Question 1
Country A and Country B are both Members of WTO and Convention of Climate Change. In order to develop renewable energy to cope with climate change and enhance sustainable development, the government of country A passes a law "Renewable and Clean Energy Act"(RCEA). Under the RCEA, the government would purchase electricity generated by solar power firms with guaranteed prices, but on the condition that the firms use solar cells and modules of domestic origin. Practically, the preferential rate of electricity purchased by the government goes to only those solar power rims that use at least specific percentage (such as 60%)of domestic content. Country B believes the RCEA and its application is in breach of the WTO rules and thus file at the WTO. Country A argues that any dispute relating to climate change shall be exclusively resolved through dispute settlement mechanisms under the Convention of Climate Change, as agreed by all members.
1. What could be the relevant WTO rules and requirements regarding the RCEA? (20%)
1. The SCM Agreement disciplines the use of subsidies by the Members and regulates the actions members can take to counter the effects of other member's subsidies. The SCM Agreement does not prohibit Members from granting most forms of subsidies, only. prohibited subsidies which cause adverse effects would be subject to the provisions of this Agreement. Firstly, in determining whether the RCEA would be subject to the provisions of this Agreement, it must fulfil the requirements to constitute a subsidy.
2. GATT III:4 requires that all members are not to discriminate between domestic products and imported products in respect of regulations, laws and requirements affecting the internal sale or offering of sale. According to this article, Member governments are not to discriminate between imported products so as to provide equality of competition between imported products and domestic products.
(a) Financial Contribution by the government
According to Article 1.1(a) of the SCM Agreement, there must be a financial contribution by the government. In this case, under the RCEA, the government would "purchase electricity generated by solar power firms with guaranteed prices". This would constitute as a 'financial contribution under SCM Article 1.1(a)(1)(iii).
(b) A benefit is conferred
The AB has ruled that the existence of a benefit is to be determined by comparison with the market-place. In the case of government procurement of goods, benefit is said to be conferred if the price paid by the government is too high compared with the prevailing terms and conditions of the market. Under the RCEA, a benefit is said to be conferred as the government would purchase electricity by solar power firms at a preferential rate.
(c) The subsidy is specific
According to SCM Article 2.3, a prohibited subsidy is deemed to be specific. A prohibited subsidy, as defined in Part II of the SCM Agreement , is either an export subsidy or an import substitution subsidy. An import substitution subsidy is a subsidy contingent upon, or dependant, or conditioned upon the use of domestic goods over domestic goods. In this case, as provided by the RCEA, the preferential rate of electricity purchases by the government only goes to these solar firms that use at least specific percentage of domestic content. In other words, eligibility of the subsidy depends on the use of domestic goods, therefore the RCEA is a prohibited subsidy, and therefore specific. To conclude, the RCEA is subject to the SCM Agreement.
In this case, the RCEA is sets down requirements regarding the conditions for the buying of electricity at a preferential rate, thus, the RCEA is a law affecting the sale of solar cells. To conclude, the RCEA is subject GATT Article III:4.
2. Whether country A violates these rules? (10%)
1. SCM Article 3.1(b) provides that subsidies that are contingent upon the use of domestic over imported goods are to be prohibited. In this case, as aforementioned, the RCEA is a subsidy that falls within the ambit of SCM Agreements, and thus have to comply with SCM Agreement rules. Thus, since RCEA prescribes the use of domestic solar cells over imported solar cells, it is a prohibited subsidy, and thus violates SCM Article 3.1(b).
1. SCM Article 3.1(b) provides that subsidies that are contingent upon the use of domestic over imported goods are to be prohibited. In this case, as aforementioned, the RCEA is a subsidy that falls within the ambit of SCM Agreements, and thus have to comply with SCM Agreement rules. Thus, since RCEA prescribes the use of domestic solar cells over imported solar cells, it is a prohibited subsidy, and thus violates SCM Article 3.1(b).
2. To constitute as an infringement of GATT III:4, the following requirements must be fulfilled: (1)the measures at issue is a regulation,requirement, and law; (2) the products are like products; (3) the imported products are accorded less favourable treatment. In this case, the RCEA is sets down requirements regarding the conditions for the buying of electricity at a preferential rate, thus, the RCEA is a law affecting the sale of solar cells.The issue of 'like products' are not debatable in this case, since 'domestic solar cells' and 'imported solar cells' are like products. In this case, the RCEA is a law that stipulates that the preferential rate of electricity purchased by the government goes to only those solar firms which use at least specific percentage of domestic content, thus, the RCEA is a law prescribing the use of domestic solar cells and modules over imported solar cells and modules. To conclude, the RCEA is an infringement upon of GATT Art. III:4.
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