ASCM Disciplines and Recent WTO Case Law Developments: What Space for ‘Green’ Subsidies?

Abstract

Liesbeth Casier and Tom MoerenhoutWhat constitutes appropriate state measures for incentivizing renewable energy development and deployment? This key question has been posed by the sustainable development community, and even more so by governments and investors around the world. On May 6, 2013, all eyes were focused on the Appellate Body (AB) of the World Trade Organization (WTO), 1 which gave its first ruling on measures affecting the renewable energy generation sector as part of a dispute brought by Japan and the European Union against Canada.2 It was expected that the ruling would provide legal clarification and interpretation of WTO rules on trade, investment measures and subsidies related to sustainable energy. 3 Our key question, however, remains largely unanswered. While the AB-the highest WTO court-ruled that local content requirements (LCRs) are unacceptable, the status of renewable energy support measures remains unclear.It is likely that a WTO Dispute Settlement Panel and potentially the AB will soon again be confronted with the question of whether a feed-in tariff (FIT) is a subsidy. WTO disputes similar to Canada -Renewable Energy include:• In November 2012, China requested consultations with the European Union on Italian and Greek FITs with attached LCRs. Besides GATT and TRIMs, China also cited the ASCM, under which the determination of whether the LCR is a prohibited subsidy requires a determination of whether the FIT without LCR provisions would constitute a subsidy (see Box 1).• In February 2013, the United States filed a request for consultations with India concerning certain measures relating to solar cells and solar modules. Again the dispute concerns incentive programs with attached LCRs and the complainant cited GATT, TRIMs and ASCM.1 A short description of key concepts can be found in the terminology box at the end of this commentary. If a measure is found to be an actionable subsidy, the analysis then continues to determine whether the actionable subsidy caused adverse effects to the interests of another WTO member. Only if such adverse effects are found is the subsidy in violation of WTO law. An actionable subsidy is in itself not illegal.In the Canada -Renewable Energy case, the question of whether the FIT conferred a benefit was key to determining whether an FIT in itself was a subsidy (not yet actionable) or not. To find that a benefit is conferred, the panel and AB ask whether the disputed measure makes firms better off than they would be under competitive market conditions. The issue in the Canada -Renewable Energy case was: where should these prevailing market conditions be found? Or, put differently, what was the benchmark market price to compare to electricity generated from wind and solar energy? BOX 2: THE LOCAL CONTENT QUESTIONJapan's main complaint in this case is not the existence of an FIT in and of itself, but rather the local content requirements attached to it. The fact that neither Japan nor the European Union argued that the subsidy was specific (a necessary step t...

'The Wide and the Narrow Gate'. Benchmarking in the SCM Agreement after the Canada Renewable Energy/Fit Ruling

“…7 Rubini (2014a), and the updated version Rubini (2014b); Cosbey and Rubini (2013). See also Rubini (2015). almost a textbook example of subsidy has turned out not to be a subsidy at all?…”

'Flying High in a Plane' Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft (WT/DS316/AB/RW)

“…59 The first iteration of the ASCM, the one which directly came out from the Uruguay Round negotiations, incorporated certain limited express exceptions. See Rubini (2017). 60 This is the main point of Mavroidis (2000).…”

Nihil novi sub sole:The Need for Rethinking WTO and Green Subsidies in Light ofUnited States – Renewable Energy

“…The WTO framework does not favor trade in green goods as opposed to other goods and its rules apply equally to renewable energy and to fossil fuel energy. Thus, some scholars consider that the WTO does not contribute to the climate change fight, (Rubini, 2012, 2015a; Cosbey and Mavroidis, 2014; Charnovitz and Fischer, 2015; Marhold, 2017). In recent years, state subsidies necessary to promote renewable energy were challenged as violations of WTO law (see Table A1 in annex).…”

“…Renewable energy support schemes were mostly attacked as subsidies contravening the General Agreement on Tariffs and Trade (GATT), the Trade-Related Investment Measures (TRIMs), and the Agreement on Subsidies and Countervailing Measures (SCM). As renewable energy requires support schemes in order to be economically viable, these cases were seen by certain scholars as a sign that the WTO rules on subsidies had to be reviewed (Rubini, 2012, 2015a; Cosbey and Mavroidis, 2014; Marhold, 2017). Other scholars instead highlighted that the major issue in these subsidies cases was not the subsidy granted for promoting renewable energy but the local content measures attached to those schemes, which favored the sourcing of domestic equipment or inputs for the production of green energy (Hartmut, 2014; Marín Durán, 2018; Celli, 2019).…”