Two renewable energy subsidy programs, one Chinese and the other Canadian, recently have been challenged at the World Trade Organization as being discriminatory and in violation of the WTO Subsidies Agreement. In response, China announced that it was terminating its wind power subsidies program. By contrast, Canada appears to be preparing for litigation in defense of Ontario's Feed-In Tariff ("FIT") program.
Earlier this month following WTO-mandated consultations between China and the United States, China announced that it had formally terminated its Special Fund for Wind Power Manufacturing. Over the last four years, the wind power market in China has grown by more than 100 percent annually. As a result, China's installed capacity now ranks second in the world, ahead of Germany and behind the United States. The Chinese government has implemented a number of subsidy programs supporting wind energy generation in China, including the Special Fund. According to U.S. government estimates, Chinese grants under this program have amounted to several hundred million dollars since 2008. Acting on a Section 301 request by the United Steelworkers, the United States challenged the program as a WTO-prohibited import substitution subsidy since it makes grants to Chinese wind power equipment manufacturers contingent on using domestic parts and components instead of foreign-made parts and components. The termination of the Special Fund does not mean that China will need to stop supporting wind energy production or the manufacturers of wind power equipment. China may well create a similar program in a different form, no longer requiring the use of domestic over imported goods as a condition for obtaining governmental subsidies.
The Canadian province of Ontario's FIT program also has been challenged at the WTO by Japan as discriminating against imported products and as a WTO-inconsistent import substitution subsidy. The program allows producers of renewable energy, such as solar energy, to benefit only if they produce their renewable energy by using 60 percent locally sourced goods and services. Because of these local content requirements, solar energy producers in Ontario must use, for example, Ontario-produced modules and components to receive program benefits.
On June 17, the WTO Dispute Settlement Body heard Japan's complaint for the first time. Next month it will establish a WTO Panel to adjudicate the dispute. If found to be WTO inconsistent, Canada will be required to withdraw the subsidy without delay. If it fails to do so, Japan will be authorized, upon request, to impose trade retaliatory measures on Canadian products.