Canada DS412 & DS426 public hearing

Earlier this week, the legality of government support for renewable energy initiatives was subject of review at the WTO, in what is considered a landmark case against Canada. The panel heard opening arguments in cases launched by Japan and the EU (DS412 & DS426, respectively) over the Canadian province of Ontario’s local content requirements in its feed-in tariff (FIT) scheme.

The parties decided to allow the public to attend the first part of the 27-28 March hearing, which was applauded by the delegation of the US (acting as third party), as a practice for capacity building. However, the Q&A session was closed to the public.

The FIT scheme aims at increasing the share of renewable energy in the province’s electricity mix by insulating green energy producers from risks, and facilitating investments that would otherwise be costly. While Canada maintains that the programme is necessary to incentivise clean energy generation, the EU and Japan are concerned over the programme’s subsidising effect.

The thrust of both complaints is that Ontario’s FIT scheme unfairly discriminates against foreign renewable energy products through its “domestic content” clause. The EU and Japan argue that the FIT is a prohibited subsidy that directly violates the SCM Agreement. They also argue that the measures violate the NT requirements of the GATT and are inconsistent with the TRIMs Agreement.

The provisions require most renewable energy suppliers to use a minimum level of equipment produced in Ontario (25 percent for wind and 60 percent for solar projects) in order to qualify for price guarantees and grid access under the FIT.

It is important to note that Canada had to modify its original statement in order to address some new arguments presented by the EU and Japan. The complainants opposed this, but the Panel allowed Canada to make the necessary changes in order to avoid having to address some of these issues through the subsequent Q&A session. Canada’s defense viewed the FIT programme as a form of government procurement designed to ensure the affordable generation of clean energy in Ontario. Therefore, the programme would be shielded from both GATT NT requirements and the TRIMs Agreement provisions being cited in the case. Canada also stated that government procurement is exempt from the SCM Agreement, provided that it is not conferring a benefit. However, even if Canada is a party to the GPA, the Ontario Power Authority (OPA) – the agency that implements Ontario’s FIT programme – is not covered by Canada’s concessions in the plurilateral pact. As a result, Ontario is under no obligation to grant access to its energy procurement market.

Japan and the EU on the other hand, argued that the scheme constitutes a subsidy in the form of the transfer of a fund or price support, since the OPA never has possession of or exercises control over obtaining of the electricity supplied. Furthermore, they claim that regardless of being considered under the GPA or a subsidy, the measure itself confers a benefit. The benefit is in a form of a guarantee by OPA of above-market rates for the supply of electricity. Therefore, the measures cannot be shielded from the WTO’s SCM Agreement by being deemed a form of government procurement.

Finally, the Panel requested the parties to submit their written rebuttal submissions by the end of April, after that, the Panel will hold a second oral hearing. An interim report may be submitted to the parties on a confidential basis as early as July of this year. A decision by the Panel, which is likely to be appealed, can be expected around late October.