Canada - Certain Measures Affecting the Renewable Energy Generation
Sector
(WT/DS412)
Third Party Submission of Australia
Geneva, 9 January 2012
Canada – Certain Measures Affecting the
Renewable Energy Sector (WT/DS412)
Third Party Submission of Australia – Page 2
9 January 2012
TABLE OF CONTENTS
A.
INTRODUCTION ................................................................................................ 6
B.
SUBSIDY ............................................................................................................. 6
C.
D.
1.
Income or Price support ................................................................................ 6
2.
Purchase of Goods ........................................................................................ 7
3.
Benefit ........................................................................................................... 7
GOVERNMENT PROCUREMENT ................................................................... 8
1.
Governmental Purposes ................................................................................ 8
2.
Commercial Resale ..................................................................................... 10
CONCLUSION .................................................................................................. 12
Canada – Certain Measures Affecting the
Renewable Energy Sector (WT/DS412)
Third Party Submission of Australia – Page 3
9 January 2012
A.
TABLE OF ABBREVIATIONS
Abbreviation
Description
FIT
feed-in tariff
FIT Program
Ontario’s Feed-In Tariff Program established on 24 September
2009
GATT 1994
General Agreement on Tariffs and Trade 1994
HOEP
hourly Ontario energy price
IESO
Independent Electricity System Operator
kWh
kilowatt hours (1 kWh is the amount of electricity produced by a 1
kW facility or consumed by a 1 kW unit during 1 hour)
OPA
Ontario Power Authority
SCM Agreement
Agreement on Subsidies and Countervailing Measures
TRIMs Agreement
Agreement on Trade-Related Investment Measures
Vienna Convention
Vienna Convention on the Law of Treaties
WTO
World Trade Organization
Canada – Certain Measures Affecting the
Renewable Energy Sector (WT/DS412)
Third Party Submission of Australia – Page 4
9 January 2012
II.
TABLE OF CASES REFERRED TO IN THIS SUBMISSION
Short Title
Full Case Title and Citation
Canada – Aircraft
Appellate Body Report, Canada – Measures Affecting
the Export of Civilian Aircraft, WT/DS46/AB/R,
adopted 20 August1999, DSR 1999:III, 1377.
Canada – Periodicals
Appellate Body Report, Canada – Certain Measures
Concerning Periodicals, WT/DS31/AB/R, adopted 30
July 1997, DSR 1997:I, 449
China – Publications and
Audiovisual Products
Panel Report, China – Measures Affecting Trading
Rights and Distribution Services for Certain
Publications and Audiovisual Entertainment
Products, WT/DS363/R and Corr.1, adopted 19
January 2010, as modified by Appellate Body Report
WT/DS363/AB/R
EC – Chicken Cuts
Appellate Body Report, European Communities –
Customs Classification of Frozen Boneless Chicken
Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted
27 September 2005, and Corr.1, DSR 2005:XIX, 9157
EC – Commercial Vessels
Panel Report, European Communities – Measures
Affecting Trade in Commercial Vessels,
WT/DS301/R, adopted 20 June 2005, DSR 2005:XV,
7713
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
France - Assistance to Exports of
Wheat and Wheat Flour
Report of the Panel for Conciliation - French
Assistance to Exports of Wheat and Wheat Flour,
(L/924 – 7S/46), adopted on 21 November 1958
Japan – Alcoholic Beverages II
Appellate Body Report, Japan – Taxes on Alcoholic
Beverages, WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted 1 November 1996, DSR
1996:I, 97
Panel Report, Japan – Taxes on Alcoholic Beverages,
WT/DS8/R, WT/DS10/R, WT/DS11/R, adopted 1
November 1996, as modified by Appellate Body
Report WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, DSR 1996:I, 125
Norway — Trondheim Toll Ring
Panel Report, Norway - Procurement of Toll
Collection Equipment for the City of Trondheim,
BISD 40S/319, adopted 13 May 1992.
Canada – Certain Measures Affecting the
Renewable Energy Sector (WT/DS412)
Short Title
Third Party Submission of Australia – Page 5
9 January 2012
Full Case Title and Citation
US – Anti-Dumping and
Countervailing Duties (China)
Appellate Body Report, United States – Definitive AntiDumping and Countervailing Duties on Certain
Products from China, WT/DS379/AB/R, adopted 25
March 2011
US – Final CVD for Softwood
Lumber
Appellate Body Report, United States – Final
Countervailing Duty Determination with Respect of
Softwood Lumber from Canada, WT/DS257/AB/R,
adopted 20 December 2005
Appellate Body Report, United States – Measures
Affecting the Cross-Border Supply of Gambling and
Betting Services, WT/DS285/AB/R, adopted 20 April
2005
US – Gambling
US – Offsets Act (Byrd Amendment) Appellate Body Report, United States - Continued
Dumping and Subsidy Offset Act of 2000,
WT/DS217/AB/R,WT/DS234/AB/R, adopted 27
January 2003
US – Large Civil Aircraft
(2nd complaint)
Panel Report, United States – Measures Affecting
Trade in Large Civil Aircraft (Second Complaint),
WT/DS353/R, circulated to WTO Members
31 March 2011 [appeal in progress]
US – Sonar Mapping
Panel Report – United States – Procurement of a Sonar
Mapping System, GPR.DS1.R [not adopted]
Canada – Certain Measures Affecting the
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Third Party Submission of Australia – Page 6
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1.
A.
INTRODUCTION
1. Australia considers that these proceedings raise important questions of legal
interpretation. In its written submission, Australia will focus on a select few issues.
However, the fact that Australia has not commented on a particular issue should not be
taken as an indication that Australia accepts the views of either party on that issue. The
issues which Australia addresses in this submission are:
(a)
the meaning of "any form of income or price support" under Article 1.1(a)(2)
of the Agreement on Subsidies and Countervailing Measures (SCM
Agreement);
(b)
the meaning of "purchases goods" Article 1.1 (a)(iii) of the SCM Agreement;
(c)
the assessment of benefit under Article 1.1(b) of the SCM Agreement;
(d)
the meaning of "governmental purposes" under the General Agreement on
Tariffs and Trade 1994 (GATT 1994) Article III:8(a), in particular the
characterisation by Canada of "governmental purposes" as an aim of
government; and
(e)
the meaning of "commercial resale" under Article III:8(a) of GATT 1994.
2. Australia reserves the right to raise other issues in the third-party hearing with the Panel.
B.
SUBSIDY
3. A significant issue in this case is whether the Ontario Feed-in-Tarrif (FIT) program
constitutes a subsidy within the meaning of Article 1.1 of the SCM Agreement. Japan
argues that the contractual electricity prices provided to FIT generators in Ontario results
in a "financial contribution by a government or any public body", specifically a "direct
transfer of funds", or "any income or price support".1 Canada argues that the FIT
program involves a "purchase of a good" and therefore cannot be interpreted as either a
"direct transfer of funds" or "income or price support".2
1. Income or Price support
4. Australia notes that the concept of "income or price support" is traditionally thought of in
the context of agricultural products where farmers' incomes are guaranteed at certain
levels through government payments or the support of prices of products at a certain level
through government guarantees to buy the product if the price should fall below that
level.3
23. Australia agrees with the submission of Japan that in the absence of World Trade
Organization (WTO) jurisprudence on the definition of "income or price support", the
Panel should interpret these terms in accordance with the customary international rules of
treaty interpretation codified in Articles 31 and 32 of the Vienna Convention on the Law
Japan’s first written submission, para.184.
Canada’s first written submission, para. 120.
3
S.Lester, B. Mecurio, A.Davies and K. Leitner, World Trade Law: Text, Materials and Commentary,
(Hart Publishing 2011), p.426.
1
2
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9 January 2012
of Treaties ("Vienna Convention"), in accordance with Article 3.2 of the Dispute
Settlement Understanding.4
24. The precise definition of the notion of income or price support has never been clearly
delineated. In this context, the Panel may wish to consider the Panel Report in France Assistance to Exports of Wheat and Wheat Flour where Australia alleged that French
subsidies to exports of wheat and wheat flour were inconsistent with Article XVI of
GATT 1947. In this case, France had instituted a legal domestic price for wheat. A price
was guaranteed to the producer for deliveries up to a maximum amount, or quantum, in
each year. The Panel found that the bulk of the income of producers/exporters was
provided by Government funds and consequently, the operation of the French system did
in fact result in the grant of subsidies within the terms of Article XVI of GATT 1947.5
25. In the current case, the Government of Ontario guarantees the price received by FIT
generators per kilowatt hour (kWh) of energy irrespective of the market price per kWh.
Australia submits that the Panel should consider whether this constitutes "income or price
support" within the meaning of Article 1.1(a)(2) of the SCM Agreement.
2.
Purchase of Goods
26. Canada argues that the Ontario Power Authority (OPA) enters into Power Purchase
Agreements with renewable energy producers to procure or purchase renewable energy.
Canada asserts that this transaction "is, and remains, a purchase of goods".6
27. Article 1.1(a)(iii) of the SCM Agreement provides that "for the purposes of this
Agreement a subsidy shall be deemed to exist if there is a financial contribution by a
government or any public body ….where: a government provides goods or services other
than general infrastructure, or purchases goods" (emphasis added).
28. Australia submits that it would be open to the Panel to consider an argument that the
Government of Ontario "purchases goods" under Article 1.1(a)(iii) of the SCM
Agreement through the operation of FIT contracts.
3. Benefit
29. If the Panel considers the Government of Ontario is providing a "financial contribution"
or "income or price support" under Article 1 of the SCM Agreement, it may then proceed
to examine whether that "income or price support" or "financial contribution" confers a
"benefit".
30. Australia does not accept Canada's argument that Japan’s first written submission uses
comparators which are inappropriate for assessing whether the OPA’s procurement of
wind and solar electricity under FIT Program contracts confer a "benefit". 7 Canada
asserts Japan’s comparators are improper because they "fail to reflect the fundamental
condition of purchasing renewable electricity".8
31. The Appellate Body in EC and Certain Member States – Large Civil Aircraft suggested
that the marketplace reflects "a sphere in which goods and services are exchanged
Japan’s first written submission, para. 206.
France - Assistance to Exports of Wheat and Wheat Flour, para.14.
6
Canada’s first written submission, para.120.
7
Ibid, para. 130.
8
Ibid, para. 136.
4
5
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between willing buyers and sellers".9 The Appellate Body went on to say that a
calculation of benefit in relation to the prevailing market conditions "thus demands an
examination of behaviour on both sides of the transaction, and particular in relation to the
conditions of supply and demand as they apply to that market".10 The relevant market in
this dispute is the electricity market. Consumers demand electricity, generally without
regard to its source. In this context, Australia considers the relevant comparator should
not be limited to the price of renewable energy.
32. Australia considers that, although the FIT program distinguishes between different
renewable energy sources (wind and solar) in determining the rate received by FIT
generators per kWh of electricity produced, that distinction does not flow through to the
market place. Consumers of electricity do not (and cannot) distinguish between
renewable and non-renewable sources of electricity.
33. Australia submits that the assessment of whether a "benefit" has been conferred turns on
whether the recipient has been placed in a more advantageous position than it would have
been but for the financial contribution.11 Canada argues that "no rational investor" in
wind or or solar generation would ever sell electricity at the benchmark prices suggested
[by Japan] therefore Japan has failed to demonstrate that FIT contracts confer a
"benefit".12 Australia considers that it is precicely the fact that the higher price under FIT
contracts are needed to obtain the supply of renewable energy which demonstrates that
those contracts place renewable energy providers in a more advantageous position than
they would have been in but for the FIT contracts, and thus confer a "benefit".
C.
GOVERNMENT PROCUREMENT
34. A significant issue that arises in this case is whether the purchase of electricity for
distribution to the general public should be properly characterized as governmental
procurement for the purposes of Article III:8(a) of GATT 1994.
35. Australia submits that the mere labeling of an activity as "procurement" in legislation is
not sufficient to bring that activity within the scope of Article III:8(a) of GATT 1994.
Rather, in order to fall within the terms of that Article, there must be (i) a "law[],
regulation[] or requirement[]" that (ii) governs the "procurement by governmental
agencies of products. Further, the products must be purchased (iii) "for governmental
purposes" and (iv) not undertaken with a "view to commercial resale or with a view to use
in the production of goods for commercial resale". Australia’s submission will consider
the elements of "governmental purposes" and "commercial resale" as contained in Article
III:8(a) of GATT 1994.
1. Governmental Purposes
36. Critical to the analysis of Article III:8(a) of GATT 1994 is a determination of whether the
purchase of electricity by the Government of Ontario can be appropriately characterised
as for "governmental purposes". Canada argues that the procurement of electricity under
the FIT program is in furtherance of an aim of government and is therefore for a
"governmental purposes" within Article III:8(a).13 Japan asserts that the term
Appellate Body Report, EC and Certain Members States – Large Civil Aircraft, para. 981.
Ibid.
11
Appellate Body Report, Canada – Aircraft , para.149.
12
Canada’s first written submission, para. 150.
13
Canada’s first written submission, para. 86.
9
10
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"governmental purposes" should be interpreted by reference to governmental use or
benefit.14
37. Australia considers that, consistently with Article 31 of the Vienna Convention, the term
"purposes" in Article III:8(a) should be interpreted in accordance with the ordinary
meaning of the term in its context and in light of the object and purpose of the GATT
1994. 15
38. Australia notes Canada’s argument that the ordinary meaning of the word "purpose" is
"[t]he reason for which something is done or made, or for which it exists; the result or
effect intended or sought; the end to which an object or action is directed; aim"16
However, there are other accepted meanings of the term "purpose" that the Panel may
wish to consider. Australia notes that "purpose" can also mean "practical advantage or
use".17 This meaning may not be as common as the meaning cited by Canada, but the
Appellate Body has indicated that a treaty interpreter "should seek the meaning that gives
effect, simultaneously, to all the terms of the treaty, as they are used in each authentic
language".18 Australia notes that the French version of Article III:8(a) provides in
relevant part:
"Les dispositions du présent article ne s’appliqueront pas aux lois, règlements et
prescriptions régissant l’acquisition, par des organs gouvernmentaux, de produits
achetés pour les besoins de pouvoirs publics…(emphasis added)"
39. This version of the text, and in particular the reference to "les besoins" appears to support
an interpretation of the term "purposes" as being "for the practical advantage or use" by
the government, rather than a "purchase for an aim of the government" or "a purchase by
a governmental agency which is directed in legislation, regulations, policy or an executive
direction"19.
40. Looking at the context of the term, the latter part of Article III:8(a) provides that
purchases by governments will only fall within the scope of the provision if they are "not
with a view to commercial resale or with a view to use in the production of goods for
commercial sale." Putting aside the meaning of the term "commercial", this part of
Article III:8(a) suggests that the provision applies to purchases of goods that are intended
for some form of use in government, since it excludes purchases made with a view to
further trade.
41. More broadly, the context of the term suggests that "purposes" should be interpreted in a
way that means there will be some form of use by or advantage to the government. If any
"purchase by a governmental agency which is directed in legislation, regulations, policy
or an executive direction" were to be subject to Article III(8)(a), then the government of a
WTO member could circumvent the disciplines of Article III simply by inserting itself as
an intermediary in any given market. Such an interpretation could significantly
undermine the scope of the national treatment obligations set out in Article III and permit
a wide range of protectionist measures, at odds with the important principle enunciated in
14
Japan's first written submission, para. 287.
Appellate Body Report, US – Gambling, paras. 166 and 167.
16
Canada's first written submission, p33, para. 86, footnote omitted.
17
Collins English Dictionary online, accessed 9 January 2012,
http://www.collinsdictionary.com/dictionary/english/purpose .
18
US – Final CVD for Softwood Lumber, para. 59.
19
Canada's first written submission, para. 86.
15
Canada – Certain Measures Affecting the
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Third Party Submission of Australia – Page 10
9 January 2012
Article III:1. As noted by the Appellate Body in Japan – Alcoholic Beverages II, Article
III:1 constitutes part of the context for each of the other paragraphs of Article III:
Article III:1 articulates a general principle that internal measures should not be
applied so as to afford protection to domestic production. This general principle
informs the rest of Article III.20
42. Interpreting the term "governmental purposes" to mean that there should be use by or an
advantage to the government would be consistent with the decision of the panel in US –
Large Civil Aircraft. When examining whether NASA’s contract with Boeing was
properly characterized as a "purchase of services", that panel considered it was
appropriate to focus on whether the work performed was principally for NASA’s benefit
and use, or whether it was principally for the benefit and use of the U.S. Government (or
unrelated third parties).21
43. The panel in US – Large Civil Aircraft cited in its report the non-adopted 1992 Panel
Report on US –Sonar Mapping. The panel in that case had considered that the following
characteristics, none of which were decisive, provided guidance as to whether
transactions could be regarded as government procurement within the meaning of Article
I:(a) of the Agreement on Government Procurement: payment by government,
governmental use of or benefit from the product, government possession and government
control over the obtaining of the product.22 In considering the specifics of the case, the
panel found that the US Government would be the ultimate beneficiary of the
procurement of research and preparation of the seabed maps which were clearly for
government purposes under the Agreement on Government Procurement.23
44. In light of the above considerations, Australia submits that the Panel will need to consider
whether, in the absence of government use and a tangible advantage or benefit of the
procurement to the Government of Ontario, the procurement is for "governmental
purposes" under Article III:8(a) of GATT 1994.
2. Commercial Resale
45. If the Panel accepts that the purchase of electricity by the Government of Ontario is for
"governmental purposes", Australia submits that the Panel should consider the following
issues in determining whether the procurement is "with a view to commercial resale"
under Article III:8(a) of the GATT 1994.
46. Canada argues that a purchase "with a view to commercial resale" is a purchase with an
aim to re-sell for profit24 and the OPA does not purchase renewable energy with an aim to
resell for profit.25 Japan argues that because the electricity procured by the Government
of Ontario is sold to all consumers at commercial prices the procurement is undertaken
with a view to commercial resale.26
Appellate Body Report in Japan – Alcoholic Beverages II, p. 18.
Panel Report in US – Large Civil Aircraft, para. 7.978.
22
US –Sonar Mapping, para. 4.7. The Panel noted that none of these criteria alone could be decisive.
23
Ibid, para. 4.10.
24
Canada’s first written submission, para. 90.
25
Ibid, para. 92.
26
Japan’s first written submission, para.294.
20
21
Canada – Certain Measures Affecting the
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9 January 2012
47. In defining "with a view to commercial resale", Canada cites the ordinary meaning of
"commercial" endorsed by the Appellate Body in US – Anti-dumping and Countervailing
Duties (China) in the context of the SCM Agreement.27 The Appellate Body found that
"commercial" means "interested in financial return rather than artistry; likely to make a
profit; regarded as a mere matter of business".28 In making this observation the Appellate
Body relied on dictionary definitions to assist in the interpretation of the meaning of the
term "commercial".29
48. Australia notes that the Panel in China – Publication and Audio Visuals considered
several dictionary definitions in their deliberations.30 In the context of this provision,
Australia submits that the Panel may wish to consider a different definition of
"commercial". The online New Oxford Dictionary defines "commercial" as concerned
with or engaged in "commerce"; commerce is defined as the activity of buying and
selling. The concept of profit in both these definitions is a secondary consideration.31
49. Although OPA does not operate for profit, it procures electricity which is fed into the
electricity grid for immediate resale and distribution. The electricity grid is characterised
as a "physical market" where electricity is brought and sold.32. The OPA procures the
electricity with the intention that the electricity will be resold on market terms.
50. Australia considers that, consistently with Article 31 of the Vienna Convention on the
Law of Treaties, the term "commercial resale" in Article III(8)(a) should be interpreted in
accordance with the ordinary meaning of the term in its context and in light of the object
and purpose of the GATT 1994. 33 Australia submits that to interpret "with a view to
commercial resale" as definitively meaning a purchase with an aim to re-sell for profit
would be an overly narrow definition. Such an interpretation would expand the possible
exemptions to the national treatment provisions in Article III:1 captured by Article III:8
(a). Australia submits that it is open to the Panel to consider whether the exemption in
Article III:8(a) envisaged such a broad carve-out from the provision.
51. Article 32 of the Vienna Convention allows "recourse …to supplementary means of
interpretation...in order to confirm the meaning resulting from the application of Article
31".34 Drafting history has been recognized as a valid source of supplementary
information. In Canada- Periodicals, the Appellate Body used the travaux preparatoires
to support a textual interpretation of Article III:8(b) of GATT 1994.35
52. Australia notes that the drafting history of Article III of GATT 1994 indicates that the
insertion of "commercial" before "resale" was made to cover cases in which governments
had received tied loans to purchase equipment from the country granting the loan, and
where those governments might resell such equipment later to private entities. The new
27
,Canada's first written submission, para. 90.
Ibid
29
Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 478.
30
Panel Body Report, China – Publications and Audio Visual Product
31
Oxford New Dictionary, online, accessed 9 January 2012;
http://oxforddictionaries.com/definition/commercial?q=commercial;
http://oxforddictionaries.com/definition/commerce?q=commerce
32
Japan’s first written submission, p 26, para. 68, footnote 120
33
Appellate Body Report, US – Gambling, paras. 166 and 167.
34
Panel Report, China – Publications and Audio Visual Product, p370, para. 7.1221, confirmed by the
Appellate Body
35
WT/DS31/AB/R. The Appellate Body did not refer to the discussions in the Uruguay Round but to
the Reports of the Committee and Sub-Committee of the Interim Commission for the International
Trade Organization in 1947, ICITO,118, Geneva, September 1948.
28
Canada – Certain Measures Affecting the
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wording was intended to "…cover purchases made originally for governmental purposes
and not with a view to commercial resale, which might nevertheless be sold" (emphasis
added). 36 Thus it seems that the word "commercial" was introduced to ensure the
continued application of the national treatment exemption to procurement of goods which
are sold after use (emphasis added).37 This drafting history thus appears to confirm that
the term "commercial" was not intended to result in governmental purchases being
exempt under Article III:8 (a) simply because the purchased goods were resold at notfor-profit rates.
53. A reoccurring theme in both the analysis of "governmental purposes" and "commercial
resale" is the emphasis on the government "use" of the procurement.38 The Government of
Ontario does not use the vast majority of electricity it purchases. The electricity is
purchased for distribution to consumers who purchase the electricity at market rates.
Australia submits that Article III:8(a) of GATT 1994 was not intended to cover the
situation where a government enters into contracts for the supply of electricity at fixed
prices, which it then sells on a market for general consumption.
D.
CONCLUSION
54. For the reasons set out in this submission, Australia submits that the Panel in this dispute
should:
36
(a)
Consider whether the Government of Ontario's FIT program involves
"income or price support" or whether Government of Ontario "purchases
goods" under Article 1.1 of the SCM Agreement;
(b)
Consider whether the Government of Ontario's FIT contracts confer a
"benefit" pursuant to Article 1.1(b) of the SCM Agreement; and
(c)
Note the potential for the interpretation of the terms "governmental purposes"
and "commercial resale" to affect the scope of the national treatment principle
enunciated in Article III:1 of GATT 1994.
E/CONF.2/C.3/SR.41
S/WPGR/W/29, Working Party on GATS Rules , Interpretation of Procurement Related Provisions
in GATT: Possible Application to Articles XIII of GATS, Background Note by the Secretariat, 31 March
1999
38
Ibid
37