Release of WTO Appellate Body Report on certain Local Content Requirements under the Feed-in Tariff Program in Ontario, Canada

In May 2009, the Ontario Provincial Government in Canada established a Feed-in Tariff (FIT) program on electricity generated from renewable energy sources, such as solar and wind power. In the FIT program, the government requires electricity generators participating in the program to utilize power generation equipment to which was added at least certain percentage of value (including material procurements and assembly) in the Province (Local Content Requirements). Therefore, solar panels or other equipment exported by Japanese companies to Ontario received less favorable treatment than that locally produced.

In September 2010, Japan requested consultations with Canada based on the WTO Agreements by claiming that local content requirements under the FIT program were inconsistent with GATT Article III (National Treatment), TRIMs Agreement Article II (National Treatment), and SCM Agreement Article III (Prohibited Subsidies). (See attached relevant provisions.)

GATT:

The General Agreement on Tariffs and Trade (GATT 1947)

TRIMs:

Agreement on Trade-Related Investment Measures

SCM:

Agreement on Subsidies and Countervailing Measures

However, since no satisfactory solution was achieved during the consultations, Japan, in June 2011, requested the WTO to establish a panel to examine this matter. Following its establishment in July 2011, the Panel held meetings in March and May 2012, respectively. (The EU also requested the establishment of a panel in August 2011 and participated in those meetings together with Japan.)

On December 19 (local time in Geneva), the WTO released the Panel's report on this matter, in which the Panel largely approved Japan's claim that Canada's local content requirements in question are inconsistent with, among others, GATT Article III (National Treatment).

Being dissatisfied with the panel report, Canada appealed to the Appellate Body on February 5th. Japan also appealed on February 11 by claiming the issues on which the panel report did not support Japan's arguments. (The EU appealed on the same day as well.)

On May 6th (local time in Geneva), after holding a meeting in March 2013, the WTO released the Appellate Body report on this matter.

The report largely approves Japan's claims that Canada should eliminate local content requirements under the FIT program and concludes that Canada's local content requirements at issue are inconsistent with, among others, GATT Article III (National Treatment) and TRIMs Agreement Article II (National Treatment). The following is a main part of the Panel's findings. (Please refer to the relevant provisions attached below.)

(1) Consistency with GATT Article III and TRIMs Agreement Article II (National Treatment)

The Appellate Body supports the Panel's conclusions that local content requirements accord preferential treatment to products made in Ontario by requiring the purchase or use of products from domestic sources, which is prohibited in the illustrative list of the TRIMs Agreement, and therefore place Canada in breach of its national treatment obligation under GATT Article III and TRIMs Agreement Article II. The Appellate Body rejects Canada's rebuttal that the local content requirements should be considered as government procurement which can be exempted from the national treatment obligation.

(2) Consistency with the SCM Agreement Article III (Prohibited Subsidies)

Article III of the SCM Agreement prohibits subsidies contingent upon the use of domestic over imported goods. The Panel concluded that Japan failed to demonstrate the existence of a benefit (whether or not the FIT program confer a "benefit" in the meaning of SCM Agreement to the electricity generators participating in the program), and thereby that the local content requirements did not constitute a prohibited subsidy. The Appellate Body concluded that the local content requirements were not in breach of the SCM Agreement on the ground that there were not sufficient factual findings by the Panel to complete the analysis as to whether the measures confer a benefit.

(3) Recommendations

The Appellate Body, based on the aforementioned findings, recommends that Canada bring its measures into conformity with its obligations under the GATT and TRIMs Agreement.

The Appellate Body report will be adopted at the Dispute Settlement Body meeting on May 24th.

Japan strongly requests that Canada immediately implement the Appellate Body's recommendations by bringing the WTO-inconsistent measures into conformity with related WTO Agreements.

This is the first WTO dispute settlement case where the WTO ruled the WTO-inconsistency of a measure that gives preferential treatment to domestically manufactured goods in the renewable energy sector.

In settling this matter by taking advantage of the WTO dispute settlement procedures, Japan has been aiming not only to pursue Canada Ontario's elimination of the measure in concern but also to prevent the global proliferation of protectionist measures in the renewable energy sector and to contribute to the clarification and development of international trade rules by establishing a new precedent.

Currently, local content requirements under the FIT programs in the EU (e.g. Greece and Italy) brought by China (DS452) and local content requirements in the solar energy sector in India brought by the United States (DS456) are under examination at the WTO.

Japan considers the Panel's and Appellate Body's rulings of this case will have implications on those cases as a precedent, and therefore will be highly evaluated from a systemic viewpoint of preventing protectionism in renewable energy sector, which can be regarded as a major growth industry.

• Relevant provisions(PDF:22KB)

May 7, 2013

Multilateral Trade System Department, Trade Policy Bureau