SUBMITTED TO

PROF. SHEELA RAI

FACULTY OF LAW
International Trade Law Project

SUBMITTED BY
CANADA CERTAIN KUMAR SHUBHAM
MEASURES AFFECTING THE (2012/B.B.A. LL.B./003)
AVILASH KUMBHAR
RENEWABLE ENERGY
(2012/B.B.A. LL.B./015)
GENERATION SECTOR AND VAISHALI SINGH
CANADA MEASURES (2012/B.B.A. LL.B./059)

RELATING TO THE FEED-IN

TARIFF PROGRAM
Table of Contents
Abstract ........................................................................................................................................... 3

Introduction ..................................................................................................................................... 4

Summary of Dispute ....................................................................................................................... 5

Legal Issues Involved ..................................................................................................................... 8

Legal Issue I: Article 2.1, TRIMS and Article III: 4, GATT, 1994 ............................................ 8

Legal Issue II: Articles 1 & 3 of Agreement of Subsidy and Countervailing Measures ........... 12

Legal Issue III: Procedural Issues ............................................................................................. 15

Conclusion .................................................................................................................................... 17

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 ABSTRACT
This was the very first case in WTO dispute settlement mechanism concerning the renewable
energy followed by India- Renewable energy case. The Ontarios Feed-in-Tariff program was
challenged as its domestic content requirement was challenged as a discriminatory investment-
related measure thereby violation of Article 2.1 of the TRIMS and as a prohibited import
substitution subsidy under Agreement on Subsidy and Countervailing Measures. Both the panel
and the appellate body gave their finding against Canada stating violation of GATT and the TRIMS
Agreement. On the claim under Article 3 of the SCM, no adjudication was done as neither the
panel nor the appellate body gave any finding on whether the price guaranteed for electricity under
the Ontarios FIT is a benefit within the meaning of Article 3 of the SCM Agreement. The
appellate body did try to give certain guidelines regarding the calculation of benefit under the
SCM Agreement which can be proved useful for the future panels while dealing with the similar
issues involved.

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 INTRODUCTION
The Canada Renewable Energy/Feed-In Tariff case,1 is a landmark case concerning the
renewable policy measures vis a vis the obligations of a country under WTO. More particularly
this case concerns with the local content requirement under renewable energy policy. The appellate
body report has been adopted by the Dispute Settlement Body (DSB) on 24th of May 2013 in which
the complainants, the European Union (EU) and Japan, conveniently won their case against
Canada as both the panel and the appellate body gave their findings against Canada stating
violations of GATT, 1994 and TRIMS Agreement. But on the issue of subsidy, both the panel and
the appellate body did not give any concluding finding and stated that any complete legal analysis
regarding discriminatory subsidy cannot be done.

Though, this case was not able to give any concluding finding on the issue of benefit under the
SCM agreement, it is an important case of WTO regarding the interpretation of Article III:8 of the
GATT, 1994 which was taken as a defense by Canada. The appellate body clearly stated that
Article III: 4 prohibits certain discriminatory practices whereas Article III:8 also refers to
discriminatory treatment, in order to carve out the discriminatory treatment under both the articles
must be same. The appellate body also gave useful guidelines regarding calculation of benefit
under Article 3 of the SCM, stating,

Where a government creates a market, it cannot be said that the government intervention
distorts the market, as there would not be a market if the government had not created it.2

This added complications in the determination of government purchase as a subsidy under the
SCM Agreement and also opened the doors for future litigations, defendants citing the report as
the defense in determination of market which is to be done in order to calculate benefit under
SCM Agreement. In this academic project we have only discussed the legal perspective of the
Canada- Renewable Energy Case, and not the economic aspect of the case.

1
Appellate Body Reports, Canada Certain Measures Affecting the Renewable Energy Generation Sector / Canada
Measures Relating to the Feed-In Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013.
2
Ibid at para. 5.188.
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 SUMMARY OF DISPUTE
The Government of Ontario, which a province of Canada enacted a law in 2009 in order to
incentivize the production of electricity with the use renewable sources like wind and solar. A
scheme was also enacted with it known as Feed-In-Tariff scheme stating a minimum domestic
content requirements in parts and services from producers, producing within Ontario. A FIT is a
long-term contract which was generally for 20 to 40 years, was formulated by a government agency
in order to attract the investors and project developers by providing a set price for electricity in
order to secure wholesale electricity. The incentive in this scheme lies in the fact that the price
provided by the agency is generally higher than the wholesale price.

Under the FIT scheme, the Local Content Requirement defines content,

in terms of the total project costs, and designated activities range from manufacturing
certain components in Ontario to retaining labor and consulting services provided by
Ontario residents. Specifically, the applicable regulations require that by 2012, the
minimum required domestic content be 50% for large wind installations and 60% for solar
photovoltaic (PV).3

The complainants had objections against this very provision of FIT and Japan requested for
consultation with Canada pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (the "DSU"), Article XXII: 1 of the General Agreement on
Tariffs and Trade 1994 (the "GATT 1994"), Article 8 of the Agreement on Trade-Related
Investment Measures (the "TRIMs Agreement"), and Articles 4.1 and 30 of the Agreement on
Subsidies and Countervailing Measures (the "SCM Agreement").4 The same above stated
provisions were used by European Union to request consultations with Canada. 5

The complainants questioned measures of FIT concerning Local Content requirement, which
included,

(i) the Electricity Act of 1998;

(ii) the Green Energy and Green Economy Act of 2009;

3
Panel Reports, Canada Renewable Energy /Canada Feed-In Tariff Program, para. 7.158 (Table 1).
4
WT/DS412/1.
5
WT/DS426/1 and WT/DS426/1/Add.1.
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 (iii) the Electricity Restructuring Act of 2004;
(iv) the Ontario Regulation 578/05;
(v) the Independent Electricity System Operator (the "IESO") Market Manual;
(vi) the IESO Market Rules;
(vii) the FIT direction dated 24 September 2009 from the Deputy Premier and Minister
of Energy and Infrastructure;
(viii) individual FIT and microFIT Contracts executed by the Ontario Power Authority
(the "OPA");
(ix) the FIT Rules and microFIT Rules issued by the OPA;
(x) the FIT and microFIT Contracts issued by the OPA;
(xi) the FIT Application Form and the online microFIT Application issued by the OPA;
(xii) the FIT and microFIT Price Schedules issued by the OPA;
(xiii) the FIT Programme Interpretations of the Domestic Content Requirements; and
(xiv) any amendments or extensions of the foregoing, any replacement, renewal,
implementing or related measures.6

Upon failure of the consultation, request for constitution of panel was made and same was
constituted. The complainants did not challenge the FIT scheme directly under Article 5 of the
Agreement on Subsidies and Countervailing Measures which refers to actionable subsidy. The
provision related to local content requirement under the FIT scheme was challenged. The
complainants invoked three WTO provisions:

(i) there was the claim that the measures were inconsistent with TRIMS Article 2.1 by
virtue of being inconsistent with GATT Article III:4, alleging a violation of national
treatment;
(ii) there was a stand-alone claim under GATT Article III:4;
(iii) there was a claim of violation of SCM Articles 3.1(b) and 3.2, which forbid
subsidies contingent on the use of domestic over imported goods. Importantly, this

6
WT/DS412/1; WT/DS426/1 and WT/DS426/1/Add.1. Japan's request for consultations did not expressly refer to
the Ontario Regulation 578/05, the IESO Market Manual and the IESO Market Rules. However, these measures
were included in Japan's request for the establishment of a panel (WT/DS412/5).
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third claim was premised on being able to prove that the FIT incentives were
subsidies under the SCM Agreement.

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 LEGAL ISSUES INVOLVED
The major legal point involved in this case is the determination of market, there are two types of
market involved in this case- the market of renewable energy equipment market and the market of
electricity. There is a basic difference between two types of market, the renewable equipment
market is a global one whereas the market of electricity is a local one. The appellate body has
taken into consideration only the electricity market and defined subsidy in that market only. But
on the issue of benefit they did not give any concluding finding.

Legal Issue I: Article 2.1, TRIMS and Article III: 4, GATT, 1994

The TRIMS Agreement does not have any independent standing apart from GATT. In order to
prove the violation of Article 2.1 of the TRIMS Agreement, following things are needed to be
established,

that the measure is a trade related investment measure and is incontinent with either
Article III or XI of the GATT, 1994.7

In this section the defense put forth by Canada regarding exemption under Article III: 8 will also
be analyzed.

The complainants argued that the FIT scheme is a trade related investment measure within the
meaning of Article 2.1 of the TRIMS Agreement. Canada did not contest this argument at the panel
stage. Thus, the panel went on to adjudge the issue on its merits. The panel derogated in its
approach from the previous case of Indonesia- Autos, where the panel took the legislative history
and pronounced purpose of the measure into consideration while determining the issue of TRIMS.
In this case, the panel not only took the legislative record but also the fact that the FIT scheme has
been successful in attracting many equipment producers and investors.

The panel found that the FIT scheme is a Trade Related Investment Measure based on its domestic
content requirement. This finding of the panel was not reviewed by the appellate body.

As already stated above, TRIMS lacks the independent discipline of its own and thus, in order to
establish the violation of Article 2.1 of the TRIMS, violation of either of Article III or Article XI

7
Panel Report, Indonesia Certairean Measures Affecting the Automobile Industry, 14.64, WT/DS54/R (Jul. 2,
1998).
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has to be established. The Ontarios FIT scheme was not a quantitative restriction, thus the only
way to establish the violation of Article 2.1, TRIMS was to show the violation of National
Treatment obligation under Article III of the GATT, 1994.

The complainants argued the violation of Article III: 4 of the GATT, 1994. It is an established law
under WTO regime that in order to prove the violation of Article III: 4, the following things are to
be established,

that the imported and domestic products are like in nature; the measure is a law,
regulation or requirement which is affecting the internal sale, offering for sale, purchase,
transportation, distribution or use and the measure accords less favorable treatment to the
imported products.8
The complainants based their arguments on the above stated points only and the same were not
disputed by Canada. Rather, Canada took the defense of Article III: 8(a) of GATT, 1994 and this
was the sole defense which was taken by Canada. Article III: 8(a) of GATT, 1994 carves out
certain activities from the discipline and ambit of the National Treatment obligation under Article
III of GATT which concern Government procurements.9 The appellate body in this case does not
deliberate on the burden of proof in case of invocation of Article III: 8(a) of GATT, 1994 and
called it a derogation.10

The crux of Canadas argument was that the market had been created for and by the Government
and thus, the discipline of Article III does not apply in the case. This was rebutted by EU by
providing an expansive interpretation of Article III: 8(a) and Article 2.1 & 2.2 of the TRIMS
Agreement. It was argued by EU that the discriminatory treatment concerning domestic content
requirement has been listed in the illustrative list of the TRIMS Agreement. The measures
mentioned in the illustrative list is said to be a per se violation of Article III obligation of National
Treatment and no operation of Article III: 8 can happen in this case.11 This argument was rejected

8
Panel Report, European Communities Trade Description of Sardines, WT/DS231/R (May 29, 2002); Appellate
Body Report, Korea Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R,
WT/DS169/AB/R (Dec. 11, 2000).
9
GATT Article III: 8(a) states: The provisions of this Article shall not apply to laws, regulations or requirements
governing the procurement by governmental agencies of products purchased for governmental purposes and not
with a view to commercial resale or with a view to use in the production of goods for commercial sale.
10
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 5.56.
11
Panel Report, Indonesia Certain Measures Affecting the Automobile Industry, WT/DS54/R (Jul. 2, 1998).
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by the panel and the same was upheld by the appellate body. 12 The appellate body took a
harmonious view while interpreting Article 2.1 and 2.2 of the TRIMS Agreement. 13 It was also
held that the illustrative list is not a closed list and Article III: 8 provides a right to the members
which cannot be taken away by mere interpretation of the illustrative list.14

The fact that the derogation of Article III: 8 has never been a part of WTO dispute settlement
mechanism, resulted in a detailed discussion on this issue. The panel analyzed the application of
Article III: 8 in a three step process. First, that whether the measure is a law, regulation, or
requirement governing procurement; second, whether the measure involves procurement by
governmental agencies; and third, whether the procurement is undertaken for governmental
purposes and not with a view to commercial resale.

On the first prong, the panel found that the domestic content requirement for renewable energy
equipment is a requirement governing the procurement of electricity because there is a very
clearly a close relationship between the electricity allegedly being procured and the domestic
content requirement on energy generation equipment.15

On the second prong, the panel found that the measure constitutes procurement by government
agencies. On the third prong, the panel reasoned that if the purchase had been done with a view to
commercial resale, then such a purchase cannot be for governmental purposes.16

Focusing on the issue of commercial resale, the panel considered and rejected several arguments
by Canada that the nature of the market undermined the commercialese of the sale. Consequently,
the panel ruled that the resale of electricity produced through the FIT program is commercial and
that the government indeed earns a profit.17

Thus, the panel found that the defense taken by Canada failed on the third point and held that such
defense of derogation cannot be availed by Canada.

12
Panel Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 7.120; Appellate Body
Reports, para. 5.33.
13
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 5.26.
14
Ibid. at paras. 5.22, 5.32.
15
Panel Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 7.11., 7.127.
16
Ibid. at para. 7.145.
17
Ibid. at para. 7.151.
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This finding was appealed by all the three parties in the appellate body. The appellate body gave
a holistic interpretation of Article III: 8 and provided a point of reference for future panels.18 It
was found by the appellate body that since both the obligation under Article III: 4 and its
derogation under Article III: 8 talk about certain discriminatory treatment then in order to avail the
protection of Article III: 8, the same discriminatory treatment should be there in both the rules.19

By application of the above stated principle of law on the facts of the case, the appellate body
noted that the domestic content requirement which is violating the national treatment obligation is
in the energy equipment whereas, the Government is procuring electricity, thus, it cannot be said
to be same discrimination in both the rules. It upheld the panel finding in substance that the Canada
cannot take the defense of Government procurement but the basis of the appellate bodys finding
was completely different.

The rest of the finding of the panel with regard to Article 2.1 of the TRIMS and Article III: 4 of
the GATT, 1994 was not appealed and the same stands valid. The domestic content requirement
under FIT scheme was held violative of Article III: 4 and there by violative of Article 2.1 of the
TRIMS, and the same was upheld by appellate body.

18
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In ariff Program, paras. 5.56, 5.82.
19
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 5.63, 5.74.
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 Legal Issue II: Articles 1 & 3 of Agreement of Subsidy and Countervailing Measures

The SCM agreement mainly talks about two types of subsidies- prohibited subsidy, which is per
se not allowed, and actionable subsidy, which is not allowed if it causes material injury. The third
type of non-actionable subsidy does not exist anymore. The complainants did not challenge the
FIT scheme directly under Article 5 of the Agreement on Subsidies and Countervailing Measures
which refers to actionable subsidy. It was challenged as a violative of Article 3.1(b), which
prohibits giving a subsidy dependent upon local content.

In order to establish this claim, the first thing which was necessary to establish was that there exists
a subsidy. Both the panel and the appellate body failed to adjudicate this question properly because
of this very fact that neither of them was able to validate that FIT scheme poses a subsidy with the
meaning of SCM Agreement. In absence of proper conclusion of this question, further adjudication
of violation under Article 3.1(b) was not possible.

Article 1 of the SCM Agreement defines subsidy, to prove subsidy the two prongs of a financial
contribution from the government and a benefit to a recipient have to be established. Alternatively
and price or income support under Article XVI of the GATT, 1994 can also be established. Once
the existence of a subsidy would be proved, because of LCRs, it would be a prohibited subsidy
under Article 3.1(b) of the SCM Agreement and no further adjudication would be required.

A crucial concern in this case was how, if at all, Ontarios FIT contracts come within the statutory
definition of financial contribution. The SCM definitional provisions are as follows:

[A] subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the
territory of a Member (referred to in this Agreement as government), i.e. where:

(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity
infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees);

(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal
incentives such as tax credits),

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 (iii) a government provides goods or services other than general infrastructure, or
purchases goods;

(iv) a government makes payments to a funding mechanism, or entrusts or directs a

private body to carry out one or more of the type of functions illustrated in (i) to
(iii) above which would normally be vested in the government and the practice, in
no real sense, differs from practices normally followed by governments.20

All three parties to the dispute agrees that there is financial contribution but parties classified the
FIT scheme under (i) and (iii) above. Both the panel and the appellate body concluded that the FIT
Contracts manifest the Government purchase of goods and thus, there is a financial contribution.
The panel reached to this conclusion by analyzing the design, operation, and principal
characteristics of the contracts and concluded that the Ontario Power Authority pays for delivered
electricity and that Ontarios Hydro One takes possession of the electricity. The panel also noted
that for electricity, the purchase of electricity means the transfer of the entitlement to the
electricity.21 This was appealed by Japan stating that Ontarios electricity contracts were
purchases of a good, but the Appellate Body upheld the panel.22

The next prolong of the issue that came for consideration, was the issue of benefit to the recipient.
Both the panel and appellate body stated that the suitable legal standard for a benefit is whether
the FIT recipient has received the financial contribution on terms more favorable than those
available to the recipient in the market. It was argued by the complainants that the price given
under FIT is more than the adequate price and thus per se constitute a benefit under SCM as it
was argued that in absence of this, the producers would not be able to operate. But the appellate
body rejected this but for argument and though the panel did not conclude in favor of a benefit,
the appellate body reversed its finding.

In order to determine the benefit, the determination of market is the first thing that is to be done.
The panel stated that the market of electricity in the relevant market where as the appellate body
reversed the panels finding stating that the relevant market would be market of electricity
generated from wind and solar sources. Its finding was based on the claim that both the government

20
SCM Article 1.1(a)(1).
21
Panel Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 7.229.
22
ppellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 5.128.
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and some of the consumers see these products as being different from that of the conventional
generation. The Appellate Body indicated that the panel had not sufficiently considered such
supply- and demand-side factors specific to the provincial market.23 It is the Government that has
created the relevant market and the appellate body gave a Government centric interpretation.

And because the finding of the panel was based on pre-existing benchmark, the appellate body
reversed it stating that such benchmark cannot be taken into consideration where the intervention
of Government has created the market and same would not have otherwise existed. The appellate
body itself did not given any concluding finding stating absence of factual matrix that should have
been provided by the panel.

23
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 5.214.
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 Legal Issue III: Procedural Issues

This case is a landmark one as far as it goes in the development of substantial law such as the
holistic interpretation of Article III: 8 of the GATT, 1994 or the interpretation and calculation of
benefit under the SCM Agreement. This case has also touched upon some of very important
procedural issues of WTO Dispute Settlement Mechanism.

In the meeting of Dispute Settlement Body concerning the appellate body report, Canada
complained that the interpretation of Article III: 8 given by the appellate body was not based on
the arguments put forth by the parties but was based on independent analysis.24 The DSB did not
address the issue properly but the complaint in itself raised grave due process concerns. This also
open larger debate of civil v. common law countries.

The second important procedural aspect of this case is related to amicus curiae briefs. Article XIII
of the DSU provides panel with the power to consider outside pinions on technical matters. The
panel in this case received two amicus curiae briefs, one form environmental NGOs coalition and
other from labor NGOs coalition, but did not bother to deliberate upon either of them. Rather it
shifts the question of taking those briefs into consideration on the countries and when neither of
the parties asked panel to take those briefs into account, the panel simply noted that it was not
necessary to do so.25 The appellate body also received two amicus curiae briefs, one from an
academic and other from an energy company and again neither of them were taken into account.26

This is a very faulty understanding of Article XIII of DSU which enables the panels and appellate
body to take these opinions into consideration. The provision is there to make panel or appellate
body well equipped with technical and environmental issues and effective exercise of the same
should be done while adjudicating such issues. It should be the prerogative of adjudicating bodies
to decide upon these briefs and the question whether to take a brief into account should never be
left to the parties.

The third issue was regarding the concluding finding on the issue of benefit, the appellate body
held that the panel had no complete factual finding on the matter and thus, the appellate body is

24
DSB Meeting Held on 24 May 2013, WT/DSB/M/332, para. 8.4.
25
Panel Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 1.13.
26
Appellate Body Reports, Canada Renewable Energy / Canada Feed-In Tariff Program, para. 1.30.
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not able to give any concluding finding on the issue. This again raises the need for the remand
procedure under WTO Dispute Settlement Mechanism. No concluding finding by the appellate
body leaves the scope of future litigations on the same issue. India Renewable Energy case is a
classic example arising out this procedural limitation.

The last procedural aspect was that the appellate body abandoned its practice of having a distinct
paragraph numbering system from the panel reports which was started in 1997 in EC Bananas
case without providing an explanation or reason for the undesirable change.

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 CONCLUSION
Canada Renewable Energy offered a interesting case in which privileged disbursements for
electricity generation were being used by the Government in order to incentivize investment in
renewable energy sector, looking for change in the generation mix in a market which is historically
regulated by the Government. The major issue involved in this case was the local content
requirement in FIT scheme in which it was mandated to use locally manufactured electricity
equipment, both the panel and the appellate body was right in their approach in stating this
requirement violative of National Treat Obligation under Article III: 4 of the GATT and thus
constituting the violation of 2.1 of the TRIMS Agreement. But both the adjudicating bodies
demurred as to whether the FIT constitutes a subsidy? The larger, unexpressed point of debate is
whether WTO obligations pose hindrances for communally warranted ecological strategies, and
the whole dispute settlement process of this case mostly escaped from this direct but necessary
confrontation.

While the finding of the adjudicating bodies on the first legal issue should be welcomed, their
inability to present any concluding finding on the issue of benefit conferred by the FIT scheme
has raised many questions. The narrow approach the appellate body took while determining the
market has also raised many questions. This may have been done in order to avoid the direct
confrontation mentioned above, had the appellate body given the finding that FIT were a subsidy,
it would have cause a great deal of damage to the policies related to renewable energy. By not
giving any concluding finding, the appellate body might have saved WTO from farce criticism
from the greater environment safety concerned society but at the same time opened a new door for
discussion and future litigations on renewable energy matters. India- Renewable Energy case is
the result of the same.

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