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Canada appeals WTO decision against Ontario’s Green Energy Act

Canada has notified the World Trade Organization that it will be appealing a December ruling against the local content rules in Ontario’s Green Energy Act.  Japan and the EU successfully argued that requiring a percentage of solar and wind power components to be made in the province violated national treatment obligations in the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIM). Canada is appealing this ruling at the request of the Ontario government.

The “buy local” rules in the Green Energy Act create an economic incentive to transition away from coal and other dirty forms of energy and toward renewable power. Canada argued at the WTO that the feed-in-tariff (payment) that wind and solar producers receive for putting energy into the grid was a government procurement exempted from GATT national treatment rules. The WTO agreed that energy purchased in Ontario by public agencies is procurement for governmental purposes but that the purchase is also for commercial resale, meaning that the GATT exemption does not apply. The Ontario government is mum on whether Canada will contest this in its appeal.

“In coming to this conclusion,” said the WTO panel report, “we express no opinion about the legitimacy of the Government of Ontario’s objective of promoting the use of renewable energy in the production of electricity through the FIT Programme. Our conclusion that the Government of Ontario purchases electricity under the FIT Programme ‘with a view to commercial resale’, within the meaning of Article III:8(a), must be understood only as a judgement about the extent to which Canada is entitled to rely upon Article III:8(a) of the GATT 1994 to maintain a measure that is alleged to discriminate against imported products under the terms of Article III:4.”

Opinion or no, the message is that local content quotas are policy non grata under international free trade rules. On February 6, the United States, which intervened as a third party against the Green Energy Act in the EU/Japan-Canada dispute, sent the WTO a request for consultations with India “on certain measures of India relating to domestic content requirements under the Jawaharlal Nehru National Solar Mission (NSM) for solar cells and solar modules.” (Consultations are the first step in a WTO dispute, followed by a request to form a panel if government-to-government talks fail to resolve the perceived problem.)

The U.S. government “claims that India requires solar power developers to buy and use domestic solar cells and solar modules in order to benefit from participating in the Jawaharlal Nehru NSM programme and to enter into contracts under the NSM programme or with the National Power Company,” according to the WTO website. In November, China requested similar consultations with the EU “regarding certain measures, including domestic content restrictions, that affect the renewable energy generation sector relating to the feed‑in tariff programs of EU member States, including but not limited to Italy and Greece.”

If consultations begin the dispute process, an Appellate Body decision ends it, or nearly ends it. The WTO website explains it here. The appeal panel cannot consider new evidence, only re-examine the legal interpretation in the original WTO report. If the panel ultimately upholds the ruling against the Green Energy Act, Canada (on behalf of Ontario) will be asked to “swiftly correct its fault” by removing the local content rules on the feed-in-tariff, or else “offer compensation or suffer a suitable penalty that has some bite.”

Both the EU and Japan would be given the right to freeze WTO rules affecting an equivalent amount of Canadian investment as the WTO decides is affected by the Green Energy Act’s local content rules. Japan could raise tariffs on Canadian agricultural imports, for example, but other countries have been more creative. The Caribbean nation of Antigua and Barbuda successfully challenged a U.S. ban on online gambling and was granted, last month by the WTO, the right to suspend intellectual property rights on U.S. products in retaliation.

“This story has gained extra attention because of the rumor that Antigua plans to launch a Web portal designed specifically to distribute — for free — U.S.-copyrighted software, movies, music and the like,” wrote TechNewsWorld last month. “The U.S. has called the idea ‘government-sponsored piracy,’ while a counsel to the International Intellectual Property Alliance said that ‘state-sanctioned theft is an affront to any society.'”

“The irony is rich, rich, rich,” said Lori Wallach, director of Global Trade Watch at Public Citizen, in the New York Times. That’s because the U.S. pushed for this “cross-retaliation” system at the WTO that lets countries punish one violation with trade actions in a completely different area. Wallach asked the important question of whether the U.S. government would let the WTO tell it what it can and cannot do to regulate online gambling.

The Council of Canadians is one of seven environmental, labour and student groups that filed a joint amicus curiae (friend of the court) submission to the WTO dispute settlement panel hearing the European Union and Japanese case against the Green Energy Act. We and others have been urging Ontario and Canada to appeal that decision, which has already sparked proxy trade wars against “buy local” policies in Europe and India. So in a limited way we’re happy the appeal is happening. But the local content rules for renewable energy (or transit, or any other government investment) will need to be defended if they’re going to be spared the ax by Ontario.

We’re not doing this to protect Ontario’s wind and solar companies, who could turn on a dime as soon as they feel they’re big enough to compete with other renewables-exporting countries. For example, the Solar Energy Industries Association (SEIA) is supporting the U.S. WTO challenge to India’s local content rules for green power production.

“The use of discriminatory localization barriers to bolster domestic interests is a growing trend within the global solar industry which must be reversed,” said SEIA President and CEO Rhone Resch in a press release (reported in Inside U.S. Trade). “We are hopeful that today’s action by the U.S. government will encourage not only India but other countries contemplating the imposition of localization barriers to focus instead on WTO-consistent government support measures.”

Localization is now a barrier to the industry that is supposed to epitomize the need to relocalize our energy systems and economy more generally!

In defending the Green Energy Act we can’t be doing it just for the industry or for Ontario. It must be the policy right of all countries and communities looking for alternative development models. There is potential in local content quotas to alter unsustainable production and consumption patterns, and not just for energy. Localization is a challenge to the free market system itself, which is why the U.S. government has started adopting anti-localization language (despite Buy American policies) in its trade negotiations at the WTO and through plurilateral deals like the Trans-Pacific Partnership agreement.

“Without local content requirements for solar and wind power, the Green Energy Act is almost worthless to Ontario,” we said in November, when news leaked of the WTO decision. “Our provinces and local governments should have the right to ask for some local content in big projects like energy, transit and construction. These kinds of policies are used the world over to create vibrant local businesses. The alternative way of attracting investment is to cut wages and taxes, which is just a race to the bottom. We need more options if we are going to make our economies more sustainable.”

We will have more on the appeal in this space as we hear about it…