WTO dispute strains the limits of friendship and fair trade

21. May 2012 | Global PV markets, Industry & Suppliers, Markets & Trends, Trade cases | By:  Cheryl Kaften

In what can only be described as a "Bizarro World" scenario, even as Canada continued to take the heat last week for the domestic content requirement in Ontario’s feed-in tariff (FIT.2) scheme, legislators in Washington, DC, considered imposing a similar regulation, in order to freeze China’s manufacturers out of the U.S. solar market.

Ontario Lily Lake Solar Farm photovoltaics

Did Ontario discriminate in favor of domestic goods with subsidies designed to promote production in the province, rather than designed to advance the renewable energy industry?

The United States is a third-party complainant to the ongoing World Trade Organization (WTO) disputes – DS412 (Canada-Renewable Energy) and DS426 (Canada-Feed-in Tariffs) – lodged by Japan and the European Union in September 2010 and August 2011, respectively. 

However, on May 15, while the parties to the case presented the first of two days of follow-up oral arguments to the WTO’s Dispute Settlement panel at a hearing in Geneva, U.S. Senators Charles E. Schumer (Democrat–New York) and Sherrod Brown (Democrat–Ohio) unveiled a "tough new proposal" to narrow the scope of solar panels eligible for America’s existing 30 percent tax credit by adding a domestic content requirement.

Specifically, the proposal would require that 70  percent of the parts of the qualifying solar panel must be U.S- made, or, if the final point of manufacture is in America, then 50 percent of the parts must be U.S.-made. Interestingly enough, their proposed 70 percent requirement would be higher than the 60 percent domestic content called for under Ontario FIT scheme.

In its August 2011 complaint to the WTO about Canada, the United States had expressed concern about the "trade-distorting" effects of Canada’s domestic content regulation and had announced its intention to protect its emerging renewable energy industry. "The United States is a major innovator of renewable energy and related technologies and is a primary source of Canadian imports of products used in the production of renewable energy, including solar and wind energy," the document read.

This all adds another question to the key issues involved in the dispute, all of which are considered to have wide-ranging implications for the future:

  • Is Canada liable to the world court for the independent actions of its province, Ontario and the Ontario Power Authority?
  • Are the content requirements of the FIT program a barrier to fair trade?
  • Did Ontario discriminate in favor of domestic goods with subsidies designed to promote production in the province, rather than designed to advance the renewable energy industry?
  • And now: Can the renewable energy industry continue to expand and advance without direct support and intervention by government entities, such as Ontario already has provided and the United States is currently considering?

At the end of April, the parties to the dispute were required to submit written rebuttals to the arguments made at the opening hearing for consideration by the WTO panel, which then scheduled the second oral hearing.

According to hearing coverage in Bridges Weekly, the positions of the parties "have not deviated significantly" since the opening hearing took place, March 27 to 28. Last week, the panel members focused heavily on the substantial and legal facts that could inform their decision on whether the Ontario FIT measure is government procurement or subsidization.

The Geneva-based publication of the International Centre for Trade and Sustainable Development (ICTSD) reported that dispute panel member Alec Erwin (South Africa) "notably questioned the EU and Japan as to how their respective markets operate to determine benchmarks and pricing," acknowledging that renewable energy sectors have not been flourishing in an unsupported marketplace. Both the EU and Japan were not immediately able to respond, but agreed to submit a response in writing.

An ecological imperative

The lead-up to the hearing actually made more of a splash than the event, as advocacy groups in favor of Canada tried to set the stage for a dismissal.

On March 14, Canadian NGOs and labor unions, including Blue Green Canada; Canadian Auto Workers; Canadian Federation of Students; Canadian Union of Public Employees; Communications, Energy and Paperworkers Union of Canada; Council of Canadians; and Ontario Public Service Employees Union, sent an amicus curiae submission to the World Trade Organization (WTO), "on the eve of a second … joint attack on the Ontario Green Energy Act."

The groups addressed Canada’s failure to "properly defend" Ontario’s actions and called upon the WTO to respect the priority of Canada’s international climate change obligations. "These are the first international trade disputes which create the potential for conflict between a nation’s commitments under the WTO and its obligations under the Framework Convention on Climate Change and the Kyoto Protocol," the submission said. "It raises fundamental questions about whether the goals of trade liberalization can be reconciled with ecological imperatives to reduce greenhouse gas emissions, and if not, which are to prevail."

Although Canada repudiated its Kyoto commitments last year, the submission notes that "Ontario’s Green Energy Act was adopted while Canada’s climate obligations were outstanding, and they are mandated by the Framework Convention to which Canada is still a signatory … Article 3 of the Framework Convention requires that Canada, or in this case Ontario, is required to integrate environmental and economic policies and goals, which is exactly what it has done in the Green Energy Act and precisely the definition of 'sustainable development'."

Further, "in simple terms, Ontario’s Feed-In Tariff program for renewable power is a perfect expression of the principles of sustainable development in which environmental and economic goals are married to address the imperatives of climate change," said the submission to the WTO, which was prepared by Steven Shrybman, international trade and public interest lawyer with Toronto-based Sack, Goldblatt Mitchell LLP.

Going forward

Although Japan and the EU protested the inclusion of the groups’ arguments so late in the process, the ITCSD said that Dispute Settlement panel Chair, Thomas Cottier (Switzerland), seemed inclined to enter the amicus curiae into consideration. 

In related news, on May 15, the Council of Canadians, which describes itself as "Canada’s largest citizens organization," appeared before a parliamentary international trade committee to recommend that Canada should not make any trade or economic partnership agreement with Japan unless that nation drops its World Trade Organization challenge.

A ruling on the case is not expected until October. Meanwhile, even before the verdict is in, renewable energy vendors worldwide have been hedging their bets by hurrying to confer with Ontario’s Local Content Assurance Bureau (LCAB) on the advisability of moving operations to Canada and on the guidelines for meeting domestic content requirements.

As for the Schumer-Sherrod proposed legislation, the Alliance for American Manufacturing, a non-profit, non-partisan partnership formed in 2007 by some of America’s leading manufacturers and the United Steelworkers, "commends [them] for their forward-thinking legislation to reward domestic content when U.S. consumers seek tax credits for their purchases of solar panels."


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