In the World Trade Organization CANADA MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM (DS426)

Transcription

1 In the World Trade Organization CANADA MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM 's Closing Oral Statement at the Second Meeting with the Panel - As delivered - Geneva, 16 May 2012

2 Mr. Chairman, distinguished Members of the Panel. 1. We would like to thank you, the secretariat, interpreters and other staff for all your work in the present case. 2. Today we will be brief. In particular, we intend to address some of the statements Canada made in its oral presentation yesterday, while not engaging in a rebuttal exercise as, in any event, the EU s previous written and oral submissions have covered all of Canada s arguments. Then, we will address some of the issues which arose in the exchange of views from the questions you posed yesterday. 3. With respect to Canada s opening oral statement of yesterday, the EU would like to make a number of observations on some issues that caught our attention, without attempting to be exhaustive. 4. First, we observe that Canada repeatedly misrepresented the arguments of the EU by selectively quoting from our submissions or by attributing arguments to the EU that we have not made. To mention just a few examples, in paragraphs 4 and 6 of their statement, Canada stated that the EU challenges the governmental purposes behind the [FIT Program] (which we do not), or that the EU focuses on the service provided to citizens by the purchase (while our focus is instead on whether purchased goods are utilised by the government in the provision of public services). We trust that the Panel will consider our arguments as developed in our submissions, without being distracted by Canada s distorted assertions. 5. Second, Canada continues to insist that there are certain facts that have been proven in the present dispute without, however, Canada providing any evidence. For instance, at paragraph 30 of its opening oral statement, Canada dismisses the EU s argument that the FIT Generators have never been instructed not to produce electricity without, however, rebutting the indicia provided by the EU in our response to your Question 21(a). In order to do so, Canada could have explained and shed further light into what happened in the particular situation mentioned in our response. -1-

3 6. Third, in paragraphs 39 and 42 of its opening oral statement, Canada considers that the OPA s alleged purchase of electricity in the present case would fall under the notion of for governmental purposes within the meaning of GATT Article III:8(a) in the sense that, through that purchase, the Government of Ontario would be able to provide the government service of a sufficient and reliable supply of electricity from clean sources. As just explained, this statement is clearly misrepresenting the arguments of the EU, which refer to the use in the delivery of a public service of products purchased by the government. This is a very different issue. Moreover, the situation in the present dispute is not analogous to the examples mentioned by the EU, referring to medical equipment and books, because in those cases the goods are actually employed by the public administration in charge of providing health or education services (and thus satisfy a need of the government). 7. Fourth, at paragraph 66, Canada maintains that the domestic content requirements at stake are not disconnected from the product purchased because such requirements determine the process and production method of the wind and solar electricity that is purchased. This is obviously incorrect. The domestic content requirement is not about PPMs, but about the origin of the generation equipment. The process or production method of renewable electricity is the same regardless of where the generation equipment was manufactured. 8. Fifth, the EU has demonstrated that the categories of financial contribution and income or price support are not mutually exclusive, and that the concept of income or price support does not require showing actual effects. In any event, when GATT Article XVI refers to increase exports or reduce imports, it refers to any product, not the supported product. Further, the understanding of the term income or price support in the sense of Article XVI of the GATT as referring simply to the notion of income or price support in the GATT system does not leave those terms without a meaning. We have shown, and Canada has failed to address, that there were some forms of income or price support referred to explicitly in the GATT, such as those mentioned in Article VI:7. The reference to any form of income or price support was meant to cover those and other similar schemes already included in the GATT. -2-

4 9. Sixth, at paragraph 132 Canada wrongly refers to US Softwood Lumber IV and US - AD and CVDs (China) to argue that the EU has the burden of justifying the use of outside-ontario benchmarks. In this respect, the EU observes that those cases are not relevant as they refer to the determinations (i.e., the choice of outside market benchmarks) made by the USDOC in the context of CVD investigations. In that context, naturally the party using outside benchmarks has to justify its choice. That is not the case in a situation like the present case where the issue is whether prices in Ontario can be used as the appropriate benchmark. 10. Seventh, at paragraph 126 Canada argues that we have not provided any alternatives based on constructing prices for wind and solar electricity in Ontario by using relevant cost of production and an appropriate rate of return. We disagree. We have provided evidence on the actual cost of production in several jurisdictions including in a neighbouring Canadian Province, as representative of the actual cost that could be expected to be achieved in Ontario under a different system. Canada has not addressed this evidence in any manner, other than merely referring to a presumed particularity of Ontario, which has not been proven. Moreover, in view of the significant difference between the cost of production we have put before the Panel and the FIT rates, an analysis of the adequate profit margin in this case is irrelevant. 11. Eighth, at paragraph 127 of its oral statement, Canada alleges that the EU has admitted that it is the government that represents the demand-side of the relevant transaction. We would like to take this opportunity to make the following observation about what the EU is actually contending. If, in a given situation, there is only one potential purchaser, i.e., the State (if Canada s views are uphold), because for instance there is no market demand for a good in view of its high costs, it should be uncontested that the State has leverage in selecting the producers from which it demands the product at issue and in negotiating prices. In those situations, where the State is in a monopsony position, the State can obtain the lowest possible price from each producer through direct negotiation or through a bidding process that will ensure purchases at no more than the specific costs plus profit expectation by each bidder. As we have noted in previous submissions, that was the situation previously in Ontario where the government accepted offers based on -3-

5 individual bids and paid different prices to each generator for their renewable electricity. In contrast, the FIT Program opts for providing a standard rate. Thus, the State gives up the possibility to pay each generator on the basis of the best offer that such generator is able to provide. This is a political choice which implies a risk of overcompensation when measured against the cost of each individual producer. 12. In sum, Canada s observations in its opening oral statement of yesterday do not reinforce any of its arguments and simply confirms the merits of the EU s claims in the present dispute. 13. Yesterday we also listened very attentively to your questions with respect to the existence of benefit in this case. We would like to make the following remarks on that issue. 14. First, as we have stated in previous occasions, the fact that the government, through a financial contribution or income or price support, monetises an externality that the market does not take account of or, said in other words, the fact that the government pays for the costs of producing something for which the market cannot afford paying its actual price, in view of its high costs and in view of substitutable products being available, implies that there is a benefit in the sense of Article 1.1(2) of the SCM Agreement. 15. Second, following this rationale, there is general consensus in different contexts that mechanisms such as Ontario s FIT Program are subsidies. Furthermore, the SCM Agreement also considers some types of environmental subsidies as actionable. The finding that any given feed-in-tariff scheme is a subsidy does not mean that such scheme is prohibited. The EU does not dispute the legitimacy of adopting such environmental subsidies. And indeed, such subsidies are not meant to cause problems from the point of view of the subsidy disciplines in most cases. Specifically in cases where those programs contained conditions which are prohibited, such as domestic content requirements, they would be subject to the strict disciplines of the SCM Agreement. It is for this reason that the EU is not concerned about characterising some forms of support to renewable energy, such as the FIT Program of Ontario, as a subsidy under the SCM Agreement. -4-

6 16. Third, we note that in Question 26 of its first set of Questions, the Panel already asked Canada to explain the details of the formula on which the FIT rates are based, i.e., allegedly cost recovery and profit margin, as well as whether the margin of profit is the same for all generators, regardless of the generating technology involved, risk profiles, etc. Yesterday, you again repeated the same question to Canada, which shows that Canada was not precise in its response to your question. In this respect, we expect that Canada will be able to provide a response to your question in such a detailed manner that will allow us to make appropriate comments. For instance, general statements or figures on profit margins with no explanation as to how those statements or numbers were calculated would be insufficient for us to rebut them and, ultimately, in our view, for the Panel to make a finding on the basis of an objective assessment of the matter as required by Article 11 of the DSU. 17. Fourth, we observe that the Panel was interested in finding information about the rate of return of all generators in Ontario with respect to the different generating technologies and explored the issue of how the FIT rates are constructed. In this respect, we note that, for the Panel to enter into these issues, the Panel should first address all the steps and alternatives we have put forward for the Panel to find the existence of benefit in this case. In this respect, we request the Panel to make findings, including factual findings, with respect to the different alternatives put forward by the EU. 18. Fifth, you were also interested in knowing the rates for wind and solar electricity in other countries. We have not yet provided those rates but we have provided information about the cost of generation in different places, including the EU. On the basis of that information, we have shown that the cost of generation for wind and solar energy projects are significantly below the guaranteed rates in Ontario. 1 In response to your questions, we will provide additional information on this issue, including studies on the policy premium or overcompensation that result from different schemes to incentivise the deployment of renewable energy. 1 EU s second written submission, paras

7 19. Sixth, we also note that Canada considers that the EU has the burden of proof with respect to the appropriate benchmark in this case. We believe we have met our burden in this case. However, we would like to recall the Panel s task in this respect. The Panel cannot limit its analysis to reject the benchmark proposed by the parties but must find the appropriate benchmark to make a finding on the existence or absence of benefit Seventh, the EU considers that a determination of benefit in the sense of Article 1.1(2) of the SCM Agreement should not be made on the basis of assessing whether there is discrimination between producers of different technologies on the basis of the conditions they get from the Government of Ontario. In other words, the fact that different types of producers of electricity may receive different profit margins may not be sufficient to uphold a finding of existence of benefit. In our view, should the Panel consider that the appropriate market benchmark in this case must be based on an examination of whether the FIT rates are adequate, the Panel should assess whether the FIT rates cover the actual costs of production plus a reasonable profit, as Canada asserts. We have proven that this is not the case since the cost of production for wind and solar electricity are much lower than the rates guaranteed under the FIT Program. Thus, even under this approach, the Panel should find that there is a benefit in the present case since the OPA does not pay an appropriate amount for the product demanded, i.e., electricity from wind and solar sources. Needless to say, in that analysis, the Panel should not take into account the fact that the cost of production of the FIT Generators may be higher than in other jurisdictions precisely because of the domestic content requirements. 21. Finally, we observe that in our responses to your first set of questions, in particular our response to Question 55, para. 109, we made a typographical error. Rather than saying then there would not be a reason to use those prices as a benchmark in the fifth line from the bottom of that paragraph, it should read then there would not be a reason not to use those prices as a benchmark. 22. Once again, we thank you for your work in this dispute and look forward to answering your questions in writing. 2 Appellate Body Report, Japan - DRAMs, para. 174; and Panel Report, Canada Aircraft, para