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Western Australian Student Law Review |
SOLAR ENERGY INNOVATION AND THE WORLD TRADE ORGANISATION
JAMES POLLARD*
Renewable Energy—Domestic Content Requirements—World Trade Organisation—National Treatment Obligation—Protectionism—Article III—GATT 1994—TRIMs Agreement—SCM Agreement—Canada—India
Renewable energy is a relatively new area for consideration by the World Trade Organisation (WTO) and has presented challenges for the application of the WTO’s rules. Recent decisions by the Dispute Settlement Body (DSB) of the WTO have effectively derailed certain policy initiatives that encourage investment in the renewable energy markets in Canada and India. This article seeks to examine these decisions, the decision-making process, and the subsequent implications for countries that wish to innovate with respect to renewable energy projects in response to social and economic environmental policies. Australia may well need to pay attention to these decisions as it develops its own energy policy that includes renewable energy as part of its national energy market.
In Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Canada Measure Relating to the Feed-In Tariff Program[1] (‘Canada—Renewable Energy’), the Appellate Body held that mandatory domestic content requirements (‘DCRs’) for solar and wind power generation equipment, an important part of clean energy initiatives in Ontario, Canada, violated the national treatment obligation (‘NTO’). The NTO is essentially an obligation not to facilitate protectionism under the General Agreement on Trade and Tariffs 1994 (‘GATT 1994’).[2] Although Canada claimed that government procurement provided a certain exception to the NTO in the circumstances, that argument was ultimately unsuccessful.
The case was not simple and the application of judicial economy in regard to the decision-making process left important questions unanswered. Subsequently, the Appellate Body in India—Certain Measures Relating to Solar Cells and Solar Modules[3] (‘India—Solar Cells’), referring often to the decision in Canada—Renewable Energy, decided in much the same way that the respondent, India, could not claim an exception to the NTO. The decision considered claims of government procurement of component parts and the need for reliable supply, as well as principles of ecological and sustainable development.
This article to examines these decisions, the decision-making process, and the subsequent implications for countries that wish to innovate with respect to renewable energy projects in response to social and economic environmental policies. Australia may well need to pay attention to these decisions as it develops its own energy policy that includes renewable energy as part of its national energy market.
Renewable energy is not a new concept, although recent concerns for the environment have seen the emergence of innovative technological improvements that make use of energy sources such as solar and wind.[4] The renewable energy market is not a total replacement for other methods of electricity production. In Canada, in 2015, that market represented a relatively small proportion of the total electricity produced.[5] At the time that Canada defended its DCRs, renewable energy technologies were not yet capable, for the most part, of sustaining the supply of electricity in a continuous and uninterrupted way.[6] Nevertheless, investment in renewable energy and clean energy is encouraged by governments who offer incentives for this investment. Incentives that create demand in this sector, such as Feed-in-Tariff (‘FIT’) schemes, can spur demand for the equipment used to generate the energy.[7] Environmental concerns such as global warming and air pollution have seen a surge in the search for new renewable energy technologies in tandem with the creation of government policies intended to address these problems. However, despite the best of intentions of governments, cases such as Canada—Renewable Energy and India—Solar Cells show that the application of the rules of the WTO appear to be out of step with innovations in the emerging renewable energy industries.
In 2009, the Ontario government enacted a law to encourage investment in renewable energy projects from wind and solar generators that incorporated DCRs for component parts and services: the Green Energy and Green Economy Act, SO 2009 (‘Green Energy Act’). Participation in the schemes was contingent on observance of the DCRs.[8]
Ontario’s energy supply included energy sources, such as coal, nuclear, hydropower, gas and oil, and wind. With concerns for the environment and a view to ensuring supply, Ontario decided to phase out all coal-fired energy production by 2014 with the intention of replacing coal-fired electricity with other renewable sources.[9] As coal-fired methods were not the only source of energy production in Ontario and could be easily replaced by alternative methods of energy production, there was little fear of job losses in the industry, making the decision a relatively straightforward proposition.[10] The preamble of the Green Energy Act identified a need to expand renewable energy production, encourage energy conservation, and create green jobs by promoting opportunities for renewable energy projects and a green economy.[11]
After the complete phase-out of coal use in power generation, Ontario’s electricity supply was dominated by nuclear energy (approximately 54 per cent), complemented by natural gas (14 per cent) and hydro energy (26 per cent).[12] In order to diversify its electricity supply and to encourage the generation of electricity with renewable energy sources in the place of coal-fired methods, Ontario initiated two FIT schemes: one for renewable energy projects over 10 kilowatts (not more than 10 megawatts for solar and 50 megawatts for waterpower) and the microFIT scheme for projects up to 10 kilowatts capacity.[13] The fundamental objectives were to encourage and promote greater use of renewable energy sources including wind, waterpower, renewable biomass, biogas, landfill gas and solar (photovoltaic) for electricity generating projects in Ontario,[14] and to facilitate the increased development of renewable generating facilities of varying sizes, technologies and configurations via a standardised, open and fair process.[15]
To participate in the schemes, renewable energy sources produced by wind or solar were contingent upon observing a minimum DCR.[16] This included the manufacturing of certain components as well as the retaining of labour and consulting services provided by Ontario residents.[17] The wind power schemes attracted a 50 per cent DCR, while solar photovoltaic projects attracted a 60 per cent DCR. This was sufficiently high so that it would ensure the use of goods manufactured, formed or assembled domestically in addition to any purely domestic services incorporated as part of the DCR.[18]
The FIT schemes were taken up enthusiastically by both industry and homeowners, at one stage becoming oversubscribed and causing a net loss for the Ontario government.[19] This challenge was addressed early through further investment as contract prices became more attractive for investors.[20] However, the biggest challenge to the schemes came in the form of a challenge by WTO members, Japan and the European Union, to the DCRs.
Between 11 August 2011 and 19 December 2012, a number of countries raised objections with regards to the DCRs attached to Ontario’s FIT schemes. These challenges were based on claims of discrimination against foreign products used in the process of building wind or solar facilities that produce electricity for the FIT scheme.[21] First and foremost was a claim by Japan and the European Community that the regulations imposing a DCR were protectionist under art III, pt 4 of the GATT 1994 and therefore in violation of the Agreement on Trade-Related Investment Measures (‘TRIMs Agreement’).[22] These claims also led to further analysis of the electricity market including whether or not a subsidy existed, and whether or not this conferred a benefit in breach of the Agreement on Subsidies and Countervailing Measures (‘SCM Agreement’).[23]
It is a long-established principle of international trade that ‘governments should adopt free trade policies for the benefit that international trade has to economic development’.[24] However, it has been acknowledged that not everyone will benefit from international trading as governments put up trade barriers, offer subsidies and create rules that protect special interests.[25] Broadly speaking, art III of the GATT 1994 attempts to address these issues by ensuring that there is no discrimination against imported products.[26] It embodies the NTO that in essence stipulates that a WTO member must not apply regulations that discriminate towards another member by according protection to domestic production.
As articulated in Japan—Taxes on Alcoholic Beverages, the general principle regarding the NTO informs the rest of art III,[27] including art III, pt 8 of the GATT 1994. In order to prove a breach of the NTO in art III, pt 4 of the GATT 1994, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef (‘Korea—Measures on Beef’) provides a test that essentially asks whether the imported product and the domestic products are ‘like products’ and whether the imported product is afforded ‘treatment less favourable’.[28] The test will apply to trade-related environmental measures such as the DCRs in Ontario’s FIT schemes because, to be consistent with WTO rules, the schemes cannot result in discrimination between ‘like products’ from another country of origin. The test raises two key questions: 1) are the products at issue ‘like products’?; and 2) if so, is the foreign product treated less favourably than the domestic product or than another foreign product?[29]
In United States—Standards for Reformulated and Conventional Gasoline,[30] the Panel undertook a ‘like products’ analysis by considering physical characteristics as a determinant of likeness for the purposes of art III, pt 4 of the GATT 1994. This was revisited in European Communities—Measures Affecting Asbestos and Products Containing Asbestos,[31] where the Appellate Body turned to the working party report in Border Tax Adjustments,[32] where general criteria were used to establish likeness under art III, pt 4. These criteria include: (i) the properties, nature and quality of the products; (ii) the end uses of the products; and (iii) the consumers’ tastes and habits.
These criteria might apply to the solar cells and component parts required for wind power generation equipment available from various global manufacturers that can be used to create renewable energy generation projects under Ontario’s FIT schemes. The Appellate Body in United States—Measures Affecting the Production and Sale of Clove Cigarettes further held that the degree of substitutability between the products can be the decisive factor affecting consumers’ tastes and habits. If the products are highly substitutable for some consumers, then the products can be considered alike.[33] If, for example, solar cells from Japan are able to be used in place of locally-produced cells to achieve the same outcome without issues of quality arising, then they will be substitutable and therefore considered ‘like products’.
Although various tests have been adopted to isolate the required elements that can define ‘like products’ pursuant to art III, pt 4 of the GATT 1994, the range of products and circumstances associated with modern trade require that ‘all pertinent evidence’ be considered. Such an examination can then assist in determining whether a competitive relationship exists in the market and whether the products are therefore ‘like’.[34] If this analysis was applied to the facts in Canada—Renewable Energy (assuming that the products in question are renewable energy generation equipment) the following outcome might result.
The marketplace for the local and imported renewable energy generation products appears to be the same—investors in renewable energy FIT schemes in Ontario who buy renewable energy generation equipment. The end-users are the same for domestic or imported products and consideration of the tastes and habits of consumers suggest that the products are substitutable and therefore in a competitive relationship in the marketplace. Applying the various ‘like product’ tests that consider the properties, nature and quality, end uses, consumer tastes and habits as well as substitutability, it appears that the products used in the creation of renewable energy generation projects such as solar cells, wind turbines and related equipment that are affected by Ontario’s regulations are ‘like products’. This would bring the regulations under the ambit of the NTO that prohibits less favourable treatment being given to imported products over domestic products.
The principle of ‘treatment less favourable’, as identified in Korea—Measures on Beef,[35] expresses the principle that an internal regulation should not be applied in a way that affords treatment less favourable to imported products than to ‘like’ domestic products.[36] The text of art III, pt 4 can be broadly interpreted as applying to domestic regulations affecting the sale and use of products.[37]
The term ‘affecting’ has been held to incorporate not only regulations that apply to the sale or purchase of goods but also to regulations that may modify the conditions of competition in the domestic marketplace.[38] Thus, the term ‘affecting’ can be interpreted broadly to incorporate all measures that may modify the conditions of competition in the market.[39] In Korea—Measures on Beef, the Appellate Body established that whether or not imported products are treated ‘less favourably’ than like domestic products should be assessed by examining whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products.[40]
If the tests are applied to the regulations in Ontario regarding participation in Ontario’s FIT schemes, the result appears to be straightforward. According to the FIT scheme rules, the renewable energy equipment available from international markets can only be purchased after a certain percentage of domestic products have first been purchased.[41] This rule affects the market for renewable energy generation equipment by reducing and, thus modifying the competition between the products in favour of the domestic products.
The FIT scheme rules are, therefore, protectionist and in breach of art III, pt 4, as treatment less favourable is accorded to the imported product over the domestic ‘like product’. However, when the Panel and Appellate Body in Canada—Renewable Energy considered the claims of Japan and the European Union, an analysis of alleged breaches of art III, pt 4 of the GATT 1994 based on a ‘like product’ analysis did not take place. In essence, it was maintained that the presence of DCRs as one of several elements, were enough to demonstrate a breach of art III, pt 4 in the context of art III, pt 8 of the GATT 1994 and the TRIMs and SCM Agreement. Without a ‘like products’ analysis, however, the issue of protectionism was not directly addressed, rather it was inferred.
1 Argument Against Protectionism
Today, there is widespread agreement that protectionism is counterproductive.[42] There is also widespread agreement that there are benefits to international free trade for all countries. Protectionism in the form of restrictions on imports or subsidies on exports can push up the price of goods, reduce the consumption of the goods and can negatively affect the overall quality of the goods produced.[43] With this in mind, the WTO promotes free trade and is dedicated to the expansion of trade in goods and services. This explicit dedication and the further objectives of increasing the standard of living, attainment of full employment and the growth of incomes and demand are found in the preamble to the WTO Agreement.[44] Parties are bound to pursue these objectives under the Agreement. The preamble emphasises a commitment to sustainable economic development but also takes into account environmental as well as social concerns.[45] Notwithstanding such concerns, free trade is promoted over protectionism by the WTO with a goal of improving the welfare of the peoples of the member countries resulting in a more prosperous, peaceful and accountable economic world.[46]
2 Argument For Protectionism
There are a number of arguments which arise in favour of protectionist policies. For example, governments may be concerned that competition created by allowing imports will adversely affect jobs and industries. There may also be concerns for local industries that need some protection from bigger, international players that could stifle national fledgling industries.[47] In these cases, governments have historically opted to protect industries by restricting trade. In both cases, there may also be political advantages to creating protectionist policies.[48] Governments have also been known to restrict trade for the protection and promotion of non-economic societal values and interests.[49] Van den Bossche and Zdouc suggest that this may also include policies, formulated in the interests of public health and a sustainable environment.[50] On this basis, the Ontario government’s goals of protecting the environment by phasing out coal-fired electricity production, promoting ‘green’ jobs, and expanding renewable energy production may be one such policy.
3 Exceptions to Protectionism
If it were to be established that Ontario’s FIT schemes were supported by a protectionist policy, there are mechanisms in the GATT 1994 that allow for exceptions to the NTO in art III, pt 4 on the basis of public health. Article XX(d) of the GATT 1994, for example, allows for exceptions based on the protection of health. The Agreement on Technical Barriers to Trade[51] (‘TBT Agreement’) will allow trade restrictive regulations as long as they are for the purpose of a legitimate object that includes public health or a sustainable environment.[52]
Given the stated goals in the preamble of the Green Energy Act of promoting a green economy, it seems that Ontario lost an opportunity to claim these exceptions. Nevertheless, it pursued claims under art III, pt 8 of the GATT 1994, which provides a mechanism whereby derogation of the NTO in art III, pt 4 of laws and regulations, including DCRs, is possible if the purchase of the goods can be classified as ‘government procurement’. Ontario claimed that the FIT schemes were not subject to the obligations of art III, pt 4 of the GATT 1994 because the laws and requirements of the FIT schemes were for the procurement of renewable electricity for the governmental purpose of securing electricity supply for Ontario consumers and not for commercial purposes.[53] This claim fits neatly with an argument that protection can be justified on the basis of protecting national security and self-sufficiency.[54] Given the need for electricity, it would be in Ontario’s interests to be able to boost its renewable generation equipment manufacturing capability to ensure supply. Ontario argued that art III, pt 8 of the GATT 1994 therefore accorded a derogation from the obligations of art III, pt 4 that included the DCR.
This claim was then used to argue against the claim by Japan and the European Union that the mandatory DCRs in Ontario’s FIT schemes were trade-related investment measures of a type that was in violation of the TRIMs agreement. This would have allowed Ontario to pursue its environmental and domestic policy goals while developing local capacity to supply the necessary equipment and ensure a supply of clean energy.
As stated previously, the parties to Canada—Renewable Energy did not tackle the issue of protectionism by analysing how the market for renewable energy in Ontario is affected by rules that mandate the purchase of local products over imported products. The issue was examined on the basis of whether the FIT schemes’ regulations were trade-related measures requiring the observance of particular domestic content requirements under the TRIMs agreement.[55] Although the application of the TRIMs Agreement proved to be quite straightforward for Japan and the European Union, Canada’s claim was based on an exception to basic principles, which presented a challenge to the application of WTO rules and issues that further derailed Ontario’s policy initiatives.
The TRIMs Agreement can provide protectionist barriers to trade when they take the form of direct or indirect quantitative restrictions on imports or exports.[56] The TRIMs Agreement lacks any substantive disciplines independent of the GATT 1994. Thus, evidencing a violation of art III or XI of the GATT 1994 is necessary to show a violation of art 2 of the TRIMs Agreement.[57] The TRIMs Agreement essentially interprets and clarifies the provisions of art III of the GATT 1994 where trade related investment measures are concerned. It clarifies that art III, pt 4 of the GATT 1994 may cover investment related matters that may also encompass other agreements.[58] It is concerned with local content requirements, compliance with which may be encouraged by providing any type of advantage.[59]
The Panel in Canada—Renewable Energy subsequently found that mere participation in the FIT schemes was an advantage under the chapeau of art 1(a) of the TRIMs Illustrative List. The Panel held that compliance with the DCRs was necessary in order to obtain this advantage.[60] On this basis, the Panel concluded that the DCRs of the FIT schemes were inconsistent with art III, pt 4 of the GATT 1994, and thereby also inconsistent with art 2 of the TRIMs Agreement.[61] This would have meant the regulations in the FIT schemes were protectionist by way of the DCR and in violation of WTO law. However, if Ontario could show that there was no breach of art III, pt 4 GATT 1994, then the claim under the TRIMs Agreement would fail and the regulations would stand.
Rather than argue against discrimination based on the purchase of products used to produce renewable energy, Ontario claimed that the electricity being produced under the FIT schemes created a relationship that extended to the government procurement of that electricity. This would have brought the measure under the ambit of art III, pt 8 of the GATT 1994, thus allowing for the DCRs in the regulations in Ontario’s Green Energy Act, despite the regulations being in violation of art III, pt 4 of the GATT 1994.
However, the Panel excluded this exception by ruling that Ontario was actually purchasing the electricity to ‘on sell it’ for commercial purposes.[62] This was held not to constitute government procurement; the defense of government procurement sought pursuant to art III, pt 8 failed.[63] Providing a glimmer of hope for Ontario’s policy initiatives, the Appellate Body in Canada—Renewable Energy did not uphold this particular line of reasoning.[64] However, it appeared this hope was short lived, because the DCRs were held not to fall within the ambit of art III, pt 8 as any government procurement was for electricity and not for equipment used to generate electricity.[65] As these were separate markets, this precluded an analysis of whether art III, pt 8 could apply as a derogation to the NTO of art III, pt 4. As the WTO rules were not flexible enough to accommodate the nexus between an intangible such as electricity and the products used to produce it, the rules effectively derailed Ontario’s Green Energy Act policies. Despite exceptions being available and the capacity of the WTO to allow them, Ontario’s claims for exceptional treatment for its innovative renewable energy industry based on environmental and social concerns proved to be too much of a challenge.
The challenges that the renewable energy sector are posing for the WTO became particularly apparent by the claim that the DCRs were linked to a prohibited subsidy. The Appellate Body in Canada—Renewable Energy considered whether or not the prices paid for the electricity under the FIT scheme constituted a prohibited subsidy under the SCM Agreement. ‘Subsidy’ is defined in art 1.1 of the SCM Agreement. In essence, a subsidy must involve a government financial contribution that confers a benefit. Article 3.1(b) of the SCM Agreement prohibits any subsidy, which is contingent on the use of a domestic product over an imported product. If it were found that as a result of the operation of the FIT scheme a subsidy existed, then the issue of the domestic content regulations would have been applied, making it a prohibited subsidy. However, both the Panel and the Appellate Body failed to find that a subsidy existed. The reasoning behind this was based on the analysis of what constituted a benefit under art 1.1 of the SCM Agreement. The Appellate Body upheld the Panel’s decision that a financial contribution by the government existed;[66] leaving the second element under art 1.1, whether a benefit was conferred, to be considered.
A ‘benefit’ has been defined as some form of advantage to a recipient.[67] The purchase of goods by the government is not generally considered a ‘benefit’, unless it is for either inadequate or more than adequate remuneration for the goods.[68] Canada—Measures Affecting the Export of Civilian Aircraft reiterated that the ‘benefit’ must put the recipient on more favourable terms than what would ordinarily be enjoyed in a comparable market.[69] This roughly equates to art III, pt 4 of the GATT 1994 which addresses measures that favour the use of domestic over imported goods, albeit with different legal terms and a different scope.[70] This was an opportunity to conclude whether the regulations were protectionist or not by affording treatment less favourable to imported products, the subject of the domestic content requirements—albeit from the perspective of the production and purchase of electricity.
However, the Appellate Body could not find that a benefit was conferred.[71] It questioned the market and decided that a wholesale market consisting of a mix of various methods of generating electricity such as were added to the mix of Ontario’s electricity generation was not the correct market to establish whether a benefit was conferred; rather the correct market for such an analysis would be the renewable energy market within a particular government determined supply mix.[72] In the case of Ontario, this included solar and wind.[73] It reversed the Panel decision that a benefit was conferred, but left that question open for further analysis. It reasoned that the complainant had not yet proven that a benefit existed for the purposes of establishing that a prohibited subsidy existed under the SCM Agreement.[74] It held that there was no benefit, and therefore no subsidy, under art 1.1 of the SCM Agreement, and therefore there was no violation of the SCM Agreement. This precluded an analysis of whether the measures accorded any favourable treatment to domestic products over imported products by way of the DCRs attached to the FIT schemes failing to establish whether the regulations were protectionist or not.
The Appellate Body found that the regulations under Ontario’s Green Energy Act were in breach of art III, pt 4 of the GATT 1994 by way of its mandated DCRs and so in breach of the TRIMs Agreement. A stand-alone analysis of the NTO did not take place according to a ‘like product’ analysis and an assessment of whether treatment was less favourable to imported products was negated. It seems at least regrettable that given the finding of ‘default protectionism’, by way of a breach of art III, pt 4 of the GATT 1994, none of the general exceptions available in art XX of the GATT 1994, or indeed other exceptions such as those in the TBT Agreement, were applied.
The initial reaction by Ontario to the Appellate Body decision was to withdraw the DCR for the larger FIT scheme but to keep the DCR for the microFIT scheme. The Ontario Power Authority has since reviewed and removed DCRs, including in microFIT contracts, to comply with WTO requirements. This has effectively derailed any further attempts to apply DCRs in FIT contracts in Canada and put an end to any further analysis of unresolved issues affecting renewable energy policy.
Subsequent to Canada—Renewable Energy, the Panel in India—Certain Measures Relating to Solar Cells and Solar Modules considered arguments put forward by India to the effect that a stand-alone analysis of the national treatment obligation under art III, pt 4 of the GATT 1994 was necessary. India argued that in order to establish a violation under art 2.1 of the TRIMs Agreement, the distinct elements of art III, pt 4 of the GATT 1994 must be established independently from reference to the Illustrative List and provisions of the TRIMs Agreement.[75]
Mirroring the decision in Canada—Renewable Energy, however, the Panel found that a TRIM falling under paragraph 1(a) of the TRIMs Illustrative List was necessarily inconsistent with art III, pt 4 of the GATT 1994.[76] Thus, an independent analysis of the legal elements of art III, pt 4 of the GATT 1994 was held to be unnecessary.[77]
In the ‘Requests for Consultations’ documents regarding India—Solar Cells, the United States, the complainant, considered alleged breaches of the SCM Agreement.[78] However, the Panel did not revisit the issues arising from the Appellate Body decision in Canada—Renewable Energy relating to violations of the SCM Agreement. Instead, the Panel confined its inquiries to the TRIMs Agreement and any possible derogation from the NTO in art III available by way of operation of art III, pt 8 of the GATT 1994.
Noting some parallels between the arguments of the parties in this case and Canada—Renewable Energy,[79] the Panel found that India’s claim of government procurement was not available for the purposes of art III, pt 8. India argued that there was no ‘commercial resale’ of electricity as the market was created by the government and was therefore not a commercial market.[80] Similarly to the decision made by the Appellate Body in Canada—Renewable Energy, the Panel held that electricity purchased by the government was not in a competitive relationship with ‘foreign generation equipment’.[81] It therefore held that the purchase was not the subject of discrimination under DCRs and not covered by the derogation of art III, pt 8(a) of the GATT 1994.[82]
Unlike Ontario, India pursued other claims under the general exceptions provisions in art XX(d) and (j) of the GATT 1994. As the responding party in the dispute, India claimed an obligation on its part to take steps to achieve energy security, mitigate climate change, and achieve sustainable development, and that this includes steps to ensure the adequate supply of clean electricity, generated from solar power, at reasonable prices. India claimed that this would reduce its reliance on oil and coal.[83] India submitted that under art XX of the GATT 1994, a domestic manufacturing capability supported by domestic content requirements was, therefore ‘essential to the acquisition or distribution of products in short supply’.[84]
On this issue, the Panel found that the DCR measures were ‘uncertain and unpredictable’,[85] and so it was difficult to objectively connect the ability to source domestically produced cells with India's objective of ensuring a continuous and affordable supply of solar cells and modules to Indian solar power initiatives. It was therefore too difficult to connect this to claims of alleviating any shortage of supply, thus enlivening the general exceptions.[86] The Panel ruled that the exceptions under art XX of the GATT 1994 did not apply.
India appealed on certain points of law with regards to the application of arts III, pt 8 and XX(d) and (j). However, the Appellate Body upheld the decisions of the Panel.[87]
The issues canvassed in Canada—Renewable Energy and India—Solar Cells seem to unnecessarily meander through a series of claims which ultimately failed. The claim of a derogation from the NTO in art III, pt 4 by way of art III, pt 8 of the GATT 1994, and the claim of a prohibited subsidy in the SCM Agreement, both failed on the basis of a mistaken assumption of the relevant markets. The Panel and the Appellate Body, and indeed the parties to the disputes, did not seem sure at times of how to apply the rules as the arguments wavered between a physical product, renewable energy equipment and electricity. It is apparent from the outcome and conclusions made by both the Panel and Appellate Body in Canada—Renewable Energy that art III, pt 8 of the GATT 1994 and the SCM Agreement were not easily applied to the renewable energy market. A similar situation emerged in India—Solar Cells, where, comparatively, the application of the claims of violation under the TRIMs Agreement seemed to be reasonably straightforward, however in both cases it involved a degree of judicial economy. A ‘stand-alone’ breach of art III, pt 4 of the GATT 1994 based on the analysis of treatment less favourable to ‘like products’ of foreign origin was not established, leaving a degree of ambiguity with regard to interpretation.
In the author’s view, it may be possible that the concept of the appropriate market related to the application of art III, pt 8 of the GATT 1994 could be revisited, allowing for derogation from art III’s NTO. The SCM Agreement might also be revised and the application of ‘benefit’ under this agreement re-examined. Further, the general exceptions under art XX of the GATT 1994 might be re-evaluated with respect to the relationship between DCRs attached to the building of a domestic renewable energy equipment industry, and its contribution to alleviating a health risk created by non-renewable energy production. This might make it possible for governments to create renewable energy programs attaching DCRs to policies that are also compliant with WTO law. Further analysis of the application of WTO law in the context of these two cases would be important to these issues.
In order to quickly address environmental concerns and address renewable energy targets, one way forward would be for the rules to be reformed so they more easily allow for exceptions to regulations that mandate DCRs affecting markets for renewable energy generation equipment in circumstances encountered in Canada—Renewable Energy and India—Solar Cells. However, it might be worth asking whether there is merit in going to all this trouble to adopt protectionist policies that incorporate DCRs for a technology that cannot yet deliver a continuous supply of electricity.
In Ontario, consumers are still forced to pay twice for their electricity:[88] once for the investment in the generation of the electricity and once for the backup supplies when skies are grey, or there is no wind, and therefore not enough electricity generation to cope with demand.[89] The backup is fueled by gas, possibly cancelling out any benefit made by incorporating renewable generation methods in the first place.[90] Given environmental concerns, however, it may be that the rules should be made more flexible to accommodate DCRs that may aid innovation with regard to this particular industry, thus helping to speed up development of the technology and, in turn, alleviate environmental concerns. Communities that seek to create and innovate with environmental and social policies would find comfort in being able to include exceptions ‘without having to rely on judicial creativity on an ongoing basis’.[91]
While these potential reforms are uncertain, it seems quite clear that the WTO rules may not quite fit the pace of innovation taking place in the renewable energy sector. For example, difficulties were experienced by the Panel, the Appellate Body, and the parties in defining which market to analyse and which product was the subject of the dispute. This signifies a lack of alignment with current practice and emerging technologies.
The GATT 1994 allows for protectionism based on public health and environmental sustainability by way of exceptions, yet the regulations in Ontario and India that are based on such goals have been found to be in violation of the WTO rules. At present, the WTO rules seem to derail innovation in this area rather than facilitate it. If countries wish to create renewable energy policies in response to social and environmental goals and innovate in this area as Canada and India did, it may be that the WTO will need a contemporary overhaul of its rules to accommodate for such responses; and it is suggested that until such reform occurs, DCRs will not be able to form a part of these policies.
Australia, like Canada and India, is working towards incorporating renewable energy generation as part of a reliable energy mix.[92] Renewable energy policy in Australia is evident in the Renewable Energy (Electricity) Act 2000 (Cth) (the Act) and subsequent amendments, the most recent being the Renewable Energy (Electricity) Amendment Bill 2015 (Cth). The Blueprint for the Future Security of the National Electricity Market (2017) supports the Act by recommending, among other things, a focus on lower emissions from energy production facilities such as coal fired generators and reliability of energy supply.[93] The Blueprint suggests that private investment in projects in the form of government grants, tax concessions, or Clean Energy Finance Corporation debt will also play a part in this.[94]
Given the experiences of Canada and India, Australia will have to make sure that encouraging such investment does not involve policy or conditions that favour local production of renewable energy generation equipment over internationally produced products. Further to this, claiming exceptions under the GATT 1994 in order to ensure lower emissions from coal fired energy generators, as well as energy security and guaranteed supply, cannot be relied upon. Australia will have to be careful in the way it encourages the local development and subsequent use of technology in supplying energy so that it does not fall foul of DCR restrictions under WTO law as it implements its own policies in this area.
* LLB, Edith Cowan University.
1 Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Canada Measure Relating to the Feed-In Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (24 May 2013) [8.2], [8.6].
[2] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 190 (entered into force 1 January 1995) annex 1A ('General Agreement on Tariffs and Trade 1994').
[3] Appellate Body Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R (16 September 2016) [8.2].
[4] Dieter Seifried and Walter Witzel, Renewable Energy—The Facts (Routledge, 2010) 10–11.
[5] International Energy Agency, Energy Policies of IEA Countries Canada 2015 Review (Report, International Energy Agency, 2015) 20–22. <http://www.iea.org/publications/freepublications/publication/EnergyPoliciesofIEACountriesCanada2015Review.pdf> .
[6] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.25].
[7] Steve Charnovitz and Carolyn Fischer, ‘Canada—Renewable Energy: Implications for WTO Law on Green and Not-So-Green Subsidies’ (2015) 14(2) World Trade Review 177, 183.
[8] Government of Ontario, Office of the Deputy Premier, Minister of Energy and Infrastructure 2009 FIT Direction (24 September, 2009) 2.
[9] Melissa Harris, Marisa Beck and Ivetta Gerasimchuk, The End of Coal: Ontario’s Coal Phase-Out (Research Report, International Institute for Sustainable Development, June 2015) 9.
[10] Keith Schneider, ‘How Ontario Is Putting an End to Coal-Burning Power Plants’ (2013) Yale Environment 360 <http://e360.yale.edu/features/how_ontario_is_putting_an_end_to_coal-burning_power_plants> .
[11] Green Energy and Green Economy Act, SO 2009, c 12, preamble.
[12] International Energy Agency, Energy Policies of IEA Countries Canada 2015 Review (Report, International Energy Agency, 2016) 171 <http://www.iea.org/publications/freepublications/publication/EnergyPoliciesofIEACountriesCanada2015Review.pdf> .
[13] Direction from George Smitherman (Minister for Energy and Infrastructure, Government of Ontario) to Colin Anderson (Ontario Power Authority, Chief Executive Officer) dated 24 September 2009.
[14] Green Energy and Green Economy Act, SO 2009, c 12, s 1 (definition of ‘renewable energy source’); preamble (stating a commitment to promoting renewable energy projects).
[15] Feed-In Tariff Program FIT Rules Version 1.5.1, Ontario Power Authority, s 1.1 (2011).
[16] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.64].
[17] Charnovitz and Fischer, above n 7, 4.
[18] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.158] (Table 1).
[19] Office of the Auditor General of Ontario, 2011 Annual Report (Report, Office of the Auditor General of Ontario, 2011) 91.
[20] Ibid. The linking of local content requirements to contracts with significantly attractive contract prices quickly led to investment from a Korean consortium investing $7 billion in renewable generation resulting in 16,000 green energy jobs, quickly reducing any effects of oversubscription.
[21] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.73]. Japan claimed in its first written submission at paragraph 266 that the domestic content requirements in Canada’s FIT schemes accorded treatment less favourable to imported renewable energy generation equipment than to like domestic products.
[22] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January1995) annex 1A (‘Trade-Related Investment Measures (TRIMs)’).
[23] Ibid annex 1A (‘Subsidies and Countervailing Measures’).
[24] John Jackson, William Davey and Alan.Sykes Jr, Legal Problems of International Economic Relations (Westgroup, 4th ed, 2002) 20–21.
[25] Patrick Love and Ralph Lattimore, ‘Protectionism? Tariffs and Other Barriers to Trade’, in International Trade: Free, Fair and Open? (OECD Publishing, 2009) 4.
[26] Peter Van den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organisation (Cambridge Press, 3rd ed, 2013) 352.
[27] Appellate Body Report, Japan—Taxes on Alcoholic Beverages, WTO Doc WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (11 July 1996, adopted 1 November 1996) [18].
[28] Appellate Body Report, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WTO Doc WT/DS161/AB/R, WT/DS169/AB/R (11 December 2000) [133].
[29] World Trade Organisation, WTO Rules and Environmental Policies: Key GATT Disciplines (2018) <http://www.wto.org/english/tratop_e/envir_e/envt_rules_gatt_e.htm> .
[30] Panel Report, United States—Standards for Reformulated and Conventional Gasoline, WTO Doc WT/DS2/R (29 January 1996) [6.9].
[31] Appellate Body Report, European Communities—Measures Affecting Asbestos and Products Containing Asbestos, WTO Doc WT/DS135/AB/R (5 April 2001) [101].
[32] Ibid. In a footnote to paragraph 101, the Appellate Body referred to Appellate Body Report, Japan—Taxes on Alcoholic Beverages, WTO Doc WT/DS8/R, WT/DS10/R, WT/DS11/R (11 July 1996, adopted 1 November 1996) [113]. It also referred to United States—Standards for Reformulated and Conventional Gasoline, WTO Doc WT/DS2/R (29 January 1996) [6.8] where the approach set out in the working party report in Working Party Report, Border Tax Adjustments (adopted 2 December 1970) BISD 18S/97 was adopted in a dispute concerning Article III, pt 4 of the GATT 1994.
[33] Appellate Body Report, United States—Measures Affecting the Production and Sale of Clove Cigarettes, WTO Doc WT/DS406/AB/R (24 April 2012) [43].
[34] Appellate Body Report, European Communities—Measures Affecting Asbestos and Products Containing Asbestos, WTO Doc WT/DS135/AB/R (5 April 2001) [103].
[35] Appellate Body Report, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WTO Doc WT/DS161/AB/R, WT/DS169/AB/R (11 December 2000) [134].
[36] Appellate Body Report, European Communities—Measures Affecting Asbestos and Products Containing Asbestos, WTO Doc WT/DS135/AB/R (5 April 2001) [100].
[37] Van den Bossche and Zdouc, above n 26, 383.
[38] Panel Report, Italian Discrimination Against Important Agricultural Machinery, WTO Doc BISD 7S/60 (23 October 1958) [12].
[39] Appellate Body Report, United States—Tax Treatment for Foreign Sales Corporations—Recourse to Article 21.5 of the DSU by the European Communities, WTO Doc WT/DS108/AB/RW (29 January 2002) [210].
[40] Appellate Body Report, Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WTO Doc WT/DS161/AB/R, WT/DS169/AB/R (11 December 2000) [137].
[41] The FIT contract required that contract facilities utilising wind power or contract facilities utilising (PV) achieve a minimum percentage for their domestic content level of 50 per cent and 60 per cent respectively for contracts on or after 1 January 2011. Not meeting this requirement placed the contractor in default of the FIT contract.
[42] Yonov Frederick Agah, ‘Trade Investment Tax and Transparency—An Insurance Policy Against Protectionism’ (Paper presented at the Schloss Elmau Summit, June 2015) 104.
[43] Pierre Lemieux, ‘Protectionism by any Other Name’ (2014) 37(3) Regulation 6, 7.
[44] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) preamble.
[45] Van den Bossche and Zdouc, above n 26, 83.
[46] World Trade Organisation, The WTO In Brief (2018) http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm>.
[47] Alexandre Kafka, ‘A New Argument for Protectionism?’ (Feb 1962) 76(1) The Quarterly Journal of Economics 163; Eugenio Miravete, ‘Infant Industry Argument’ (2009) 2 The Princeton Encyclopedia of the World Economy 622.
[48] Bernard Hoekman and Michel Kostecki, The Political Economy of the World Trading System: WTO and Beyond (Oxford University Press, 2nd ed, 2001) 22.
[49] Van den Bossche and Zdouc, above n 26, 26.
[50] Ibid 352.
[51] Marrakesh Agreement Establishing the World Trade Organisation, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) annex 1A (‘Agreement on Technical Barriers to Trade’).
[52] Ibid annex 1A (‘Agreement on Technical Barriers to Trade’) art 2.2.
[53] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.86].
[54] Van den Bossche and Zdouc, above n 26, 25.
[55] Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Canada Measure Relating to the Feed-In Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (24 May 2013) [5.2]–[5.3].
[56] Van den Bossche and Zdouc, above n 26, 513.
[57] Charnovitz and Fischer, above n 7,189.
[58] Panel Report, European Communities—Regime for the Importation, Sale and Distribution of Bananas, WTO Doc WT/DS27/R /GTM (22 May 1997) [7.185].
[59]Panel Report, Indonesia—Certain Measures Affecting the Automobile Industry, WTO Doc WT/DS54/R (2 July 1998) [14.73].
[60] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [7.229].
[61] Ibid [7.117].
[62] Ibid [7.152].
[63] Ibid [7.153].
[64] Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Canada Measure Relating to the Feed-In Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (24 May 2013) [5.79], [5.80].
[65] Ibid [5.84].
[66] Panel Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WTO Doc WT/DS412/AB/R, WT/DS426/AB/R (19 December 2012) [5.128].
[67] Appellate Body Report, Canada—Measures Affecting the Export of Civilian Aircraft, WTO Doc WT/DS70/AB/R (2 August 1999) [153].
[68] SCM Agreement, art XIV(d).
[69]Appellate Body Report, Canada—Measures Affecting the Export of Civilian Aircraft, WTO Doc WT/DS70/AB/R (2 August 1999) [154]–[157].
[70] Appellate Body Report, Canada—Certain Measures Affecting the Automotive Industry, WTO Doc WT/DS139/AB/R WT/DS142/AB/R (31 May 2000) [139]–[143].
[71] Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector/Canada Measure Relating to the Feed-In Tariff Program, WTO Doc WT/DS412/AB/R WT/DS426/AB/R (24 May 24 2013) [5.246].
[72] Ibid [5.212].
[73] Ibid [5.244].
[74] Ibid [5.219].
[75] Panel Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc WT/DS456/R (24 February 2016) [7.44].
[76] Ibid [7.47], [7.48].
[77] Ibid [7.54].
[78] India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc WT/DS456/1, G/L/1023G/TRIMS/D/35, G/SCM/D96/1 (11 February 2013) (Request for Consultations by the United States).
[79] Panel Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc WT/DS456/R (24 February 2016) [7.185].
[80] Ibid [7.187].
[81] Ibid [7.113].
[82] Ibid [7.187].
[83] Ibid [7.189].
[84] Ibid [7.190].
[85] Ibid [7.368].
[86] Ibid [7.380].
[87] Appellate Body Report, India—Certain Measures Relating to Solar Cells and Solar Modules, WTO Doc WT/DS456/AB/R (16 September 2016).
[88] Office of the Auditor General of Ontario, 2011 Annual Report (Report, Office of the Auditor General of Ontario, 2011) 113.
[89] Ibid.
[90] Ibid.
[91] Charnovitz and Fischer, above n 7, 209.
[92] Alan Finkel et al, ‘Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future’ (Report, Commonwealth of Australia, June 2017) <http://www.energy.gov.au/sites/g/files/net3411/f/independent-review-future-nem-blueprint-for-the-future-2017.pdf> 5.
[93] Ibid.
[94] Ibid 185.
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