BMI View: Canada has challenged a World Trade Organization dispute panel finding, which stated that local content requirements for renewable energy generation in the province of Ontario violate international trade rules. The decision, together with two investigations into Chinese solar products by the European Commission, corroborate our view that unresolved trade disputes between key markets will continue to be a prominent theme in the renewables segment in 2013; as governments attempt to shield domestic producers from intense competition.
In December 2012, a World Trade Organization ( WTO ) dispute panel established that local content requirements for renewable energy generation in the province of Ontario discriminated against companies in the EU and Japan, thus viol ating international trade rules . However, the finding left all parties involve d in the d ispute unsatisfied. On one side of the spectrum , the EU cross-appealed the panel finding that , whilst Ontario's Feed-in Tariff ( FIT ) programme was a subsidy under the Subsidies and Countervailing Measures (SCM) Agreement, it did not violate the agreement , because Japan and the EU failed to establish that the programme conferred a benefit to electricity producers.
On the other side, Canada's challenge to the panel ' s finding is based upon a government procuremen t argument. The country claims that u nder the government procurement exclusion of the General Agreem ent on Tariffs and Trade (GATT) , a country can exempt itself from GATT trade restrictions if the regulation or programme involves a government making purchases for its own needs and not for commercial resale. According to Canada, the resale of electricity through the FIT programme is not commercial in nature, thus challenging the panel ' s characterisat ion of the electricity market.
Trade Disputes To Remain Prominent
Whilst the legal status of Ontario ' s FIT programme will remain unclear for up to three months , as the Appellate Body considers t he countri es ' respective claims, the escalation of the case corroborate s our view that unresolved trade disputes between key renewables , especially solar, markets will continue to be a prominent theme in the segment in 2013.
I t is also worth noticing that the US filed a formal challenge at the WTO regarding India ' s local content requirement policies for solar energy in February 2013 . In addition, the EU, one of the plaintiffs in the Ontario case, is itself a t the centre of another dispute. Less than a week after the Chinese government launched a WTO case targeting local content requirements under renewable energy FiT programmes in certain EU member states, the European Commission opened two countervailing investigations into Chinese solar product s reaching the EU market at the end of 2012. The decision was strongly supported by a group of European solar producers led by SolarWorld , which advocated for duties of up to 120 % to be imposed on imported solar equipment . The EU ' s anti-subsidy investigations are expected to take until August 2013 ; provisional duties could then be imposed i f any negative impacts of subsidisation are found .
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With renewables manufacturers continuing to struggle due to low product pricing - itself a product of intense competition and oversupply -, government's atte mpts to support their domestic players are unlikely to abate in 2013. Hence, questions over the degree to which this support is licit are thus likely to intensify, fuelling trade disputes and further clouding the outlook for the sector.