Canada: The WTO Decision – What It Means For Ontario FIT 1.0 And 2.0 Projects

Background

The Government of Ontario enacted the Green Energy and Green Economy Act, 2009 (Green Energy Act) in the fall of 2009 to attract investment to the province, create “green” jobs and better protect the environment. Ontario’s Feed-in Tariff (FIT) program was developed pursuant to the Green Energy Act to procure energy from renewable energy sources. One of several features of the FIT program was the requirement that projects developed under it achieve a minimum domestic content level, i.e., have a certain percentage of a project’s costs come from Ontario goods or labour sourced from the Province of Ontario. To date, over 4600 MW have been awarded and over 2013-2015 it is expected that the vast majority of the renewable energy infrastructure associated with these projects will be built, resulting in a fundamental shift to Ontario’s electricity supply mix.

Context

In September of 2010, the Government of Japan lodged a complaint regarding the Ontario FIT domestic content provisions to the World Trade Organization (WTO), arguing that the provisions are inconsistent with Canada’s obligations under the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Trade Related Investment Measures (TRIMs Agreement), and the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The European Union and United States asked to join the consultations, a request to which Canada conceded. In August 2011, the European Union initiated a similar complaint regarding the domestic content provisions of Canada’s FIT program.

In separate complaints before the WTO, Japan and the EU argued that the minimum domestic content level provisions are laws, regulations or requirements according less favourable treatment to imported equipment compared to local Ontario equipment, are trade-related investment measures, and are akin to a subsidy conferring a benefit.

On December 19, 2012, panels appointed by the WTO’s Dispute Settlement Body (DSB) issued their reports in both disputes in the form of a single document, finding that the FIT program domestic content provisions are trade-related investment measures that accord preferential treatment to domestic products over imported products, and therefore violate Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994. The DSB dismissed Japan’s and the EU’s claims that the domestic content measures constitute subsidies.

Canada appealed the decisions, and the WTO’s Appellate Body (Appellate Body) released its reports in both disputes in the form of a single document on May 6, 2013. In its reports, the Appellate Body confirmed that the FIT program domestic content requirements are inconsistent with Canada’s obligations under GATT 1994 and TRIMs Agreement. The Appellate Body recommended that the DSB request Canada to amend its minimum domestic content level provisions so as to conform to Canada’s obligations under GATT 1994 and TRIMs Agreement. 

Impact of Appellate Body Decision

The DSB has 30 days within which it must accept or reject (by consensus) the reports of the Appellate Body. If the reports are accepted, WTO members will expect Canada to promptly comply with the Appellate Body’s recommendations, and Canada must state its intention to do so at a DSB meeting held within 30 days of the acceptance of the Appellate Body’s report. If it is Canada’s intention to adopt the Appellate Body’s recommendations, Canada may submit that immediate compliance is impractical, in response to which the DSB may provide to Canada a “reasonable period of time” within which it must comply.

If Canada decides not to adopt the Appellate Body’s recommendations, its next option would be to enter into negotiations with the complaining countries, i.e., Japan and the European Union to decide upon mutually acceptable compensation (e.g. tariff reductions) that Canada could offer to the complainants. If mutually acceptable compensation is not agreed upon within 20 days from start of negotiations, Japan and the European Union could ask the DSB for permission to impose limited trade sanctions against Canada.

What This Means for FIT 1.0 Projects

There is no mention in the decisions of the DSB and Appellate Body of any requirement to amend existing contracts under the FIT program to ensure compliance with GATT 1994 and TRIMs Agreement. The FIT 1.0 rules contemplate that the FIT program, rules and contract may be amended from time to time. Amendments that are the result of a “Scheduled Program Review” initiated by the Ontario Power Authority would not affect executed contracts. The FIT Rules and FIT Contract terms leave some uncertainty as to how amendments resulting from changes in laws and regulations will affect executed contracts.

If the Ontario government is to adopt the recommendation of the WTO, it is likely that it will do so only with respect to future versions of the FIT program, and that such amendment therefore will constitute an amendment arising from a Scheduled Program Review as opposed to a change in law or regulation. Assuming that any amendment to the FIT Contract terms as a result of the WTO decisions arise from a Scheduled Program Review, FIT 1.0 projects with existing contracts will continue on their current contract terms and should not be affected by the amendment.

What This Means for FIT 2.0 Projects

It is difficult to assess how the WTO decision will affect FIT 2.0 projects. On the one hand, if the Ontario government implements the WTO decisions by removing or reducing domestic content requirements, applicants who have submitted small FIT 2.0 applications earlier this year and are awaiting offers may benefit from the amendment in that the final contracts may contain less stringent requirements with respect to domestic content. On the other hand, if the recommendations of the Appellate are adopted, the Ontario government may be reluctant to offer high contract prices for renewable energy generated since the contracts would no longer contain the domestic content requirements that helped to make the contracts attractive to the Ontario Government. Lower prices in turn, may make the projects potentially less attractive for the project owners and prospective acquirers or investors.

The Federal-Provincial Interplay - Next Steps

The WTO decisions were issued against Canada, not Ontario, since the WTO only deals with nations, not regional governments. Nonetheless, Canada has an obligation to ensure that regional governments comply with WTO rules and cannot avoid the imposition of trade sanctions on the basis that the impugned program is not under federal jurisdiction. Since this is the first time that a WTO decision involving Canada has been targeted towards actions under the exclusive jurisdiction of a regional government, the Canadian government is working closely with the Ontario government to determine how to respond to the decisions. Ontario’s energy minister, Bob Chiarelli, has announced that Ontario had no immediate plans to amend the Green Energy Act. While adopting the WTO’s recommendation would not necessarily result in an abandonment of Ontario’s FIT Program, it could have a significant impact on the contract prices offered to future FIT contract holders and upon the nascent renewable energy industry supply chain which has developed as a result of the FIT Program since 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions