Canada’s Local Energy Plan Found Unfair to EU

(CN) - A plan to promote renewable energy and reward local purchasing in Ontario, Canada, failed to win approval from an appellate panel of the World Trade Organization.

Ontario's FIT Program, which promotes the development of wind and solar energy sources for the province's electrical grid, provides electricity producers with above-market rates for power generated from green sources. Producers cannot qualify for the contracts, however, unless they purchase equipment made in Canada or - more preferably - in Ontario.

Japan and the European Union complained about the scheme to the WTO, arguing that rewarding energy producers for buying parts and equipment locally amounts to an illegal subsidy under WTO rules. For its part, Canada claimed that the FIT Program served the government's purposes and not those of consumers - thereby exempting it from WTO review.

In late 2012, a WTO panel found that it is a violation of Canada's commitments to the international trade community to have companies purchase equipment domestically. Paying rates to electricity producers, however, does not amount to illegal subsidies, it found.

Canada, the EU and Japan appealed various aspects of that decision - joined by more than a dozen other nations as interested participants.

The WTO appellate body upheld most of the panel decisions Monday and concluded that the FIT Program's domestic content requirement violates Canada's commitment to the WTO under various trade agreements. In doing so, the appeals committee rejected Canada's arguments that Ontario could legitimately dictate the terms of generation because it purchased electricity from the providers.

"The product purchased by the government of Ontario is electricity and not generation equipment," the decision states. "The generation equipment is purchased by the generators themselves. Accordingly, the product being purchased by a governmental agency - namely, electricity - is not the same as the product that is treated less favorably as a result of the minimum required domestic content levels of the FIT Program and contract."

The appellate body continued: "Our conclusion that the measures at issue are not covered by [GATT treaty exemptions] is not premised on a finding that the government of Ontario's procurement of electricity under the FIT Program is undertaken 'with a view to commercial resale.' Rather, it is based on our finding that the exemption does not cover discriminatory treatment of the equipment used to generate the electricity that is procured by the government of Ontario."

EU Trade spokesman John Clancy welcomed the WTO decision, noting that Europe produces key clean energy technology that it is willing to trade.

"Today's ruling is good news for everyone caring about clean energy and the environment: it has been made clear that use of quality, cost-effective technologies should not be hampered by protectionist measures," Clancy said in a statement. "The EU supports the promotion of renewable energy but considers this must be done in a manner consistent with international trade rules."

The Canadian government vowed to work with provincial officials in implementing the WTO's decision, since it could face trade sanctions if Ontario fails to amend its FIT Program rules.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit