Last May, the WTO Appellate Body turned down Canada’s appeal from the earlier WTO panel decision that found the local content requirements of the Ontario’s Green Energy Act and the Feed-in-Tariff (FIT) program offended the WTO Agreement.
The decision is a critical one for the WTO, the first directly dealing with a country’s green energy laws.
Canada was formally the defendant even though the case involved a provincial measure. That’s because Canada at large subject to WTO obligations even if in the case of laws enacted by a province.
Many observers of WTO disputes thought from day-one that Canada’s defense to the EU and Japanese complaint would face an uphill battle.
Basically, Canada (Ontario) argued that the FIT entailed government procurement of electricity and was therefore outside the normal obligations that prohibited conditioning market access on local content purchases.
This was a difficult argument to sustain from the get-go. Leaving aside the finely-crafted legal arguments advanced by Canada, history has shown that WTO panels really don’t like discriminatory market barriers of any kind, no matter how they may be dressed up in legal garb.
So the Appellate Body didn’t think much of Canada’s government procurement argument. It said that Ontario clearly wasn’t buying electricity to use on its own behalf – like desks, computers, pens and staplers – but was channelling renewable (“green”) electricity on to the commercial market.
Without that exemption, Canada was disentitled to treat solar equipment from Japan and the EU differently from Ontario-made products.
Where do we go from here?
Well, since the case was brought against Canada as the WTO member, Canada will now have to comply with the Appellate Body decision by Ontario bringing the Green Energy Act into conformity with our WTO obligations. Ontario has said it will do so and the WTO has agreed that it has until March 2014 to make the needed changes.
If this isn’t done, Canada will face the threat of compensatory measures – better described as retaliatory duties – applied by Japan and the EU against Canadian exports to make up the lost trade affected by the offending measure.
That may be difficult to quantify precisely but the threat is a real one. What usually happens is that the winning side chooses a list of exports to hit with punitive tariffs that hurt the most, as Canada is doing in its win against the US in the dispute over discriminatory beef and pork labelling requirements.
So, in the event that the Green Energy Act isn’t changed sufficiently to meet the WTO ruling, Japan and the EU will target those Ontario-made exports most likely to be hurt the most by retaliatory duties.
This WTO decision of course isn’t a total loss for Ontario. For one thing, these decisions are prospective, meaning that it doesn’t affect current FIT contracts but only future projects.
As well, the decision doesn’t affect other parts of the Green Energy Act. That means that higher prices can still be paid by the Ontario Power Authority for renewable energy generated from green sources, except that the qualifications for getting these rates in the future cannot be made contingent on meeting local purchasing obligations.
I suspect that, ultimately, Queen’s Park will make all the necessary legislative and regulatory changes to bring the law into line. The chances of Canada facing retaliatory duties on our exports seems unlikely.