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Canada’s WTO defence of Green Energy Act trumpets public procurement as a local development tool

Image of wind farm near Sarnia taken from the Green Energy Act Alliance website.

A wind farm near Sarnia (Image taken from the Green Energy Act Alliance website)

The landmark WTO challenge to Ontario’s landmark Green Energy Act continued at the end of March with the first hearing into the case brought by Japan and the European Union against Canada. Though the federal government is trying to undermine the spending powers of municipal governments in its trade negotiations with the EU (CETA), it is defending — nay praising — the capacity of public spending to support local development in its defence of the important Ontario policy.

At issue in the WTO dispute are local content requirements in the Act that must be met by solar and wind power producers in order to qualify for high feed-in-tariffs (high rates paid for the clean energy). This “Buy Ontario” component of the green energy policy was meant to create jobs in the province while reducing emissions. Even Environment Minister Peter Kent has promoted Ontario’s 43% cut in electricity sector emissions since 2005 from the closing of coal-fired plants. Job creation as a result of the 2009 Act has not been as strong as predicted but it is undeniably there as established and start-up green power firms build new factories in the province.

Japan and the EU had made similar complaints to the WTO that local content quotas in the FIT program violated the WTO’s Agreement on Subsidies and Countervailing Measures (SCM), the Agreement on Trade-Related Investment Measures, and the national treatment requirements of the General Agreement on Tariffs and Trade (GATT). These separate complaints are now being decided by the same three-person WTO panel established earlier this year.

Bridges Weekly Trade News Digest reported on the first semi-public hearing into the case which took place in Geneva last month. The article explained that Canada has countered the EU-Japan arguments by claiming that the Green Energy Act’s FIT program:

is a form of government procurement designed to ensure the affordable generation of clean energy in Ontario. As such, the programme would be shielded from both GATT national treatment requirements and the TRIMS Agreement provisions being cited in the case. Government procurement is also exempt from the WTO subsidies agreement, provided that it is not conferring a benefit.

In making its case that as a procurement the GEA is exempt from the GATT, the Canadian submission from December in response to the Japanese challenge claims the agreement allows governments to use procurement to pursue public policy as long as it’s for governmental purposes and not with a view to commercial resale. The submission also quotes Japan’s Ministry of Economy, Trade and Industry which has claimed that GATT Article III: 8(a):

permits governments to purchase domestic products preferentially, making government procurement one of the exceptions to the national treatment rule. This exception is permitted because WTO Members recognize the role of government procurement in national policy. For example, there may be a security need to develop and purchase products domestically, or government procurement may, as is often the case, be used as a policy tool to promote smaller business, local industry or advanced technologies. (Emphasis mine.)

Well this is awkward. In defending Ontario’s Green Energy Act, which Harper would probably like to see disappear (the provincial Conservatives recently tried to kill the whole thing with another private members bill), and which the EU is putting enormous pressure on Premier McGuinty to weaken in the CETA negotiations, the federal government is forced to recognize the strategic value of public procurement to local development!

The WTO Government Procurement Agreement, to which Canada, the EU and Japan are signatory countries, would ban local preferences in the Green Energy Act had Ontario not excluded the Ontario Power Authority from its February 2010 commitments. Had Ontario not done this, Japan and the EU would have been able to challenge the Act as an illegal offset or as otherwise upsetting national treatment rules that forbid a covered government agency from discriminating among local suppliers based on where those suppliers source their goods or services.

The Province also excluded the OPA in the temporary Canada-U.S. procurement agreement, which was signed at the same time that the provinces were listed under the WTO procurement agreement. Like Quebec and Manitoba, Ontario has (so far) refused to include hydro power purchases in its CETA commitments, which could explain partly why the EU joined Japan in its WTO challenge.

Over 50 Canadian municipalities have passed motions seeking protection from CETA rules that would limit their spending powers. More than half want to be excluded from the deal altogether, the latest motion coming from Mississauga this week.

These cities, towns, school boards or municipal associations want a carve out similar to the one Ontario is seeking for the Ontario Power Authority. With Canada defending Ontario’s right to use procurement as a public policy tool with local development spinoffs, it is difficult to see how the federal or provincial governments can justify stripping municipalities of those same rights in the EU trade deal.

To read Canada’s submission to the WTO related to Japan’s challenge of the Green Energy Act, click here.

For Canada’s supplementary submission related to the EU challenge, click here.