Tuesday, January 22, 2013
A WTO Panel recently gave its ruling on a renewable energy dispute brought against Canada by the European Union and Japan, separately [Canada-Certain Measures Affecting the Renewable Energy Sector]. Japan and the EU had challenged Ontario's Green Energy and Green Economy Act (OGEA) as violating WTO's Agreement on Subsidies and Countervailing Measures (ASCM), Agreement on Trade-related Investment Measures (TRIMs), and Articles III and XXIII of the General Agreement on Tariffs and Trade (GATT). The OGEA provided certain government assistance to its renewable energy sector, including feed-in tariff or price guarantees, but conditioned the benefits on producers using domestic content. One closely watched issue was whether the financial assistance constituted a prohibited subsidy under ASCM, i.e. whether the grant of a financial benefit conditioned on domestic content use was prohibited under ASCM.
Interestingly, the Panel did not reach the question whether the subsidy was prohibited. Instead, it ruled that the financial contribution by the government did not constitute a subsidy, because it did not confer a benefit on the producers. In arriving at this decision, the WTO Panel relied on one test for making a "benefit" determination, i.e. whether the financial contribution was not available to the producer in the market. The Panel essentially ruled that given the nature of electricity market, it could not find a free market for electricity that could serve as a benchmark for its analysis. In simple terms, the Panel found that there was no benchmark to determine what the market price for the renewable energy would be since electricity as a commodity was subsidized, and thus, it could not determine whether a benefit had been conferred. Therefore, the Panel found that the OGEA did not violate ASCM.
However, the Panel went further and found that the OGEA nevertheless violated TRIMs, which regulates protectionist measures in relation to investment, such as requiring domestic content use. The ruling requires Canada to remove the domestic content requirement. This is an interesting twist to the case, which could nevertheless test the willingness of nations to provide subsidies to their renewable energy sector, unless there is a domestic benefit in the form of job creation or economic growth.
The issue clearly does not rest here and the question that remains open is whether under TRIMs Canada can invoke GATT Article XX environmental exceptions, since renewable energy expansion constitutes an important tool in mitigating climate change. Even though none of the Parties involved categorized the dispute as a trade and environment dispute, the Panel decision may draw Parties closer to that issue.