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First WTO Judicial Review of Climate Change Subsidy Issues

Published online by Cambridge University Press:  20 January 2017

Sherzod Shadikhodjaev
Sherzod Shadikhodjaev*
Affiliation:
KDI School of Public Policy and Management, Republic of Korea
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Extract

On May 6, 2013, in the combined reports Canada—Certain Measures Affecting the Renewable Energy Generation Sector and Canada—Measures Relating to the Feed-in Tariff Program (Canada—Renewable Energy/Feed-in Tariff), the Appellate Body of the World Trade Organization (WTO) upheld some key conclusions of a decision of the WTO’s dispute settlement panel (the panel), finding Ontario’s feed-in tariff (FIT) program in violation of certain of Canada’s WTO obligations. The FIT program permits qualified Ontario-based renewable energy producers to enter into long-term fixed-price electricity purchase contracts at premium rates in exchange for feeding into the grid. Japan and the European Union had challenged the program on two grounds: first, that conditioning FIT program eligibility on the use of locally produced materials discriminates against foreign goods, contrary to “national treatment” obligations; and, second, that it constitutes an unlawful subsidy (the provision of a financial contribution by the government that confers a benefit on a specific recipient), contrary to WTO requirements under the Subsidies and Countervailing Measures (SCM) Agreement. While affirming the panel’s decision on the first ground, the Appellate Body reversed its finding on the second, that the complainants had failed to establish a FIT-based “benefit” for electricity producers within the meaning of WTO law. But the Appellate Body itself could not eventually confirm the fact of illegal subsidization.

Keywords

CanadaCertain Measures Affecting the Renewable Energy Generation SectorCanada—Measures Relating to the Feed-in Tariff Program
Type
International Decisions
Information
American Journal of International Law , Volume 107 , Issue 4 , October 2013 , pp. 864 - 878
Copyright
Copyright © American Society of International Law 2013

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References

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 (May 6, 2013) (adopted May 24, 2013) [hereinafter Appellate Body Reports]; Panel Reports, Canada—Certain Measures Affecting the Renewable Energy Generation Sector; Canada—Measures Relating to the Feed-in Tariff Program, W T/DS412/R, WT/DS426/R (Dec. 19, 2012) (adopted May 24, 2013) [hereinafter Panel Reports]. The Appellate Body and the panel issued their reports on these two disputes in the form of a single document. As both disputes deal with the same subject matter, they are treated in this analysis as a single case; and the Appellate Body reports and the panel reports on the case are each treated as a single decision.

The WTO documents cited in this report are available at the WTO website, http://www.wto.org. For dispute settlement documents, see the WTO dispute settlement database, http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm.

2 Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1869 UNTS 14 [hereinafter SCM Agreement].

3 General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS 190.

4 See, e.g., Appellate Body Report, Brazil—Measures Affecting Imports of Retreaded Tyres, W T/DS332/AB/R (Dec. 3, 2007) (adopted Dec. 17, 2007); Appellate Body Report, European Communities—Measures Affecting Asbestos and Products Containing Asbestos, WT/DS135/AB/R (Mar.12, 2001) (adopted Apr.5,2001); Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Oct. 12, 1998) (adopted Nov. 6, 1998); Appellate Body Report, United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (Apr. 29, 1996) (adopted May 20, 1996) [hereinafter U.S.— Gasoline ].

5 U.S.—Gasoline, supra note 4, at 14–22.

6 WTO-UNEP [United Nations Environment Programme] Report, Trade and Climate Change 26–27 (2009).

7 Panel Reports, para. 7.7.

8 For arguments in support of and against local content requirements, see Sherry Stephenson, Addressing Local Content Requirements in a Sustainable Energy Trade Agreement 4–6 (International Centre for Trade and Sustainable Development, June 28, 2013), available at http://www.ictsd.org.

9 Agreement on Trade-Related Investment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1868 UNTS 186 [hereinafter TRIMs Agreement].

10 See also Panel Reports, paras. 8.6 –.7.

11 Article 1.1 of the SCM Agreement, supra note 2, provides:

For the purpose of this Agreement, a subsidy shall be deemed to exist if:

  1. (a)(1)

    (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:

    1. (i)

      (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);

    2. (ii)

      (ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits) [footnote omitted];

    3. (iii)

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

    4. (iv)

      (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; or

  2. (a)(2)

    (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994; and

    1. (b)

      (b) a benefit is thereby conferred.

12 Decision of the Arbitrator, United States—Tax Treatment for “Foreign Sales Corporations”: Recourse to Arbitration by the United States Under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, para. 6.10, W T/DS108/ARB (Aug. 30, 2002).

13 Sykes, Alan O., The Questionable Case for Subsidies Regulation: A Comparative Perspective, 2 J. Legal Anal. 473, 473 (2010)CrossRefGoogle Scholar (abstract).

14 See Disputes by Agreement, WTO dispute settlement database, supra note 1.

15 Panel Reports, paras. 7.234–.235, 7.239 & n.464.

16 Panel Report, United States—Definitive Anti-dumping and Countervailing Dutieson Certain Products from China, paras. 8.3–.41, WT/DS379/R (Oct. 22, 2010) (adopted Mar. 25, 2011).

17 Id., para. 8.94; Panel Report, Korea—Measures Affecting Trade in Commercial Vessels, para. 7.50, WT/DS273/R (Mar. 7, 2005) (adopted Apr. 11, 2005).

18 Appellate Body Report, United States—Definitive Anti-dumping and Countervailing Duties on Certain Products from China, para. 320, WT/DS379/AB/R (Mar. 11, 2011) (adopted Mar. 25, 2011) [hereinafter U.S.— Anti-dumping and Countervailing Duties] (reported by Dukgeun Ahn at 105 AJIL 761 (2011)).

19 Id., paras. 286 –90.

20 Id., paras. 304, 307–08; see also Vienna Convention on the Law of Treaties, Art. 31, May 23, 1969, 1155 UNTS 331; Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the International Law Commission on the Work of Its Fifty-Third Session, UN GAOR, 56th Sess., Supp. No. 10, at 43, UN Doc. A/56/10 (2001).

21 U.S.—Anti-dumping and Countervailing Duties, supra note 18, para. 305.

22 Id., paras. 309 –10, 316.

23 Id., para. 317.

24 Panel Reports, para. 7.234.

25 The question of government’s entrustment/direction was highly controversial in the panel reports in Japan—Countervailing Duties on Dynamic Random Access Memories from Korea, paras. 7.49–.254, WT/DS336/R (July 13, 2007) (adopted Dec. 17, 2007); European Communities—Countervailing Measures on Dynamic Random Access Memory Chips from Korea, paras. 7.18–.146, WT/DS299/R(June17,2005) (adopted Aug.3,2005); United States—Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, paras. 7.10 –.178, WT/DS296/R (Feb. 21, 2005) (adopted July 20, 2005).

26 Panel Report, United States—Measures Treating Export Restraints as Subsidies, paras. 8.65, 8.73, W T/DS194/R (June 29, 2001) (adopted Aug. 23, 2001).

27 Panel Reports, paras. 7.169–.185, 7.223–.241.

28 Id., para. 7.11.

29 Id., n.46.

30 Interestingly, this approach contrasts with some GATT drafters’ perception of “electric power” as a service and not as a good. See John H. Jackson, World Trade and the Law of Gatt (A Legal Analysis of the General Agreement on Tariffs and Trade) 745 (1969).

31 For a detailed analysis of WTO case law on the calculation of antisubsidy countermeasures, see Sherzod Shadikhodjaev, Retaliation in the Wto Dispute Settlement System 139–49 (2009).

32 Such variation is evident from Article 14 of the SCM Agreement, which envisages different methods of subsidy calculation depending on the form of the financial contribution. See also Appellate Body Reports, para. 5.130.

33 Appellate Body Report, Canada—Measures Affecting the Export of Civilian Aircraft, paras. 154 –57, W T/DS70/AB/R (Apr. 14, 1999) (adopted Aug. 20, 1999) [hereinafter Canada—Aircraft ].

34 Panel Reports, para. 7.202.

35 Id., paras. 7.276 –.320.

36 Id., para. 9.23 (diss. op.).

37 The relevant part of the Annex (“Illustrative List”) to the TRIMs Agreement, supra note 9, para. 1(a), reads that illegal TRIMs include, inter alia, those with which “compliance ... is necessary to obtain an advantage, and which require: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source.”

38 See Canada—Aircraft, supra note 33, para. 153.

39 The transitional regimes are different in terms of the length and extensibility of grace periods for certain categories of WTO members. See Shadikhodjaev, Sherzod, International Regulation of Free Zones: An Analysis of Multilateral Customs and Trade Rules, 10 World Trade Rev. 189, 206–07 (2011)CrossRefGoogle Scholar.

40 The Appellate Body compared the likeness standard to an accordion that “stretches and squeezes in different places as different provisions of the WTO Agreement are applied.” Appellate Body Report, Japan—Taxes on Alcoholic Beverages at 21, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (Oct. 4, 1996) (adopted Nov. 1, 1996).

41 Id. at 20–21.

42 See, e.g., Won-Mog Choi, ‘Like Products’ In International Trade Law: Towards A Consis Tent GATT/WTO Jurisprudence 34–49, 66–71 (2003).

43 Appellate Body Report, United States—Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R (Jan. 19, 2004) (adopted Feb. 17, 2004).

44 Id., paras. 77–78, 82–122.

45 U.S.—Anti-dumping and Countervailing Duties, supra note 18, paras. 446, 483.

46 REN 21 [Renewable Energy Policy Network for the 21st Century], Renewables 2013: Global Status Report 68 (2013), at http://www.ren21.net.

47 The same complaint has been made about the FIT programs of certain European countries in a recently initiated WTO dispute. European Union and Certain Member States—Certain Measures Affecting the Renewable Energy Generation Sector, Request for Consultations by China, WT/DS452/1, G/L/1008, G/SCM/D95/1, G/TRIMS/D/34 (Nov. 7, 2012).