Canada to Appeal WTO FIT Related Decision

On February 5, 2013, Canada filed an appeal at the World Trade Organization (“WTO”) at the Government of Ontario’s request, appealing a Panel Report handed down by the WTO’s Dispute Settlement Board on December 19, 2012, which partially ruled that Ontario’s Feed-in-Tariff (“FIT”) Program with its domestic content requirements breach Canada’s international trade obligations. 

In response to Canada’s appeal, on February 11 and February 15, 2013, Japan and the European Union (“EU”), the primary complainants in the initial dispute, counter appealed.

Summary of December 19, 2012 WTO Panel Report

The Panel Report found that the “local content requirements” in FIT Contracts (i.e., domestic content requirements) are inconsistent with the non-discrimination principles found in the General Agreement on Tariffs and Trade, 1994 (“GATT”) Article III (National Treatment) and the Trade-Related Investment Measures (TRIMs) Agreement Article II (National Treatment). Essentially, the concern is that domestic content requirements used in awarding FIT Contracts treat imported equipment, components, and suppliers differently than domestic products. However, a majority of the WTO Panel disagreed with Japan and the EU’s claim that domestic content requirements constituted prohibited subsidies per Article 1.1 of the Subsidies and Countervailing Measures (“SCM”) Agreement and found that Canada did not act inconsistently with Articles 3.1(b) and 3.2 of the SCM Agreement. The Panel Report concluded by recommending that Canada bring its domestic content requirements into conformity with its obligations under the GATT and TRIMs Agreement.

For more information about the Panel’s Report, please see my blog posting WTO Panel Releases Final Report Domestic Content Requirements.

Process for the Appeal

Parties to a dispute at the WTO can appeal a panel’s report – as Canada, Japan and the EU have done in this situation. However, appeals can only be based on points of law (i.e., legal interpretations) rather than re-examining findings of fact made by the established panel. Appeals are heard by three members of a permanent seven member Appellate Body of the WTO. Generally, the Appellate Body has up to three months to make its conclusions and report on the appeal.  

For more information about the WTO’s appeal process, please see my blog posting WTO Likely to Deem Domestic Content Requirements Illegal.

Summary of Canada’s Appeal

Canada’s appeal primarily relates to the findings of the Panel Report that domestic content requirements are not removed from the obligations under Article III:4 of the GATT and that Canada had not established it was entitled to rely on Article III:8(a) of the GATT to remove the domestic content requirements from the operation of the TRIMs Agreement.

Canada’s three main appeal points include:

  1. A review by the Appellate Body of the Panel’s findings and conclusion that the FIT Program is not covered by the terms of Article III:8(a) of GATT as Canada argues that this conclusion is based on erroneous findings on issues of law and legal interpretation including the Panel’s finding that the Government of Ontario purchased renewable electricity with a view to commercial resale”;
  2. A request that the Appellate Body find that the Panel acted inconsistently by failing to make an objective assessment of the facts related to this issue, specifically with respect to the Panel’s finding that the resale of electricity purchased under the FIT Program is "commercial" in nature, and by using this inconsistent assessment to support its conclusions about the applicability of Article III:8(a) of GATT to the FIT Program; and
  3. A request that the Appellate Body find that the Panel failed to find that the Government of Ontario does not purchase renewable electricity “with a view to use in the production of goods for commercial sale.”

To view Canada’s appeal document, see the following WTO Dispute Resolution link: WT/DS412/10 and WT/DS426/9.

 

Summary of Japan and the EU’s Counter Appeals

Japan and the EU are mostly counter appealing to seek a reversal on the Panel’s findings that the FIT Program and FIT Contracts amount to government purchases of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement and that Japan and the EU failed to establish that domestic content requirements confer a ‘benefit’ within the meaning of Article 1.1(b) of the SCM Agreement to electricity generators who participated in the FIT Program.

Some of the issues that Japan and the EU are counter appealing on include:

  1. Seeking from the Appellate Body a reversal of finding of the Panel Report regarding Article 1.1(a) of the SCM Agreement because the Panel erred in its interpretation of this section.

(a)                If the Appellate Body reverses the finding and concludes that the FIT Program and FIT Contracts are subsidies within the meaning of Article 1.1 of the SCM Agreement, then the parties request that the Appellate Body find the FIT Program and Fit Contracts to be inconsistent with Article 3.1(b) of the SCM Agreement (i.e., such subsidies are prohibited subsidies as it is contingent upon the use of domestic over imported goods);

  1. Seeking a recommendation from the Appellate Body that the Panel erred in failing to recommend that Canada, pursuant to Article 4.7 of the SCM Agreement: withdraw the subsidies without delay, eliminate domestic content requirements in the FIT Program and FIT Contracts, and not specifying the time period when the measures must be withdrawn; and
  2. Seeking a review of some of the legal interpretations the Panel Report issued for particular terms in Article III:8(a) of the GATT (i.e., “government purposes”, “with a view to commercial resale”, etc.).

To view Japan and the EU’s appeal documents, see the following WTO Dispute Resolution links: WT/DS412/11 and WT/DS426/10.

Conclusion

There is much industry concern over the effects of the initial Panel Report from December 19, 2012 and the effects of the possible rulings by the Appellate Body in Canada’s appeal. However, should the Appellate Body uphold the initial finding of the Panel, Canada (and therefore Ontario) will still have a ‘reasonable period of time’ to bring the FIT program into conformity with Canada’s international obligations. Regardless, domestically and in other countries with similar programs to Ontario’s FIT Program, the global community will have its eye anxiously on the final Appellate Body report.

 

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Sven Walker is a Partner at Dale & Lessmann LLP, a Toronto, Ontario, Canada-based full service law firm with specific focus on renewable energy law and in particular solar, wind and biogas energy law. Sven is a legal counsel to a number of industry equipment and technology manufacturers, suppliers and installers, as well as investors, developers, purchasers, contractors, consultants and financing entities. To speak with Sven, please call 416-369-7848 or email him at swalker@dalelessmann.com.

Prepared with the assistance of Farah Rohoman, student-at-law at Dale & Lessmann LLP.