online: http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp2_e.htm.

3 General Agreement on Tariffs and Trade, 30 October 1947, 58 U.N.T.S. 187, Article III.

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