WTO Appellate Body Rules against Canada in Renewable Energy Case

The WTO’s highest court has confirmed that the local content requirement in the Canadian province of Ontario’s feed-in tariff (FIT) programme for renewable energy is inconsistent with international trade rules, officials announced on Monday, 6 May.

Brussels and Tokyo had argued that the FIT system, which was established under the Ontario Green Energy Act of 2009, violates international trade rules by requiring participating electricity generators to source a minimum quota of goods and services from Ontario - in the case of wind, 25 percent, and for solar projects, 60 percent.

The complainants had said that this “local content requirement” was a barrier for foreign competitors looking to get a foothold into the Ontario market. However, Ontario officials had said that the measure aims to encourage the production of clean energy by incentivising producers to use electricity derived from renewable sources.

The Appellate Body result confirmed an earlier panel ruling that was issued last December, while revising a few specific points from that decision. Canada had filed its appeal to the case in February, citing certain points of law and legal interpretation that it wished WTO judges to review. Despite receiving a favourable outcome in December, the EU and Japan also filed their own cross-appeals, looking for clarifications in the original panel ruling.

“The Appellate Body supports the panel’s conclusions that local content requirements accord preferential treatment to products made in Ontario by requiring the purchase or use of products from domestic sources, which is prohibited in the illustrative list of the [Trade-Related Investment Measures, or TRIMS] Agreement, and therefore places Canada in breach of its national treatment obligation under [the General Agreement on Tariffs and Trade, or GATT] Article III and TRIMS Agreement Article II,” the report said.

Furthermore, the WTO judges also “[reject] Canada’s rebuttal that the local content requirements should be considered as government procurement which can be exempted from the national treatment obligation,” the findings continued, referring to one of the main arguments that Ottawa had made in its case.

Parties respond to the ruling

The dispute (DS412 and DS426) had been a particularly high-profile one for the global trade arbiter, in light of its potential to elucidate the extent to which governments can help their domestic producers and suppliers in promoting renewable energy - particularly given the number of other countries designing their own clean energy support schemes.

Japanese officials similarly welcomed the result. “Japan considers this ruling can be highly evaluated from the viewpoint of preventing protectionism in the renewable energy sector, which can be regarded as a major growth industry,” Toshimitsu Motegi, Japan’s Minister of Economy, Trade, and Industry said.

Canadian federal officials, for their part, have said that they will comply with the ruling. However, it remains unclear how or when the Government of Ontario - which falls under a separate jurisdiction - will comply.

Recurring topic

The topic of how governments can support their renewable energy sectors while meeting their international trade obligations is set to play out in another WTO dispute in the coming months. In mid-February, the US filed a complaint over a local content requirement in India’s national solar programme, which Washington claims discriminates against foreign equipment manufacturers relative to their domestic counterparts. That case is currently in the consultations phase - the first stage in dispute settlement proceedings.

New Delhi, for its part, raised its own questions last month about Washington’s support to US renewable energy producers. “India is concerned that some of these subsidy schemes have provisions relating to local or domestic content requirements, which raises issues of consistency” with parts of the GATT, TRIMS, and SCM Agreements, New Delhi said in a notification filed with the Committee on Subsidies and Countervailing Measures.

In light of the growing global demand for energy, and the burgeoning questions of how these relate to current and future trade rules, WTO Director-General Pascal Lamy recently called for increased dialogue at the global trade body on the relationship between the two subjects.