CANADA – MEASURES RELATING TO THE FEED-IN …trade.ec.europa.eu/doclib/docs/2012/april/tradoc_149296.pdf · European Union's Opening Oral Statement ... enunciated the test to be

In the World Trade Organization

CANADA – MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM

(DS426)

European Union's Opening Oral Statement at the First Meeting with the Panel

Geneva, 27 March 2012

Canada – FIT Program European Union (DS426) Opening Oral Statement at the First Meeting with the Panel ________________________________________________________________________

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TABLE OF CONTENTS

I. INTRODUCTION................................................................................................................................. 1

II. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLES 3.1(B) AND 3.2 OF THE SCM AGREEMENT ............................................................ 3 A. THE FIRST ELEMENT OF THE DEFINITION OF SUBSIDY IS MET: INCOME/PRICE SUPPORT OR FINANCIAL

CONTRIBUTION ............................................................................................................................... 3 B. THE SECOND ELEMENT OF THE DEFINITION OF SUBSIDY IS MET: BENEFIT............................................. 9 C. CONCLUSION..................................................................................................................................... 11

III. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE NOT COVERED BY ARTICLE III:8 OF THE GATT 1994 .............................................................................................. 12

IV. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLE 2.1 OF THE TRIMS AGREEMENT, IN CONJUNCTION WITH PARAGRAPH 1(A) OF ITS ANNEX.......................................................................................................................... 17

V. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLE III:4 OF THE GATT ....................................................................................................... 17

VI. CONCLUDING REMARKS ............................................................................................................. 17


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TABLE OF CASES

Short Title Full Case Title and Citation

EC and certain member States – Large Civil Aircraft

Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011

Philippines – Distilled Spirits Appellate Body Reports, Philippines – Taxes on Distilled Spirits, WT/DS396/AB/R / WT/DS403/AB/R, adopted 20 January 2012

US – Large Civil Aircraft (2nd complaint)

Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, circulated to WTO Members 12 March 2012, adopted 23 March 2012


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Mr. Chairman, distinguished Members of the Panel.

I. INTRODUCTION

1. The European Union ("EU") would first like to thank you all for agreeing to be

Members of this Panel. Our objective in these proceedings is to assist the Panel in

the exercise of its judicial functions, and in the search for an effective resolution to

this dispute.

2. Today, we intend to be brief and avoid repetition1 in our opening statement since

Japan has already elaborated on many fundamental issues which are identical in

this dispute and, in general terms, we support the considerations made by Japan.

More concretely, in this oral statement the EU will comment on Canada's first

written submission and will provide some preliminary responses to the questions

posed by the Panel on 16 March 2012.

3. Starting with your Question 11, the EU would like to confirm the Panel's

understanding that we are challenging the FIT and microFIT Programs as such (as

evidenced by all the measures listed in our Panel Request and in paragraph 14 of

our first written submission) and as applied (pursuant to the executed FIT and

microFIT contracts). More concretely, we are targeting a specific aspect of the FIT

Program and its related contracts, which is the domestic content requirements with

respect to wind and solar PV energy generation facilities. To be clear, we are not

taking any issue with the legitimate goal of promoting the generation of electricity

from renewable sources.

4. In today's statement, the EU will follow the same order of analysis of the different

claims we already made in our first written submission. In response to your

Question 24, we believe that the Panel should follow the same order as much as

possible. In this respect, we note that in EC – Bananas III the Appellate Body

enunciated the test to be applied in order to decide the panel's order of analysis

where two or more provisions from different covered agreements appear a priori

to apply to the measure in question. According to the Appellate Body, the

provision from the agreement that "deals specifically, and in detail" with the

1 Panel's Working Procedures, para. 21.


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measures at issue should be analysed first.2 In the present case, the domestic

content requirements contained in the FIT Program in its related contracts are in

the nature of financial incentives to encourage the use of domestic over imported

products. Thus, the most specific provisions in this respect are Articles 3.1(b) and

3.2 of the SCM Agreement. The SCM Agreement also foresees "in detail" the

remedies in cases of Article 3 violations.3 Then, the EU considers that the covered

agreement dealing specifically and in detail with measures such as the domestic

content requirements contained in the FIT Program and its related contracts is the

TRIMs Agreement. Specifically, paragraph 1(a) of the Annex to the TRIMs

Agreement captures the type of measures affecting investment (i.e., TRIMs) that

are before you in the present case. We consider that the measures at issue also fall

under the more general scope of Article III:4 of the GATT 1994.4

5. In any event, regardless of the order the Panel chooses in its analysis, the EU

requests the Panel to make findings and recommendations with respect to all

claims brought by the EU. In our view, only by making findings and

recommendations with respect to both our claims against prohibited subsidies and

our claims on the breach of national treatment obligations under the TRIMs

Agreement and the GATT 1994, would the Panel be "giving the rulings provided

for in the covered agreements" in accordance with the aim of the dispute

settlement mechanism "to secure a positive solution to a dispute".5

6. Consequently, in today's oral opening statement, the EU will start by making

comments on Canada's defence under the SCM Agreement. Then, the EU will

address Canada's arguments with respect to the application of Article III:8(a) of

the GATT 1994 in the present dispute. The EU observes that Canada's argument

under Article III:8(a) of the GATT 1994 is its only defence against our claims

under the TRIMs Agreement and Article III:4 of the GATT 1994. Thus, should the

Panel find that Article III:8(a) of the GATT 1994 does not apply in the present

dispute, the Panel should necessarily find that the FIT Program and its related

2 Appellate Body Report, EC – Bananas III , para. 204. 3 SCM Agreement, Article 4.7. 4 EU's first written submission, paras. 8 and 142 – 147. 5 DSU, Articles 3.3, 3.7 and 11.


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contracts are inconsistent with Article 2.1 of the TRIMs Agreement and Article

III:4 of the GATT 1994.

II. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLES 3.1(B) AND 3.2 OF THE SCM AGREEMENT

7. The EU observes that in its first written submission Canada does not contest that

the domestic content requirements contained in the FIT Program and its related

contracts are "contingent … upon the use of domestic over imported goods" in the

sense of Article 3.1(b) of the SCM Agreement. Instead, Canada argues that the

measures at issue amount to a "financial contribution" because they are purchases

of goods by the Government of Ontario. In Canada's view, a measure that is

properly characterised as a purchase of goods cannot simultaneously be treated as

a "direct transfer of funds" or a form of "income or price support".6 Thus, Canada's

defence entirely revolves around the absence of benefit in the present case.

According to Canada, an appropriate market benchmark should reflect the cost of

producing renewable electricity and none of the four alternative benchmarks put

forward by the EU is, in Canada's views, addressing that point. Moreover, Canada

attempts to discredit the use of the MCP/HOEP as market benchmark in this case.

In this respect, Canada asserts that the MCP/HOEP is not the result of the "market

forces" since the prices offered within the IESO-administered wholesale electricity

market do not reflect the true cost of generation.7

8. The EU submits that Canada's arguments are inapposite and fail to rebut the prima

facie case made by the EU that the measures at issue are subsidies under Article

1.1 of the SCM Agreement. The EU will turn now into the different elements of

the definition of "subsidy" to explain how the FIT Program and its related

contracts fall under such definition.

A. The first element of the definition of "subsidy" is met: income/price support or financial contribution

9. The EU has shown that the first element of the definition of "subsidy" is met in the

present case, since the FIT Program and its related contracts as administered by

6 Canada's first written submission, para. 53. 7 Canada's first written submission, paras. 64 – 81.


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the Government of Ontario amount to a "form of income or price support in the

sense of Article XVI of the GATT 1994",8 or to a "financial contribution" by the

government.9

10. In this respect, contrary to what Canada asserts,10 the EU observes that the use of

the term "or" between paragraphs (1) and (2) in Article 1.1(a) of the SCM

Agreement does not exclude the possibility that a measure can fall at the same

time under one or the other sub-element. It merely provides for a choice or

alternative characterisations to meet the first element of the definition of

"subsidy".11 This contrasts with the use of the term "and" in between the first and

second subparagraphs (a) and (b) in Article 1.1, which require that the first (in any

of the alternatives) and second elements (i.e., benefit) be present for the definition

to be met.

11. The very terms of Article 1.1(a)(2), which covers "any form" of income or price

support also confirms the negotiators' intention to provide for non-excluding

alternatives. Interpreting that provision in a way that would exclude from its scope

income or price support provided in the form of (potential) direct transfers of

funds, or of government purchases, would deprive the terms "any form" of their

meaning, against the rules of treaty interpretation. The EU also notes that Article

1.1(a)(2) of the SCM Agreement, and the terms "any form", are also capable of

addressing the case of domestic programmes involving a combination of various

forms of financial contribution, bundled together with other features.

12. To illustrate our views with an example. If a government provides payments to

milk producers in order to guarantee a minimum income or price per litre of milk

sold on the market, in the sense that milk producers will obtain the agreed

payments if the market price is below the guaranteed price, the payments made by

the government would amount to a "direct transfer of funds" in the sense of Article

1.1(a)(1)(i) of the SCM Agreement. At the same time, the same support scheme

8 SCM Agreement, Article 1.1(a)(2). 9 SCM Agreement, Article 1.1(a)(1). 10 Canada's first written submission, para. 60. 11 EU's first written submission, para. 33.


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would amount to a form of "income or price support" falling under Article

1.1(a)(2) of the SCM Agreement.12

13. Consequently, the EU maintains that the definition of "subsidy" in Article 1.1

comprises two elements, the first of which is stated in an alternative (and thus not

excluding) manner. And we note that in EC and Certain Member States – Large

Civil Aircraft, the Appellate Body has recently confirmed this alternative, but not

excluding interpretation.13

14. In the present case, the EU primarily submits that the measures at issue amount to

a form of income or price support for the FIT Generators. Through the FIT

Program, the Government of Ontario is regulating the supply of electricity in that

market. In this respect, the underlying economic reality embedded in the FIT

Program should be understood from the perspective of a market regulator –as

opposed to a purchaser or operator involved in the electricity market– which

guarantees a minimum income or price for the FIT Generators.

15. In particular, through the FIT Program, the OPA guarantees rates for the electricity

produced and supplied into the grid by the FIT Generators if the market (i.e., the

payments made by the distributors or other buyers at the HOEP) cannot provide

those rates. Indeed, the OPA settlements generally cover the difference between

the guaranteed rates and the HOEP – and, in some cases, there are income support

payments for electricity that is not even generated and supplied. In the EU's view,

these features are the most central to the measures at issue.14 In this sense, the

measures at issue in the present dispute function in a similar manner to a typical

income or price support scheme in the context of agricultural products. In those

cases, governments may not purchase commodities but ensure that the supported

producers obtain a guaranteed price that the market otherwise would not have

provided. Then, the actual buyers and users of the commodity (e.g., cheese

producers in cases of guaranteed prices for milk) may have to pay (i) the full

12 See also EU's first written submission, footnote 36. 13 See also Appellate Body Report, EC and certain Member States – Large Civil Aircraft, footnote 1634

("We note that, pursuant to Articles 1.1(a)(2) and 1.1(b), a subsidy shall also be deemed to exist if 'there is any form of income or price support in the sense of Article XVI of the GATT 199' and 'a benefit is thereby conferred') (emphasis added).

14 Appellate Body Report, US – Large Civil Aircraft, para. 586.


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guaranteed price (and thus bear the cost of the government measure), or (ii) the

actual market price, followed by supplemental payments made by the government

to cover the agreed difference by the government. This is precisely the type of

situations Article 1.1(a)(2) was meant to cover by referring to income or price

support in the sense of Article XVI of the GATT 1994.

16. In response to your Question 20, we believe that "in the sense of Article XVI of

GATT 1994" in Article 1.1(a)(2) of the SCM Agreement in relation to the concept

of "income or price support" does not carry with it the requirement of a finding of

"serious prejudice" referred to in the second sentence in Article XVI:1. Article 1.1

of the SCM Agreement is not concerned with effects arising from subsidies, but

only with the concept (that is, the "definition") of subsidies. The terms "in the

sense" (that is, "in the meaning") confirm that the reference to Article XVI of

GATT 1994 is limited to the concept of income or price support, as a

scope/definitional issue, not to the applicable disciplines. Subsidies are subject to

obligations under the SCM Agreement insofar as they cause the specific effects

foreseen in Articles 3 and 5 of the SCM Agreement. The requirement to show

effects within this sub-element in the definition of "subsidy" would be to anticipate

the exercise which is meant to be done in other Parts of the SCM Agreement.

Thus, the incorporation of any form of income or price support "in the sense of

Article XVI of the GATT 1994" in Article 1.1(a)(2) of the SCM Agreement did

not imply that the specific effects contemplated, inter alia, in Article XVI:1 of the

GATT 1994 and with respect to which there were particular obligations on

notification and consultation, were automatically brought into the definition of

"subsidy".

17. Importantly, and in response to Question 12(b), the EU observes that, should the

Panel agree that the measures at issue amount to "income or price support" under

Article 1.1(a)(2) of the SCM Agreement, the characterisation of the actions of the

OPA as a situation where the government "purchases goods" or not would be

irrelevant. Indeed, as already stressed, Article 1.1(a)(2) covers "any form of"

income or price support, i.e., regardless of whether there is an actual purchase or

not by the government. The Panel can then proceed with its analysis of the


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existence of benefit on the basis of the market value of the product for which the

Government of Ontario guarantees specific rates.

18. In addition, the EU considers that the measures at issue amount to a "financial

contribution" as they are "direct transfers of funds". In view of the Appellate

Body's considerations in US – Large Civil Aircraft, the EU is of the view that it is

not necessary for the Panel to label the measures at issue as "grants" but generally

as a "direct transfer of funds".15 Indeed, what is relevant in this case is that there is

a contractual obligation for the FIT Generator to supply its electricity into the grid

in order to obtain the payment of the rates guaranteed by the OPA (with the

exception of the cases referred to in Question 21 of the Panel). In other words, the

recipient (the FIT Generator) assumes obligations to the government (i.e., to

deliver the electricity into the grid or to refrain from so doing in certain cases) in

exchange for the funds provided and for which the OPA is ultimately liable.16 This

perfectly tallies with the considerations made by the Appellate Body in that case as

to the meaning of "direct transfer of funds".17

19. "In the alternative",18 that is, should the Panel consider that the measures at issue

are not "direct transfers of funds", we maintain that the Panel can find that the

measures at issue amount to a "potential direct transfer of funds"; or it could find

that there are "purchases [of] goods" if Canada's views on that specific point were

to prevail. The Panel may also find that the measures at issue fall under several

sub-headings within Article 1.1(a)(1) of the SCM Agreement, following what the

Appellate Body has observed in US – Large Civil Aircraft.19 In para. 620, the

Appellate Body explicitly reversed and declared moot and with no legal effect the

paragraphs of the panel report in US – Large Civil Aircraft on which Canada relied

in its first written submission to support its argument that a measure which is a

15 Appellate Body Report, US – Large Civil Aircraft, para. 623 ("We recall that, under subparagraph (i),

there is a financial contribution where 'a government practice involves a direct transfer of funds'. Several examples of direct transfers of funds are provided. These examples are not exhaustive") (emphasis added).

16 Panel's Questions 13 and 19. 17 Appellate Body Report, US – Large Civil Aircraft, paras. 614 – 617. 18 Panel's Question 12(a). 19 Appellate Body Report, US – Large Civil Aircraft, footnote 1287("The structure of that provision

does not expressly preclude that a transaction could be covered by more than one subparagraph. There is, for example, no 'or' included between the subparagraphs").


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"purchase of goods" cannot be, at the same time, a "direct transfer of funds".20 As

a result, the Panel can find that the measures at issue in this case can fall under

multiple sub-headings in Article 1.1(a)(1) of the SCM Agreement. And indeed, the

EU invites the Panel to make alternative findings in this respect.21

20. In any event, to be clear, we consider that the facts of this case do not show that

the measure at issue can be characterised as "purchases of goods" by the

government since the most relevant features of the measures at issue show a

picture of the government intervening on the market as a regulator, not as an

operator purchasing electricity. However, should the Panel agree with Canada's

characterisation of the measure as a government purchase of goods, the EU

submits that the first element of the subsidy definition will be met and, as a result,

the validity of the claim advanced by the EU concerning the breach of Article 3 of

the SCM Agreement would not be affected.

21. In sum, we request the Panel to make factual and legal findings that the FIT

Program and its related contracts, as administered by the Government of Ontario,

meet the first element of the definition of "subsidy" as they amount to a form of

"income or price support in the sense of Article XVI of the GATT 1994".

Furthermore, the EU observes that there is no disagreement between the parties in

this dispute that the measures at issue amount to a "financial contribution" in the

sense of Article 1.1(a)(1) of the SCM Agreement (even though the EU prefers to

describe the situation as one involving income or price support in the form of a

financial contribution). The disagreement between the parties focuses on the legal

characterisation of the measures at issue as a "direct transfer of funds", "potential

direct transfer of funds" or a situation where the government "purchases goods".

Since the aim of the dispute settlement system is to secure a positive solution,22 we

also request the Panel to make factual and legal findings that the FIT Program and

its related contracts amount to a "financial contribution", in particular, as a "direct

20 Canada's first written submission in DS426, para. 55. 21 Appellate Body Report, China – Auto-Parts, para. 208 ("We note that none of the participants have

appealed the Panel's decision to make these alternative findings, or suggested that the Panel acted inappropriately in doing so. It is not unprecedented for panels to make alternative findings, and indeed this may be useful in resolving a dispute, particularly when, on appeal, the Appellate Body reverses other findings made by a panel").

22 DSU, Article 3.7.


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transfer of funds". In the alternative,23 should the Panel disagree with the legal

characterisation suggested by the EU, the EU submits that the measures at issue

amount to a "financial contribution" as a "potential direct transfer of funds" or, in

the last resort, as a situation where the government "purchases goods", as an

alternative argument, if Canada's views on that issue were to prevail.

B. The second element of the definition of "subsidy" is met: benefit

22. Moving on to the second element in the definition of "subsidy", the EU submits

that the FIT Program and its related contracts confer a benefit to the FIT

Generators since the OPA guarantees above-market rates for the supply of

electricity. As mentioned before, pursuant to the FIT Contract, the FIT Generators

secure a guaranteed rate for the generation of their electricity that the OPA

commits to pay if the HOEP is lower. This is one of the inherent characteristics

and the reason for the existence of the measures at issue, as Canada

acknowledges.24

23. Contrary to Canada's view, the EU considers that an appropriate market

benchmark in this case does not have to reflect the cost of producing renewable

electricity. Rather, the relevant question in identifying the appropriate market

benchmark in this case is what is the market value of the product for which the FIT

Program and its related contracts provide long-term, guaranteed rates. Such market

value is an appropriate market benchmark regardless of the characterisation of the

measures at issue as a form of income or price support, or as a financial

contribution in the form of purchases of goods by the government, as Canada

claims.25 It is undisputed that "but for" the long-term, guaranteed rates provided by

the FIT Program, the FIT Generators would only be able to supply their electricity

into the grid at the wholesale electricity market price, that is, at the MCP/HOEP.26

Or, at most, the FIT Generators would be able to sell their electricity through

bilateral contracts to large "embedded" industrial users, retailers, or local

23 Panel's Question 12(a). 24 See Canada's first written submission, para. 22; and Hogan Report, Exhibit CDA-2, pp. 1, 16-18, 25,

31 and 36. 25 Appellate Body Report, EC and certain Member States – Large Civil Aircraft, paras. 981 – 982.


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distributors for sale to the final consumers, in this latter case at regulated rates. Put

simply, absent the FIT Program, a producer of electricity from wind or solar

sources, like the FIT Generator, would have to become a market participant under

the IESO market rules and supply its electricity within the wholesale electricity

market, or attempt to sell its electricity directly to retailers of electricity or final

consumers at competitive prices. Thus, under any of the alternative market

benchmarks suggested by the EU,27 the Panel may find that a benefit is conferred

in the present case, regardless of its quantum, which is irrelevant in this case.

24. Moreover, contrary to what Canada claims,28 in the EU's view, the fact that the

product supplied into the grid is electricity produced from particular renewable

sources (wind and solar) is irrelevant to identify the proper market benchmark in

this case. Electricity produced by means of any energy source (renewable or not)

is physically alike in all respects, and in any event there is a competitive

relationship between electricity produced by different sources.29 In this respect, the

EU observes that Canada has not demonstrated that there is a separate product

market with respect to electricity produced by particular sources of renewable

energy in Ontario.

25. In addition, Canada claims that the MCP/HOEP is not the result of the "market

forces" since the prices offered within the IESO-administered wholesale electricity

market do not reflect the true cost of generation.30 The EU would like to stress

again that the "costs" borne by producers are not the determining factor for the

establishment of market prices. Production costs will affect the supply curve, for

sure, but market prices are determined by the interaction between supply and

demand. The EU notes in this context that some large consumers in Ontario pay

only the MCP/HOEP (plus any applicable market service charges and transmission

charges) for the electricity they purchase.

26 Appellate Body Report, EC and certain Member States – Large Civil Aircraft, para. 705 ("[W]hether

a 'benefit' has been 'conferred' requires a panel to determine whether the recipient has been made 'better off' than it would have been absent the financial contribution").

27 European Union's first written submission, para. 80. 28 Canada's first written submission, para. 66. 29 Appellate Body Report, Philippines – Distilled Spirits, paras. 203 – 208, 216 – 222, 225 – 242. 30 Canada's first written submission, paras. 64 – 81.


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26. Furthermore, Canada readily admits that around 8% of the electricity produced in

Ontario is not supported by any regulated price, and the sole remuneration of

generators is the MCP/HOEP. In other words, Canada confirms that a share of the

electricity supplied by generators in Ontario is remunerated at rates determined by

the competitive market, where supply and demand result in the determination of

the MCP/HOEP.31 By definition the MCP/HOEP has to capture the true cost of

generating electricity by those generators falling within that 8% since, otherwise,

they will disappear from the unregulated market or from the market at all. Further,

Canada also confirms that the HOEP alone is paid to "hydroelectric generating

stations".32 That is, Canada confirms that the electricity produced from a

renewable source (hydroelectric generating stations) receives the HOEP. In the

EU's view, Canada's confirmation of the facts underlying the electricity market in

Ontario reinforces our argument about the appropriateness of the HOEP as the

market benchmark in this case.

27. Finally, and also importantly, the EU would like to stress once more the element of

"long-term guarantee" which is behind this scheme. The FIT Program provides for

guaranteed rates to FIT Generators over a 20-year period, including price

escalation clauses, which no private entity acting pursuant to commercial

considerations would provide.33 Canada does not contest this fact. Thus, the risk

involved in the business operations of the FIT Generators is thereby drastically

reduced if not eliminated all together, without the payment of any additional

premium that the market would require otherwise.

C. Conclusion

28. Consequently, the EU requests the Panel to find that the FIT Program and its

related contracts are subsidies in accordance with Article 1.1 of the SCM

Agreement; and that they are prohibited under Articles 3.1(b) and 3.2 of the SCM

Agreement.

III. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE NOT COVERED BY ARTICLE III:8 OF THE GATT 1994

31 Canada's first written submission, para. 72. 32 Canada's first written submission, para. 77. 33 European Union's first written submission, para. 78.


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29. Before addressing the EU's claims under the TRIMs Agreement and the GATT

1994, the EU considers that the Panel should examine Canada's defence according

to which Article III:8(a) of the GATT 1994 applies in the present case since this is

important from the view point of the EU's claims particularly under Article III:4 of

the GATT 1994.

30. In response to your Question 14, the EU considers that if a measure falls under

Article III:8(a), the provisions of Article III of the GATT 1994 or Article 2.1 of

the TRIMs Agreement do not apply to such measure.34 A different question is

whether, should the Panel consider that the measures at issue fall under paragraph

1(a) of the Annex to the TRIMs Agreement, an analysis under Article III:8(a) is

required at all. Indeed, one may take the view that the situations listed in the

paragraph 1 of the Annex to the TRIMs Agreement reflected the negotiators'

understanding that those requirements would never fall under Article III:8(a) of

the GATT 1994 because they are completely disconnected to the product that is

procured by the government. We consider that this view is also consistent with the

proposition in your Question 22, which we will address later on in our statement.

We also note that Article 2.2 of the TRIMs Agreement refers to measures that "are

inconsistent with the obligation of national treatment provided for in paragraph 4

of Article III of GATT 1994" – and such inconsistency necessarily implies that

Article III:8 does not apply.

31. Also, in reply to your Question 23, the EU observes that for a measure to fall

under Article III:8(a) of GATT 1994 a number of different conditions have to be

met, the existence of "procurement" (which indeed implies "products purchased")

being only one of them. In this respect, the Panel may find that the measures at

issue do not fall under Article III:8(a) of the GATT 1994 in view of any of the

other distinct elements in that provision. Thus, like in the context of our claims

and arguments under the SCM Agreement, where the Panel may well find that

there is a prohibited subsidy in this case without the need to decide whether there

is a "purchase of goods" within the meaning of Article 1.1(a)(1)(iii) of the

SCM Agreement, the Panel may focus on other elements in Article III:8(a) to

make its findings in the present case. In any event, should the Panel find that the


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measures at issue cannot be characterised as purchase of goods by the government,

the EU considers that the Panel should equally find that Canada's defence under

Article III:8(a) of the GATT 1994 is without merit.

32. That being said, as stated in our first written submission, the EU submits that the

FIT Program and its related contracts do not fall under Article III:8(a) of the

GATT 1994.35 The EU will not repeat those reasons in full today; rather, we will

make some comments on the issues raised by Canada on this point and will

address some of your questions in this respect.

33. First, Canada refers to how it considers the measures at issue from its domestic

perspective and provides several references to support its contention that the OPA

"procures" or "purchases" electricity under the FIT Program.36 The EU considers

those references inapposite. As Japan has recalled in today's opening statement in

DS412, the references to "procurement" or "purchase" in the text of the domestic

measures at issue are not dispositive of the actual characterisation of those

measures for the purpose of examining their consistency with the covered

agreements.

34. In any event, the EU observes that one of the statutory powers of the OPA, as

described in Ontario's Electricity Act, is to "enter into contracts relating to the

procurement of reductions in electricity demand".37 In other words, the

Government of Ontario employs the term "procurement" also in cases involving

payments to operators not to consume energy. Similarly, and in response to your

Question 21, the EU notes that, under the FIT Contract, the FIT Generators may

also receive payments for not producing electricity. In this sense, the EU fails to

see what is the good that the OPA procures or purchases in those cases. These

examples support the EU's view that the FIT Program and its related contracts do

not involve any procurement or purchase by the government in the sense of Article

III:8(a) of the GATT 1994. As explained before, the EU regards the measures at

issue as regulatory in nature, as opposed to a purchase or procurement of goods by

the government.

34 European Union's first written submission, para. 109. 35 European Union's first written submission, paras. 111 – 133. 36 Canada's first written submission, paras. 16 – 22.


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35. Moreover, Canada's attempt to point to language in the FIT Contracts supporting

its views that the OPA purchases electricity is unavailing.38 In particular, even if

there are references to the electricity as being "sold", the FIT Contracts do not

specify to whom the electricity is "sold" or who the buyer is. In the same vein, the

fact that the OPA commits to pay sales taxes on the supply of electricity by the

FIT Generators does not necessarily imply that the OPA is the actual buyer. It is

an issue of tax autonomy to decide the operations subject to taxation or the most

efficient methods of tax collection.

36. Second, Canada argues that Article III:8(a) of the GATT 1994 covers situations

where the government procures or purchases products "for governmental

purposes", and interprets those terms in a manner that includes the

accomplishment of the "aims of the government" insofar as such aims are

contained in legislation, regulations, policies or executive directions.39 With all

due respect, this interpretation cannot stand. According to Canada's argument, it

would be perfectly consistent with Article III:8(a) that a government identifies

"the protection and encouragement of its domestic industry" as a policy or

governmental purpose in its legislation to escape from the national treatment

obligation under Article III:4 of the GATT, engaging in purchases of any type of

domestic goods simply for industrial policy reasons and regardless of whether

such goods are to respond to a genuine need of the public authorities ("las

necesidades de los poderes públicos" or "les besoins des pouvoirs publics", in the

Spanish and French versions of GATT 1994). In the EU's view, that cannot be the

correct interpretation of the scope of Article III:8(a).

37. In other words, it is not the stated "aims of the government" what is relevant in the

present case. In the EU's view, the key point in this dispute is the disconnection

between the stated pursued policy and the object of the alleged procurement, on

the one hand, and the ultimate protectionist goal behind the measures at issue, on

the other hand. Indeed, the EU fails to understand why "in order to secure a

sufficient and reliable supply of electricity from clean sources" the Government of

Ontario limits the FIT Program to FIT Generators that comply with specific

37 Electricity Act, 1998, Section 25(2)(5)(d) (Exhibit JPN-005) (emphasis added). 38 Canada's first written submission, paras. 16 – 22.


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domestic content requirements as to the generating equipment and components.

The EU considers that this is manifestly a situation where the object and purpose

of Article III:4 would be circumvented, should Canada's interpretation of Article

III:8(a) prevail.

38. Third, Canada argues that the OPA procures or purchases electricity "not with a

view to commercial resale". According to Canada, the terms "commercial resale"

require "a resale with an underlying intent to profit" and the OPA does not aim to

profit and recovers the cost of purchasing the electricity through the Global

Adjustment.40 The EU disagrees with the legal interpretation posited by Canada.

The terms "commercial resale" do not require a resale aim to profit. In this respect,

the intention of the government (whether to make a profit or not from the specific

transactions) is totally irrelevant for the characterisation of a sale as "commercial".

Otherwise, the very same operation could be characterised as commercial in one

case and not commercial in another case simply because of the stated aim pursued

by the public authority, or depending on the market circumstances when the sale

by the government takes place. Thus, for the purposes of Article III:8(a) there is

nothing within the terms "commercial resale" requiring "a resale with an

underlying intent to profit".

39. Rather, those terms should be properly understood as introducing the goods

procured by the government into commerce, by means of resale with a profit or

not. In other words, the determining factor is whether the goods are sold on the

market place, where other similar goods are traded. The EU recalls in this regard

that the French text of Article III:8(a) refers to products "revendus dans le

commerce". Contextually, the EU also considers that the terms "not with a view to

commercial resale" should be contrasted with the term "products purchased for

governmental purposes" in the same provision. In this respect, products purchased

by the government "not with a view to commercial resale" is meant to cover

situations where the government purchase is not intended to be reintroduced

immediately into commerce, thereby circumventing the national treatment

obligation under Article III:4 of the GATT.

39 Canada's first written submission, paras. 23 – 34. 40 Canada's first written submission, paras. 39 and 42.


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40. Fourth, Canada argues that, by referring to products purchased "not with a view to

… use in the production of goods for commercial sale", Article III:8(a) includes

only production of goods by the government, and not other operators.41 As

explained in our first written submission, we believe that such an interpretation is

too narrow. Article III:8(a) does not say "use by the government", as Canada

intends to read this provision. Rather, it employs the term "use" in general, without

specifying the actual user. In view of the underlying anti-circumvention nature of

these terms, the EU considers that the correct interpretation should encompass

situations where the government purchase is made with a view to anyone

subsequently using the product in the production of goods for commercial resale.

And Canada does not contest, as a matter of fact, that the electricity supplied into

the grid by the FIT Generators is used by entities in Ontario in the production of

goods for commercial purposes.

41. Finally, in response to your Question 22, in the circumstances of the present case

we agree with the proposition that the domestic content requirements are not

within the scope of Article III:8(a) because it is not the equipment that is being

procured by the government. In the present case, the good being procured or

purchased (if any) by the Government of Ontario would be the electricity produced

by the FIT Generators. The domestic content requirements relate to different

products (i.e., the electricity generation equipment and components), the sourcing

of which does not add anything to and is completely disconnected with the basic

nature of the product procured or purchased. In other words, the domestic content

requirements imposed by the Government of Ontario do not "govern" the alleged

procurement of electricity, within the meaning of Article III:8(a), because they are

not requirements related to the subject-matter of the procurement, which is

electricity. Those requirements "govern" a "feature" of the equipment for the

generation of electricity which has no rational link to the attributes of the

electricity and the object of the alleged procurement. This notwithstanding, the EU

would nevertheless invite the Panel to comprehensively address the arguments

concerning the absence of "procurement" "for governmental purposes" and "not

41 Canada's first written submission, para. 46.


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with a view to commercial resale or with a view to use in the production of goods

for commercial sale", with a view to securing a positive solution to the dispute.

42. In sum, the EU does not see any merit to Canada's argument under Article III:8(a)

of the GATT 1994. The FIT Program and its related contracts, as administered by

the Government of Ontario, do not fall under the scope of such provision.

IV. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLE 2.1 OF THE TRIMS AGREEMENT, IN CONJUNCTION WITH PARAGRAPH 1(A) OF ITS ANNEX

43. Since in any event the measures at issue are not covered by Article III:8(a) of the

GATT, the EU reiterates, for the reasons mentioned in our first written

submission, that they are inconsistent with Article 2.1 of the TRIMs Agreement.

The domestic content requirements contained in the FIT Program and its related

contracts squarely fall within the type of measures included in paragraph 1(a) of

the Annex to the TRIMs Agreement, to be considered as inconsistent with Article

III:4 of the GATT. Thus, the measures at issue, as TRIMs, are inconsistent with

Canada's obligations under Article 2.1 of the TRIMs Agreement.

V. THE FIT PROGRAM AND ITS RELATED CONTRACTS ARE INCONSISTENT WITH ARTICLE III:4 OF THE GATT

44. At the same time, consequently or following a separate analysis, the EU submits

that the domestic content requirements included in the FIT Program and its related

contracts are inconsistent with Article III:4 of the GATT 1994. The EU observes

that Canada does not dispute this in its submissions.

VI. CONCLUDING REMARKS

45. To conclude, we would like to recall that in today's oral statement we have limited

ourselves to respond to some of the main issues raised by Canada in its first

written submission. Silence on any issue should not be understood as agreement

with Canada's views as we intend to provide more detail argumentation in our

subsequent submissions. Moreover, following the Panel's direction, we have

attempted to incorporate to the greatest extent possible our preliminary responses

to the Panel's questions in our statement. However, we intend to provide more

detailed answers to all questions in writing in due course.


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46. We thank you for your attention and remain ready to answer any further questions

you may have.

Documents

CANADA – MEASURES RELATING TO THE FEED-IN …trade.ec.europa.eu/doclib/docs/2012/april/tradoc_149296.pdf · European Union's Opening Oral Statement ... enunciated the test to be