In a move that will likely set a worldwide precedent barring governments from imposing local content requirements to their feed-in tariff programs, a forthcoming World Trade Organization report indicates that it will side with the European Union and Japan against the Canadian province of Ontario. Although the official report is not expected to be released until November, a leaked preliminary dispute settlement floated by the International Centre for Trade and Sustainable Development (ICTSD) signals the WTO's acceptance of two separately filed claims of protectionism against Ontario. Both Japan and the EU have claimed Ontario's feed-in tariff (FIT) program discriminates against foreign green energy manufacturers and unduly pressures local companies to purchase hardware from local suppliers.
In September of 2010, Japan filed an official dispute with the WTO claiming that certain provisions in Ontario’s FIT program directly violate Canada’s obligations under the General Agreement on Tariffs and Trade (GATT) 1994 — in specific, Articles III:4, III:5 and XXIII:1. These articles essentially bar governments from doing what Ontario stands accused of doing: requiring power generating companies that are participating in the FIT program to source a certain percentage of their equipment in Ontario. The local content requirement in Ontario is 25 percent for wind projects and 60 percent for solar. Japan further claimed that Ontario’s actions were out of compliance with Article 2.1 of the TRIMS Agreement and asked the WTO to view Ontario’s FIT program as an illegal subsidy.
Following Japan’s lead and echoing the same concerns, the EU’s official dispute was filed in August of 2011. Eventually, both complaints were merged by the WTO. Recently, it was leaked that the WTO had reached a preliminary decision on the matter — one that the government of Ontario, which defends its actions by saying the requirements were put in place to encourage local clean energy production, will likely appeal.
The Rising Tide of Complications
What appears on the surface to be a cut and dried case of unfair discrimination against foreign manufacturers is actually far from it. The implications of the WTO’s impending official decision, which isn’t likely to stray from the preliminary dispute settlement report, may have consequences that reach far beyond any direct impacts to Ontario’s renewable energy efforts and could result in a glut of litigation against other governments with similar local content requirements written into their FIT schemes.
“They don’t call them trade wars for nothing,” says Clint Wilder, senior editor with Clean Edge, Inc. and co-author of Clean Tech Nation: How the US Can Lead in the New Global Economy. “It’s a real dilemma. It’s very discouraging to see these kind of trade wars breaking out over renewable energy. The industries of clean tech are becoming the critical industries for global economic competitiveness in the 21st century. The downside is, when industries achieve that status you’re going to get these disputes.”
Pointing to a recent dispute between the U.S. and China over the dumping of solar exports that resulted in the U.S. Commerce Department levying stiff tariffs against Chinese imports, Wilder says, “We’ve certainly seen it before, with the U.S. taking action against China. But what’s interesting to me is that the Ontario market is hardly the only one — and far from the largest one — to have domestic content rules.”
Similar local content rules are in place in many countries, including Brazil’s wind and solar industries and in India, where crystalline photovoltaic projects are required to use products manufactured in-country. In Saudi Arabia, the recently announced K.A.CARE program, which plans to add 55,000 megawatts of renewable energy capacity over the course of the next 20 years, plans to opt in favor of awarding “extra bid points” for developers who utilize local content — however once the second round of procurements are launched, the plan is to make the use of local content mandatory.