WORLD TRADE  
ORGANIZATION   
 WT/DS412/R/Add.1 WT/DS426/R/Add.1 
19 December 2012 
 
 
(12-6816) 
 Original:    English 
 
      
 
   
CANADA – CERTAIN MEASURES AFFECTING THE 
RENEWABLE ENERGY GENERATION SECTOR 
 
CANADA – MEASURES RELATI NG TO THE FEED-IN 
TARIFF PROGRAM 
 
 
Reports of the Panels 
 
 
Addendum 
 
 
 
 This addendum  contains Annexes A to C to the Reports of the Panels to be found in document 
WT/DS412/R-WT/DS426/R.  
_______________ 
 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page i 
 
 
   
LIST OF ANNEXES 
 
ANNEX A 
 
FIRST AND SECOND WRITTEN SUBMISSIONS OF THE PARTIES, RESPONSES  
TO QUESTIONS AND ORAL STATEMENTS OF THE PARTIES AT THE  
FIRST AND SECOND SUBSTANTIVE MEETINGS OF THE PANEL 
 
Contents Page 
Annex A-1 Integrated Executive Summary of Japan  A-2 
Annex A-2 Integrated Executive Summary of the European Union A-31 
Annex A-3 Integrated Executive Summary of Canada A-56 
 
 
ANNEX B 
 
WRITTEN SUBMISSIONS AND ORAL STATEMENTS  
OF THE THIRD PARTIES 
 
Contents Page 
Annex B-1 Integrated Executive Summary of Australia B-2 
Annex B-2 Integrated Executive Summary of Brazil B-6 
Annex B-3 Integrated Executive Summary of China B-8 
Annex B-4 Integrated Executive Summary of El Salvador B-12 
Annex B-5 Integrated Executive Summary of the European Union 
(in WT/DS412) B-14 
Annex B-6 Integrated Executive Summary of Japan (in WT/DS426) B-18 
Annex B-7 Integrated Executive Summary of Korea B-24 
Annex B-8 Integrated Executive Summary of Mexico B-28 
Annex B-9 Norway's Third-Party Statement B-32 
Annex B-10 Integrated Executive Summary of Saudi Arabia, Kingdom of B-34 
Annex B-11 Integrated Executive Summary of the United States  B-38 
 
 
ANNEX C 
 
REQUESTS FOR THE ESTABLISHMENT  
OF A PANEL  
 
Contents Page 
Annex C-1 Request for the Establishment of a Panel by Japan  C-2 
Annex C-2 Request for the Establishment of a Panel by the European Union C-6 
 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-1 
 
 
   
ANNEX A 
 
 
FIRST AND SECOND WRITTEN SUBMISSIONS OF THE PARTIES, RESPONSES  
TO QUESTIONS AND ORAL STATEMENTS OF THE PARTIES AT THE  
FIRST AND SECOND SUBSTANTIVE MEETINGS OF THE PANEL 
  
Contents Page 
Annex A-1 Integrated Executive Summary of Japan A-2 
Annex A-2 Integrated Executive Summary of the European Union A-31 
Annex A-3 Integrated Executive Summary of Canada A-56 
 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-2 
 
 
   
ANNEX A-1 
  
INTEGRATED EXECUTIVE SUMMARY OF JAPAN 
  
TABLE OF CONTENTS 
 
I. INTRODUCTION ............................................................................................................... . A-3 
II. FACTUAL BACKGROUND ............................................................................................... A-4 
A.  THE ONTARIO ELECTRICITY MARKET  ...................................................................................... A-4  
1.  History of the Ontario El ectricity Market .......................................................................... A-4  
2.  Operation of the Ontario Electricity Market ..................................................................... A-5  
(a)  Generation .................................................................................................................... ........... A-5  
(b)  Transmission, Distribution, and Consumption ....................................................................... A-6  
(c)  Regulatory and Administrative Entities .................................................................................. A-7  
(d)  Price Determination and Settlement of Payments ................................................................... A-7  
B.  THE FIT PROGRAM  ................................................................................................................... A-8  
1.  History of the FIT Program ................................................................................................. A- 9 
2.  Operation of the FIT Program  ........................................................................................... A-9  
(a)  Domestic Content Requirement  ........................................................................................... A-9  
(b)  FIT Contract Rates and Terms .............................................................................................. A-1 0 
(c)  Settlement Process  ........................................................................................................... .. A-10 
3.  Individually Executed FIT and microFIT Contracts for Wind and Solar PV  
 Projects ……………………………. ................................................................................... A-11  
III. LEGAL AR GUMENT ........................................................................................................ A- 12 
A.  ORDER OF ANALYSIS OF JAPAN 'S CLAIMS AND JUDICIAL ECONOMY  ..................................... A-12  
B.  THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , PROVIDE SUBSIDIES CONTINGENT  
 UPON THE USE OF DOMESTIC OVER IMPO RTED GOODS INCONSISTENT WITH CANADA 'S  
 OBLIGATIONS UNDER ARTICLES 3.1( B) AND 3.2 OF THE SCM AGREEMENT  ........................... A-13  
1.  Article 1.1(a) of the SCM Agreement: "financial contribution by a government  
 or any public body" or "any form of income or price support" .................................... A-13  
2.  Article 1.1(b) of the SCM Agreement: "benefit" ............................................................. A-16  
3.  Article 2 of the SCM Agr eement: specificity .................................................................... A-21  
4.  Article 3.1(b) of the SCM Agreement: "subsidies contingent … upon the use  
 of domestic over imported goods" ..................................................................................... A-21  
5.  Article 3.2 of the SCM Agreement: "neither grant nor maintain subsidies" ................ A-22  
C.  THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , ARE INCONSISTENT WITH  
 CANADA 'S NATIONAL TREATMENT OBLIGATION UNDER ARTICLE III :4 OF THE GATT 1994 ... A-22  
1.  Inconsistency with Articl e III:4 of the GATT 1994 ......................................................... A-22  
2.  Inapplicability of Article III:8 of the GATT 1994 ........................................................... A-24  
(a)  Article III:8(a) Does Not Apply  ......................................................................................... A-24  
(b)  Article III:8(b) Does Not Apply  ......................................................................................... A-29  
D.  THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , ARE TRADE -RELATED  
 INVESTMENT MEASURES INCONSISTENT WITH CANADA 'S OBLIGATION UNDER  
 ARTICLE 2.1 OF THE TRIMS AGREEMENT  ............................................................................... A-29  
IV.  CONCLUSION ................................................................................................................... A-29  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-3 
 
 
  I. INTRODUCTION1 
 
1. This dispute concerns the discriminatory treatme nt affecting imports of parts and equipment 
utilized in facilities that generate electricity fro m wind and solar photovoltaic ("PV") sources (referred 
to hereafter as "renewable energy generation equipment"2) by the Canadian Province of Ontario 
("Ontario") pursuant to its feed-in tariff ("FIT") program (the "FIT Program")3 established on 
24 September 2009.  Specifically, the FIT Program pr ovides subsidies to generators of renewable 
energy in Ontario, and it requires that in orde r to receive those subsidies, wind and solar PV 
generators use renewable energy generation equipment made in On tario (the "domestic content 
requirement"). 
 2. Thus, the Government of Ontario grants and ma intains subsidies contingent upon the use of 
domestic over imported renewable energy generati on equipment and accords less favorable treatment 
to imports of such equipment than that accord ed to such equipment produced domestically.  
Accordingly, Japan submits that the FIT Program, as well as individually executed FIT and microFIT 
contracts for wind and solar PV projects, are inc onsistent with Canada's  obligations under: (i) 
Articles 3.1(b) and 3.2 of the Agreement on Subsidies and Countervailing Measures ("SCM 
Agreement"); (ii) Article III:4 of the Genera l Agreement on Tariffs and Trade 1994 ("GATT 1994"); 
and (iii) Article 2.1 of the Agreement on Trade-Re lated Investment Measures ("TRIMs Agreement"). 
 
3. To be clear, Japan challenges the FIT Program, and individually executed FIT and microFIT 
contracts, not because they have the effect of promoting investment in renewable energy generation, 
but rather because, in light of the domestic conten t requirement, they discriminate against imports of 
renewable energy generation equipment in favor  of Ontario-made renewable energy generation 
equipment.  Japan does not take issue with Onta rio's stated goal of enhancing renewable energy 
generation.  On the contrary, the domestic conten t requirement, which would have the effect of 
limiting generators' access to the best availa ble technology from the global marketplace, is 
inconsistent with that goal.  Thus, the claims a dvanced by Japan cannot properly be characterized as a 
"trade and environment" dispute; rather, this is a "trade and investment" dispute . 
 4. In this regard, Canada's recurrent theme thr oughout its submissions that it is necessary for 
governments to secure the supply of electricity for th e benefit of the public welfare, and particularly 
renewable electricity for the benefit of the environm ent, serves only to divert the Panel's attention.  
Japan shares the view that governments may have a ce rtain role in securing a stable electricity supply 
and that FIT programs can play a critical role in promoting renewable energy  generation.  However, 
the domestic content requirement in Ontario's FIT Program is a de jure  discriminatory measure that is 
designed to promote the production of renewable ener gy generation equipment in Ontario rather than 
to promote the generation of renewable energy, and this de jure  discrimination in international trade is 
not and cannot be justified by the public polic y goals on which Canada places such emphasis. 
 
                                                      
1 At the outset, Japan notes that it incorporates its arguments from DS426 into DS412, where 
applicable. 
2 The term "renewable energy generation equipment" is used to refer to the goods that are listed in the 
Domestic Content Grids provided in Exhibit D to the FIT Contract, Exhibit JPN-127, and Appendix C to the 
microFIT Contract, Exhibit JPN-164. 
3 References to the "FIT Program" include both projects over 10 kW (i.e., FIT projects) and projects of 
10 kW or less (i.e., microFIT projects).  Further, unl ess specified, terms such as "FIT contracts", "FIT 
generators", etc. should be understood to refer to "FIT and microFIT contracts", "FIT and microFIT generators", 
etc., even where the conjunctive term "FIT and microFIT" is not utilized.  Similarly, terms such as "FIT contract", "FIT generator", etc. should be understood to refer to "FIT or microFIT contract", "FIT or microFIT 
generator", etc. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-4 
 
 
  5. Notably, Canada does not contest certain essen tial facts and legal conclusions presented by 
Japan, namely: (i) the existence and operation of the FIT Program's domestic content requirement; 
(ii) the conclusion that, should the FIT Program and contracts be considered to provide "subsidies", 
those subsidies are "contingent … upon the use of domestic over importe d goods", and therefore 
"prohibited", within the meaning of Article 3.1( b) of the SCM Agreement; and (iii) the conclusion 
that, should the exemption under Article III:8(a) of the GATT 1994 not apply, the FIT Program and 
contracts are inconsistent with the terms of Ar ticle III:4 of the GATT 1994 and Article 2.1 of the 
TRIMs Agreement.  Thus, the principal issues in dispute between the parties are: (i) the proper 
characterization of FIT contracts under Article 1.1(a) of the SCM Agreement;
4 (ii) whether a "benefit" 
exists under Article 1.1(b) of the SCM Agreement; a nd (iii) whether FIT contracts fit within the scope 
of the government "procurement" exemp tion under Article III:8(a) of the GATT 1994. 
 
II. FACTUAL BACKGROUND 
 6. This section provides the factual basis for the clai ms raised by Japan in this dispute.  It 
discusses, first, the history and operation of Ontario's electricity market in which the FIT Program is established, and second, the history and operation of the FIT Program within the Ontario market.  The 
primary focus of this section is the supply-side and wholesale market within Ontario's electricity 
market, as it is the FIT Program's impact on this porti on of the market that gives rise to violations of 
Canada's WTO obligations.  Moreover, Japan's discussion focuses on the "commodity charge" portion 
of wholesale and retail prices, as it is that portion of the prices paid by consumers that serves as 
payment for the electricity itself, rather than paym ent for services associated with the delivery of that 
electricity to consumers.  
A. THE ONTARIO ELECTRICITY MARKET  
 
7. Historically run by a state-owned monopoly called Ontario Hydro, the Ontario electricity 
market underwent a series of reforms between 1998 and 2004 that separated the functions of 
generation, transmission and distribution, and regula tion and administration of the electricity market.5  
At present, the Ontario electricity market is a partly  liberalized market, with generation, transmission, 
and distribution involving a mixture of public and private entities, and regulation and administration 
conducted by several public entities.6 
 
1. History of the Ontario Electricity Market 
 
8. The Ontario electricity market began its tran sition away from a state-owned monopoly system 
in 1998 with the Electricity Act  and the Ontario Energy Board Act , collectively enacted as the Energy 
Competition Act, 1998 .7  The Electricity Act, 1998 separated the state-owned monopoly Ontario 
Hydro into a number of new entities with different functions, including: (i) Ontario Power Generation 
("OPG"), which assumed Ontario H ydro's generation assets; (ii) H ydro One Inc. ("Hydro One"), 
which assumed responsibility for much of the transm ission and rural distribution systems; (iii) the 
Independent Electricity Market Operator ("IMO" ), which assumed administrative responsibility for 
                                                      
4 Japan, however, submits that the particular char acterization under Article 1.1(a) is not really a 
relevant question that the Panel needs to address given the Appellate Body's finding in US – Large Civil Aircraft 
(2nd Complaint ) that a transaction may be covered by multiple subparagraphs of Article 1.1(a)(1) and Canada's 
concession that FIT contracts satisfy this element of the definition of a subsidy.  See Japan's second written 
submission, Section III; Japan's opening statement at the second meeting of the Panel, para. 7; Japan's response 
to Panel question No. 22 after the second meeting. 
5 Japan's first written submission, Appendix I. 
6 Japan's first written submission, Section III.A. 
7 Japan's first written submission, Appendix I.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-5 
 
 
  the electricity grid and electricity markets, and was renamed the Independent Electricity System 
Operator ("IESO") in 2005; and (iv) the Ontario Electricity Financial Corporation ("OEFC"), which 
assumed all liabilities and residual assets of Ontario Hydro and administered contracts with a small 
number of private generators.  In addition, the Ontario Energy Board Act, 1998 designated the 
Ontario Energy Board ("OEB") as the regulator of the new market, with the authority to, inter alia , 
approve certain rates and prices applicable in the Ontario market.  9. Following three years of reorganization of the industry, a liberalized electricity market opened 
on 1 May 2002.  The IMO assumed the roles of operating and administering this new market, 
including operation of a computer-automated "stack system" to establish market prices and 
accommodate the existence of numerous generators and consumers.  However, this liberalized market 
did not invite the sufficient entry of new generato rs, and the Government of Ontario was forced to 
further restructure the electricity market in order to facilitate investment in new generation.
8  
Accordingly, the Government of Ontario enacted the Electricity Restructuring Act, 2004 , amending 
the Electricity Act, 1998 .  Significantly, the Electricity Restructuring Act, 2004  established the 
Ontario Power Authority ("OPA"), giving this agen cy the mandate to ensure a long-term, adequate 
supply of electricity by entering into contracts with electricity generators in the liberalized electricity 
supply market.  It was pursuant to this mandate that the OPA, on 1 October 2009, established the FIT 
Program.  2. Operation of the Ontario Electricity Market 
 
10. In this section, Japan describes the various entities relevant to its  claims that presently operate 
in the Ontario electricity market, addressing entities responsible for: first, electricity generation; 
second, transmission, distribution, and consumption; and third, regulation and administration.  Japan 
then discusses how the prices paid by consumers are de termined in order to settle the rates received by 
electricity generators.  Diagrams depicting the basic flows of electricity and money in the Ontario electricity market are provided as Attachment 1 to Japan's first written submission.  (a) Generation 
 
11. Electricity is generated in Ontario by three groups of generators: (i) the government-owned 
assets of OPG, which are the former generation asset s of Ontario Hydro; (ii) non-utility generators 
("NUGs"), which are private generators that had c ontracts to supply to Ontario Hydro prior to the 
electricity market's partial liberalization, and now supply electricity under contracts with the OEFC or 
the OPA; and (iii) independent power producers ("IPPs "), which comprise all the other generators in 
Ontario that have entered the market since its pa rtial liberalization, including FIT generators, and 
typically supply electricity under contracts with the OPA.
9 
 12. The majority of generators receive rates that are either established by government regulations 
as set forth by the OEB or through electricity supply contracts.  In particular, OPG's assets may be divided into "regulated" and "unregulated" assets.  "Regulated" OPG assets are those for which OPG 
receives rates set by the OEB for the electricity OP G generates with those assets.  OPG's remaining 
assets are "unregulated"; however, like many other ge nerators in Ontario, OPG may supply electricity 
generated from its unregulated assets to the market via contracts with the OPA.  Because OPG is the 
dominant generator in Ontario, the rates provided to OPG's facilities, primarily through OEB regulations, are established in order to prevent OP G from exercising its dominant market position to 
                                                      
8 See also Japan's comment on Canada's response to Panel question No. 1 after the second meeting. 
9 Japan's first written submission, Section III.A.1.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-6 
 
 
  impose excessive prices on consumers, while the ra tes provided to other generators, such as FIT 
generators, are aimed at supporting their very en try into and existence in the Ontario market.
10 
 13. Generators with assets that receive a regulated or  contracted rate (i.e., OPG's regulated assets, 
OPG's unregulated assets with OPA contracts, NUGs, and most IPPs) will receive that rate regardless 
of the market rate, known as the hourly Ontario energy price ("HOEP").  These generators will receive the difference between HOEP and their regul ated/contracted rate where HOEP is lower than 
the regulated/contracted rate, and on rare occasi ons, will be charged the difference between HOEP 
and their regulated/contracted rate where HOEP is higher than the regulated/contracted rate.  This 
difference between HOEP and the re gulated/contracted rate is accounted for through a charge to the 
consumer called the Global Adjustment ("GA").  By  contrast, generators with assets whose rates are 
not regulated or contracted (i.e., OPG's unregulated  assets with no OPA contracts, and IPPs with no 
OPA contracts) will simply receive the market rate of HOEP.  
14. The following table summarizes the known facts re garding the capacity, delivered electricity, 
and rates received by generators in Ontario's electricity market. 
 
Generator Year-End 2010 
Capacity 
(MW) 2010 
Delivered 
Electricity 
(TWh) Rate 
(Average 
Or Range) 
(¢/kWh) 
OPG Assets Regulated Nuclear 6,606 45.8 5.59 
Regulated Hydro 3,312 18.9 3.41 
Unregulated Hydro 3,684 11.7 3.7 
Unregulated Thermal 6,327 12.2 4.3 
NUGs with OEFC Contracts 1,652 
59.8 8.0 
IPPs with OPA 
Contracts Non-FIT/Non-RESOP 11,659.5 5.0 - 23.9 
RESOP 424.2 11.04 - 42.0 
FIT 30.3 10.3 - 80.2 
TOTAL 34,710 150.8 N/A 
Capacity, Delivered Electricity, and Rates Rece ived By Ontario Electricity Generators 
 
(b) Transmission, Distribution, and Consumption 
 
15. Depending on their generation capacity, generato rs typically connect to the transmission 
system or to the distribution system.11  Specifically, generators with capacity greater than 10 MW 
(including large-capacity FIT generators) typical ly connect to the transmission system, while 
generators with capacity of 10 MW or less (includi ng small-capacity FIT and microFIT generators) 
typically connect to the distribution system via a local distribution company ("LDC").  Whether a 
generator is transmission-connected or distributi on-connected is relevant because the process for 
settling payments for generated electricity, includ ing electricity generated under the FIT Program, 
differs based upon how a generator is connected to the grid.  16. As for consumption, large industries generally connect directly to the transmission system, 
while other consumers (i.e., residences, busin esses, and governmental entities) connect to the 
distribution system.
12 
 
                                                      
10 Japan's comment on Canada's response to Panel question No. 5, para. 7. 
11 Japan's first written submission, Section III.A.2. 
12 Japan's first written submission, Section III.A.3.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-7 
 
 
  17. The manner in which generators connect to the grid, and by which electricity flows to 
consumers, is depicted in the Flow of Electricity  diagram provided as Attachment 1 to Japan's first 
written submission.  
(c) Regulatory and Administrative Entities 
 18. For purposes of the present dispute, the OPA, IESO, and OEB are the key entities regulating 
and administering the current market for electricity supply in Ontario.
13 
 
19. The OPA was established by the Electricity Restructuring Act, 2004 , amending the Electricity 
Act, 1998 .  It was created because the liberalized market  structure established after the dissolution of 
Ontario Hydro in 1998 did not invite the sufficient en try of new generators, particularly generators 
using alternative and renewable energy sources.  Th e Government delegated to the OPA responsibility 
for medium- and long-term system development,  i.e., forecasting demand for and reliability of 
electricity resources, and contracting with electri city generators to meet this demand.  The 
Government also delegated to the OPA authority to  impose charges on consumers to recover its costs 
of contracting with electricity generators.  Thus, th e OPA enters into contracts with generators for the 
supply of electricity, which includes FIT contracts,  and charges consumers the amounts promised to 
generators in excess of market rates.  
20. The IESO is responsible for administering the electricity market (i.e., determining how much 
electricity is produced and consumed, by whom, wh en, and at what market rate) and conducting the 
operation of the electricity grid to ensure real -time coordination between electricity supply and 
demand.
14  It imposes market rules for the operation of  the electricity grid, pursuant to which it 
operates a computer-automated settlement mechan ism that uses supply and demand "stacks" to 
determine for every five-minute interval: (i) which generators supply electric ity and which consumers 
consume electricity; (ii) the amount of electricity to be supplied and consumed; and (iii) the market 
rate (i.e., HOEP) for that electricity.  Further, the IESO settles payments among participants in the 
IESO-administered wholesale market.  It does so  by collecting funds from wholesale consumers and 
distributing them to electricity generators in accordance with the rates owed to each generator 
(whether the market rate or a regulated/contracted rate). 
 
21. The OEB is the agency that regul ates Ontario's electricity sector in conformity with the public 
interest.  It does so through its authority to set transmission and distribution rates, and license all market participants.  The OEB determines the paymen ts to be made to the "regulated" assets of OPG 
and also maintains the Regulated Price Plan ("RPP" ), which establishes the prices paid by most retail 
consumers to their LDCs for the electricity th ey consume (i.e., for the electricity commodity, 
excluding service charges).  In addition, the OEB is responsible for establishing, inter alia , codes for 
the transmission system, distribution system, and retail settlement.   (d) Price Determination and Settlement of Payments 
 
22. The prices paid  by consumers at the wholesale and retail levels in Ontario must be 
distinguished from the rates received  by electricity generators, which may be the market rate of 
HOEP or a regulated or contracted rate generally higher than HOEP.
15 
 23. At the wholesale level, the total wholesale price charged to consumers consists of: (i) the 
hourly Ontario energy price (i.e., HOEP), which is th e entire rate owed to generators that do not have 
                                                      
13 Japan's first written submission, Section III.A.4. 
14 See also  Japan's first written submission, Appendix II. 
15 Japan's first written submission, Sections III.A.5 and III.A.6. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-8 
 
 
  regulated or contracted rates; (ii) the Global Adjust ment, which is distributed only to generators with 
regulated or contracted rates, in order to make up the difference between HOEP and the regulated/contracted rate; and (iii) various service charges.  
24. The first component of the electricity price, HOEP, is set in the IESO-administered market by 
the IESO's matching of electricity supply and de mand through a computer-automated "stack system" 
to determine the market price owed to all Onta rio generators.  The second component comprises the 
additional amounts owed to generators that receiv e regulated/contracted rates (i.e., OPG regulated 
assets that have rates set by the OEB, OPG unregul ated assets that have contracts with the OPA, 
NUGs that have contracts with the OPA or OEFC, and the vast majority of IPPs that have contracts 
with the OPA).  These additional amounts are collected from consumers through the Global 
Adjustment.  While the GA can either be positive or  negative, depending on whether the market rate 
of HOEP is lower or higher than the fixed rates, it  has been consistently positive since at least 2009, 
as the OPA has entered into additional contracts fo r electricity supply at rates higher than HOEP. 
 
25. At the retail level, prices paid by retail consum ers are generally determined by adding to the 
wholesale price – i.e., the total of HOEP, GA, and ot her fees and charges – an additional distribution 
charge to cover the cost of delivering electricity  to the consumer.  Residential and small business 
consumers that purchase electricity from their LDCs  based on use pay RPP prices set by the OEB.  
Retail consumers not under the RPP (generally larger  businesses) may enter into a retail contract with 
an LDC or licensed electricity reseller, paying a cont racted price for electricity for a fixed period, plus 
the GA.  26. Importantly, the Government of Ontario purchases electricity from LDCs like any other retail 
customer in Ontario – i.e., by paying market pr ices based on HOEP plus the GA.  Notably, energy use 
in government-owned facilities in 2008-09 was approxim ately 0.307 TWh, which is a mere fraction of 
the amount of electricity that could be expected to  be generated in a give n year under wind and solar 
PV FIT contracts.
16 
 27. The manner in which the payments made by c onsumers for electricity consumed flow to 
electricity generators is depicted in the Flow of Money diagram provided as Attachment 1 to Japan's 
first written submission, and is addressed in greater  detail in the discussion of the settlement process 
under the FIT Program in Section II.B.2.c below.  
B. THE FIT PROGRAM  
 
28. The FIT Program was established on 1 October 2009 as the Government of Ontario's current 
program to encourage the entry of renewable energy  generators into the market by guaranteeing those 
generators, through the execution of a contract wi th the OPA, a specified above-market rate for a 
specified term up to a specified contract capacity.17 
 29. The FIT Program is divided into two streams: FIT and microFIT.  The FIT stream refers to 
facilities with a capacity over 10 kW, and the microFIT stream refers to facilities with a capacity of 10 
kW or less.  FIT and microFIT contracts are ava ilable for facilities using the following technologies: 
biomass, biogas, waterpower, landfill gas, solar PV , and wind.  However, only wind facilities with 
capacity greater than 10 kW (i.e., FIT), solar PV faci lities with capacity greater than 10 kW (i.e., FIT), 
and solar PV facilities with capacity less than or equal to 10 kW (i.e., microFIT) must satisfy a 
domestic content requirement in order to receive a contract, and ultimately payments, under the FIT 
Program. 
                                                      
16 See Japan's second written submission, Section IV.A. 
17 Japan's first written submission, Section III.B.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-9 
 
 
  1. History of the FIT Program 
 
30. On 14 May 2009, the Government of Ontario enacted the Green Energy and Green Economy 
Act, 2009 , which, inter alia , added Section 25.35 to the Electricity Act, 1998 , providing the legal basis 
for the FIT Program.18  This law was intended to promote entr y into the market of renewable energy 
generators, which otherwise did not have sufficien t incentive to enter the market.  Subsequently, on 
24 September 2009, the Minister of Energy issued a directive instructing th e OPA to create the FIT 
Program.  
31. At issue in this dispute is the FIT Progr am's domestic content requirement, which the 
Government of Ontario instituted in order to encourage investment in Ontario in facilities that 
manufacture renewable energy generation equipment.  In doing so, the provincial government aimed 
to move the manufacturing of renewable energy gene ration equipment into Ontario, to the detriment 
of imports of such goods.  This domestic content requirement impedes Canada's asserted objective of 
increasing renewable energy generation in the Ontario electricity supply. 
 
2. Operation of the FIT Program 
 
32. The FIT Program is governed and administered  by several key documents issued by the 
OPA.
19  The FIT Rules set out the requirements around project eligibility, application process, 
connection availability assessment, and contract issuance.   The model FIT Contract is used to execute 
individual FIT contracts, and provides the standa rd terms and conditions applicable to all FIT 
projects, as well as technology-specific conditions that must be reviewed prior to participation in the 
Program.  In addition, the OPA issues Standard Definitions that apply to the FIT Rules and FIT 
Contract.  It also makes available a FIT Program  Overview for applicants that explains the 
requirements of the FIT Rules and model FIT Contract.  With regard to the microFIT stream, the OPA 
similarly issues the microFIT Rules, model microFIT Contract, and microFIT Program Overview.  33. In the IESO Market Manual, the FIT Program is categorized as a "Standard Offer Program", 
which means that the Program "provides a ‘standard pr ice' that eligible generators receive simply by 
complying with the eligibility criteria".  In other words, upon a generator's satisfaction of some basic 
eligibility requirements, the OPA becomes obligated  under a FIT contract to pay the generator the 
above-market contract rate for electricity  produced throughout the contract term.  
 (a) Domestic Content Requirement 
 
34. For purposes of this dispute, the most important requirement that a wind or solar PV FIT 
generator must satisfy is the domestic content requirement.
20  Pursuant to Section 6.4(b) of the FIT 
Rules, FIT generators that do not satisfy the domes tic content requirement are in default under the FIT 
contracts, while for microFIT generators, an offer of a microFIT Contract is strictly conditional on 
compliance with the microFIT domestic content requirement.  
35. The Domestic Content Level of a FIT or microF IT project is determined by reference to a 
"Domestic Content Grid" provided in Exhibit D to the FIT Contract and Appendix C to the microFIT 
Contract, which lists the goods and services that ma y be utilized to satisfy the Minimum Required 
Domestic Content Level for a particular generati on facility, and specifies the qualifying percentage 
that each good or service may contribute toward the Do mestic Content Level of a particular project.  
In order for solar PV (FIT and microFIT) or wind (FIT) generators to recei ve the guaranteed, long-
                                                      
18 Japan's first written submission, Section III.B.1. 
19 Japan's first written submission, Section III.B.2. 
20 Japan's first written submission, Section III.B.3. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-10 
 
 
  term rates under the FIT Program, they must utili ze a sufficient amount of the Ontario-origin goods 
and services listed in the applicable Domestic Co ntent Grid to satisfy the applicable Minimum 
Required Domestic Content Level.  This, by itself,  establishes an incentive for such generators to 
utilize goods of Ontario origin in preference to goods  of other origins in their solar PV or wind 
generation facilities; however, the Domestic Content Grids in fact require  that for all project types, at 
least some  goods manufactured, formed, or assembled in Ontario must  be utilized in order to satisfy 
the Minimum Required Domestic Content Levels, eviden cing the particularly pernicious nature of the 
domestic content requirement at issue in this di spute.  The following table summarizes the Minimum 
Required Domestic Content Levels for FIT and microFIT contracts. 
 
 Wind 
(FIT) Solar PV 
(FIT) Solar PV 
(microFIT) 
Milestone Date For 
Commercial Operation 2009-2011 2012- 2009-2010 2011- 2009-2010 2011- 
Minimum Required 
Domestic Content Level 25% 50% 50% 60% 40% 60% 
Minimum Required Domestic Content Levels for Wind and Solar PV FIT Contracts 
 
(b) FIT Contract Rates and Terms 
 36. All FIT projects other than waterpower projects ha ve a set term of 20 years.  Pursuant to the 
FIT or microFIT Contract, a generator is guaranteed payment of the contract rate for all the electricity 
it produces (or could have produced but was instructed by the IESO not to) up to its project's contract 
capacity throughout the term of the contract.
21 
 37. Rates under the FIT Program vary by the type of  renewable fuel, contract capacity and, in 
certain cases, the category of applicant or othe r project characteristics.  The following table 
summarizes the applicable rates for wind and solar PV projects (including FIT and microFIT) as of 
3 June 2011.  
Renewable Fuel Size Tranches Contract Rate 
(cents/kWh) Escalation Percentage 
Solar PV     
Rooftop ≤ 10 kW 80.2 0% 
Rooftop > 10 ≤ 250 kW 71.3 0% 
Rooftop > 250 ≤ 500 kW 63.5 0% 
Rooftop > 500 kW 53.9 0% 
Ground Mounted ≤ 10 kW 64.2 0% 
Ground Mounted > 10 kW ≤ 10 MW 44.3 0% 
Wind     
Onshore Any size 13.5 20% 
Offshore Any size 19.0 20% 
Contract Rates for Wind and Solar PV FIT Projects 
 (c) Settlement Process 
 38. The settlement process for electricity generato rs, including FIT and microFIT generators, 
varies depending on whether the generation facility is  connected to the transmission system or the 
distribution system.
22  The primary difference is that, generators  that are connected to the transmission 
system settle the HOEP with the IESO and the Globa l Adjustment with the OPA, while generators 
                                                      
21 Japan's first written submission, S ections III.B.2.a. ii, III.B.2.b. 
22 Japan's first written submission, Sections III.B.2.a.iii, III.B.2.b.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-11 
 
 
  connected to the distribution system settle their entir e contract rate (i.e., HOEP and the GA) with their 
local distributor, which in turn settles the GA with th e OPA through the IESO.  The IESO's active role 
in collecting the Global Adjustment from electr icity consumers and the OPA's active role in 
transferring to FIT generators the portions of the Gl obal Adjustment due to them as a result of FIT 
contracts is well established in various Ontario statutes and regulations. 
 39. For transmission-connected projects, the FIT generator receives the HOEP from the IESO 
through the IESO settlement system (or pays th e HOEP if it is negative), and then settles the 
difference between the contract rate and the HOEP (o r zero, whichever is greater) with the OPA.  The 
OPA receives the funds to settle this difference fro m the IESO's collection of the Global Adjustment 
from electricity consumers, and uses those funds to  pay the FIT generators the difference between the 
contract rate and the HOEP.  40. For distribution-connected projects, the generator settles the entire contract rate (i.e., the full 
amount owed to the generator under the contract) with the LDC, which th en settles with the OPA 
through the IESO settlement system discussed above to ensure that the LDC pays only the wholesale 
price for electricity.    41. Importantly, however, regardless of whether a project is transmission-connected or 
distribution-connected, ultimate liability for paymen ts under FIT contracts and microFIT contracts 
lies with the OPA. 
 
3. Individually Executed FIT and microFIT Contracts for Wind and Solar PV Projects 
 
42. The measures at issue in this dispute include not only the domestic cont ent requirement of the 
FIT Program as such, but also the domestic conten t requirements contained in individually executed 
FIT and microFIT contracts for wind and solar PV projects as applied.
23  These individually executed 
contracts serve not only as evidence of the operati on of the domestic content requirement in the FIT 
Program, but also as measures unto themselves that are challenged by Japan as inconsistent with 
Canada's WTO obligations.  
43. Data provided by the OPA confirm the existen ce of hundreds of executed wind FIT, solar PV 
FIT, and solar PV microFIT contracts as of 24 Ma rch 2011.  In addition, statistics made publicly 
available by the OPA indicate that as of 30 September 2011 (i.e., in the first two years of the FIT Program), OPA had executed 1,786 solar PV contracts (including microFIT) worth 1,240 MW and 71 wind contracts worth 2,575 MW, and it has likely con tinued to execute additional such contracts since 
that date.  Each of these contracts contains Minimum Required Domestic Content Levels in 
accordance with the applicable versions of the FI T or microFIT Rules and Contracts, and a large 
number of these contracts have been provided w ith a Connection Date and/or are already in 
commercial operation.  44. Thus, an objective assessment of the available facts pursuant to Article 11 of the DSU should 
lead the Panel to conclude that all the wind FIT, so lar PV FIT, and solar PV microFIT contracts that 
are already in commercial operation have satisfi ed their Minimum Required Domestic Content 
Levels, and FIT payments are currently  being made under these contracts. 
 
                                                      
23 Japan's first written submission, Section III.B.4. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-12 
 
 
  III. LEGAL ARGUMENT 
 
A. ORDER OF ANALYSIS OF JAPAN 'S CLAIMS AND JUDICIAL ECONOMY  
 
45. In this dispute, Japan raises claims and ar guments under: (1) the SCM Agreement; (2) the 
GATT 1994; and (3) the TRIMs Agreement.  Japan submits that the Panel should begin its analysis with Japan's SCM Agreement arguments, then pr oceed to Japan's GATT 1994 arguments, and finally 
conclude with Japan's TRIMs Agreement arguments .  The Panel may not, however, exercise judicial 
economy with respect to any of Japan's claims; rath er, the Panel must reach findings on all three sets 
of claims.
24 
 46. The Panel should begin with Japan's SCM Agreem ent arguments for three principal reasons.  
First, the Appellate Body stated in EC – Bananas III  that the provisions from the agreement that 
"deals specifically, and in detail" with the measures at issue should be analyzed first,25 and in the 
present case, the FIT Program precisely provides subsid ies to FIT generators contingent on their use 
of domestic over imported goods.  Second, if Japan's SCM Agreement arguments are successful, they 
would allow for a remedy under Article 4.7 of the SCM Agreement, which would resolve this dispute 
more promptly than the remedy under Article 19.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") that  would result from a violation of the GATT 1994 or 
the TRIMs Agreement.  Third, a favorable fi nding under Japan's GATT 1994 and TRIMs Agreement 
arguments would not allow the Panel to exercise  judicial economy with respect to Japan's SCM 
Agreement arguments, so the Panel would not be able  to eliminate this part of its assessment by 
beginning with the GATT 1994 and TRIMs Agreement arguments.  47. As between Japan's arguments under the GA TT 1994 and TRIMs Agreement, Japan submits 
that the Panel should examine the GATT 1994 argument s first for four principal reasons.  First, both 
Japan and Canada have presented their GATT 1994 arguments before their TRIMs Agreement 
arguments.  Second, there are no disagreements betw een the parties that the measures at issue are 
trade-related investment measures ("TRIMs") or th at they are inconsistent with the terms of 
Article III:4 of the GATT 1994; the only dispute be tween the parties is whether the measures are 
excluded from the scope of GATT Article III by virtue  of Article III:8(a).  Third, prior WTO panels 
have not uniformly analyzed one of these agreements before the other.   Fourth, a particular mandatory 
sequence of analysis is not required unless failure  to follow such a sequence "would amount to an 
error in law",26 and here analyzing the GATT 1994 arguments prior to the TRIMs Agreement 
arguments would not amount to an error in law.  
48. Finally, the Panel may not exercise judicial ec onomy with respect to any of Japan's claims 
because violations of the SCM Agreement result in recommendations and rulings pursuant to 
Article 4.7 of the SCM Agreement, while viola tions of the GATT 1994 and TRIMs Agreement result 
in recommendations and rulings pursuant to Article 19.1 of the DSU.  The Panel is required to make 
all findings that "will assist the DSB in making the recommendations or in giving the rulings provided 
for in the covered agreements" pursuant to Article 11 of the DSU, so as to "secure a positive solution 
to a dispute" in accordance with Article 3.7 of th e DSU.  Because recommendations and rulings solely 
pursuant to Article 4.7 of the SCM Agreement or so lely pursuant to Article 19.1 of the DSU may be 
insufficient to resolve the presen t dispute, the Panel must consider all of Japan's claims and 
arguments.  
                                                      
24 See Japan's response to Panel question No. 24 after the first meeting. 
25 Appellate Body Report, EC – Bananas III , para. 204.  
26 Panel Reports, China – Auto Parts , para. 7.99, citing Appellate Body Report, Canada – Wheat 
Exports and Grain Imports , para. 109.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-13 
 
 
  B. THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , PROVIDE SUBSIDIES CONTINGENT 
UPON THE USE OF DOMESTIC OVER IMPORTED GOODS INCONSISTENT WITH CANADA 'S 
OBLIGATIONS UNDER ARTICLES 3.1( B) AND 3.2 OF THE SCM AGREEMENT  
 1. Article 1.1(a) of the SCM Agreement: "financial contribution by a government or any 
public body" or "any form of  income or price support" 
 
49. Japan begins by establishing that the guarant eed electricity rates provided under the FIT 
Program and contracts satisfy the first element of th e definition of a subsidy under Article 1.1(a) of 
the SCM Agreement.
27  Japan argues principally that the gua ranteed rates that the OPA pays and 
contractually commits itself to pay under the FI T Program and contracts result in a "financial 
contribution by a government or any public body" as defined under Article 1.1(a)(1) because they involve a "direct transfer of funds" or "potential direct transfer of funds" from the Government of Ontario.  Japan further submits that these guaranteed  rates are a form of income or price support for 
FIT generators within the m eaning of Article 1.1(a)(2). 
 50. The FIT Program and contracts constitute "a government practice [that] involves a direct 
transfer of funds" because, under the FIT Rules and c ontracts, the OPA is "liable to the Supplier for 
the Contract Payments".  As defined in the FIT Standard Definitions, "Contract Payments" refer to 
"all payments to a Supplier under a FIT Contract  … determined for each Settlement Period in 
accordance with Exhibit B of the FIT Contract".  Ge nerally speaking, Exhibit B of the FIT Contract 
operates to provide that:  
 in the general case where a FIT generator deliv ers electricity to the grid, the Contract 
Payment on a per kWh basis is equal to the contract rate minus the HOEP; and 
 
 in the special case where a FIT generator is instru cted not to deliver electricity to the grid, the 
Contract Payment on a per kWh basis is  equal to the entire contract rate. 
 The Government of Ontario delegates to the OPA the authority to "establish and impose charges to 
recover from consumers its costs and pa yments under procurement contracts".
28  Pursuant to this 
authority, the OPA collect these Contract Paymen ts from consumers through the Global Adjustment, 
and then distributes them to FIT generators pursuan t to the terms of their FIT contracts.  Japan 
submits these payments are most  appropriately characterized as "direct transfer[s] of funds".29 
 51. Independent of the actual payment of FIT contract rates, the OPA's commitments in FIT 
contracts to provide these rates over a fixed term also result in a "potential direct transfer of funds".  Under a FIT contract, a FIT generator becomes entitle d to guaranteed payments for all electricity 
generated (or foregone per IESO instruction) to the ex tent of its contracted capacity for the contract 
term, which is 20 years in the case of wind and solar PV contracts.  The OPA's execution of FIT contracts, which commits the agency to disburse these payments, is thus a government practice involving a "potential direct transfer of funds".
30 
 
52. These financial contributions are "by a governme nt or any public body" because the OPA, 
which is ultimately liable for all FIT payments, is  a "public body".  The OPA is unmistakably a public 
                                                      
27 See Japan's first written submission, Section IV.A.1; Japan's response to Panel question No. 5 after 
the first meeting. 
28 Electricity Act, 1998 , Exhibit JPN-005, Section 25.20. 
29 Japan's first written submission, paras. 189-191; Ja pan's response to Panel question No. 5 after the 
first meeting, paras. 2-3. 
30 Japan's first written submission, paras. 192-194. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-14 
 
 
  body because it possesses and exercises governmental au thority, expressly vested in it by statute and 
directives of the Minister of Energy, and because the Government of Ontario exercises meaningful 
control over the agency and its conduct.
31 
 
53. Even if the Panel finds that the OPA's paymen ts to FIT generators and payment commitments 
under FIT contracts are not financial contributions  by a public body, Japan submits that the FIT 
Program and contracts provide a form of "income or price support" to electricity generators in the 
sense of Article XVI of the GATT 1994.  An interpretation of the te rm "income or price support" in 
accordance with the customary international law ru les of treaty interpretation shows that the FIT 
Program and contracts would constitu te such "income or price support" if they contributed to the 
income or prices of FIT generators, thereby operatin g to reduce imports of any products into Ontario 
and distorting international trade.  Here, by pa ying guaranteed above-market rates to renewable 
energy generators, as well as committing itself to  providing these rates over a 20-year term for wind 
and solar PV generators, the Government of Ontari o contributes to the prices and income enjoyed by 
FIT generators and incentivizes the production of  renewable energy.  Moreover, because the 
Government of Ontario makes this contribution subject  to a domestic content requirement (i.e., receipt 
is contingent on the FIT generator's use of renewa ble energy generation equipment made in Ontario), 
it incentivizes the production of such equipment in Ontario, and reduces imports of  such equipment 
into Ontario.  For these reasons, the FIT Program a nd contracts constitute a form of "income or price 
support".32 
 
54. Canada's argument that the FIT Program and contracts are properly characterized as 
"purchases [of] goods" by the OPA, and not as "direct tr ansfer[s] of funds", "potential direct transfers 
of funds", or "income or price support" is without merit.33 
 
55. Canada's argument is without merit because " purchase[] [of] goods" is not even a plausible 
characterization of these measures.  Th e verb "purchase" means broadly "[t]o obtain ; to gain 
possession  of", and more narrowly "[t]o acquire  in exchange for payment  in money or an equivalent; 
to buy".34  However, the FIT Program is not aimed at promoting renewable energy generation in order 
to supply electricity solely to the OPA or other agencies of the Government of Ontario, but to all electricity consumers in Ontario.  Nor is the FIT Program designed to allow the Government of 
Ontario to sell electricity generated under FIT contr acts to local distributors and/or consumers.  The 
defining aspect of FIT contracts is that they ensure  renewable energy genera tors payments in excess 
of those that they would receive but for the FIT Program, and accordingly, the OPA never has 
possession of or exercises control over obtaining of  the electricity supplied under the FIT Program.
35  
The OPA does not have any interest in obtaining the possession of such electricity, given that it does 
not consume the electricity for its own use, does not  seek profit from its re-sale, and does not manage 
or control the production and transmission of electricity in Ontario.36  In fact, the OPA does not 
obtain, gain possession of, or acquire the electricity delivered under FIT contracts; rather, that electricity is injected into the grid and goes straight to consumers.  
                                                      
31 Japan's first written submission, paras. 195-204. 
32 Japan's first written submission, paras. 205-214. 
33 See Japan's opening statement at the first meeting of the Panel, Section III.B.1; Japan's second 
written submission, Section III; Japan's opening statement at the second meeting of the Panel, Section II.A; 
Japan's response to Panel question No. 25 after the sec ond meeting; Japan's comment on Canada's response to 
Panel question No. 24 after the second meeting. 
34 The Oxford English Dictionary , OED Online, Oxford University Press, 
http://www.oed.com/view/Entry/154832  (emphases added). 
35 Japan's opening statement at the fi rst meeting of the Panel, para. 23. 
36 See Japan's comment on Canada's response to Panel question No. 47, para. 60.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-15 
 
 
  56. Canada argues that the characterization of FI T contracts as "purchases" under the text of its 
domestic measures shows that they are "purchases" for purposes of WTO law, but this argument has 
been rejected by the Appellate Body.37  Most recently, in US – Large Civil Aircraft (2nd Complaint) , 
the Appellate Body said in no uncertain terms: "w e note that the classification of a transaction under 
municipal law is not ‘determinative' of whether that measure can be characterized as a financial 
contribution under Article 1.1(a)(1) of the SCM Agreement ".38  Thus, the characterization and 
treatment of a measure under domestic law is not determinative of its status under WTO law.  A 
conclusion to the contrary would be tantamount to enabling Canada, the responding Member, to 
determine whether its measures are consistent with  its WTO obligations, which "clearly, cannot be 
so".39 
 57. Canada also argues that the presence of conditio ns for FIT payments, such as the delivery of 
electricity to the grid, serves as evidence that th ey are "purchases" of electricity, and not "direct 
transfer[s] of funds".  However, the Appellate Body has explained that "what is captured in 
[Article 1.1(a)(1)(i)] is a gove rnment's provision … of funds, irrespective of whether this is done 
gratuitously or in exchange for consideration ",
40 noting that a "conditional grant" (which is analogous 
to the situation of FIT payments) is an indisputable example of a "direct transfer of funds".  Thus, the 
conditions attached to FIT payments  are neutral or irrelevant to wh ether FIT contracts may be legally 
characterized as "direct transfer[s] of funds".41 
 
58. The Appellate Body has explained that under Ar ticle 1.1(a) of the SCM Agreement, a panel 
must, first, gain a proper understanding of the re levant characteristics of a measure, and second, assess 
whether and where that measure falls under Article 1.1(a).42  Japan submits that the relevant 
characteristics of the FIT Program with respect to wind and solar PV generators are as follows: 
 
 the FIT generator must build a generation f acility while satisfying a requirement to use 
Ontario-made wind and solar PV generation equipment in constructing the facility; 
 
 in return, the OPA promises to pay an above-mar ket rate that guarantees the recovery of costs 
plus a reasonable return on investment over a 20-year period; 
 
 the OPA pays that rate to the generator upon the generator delivering electricity to the grid, or 
upon the generator withholding such delivery pursuant to instructions from the IESO, up to 
the contract capacity; and 
 
 the electricity injected into the grid goes strai ght to consumers, without the OPA or any other 
government agency taking possession of the electricity, having the right to take possession of the electricity, using or intending to use the el ectricity, or seeking any profit from the resale of 
the electricity. 
 
These relevant characteristics reveal that the nature of FIT contracts may be summarized as a program 
to finance the construction of renewable energy ge neration facilities in Ontario, where such facilities 
that use wind and solar PV technologies are require d to use locally made generation equipment in 
                                                      
37 Japan's second written submission, Section III.A. 
38 Appellate Body Report, US – Large Civil Aircraft (2nd Complaint) , para. 586 (quoting Appellate 
Body Report, US – Softwood Lumber IV , para. 56).  See also id.  paras. 593, 604. 
39 Appellate Body Report, India – Patents (US) , para. 66. 
40 Appellate Body Report, US – Large Civil Aircraft (2nd Complaint) , para. 618 (emphasis added). 
41 Japan's second written submission, paras. 43-45. 
42 See Appellate Body Report, US – Large Civil Aircraft (2nd Complaint) , paras. 585-586. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-16 
 
 
  their production of electricity.
43  Accordingly, FIT contracts are properly characterized as "direct 
transfer[s] of funds", "potential direct transfers of  funds", or "income or price support" – and not as 
"purchases [of] goods" – under Article 1.1(a) of the SCM Agreement. 
 
59. However, even if FIT contracts may be char acterized as "purchases [of] goods", the Panel 
may still find them to be characterized as "direct tran sfer[s] of funds", "poten tial direct transfers of 
funds", or "income or price support".  This is because the Appellate Body in US – Large Civil Aircraft 
(2nd Complaint)  made clear that a transaction may be covered by multiple subparagraphs of 
Article 1.1(a)(1),44 and moreover, the presence of "or" betw een Articles 1.1(a)(1) and 1.1(a)(2) does 
not preclude a measure from being plausibly characterized under both of those provisions.  Thus, the 
Panel may determine whether FIT pa yments confer any benefit to FI T generators on the premise that 
FIT payments are "direct transfer[s] of funds" (or al ternatively "potential direct transfers of funds" or 
"income or price support"), even if FIT contracts may also be characterized as "purchases" of electricity.
45 
 
60. Finally, if the Panel were to find that FIT contracts should be characterized only as 
government purchases of goods ( quod non ), Japan has still met its burden in this dispute.  This is 
because purchases of goods are explicitly listed in Ar ticle 1.1(a)(1)(iii), and therefore, Canada's 
argument for "purchases of goods" should be deemed  as its admission that FIT contracts satisfy the 
first element of the definition of a subsidy, i.e., "a  financial contribution by a government or a public 
body".  Further, the benefit analysis for FIT c ontracts characterized as purchases of goods would be 
no different than the benefit analysis for FIT contract s characterized as direct transfers of funds – i.e., 
the benefit may be assessed, on a per unit basis, by taking the difference between the FIT rate and the market rate for electricity in Ontario.  Thus, if the Panel were to find that FIT contracts should be 
characterized only as government purchases of goods, the Panel sh ould still find that FIT contracts are 
subsidies under Article 1.1 of the SCM Agreement,  and prohibited subsidies under Articles 3.1(b) and 
3.2 of that Agreement.
46 
 
2. Article 1.1(b) of the SCM Agreement: "benefit" 
 
61. Next, Japan establishes that the FIT Program  and contracts confer a "benefit" on FIT 
generators, fulfilling the second element of the defin ition of a subsidy under Article 1.1(b) of the 
SCM Agreement.47  Because Japan has raised a prohibited s ubsidy claim under Articles 3.1(b) and 3.2 
of the SCM Agreement, it is suffi cient for Japan to show only the existence  of a benefit; no precise 
quantification of the benefit is necessary.  
62. A "benefit" is to be assessed from the perspectiv e of the recipient of a financial contribution 
with reference to a market benchmark.  In partic ular, the Appellate Body and WTO panels have found 
that a "financial contribution" confers a "benefit" when it is provided on te rms that are better than 
those that would have been available to the r ecipient on the market.  Thus, "it is necessary to 
determine whether the financial contribution places the recipient in a more advantageous position 
                                                      
43 Japan's second written submission, para. 36; Japa n's response to Panel question No. 25 after the 
second meeting, para. 9. 
44 See Appellate Body Report, US – Large Civil Aircraft (2nd Complaint) , para. 613 and note 1287. 
45 Japan's opening statement at the first meeting of the Panel, para. 28; Japan's opening statement at the 
second meeting of the Panel, para. 7; Japan's comment on Canada's response to Panel question No. 24 after the 
second meeting. 
46 Japan's response to Panel question No. 22 after the second meeting, para. 7. 
47 See Japan's first written submission, Section IV.A.2; Japan's opening statement at the first meeting of 
the Panel, Section III.B.2; Japan's second written subm ission, Section II; Japan's opening statement at the 
second meeting of the Panel, Section II.B; Japan's response to Panel question No. 28 after the second meeting.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-17 
 
 
  than would have been the case but for the financial contribution  ….  Accordingly, a financial 
contribution will only confer a ‘benefit', i.e., an advantage, if it is provided on terms that are more 
advantageous than those that would have been available to the recipient on the market ".48 
 
63. Because each form of "financial contribution" confers a different type of "benefit", a "benefit" 
must be examined in relation to the provision of Article 1.1(a) at issue.  Therefore: 
 
 The benefit conferred with respect to the direct transfer of funds, on a per unit basis, may be 
assessed by examining the difference between th e rate guaranteed by the OPA under the FIT 
contract and the rate that the FIT generator w ould have received for its electricity in the 
wholesale market where the rate is established at the point where electricity supply matches 
demand. 
 
 The benefit conferred with respect to the potentia l direct transfer of funds may be assessed by 
examining the market value of the commitments under a FIT contract compared to what a FIT generator has given up or "paid" to obtain th e FIT contract, or by comparing the commitments 
under a FIT contract with the terms that a FIT generator may be able to obtain in a 
hypothetical contract from a market-based purchaser of electricity. 
 
 With respect to price support, because FIT gene rators' prices are supported by the difference 
between the market rate and FIT contract rate, a benefit analysis would correspond closely to 
the benefit analysis for a direct transfer of funds. 
 
 And with respect to income support, because FIT generators' incomes are supported by the 
difference between the income stream promis ed by the OPA under a FIT contract and the 
income stream that the generators would r eceive on the market, a benefit analysis would 
involve taking the income stream derived from FIT contract rates and subtracting the income 
stream derived from a market rate, thus follo wing in part from the benefit analysis for 
potential direct transfers of funds.
49 
 
64. Given the facts of this dispute, each of these analyses requires subtraction of the market value 
of electricity in Ontario (which is, of course, depe ndent on the market price of electricity in Ontario) 
from the amounts provided under FIT contracts.50  Because it is sufficient fo r Japan to show only the 
existence of a benefit, and no precise quantification of  the benefit is necessary, Japan offers the Panel 
several possible benchmarks for the market price of  electricity in Ontario, each of which clearly 
demonstrate the existence of a benefit under the FIT pricing scheme.  65. In particular, the Panel should consider  Japan's proposed benchmarks as follows: 
 
 HOEP: The most appropriate market benchmark be cause it is: (i) the rate that is determined 
based on supply and demand in Ontario; and ( ii) the rate a renewable energy generator in 
Ontario would actually receive  but for the FIT Program; 
 
 Japan's calculated wholesale rate: Japan's calcu lation of the weighted average rate for the 
electricity commodity in Ontario provided to  generators other than renewable energy 
generators in Ontario; 
                                                      
48 See Appellate Body Report, Canada – Aircraft , para. 149 (emphasis added); Appellate Body Report, 
EC and certain member States – Large Civil Aircraft , para. 849.  See also  Panel Report, Brazil – Aircraft , 
para. 7.24; Panel Report, Korea – Commercial Vessels , para. 7.427. 
49 Japan's first written submission, Sectio ns IV.A.2.a, IV.A.2 .b, and IV.A.2.c. 
50 Japan's response to Panel question No. 21 after the first meeting, para. 2. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-18 
 
 
   
 The RPP commodity charge: The OEB's calculatio n under the RPP of the weighted average 
rate for the electricity commodity in Ontario, which acts as the ceiling  for the amount that 
Ontario consumers pay for the electricity commod ity in Ontario, taking into account the rates 
provided to all electricity generators in Ontario, m eaning Ontario generato rs should be unable 
to enter the market and expect to recei ve a rate higher than this rate; and 
 
 Out-of-jurisdiction wholesale rates: Averag e wholesale rates in deregulated/competitive 
electricity markets outside Ontario – specifically the close-proximity markets of Alberta, New 
York, New England, and the Mid-Atlantic Un ited States – which the Panel may turn to if it 
determines that the aforesaid in-jurisdiction rates are distorted in any way.51 
 
66. For HOEP, Japan notes that any generator in  Ontario, including a renewable energy 
generator, may participate in the wholesale market administered by the IESO and sell electricity at 
HOEP without any kind of long-term electricity supply  contract, provided that the generator satisfies 
all technical and regulatory requirements.52  For the RPP commodity charge, Japan notes that 
consumers in Ontario will continue to pay the same  rate for the electricity commodity as they are 
currently paying, and therefore, but for the FIT Pr ogram, the OPA may enter into a supply contract 
with a new generator that can supply electricity at th at rate or less, because it will not require the OPA 
to increase the amount of the Global Adjustment, and consequently, the rate consumers will pay.  In 
determining the market benchmark, it would be unr easonable to assume that the OPA could enter into 
a supply agreement with a generator that can supply el ectricity at a rate highe r than the rate Ontario 
consumers currently pay, because that would force consumers to pay more than they are currently 
paying.53 
 67. Japan's proposed benchmarks, and a comparison with FIT rates showing the existence of a 
benefit, are summarized in the following table. 
 
Benchmark Rates 
Benchmark Rate (cents/kWh) 
Weighted Averag e HOEP 3.79 
Weighted Average wholesale rate for generators in Ontario other than FIT and 
RESOP generators (by capacity) 7.02 
Weighted Average wholesale rate for generators in Ontario other than FIT and 
RESOP generators (by delivery) 7.13 
Average wholesale rate in Alberta 5.2  
Average wholesale rate in New York ISO 6.1 
Average wholesale rate in New England ISO 5.3 
Average wholesale rate in Mid-Atlantic US 4.9 
Ontario RPP retail prices es tablished by OEB (conventional meters) 7.1 (low-tier) 
8.3 (high-tier) 
Ontario RPP retail prices established by OEB (smart meters) 6.2 (off-peak) 
9.2 (mid-peak) 
10.8 (on-peak) 
FIT Rates 
FIT Generator Rate (cents/kWh) 
                                                      
51 Japan's response to Panel question No. 7 after the first meeting, paras. 10-16; Japan's second written 
submission, paras. 8-12; Japan's opening statement at the second meeting of the Panel, paras. 14-19; Japan's 
response to Panel question No. 31 after the second meeting. 
52 Japan's second written submission, para. 10.  See also  Japan's comment on Canada's response to 
Panel question No. 2 after the second meeting, para. 3. 
53 Japan's response to Panel question No. 26 after the second meeting, para. 15.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-19 
 
 
  Benchmark Rates 
Benchmark Rate (cents/kWh) 
Solar PV, Rooftop, ≤ 10 kW 80.2 
Solar PV, Rooftop, > 10 ≤ 250 kW 71.3 
Solar PV, Rooftop, > 250 ≤ 500 kW 63.5 
Solar PV, Rooftop, > 500 kW 53.9 
Solar PV, Ground Mounted, ≤ 10 kW 64.2 
Solar PV, Ground Mounted, > 10 kW ≤ 10 MW 44.3 
Wind, Onshore, Any size 13.5 + 20% escalation 
Wind, Offshore, Any size 19.0 + 20% escalation 
Comparison of FIT Rates with Benchmark Rates  
 
68. Japan also submits that the Panel may confir m the existence of a benefit in this case by 
examining the history of the Ontario electricity ma rket, and the objective design and structure of the 
FIT Program. 
 
69. The history of the Ontario electricity market demonstrates that Ontario established its present 
market structure, including the OPA and ultimatel y the FIT Program, because the liberalized market 
that operated in 2002 did not attract sufficient elect ricity supply, including from renewable sources, to 
the province.  The Government of Ontario therefor e decided to internalize the positive externalities of 
renewable energy by guaranteeing payments that cover the production costs and reasonable profits for 
these generators, which payments these generators otherwise would not be able to obtain in the 
market.  In other words, the history of the Onta rio electricity market shows that, but for the FIT 
Program, these generators would not operate in the market today.54 
 
70. Further, the objective design and structure of the FIT Program confirms that FIT contracts 
confer a "benefit" upon FIT generators .  FIT contracts offer terms that  guarantee a price that covers a 
FIT generator's production costs and provides a reasonable profit for a period of 20-years for the wind 
and solar PV generators of inter est in this dispute.  It should be self-evident that no producer 
participating generally in the market would have su ch certainty in recovering its production cost and a 
reasonable profit over such a long period of time.  In  other words, the FIT Pr ogram removes the risk 
that wind and solar PV generators would otherwise face if they were to operate under normal market 
conditions.  This again shows that wind and solar PV generators obtain more preferable treatment 
under their FIT contracts than they would obtain in the market, and is therefore also indicative of the conferral of a benefit.
55 
 
71. Because the benefit analysis requires compar ison with a "market benchmark", and not a 
specific market price ,56 the history of Ontario's electricity  market and the objective design and 
structure of the FIT Program may be useful in assessing whether the terms received by FIT generators at the time they enter into their FIT contracts w ith the OPA are more advantageous than the terms 
they could have obtained in the Ontario market at that time.
57 
 
                                                      
54 Japan's second written submission, paras. 3-7; Japan's opening statement at the second meeting of the 
Panel, paras. 10-13; Japan's comments on Canada's respons es to Panel question Nos. 1 and 42 after the second 
meeting. 
55 Japan's second written submission, paras. 13-16; Japan's opening statement at the second meeting of 
the Panel, para. 20; Japan's response to Pane l question No. 32 after the second meeting. 
56 See Appellate Body Report, US – Large Civil Aircraft (2nd Complaint) , paras. 641, 647. 
57 See Japan's comment on Canada's response to Panel question No. 1, note 8.  Indeed, Japan presented 
evidence of the terms that might be available to FIT gene rators in the Ontario market  under private contracts, 
and those terms are clearly less advantageous th an the terms offered under FIT contracts.  See Japan's response 
to Panel question No. 28 after the second meeting, para. 41. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-20 
 
 
  72. Canada's argument that the proper market be nchmark in this case should be a price that 
reflects the higher costs of production of renewable electricity is without merit.
58  Canada 
misunderstands the benefit analysis that is required under Article 1.1(b) of the SCM Agreement.  This 
analysis requires a comparison between an actual (what the world looks lik e in the presence of the 
measure at issue) and a counterfactual (what the world would have looked like in the absence of that 
measure ).59  It therefore requires a benchmark that re flects "the conditions pursuant to which the 
goods … at issue would under market conditions, be exchanged ".60  Thus, a market price for purposes 
of the benefit analysis "is not determined solely by reference to either supply-side or demand-side 
considerations without reference to the other"; rath er, "[t]he price of a good or service must reflect the 
interaction between the supply-side and demand- side considerations under prevailing market 
conditions."61  Accordingly, the views of end-users of el ectricity in Ontario, and the conditions that 
those end-users of electricity consider in th eir transactions when purchasing electricity from 
generators in the Ontario market, are very rele vant to an assessment of the proper counterfactual 
market benchmark with which to compare the subsid y measures at issue.  The relevant question is: 
what rate would wind and solar gene rators receive for their electricity from consumers in the Ontario 
market absent the existence of the FIT Program?62 
 73. Canada has not established that distinct mark ets for renewable and non-renewable electricity 
exist in Ontario, where suppliers and consumers exch ange renewable electricity at a higher price that 
reflects the higher costs of production of renewable el ectricity.  This should not be surprising, because 
as Canada agrees, electricity is a commodity, and ther efore one unit of electricity is indistinguishable 
from another unit of electricity in Ontario.  Japan  further notes that Ontario's FIT Program does not 
give consumers the option to choose a renewable s ource for the electricity they use, and to pay a 
higher rate for that electricity.  Rather, the higher rates owed to FIT generators are distributed across 
all consumers via the Global Adjustment to establis h a single price paid by consumers for electricity. 
 
74. Absent a distinct market for renewable electricity  in Ontario, there can be no distinct market 
rate for renewable electricity to serve as a mark et benchmark; rather, the market rates for the 
electricity commodity as a whole (which reflect the full supply mix of renewable and non-renewable 
electricity), as advanced by Japan, serve as the pr oper comparators because those are the rates under 
which electricity "would … be exchanged" between  consumers and suppliers in the Ontario market.
63 
 
75. In this regard, the Panel should note the distinction between: (i) regulated prices that cover 
production costs plus reasonable profit; and (ii) subsidized  prices that cover production costs plus 
reasonable profit.  In a market environment, the most efficient producer of electricity (for example 
due to economies of scale) should be  able to sell its electricity at a price covering its production cost 
plus reasonable profit, and should be the dominant generator.  The market may even support this 
generator charging a higher price, but this generato r may not be permitted to sell at any higher price 
by virtue of government regulation .  By contrast, in a market environment, less cost-efficient 
generators, such as renewable ener gy generators, would be unable to survive competition with the 
dominant generator.  In order to enable such less cost-efficient gene rators to survive in the market 
                                                      
58 See Japan's opening statement at the first meeting of the Panel, Section III.B.2; Japan's second 
written submission, Section II; Japan's opening statement at the second meeting of the Panel, Section II.B.  
59 See Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 973. 
60 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 975 (emphasis 
added). 
61 Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 981-982. 
62 Japan's second written submission, para. 22.  See also  Japan's opening statement at the second 
meeting of the Panel, para. 16 
63 Japan's opening statement at the first meeting of the Panel, paras. 43-44.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-21 
 
 
  despite their inferior cost-efficiency, the government must subsidize  these generators.  The FIT 
Program represents such an example in Ontario.64 
 76. Japan draws the Panel's attention to the funda mental difference in the objectives behind the 
rates provided to OPG and the rates provided to ot her generators (including FIT generators) in the 
Ontario market.  Because OPG is the dominant gene rator in Ontario, the rates provided to OPG's 
facilities, primarily through OEB regulations, are es tablished in order to prevent OPG from exercising 
its dominant market position to impose excessive prices on consumers.  By contrast, the rates provided to other generators, such as FIT generators , are aimed at supporting their very entry into and 
existence in the Ontario market, by guaranteeing them  rates of return that they could not otherwise 
obtain in the market.
65 
 
3. Article 2 of the SCM Agreement: specificity 
 77. Turning to the question of specificity, Article 1.2 of the SCM Agreement provides that "[a] 
subsidy as defined in paragraph 1 shall be subject to  the provisions of Part II … only if such subsidy 
is specific in accordance with the provisions of Article 2".  The subsidies provided by the FIT 
Program and contracts are prohibited subsidies under Article 3 of the SCM Agreement, and therefore 
are deemed to be specific pursuant to Article 2.3.
66 
 4. Article 3.1(b) of the SCM Agreement: "subsidies contingent … upon the use of domestic 
over imported goods" 
 
78. The subsidies provided to renewable energy ge nerators under the FIT Program and contracts 
are subsidies "contingent … upon the use of dome stic over imported goods", which are prohibited 
under Article 3.1(b) of the SCM Agreement.
67  Canada does not contest that, should the FIT Program 
and contracts be considered to provide "subsid ies", those subsidies are inconsistent with 
Article 3.1(b).  79. The Appellate Body has found "contingent" to mean "conditional" or "dependent for its 
existence on something else", and it has interpre ted Article 3.1(b) as addressing both subsidies 
contingent "in law" and "in fact".
68  The FIT subsidies are: (i) "contingent" because they are 
conditional or dependent upon satis fying the domestic content requirement (specifically, a Minimum 
Required Domestic Content Level for wind and sola r PV projects, ranging between 25%-60% for FIT 
projects and between 40%-60% for microFIT projects); and (ii) contingent "in law" or "in fact" because this requirement is expressly stated in, inter alia , the Green Energy and Green Economy Act, 
2009 , Minister's FIT Directive of 24 September 2009,  every version of the FIT and microFIT Rules 
and FIT and microFIT Contracts, and every execu ted solar PV (FIT and microFIT) and wind (FIT) 
contract.  80. The Domestic Content Level of a FIT or microF IT project is determined by reference to a 
"Domestic Content Grid", which lists the goods and services that may be utilized to satisfy the 
Minimum Required Domestic Content Levels.  These Grids create incentives for solar PV (FIT and 
microFIT) and wind (FIT) generators to utilize goods of  Ontario origin in pref erence to goods of other 
origins in their solar PV or wind generation faciliti es.  Such incentives, in and of themselves, render 
                                                      
64 Japan's response to Panel question No. 33 after the second meeting, para. 57. 
65 Japan's comment on Canada's response to Panel question No. 5 after the second meeting, para. 7. 
66 See Japan's first written submission, Section IV.A.3. 
67 See Japan's first written submission, Section IV.A.4. 
68 See Appellate Body Report, Canada – Aircraft , paras. 139, 166; Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 111. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-22 
 
 
  the FIT Program subsidies, as such, contingent  upon the use of domestic over imported goods, 
inconsistent with Article 3.1(b).  81. The detailed provisions for FIT and microFIT proj ects in the Rules and Contracts confirm that 
receipt of the FIT subsidies is contingent on th e use of domestically produced renewable energy 
generation equipment over imported varieties of those goods.  The Domestic Content Grids require 
that, for all project types, at least some goods manufactured, formed, or assembled in Ontario must  be 
utilized in order to achieve the Minimum Required Domestic Content Level for that project.  
82. In short, to satisfy the FIT Program's domes tic content requirement and benefit from the 
subsidized rates that it accords to participants, any solar PV (FIT and microFIT) or wind (FIT) 
generator is incentivized to use goods that are ma nufactured within Ontario, and must necessarily do 
so.  This establishes that the subsidies provided by the FIT Program and contracts are subsidies 
contingent upon the use of domestic over imported goods inconsistent with Canada's obligations 
under Article 3.1(b) of the  SCM Agreement. 
 
5. Article 3.2 of the SCM Agreement: "neither grant nor maintain subsidies" 
 
83. Finally, in granting and maintaining prohibite d subsidies contingent upon the use of domestic 
over imported goods, Canada is in violation of  its obligations under Article 3.2 of the SCM 
Agreement.
69 
 
C. THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , ARE INCONSISTENT WITH CANADA 'S 
NATIONAL TREATMENT OBLIGATION UNDER ARTICLE III :4 OF THE GATT 1994 
 1. Inconsistency with Article III:4 of the GATT 1994 
 
84. The FIT Program, and FIT and microFIT contr acts, violate Canada's national treatment 
obligation under Article III:4 of the GATT 1994, because they impose "requirements" on renewable 
energy generators "affecting" the "internal" "sale", "purchase", and "use" of renewable energy 
generation equipment, and accord imported equi pment treatment "less favourable" than "like 
products" of Ontario origin.
70  Canada does not contest that, should Article III:8 of the GATT 1994 
not apply, the FIT Program and contracts are inconsistent with Cana da's obligations under 
Article III:4.  85. First, renewable energy generation equipmen t manufactured domestically in Ontario and 
imported from Japan are "like products".  These products are in a directly competitive relationship in 
the market.  There is no substantial difference be tween domestic and imported equipment in terms of 
their physical properties, end-uses, consumer  perceptions, and tariff classifications – i.e ., they share 
all four categories of "characteristics" identified by the Appellate Body as relevant in an analysis of 
"likeness".71 
 
86. Second, the domestic content rules of the FIT Program and contracts are "requirements".  A 
renewable energy generator that wishes to obtain the subsidized rates offered by the FIT Program 
voluntarily accepts, through the application for and execution of a FIT contract, the obligation to 
comply with a variety of conditions, including the minimum required domestic content level relevant 
to its solar PV (FIT and microFIT) or wind (FIT) project.  In other words: (i) the FIT Program creates 
obligations to comply with a variety of conditio ns, including achievement of a minimum required 
                                                      
69 See Japan's first written submission, Section IV.A.5. 
70 See Japan's first written submission, Section IV.B.1. 
71 See Appellate Body Report, EC – Asbestos , paras. 99, 101.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-23 
 
 
  domestic content level for solar PV (FIT and micr oFIT) or wind (FIT) generating facilities, which are 
(ii) voluntarily undertaken by FI T generators entering into a FIT contract with the OPA.  These 
obligations should therefore be considered to c onstitute a "requirement" within the second situation 
identified by the panel in India – Autos .72 
 
87. Third, the domestic content rules of the FIT Program and contracts "affect[]" the "internal" 
"sale", "purchase" or "use" of these goods.  This is because the domestic co ntent rules incentivize 
Ontario-based wind and solar PV energy genera tors to choose renewable energy generation 
equipment manufactured in Ontario over such equipment produced abroad.  These rules thereby 
modify the conditions of competition in favor of such  goods made in Ontario, and have "an effect on" 
the sale, purchase or use of those goods in Ontario.73  The Appellate Body and WTO panels have 
found measures that "create an  incentive" for domestic over imported goods to "affect", inter alia , the 
internal "use", "purchase" or "sale" of those goods.74  Moreover, the effect on the sale, purchase, or 
use of the equipment should be considered "interna l" because the requirements apply only inside the 
customs territory of Canada (in particular, th e Province of Ontario) and not at the border.75 
 88. Finally, the domestic content rules of the FIT Program and contracts accord "less favourable" 
treatment to imported renewable energy generation e quipment than that accorded to like products of 
Ontario origin.  The focus of this analysis  is whether the FIT Program and contracts modify the 
conditions of competition  in the relevant market to the detriment  of imported products.76  By requiring 
the use of goods or services of Ontario origin in or der to obtain subsidized electricity rates, the FIT 
Program necessarily creates incentives, or a purch asing preference, among Ontario-based wind and 
solar PV energy generators for renewable energy  generation equipment produced within Ontario, 
which in turn stimulates domestic production of su ch equipment.  The detailed Domestic Content 
Grids go further to require that any such generator use at least some  Ontario-origin goods to achieve 
the Minimum Required Domestic Content Level, thereby confirming the preference for locally-
produced goods over goods of foreign origin.  In India – Autos , the panel found that "the very nature 
of [an] indigenization requirement generates an incentive to purchase and use domestic products and 
hence creates a disincentive to use like importe d products", and therefore, an indigenization 
requirement clearly modifies the conditions of  competition in favor of domestic products.77  T h e  
situation in Ontario is similar. 
 
89. In sum, because the FIT Program and contracts impose a domestic content requirement on 
wind and solar PV electricity generators that affect s the internal sale, purchase, or use of renewable 
energy generation equipment, according less favorable  treatment to like products of Japanese origin, 
they are inconsistent with Cana da's national treatment obligatio n under Article III:4 of the GATT 
1994. 
 
                                                      
72 See Panel Report, India – Autos , para. 7.184. 
73 See Panel Report, Turkey – Rice , paras. 7.221-22.  See also Panel Report, Canada – Autos , 
para. 10.80 and Appellate Body Report, Canada – Autos , para. 158. 
74 See Appellate Body Reports, China – Auto Parts , para. 196; Panel Report, India – Autos , 
paras. 7.195-98 & 7.305-09; Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 212. 
75 See Panel Report, Brazil  – Retreaded Tyres , para. 7.418 . 
76 See Appellate Body Report, Korea – Various Measures on Beef , para. 135.  See also  Panel Report, 
Turkey – Rice , para. 7.232; Panel Report, China – Publications and Audiovisual Products , para. 7.1532. 
77 See Panel Report, India – Autos , paras. 7.201-7.202. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-24 
 
 
  2. Inapplicability of Article III:8 of the GATT 1994 
 
(a) Article III:8(a) Does Not Apply 
 
90. Canada's only defense to Japan's claim under Article III:4 of the GATT 1994, as well as to its 
claim under Article 2.1 of the TRIMs Agreement di scussed in Section III.D below, is that the FIT 
Program and contracts are not subject to GATT Article III by falling within the government 
procurement exemption under Article III:8 (a).  Canada's argument lacks merit.
78 
 
91. First, FIT contracts are not "procurement by governmental agencies of products purchased".  
To begin, FIT contracts do not fall within GATT Artic le III:8(a) for the simple reason that they are 
not "purchases", while Article III:8(a) requires that products be "purchased" in order for a measure to 
fall within its scope.79 
 
92. The real question is whether the OPA, not the Government of Ontario, "purchases" electricity 
under FIT contracts "for governmental purposes".  Here, the OPA does not .  This observation is 
confirmed by the history of the liberalization of the Ontario electricity market.  In 1999, the Government separated the state-owned monopoly On tario Hydro into a number of new entities with 
different functions.  Canada has clarified the rol es that each of these government agencies and other 
entities serve for the purpose of ensuring the stable s upply of electricity in Ontario as follows: (i) OPG 
produces and sells electricity; (ii) Hydro One and other transmission/local distribution companies 
transmit and distribute electricity to consumers, in cluding selling it to consumers; (iii) IESO serves as 
a regulator, including operating the grid; and (iv) OPA and OEFC manage contracts with various 
generators, and provide settlement services to them.  With the establishment of the FIT Program, FIT 
generators (which are private entities) also now produce and sell electricity, with the OPA assuming 
the additional role of providing them with financial assistance. 
 93. Japan understands that the Government of Onta rio chose this allocation of roles among these 
different entities, rather than the concentration of  these roles into a single entity like Ontario Hydro, 
because it believes the former helps achieve the objective of ensuring the stable supply of electricity 
in Ontario.  In light of this decision, the Govern ment of Ontario has no need to assign to the OPA the 
role of purchasing electricity from FIT generators  and selling it to transmission/local distribution 
companies or consumers to fulfill its objectiv e to achieve a stable supply of electricity. 
 94. Given its role, the OPA has no interest in obt aining the possession of the electricity generated 
pursuant to its FIT contracts, and therefore should not be deemed as "purchas[ing]" such electricity 
"for governmental purposes" under Article III:8(a) of  the GATT 1994.  This is evident from several 
facts, including: (i) the OPA does not consume the el ectricity delivered pursuant to FIT contracts for 
its own use; (ii) the OPA does not seek profit (i.e., fiscal revenue) from such electricity by re-selling it to consumers; (iii) the OPA does not manage or control the production and transmission of such electricity, which is conducted by other entities (e .g., IESO, Hydro One or other transmission/local 
distribution companies); and (iv) FIT generators se ll their electricity directly to transmission/local 
distribution companies, with the OPA only serving th e role of settling payments to those generators.  
Thus, even given the legitimacy of the Government  of Ontario's policy of ensuring the stable supply 
                                                      
78 See Japan's first written submission, Section IV.B.2.a; Japan's opening statement at the first meeting 
of the Panel, Section IV.B; Japan's second written submission, Section IV; Japan's opening statement at the second meeting of the Panel, Section III.B; Japan's responses to Panel question Nos. 45, 47 and 48 after the 
second meeting; Japan's comments on Canada's responses to Panel question Nos. 45, 47 and 48 after the second 
meeting. 
79 Japan's second written submission, para. 56; Japan' s opening statement at th e second meeting of the 
Panel, para. 27.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-25 
 
 
  of electricity, the steps taken by the Governme nt to achieve that objective – specifically, the 
separation of Ontario Hydro into a number of entiti es with different functions – confirms that the 
OPA is not "purchas[ing]" electricity under FIT contracts "for governmental purposes".  
95. In this regard, Japan notes that the present case should be distinguished from cases where, in 
order to ensure the stable supply of electricity , the government chooses to assign all functions of 
electricity supply (i.e., production, transmission and distribution to consumers) to a single government 
agency, and that government agency  "purchases" electricity generated by other generators for supply 
to consumers.  In that case, the government ag ency obviously has an interest in obtaining the 
possession over such electricity, for example to manage the physical electricity supply, and therefore 
may be deemed as "purchas[ing]" such electricity "for governmental purposes".  96. Here, given the policy decisions by the Government of Ontario, the OPA does not have to 
"purchase" electricity generated under FIT contracts as discussed above.  If Canada's argument that 
the OPA's role, as established by the Government  of Ontario, qualifies for the government 
procurement exemption set forth in  GATT Article III:8(a) is accepted , this would enable all Members 
to circumvent the national treatment requirement s under GATT Article III:4 by using a government 
agency to intervene between market participants under the pretext of "purchas[ing]" a product to 
pursue a "governmental purpose" of ensuring the stab le supply of that product, when "purchase" of 
that product by the government agency is not requir ed to achieve that purpose.  For this reason, 
Canada's interpretation cannot stand.
80 
 97. Japan notes that Canada's response to a question of the Panel further highlights the risk of 
circumvention of the GATT's national treatment disci plines that will arise if Canada's arguments on 
Article III:8(a) of the GATT 1994 are accepted.  Ca nada indicates that "Hydro One is required to 
operate as a ‘commercial enterprise'",
81  and "[t]he 77 publicly owned Local Distribution Companies 
(LDCs) … receive rates for the distribution of electricity that allow for cost recovery and a rate of 
return that is ‘just and reasonable '".82  Canada therefore confirms that these entities obtain profit by 
selling electricity to consumers (or distributors).  In this connection, Japan notes that Canada has 
argued, in the alternative, that "when a FIT supplier injects its renewable electricity into the grid, the 
vast majority of that electricity is transferre d to the physical possession of the Government of 
Ontario", and thus, "the Government of On tario is still purchasing renewable energy".83  However, the 
Government of Ontario would not  be permitted to impose local content requirements on the purchase 
of FIT electricity by it, or more specifically, by Hydro One or the 77 publicly-owned LDCs, by virtue of GATT Article III:4, and further would not be exempted from that obligation by virtue of GATT Article III:8(a) because Hydro One and the LDCs w ould be purchasing FIT electricity indisputably 
for commercial resale.  Thus, under Canada's alte rnative argument, if FIT contracts were executed 
with Hydro One and/or the LDCs, rather than with th e OPA, they would be inconsistent with Canada's 
national treatment obligations.  Ca nada's position is therefore tantamount to arguing that the local 
content requirements on the alleged purchase of FIT electricity are exempted from Canada's national 
treatment obligations as a result of GATT Article III:8(a) by merely placing the OPA in between the FIT generators, on the one hand, and Hydro One a nd/or the LDCs, on the other hand.  Such an 
interpretation cannot stand because of the loophole it would create in the GATT's national treatment 
obligations.
84 
                                                      
80 Japan's comment on Canada's response to Panel question No. 47 after the second meeting, paras. 57-
62. 
81 Canada's response to Panel question No. 13 after the second meeting, para. 41. 
82 Canada's response to Panel question No. 13 after the second meeting, para. 42 (emphasis added). 
83 Canada's opening statement at the second meeting of the Panel, para. 27. 
84 Japan's comment on Canada's response to Panel question No. 13 after the second meeting, paras. 21-
22. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-26 
 
 
  98. Further, even if products could be considered as "purchased" under FIT contracts, such 
contracts still do not constitute "procurement by governmental agencies".  A proper interpretation of 
the term "procurement" in acco rdance with the customary international law rules of treaty 
interpretation reveals that an analysis of whethe r "procurement" exists under Article III:8(a) requires 
consideration of four general elements, none of which alone may be decisive: (i) government payment  
for the procurement; (ii) government use, consumption, or benefit  (where "benefit" refers to the 
benefit of the use of a product not in th e government's possession); (iii) government obtainment, 
acquisition, or possession ; and (iv) government control  over the obtaining of the product.  
Consideration of whether "procurement" exists  must necessarily be done on a case-by-case basis, 
taking into account all relevant facts in a holistic analysis.
85 
 99. Here, Ontario consumers in genera l, and not the Government of On tario, are the ones that use, 
consume, and benefit from the electricity delivered under FIT contracts; and they do so for their own 
purposes, and not for the benefit of or on behalf of  the government.  This follows from the fact that 
FIT payments are made for electricity that is delivered into the grid .  The Government of Ontario 
acquires the electricity it actually consumes in th e same manner as other retail consumers, and not 
through the FIT Program or contracts.  100. Next, the Government of Ontario does not obtain, acquire, or possess the renewable 
electricity delivered pursuant to FIT contracts, nor does it have any interest or right in doing so.  
Notably, the Government does not take title to or retain any ownership interest in the electricity 
delivered under FIT contracts.  Canada fails to explain how the OPA possesses or obtains – and 
thereby acquires – renewable electricity that is delivered under FIT contracts to the grid  for ultimate 
use by Ontario consumers.  
101. Finally, the Government of Ontario has no control over the obtaining of the electricity that is 
delivered to the grid pursuant to FIT contracts.  Ra ther, electricity is withdrawn from the grid at the 
direction of Ontario consumers when they turn on or  off their electronic devices, and this withdrawal 
is "almost instantaneous" with no possibility of control by the government.  102. For all these reasons, considering the facts of th e present case, and all of the elements of the 
procurement analysis taken toge ther, none of which alone could be decisive, the only logical 
conclusion is that the Government of Ontario is not engaged in the "procurement" of renewable 
electricity under the FIT Program and contracts.
86 
 103. Second, FIT contracts are not entered into "for  governmental purposes".  Properly interpreted 
in accordance with the customary in ternational law rules of treaty interpretation, the term "for 
governmental purposes" means for government use, consumption, or benefit , where again "benefit" 
refers to the benefit of using a product th at may not be in the government's possession.87  Here, the 
Government of Ontario does not use, consume, or benefit from the electricity delivered pursuant to 
FIT contracts as already discussed, so that electricity is not "for governmental purposes".  
                                                      
85 Japan's opening statement at the first meeting of the Panel, paras. 49-58; Japan's opening statement at 
the second meeting of the Panel, para. 28. 
86 Japan's opening statement at the first meeting of the Panel, paras. 59-66; Japan's second written 
submission, paras. 57-60; Japan's opening statement at the second meeting of the Panel, paras. 29-32. 
87 Japan's opening statement at the first meeting of the Panel, paras. 69-75; Japan's opening statement at 
the second meeting of the Panel, paras. 30, 33; Japan's responses to Panel question Nos. 45 and 47 after the second meeting; Japan's comments on Canada's responses to Panel question Nos. 45 and 47 after the second 
meeting.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-27 
 
 
  104. Canada's argument that "for governmental purposes" simply means "for an aim of the 
government" – such as securing the supply of renewa ble electricity – cannot stand, because it would 
render the national treatment obligations in Article III completely ineffective.  Canada suggests that, 
"to fall within the scope of Article III:8(a), a purch ase must be for an aim of the government other 
than discrimination, itself, even if, when purch asing a product for such an aim, the government 
chooses to impose discriminatory conditions".88  If Members understood that to be the meaning of 
"for governmental purposes", then Members that wished to take discriminatory measures could 
simply do so by masking the discriminatory measu re under an allegedly principal non-discriminatory 
aim behind its purchase of products, such as the aim to  secure the stable supply of that product.  This 
would make the government procurement exempti on under Article III:8(a) limitless, and render the 
remainder of Article III obsolete.89 
 105. Moreover, even accepting Canada's stated obj ective of securing the supply of renewable 
electricity, the OPA – which is the entity Canada  alleges to be purchasing electricity under FIT 
contracts for governmental purposes – has no need to  purchase such electricity given the Government 
of Ontario's policy decision to establish the OPA as  an entity that manages contracts with various 
generators and provides settlement services to th em, while other entities (e.g., IESO, Hydro One or 
other transmission/local distribution companies) mana ge or control the production and transmission of 
electricity in Ontario.  Under such circumstanc es, considering the OPA's role to qualify for the 
government procurement exemption in Article III:8(a)  would again enable all Members to circumvent 
the national treatment requirements under Article II I:4 by using a government agency to intervene 
between market participants under the pretext of pursuing a "governmental purpose" of ensuing the 
stable supply of a certain product, when "purchase" of  that product by the government agency is not 
required to achieve that purpose.
90 
 
106. Calling the government's intervention in the mark et to become the supplier of a particular 
product to its citizenry a "public service" is entir ely artificial and clearly distinguishable from the 
provision of legitimate services such as health or ed ucation.  In this circumstance, the government is 
not providing a "public service", but rather stepping into the market in order to become the supplier of a good.  Products purchased by the government fo r the purpose of supplying that product to its 
citizenry cannot be considered "for governmental  purposes" within the meaning of Article III:8(a) 
because such an interpretation would render the rema inder of Article III ineffective, as Japan has 
previously explained.
91 
 107. Third, FIT contracts are entered into "with  a view to commercial resale".  A proper 
interpretation of this term in accordance with the customary international law rules of treaty 
interpretation shows that it means with a view to being sold in to the stream of commerce or trade  (as 
opposed to being used or consumed by the government).92  Importantly, the negotiating history of 
Article III:8(a) demonstrates that the term "commercia l" was included in this provision to distinguish 
a government's introduction of goods into the stream  of commerce after use by the government from a 
government's introduction of goods into the st ream of commerce without such use by the 
                                                      
88 Canada's second written submission, para. 58. 
89 Japan's opening statement at the second meeting of the Panel, para. 34. 
90 Japan's comment on Canada's response to Panel question No. 47 after the second meeting, paras. 57-
62. 
91 Japan's response to Panel question No. 47 after the second meeting, para. 70. 
92 Japan's opening statement at the first meeting of the Panel, paras. 78-85; Japan's second written 
submission, paras. 66-68. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-28 
 
 
  government.
93  Here, again, because the electricity delivere d pursuant to FIT contracts is injected into 
the transmission grid and delivered almost instantane ously to Ontario consumers for their use, to the 
extent renewable electricity can be considered to  have been purchased by the Government of Ontario 
under FIT contracts, that renewable electricity is  purchased "with a view to commercial resale". 
 
108. Canada's interpretation of "commercial" resale as requiring a profit element would render all 
of Article III ineffective.  This argument suggest s that, whenever a government desires to do so, it 
could simply insert itself as the middle man, pay a domestic producer to deliver goods to a consumer, 
and recover from the consumer the amount paid to the producer (i.e., without profit, or even with a 
loss), all while taking protectionist measures that  would otherwise violate Article III, such as a 
requirement that the domestic producer utilize solely local content in its production.  For this reason, 
Canada's interpretation of "commercial" resale cannot stand.94 
 109. However, even if the term "commercial" require s a profit element, that element is satisfied 
here.  This is because, even under Canada's interpre tation, Article III:8(a) would simply require that 
the government not have " a view to " having profit generated from the resale of a product – i.e., it 
would not require that the profit from the resale go to the government.  FIT rates are designed 
precisely to allow FIT generators to recover their costs and earn a reasonable profit  on the electricity 
that they deliver into the grid.  Therefore, FIT c ontracts are certainly entered into by the OPA "with a 
view to commercial resale".
95 
 
110. To conclude, Japan emphasizes the im plication of Canada's position on GATT 
Article III:8(a).  If the local content requirement that serves as a condition for receiving FIT payments 
is exempted by Article III:8(a) on any of the ground s alleged by Canada, a Me mber could require that 
commerce in any goods be conducted through a government agency for the alleged government 
purpose of ensuring the stable supply of those goods , while at the same time enacting protectionist 
measures such as local content requirements in co nnection with the production and supply of those 
goods.  Canada's arguments would totally eviscerate the national treatment requirements set forth in 
GATT Article III, thereby indicating that Canada's interpretation of GATT Article III:8(a) directly 
contradicts its immediate context, i.e., the entiret y of GATT Article III, and accordingly, cannot be 
supported under Article 31 of the Vienna Convention on the Law of Treaties. 
 
111. Thus, in Japan's view, the question before the Panel is not whether  FIT contracts fall within 
the exemption provided by GATT Article III:8(a) – they do not .  Rather, the real question before the 
Panel is: at what point under Article III:8(a) do FIT c ontracts fall outside the scope of that provision?  
Japan's principal argument is that FIT contracts fa ll outside the scope of Article III:8(a) because they 
are not "procurement by governmental agencies of products purchased".  However, Japan also argues 
alternatively that FIT contracts fall outside the scope  of Article III:8(a) because they are not entered 
into "for governmental purposes", or because th ey are entered into "with a view to commercial 
resale".  
                                                      
93 Japan's opening statement at the second meeting of the Panel, para. 36; Japan's response to Panel 
question No. 48 after the second meeting; Japan's commen t on Canada's response to Panel question No. 48 after 
the second meeting. 
94 Japan's second written submission, para. 69; Japan' s opening statement at th e second meeting of the 
Panel, paras. 37-39. 
95 Japan's second written submission, paras. 70-71; Japan's opening statement at the second meeting of 
the Panel, para. 39.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-29 
 
 
  (b) Article III:8(b) Does Not Apply 
 112. Article III:8(b) of the GATT 1994 is also inapp licable to this dispute because Japan does not 
claim that the payment of subsidized rates under the FIT Program is made exclusively to domestic 
producers.  Rather, Japan argues that the FIT Program's domestic content requirement discriminates 
against imported renewable energy  generation equipment in favor of such equipment produced in 
Ontario.
96 
 
D. THE FIT PROGRAM , AND FIT AND MICROFIT CONTRACTS , ARE TRADE -RELATED INVESTMENT 
MEASURES INCONSISTENT WITH CANADA 'S OBLIGATION UNDER ARTICLE 2.1 OF THE TRIMS 
AGREEMENT  
 113. The FIT Program, and FIT and microFIT contracts,  are also inconsistent with Article 2.1 of 
the TRIMs Agreement because they are TRIMs that ar e inconsistent with the provisions of Article III 
of the GATT 1994.
97  Canada does not contest that, should Article III:8 of the GATT 1994 not apply, 
the FIT Program and contracts are inconsistent with  Canada's obligations under Article 2.1 of the 
TRIMs Agreement.  114. Japan has already establi shed that the FIT Program and contracts are inconsistent with 
Article III of the GATT 1994 (including that Article  III:8 does not apply), so the key question is 
whether the measures at issue may be considered "investment measures related to trade in goods" – 
i.e., TRIMs.  There should be little doubt that these measures qualify as TRIMs because: (i) they encourage investment in the production of renewabl e energy and associated equipment in Ontario, 
and are therefore "investment measures"; and (ii) they affect trade in wind and solar energy generation equipment, which is without question "trade in goods". 
 
115. Should there be any doubt that the FIT Progr am and contracts are inconsistent with 
Article 2.1 of the TRIMs Agreement, one need only turn to the Illustrative List contained in the 
Annex to the TRIMs Agreement.  Since the domestic content rules of the FIT Program and contracts require wind and solar energy producers in Ontario to use Ontario-produced equipment to generate 
their electricity in order to take advantage of the rates offered by the FIT Program, these measures are 
WTO-inconsistent TRIMs under the terms of Annex 1(a). 
 
IV. CONCLUSION 
 
116. For the above reasons, Japan requests that the Panel make the following findings: 
 
 through the FIT Program, as well as individually executed FIT and microFIT contracts for 
wind and solar PV projects, Canada grants and maintains prohibited subsidies that are 
contingent upon the use of domestic over importe d goods, in violation of Articles 3.1(b) and 
3.2 of the SCM Agreement; 
 
 the domestic content requirement of the FIT Pr ogram, as well as individually executed FIT 
and microFIT contracts for wind and solar PV projects, accords less favorable treatment to Japanese renewable energy generation equipment than accorded to like products of Ontario 
origin, in violation of Article III:4 of the GATT 1994; and 
 
 the FIT Program, as well as individually executed FIT and microFIT contracts for wind and 
solar PV projects, constitute trade-related investment measures inconsistent with the 
                                                      
96 See Japan's first written submission, Section IV.B.2.b.  
97 See Japan's first written submission, Section IV.C. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-30 
 
 
  provisions of Article III of the GATT 1994, and are therefore in violation of Article 2.1 of the 
TRIMs Agreement. 
 117. Accordingly, Japan asks the Panel to recommend that Canada: 
 
 withdraw its prohibited subsidies without de lay, as required by Article 4.7 of the SCM 
Agreement, by eliminating the domestic conten t requirement of the FIT Program, as well as 
that of individually executed FIT and microFIT contracts for wind and solar PV projects; and 
 
 bring the FIT Program, as well as individually executed FIT and microFIT contracts for wind 
and solar PV projects, into conformity with  the GATT 1994 and the TRIMs Agreement, as 
required by Article 19.1 of the DSU. 
    
   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-31 
 
 
   
ANNEX A-2 
  
INTEGRATED EXECUTIVE SUMMARY OF THE EUROPEAN UNION 
   
TABLE OF CONTENTS 
 
 
I. INTRODUCTION .............................................................................................................. A-33 
 
II. FACTUAL BACKGROUND ............................................................................................. A-33 
 
III. LEGAL AR GUMENT ........................................................................................................ A- 33 
 
A. THE MEASURES AT ISSUE ARE SUBSID IES CONTINGENT UPON THE USE OF  
 DOMESTIC OVER IMPORTED GOODS : ARTICLES 3.1( B)AND 3.2  SCM AGREEMENT  ................ A-34 
1. The first element of the definition of subsidy is met: income/price support and  
 financial contribution ....................................................................................................... .. A-34 
(a) Income or price support: Article 1. 1(a)(2) of the SCM Agreement ...................................... A-34 
(b) Financial contribution: Article 1. 1(a)(1) of the SCM Agreement ......................................... A-35 
2. The second element of the definiti on of subsidy is met: benefit ...................................... A-36 
(a) Article 14(d) of the SCM Agreement is not applicable in the present case and, in  
 any event, Canada's suggested benchmark is inappropriate ................................................. A-36 
(b) The existence of benefit under Article 1.1(b) of the SCM Agreement has to be  
 determined by reference to the marketplace ......................................................................... A-37 
(c) The proper market benchmark should relate to the market conditions for electricity  
 in Ontario, regardless of  how it is generated ........................................................................ A-38 
(d) The proper market benchmark should not be identified by referring to cost of  
 production and, in any event, the structur e of the FIT Program leads to payments  
 in excess of costs ........................................................................................................... ........ A-39 
(e) The HOEP is an appropriate benchmark in this case ............................................................ A-39 
(f) Any of the other alternative benchmarks  show the existence of benefit ............................... A-41 
(i) The weighted average wholesale rate receiv ed by all generators in Ontario other  
 than FIT and RESOP generators ........................................................................................... A-41  
(ii) The "commodity charge" portion of reta il prices for electricity in Ontario .......................... A-41 
(iii) The average wholesale rate for electrici ty in competitive wholesale markets outside  
 of Ontario…….  ............................................................................................................... ...... A-42 
(g) Even if the FIT rates were to be fou nd not to confer a benefit, the long-term  
guarantee nature of the FIT rates would support a determinati on of benefit ........................ A-42 
(h) Concluding remarks as to the existence of "benefit" ............................................................ A-42 
3. Contingent upon the use of domestic over imported goods: Article 3.1(b)  
 SCM Agreement ................................................................................................................ .. A-43 
4. Specificity: Article 2.3 SCM Agreement ........................................................................... A-43 5. Violation of Article 3.2 SCM Agreement .......................................................................... A-43 6. Conclusion and re lief request ed ........................................................................................ A-4 3 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-32 
 
 
  B. THE MEASURES AT ISSUE ARE TRADE -RELATED INVESTMENT MEASURES AND  
 REQUIREMENTS AFFECTI NG THE INTERNAL SALE , PURCHASE OR USE OF PRODUCTS  
 IN THE SENSE OF ARTICLE 1 OF THE TRIMS AGREEMENT AND ARTICLE III :4 OF THE  
 GATT 1994  RESPECTIVELY  .................................................................................................... A-44 
1. The measures at issue are trade-related investment measures in the sense of   Article 1 of the TRIMs Agreement .................................................................................... A-44 
2. The measures at issue are requirements affecting the internal sale, purchase   or use of products in the sense of Article III:4 of the GATT 1994 ................................. A-44 
3. Conclusion ................................................................................................................. .......... A-44 
C. ARTICLE III :8 OF THE GATT 1994  DOES NOT APPLY IN THE PRESENT CASE  ........................... A-44 
1. Article III:8(a) of  the GATT 1994 ..................................................................................... A-45  
(a) Article III:8(a) of the GATT 1994 cove rs requirements directly relating to  
the product purchased by the government ............................................................................ A-45 
(b) The FIT Program does not involve a "purchase" (or procurement) ...................................... A-47 
(c) The FIT Program does not involve a purchase "for governmental purposes" ...................... A-47 
(d) Any alleged purchase of electricity through the FIT Program is with a  
view to commercial resale .................................................................................................... A-49 
(e) Any alleged purchase of electricity through the FIT Program is with a view  
to being use in the production of  goods for commercial sale ............................................... A-51 
(f) Conclusions ............................................................................................................... ............ A-52 
2. Article III:8(b) of  the GATT 1994 ..................................................................................... A-52  
3. Conclusion ................................................................................................................. .......... A-52 
D. THE MEASURES AT ISSUE ARE TRADE -RELATED INVESTMENT MEASURES INCONSISTENT  
 WITH ARTICLE 2.1 OF THE TRIMS AGREEMENT , IN CONJUNCTION WITH PARAGRAPH 1(A)  
 OF ITS ANNEX  ........................................................................................................................ A-52 
1. The claims under the TRIMs Agreem ent are more specific than the claim  
 under Article III:4 of the GATT 1994 ............................................................................... A-52 2. The FIT Program falls under paragraph 1(a) of the Annex to the TRIMs   Agreement .................................................................................................................... ........ A-53 
3. Conclusion and re lief request ed ........................................................................................ A-5 3 
E. THE MEASURES AT ISSUE ARE IN CONSISTENT WITH ARTICLE III :4 OF THE GATT 1994 .......... A-53 
 
IV. CONCLUSIONS AND REQU EST FOR RELIEF .......................................................... A-55 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-33 
 
 
  I. INTRODUCTION 
 
1. At issue in the present dispute are the domestic content requirements included in the FIT 
Program (including the microFIT Program) issued by th e Government of Ontario in 2009. To be clear, 
the European Union does not bring claims against other elements included in the FIT Program; nor 
does the European Union contest the general purpose of the FIT Program, as helping promote electricity supply from renewable energy sources. Su ch a purpose is legitimately valid and, in the 
European Union's view, WTO Members can and shoul d actively support it, for instance, by granting 
subsidies, insofar as they are consistent with  the covered agreements. However, WTO Members 
cannot use FIT programs in order to achieve other trade-distorting purposes, such as the protection of 
its domestic industries to the detriment of others , by including domestic content requirements.  
 2. The European Union notes that the measures at is sue in this dispute have been taken by one of 
Canada's provinces, and in particular by the Govern ment of Ontario. Domestic content requirements 
are completely unnecessary and even alter the pr oper achievement of the legitimate objectives 
pursued by FIT programs. Indeed, by imposing a pr otectionist requirement to benefit from Ontario's 
FIT Program, Ontario is rendering it more difficult and expensive to generate electricity from 
renewable sources, as it curtails the ability of genera tors to install the best available equipment at 
competitive prices. This step – i.e. the trade ba rriers and distortions introduced by the Ontario 
measures – defeats the logic of favouring the de ployment of renewable energy equipment, as a 
category of environmental goods.  
 3. The European Union considers that the dom estic content requirements in Ontario's FIT 
Program, and the protectionist interest they serve, are contrary to the fundamental national treatment 
principle and, thus, are inconsistent with the c overed agreements. After goi ng through the procedural 
background, the measures at issue and the factual bac kground of this dispute, most of them identical 
to the dispute in DS412, the European Union w ill examine its claims under the SCM Agreement, the 
TRIMs Agreement and the GATT 1994.   4. The European Union requests the Panel to examine and provide recommendations and rulings 
on all fundamental aspects of this dispute, that is , the prohibited subsidy and the national treatment 
aspects. Only by making findings and recommendations with respect to both our claims against 
prohibited subsidies and our claims on the breach of national treatment obligations under the TRIMs 
Agreement and the GATT 1994, would the Panel be "g iving the rulings provided for in the covered 
agreements" in accordance with the aim of the di spute settlement mechanism "to secure a positive 
solution to a dispute". The European Union also in vites the Panel to examine the EU claims in the 
order as presented in this submission.  
 
II. FACTUAL BACKGROUND 
 
5. The European Union incorporated the factua l description, including a ll exhibits, of Japan's 
first written submission in DS412 as well as in subsequent submissions.  
 
III. LEGAL ARGUMENT 
 
6. The European Union submits that Ontario' s FIT Program (including the microFIT Program) 
as well as individual contracts executed pursuant to that  Program (referred to "the FIT Program and its 
related contracts") are inconsistent with Canada 's obligations under the SCM Agreement, the TRIMs 
Agreement and the GATT 1994 since they constitut e a prohibited subsidy, and also discriminate 
against imports of equipment and component s for renewable energy generation facilities. 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-34 
 
 
  A. THE MEASURES AT ISSUE ARE SUBSIDIES C ONTINGENT UPON THE USE OF DOMESTIC OVER 
IMPORTED GOODS : ARTICLES 3.1( B) AND 3.2  SCM AGREEMENT  
 7. The European Union submits th at the measures at issue are inconsistent with Articles 3.1(b) 
and 3.2 of the SCM Agreement, beca use the measures are subsidies w ithin the meaning of Article 1.1 
of the SCM Agreement that are provided continge nt upon the use of domestic over imported goods, 
namely contingent upon the use of equipment and components for renewable energy generation 
facilities produced in Ontario over such equi pment and components imported from other WTO 
Members, including the European Union. 
 
1. The first element of the definition of subsidy is met: income/price support and financial 
contribution 
 
(a) Income or price support: Article 1.1(a)(2) of the SCM Agreement 
 
8. In the present case, the EU pr imarily submits that the measures at issue amount to a form of 
income or price support for the FIT Generators. Th e European Union considers that the measures at 
issue amount to a form of income or price support in the sense of Article XVI of the GATT 1994 and thus fall under Article 1.1(a)(2) of the SCM Agreem ent. The FIT Program operates as a price support 
system whereby the Government of Ontario, thr ough its agency, the OPA, contractually agrees with 
the FIT Generators a rate and then pays such a ra te directly (through another agency, the IESO) or 
indirectly (through LDCs) to the FIT Generators. Ca nada argues that the measu res at issue must be 
characterised as "purchases of goods" and not as "inc ome or price support" because of the nature of 
the transaction between the OPA and the FIT Generato rs (i.e., the OPA paying the FIT Generators in 
exchange for their delivery of renewable electricity  into Ontario's electricity grid). However, the 
alleged characterisation of the measures at issue as a "purchase" is, in and of itself, no obstacle for 
such measures to be characterised  as "any form of income or price support". Thus, even assuming 
arguendo  that each contract or payment under the FIT Program could be characterised as a "purchase 
of goods" ( quod non ), the fact that there is a program in place aimed at guaranteeing rates to 
generators implies that the measures at issue shoul d be characterised as "income or price support". 
The EU considers that the Panel should follow the anal ytical steps suggested by the Appellate Body in 
US – Large Civil Aircraft  and identify which features are the mo st central to the measures at issue as 
a whole  and which of those features are to be accorded the most significance for purposes of 
characterising them under Article 1.1(a) of the SCM Agreement.   9. Moreover, there is income or price support "in the sense of Article XVI of GATT 1994". 
Importantly, "in the sense of Article XVI of GATT 1994" in Article 1.1(a)(2) of the SCM Agreement 
in relation to the concept of "income or price s upport" does not carry with it the requirement of a 
finding of "serious prejudice" referred to in the second sentence in Article XVI:1. Article 1.1 of the 
SCM Agreement is not concerned with effects  arising from subsidies, but only with the concept (that 
is, the "definition") of subsidies. The terms " in the sense " (that is, "in the meaning") confirm that the 
reference to Article XVI of GATT 1994 is limited to  the concept of income or price support, as a 
scope/definitional issue, not to the applicable disciplines.  
 10. In the present case, the FIT Program contains local content requirements which, by their own 
nature, reduce or even eliminate imports of equipment and components for renewable energy 
generation facilities into Ontario. Consequently, th e European Union submits that the FIT Program 
and its related contracts provide a form of income or price support to the FIT Generator through long 
term, guaranteed, above-market rates in the sense of Article 1.1(a)(2) of the SCM Agreement. 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-35 
 
 
  (b) Financial contribution: Article  1.1(a)(1) of the SCM Agreement 
 11. The European Union maintains that the use of the term "or" between pa ragraphs (1) and (2) in 
Article 1.1(a) of the SCM Agreement does not excl ude the possibility that a measure can fall at the 
same time under one or the other sub-element. It merely provides for a choice or alternative 
characterisations to meet the first element of the de finition of "subsidy". This contrasts with the use of 
the term "and" in between the first and second subpara graphs (a) and (b) in Article 1.1, which require 
that the first (in any of the alternatives) and second elements (i.e., benefit) be present for the definition 
to be met. The EU also notes that Article 1.1(a)(2 ) of the SCM Agreement, and the terms "any form", 
are also capable of addressing the case of domestic programmes involving a combination of various 
forms of financial contribution, bund led together with other features. 
 12. The European Union argues that the guaranteed  electricity rates that the OPA contractually 
commits to under the FIT Program and its related contracts result in a "financial contribution by a 
government or any public body" as defined under Ar ticle 1.1(a)(1) because they involve a "direct 
transfer of funds" from the Government of Ontari o. The financial contribution is granted once the 
OPA signs the FIT Contract with the FIT Generator and agrees to provide the guarantee rates, either 
through disbursements made by the IESO or thr ough LDCs. In the alternative, the European Union 
argues that the guaranteed electricity rates that  the OPA contractually commits to under the FIT 
Program and its related contracts result in a "finan cial contribution by a government or any public 
body" as defined under Article 1.1(a)(1) because they  involve a "potential direct transfer of funds" 
from the Government of Ontario or a situation where the government " purchases goods". Moreover, 
in the alternative, the European Union argues that the disbursements made by other private operators 
(LDCs) paying the guaranteed electricity rates that  the OPA contractually commits to under the FIT 
Program result in a "financial contribution by a government or any public body" as defined under 
Article 1.1(a)(1) because they involve entrustment or direction in the sense of Article 1.1(a)(1)(iv) of 
the SCM Agreement.   13. The European Union considers that the c ontractual commitments undertaken by the OPA 
pursuant to the FIT Contract are better characteris ed as a "direct transfer of funds" in the sense of 
Article 1.1(a)(1)(i) of the SCM Agreement because future payments are made unconditionally (other 
than the nature of the contract, i.e. the expected delivery of electricity in exchange of the payment). 
Indeed, under the FIT Contract, the FIT Generators co mmit to supply the generated electricity into the 
grid in exchange of a payment at the agreed rates. Such generation electricity is expected in order to 
obtain the advantageous guarant eed rate. Thus, for the purpose of the financial contribution 
determination, the payments committed under legally  binding contracts should be considered as 
"granted" or "transferred", even though physically those payments have not yet occurred or have not 
been made.  14. The European Union submits that the legal co mmitment to transfer the difference between the 
market rate of electricity that a generator would receive through the standard operation of the market 
(i.e. MCP/HOEP) and the rate enjoyed by a gene rator under a FIT Contract to the FIT Generator 
amounts to "a government practice [that] involves a direct transfer of funds" in the sense of 
Article 1.1(a)(1)(i) of the SCM Agreement. Indeed , the FIT Rules and the FIT Contract contain the 
binding commitment by the OPA to pay the guaranteed  rates if and when the FIT Generator supplies 
the electricity into the grid. Moreover, no matter wh at happens, the OPA is ultimately liable to make 
those payments. Thus, the OPA's role is more of th e nature of an intermediary (like an agent or a 
clearing house) where the OPA does not actually purch ase electricity. Rather, electricity is purchased 
by other market operators (either at market rates or above, i.e., at "regulated" rates), while the OPA 
pays the above-market rates agreed contractua lly with the FIT Generator. Thus, in the 
European Union's view, the transfer of the guarant eed, above-market rates to  the FIT Generators is 
better characterised as a "direct transfer of funds ". Should the Panel consider that the measures at WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-36 
 
 
  issue are not "direct transfers of funds", the Europe an Union maintains that the Panel can find that the 
measures at issue amount to a "potential direct transfer of funds"  15. In any event, should the Panel consider that  the OPA actually "purchases" electricity pursuant 
to the FIT Contract, the European Union considers that this would amount to a financial contribution 
in the form of purchases of goods under Article 1.1(a)(1)(iii) of the SCM Agreement.  16. In the alternative, the European Union also  argues that the disbursements made by other 
private operators (LDCs) paying the guaranteed elec tricity rates that the OPA contractually commits 
itself to pay under the FIT Program result in a "financial contribution by a government" as defined 
under Article 1.1(a)(1), in any of the forms di scussed above, because they involve entrustment or 
direction in the sense of Article 1.1(a)(1)(iv) of the SCM Agreement. However, the fact that under 
Section 8.4 of the FIT Rules, the OPA is ultimat ely liable for the payments agreed under the FIT 
Contracts reinforces the European Union's view that the FIT Program and its related contracts are 
better characterised as a "direct transfer of funds" by the government. 
 17. In sum, no matter how the Panel addresses this  question, the European Union considers that 
the FIT Program and its related contracts amount to a "financial contribution" in the sense of Article 1.1(a)(1) of the SCM Agreement. Indeed, the EU invites the Panel to make alternative findings 
in this respect. 
 
2. The second element of the definition of subsidy is met: benefit 
 
18. The European Union submits that the FIT Program and its relate d contracts provide a 
"benefit" to the recipient, i.e. the FIT Generator, in  the sense of Article 1.1(b) of the SCM Agreement.  
 
(a) Article 14(d) of the SCM Agreement is not ap plicable in the present case and, in any event, 
Canada's suggested benc hmark is inappropriate 
 19. The European Union considers that Article 14( d) of the SCM Agreement is not applicable in 
the present case since, for the reasons explained before, the OPA does not purchase electricity from 
the FIT Generators. 
 20. In any event, applying Article 14(d) to the f acts of this case, Canada considers that the Panel 
should compare the FIT rates to a benchmark located  from an examination of the conditions on which 
wind and solar electricity are normally exchanged in Ontario.  In the European Union's view, Canada 
is asking the Panel to compare the FIT rates w ith the FIT rates themselves since wind and solar 
electricity in Ontario is only produced under the um brella of the FIT Program. In other words, the FIT 
Program, including the FIT Price Schedule, a nd as implemented through each FIT Contract, 
determines the price for electricity from wind and sola r electricity generators. There is no other price 
in Ontario for that electricity as potential genera tors would never give up the generous conditions 
automatically offered to them by the FIT Program. Thus, Canada is asking for a circular and thus 
meaningless comparison.  
 21. At most, Canada's suggested benchmark unveils  the market reality for the generation of wind 
and solar electricity in Ontario, i.e., that there would be no generator ready to make the necessary 
investments in Ontario, absent the FIT Program. In other words, the conditions on which wind and 
solar electricity are normally exchanged in Ontari o are those of the FIT (subsidised) program, absent 
which no exchanges would take place in Ontario, as the incentive nature of the FIT Program itself 
shows.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-37 
 
 
  (b) The existence of benefit under Article 1.1(b) of the SCM Agreement has to be determined by 
reference to the marketplace 
 22. The European Union submits that  the existence of benefit in this case has to be determined by 
reference to the marketplace, i.e., what the FIT Generators would have obtained from the market in 
Ontario absent the FIT Program.  23. In Canada – Aircraft , the Appellate Body noted that "the ordinary meaning of 'benefit' clearly 
encompasses some form of advantage"  and that "t he second element in Article 1.1 is concerned with 
the 'benefit… conferred' on the recipient by [the] governmental action".  Thus, in order to determine 
whether "benefit" exists within the meaning of Ar ticle 1.1(b) of the SCM Agreement, the government 
action, regardless of its form (i.e., financial contri bution or income/price support) has to confer some 
form of advantage to the recipient.  
24. The Appellate Body also noted that, in orde r to identify whether such  an advantage exists, 
some kind of comparison or counterfactual is requi red: in particular whether the government action 
makes the recipient "better off" than it would ot herwise have been, absent that government action. 
According to the Appellate Body, "the marketplac e provides an appropriate basis for comparison … 
because the trade-distorting potential of a [govern ment action] can be identified by determining 
whether the recipient has received [a form of "f inancial contribution" or income/price support] on 
terms more favourable than those available to th e recipient in the market".  According to the 
Appellate Body, "Article 14, which we have said is  relevant context in interpreting Article 1.1(b), 
supports our view that the marketplace is an appropr iate basis for comparison [since a] 'benefit' arises 
under each of the guidelines if the recipient has r eceived a 'financial contribution' on terms more 
favourable than those available to the recipient in the market".  Thus, the essen ce of the determination 
of the existence of benefit under Article 1.1(b) is to compare, on the one hand, what the recipient 
obtained from the government action with, on the othe r hand, what the recipient would have obtained 
from the market, absent the government action.  25. In Japan – DRAMs  the Appellate Body recalled the refere nce to the market standard in the 
following terms: "The relevant market may be more  or less developed; it may be made up of many or 
few participants. ... In some instances, the market may be more rudimentary. In other instances, it may 
be difficult to establish the relevant market and its  results. But these informational constraints do not 
alter the basic framework from whic h the analysis should proceed. ... There is but one standard—the 
market standard". In E C and Certain Member States – Large Civil Aircraft , the Appellate Body 
observed that: "The marketplace to wh ich the Appellate Body referred in Canada – Aircraft  reflects a 
sphere in which goods and services are exchanged between willing buyers a nd sellers. A calculation 
of benefit (…) demands an examina tion of behaviour on both sides of a transaction, and in particular 
in relation to the conditions of supply and demand as they apply to that market". Similarly, in US – 
Softwood Lumber IV , the Appellate Body noted that: "[t]he  text of Article 14 (d) [of the] SCM 
Agreement does not qualify in any way the 'market' conditions which are to be used as the benchmark 
… [a]s such, the text does not explicitly refer to  a 'pure' market, to a market 'undistorted by 
government intervention', or to a 'fair market valu e'." Thus, the existence of benefit has to be 
determined by reference to the market as it is, th e market where the government action takes place, in 
this case Ontario.  26. The main features of the FIT Program and its related contracts with respect to the benefit 
analysis are that, pursuant to them, the OPA (i) guarantees rates that the FIT Generators could not 
obtain from the market; and (ii) provides such above-market rates for a period of 20 years, including generous price escalation conditions, thereby shield ing the FIT Generators from any market risks. 
Those conditions are provided regardless of the scale or generation capacity of the project.  
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-38 
 
 
  27. The FIT Program and its related contracts are the result of the OPA's efforts to facilitate new 
generation investment by private producers that th e wholesale market was incapable of encouraging. 
They are, as Canada qualifies them, "incentives for l ong-term investment to meet forecasted demand".  
Thus, absent the FIT Program, the FIT Generators w ould not be able to participate on the market.  
This shows, in the European Union's view, that absent the government measure, the FIT Generators 
would not have been able to secure the FIT rates and the other favourable conditions included in the 
FIT Contracts.   28. The Panel may find the existence of benefit on this basis alone, since the Panel is not required 
to determine the amount of benefit under Article 1.1( b) of the SCM Agreement (merely its existence).  
Indeed, in other cases, panels and the Appellate Body have determined the existence of benefit in 
view of evidence showing that, absent the government action, the recipient would have obtain nothing from the market. This is the case, for instance, of equity infusions or funds provided to rescue 
companies in economic difficulties where no rational investor (i.e., the market) would have provided 
the same funds on the same terms.  
 (c) The proper market benchmark should relate to th e market conditions for electricity in Ontario, 
regardless of how it is generated 
 29. Should the Panel consider that further analys is is required to determine the existence of 
benefit in the present case, the European Union c onsiders that the proper benchmark in this case 
should relate to the market conditions for electricity  in Ontario, regardless of how it is generated. 
Electricity is a commodity, physically alike in al l respects.  One kilowatt-hour of electricity is 
perfectly substitutable for another kilowatt-hour of electricity, regardless of whether it was generated 
from a renewable or non-renewable source. In this  respect, they belong to the same product market. 
As the Appellate Body noted in US – Upland Cotton , "it seems reasonable to conclude that two 
products would be in the same market if they were  engaged in actual or potential competition in that 
market".   30. Moreover, in Ontario the environmental effect s of different energy sources are not reflected in 
the prices consumers pay, which is the result of a blended price. Consumers pay the HOEP plus the 
Global Adjustment, which do not distinguish am ong the different generating technologies.   
 31. The European Union also observes that Canada has not demonstrated that there is a separate 
product market with respect to electricity produced by particular sources of renewable energy in Ontario. Consequently, contrary to what Canada maintains, in the present case the proper benchmark 
should relate to the market conditions for electricity  in Ontario, regardless of how it is generated. 
 32. In any event, in the Europ ean Union's view, there is no re ason to believe that consumers 
willing to buy electricity generated from renewable sources would have a preference for electricity for 
more expensive technologies rather than less expe nsive technologies. In other words, insofar as the 
electricity is produced from "clean" sources, consum ers may not have further preferences as to the 
specific type of source. This being said, should the Panel consider that the relevant market benchmark 
in the present case should take into account the existen ce of a distinction between electricity generated 
from renewable and non-renewable sources in Ontario,  the European Union considers that the Panel 
could also determine the existence of benefit on the basis of the different rates guaranteed within the 
FIT Program. In this respect, the European Union observes that the FIT Price Schedule reflects lower 
prices for other types of electricity generated from renewable sources, such as waterpower, biomass or 
biogas, when compared with wind and solar.  T hus, even considering renewable electricity as a 
market separate from non-renewable energy in Onta rio (quod non), there would be a benefit granted 
to the generators of wind and solar electricity.      WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-39 
 
 
  (d) The proper market benchmark should not be iden tified by referring to cost of production and, 
in any event, the structure of the FIT Pr ogram leads to payments in excess of costs 
 33. The European Union considers that, contrary  to what Canada maintains, an appropriate 
market benchmark in this case does not have to refl ect the cost of producing renewable electricity. 
Rather, the relevant question in identifying the appr opriate market benchmark in this case is what is 
the market value of the product (i.e., electricity) for which the FIT Program and its related contracts 
provide long-term, guaranteed rates.   
34. In the context of provision of goods by the government, the Appellate Body noted that it is 
not the cost to the government in making the product  that is the reference to determine the existence 
of benefit; rather, it is the market value of the prod uct in question.  In the European Union's view, the 
same applies in cases of purchases of goods. The ex istence of benefit cannot be determined by 
reference to the cost of production of the producer of the good in question; rather, it is the market 
value of the product purchased by the government whic h has to be examined in order to determine 
whether the government paid adequate remune ration in accordance to the "prevailing market 
conditions". Quite telling, among the factors incl uded within the notion of "prevailing market 
conditions" in Article 14(d) there is no reference to "cost of production". 
 35. The fact that the FIT rates at least cover th e high cost of production of the FIT Generators 
does not show that there is no benefit in the pr esent case. Rather, it shows that, without the FIT 
Program, no investor would be willing to produce wind and solar energy in Ontario in view of such 
high costs of production and in view of the fact that they would not be able to ensure an appropriate 
return in that market.  
36. In any event, even if the cost of generating wind and solar electricity would have to be taken 
into account, as Canada alleges, th e European Union submits that the structure of the FIT Program 
leads to payments in excess of co sts. Indeed, the cost of produci ng wind and solar electricity in 
general mainly depends on the lo cation of the generating facilities. The capital costs involved in the 
setting up of a generation facility should not vary  too much between different countries because the 
generation equipment amounts to the largest share of  the installation of a generation facility (and thus 
the capital costs), and those goods can be traded. What  makes the difference is the availability of the 
resources –wind and sun. The fact that FIT rates ar e standardised (i.e. they are the same for all 
generators) regardless of the location of the gene ration facilities and their actual production capacity 
should logically lead to a higher return for those FIT Generators that will set up facilities in good 
locations. 
 
37. It is interesting to underline that, as menti oned before,  the predecessors of the FIT Program 
were administered based on the best prices offered by generators through a bidding process. That element of competition was replaced by standardised rates which had to account for the higher costs 
of inducing the development of local manufactur ing capacity (pursuant to the domestic content 
requirements). Renewable generation capacity could th erefore be deployed in Ontario at lower cost. 
Thus, the European Union maintains that the structure of the FIT Progr am leads to payments in excess 
of cost of production.  (e) The HOEP is an appropriate benchmark in this case   
38. The European Union maintains that, in th e circumstances of this case, the HOEP is an 
appropriate benchmark to determ ine the existence of benefit. 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-40 
 
 
  39. First, the HOEP represents that wholesale electricity price in Ontario. It is the referenced 
price which triggers additional payments by the Gove rnment of Ontario to generators (including the 
FIT Generators) which have regulated rates.  
40. Second, even if the HOEP is the result of a system concerning the physical distribution of 
electricity in Ontario and, thus, in this respect, cannot be characterised as a "market" price in the 
economic sense, it is the market price in the nominal sense and for the purpose of the benchmark 
analysis under Article 1.1(b) of the SCM Agreement.  It is undisputed that "but for" the long-term, 
guaranteed rates provided by the FIT Program, the FIT Generators would only be able to supply their 
electricity into the grid at the wholesale electricity market price, that is, at the MCP/HOEP. Absent the 
FIT Program, a producer of electricity from wind or solar sources, like the FIT Generator, would have to become a market participant under the IESO ma rket rules and supply its electricity within the 
wholesale electricity market, at the HOEP. Thus, the HOEP becomes the nominal market price in the circumstances of this case, i.e., the counterfactual that would prevail absent the government measures 
at issue.  
 41. Canada confirms that 8% of Ontario generators do receive only the HOEP. In the 
European Union's view, Canada again confirms th e validity of the HOEP as a market benchmark in 
the present case. In fact, the alleged 8% figure of generators receiving only the HOEP appears to be 
around 16% of total electricity delivered in 2010.  In any event, regardless of the figure, the fact of the 
matter is that there are some generators whose cost structure allows them to sell their electricity and 
receive only the HOEP. The FIT Generators simply ca nnot since their cost structure is different. To 
conclude that the HOEP paid to those generators  cannot be used as a benchmark in the present case 
would be like saying that actual market prices in a particular sector cannot be used for a particular category of the same product because their cost  of production are much higher and thus cannot 
compete with the cost of production of the other operators. That cannot be the case. If for the same 
product, i.e., electricity, there are generators capable  of generating it and earning an appropriate return 
through the HOEP, then the higher costs of other genera tors of electricity cannot be used to argue that 
the HOEP is not an appropriate benchmark. Canada's  argument taken to an extreme would lead to 
absurd results. Indeed, a Member could argue that there is no subsidy involved by compensating the 
higher cost of production when using obsolete t echnologies in the production of goods that will 
compete in another market were operators are more developed technolog ically and have more 
efficient methods of production. Thus, the European  Union considers that th e fact that there are 
operators receiving the HOEP only shows that it can be used as a market benchmark in the present 
case. Similarly, in Japan – DRAMs, with respect to the distinction between inside and outside 
investor, the Appellate Body noted that there is one  standard, the market standard according to which 
rational investors act. In this sense, the fact that there were some inside investors, which may have 
different interests and return expectations than outside investors, willing to provide the necessary 
funds to a company in economic difficulties implies that the market would have provided those funds. 
In other words, the market is also measured by the existence of a category of investors willing to 
make the necessary investments, even if there is another category which would not make them. Like 
in the case of outside investors, the presence of ge nerators only receiving the HOEP in the market of 
Ontario shows that they are part of the market with  respect to which the existence of benefit can be 
determined.   42. Third, Canada argues that the IESO market  mechanism is not the "classical" competitive 
market where supply and demand meet. Indeed, the European Union agrees that it may not be the 
"classical" market. And there may not be many "cl assical" markets in many jurisdictions with respect 
to electricity or other products. However, it is a market where demand, represented by the relevant 
competent authorities in Ontario, meets with supply (i .e., electricity generators). And it is the market 
mechanism chosen by the competen t authorities in Ontario to regulate the exchanges of electricity. 
Thus, the HOEP amounts to the rate that is dete rmined based on supply and demand in Ontario.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-41 
 
 
  43. Fourth, the European Union observes that  one possible means to assess whether the HOEP 
represents the price of electricity in Ontario under market conditions is to examine the prices charged 
and paid by Ontario in its imports  and exports of electricity. The si milarity between the HOEP and the 
import and export prices is nonetheless revealing of the fact that the HOEP faithfully reflects the price 
practiced in Ontario and neighbouring jurisdicti ons under market conditions. In any event, the 
European Union submits that either on its own or as a proxy,  the import and export prices for 
electricity in Ontario show that a benefit exists in the present case.  44. Consequently, should the Pane l consider it necessary to establis h the existence of benefit in 
the present case by reference to the difference be tween the FIT rates and another benchmark, the 
European Union submits that the HOEP would serve  as a basis to find such benefit since the HOEP 
would be price the FIT Generators would obtain in the wholesale electricity market in Ontario absent 
the FIT Program, like other generato rs not obtaining regulated rates. 
 
(f) Any of the other alternative benchm arks show the existence of benefit 
 45. In any event, should the Panel consider that the HOEP is not an appropriate benchmark in the 
present case in order to establish the existence of "benefit" under Article 1.1(b) of the SCM 
Agreement, the European Union submits that any of the other alternative benchmarks submitted by 
Japan in DS412 would show that there is a benefit in the present case.  
 
(i) The weighted average wholesale rate receive d by all generators in Ontario other than FIT 
and RESOP generators  
 
46. The "market" price in economic sense in a situation where the government regulates prices 
could be understood to be the result of the free exchanges between the government (representing in 
this case the demand and acting on behalf of consum ers) and the electricity generators (representing 
supply). In this sense, the result of the weighted av erage of all rates agreed between the Government 
of Ontario (excluding FIT and similar rates) and a ll generators (excluding FI T and similar generators) 
in Ontario could be said to amount to the "market"  price for wholesale electricity. Such average was 
7.13 cents/kWh in 2010,  thus below the guarant eed rates under the FIT Program for wind and solar 
electricity. On this basis, the Panel may find that  the FIT Program and its related contracts confer a 
benefit under Article 1.1(b) of the SCM Agreement.  
(ii) The "commodity charge" portion of ret ail prices for electricity in Ontario  
 47. Ontario retail prices may be taken into acc ount as a possible benchmark because no generator 
of electricity in Ontario should expect to receive a rate in excess of the price paid by retail consumers 
in the commodity portion of their bill, i.e., the re tail price for the electricity itself, excluding any 
service charges. The retail prices of electricity determined by the OEB as part of its RPP range from 7.1 cents/kWh to 8.3 cents/kWh for customers with  conventional meters, and from 6.2 cents/kWh to 
10.8 cents/kWh for customers with smart mete rs.  These RPPs reflect HOEP plus the Global 
Adjustment, and are the prices paid by retail consum ers in Ontario for the electricity commodity itself 
(i.e., absent any fees and charges associated with th e services of transmission/distribution and market 
operation). No generator in Ontario should expect to receive rates in excess of these RPP prices for 
the electricity commodity established by the OEB.  
48. Moreover, the European Union notes Canada's statement that "most" users of electricity in 
Ontario pay the price required of them by the syst em, i.e., the prices regulated by the OEB.  Indeed, 
there are some consumers who can buy their electricity  pursuant to bilateral contracts with generators.  
Needless to say, such a price will always be lo wer than the regulated price for final consumers 
(otherwise, there would not be any interest in having such bilateral contracts).  Thus, even if the Panel WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-42 
 
 
  were to consider that the HOEP is not a market benchmark in the present case, the European Union 
considers that, absent the FIT Program, the FIT Genera tors could only sell their electricity at a price 
equal to or a bit below the prices regulated by the OEB (RPP), all of which are way below the FIT 
rates. Since there is no need to quantify the am ount of the subsidy but merely its existence under 
Article 1.1(b) of the SCM Agreement, the Pane l can find that the FIT Program and its related 
contracts confer a benefit to the FIT Generators on this basis.   
(iii) The average wholesale rate for electricity  in competitive wholesale markets outside of 
Ontario 
 
49. The European Union observes that Canada does not argue that Ontario's prices for electricity (either those rates agreed between the Government  of Ontario and the generators or RPPs) are 
distorted. In fact, Canada maintains that the Panel should compare the FIT rates to a benchmark 
located from an examination of the conditions on  which wind and solar electricity are normally 
exchanged in Ontario.  In this respect, the Eur opean Union considers that there is no need to go 
outside Ontario to identify a proper benchmark in th is case since, even if prices are heavily regulated, 
this does not imply that they are distorted. That being said, should the Panel consider that regulated rates or prices in Ontario cannot be used, the European Union consid ers that the outside benchmarks 
proposed by Japan,  where rates are competitively de termined in deregulated electricity markets 
where the government has a limited presence,  show that the FIT Program and its related contracts 
provide a benefit.   
 (g) Even if the FIT rates were to be found not to confer a benefit, the long-term guarantee nature 
of the FIT rates would support a determination of benefit 
 
50. Finally, the European Union maintains that the Panel may find the existence of benefit under 
Article 1.1(b) of the SCM Agreement in the present case exclusively by noting the long-term nature of 
the rates guaranteed to the FIT Generators, regard less of whether those rates are above the market. 
Indeed, as explained before, one of the most rele vant features of the FIT Program and its related 
contracts is that they protect the FIT Generators from any market risks for a period of 20 years. During that period, the FIT Generators have a rate  in exchange of which they can supply as much 
electricity as they can. Moreover, the FIT Contract s include price escalation conditions which ensure 
profitability regardless of the market conditions. Th e OPA assumes all market risks without charging 
any premium.  51. Thus, on the basis of this, the Panel may conclude that the FIT Program and its related 
contracts, regardless of the level of the guaranteed  rates, confer a benefit to the FIT Generators. 
 (h) Concluding remarks as to the existence of "benefit" 
 52. To sum up, the European Union considers that  the Panel may find that the FIT Program and 
its related contracts confer a benefit to the FIT Generators on the basis of the uncontested fact that, 
absent the FIT Program, the FIT Generators would not  be able to obtain the necessary returns from 
the market. Thus, the inherent nature of the FIT Program as an incentive to promote the generation of 
electricity through renewable sources shows the existe nce of benefit under Article 1.1(b) of the SCM 
Agreement, like in cases where the fact that no ra tional investor would have made a particular 
investment shows the existence of benefit, regardless of its quantum.  
 
53. Should the Panel consider it necessary to dete rmine the existence of benefit in the present 
case by reference to the difference between the FIT rates and an appropriate market benchmark, the 
European Union has put forward a variety of benchmar ks to show to this effect. Under any of those, 
the European Union considers that the Panel may fi nd that the FIT Program and its related contracts  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-43 
 
 
  confer a benefit under Article 1.1(b) of the SCM Ag reement. Even when considering generation costs, 
as advanced by Canada, the existe nce of a benefit is apparent. 
 54. Finally, the Panel may also determine the exis tence of benefit in this case on the basis of the 
long-term nature of the guaranteed rates. Indeed, th e fact that the FIT Generators receive a guarantee 
to receive payments at particular rates, regardless of their level, for a period of 20 years, where those prices are automatically subject to price escalation regardless of any market development, provides a 
benefit to the FIT Generators which is distinguish able from the benefit conferred by the above-market 
level of the FIT rates. 
 
3. Contingent upon the use of domestic over imported goods: Article 3.1(b) SCM 
Agreement 
 
55. The European Union submits that the FIT Pr ogram is a subsidy contingent upon the use of 
domestic over imported goods, in the sense of Artic le 3.1(b) of the SCM Agreement. The FIT 
Program requires the use of domestic over impor ted goods, "solely or as one of several other 
conditions". This may cover the situation where a s ubsidy is simultaneously subject to two or more 
cumulative conditions. But it may as well apply to the situation where a subsidy is subject to two or 
more alternative conditions, so that compliance with any of them gives a right to the subsidy. If one of 
those conditions is "the use of domestic over impor ted goods" the subsidy must  be deemed prohibited 
by Article 3.1(b), even if it might also be th eoretically possible to qualify for the subsidy by 
complying with an alternative condition, such as us ing a certain proportion of domestic labour or of 
domestic services. A different interpretation –e.g. sugg esting that a subsidy may not be prohibited if at 
least one qualifying condition is not inconsistent with the SCM Agreement– would run contrary to the 
letter of Article 3(1)(b) and would make it very easy to circumvent the prohibition simply by 
providing that the beneficiaries may also qualify fo r the subsidy by fulfilling some irrelevant but 
dissuasive alternative condition.  56. In sum, the European Union submits that the FIT Program amounts to a prohibited subsidy 
under Article 3.1(b) of the SCM Agreement.  4. Specificity: Article 2.3 SCM Agreement 
 
57. Article 1.2 of the SCM Agreement states that: "[a] subsidy as defined in paragraph 1 shall be 
subject to the provisions of Part II or shall be subject to the provisions of Part III or V only if such a subsidy is specific in accordance with the provisions of Article 2". Article 2.3 establishes that: "[a]ny 
subsidy falling under the provisions of Article 3 sh all be deemed to be specific". The subsidies 
provided by the FIT Program and related contracts ar e prohibited subsidies under Article 3.1(b) of the 
SCM Agreement and, therefore, are deemed to be specific pursuant to Article 2.3 of the SCM 
Agreement.  
5. Violation of Article 3.2 SCM Agreement 
 
58. In view of the foregoing, the European Union submits that Ontario's granting and maintaining of prohibited subsidies contingent upon the use of domestic over imported goods is inconsistent with 
Canada's obligations under Artic le 3.2 of the SCM Agreement. 
 6. Conclusion and relief requested 
 
59. The European Union requests the Panel to find that through the FIT Program as well as 
individually executed FIT and microFIT contracts fo r wind and solar PV projects, Canada grants and WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-44 
 
 
  maintains prohibited subsidies that are contingent  upon the use of domestic over imported goods, in 
violation of Articles 3.1(b) and 3.2 of the SCM Agreement.   60. The European Union requests the Panel to recommend that Canada withdraw its prohibited 
subsidies without delay (and, in no case, no more than within 90 days), as required by Article 4.7 of 
the SCM Agreement.  
B. THE MEASURES AT ISSUE ARE TRADE -RELATED INVESTMENT MEAS URES AND REQUIREMENTS 
AFFECTING THE INTERNAL SALE , PURCHASE OR USE OF PRODUCTS IN THE SENSE OF ARTICLE 1 
OF THE TRIMS AGREEMENT AND ARTICLE III :4 OF THE GATT 1994  RESPECTIVELY  
 61. Once the European Union has demonstrated that  the FIT Program and its related contracts are 
inconsistent with Articles 3.1(b)  and 3.2 of the SCM Agreement, the European Union will address 
how the domestic content requirements included in th e FIT Program violate other relevant provisions 
of the covered agreements containing the f undamental principle of national treatment.  
 
1. The measures at issue are trade-related investment measures in the sense of Article 1 of 
the TRIMs Agreement  
 
62. Article 1 of the TRIMs Agreement defines its coverage as applying to  investment measures 
related to trade in goods. The FIT Program and its related contracts m eet this definition. 
 63. First, the FIT Program and its related contracts are "investment measures" in that they aim at encouraging the development of a local manufact uring capability for equipment and components for 
renewable energy generation facilities in Ontario. Second, the domestic content requirements included 
in the FIT Program and its related contracts are undoubt edly "related to trade". Finally, the domestic 
content requirements contained in the FIT Program a nd its related contracts affect trade in goods, in 
particular in wind and solar energy generation e quipment and components. The FIT Program creates 
an incentive to purchase or use Ontario's produc ts to the detriment of imported like products. 
Consequently, the European Union submits that the FIT Program and its related contracts fall within 
the scope of the TRIMs Agreement. 
 
2. The measures at issue are requirements aff ecting the internal sale, purchase or use of 
products in the sense of Article III:4 of the GATT 1994 
 
64. In its first written submission in DS412, Japan  has demonstrated that the domestic content 
rules of the FIT Program and its related contracts are "requirements" that affect the "internal sale, … 
purchase, … or use" of renewable energy generation equipment and components in Ontario within the 
meaning of GATT Article III:4. The European Un ion incorporates those arguments in the present 
submission, and consequently, submits that the FI T Program and its relate d contracts fall under the 
scope of application of these provisions.  3. Conclusion 
 
65. In light of the foregoing, the European Union submits that both the TRIMs Agreement and the GATT 1994 are applicable to the measures at issue.  
C. ARTICLE III :8 OF THE GATT 1994  DOES NOT APPLY IN THE PRESENT CASE  
 66. Before applying the relevant national tr eatment provisions contained in the TRIMs 
Agreement and the GATT 1994 to the facts of this c ase, as a preliminary issue, the European Union  WT/DS412/R/Add.1 
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  will examine whether Article III:8 of the GATT 1994 a pplies in the present dispute. As the European 
Union will show below, Article III:8 is  not applicable to this dispute. 
 
1. Article III:8(a) of the GATT 1994 
 
67. Article III:8(a) of the GATT 1994 states that:  
The provisions of this Article shall not a pply to laws, regulations or requirements 
governing the procurement by governmental  agencies of products purchased for 
governmental purposes and not with a view to commercial resale or with a view to use 
in the production of goods for commercial sale. 
 68. The European Union notes that Canada's defence under Article III:8(a) of the GATT 1994 
may not be an obstacle for the Panel to find that  the FIT Program and its related contracts are 
inconsistent with Article 2.1 of the TRIMs Agreem ent, in conjunction with paragraph 1(a) of its 
Annex. As a consequence of such  violation, the Panel may also find that the FIT Program and its 
related contracts are inconsistent with Artic le III:4 of the GATT 1994, without engaging in a 
substantive analysis of Canada's defence under Artic le III:8(a) of the GATT 1994.  In any event, in 
order to provide a positive solution to this dispute,  the European Union requests the Panel to examine 
and make findings (even in the form of alterna tive findings) with respect to Canada's defence under 
Article III:8(a) of the GATT 1994 in view of the fact  that the conditions for the application of such a 
provision are not met in the present case.  69. The European Union has shown that Canada's  defence under Article III:8(a) must failed in 
view of the following reasons. 
 
(a) Article III:8(a) of the GATT 1994 covers requirements directly relating to the product 
purchased by the government 
 70. Canada argues that the scope of Article III: 8(a) of the GATT 1994 is not confined to the 
purchase of products that are the focus of a claim for breach of Article III.  According to Canada, the 
text of Article III:8(a) does not in any way tie the products that are purchased to the products that are 
the focus of a claim under Article III. Further, Canada  considers that Article XVI of the Agreement on 
Government Procurement prohibits the inclusion of conditions on the inputs, by  means of local content requirements, into the product that is purch ased. According to Canada, such prohibition would 
not make sense if Article III:8(a) of the GATT 1994 already prohibits them. 
 
71. Canada's arguments are inapposite. First, the text of Article III:8(a) of the GATT 1994 states 
that the national treatment obligation does not appl y to laws, regulations or requirements governing 
the procurement by governmental agencies of "p roducts purchased" for governmental purposes. Thus, 
the text of Article III:8(a) is structured in a manner that the term "products" is directly qualified by the 
term "purchased", which implies that the re quirements govern the products purchased by 
governmental agencies and not other products that do not have any relationship with the object or 
subject-matter of the procurement contract.  In other words, the requirements governing the 
acquisition of products purchased by governmental entities are limited to those products and cannot 
extend to other products with no relation whatsoever with the product purchased. 
 
72. Second, Article XVI(1) of the Agreement on Go vernment Procurement is of no assistance to 
Canada. Such provision contains the obligation not  to impose offsets including domestic content 
requirements in the qualification and selection of s uppliers, products or services, or in the evaluation 
of tenders and award of contracts. Article XVI(2),  in turn, provides for an exception for developing 
countries, which are entitled to impose domestic cont ent requirements. Contrary to what Canada WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-46 
 
 
  argues, the fact that Article XVI(1) of the Agre ement on Government Procurement prohibits what 
Article III:8(a) of the GATT 1994 also prohibits do es not mean that Article III:8(a) must have a 
different meaning. There are many cross-refere nces in the covered agreements to obligations 
contained in other covered agreem ents and that does not imply that the substantive obligations under 
those provisions are meaningless.  Thus, the Agreement on Government Procurement may be 
understood as clarifying, insofar as domestic conten t conditions are concerned,   what is otherwise 
prohibited under Article III:8(a) of the GATT 1994.  73. Moreover, the nature of the Agreement on Government Procurement as a plurilateral 
agreement implies that the parties to that Ag reement intended to regulate the matter in a self-
contained manner, i.e., without the need to invoke  other provisions such as Article III:8(a) of the 
GATT 1994.   74. The European Union also observ es that fact that there is a need  for an exception of the general 
rule not to include domestic content requirements in  procurement contracts with respect to developing 
countries in Article  XVI(2) of the Agreement on G overnment Procurement could also be interpreted 
as meaning that the general prohibition in Article III:8(a) of the GATT 1994 also applies to developing countries. The possibility to negotiate  some conditions upon accession to the Agreement 
on Government Procurement would be intended to encourage participation in the system, without 
making any judgement on the applicability of Artic le III:8(a) of the GATT 1994. Furthermore, the 
GATT 1994 also includes provisions on the adoption of measures on balance of payments grounds, a 
situation which is mentioned in the Agreement on Government Procurement as one development 
aspect underlying the use of offsets. The TRIMs Agreem ent also includes a provision in this respect.  
Finally, it is not unprecedented for WTO Members,  when negotiating a new agreement, to accept on a 
transitional basis the maintenance of measures that are inconsistent with WTO provisions in force: 
Article 5 of the TRIMs Agreement is a good example of this practice, which can also be read in 
Article XVI(2) of the Agreement on Government.   75. Consequently, the reference as to how the Ag reement on Government Procurement deals with 
offsets is not relevant to interpret the scope of Ar ticle III:8(a) of the GATT. Otherwise, the scope of a 
multilateral agreement (the GATT 1994, and in partic ular the scope of Article III:8(a) of the GATT 
1994) would be affected by the meaning provided to other different terms in a plurilateral agreement 
which is not binding on the entire WTO Membership.    76. Third, as noted in our response to Question 22, in the circumstances of the present case the 
European Union agrees with the proposition that th e domestic content requirements are not within the 
scope of Article III:8(a) because it is not the equipm ent that is being procured by the government. The 
good being procured or purchased (if any) by the Government of Ontario would be the electricity 
produced by the FIT Generators. The domestic conten t requirements relate to different products (i.e., 
the electricity generation equipment and components) , the sourcing of which does not add anything to 
and is completely disconnected from the basic natu re of the product procured or purchased. In other 
words, the European Union cont ends that the domestic content requirements imposed by the 
Government of Ontario do not "govern" the alleged procurement of electricity, within the meaning of 
Article III:8(a), because they are not requirements related to the subject-matter of the procurement, which is electricity. Those requirements "govern" a "feature" of the equipment for the generation of 
electricity which has no rational link to the attributes  of the electricity and the object of the alleged 
procurement.  
 
77. To illustrate our views with an example. The European Union cons iders that a government 
may require in a public tender to purchase electricity  that will be used to provide light to its highways 
and public roads that such electricity is generated by  using renewable sources. In such situations, there 
is a link between the good purchased and the require ments governing its procurement insofar as the  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-47 
 
 
  renewable source is a characteristic connected to the object of the contract, i.e., the purchase of 
electricity. Similarly, the government may include re quirements with respect to the materials or fabric 
used in the suits or shirts it purchases for its public of ficials. In contrast, the inclusion of requirements 
such as the suits or shirts must be made or kn itted using machines or equipment made locally (or 
similarly the requirement as to the origin of th e generation equipment and components like in the 
present case) would be unrelated to the subject-m atter of the procurement. And in fact such 
requirements would amount to a disguised measure of trade protectionism.  78. In sum, the facts of this case show that the requirement to use equipment and components 
made in Ontario in order to benefit from the FIT Program has nothing to do with the stated object of 
the FIT Contract, which refers to the supply of elect ricity. For this reason alone, the Panel may find 
that the FIT Program and its related contracts do not fall under the scope of Article III:8(a) of the 
GATT 1994.   
79. In any event, the European Union also invites the Panel to examine the substantive 
requirements contained in Article III:8(a) of th e GATT 1994 which, in the European Union's view, 
lead to the same result, i.e., that the FIT Program and its related contracts do not fall under such provision.  (b) The FIT Program does not involve a "purchase" (or procurement) 
 
80. As explained before in the context of our claims under the SCM Agreement, Canada attempts 
to characterise what the OPA does pursuant to the FIT Contracts as a "purchase" or "procurement" by 
the government.  For the reasons already mentioned in our section dealing with the claims under the 
SCM Agreement, the European Uni on maintains that the FIT Program and its related contracts do not 
involve a "purchase" or "procurement".  
 81. Moreover, Canada maintains that the ordinary  meaning of "procurement" is "acquisition" and 
that the OPA certainly acquires renewable electricity  under the FIT Contracts.  In this respect, the 
European Union notes that Canada agrees that the te rm "procurement" in Article III:8(a) of the GATT 
1994 is coterminous with "acquisition", as per the French and Spanish versions.  However, the 
European Union disagrees that the OPA is acquiri ng electricity from the FIT Generators through the 
FIT Contracts. Pursuant to the FIT Program and its related contr acts, the OPA facilities the production 
of electricity from renewable sources and directs the FI T Generators to supply their electricity into the 
grid. In this sense, the OPA does not "acquire" anything, other than the obligation to pay upon the delivery of electricity into the grid or upon the compliance by the FIT Generators with the IESO 
instructions to refrain from generating electricity. 
 82. Consequently, the OPA does not acquire, use or possess the electricity supplied by the FIT 
Generators. The purpose of the FIT Program and its related contracts is not to purchase or acquire 
electricity, but rather to ensure that electricity produced from renewable sources in injected into the 
grid. Canada appears to confirm that there is no purchase when stating that there is no "resale" of 
renewable electricity under the FIT Program.  If there is no resale, then it is reasonable to assume that 
there was no purchase in the first place by the OPA.  Since Article III:8(a) of the GATT 1994 requires 
that the government purchases or acquires products a nd the OPA does not do so pursuant to the FIT 
Program and its related contracts, the Pane l may find that those measures do not fall under 
Article III:8(a) of the GATT 1994. 
 
(c) The FIT Program does not involve a purchase "for governmental purposes"  83. Assuming that the FIT Program and its re lated contracts amount to a "purchase" or 
"procurement" by the Government of Ontario (quod non), the European Union submits that the Panel WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-48 
 
 
  may also find that the FIT Program and its related contracts do not meet the requirement under 
Article III:8(a) of the GATT 1994 that the products  must be purchased "for governmental purposes". 
 84. The European Union already addressed Canada 's arguments on this element in its opening 
oral statement at the first meeting with the Panel.  In its oral opening statement at the first meeting 
with the Panel, Canada did not further address such requirement.  
 85. In this respect, the European Union recalls that Canada's argument regarding the meaning of 
"for governmental purposes" revolves around the noti on of the "aims of the government" insofar as 
such aims are contained in legislation, regulati ons, policies or executive directions.  The European 
Union considers it irrelevant that the stated aims ar e contained in a piece of legislation or regulation. 
Otherwise, any stated aim, no matter what purpose or how disconnected with the object of the procurement contract, would be considered as auto matically meeting the condition of a purchase "for 
governmental purposes".  Likewise, it is also irrele vant that the government purchases products in line 
with a particular public policy or public objectiv e since, as a matter of principle, governments are 
expected to always act in pursuance of public polici es or public objectives. In other words, it should 
be presumed that governments when procuring pr oducts do so having a public objective or public 
policy in mind. Thus, those objectives or public polic ies cannot be determinative of the question as to 
the meaning of "products purchased for government al purposes", as otherwise those terms would be 
deprived of any real meaning. 
 
86. In the European Union's view, the key issu e under the terms "for governmental purposes", 
when seen together with the French and Spanish versions of Article III:8(a) of the GATT 1994, is 
whether the products purchased by the government agen cy were acquired with a view to covering the 
"needs" of the government. The term "necesidad" (" needs" in Spanish) means, among other things, 
"aquello a lo cual es imposible sustraerse, faltar o re sistir") (something that is impossible to avoid or 
resist).  The term "besoins" ("needs" in French ) means "les choses considérées comme nécessaires à 
l'existence) (something considered to be necessary to  exist).  Thus, the terms "necesidades/besoins" or 
"purposes" should be understood as referring to the n eeds of the government, in  the sense that the 
different government bodies and structures would be  unable to exist or perform their functions 
without reliance on the goods purchased. Such n eeds may include government purchases in order to 
be able to provide government services to c itizens, as products will be needed by the public 
institutions in charge of the delivery of public ser vices for their direct use in the delivery of such 
services. As observed by Brazil in its third party oral statement, different governments may have 
different needs depending on "the different roles that governments may come to play in different societies".  However, the European Union consider s that the needs of the government cannot include 
purchases aiming at complying with an y stated public policy, regardless of whether the goods will or 
will not be used by government in the performance of its many functions, and therefore regardless of 
whether such purchases cover the government's need s. Otherwise, government purchases aimed at 
"protecting local producers against imports" as a stated public policy would escape the national 
treatment obligation in Article III of the GATT 1994. In other words, an interpretation according to 
which the term "purposes" or "needs" refers to any public policy stated by the government would 
allow for circumventing the fundamental national treat ment principle and thus would run contrary to 
the object and purpose of Article III of the GATT 1994.  87. To illustrate this with an example. A government may purchase medical equipments and drugs to be used in public hospitals or books to be used by students at public schools in order to 
provide health and education services for the benef it of citizens. Such purchases would be covered by 
Article III:8(a) of the GATT 1994 since they will be used by the government in providing health and 
education services to its population. In contrast, the purchase of electricity by the government to be used only by local producers, even if there was a public policy behind of supporting domestic producers, would not aim at covering the needs of th e government (or even generally the citizens), but  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
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  rather a more dubious public policy from the natio nal treatment perspectiv e. More generally, the 
purchase of electricity by the government for injec tion into the grid and for use by industrial or 
residential users cannot be seen as a purchase "f or governmental purposes" for the purposes of 
Article III:8(a) of GATT 1994.      
 
88. In sum, the European Union considers that "for governmental purposes" refers to government 
purchases to cover its needs, which in turn also cove rs their needs for the main tenance of public sector 
infrastructure and services, including the provision of services to citizens. However, those terms do not cover purchases made in view of any public policy since, by definition, all purchases by the 
government are made with such a purpose and that interpretation would allow Article III of the GATT 
1994 to be circumvented.  89. In the present case, Canada argues that the OPA purchases electricity from the FIT Generators 
to fulfil a public policy, i.e., to secure a sufficient and reliable supply of electricity from clean sources.  
As said, it is not the existence of a public polic y objective that is relevant for the purposes of 
Article III:8(a), but the existence of a "need" of the government to purchase goods that the government will use in the performance of its many functions. In this case, the fact that the OPA 
purchases electricity from the FIT Generators to secu re a sufficient and reliable supply of electricity 
from clean sources, in pursuit of a public policy, is irrelevant since the electricity purchased is not 
used by the OPA or the Government of Ontario to perform any of its functions (such as providing 
light in public buildings, roads, etc).  
 90. In addition, Canada fails to demonstrate th e need that the domestic content requirements 
imposed on such purchases satisfies. In  the European Union's view, the inclusion of domestic content 
requirements with respect to wind and solar electric ity show that the electricity supplied by the FIT 
Generators is not delivered into the grid to cover the government's needs, such as to secure a sufficient 
and reliable supply of electricity from clean source s; rather, there is another objective behind the 
stated one that does not satisfy any government need.   91. Consequently, even if the Panel were to cons ider that pursuant to the FIT Contract, the OPA 
purchases electricity, the FIT Program and its related contracts insofar as they contain the domestic 
content requirements for wind and solar electricity, would not amount to purchases "for governmental 
purposes" in the sense of Article III:8(a) of the GATT 1994.    (d) Any alleged purchase of electricity through th e FIT Program is with a view to commercial 
resale 
 
92. Canada interprets the terms " not with a view to commercial re sale" in Article III:8(a) of the 
GATT 1994 as meaning that the purchase must not be with the aim to resell for profit. Canada maintains that the OPA does not purchase the electricity  with the aim of making a profit and, in fact, 
there is no profit since the OPA recoups the cost  of its purchase through the Global Adjustment. 
Further, Canada argues that there is no resale of re newable electricity under the FIT Program since the 
OPA purchases the electricity so it is delivered into the grid, where it is available for consumption.   
 93. The European Union submits that Canada's argu ments are without merit. First, with respect to 
the interpretation of the terms "commercial resale " Canada refers to a definition of the term 
"commerce" including the notion of profits. The Eu ropean Union observes that Canada's definition 
was taken from a specialised definition coming from (F rench) Commercial Law. In fact, the definition 
before the one mentioned by Canada, which has an  economic connotation, defines "commerce" as an 
"exchange".  Likewise, other French dictionaries, and in their general entries, more specifically 
defining the very terms used in Article III:8(a) of  the GATT 1994, i.e., "dans le commerce", refer to 
"sur le marché", without indicating any link with profit s.  Similarly, the term "comercio" in Spanish is WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-50 
 
 
  not defined by reference to profits.  Therefore, Canada's dictionary interpretation of the term 
"commercial" is not dispositive. Other definitions support the European Union' s interpretation that  
the terms "commercial resale" mean that the purchased  product is sold or introduced into the market 
("revendus dans le commerce"). 
 
94. Second, Canada refers to some case-law  where panels and the Appellate Body have 
interpreted the term "commercial".  The European  Union observes that those panel and Appellate 
Body reports did not interpret the term "commerc ial" in Article III:8 of the GATT 1994. Since the 
same term may have different meanings in diffe rent context, the European Union submits that 
Canada's references to those reports are unavailing.  
 95. Moreover, even if those pane ls and the Appellate Body repor ts considered profitability as 
central to the meaning of "commercial" in other contexts, this does not mean that the notion of 
"commercial" must always imply profitability in all cases  and in all contexts.  It may be clear that the 
term "commercial" covers situations where profits are present. However, it may also cover situations 
where those profits are absent and yet qualify the action as "commercial".  96. In this respect, the European Union disagrees with Canada's interpreta tion of the findings of 
the panel in Canada – Wheat Exports and Grain Imports . Canada argues that the panel's interpretation 
of the term "commercial considerations", in Ar ticle XVII:1(b) of the GATT 1994, "confirms that 
profitability is central to the ordinary meaning of 'c ommercial'". However, this is not what the panel 
decided. In fact, regarding the particular structur e of the STE that was the object of the dispute - the 
Canadian Wheat Board (CWB) – the panel explicitl y observed that "[i]t is uncontested that the 
objective of the CWB in selling wheat is not to make  a profit for itself".  Rather, the CWB acts as an 
instrument, aiming at returns not for itself but for the Canadian producers: "because of its governance 
structure, the CWB has an incentiv e to maximize returns to the producers whose products it markets 
… even if the CWB were to make sales in greater volumes and, in some instances, at lower prices 
than a profit-maximizing enterprise, this would not  necessarily imply that the CWB's sales would not 
be based solely on commercial considerations".  In other words, the correct interpretation of the 
decision of the panel in Canada – Wheat Exports and Grain Imports  is that it is entirely possible for 
an entity, organised as a State-Trading Enterprise, to  have a goal other than making profits for itself, 
and still to make purchases based on "commercial considerations".  
 97. Third, Canada argues that purchases of products  by the government with a view to reselling 
them outside of the government to recover the co sts of the acquisition (i.e., without a profit) fall 
within the scope of Article III:8(a) of the GATT 1994 because the resale might be necessary to fulfil 
the government purpose for which the product was purch ased.  In other words, Canada maintains that 
if, in order to comply with a government purpose the product purchased must be reintroduced into 
commerce, even if it is subsequently sold, tho se purchases would fall under Article III:8(a) of the 
GATT 1994 and thus they would not have to comply  with the national treatment obligation. The 
European Union observes that such interpretation of  Article III:8(a) cannot stand since it would lead 
to circumvention of the national treatment obligation. 
 
98. On the facts of this case, what Canada ar gues is that the OPA can purchase electricity from 
the FIT Generators, direct them to supply such electric ity into the grid and permit distributors to sell it 
to consumers. According to Canada, since there is  no profit made by the OPA, such mechanism would 
not involve a commercial resale and would fall under Article III:8(a) of the GATT 1994. The 
European Union disagrees. The term "commercial resale" cannot be measured against the economic 
resources of Members capable of purchasing goods  and reselling them with no profit to other 
operators so that they ultimately make profits. Th at would be tantamount as saying that some Member 
would have the financial capacity to circumvent the national treatment obligation in Article III (by 
selling without profit) whereas others would alwa ys fall under Article III of the GATT 1994. To use  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-51 
 
 
  other examples. A government cannot purchase domestic  potatoes only and then resell them with no 
cost to the government (or perhaps at a loss) to  other operators because the negative trade-distorting 
effect captured by the national treatment obligati on in Article III would have already been caused. 
Indeed, because of the government action, domestic  producers of potatoes would get their production 
purchased by the government and ultimately such production would be reintroduced into commerce, 
thereby circumventing the essence of Article III of the GATT 1994. The terms "not with a view to 
commercial resale" in Article III:8(a) are meant to en sure that the national treatment principle is not 
circumvented by permitting a government purchase on a discriminatory basis in cases where the purchased product will go back to the actual market  because the government resells the product. In 
this sense, the negotiating history confirms that th e term "commercial" was introduced "to ensure the 
continued application of the national treatment ex emption to procurement of goods which are sold 
after use".     99. Finally, the European Union observes that, in the present case, the fact that there is no profit 
made by the OPA may be irrelevant insofar as the elect ricity is supplied into the grid "with a view to 
commercial resale". Indeed, it is uncontested that the electricity supplied by the FIT Generators is 
subsequently sold at profit by dist ributors or independent retailers. 
 100. Consequently, the European Union considers that the Panel may find that the FIT Program and its related contracts are with a view to commerc ial resale and, thus, escape from the application of 
Article III:8(a) of the GATT 1994. 
 (e) Any alleged purchase of electricity through the FI T Program is with a view to being use in the 
production of goods for commercial sale 
 
101. Canada maintains that in order to fall under th e last part of the sentence in Article III:8(a) of 
the GATT 1994 a purchase must be made "with a view to" the use of the product in the production of 
goods for commercial sale. Cases where the product pur chased is used incidentally in the production 
of goods for commercial resale would fall under Article III:8(a) of the GATT 1994.   
 102. The European Union disagrees. The use of the terms "with a view to" do not depend on the 
subjective intention of the Member concerned when  purchasing the products in question. That would 
make the legal standard under Article III:8 of  the GATT 1994 subjective and thus subject to 
circumvention (i.e., if only based on the alleged or  stated intention of the Member concerned). 
Instead, the European Union considers that the lega l test under Article III:8(a) should be objective. In 
this sense, the Spanish and French versions on the terms "with a view to", i.e., "para"/"pour" ("for") 
are neutral and cover situations where there is evidence of the intention behind the governmental 
purchase as well as situations were in fact those products purchased by the government outside the 
national treatment obligations are used in the production of goods for commercial sale. Thus, 
Canada's subjective interpretation of th e terms "with a view to" cannot stand. 
 103. Moreover, Canada maintains that the terms "use in the production of goods for commercial 
sale" should be understood as referring to the actions of the government, and not to actions of other 
operators.  The European Union considers that such  interpretation cannot sta nd either. The terms are 
neutral in respect of the user and, certainly, do not state "use by the government" as Canada pretends. 
Rather, Article III:8(a) employs the term "use" in ge neral, without specifying the actual user. In view 
of the underlying anti-circumvention nature of thes e terms, the European Union considers that the 
correct interpretation should encompass situations  where the government purchase is made with a 
view to anyone subsequently using the product in the production of goods for commercial resale.  
 104. Consequently, in the present case, the Panel can fi nd that this element in Article III:8(a) of the 
GATT 1994 is not met since the electricity supplied into  the grid by the FIT Generators is used by WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-52 
 
 
  entities in Ontario in the production of goods for co mmercial purposes, a fact that Canada does not 
contest.   (f) Conclusions 
 
105. In view of the foregoing, the European Union requests the Panel to find that the domestic content requirements included in the FIT Progr am and its related c ontracts do not fall under 
Article III:8(a) of the GATT 1994. The Panel may do so by examining one, several or all of the 
elements mentioned above in Article III:8(a) of the GATT 1994.  
 
106. Consequently, the FIT Program and its re lated contracts do not fall under the scope of 
Article III:8(a) since they do not involve a purch ase (or procurement) by a governmental agency. 
Even if a purchase is made, such an  acquisition is not made for the direct consumption, benefit or use 
by the government of Ontario. Finally, even if a purchase is made, such an acquisition is made with a 
view to commercial resale and/or with a view to be used in the production of goods for commercial 
sale.  
2. Article III:8(b) of the GATT 1994 
 
107. In the present case, the European Union do es not claim that the FIT Program violates 
Article III:4 because its above-market rates for the energy produced by the FIT Generators are 
available only to Ontario-based renewable energy generators, and not to non- Ontario-based renewable 
energy generators. Rather, the European Union ma intains that the FIT Program's domestic content 
requirements discriminate against imported renewa ble energy generation equipment and components 
in favour of such equipment and components produ ced in Ontario. Consequently, the FIT Program 
and its related contracts do not fall und er the scope of Article III:8(b).  
 
3. Conclusion 
 
108. In view of the above, the European Union concludes that Article III:8 of the GATT 1994 does 
not apply in this case. Therefore, the national tr eatment provisions in Article III:4 of the GATT 1994 
and Article 2.1 of the TRIMs Agreement, in conj unction with paragraph 1(a) of its Annex, are 
applicable in the present case.  
D. THE MEASURES AT ISSUE ARE TRADE -RELATED INVESTMENT MEAS URES INCONSISTENT WITH 
ARTICLE 2.1 OF THE TRIMS AGREEMENT , IN CONJUNCTION WITH PARAGRAPH 1(A) OF ITS 
ANNEX  
 109. The European Union submits that the measures at issue are inconsistent with Article 2.1 of 
the TRIMs Agreement , in conjunction with paragraph 1(a) of  its Annex, because the measures are 
trade-related investment measures that require th e purchase or use by enterprises of equipment and 
components for renewable energy generation facilities of Ontario origin or source. 
 
1. The claims under the TRIMs Agreement are more specific than the claim under 
Article III:4 of the GATT 1994 
 
110. The core of the matter in this dispute is th e domestic content requirements included in the FIT 
Program and its related contracts. In particular, in  order for solar PV (FIT and microFIT) or wind 
(FIT) Generators to receive the guaranteed, long-term rates under the FIT Program, they must purchase or use a sufficient proportion of goods manuf actured, formed or assembled in Ontario and 
that are listed in the applicable Domestic Conten t Grid to satisfy the applicable Minimum Required 
Domestic Content Level. This establishes an ince ntive for the FIT Generators to utilise goods of  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-53 
 
 
  Ontario origin in preference to goods of other origin s in their solar PV or wind generation facilities, 
because goods of Ontario origin count toward the Do mestic Content Level of a project while goods of 
other origins do not. In other words, the FIT Program  discriminates against imported products because 
the FIT Generators have to purchase or use at least  some products of domestic origin or source in 
order to benefit from the FIT Program. In view of the more specific language of the claim under the 
TRIMs Agreement to the facts at issue in the presen t dispute, as compared to the GATT, and of the 
nature of the measures at issue as a TRIM, the European Union will examine its claims under the 
TRIMs Agreement first.   2. The FIT Program falls under paragraph 1( a) of the Annex to the TRIMs Agreement 
 
111. In order to show that a TRIM is inconsistent  with Article 2.1 of the TRIMs Agreement, there 
are at least two possibilities relevant in this case:  either (1) evidence is adduced demonstrating the 
existence of any of the situations  described in the illustrative list of TRIMs as inconsistent with the 
national treatment provision provided for in Article III:4 of the GATT (and, in particular, 
paragraph 1(a)) of the Annex to the TRIMs Agreemen t, or (2) a violation of Article III:4 of the GATT 
1994 is shown.   112. The European Union considers that there is sufficient evidence that the FIT Program and its 
related contracts are TRIMs explicitly addressed in  paragraph 1(a) of the Annex to the TRIMs 
Agreement. Indeed, the FIT Program is a TRIM "c ompliance with which is necessary to obtain an 
advantage" since failure to comply with Minimu m Required Domestic Content Level denotes that the 
generators will not benefit from the FIT Program. Moreover, the FIT Program requires the purchase 
or use of domestic equipment and components in order to satisfy the applicable Minimum Required 
Domestic Content Level.  
 
113. Therefore, the European Union submits that  the FIT Program and its related contracts are 
inconsistent with Article 2.1 of the TRIMs Agreement , in conjunction with paragraph 1(a) of its 
Annex, because they are TRIMs that require the purc hase or use by enterprises (FIT Generators) of 
equipment and components for renewable energy ge neration facilities of Ontario origin or source. 
 3. Conclusion and relief requested 
 
114. In view of the foregoing, the European Union requests the Panel to find that the FIT Program and its related contracts are incons istent with Article 2.1 of the TRIMs Agreement , in conjunction with 
paragraph 1(a) of its Annex, because they are TRIMs that require the purchase or use by enterprises of 
equipment and components for renewable energy gene ration facilities of Ontario origin or source.  
 115. The European Union requests the Panel to recommend that Canada brings the FIT Program 
and its related contracts into conformity with th e TRIMs Agreements as required by Article 19.1 of 
the DSU.  
E. THE MEASURES AT ISSUE ARE IN CONSISTENT WITH ARTICLE III :4 OF THE GATT 1994 
 116. The European Union argues that the FIT Progr am and its related contracts are inconsistent 
with Article III:4 of the GATT 1994 because they ar e TRIMs falling under paragraph 1(a) of the 
Annex to the TRIMs Agreement. Alternatively, th e European Union argues that the FIT Program and 
its related contracts are inconsistent with Article III:4 of the GATT 1994 because they impose 
domestic content requirements on wind a nd solar PV electricity generators that affect the internal sale, 
purchase or use of renewable energy generatio n equipment and components, according less 
favourable treatment to like products of EU origin.   WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-54 
 
 
  117. The FIT Program and its relate d contracts fall within the illustrative list of measures that are 
deemed to be inconsistent with Article III:4 of  the GATT in accordance with the Annex to the TRIMs 
Agreements. The European Union considers that, on this basis alone, the Panel can find that the FIT 
Program and its related contracts are also, conseque ntly, inconsistent with Article III:4 of the GATT. 
 
118. Should the Panel decide to examine the claim under Article III:4 of the GATT 1994 separately (e.g., because it does not exercise judicial economy) and/or before the claim under the TRIMs Agreement, the European Union submits that  the measures at issue are inconsistent with 
Article III:4 of the GATT 1994, because the measur es accord less favourable treatment to imported 
equipment and components for renewable energy gene ration facilities than accorded to like products 
originating in Ontario. The European Union incor porates hereto paragraphs 262 – 283 of Japan's first 
written submission in DS412 into this submission.   119. Indeed, the renewable energy genera tion equipment and components manufactured 
domestically in Ontario and imported from the Eu ropean Union are "like products" within the 
meaning of Article III:4 of the GATT 1994. A number of panels have held the view that where a 
difference in treatment between domestic and impor ted products is based exclusively on the products' 
origin, it is correct to treat products as "like" within the meaning of Article III:4.  In that case, there is 
no need to establish the likeness between imported and domestic products in terms of the traditional 
criteria – that is, their physical properties, end-uses and consumers' tastes and habits. In other words, it 
is sufficient for purposes of satisfying the "like prod uct" test for a complaining party to demonstrate 
that there can or will be domestic and imported produc ts that are "like". In the case at hand, the sole 
criterion distinguishing the products is that of the or igin. The Domestic Content Grid does not refer to 
any substantial difference between  domestic and imported equipmen t in terms of their physical 
properties, end-users, consumer perceptions and tariff classifications. Thus , both products, domestic 
and imported, are like. 
 120. Moreover, as explained before, the FIT Progr am and its related contracts are requirements 
affecting the internal sale, purchase or use of prod ucts in the sense of Article III:4 of the GATT 1994. 
 121. In addition, the FIT Program  and its related contracts accord less favourable treatment to 
imported renewable energy generation equipment and components than that accorded to like products 
of Ontario origin. The FIT Program creates in centives among Ontario-based wind and solar PV 
energy generators to use renewable energy ge neration equipment and components produced within 
Ontario. The fundamental thrust of these measures is to alter the conditions of competition between 
imported and like domestic products in order to artif icially create a preference for domestic products.  
 
122. Consequently, because the FIT Program and its  related contracts impose domestic content 
requirements on wind and solar PV electricity generators  that affect the internal sale, purchase, or use 
of renewable energy generation e quipment and components, according less favourable treatment to 
like products of EU origin, they are inconsistent  with Canada's national treatment obligation under 
Article III:4 of the GATT 1994.  
 
123. In view of the foregoing, the European Union requests the Panel to find that the FIT Program and its related contracts are inconsistent with Article III:4 of the GATT 1994 because they are TRIMs 
falling under paragraph 1(a) of the Annex to  the TRIMs Agreement. Alternatively, the 
European Union requests the Panel to find that the FIT Program and its related contracts are 
inconsistent with Article III:4 of the GATT 1994 b ecause they impose domestic content requirements 
on wind and solar PV electricity gene rators that affect the internal sale, purchase or use of renewable 
energy generation equipment and components, accordi ng less favourable treatment to like products of 
EU origin.    WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-55 
 
 
  124. The European Union requests the Panel to recommend that Canada brings the FIT Program 
and its related contracts into conformity with th e GATT 1994 as required by Article 19.1 of the DSU. 
 
IV. CONCLUSIONS AND REQUEST FOR RELIEF 
 
125. Based on the foregoing, the European Un ion requests that Panel to find that:  
 
 Canada violated Articles 3.1(b) and 3.2 of th e SCM Agreement since the FIT Program and its 
related contracts established by the Government of Ontario are subsidies within the meaning 
of Article 1.1 of the SCM Agreement that are provided contingent upon the use of domestic 
over imported goods, namely contingent upon th e use of equipment and components for 
renewable energy generation facilities produced in Ontario over such equipment and components imported from other WTO Members, including the European Union;  
 
 Canada violated Article 2.1 of the TRIMs Agre ement, in conjunction w ith paragraph 1(a) of 
its Annex, because the FIT Program and its related contracts established by the Government 
of Ontario are TRIMs that require the purchase or use by enterprises of equipment and 
components for renewable energy generation f acilities of Ontario origin or source; and  
 
 Canada violated Article III:4 of the GATT 1994 because the FIT Program and its related 
contracts established by the Government of On tario are TRIMs falling under paragraph 1(a) 
of the Annex to the TRIMs Agreement or, alternatively, because they impose domestic 
content requirements on wind and solar PV electricity  generators that affects the internal sale, 
purchase or use of renewable energy generati on equipment and components, according less 
favourable treatment to like products of EU origin.  
  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-56 
 
 
   
ANNEX A-3 
  
INTEGRATED EXECUTIVE SUMMARY OF CANADA 
 
  
TABLE OF CONTENTS 
 
 
I.  CANADA'S FIRST WRITTEN SUBMISSION IN DS412 ............................................. A-57  
A.  I
NTRODUCTION  ..................................................................................................................... A-57  
B.  FACTUAL OVERVIEW  ............................................................................................................ A-57  
C.  LEGAL ARGUMENTS  .............................................................................................................. A-63  
1.  The FIT Program Is not Subject to GATT Article III .................................................... A-63  
2.  Japan's Claim under the TRIMS Agreement ................................................................... A-65  
3.  Japan's SCM Agreement Claim ........................................................................................ A-65  
II.  CANADA'S FIRST WRITTEN SUBMISSION IN DS426 ............................................. A-68  
A.  THE FIT PROGRAM IS NOT SUBJECT TO GATT  ARTICLE III AS IT FALLS WITHIN THE 
SCOPE OF ARTICLE III:8( A) ................................................................................................... A-68  
B.  THE EUROPEAN UNION 'S SCM  AGREEMENT CLAIM  ............................................................ A-69  
III. CANADA'S OPENING STATEMENT AT THE FIRST MEETING OF THE 
PANEL ......................................................................................................................... ........ A-71  
A.  THE GATT  CLAIM  ................................................................................................................ A-71  
B.  THE SCM  AGREEMENT CLAIM  ............................................................................................. A-73  
IV.  CANADA'S SECOND WRITTEN SUBMISSION IN DS412 AND DS426 ................... A-75  
A.  THE GATT  CLAIM  ................................................................................................................ A-76  
B.  THE SUBSIDY CLAIM  ............................................................................................................. A-80  
V.  CANADA'S OPENING STATEMENT AT THE SECOND MEETING OF THE 
PANEL ......................................................................................................................... ........ A-80  
A.  THE GATT  CLAIM  ................................................................................................................ A-80  
B.  THE SUBSIDY CLAIM  ............................................................................................................. A-82  
 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-57 
 
 
  I. CANADA'S FIRST WRITTEN SUBMISSION IN DS4121 
 
A. INTRODUCTION  
 
1. Electricity is critical to public welfare. Thus , the Government of Ontario plays an important 
role in ensuring a sufficient and reliable supply of electricity, including from clean sources, by 
regulating the electricity industry, owning genera tion facilities, and owning the majority of the 
transmission network. The Government of Ontario al so procures electricity through its agent, the 
Ontario Power Authority (OPA), which enters into  "Power Purchase Agreem ents" with Independent 
Power Producers (IPPs).   2. Through the Ontario Feed-In-Tariff (FIT) Program, the OPA purchases electricity from renewable sources. In addition to helping secure the supply of electricity, the FIT Program also helps 
protect the environment as it reduces Ontario's re liance on electricity from coal, thus reducing the 
production of greenhouse gases.  
 3. The procurement of electricity by the OPA th rough the FIT Program falls within the scope of 
Article III:8(a) of the General Agreement on Tariffs  and Trade 1994 (GATT) and as a consequence, is 
not subject to Article III of GATT and cannot be inc onsistent with Article 2.1 of the Agreement on 
Trade-Related Investment Measures (TRIMS Agreem ent). Article III:8(a) removes laws, regulations 
and requirements that govern certain procurements from the obligations of Article III of the GATT 
and TRIMS. As explained by Japan's Ministry of Economy, Trade and Industry, Article III:8(a) 
"permits governments to purchase domestic products  preferentially, making government procurement 
one of the exceptions to the national treatment rule".  
 
4. Japan has also failed to substantiate its alle gation that the FIT Program is a prohibited subsidy 
under the Agreement on Subsidies and Countervailin g Measures (SCM Agreement) for two reasons: 
first, it has mischaracterized the OPA's purchase of goods as a direct or potential direct transfer of 
funds, or a form of income or price support; and, second, the benchmarks it has chosen to establish the 
conferral of a "benefit" are inappropriate
2. 
 
B. FACTUAL OVERVIEW 
 
5. The electricity system in Ontario has histor ically been owned and ope rated by the provincial 
government. From 1973 to 1998, a government corpora tion named Ontario Hydro was responsible for 
ensuring almost all generation and transmission of electricity in the province. In 1998, financial 
difficulties experienced by Ontario cau sed the government to enact the Energy Competition Act and 
the Electricity Act, 1998 , which created the electricity market and split Ontario Hydro's 
responsibilities across five  separate entities.  
 
6. First, the Independent Electricity Market  Operator (IMO) was created to manage the 
wholesale electricity market3. Second, Ontario Power Generati on (OPG) was formed to own and 
                                                      
1 Canada has summarized its key arguments in its written statements and oral opening statements 
chronologically. Canada has endeavoured to summarize only the new points that have arisen in subsequent submissions. With respect to summaries of its respon ses to the Panel's questions and certain comments on 
responses by the complainants, Canada has either inserted these in relevant sections in this document or, to the 
extent possible, placed them in a footnote to the text that is most relevant.  
2 With respect to Canada's request for a preliminary ruling under Article 6.2 of the DSU, the Panel has 
set out a general outline of Canada's arguments in its decision.  
3 Response to question No. 19 (Second Set): The IMO wholesale electricity market was based on 
offers of electricity and bids to purchase electricity. In that market, generators offered quantities of electricity at 
specific rates and volumes while purchasers (mainly Lo cal Distribution Companies (LDCs)) bid to purchase. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-58 
 
 
  operate the generation assets of Ontario Hydro, thus assuming responsibility for 90% of electricity 
generation in Ontario. Third, Hydro One was ma de responsible for owning most of Ontario's 
transmission system and its largest distribution co mpany. Fourth, the Ontario Electricity Financial 
Corporation (OEFC) was created to manage de bt and Non-Utility Generator (NUG) contracts 
inherited from Ontario Hydro. Fifth, the Electrical Safety Authority (ESA) was established to improve 
electrical safety for Ontario residents.   7. At the same time, the Ontario Energy Board (OEB) was tasked with regulating the electricity 
industry, and setting the rates for distribution utiliti es and consumer prices under the Regulated Price 
Plan (RPP)
4.  
 8. While the competitive market was being de veloped between 1998 an d 2002, few generation 
facilities were constructed and there was insufficien t investment from the private sector to ensure 
reliable supply. The competitive market opened in  May of 2002
5. Over the summer of 2002, very high 
                                                                                                                                                                     
The IMO balanced supply and demand by accepting all offers up to the total qua ntity of electricity required in a 
particular five-minute interval. The last quantity of electricity accepted by the IMO set the Market Clearing 
Price (MCP). The average of all the MCPs for a particular hour set the HOEP. After the market closed in 
November 2002, this mechanism continued to be the basis on which the IESO balanced physical supply and 
demand (i.e. volume). However, the IESO mechanism func tions differently. First, not all generators present 
"offers" in the same manner. Most significantly, non-dispatchable generation (including FIT wind and solar electricity) is automatically accepted in to the IESO stack on the basis of estimates of volumes generated and 
without any rate "offer". Th e IESO then accepts into the stack the baseload quantity from all regulated OPG 
facilities. OPG "offers" this baseload electricity at extr emely low and often negative rates to ensure that it will 
be accepted. It can do so and face no negative revenue im pact because its true rates are set through regulation by 
the OEB.  
It is only after these volumes are accepted that the IESO begins to acc ept offers into the stack from 
other generators. These are generators who either receive  contractual rates or the HOEP alone. These offers 
occur across all generation sources except non-dispat chable sources. However, the rates offered are not 
reflective of the true price for th e generation of any contracted elect ricity source because these are pre-
determined by the OPA/OEFC contracts. Ultimately, the la st quantities of electricity accepted into the stack tend 
to be from gas generators with OPA contracts. These cont racts contain provisions that require gas generators to 
"offer" at a rate determined by a fo rmula that ensures that the generators  run when it is most economical for 
them to do so.  
With respect to the demand side of the IESO stacking mechanism, LDCs, who make up the vast 
majority of the demand "bids", are both rate and volume inelastic. They simply flow through the demand of end-
users on the basis of expected volumes consumed and take any rate.   
4 Response to question No. 37 (First Set): The operations of the OEB before and after the period of the 
competitive market in 2002 are substantively the same. In 2003, its role was expanded to include responsibility 
for developing a new retail electricity pricing mechanism,  the RPP. In addition, when the OPA was created in 
2002, the OEB was made responsible for approving its fees and procurement processes. In 2005, the OEB became responsible for regulating the rates fo r the OPG's regulated generating assets.  
In 2002, the IESO was called the IMO. It was re sponsible for managing th e wholesale electricity 
market and operation of the system. In 2004, the IMO was renamed the IESO. The IESO today continues to manage the reliability of the power system, is responsible for operating the algorithm to balance physical supply 
and demand, and provides short-term forecasts of dema nd and supply of electricity. There is no substantive 
change to its responsibilities; however, the removal of the term "Market" from its title indicated the change in Ontario's electricity system. The OPA did not exist in 20 02. It was created by the El ectricity Restructuring Act 
in 2004. In 2002, there was no entity mandated to procure electricity on behalf of the Government of Ontario.  
5 Response to question No. 1 (Second Set): The generation technologies that existed during 
liberalization were nuclear, coal, oil and gas, hydroelect ric, wind, wood and waste. The respective capacities and 
outputs for 2002 have been provided. These generators received the HOEP as remuneration, with the exception 
of NUG producers, who rece ived contractual rates. Du ring liberalization, NUG pr oducers received averagely 
$0.06 to $0.07/kWh. The IMO mechanism was not applie d to NUG generators as they were entitled to their 
contractual rates agreed to with the former Ontario Hydro in the early 1990s. NUG generators accounted for  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-59 
 
 
  temperatures in the province drove up demand as well as the prices of electricity. As a result, the 
government capped electricity prices for residentia l, institutional and small business consumers.  
 9. As part of a plan to remove the price caps a nd to facilitate investment  in new generation, the 
government restructured the electricity system again in 2004 through the Electricity Restructuring 
Act. This largely led to the system that exists in  Ontario today. Governmental oversight of the 
electricity system was mandated to the Ministry of Energy, which has the responsibility for ensuring 
that Ontario's electricity needs are met in a sust ainable manner. The Ministry of Energy also has 
legislative responsibility over the Independent Electri city System Operator (IESO), OEB, OPA, OPG 
and Hydro One.  
 10. As the experience with the competitive wholesale market demonstrated that this would not be 
sufficient to provide for long-term supply n eeds, the OPA was created and mandated with 
responsibility for long-term system planning, procur ing electricity and the promotion of renewables 
and clean energy
6. During restructuring, the IMO was also renamed the IESO. The IESO continues to 
manage the reliability of the power system and administer the electricity system.  11. Today, electricity is generated by OPG facilities (which provide approximately 50% of 
supply) and by IPPs who have contracts with the OPA or OEFC (approximately 42% of supply). By 
mid-2011, OPA-procured electricity accounted fo r approximately 12,426MW of generating capacity 
in Ontario. The OPA procures electricity by en tering into long-term contracts known as "Power 
Purchase Agreements"
7.  
                                                                                                                                                                     
about 6% of generation in 2002. The average HOEP during liberalization ranged from $0.03 to $0.0831/kWh. 
Non-commodity charges were not included in the HOEP , nor are they presently included. In 2002, these 
constituted the wholesale market service charge, transmis sion charge and debt retirement charge; for the period 
of May to November 2002 inclusive, these charges averaged $0.07/kWh, $0.0887/kWh and $0.07/kWh, 
respectively. These were paid, in addition to the HOEP, by all end-users of electricity during the liberalization 
period, just as they are today. From May to November 2002, Ontario imported a total of 5.1 TWh of electricity. This represented about 5.7% of total Ontario demand over this period (net imports were about 4.4% of total 
demand).  
The Government of Ontario decided to put an end to liberalization as very high temperatures drove up 
demand, supply was hampered by the market structure which did not encourage sufficient entry of new 
generators, and, as a result, prices rose significan tly over a short period. The difficulties experienced by 
consumers as a result of these high prices led the gove rnment to lower and cap the prices of electricity for 
certain consumers. In order to remove price caps and facilitate investment in new generation, the government 
restructured the electricity market into the electricity system that presently exists.  
6 Response to question Nos. 10 and 36 (First Set): The OPA is neither an "agent" nor a "clearing 
house", as asserted by the European Union. The legislatio n that created the OPA does not mandate it to act as an 
agent but to enter into procurement contracts. It has no ag ency contracts with sellers or  purchasers of electricity 
and does not act on any instructions from FIT suppliers or consumers. Rather, together with the Ministry of 
Energy, it decides the conditions of purchase. 
A "clearing house" is "[a]n institution […] for the adjustment of their mutual claims for cheques and 
bills […]". The OPA does not perform this role. The OPA also does not act as a "regulator" – that is the role of 
the OEB. The OEB regulates the prices paid by low-volum e Ontario consumers and businesses, the rates paid to 
electricity generating assets owned by the government, and the fees paid to transmission and distribution companies for delivering electricity. By contrast, the OPA doe s not regulate anything. It enters into contracts for 
the purchase of power. Suppliers  are free to accept or reject th e price offered by the OPA. 
Response to question No. 29 (First Set): The OPA's liabilities are not guaranteed by the Government of 
Ontario. Presently, the OPA's only source of revenue to pa y the contracted prices is the Global Adjustment. In 
the unlikely event that consumers do  not pay the Global Adjustment, the OPA may be unable to make these 
payments.  
7 Response to question Nos. 16 and 18 (Second Set): It is standard practice for contracts to specify the 
type of generation technology that will be employed. For example, contracts under the Hydroelectric Contract WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-60 
 
 
   
12. Thus, the Government of Ontario helps secure  the supply of electricity by regulating the 
electricity industry, owning generati ng facilities and procuring electricity
8. In doing so, the 
government faces two main challenges: first, securing sufficient supply; and, second, securing supply 
from clean sources. 
 13. The first challenge of securing sufficient suppl y exists as Ontario's population will increase by 
28% by 2030, while several nuclear facilities will be  temporarily shut down for maintenance. Thus, 
supply will be declining while demand is exp ected to increase. Further, the government has 
committed to eliminating coal-fired generation by 2014. It is forecast that 15,000MW of generation 
capacity will need to be renewed, replaced or adde d to the existing capacity of 35,000MW by 2030.  
 14. However, the government faces the problem of  stimulating investment in new electricity 
generation, i.e. the "missing money" problem. This problem arises when wholesale prices do not 
provide adequate compensation to pay for the fixed cost s of generators or the total investment costs of 
new generators. As a result, investors would not  finance the construction of new generation at 
wholesale prices. This problem is more severe for the capital intensive generation technologies 
required for renewable electricity generation
9. 
 15. In Ontario, the wholesale market price ( known as the Hourly Ontario Energy Price (HOEP)) 
does not provide sufficient compensation to stimulat e investment in generation. As such, 92% of 
generators in Ontario are not compensated by the HOEP alone – they are paid regulated or contract 
prices that are above the HOEP in accordance wi th OEB regulations, OPA contracts or OEFC 
contracts
10. OPG's nuclear and baseload hydroelectric generation have their rates set by the OEB, 
                                                                                                                                                                     
Initiative (HCI) are only awarded to hydroelectric plants. Similarly, contracts under the Combined Heat and 
Power Standard Offer Program are only for electricity supplied from gas. Other programs, such as FIT, require 
that the electricity is supplied from certain renewable s ources. The only contract for nuclear generation is for the 
refurbishment of Bruce Power. OPA contracts with h ydro facilities under the HCI and FIT are generic in terms 
of technology (i.e. they provide for standard rates). It is also standard practice for contracts of grid-connected 
generators to stipulate requirements related to the grid . These typically incorporate the IESO Market Rules. For 
example, section 2.2(d) of the RES II Contract requires generators to provide a "Connection Impact Assessment […]".  
8 Response to question No. 34 (First Set): In Ontario,  the goals of electricity security and sustainable 
generation are set out in section 1 of the Electricity Act, 1998. The OPA's mandate to ensure an adequate, 
reliable and secure supply of electricity  is set out in section 25.2 of th is Act. These objectives are also 
contemplated by the Green Energy Act, 2009 and the Long-Term Ener gy Plan (LTEP). These goals are shared 
by neighbouring jurisdictions. In order to participate in the North American electricity grid, the IESO is required 
to comply with standards developed by the North Amer ican Reliability Corporation, including requirements for 
having adequate generation reserves.  
9 Response to question No. 42 (First Set); question Nos. 2 and 7 (Second Set): A significant barrier to 
entry for a new electricity investor in Ontario is ensuring that its sales revenue covers its total costs of 
production and earns it an attractive enough return to me rit the risks. In addition, new investors also face 
barriers in securing project financing as they must often demonstrate to lenders that they have long-term 
contracts for the purchase of electricity with credit-wo rthy entities. Additionally, they must meet a number of 
regulatory requirements, including: certain credit require ments; application to the IESO to become a market 
participant and pay an application fee; obtain a licen ce from the OEB; register generation facilities with the 
IESO (if they are transmission grid conn ected); and register interval meters to measure energy that flows in or 
out of the grid.  
All FIT suppliers connected to the IESO grid are considered "Market Participants" and must adhere to 
IESO Market Rules. The Market Rules exist to ensure the safety and reliability of the system.  
10 Response to question No. 38 (First Set); que stion No. 5 (Second Set): All rates received by 
generators are above the HOEP, with  the exception of certain older, unregulated OPG-owned coal and non-
baseload hydro facilities. OPG nuclear and base-load hydro plants receive abov e-HOEP rates. Effective  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-61 
 
 
  while generators receiving a capacity contract price are NUGs, IPPs, OPG plants that have contracts, 
and Renewable Energy Supply (R ES) and FIT Program generators11. The only generators that receive 
the HOEP alone are OPG's unregulated hydroelectri c facilities and two coal-fired facilities, making up 
approximately 8% of generation. These are older,  state-owned facilities whose capital costs have 
largely been depreciated. In the case of coal, th ese facilities will be shut down by the end of 2014. 
 16. Second, Ontario faces the challenge of secu ring clean energy supply as it has committed to 
reducing its production of greenhouse gases and to ph asing out all coal-fired generation by the end of 
2014. Coal generation will be replaced partly by renewable generation. The Government aims to 
increase capacity from wind, solar a nd bioenergy to 10,700MW by 2018
12. 
 17. FIT Programs play an important role in securing clean electricity supply. Countries around 
the world, including Japan, have developed FIT pr ograms which generally provide guaranteed rates 
with long-term contracts in re turn for the provision of renewable electricity by a producer
13. These 
                                                                                                                                                                     
1 March 2011, the rate for nuclear was $0.056/kWh, and regulated hydro was $0.034/kWh. Bruce Power 
received $0.057/kWh for its "A" units and a floor price of $0.045/kWh for its "B" units, adjusted in accordance 
with its contract terms. These rates escalate according to the Consumer Price Inde x (CPI) factor. Unregulated 
hydro plants receive only the HOEP. Plants under the OPA's HCI receive $0.069/kWh , escalated in accordance 
with the CPI. Waterpower generato rs under FIT receive $0.131/kWh. On average, OPA-contracted gas 
generators are paid $0.09/kWh, while NUG gas contract s receive $0.10/kWh. Two coal facilities with OEFC 
contracts receive approximate ly $0.10/kWh above the HOEP as a con tingency support paym ent. The remaining 
coal facilities receive the HOEP alone. Bioenergy gene rators under the RESOP Pr ogram receive $0.11/kWh. 
New bioenergy projects under FIT recei ve from $0.104 to $0.195/kWh. Wind  and solar rates under RES range 
from $0.08/kWh to $0.11/kWh. Wind projects under FIT receive $0.135/kW h. FIT solar generators receive 
prices that range from $0.443 to $0.713/kWh, depending on the solar facility. Solar generators under the RESOP Program receive $0.42/kWh. OPA cont racts for natural gas and non-solar PV generation under RESOP receive 
an annual price escalation of  20% of the Ontario CPI.  
11 Response to question Nos. 15 and 16 (First Set): The only contract between generators in Ontario 
and transmission companies is a "connection agreement" which provides the terms on which generators inject 
electricity into the transmission grid. The transmission company's fee for distributing the electricity is 
determined by the OEB and paid by consumers. There ar e no contracts for the purcha se of electricity between 
generators and transmission companies. The only contract between generators and LDCs is a similar 
"connection agreement". The fee of LD Cs for distributing electricity is determined by the OEB and paid by 
consumers. There are no electricity purchase contracts be tween generators and LDCs. There is no contractual 
relationship between electricity generators in Ontario and consumers, whether transmission or distribution 
connected.  
12 Response to question No. 33 (First  Set): The current policies on "su pply mix" are found in the LTEP. 
The LTEP directs that Ontario's supply mix must balance reliability, cost and environmental impacts. 
Consequently, the different technologies employed must achieve a balance of goals, that is: conservation, sufficient baseload, intermediate and peak po wer, and the reduction of carbon emissions.  
13 Response to question Nos. 46 and 50 (Second Set): A number of governments around the world 
promote the supply of electricity from cl ean sources as part of policies to ensure reliable and sufficient supply. 
For example: (1) Japan, through its "Strategic Energy Policy"; (2) Europe, through the "Directive on the 
promotion of the use of energy from renewable sources"; (3) Germany, in its statement on "The Path to the 
Energy of the Future – Reliable, Affordable and Envi ronmentally Sound"; (4) Calif ornia, through its "Clean 
Energy Future" policy; (5) Australia, through the Department of Resources, Energy and Tourism, on its 
commitment to clean energy technolo gies; (6) South Africa, through its National Energy Act; and (7) 
Switzerland, through its "Energy Strategy 2050".  
Canada is not of the view that all governments pursue this objective in the same manner as the 
Government of Ontario. Some do. For example, India procures renewable electricity through its National Solar 
Mission program, which aims to "promote ecologically sustainable growth while addressing India's energy security challenge" and requires state utilities to procure solar generated electricity through a "Renewable 
Purchase Obligation".  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-62 
 
 
  prices are often higher than those for electricity produced from traditional sources, to reflect the 
higher costs of production.  18. The production costs from the wind and sun are significantly higher for several reasons. For 
instance, there are fewer economies of scale in co mparison with large nuclear, coal, hydro and gas 
plants; wind and solar facilities produce electricity for a much smaller proportion of the year; the smaller experience base means there are fewer operati onal efficiencies; and the lack of experience in 
constructing wind and solar facilities leads to fewe r efficiencies. Thus, prices guaranteed by FIT 
programs provide remuneration to generators to cover the highe r costs involved in renewable 
electricity generation.  
 19. The Ontario FIT Program was created by a Mini sterial Direction issued by the Minister of 
Energy and Infrastructure to the OPA on 24 Sept ember 2009, under the authority provided by section 
25.35 of the Electricity Act, 1998 . The objective of this was to induce new renewable generation. This 
was necessary as most of these generators would no t have entered the market in the absence of the 
FIT Program.   20. The Ministerial Direction instructed the OPA to develop a FIT Program "designed to procure energy from a wide range of renewable sources" a nd stipulated that each wind and solar photovoltaic 
(PV) and solar microFIT project contain a percentage of domestic content
14. The key objectives of the 
FIT Program are to "increase capacity of renewabl e energy supply to ensure  adequate generation and 
reduce emissions" and to "introduce a simpler me thod to procure and deve lop generating capacity 
from renewable sources of energy". The Ministerial Di rection dictates the eligible technologies of the 
program, and prescribes the process for establi shing prices, contract duration and specific 
requirements to be contained in the FIT Rules and contract.  
 
21. The OPA implements the FIT Rules and the Ministerial Direction through "Power Purchase 
Agreements" with genera tors under the authority provided by the Ministerial Direction and its 
authority to procure electricity in section 25.2(5) of the Electricity Act, 1998. The FIT Program is 
open to generators of electricity from solar, wind, water and bioenergy sources15. Domestic content 
requirements are restricted to solar projects and wind projects greater than 10 kilowatts. 
 
22. The FIT contracts provide so lar and wind generators fixed prices in accordance with the FIT 
Price Schedule, for 20 years. Domestic content requirements are set out in Exhibit D (Domestic 
Content Grid) of the FIT Contract. Like other regulated and procured electricity in Ontario, FIT contracts provide prices that are higher than the HOEP to provide the additio nal revenue required to 
pay for the higher costs involved. These supplem ental payments are recovered from the Global 
Adjustment charge, an amount charged to customers in proportion to total consumption and type of 
consumer
16.  
                                                      
14 Response to question No. 32 (First Set): The FIT Program was developed in line with the goals of 
the Green Energy Act, 2009. There are no functional or technical requirements underpinning the domestic 
content requirements.  
15 Response to question No. 41 (First Set): The OPA has the discretion to reject applications made to 
the FIT or microFIT Programs that could nonetheless satisfy the relevant conditions. This discretion is set out in 
section 12.2(c) of the FIT Rules, and, section 6.1(e) of the microFIT Rules.  
16 Response to question No. 30 (First Set); ques tion No. 3 (Second Set): Ontario's electricity 
generation, transmission and distribution system is a closed financial system. All costs are recovered from 
ratepayers through fees or through charges levied under the Global Adjustment. No funds from consolidated 
revenue are made to the OPA, OEB or IESO.  
In January 2005, the Government of Ontario initiated the "Provincial Benefit" mechanism in part to 
recover the cost of the NUG contracts. This was later renamed the "Global Adjustment".   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-63 
 
 
   
C. LEGAL ARGUMENTS 
 
23. Japan's claims that Canada has breached  the GATT, the TRIMS Agreement and the SCM 
Agreement are without merit because: (i) the local content requirement is within the scope of GATT 
Article III:8(a) and therefore is not subject to Article III of the GATT; (ii) as the local content requirement is not subject to Article III, it cannot  be inconsistent with Article 2.1 of the TRIMS 
Agreement; (iii) the Panel has no jurisdiction over the SCM Agreement claim due to Japan's deficient 
panel request; (iv) in the alternativ e, the Government of Ontario is not transferring funds or providing 
any form of income or price support within the meaning of the SCM Agreement – it is purchasing 
electricity; and, (v) Japan has failed to demonstrate that the price the Government pays for renewable energy under the FIT Program confers a benefit within the meaning of the SCM Agreement.  
 
1. The FIT Program Is not Subject to GATT Article III 
 
24. Certain government procurements are not subj ect to GATT Article III. When this Article was 
being developed, some parties sought to have its obligations apply broadly to purchases by 
government. However, this proposal to expressl y extend the national treatment obligation to 
governmental purchases was rejected. Instead, certain  government procurements were removed from 
the scope of national treatment through what eventually became Article III:8(a)
17. This Article 
provides:  
The provisions of this Article shall not a pply to laws, regulations or requirements 
governing the procurement by  governmental agencies of products purchased for 
                                                                                                                                                                     
Response to question No. 39 (First Set); question No s. 4 and 8 (Second Set): The IESO pays the HOEP 
component of a FIT generator's payment, while the OPA pays the balance through the Global Adjustment. The 
LDC serves as an agent on behalf of the OPA with respect to making payments under FIT contracts to distribution-connected generators using funds collected from consumers that constitute the HOEP and the 
Global Adjustment. The settlement processes are set out in Section 8 of the FIT Rules (Overview of Settlement) 
and Exhibit B to the FIT Contract. The same settlement process generally applies for all generators with OPA contracts irrespective of technology . Transmission-connected generators receive HOEP payments from the 
IESO and the balance from the OPA via the Global Adjustment. Distribution-connected generators receive 
payments through the LDC. However, with respect to the RES generators under OPA contracts, the OPA pays 
RES I and RES II contract-holders the full payment direct ly. RES III contract holders are paid by the IESO for 
the HOEP component, and by the OPA for the balance. Th e OEB does not have contracts with any generators.  
All OPA contracts, including FIT and microFIT, serv e the same basic objective – to ensure a secure 
and reliable source of electricity for Ontario from clean sources. Generally , IPPs with OPA contracts receive 
rates that vary according to technolo gy and the terms of their contracts.  Rates for wind projects under the RES 
request for proposal process range from $0.08/kWh to $0.11/kWh. These projects provide much smaller 
capacity than the capacity provided by  the wind projects under FIT, whic h receive $0.135/kWh. Compensation 
to producers who have gas- fired generation contracts w ill vary according to the cont ract. Clean Energy Supply 
contracts receive rates on the basis of the lowest cost  bids accepted. Other gas cont racts receive rates based on 
bilateral negotiations. Gas contracts are designed to ensu re that generators are able to recover fuel costs 
regardless of fluctuations in natu ral gas prices. While grid connectio n requirements are similar for each 
technology, larger generation projects have more extensive requirements.  
Response to question No. 40 (First Set): The LDC serves as an agent of the OPA with respect to 
making contract payments to microFIT generators. Settle ment procedures are descri bed in Section 4.4 of the 
microFIT Contract and Section 5.2 of the microFIT Rules.   
17 Response to question No. 59 (First Set): The purpose of Article III:8(a) is to exclude laws, 
regulations and requirements that govern certain procurements from the scope of Article III. This ensures that such laws, regulations and requirements are not subject  to Article III and that Members are free to impose 
conditions on the relevant procurements that would otherwise be inconsistent with the Article.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-64 
 
 
  governmental purposes and not with a view to commercial resale or with a view to 
use in the production of goods for commercial sale. 
25. Article III:8(a) preserves governments' flexib ility to pursue public policy objectives through 
their procurements. As Japan's Ministry of Economy, Trade and Industry has explained:  
 
GATT Article III:8(a) permits governments to purchase domestic products preferentially; making government procuremen t one of the exceptions to the national 
treatment rule. This exception is permit ted because WTO Members recognize the role 
of government procurement in national policy. For example, […] government 
procurement may […] be used as a policy tool to promote smaller business, local 
industry or advanced technologies. 
26. The laws and requirements that create and im plement the FIT Program – section 25.35 of the 
Electricity Act, 1998 , the Ministerial Direction, and the FIT and microFIT Rules and contracts – 
satisfy all the elements of Article III:8(a). The Electricity Act , 1998  is a law, the Ministerial Direction 
imposes requirements on the OPA to establish the program, the FIT and microFIT Rules and standard 
contracts impose requirements on the OPA concerni ng implementation of the Program. In addition, 
these laws and requirements govern the procuremen t of renewable electricity by the OPA.  
 27. The OPA is a governmental agency that procures the product
18 of renewable electricity. The 
Oxford English Dictionary  defines "product" as "[a]n object pr oduced by a particular action or 
process; the result of mental or physical work or ef fort". Renewable electricity is such an "object". 
The aforementioned laws and requirements also expressl y state that the OPA is "procuring" electricity 
and that the FIT Program is a "program for procurement ", and that it is designed to procure  energy 
from a wide range of renewable energy sources.   
28. The ordinary meaning of "procurement" is "[ t]he action of obtaining something; acquisition 
[…]" and "purchase" is "[t]o acquire in exchange for payment in money or an equivalent; to buy"
19. 
The OPA acquires renewable electricity by purchase: it is paying money in return for the delivery of 
that electricity into the transmission grid. The Minist erial Direction and contracts state that the OPA is 
purchasing  electricity under contracts that are "Power Purchase Agreements".  
 
29. The FIT Program laws and requirements govern  the procurement of electricity because they 
direct or regulate the OPA's purchase. The ordinary  meaning of "govern" endorsed by the panel in EC 
– Customs Matters , is to "control, regulate, or determine […]".  
 30. The ordinary meaning of a "purchase for gove rnmental purposes" is a purchase for an aim of 
the government. Such purchases can be directed in  legislation, regulations, policy or an executive 
direction. The OPA's purchase of renewable electricity furthers the aim of the Government to secure the supply of adequate and reliable electricity from clean sources.   
                                                      
18 Response to question No. 51 (Second Set): Electricity is a good and a product for the purposes of the 
SCM Agreement, the GATT 1994 and the TRIMs Agreement.  
Response to question No. 53 (First Set): Electricity  produced from renewable electricity sources that 
are the subject of the FIT contract s is the same product as electric ity produced from all other sources. 
19 Response to question No. 56 (First Set): "Procurement " is just one element of Article III:8(a). There 
is no indication that the words following "procurement" limit its ordinary meaning. To fall within the scope of 
this Article, the "procurement" must be of a "product",  which is "purchased" by a "governmental agency", and 
that purchase must be for "governmental purposes".  A "purchase" will always be an "acquisition" and 
consequently, will always be a "procurement " for the purposes of Article III:8(a).   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-65 
 
 
  31. Further, this purchase is not with a view to  commercial resale as it is not a purchase with an 
aim to resell for profit. The ordinary meaning of "c ommercial" as endorsed by the Appellate Body in 
US – Anti-Dumping and Countervailing Duties , is "interested in financial return rather than artistry; 
likely to make a profit […]" while "with a view to" means "with the aim of attaining […]"20. The 
OPA's purchase is not aimed at resale for profit.  In accordance with subsection 25.2(2) of the 
Electricity Act¸ 1998 , the OPA does not profit from the sale of electricity – it simply recovers its costs 
of the purchase. Similarly, the OPA is not purchasing renewable electricity with a view to using this 
product in the production of goods for commercial sale  as neither the OPA nor any other part of the 
Government of Ontario uses the electricity to make goods.  
 
2. Japan's Claim under the TRIMS Agreement 
 
32. Article 2.1 of the TRIMs Ag reement states: "Without prejudice to other rights and obligations 
under GATT 1994, no Member shall apply any TRIM th at is inconsistent with the provisions of 
Article III or Article XI of GATT 1994". Thus, the FIT Program can only breach Article 2.1 if it is 
inconsistent with Article III of the GATT. As the FIT Program is not subject to the obligations of 
Article III, consequently it is not inco nsistent with Article 2.1 of TRIMS21. 
 
3. Japan's SCM Agreement Claim 
 
33. The panel has no jurisdiction to hear this cl aim as Japan's panel request concerning the SCM 
Agreement failed to comply with Article 6.2 of the Dispute Settlement Understanding (DSU) by 
failing to "provide a brief summary of the legal basis of the complaint sufficient to present the 
problem clearly". In responding to Canada's prior jurisdiction submission, Japan summarized its panel 
request and explained for the first time that: the form  of the benefit is a "financial contribution" or 
"income or price support" through "guaranteed long-te rm pricing" on "terms mo re advantageous than 
available on the market"; and, "the recipients of the benefit are "renewable energy generation facilities 
[…] that contain a defined per centage of domestic content".  
 34. As confirmed by the Appellate Body in EC and Certain Member States – Large Civil 
Aircraft , Japan's response cannot remedy the deficiencies in its panel request. A complaining Member 
cannot provide the "legal basis of the claim" b ased on "subsidies contingent […] upon the use of 
domestic over imported goods" unless it identifies from Article 1.1(a) which form of subsidy has been 
                                                      
20 Response to question No. 48 (Second Set): The struct ure of Article III:8(a) indicates that the word 
"commercial" was included to ensure that the purchase of a product falls within its scope when a government 
agency wants to resell the product on a non-commercial basis to help fulfil the governmental purpose behind the 
purchase. This interpretation is consistent with the General Agreement on Trade in Services (GATS). GATS 
confines its scope to measures that are "commercial" rather than "governm ental". The exclusion from the scope 
in GATS of "services supplied in the exercise of governmental authority" illustrates the importance to WTO 
Members of preserving policy flexibility when un dertaking certain "governmental" activities.  
21 Response to question No. 54 (First Set): The European Union's submission seems to be that, while 
measures that fall within GATT Article III:8(a) cannot  breach Article 2.1 of the TRIMs Agreement, those 
measures listed in the Annex to the TRIMs Agreement were regarded by the negotiators as falling outside the 
scope of GATT Article III:8(a). This is not correct. First, this submission is inconsistent with the text as neither 
the Article nor the Annex refers to the consistency of the measures with GATT Article  III as a whole. Second, 
the European Union provides no evidence to support its inte rpretation of the negotiators' intention. Third, this is 
inconsistent with the other provisions of the TRIMs Agreement. If the European Union's interpretation is correct, then this must also be the effect of the illu strative list of TRIMs that are inconsistent with GATT 
Article XI:1. That is, the TRIMs that are listed in the Anne x as inconsistent with Article XI:1 must fall outside 
the scope of Article XI:2. For example, the Annex lists meas ures "which restrict the im portation by an enterprise 
of products used in or related to its local production […]". Such a measure can clearly fall within the scope of 
Article XI:2(c)(ii).  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-66 
 
 
  provided. By failing to identify the form of the subsidy, who provided a nd who benefited from the 
subsidy, and the form of the benefit conferred, Japan 's panel request failed to satisfy Article 6.2 of the 
DSU, and the Panel has no jurisdiction to hear  the subsidy claim. Accepting jurisdiction will 
undermine the requirement to provide "the legal b asis of the complaint" and encourage complaining 
Members to obtain procedural advantages by waitin g until the first written submission to disclose the 
legal basis of their claim.  35. In the alternative, Japan ha s failed to demonstrate its clai m under the SCM Agreement for two 
reasons. First, it has mischaracterized the OPA's purchase of goods as a "direct or potential direct 
transfer of funds", or "any form of income or price support". As Canada has demonstrated above, the 
OPA purchases renewable electricity
22 under Power Purchase Agreements . According to the panel in 
US – Large Civil Aircraft, if a transaction is appropriately characterized as a purchase, even though it 
involves transfer or potential transfer of funds, it must be classified as a purchase of goods, otherwise 
the term "purchases goods" in Article 1.1(a)(1)(iii)  is rendered "redundant and inutile". Thus, the 
transfer here, i.e. the payment of the FIT rate  in exchange for the production and delivery of 
renewable electricity, cannot alter the correct ch aracterization, which remains a purchase of goods. 
 36. Similarly, Japan's alternat ive characterization that the FIT Program constitutes a form of 
income support is inconsistent with the ordinary meaning and context provide d by Article 1.1(a)(1) 
and the panel's reasoning in US – Large Civil Aircraft. Such a characterization would also render 
Article 1.1(a)(1)(iii) inutile.  
 37. Second, Japan has failed to demonstrate that the FIT Program confers a "benefit" on producers of wind and solar electricity under Artic le 1.1(b) of the SCM Agreement as its four 
proposed benchmarks and the "present market valu e" calculation are inappropriate comparators for 
assessing benefit. These benchmarks are: the HOEP;  certain average wholesale prices in certain 
jurisdictions outside Ontario (Alberta, New Yo rk, New England and the PJM Interconnection); a 
"weighted average wholesale price" for all produ cers in Ontario other than FIT and Renewable 
Energy Standard Offer Program (RESOP) producers;  and the "Commodity Charge" portion of Ontario 
ratepayer bills.   
38. The importance of locating a proper comparator  has been highlighted by the Appellate Body 
in EC and Certain Member States – Large Civil Aircraft  where it stated that "a financial contribution 
will only confer a 'benefit' […] if it is provided on terms that are more advantageous than those that 
would have been available to the recipient on the market ". Further, the context in Article 14(d) of the 
SCM Agreement describes the conditions that must be  considered when selecting a comparator, i.e. 
"the adequacy of remuneration shall be determined in relation to prevailing market conditions […] in 
the country of provision or purchase (incl uding price, quality, availability, marketability, 
transportation and other conditions of purchase or sale) ".  
 39. The fundamental condition of purchase in the FIT Program is that the electricity be generated 
from renewable resources. As all of Japan's benchmar ks ignore this condition, they are inappropriate. 
The inappropriateness of this is confirmed by the f act that the cost structure and operating conditions 
of wind and solar are different from other genera tion technologies and will influence the price at 
which a producer will be willing to  sell its goods and the price at wh ich the good will actually be sold. 
                                                      
22 Response to question No. 23 (First Set): The fact s that demonstrate there are "products purchased" 
under GATT Article III:8(a) also help demonstrate a gove rnment "purchases goods" under Article 1.1(a)(1)(iii) 
of the SCM Agreement. Nevertheless, these two phrases are not identical. Consequently, a conclusion that a 
government does not "purchase" under the SCM Agreemen t does not automatically mean there are no "products 
purchased" for the purpose of Article III:8(a). It would still be possible for the Panel to find that the OPA 
procures electricity in accord ance with Article III:8(a).   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-67 
 
 
  A benchmark that refers to rates that would not cover reasonable costs of production cannot be 
appropriate. All of Japan's benchm arks have ignored the fundamental condition in the FIT Program23. 
 40. As explained by Professor William Hogan, a leading electricity economist, wind and solar 
facilities have much lower economies of scale comp ared to nuclear, coal, gas and hydro plants. Non-
renewable producers use larger-scale technologies and are able to produce energy at lower cost. Wind 
and solar facilities also produce elect ricity for a much smaller proportion of the year than most non-
renewables. The key differences in costs and ope rating characteristics between technologies have 
been summarized by Professor Hogan in Table 1 of his report.  
 
41. As a result, Japan's comparators are inappropr iate because they fail to reflect the fundamental 
condition of purchasing renewable electricity. Howe ver, there are other reasons these proposed 
benchmarks are inappropria te, as well.  First, the HOEP price doe s not meet the costs of production of 
non-renewable electricity producers
24. In fact, 92% of producers in Ontario receive more than the 
                                                      
23 Comment on Japan's response to question No. 28 (Second Set): Japan has presented two new prices 
that are higher than the RPP in an attempt to rehabilitate its proposed "commodity charge portion of the Ontario 
retail price" benchmark. It ignores that these are rates for commodity electricity and not comparable to rates for wind and solar electricity. Generally, end-users would pay more than the RPP if they choose to contract with a 
retailer on the basis of guaranteeing some price certai nty over a portion of the commodity price (i.e. the HOEP 
portion) over a longer period of time than that offered by the RPP.
  
24 Response to question No. 14 (Second Set): The OEB does not set "wholesale electricity rates" 
(HOEP). The HOEP is determined by the IESO's dispat ch mechanism. The OEB sets rates for a number of 
entities including OPG regulated rates. 14(a): These rate s for prescribed OPG generation would allow for OPG 
to reinvest its facilities in a manner that ensures the l ong-term sustainability of OPG assets. 14(b): In setting 
these rates, the OEB is guided by  the framework set out in Ontario Regulation 53/05. The OEB considers 
whether the costs of the facilities were prudently incurre d, the deemed capital structure (debt to equity ratio), 
cost of debt, and return on equity. The OEB follows st andard Canadian and US utility regulation precedents and 
jurisprudence for cost of service regulation. To a ssist with information gathering, the OEB conducts 
interrogatories and public hearings where stakeholders ar e able to present evidence and to be cross-examined. 
14(c): The OPA may impose fees and charges for any costs incurred carrying out activities permitted or 
required under the Electricity Act, 1998. OPA rates must  be approved by the OEB. Through those fees, the OPA 
recovers its staffing costs and costs for consultants.  
Response to question Nos. 26 and 27 (First Set); question Nos. 12 and 15 (Second Set): Payments to 
the OPG (for regulated facilities) are based on cost recovery and a margin of return. This is determined by a 
formula based on Government of Canada and corporate bond rates and a risk premium. In 2011, the margin of 
return was 9.43%. However, for unregulated facilities, th ese receive only the HOEP as they are older facilities 
whose capital costs are largely depreciated. Some of OPG' s coal facilities have a contract with the OEFC, which 
provides for OPG to recover its costs until the facilities are shut down by the end of 2014. Payments by the OPA 
to OPG for a planned biomass facility will also be guided by the principle of cost recovery and a margin of 
return.  
OPG does not report a "commercial risk profile" since it borrows from the Government of Ontario. In 
2011, OPG's Standard & Poor's credit rating was "A-". Rega rding IPPs, for competitive contracts, the rate is the 
lowest bids received that meet the requisite conditions. Fo r FIT contracts, the rate was based on cost recovery 
and margin. The rate of return on equity used to develop FIT rates in 2009 was 11%. For solar PV RESOP 
contracts, the rate was based primarily on cost recovery , while others were based on RES rates. NUG rates do 
not provide for a particular rate of return but are tie d to the rates paid by large electricity consumers.  
The "price formula" is not the same for all technologi es as some generators receive regulated rates and 
others contracted rates in accordance with the relevant  procurement program and object ives of the procurement. 
As such, the price calculations are not designed to creat e preferential treatment. The general principle behind 
contract and regulated rates is to a llow for cost recovery and a reasonable rate of return to generators.  
Response to question No. 17 (Second Set): The profits of electricity generators will vary according to 
their specific efficiencies. Generally, a generator can earn higher returns compared to other generators if it is 
able to reduce its actual costs and/or increase its output. Any variation in profitability during the life of any 
contract will also be a function of efficiencies and output.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-68 
 
 
  HOEP and even Japan admits that the offers and bids "do not reflect the prices actually paid by 
consumers or the rates actually received by generators ; rather they serve as a 'dispatch' mechanism to 
determine the quantity of supply and the HOEP". Japa n's out-of-jurisdiction comparators also reflect 
wholesale market prices similar to the HOEP based on traditional non-renewable electricity 
production costs. Thus, they are inappropriate fo r the same reasons. These comparators bear no 
relation to the reality of renewable electricity production in Ontario. As acknowledged by Japan, the 
FIT Program "became necessary to encourage the entry into the market of renewable energy 
generators, most of which would not have entere d the market in the absence of the FIT Program". 
 
42. Second, both Japan's weighted average wholesale price and its "commodity charge" 
component of the OEB-regulated retail price also fa il to reflect the fundamental condition of purchase 
under the FIT Program that renewable electricity  be generated. These comparators include 
predominantly non-renewable electricity productio n technologies that are not comparable between 
themselves and that also enjoy significant economie s of scale, higher capacity factors, and lower sunk 
and fixed costs. Further, the "commodity charge" is  a bundled price for all electricity and reflects the 
overwhelming volume of non-renewable electricity production. Renewable electricity, other than 
hydroelectricity, currently makes up only approximately 4% of Ontario's capacity.   43. Finally, Japan's present market value calcula tion is flawed because, again, it ignores that the 
critical condition of purchase is that renewable  electricity must be supplied. Japan's use of the HOEP 
and the "commodity charge" as its so-called "mar ket rate of electricity" takes no account of the 
significant costs FIT wind and solar electricity produ cers incur, nor a reasonable rate of return. As 
demonstrated by Professor Hogan, inv estors will only finance construction of any new generation if 
the present discounted value of exp ected future revenues exceeds their all-in  costs. Japan's approach 
presumes that an investor or producer would be willing to accept rates well below their costs of 
production for a 20-year period. No rational invest or would accept such losses. Thus, Japan has failed 
to demonstrate that the FIT Program confers a bene fit and that it constitutes a prohibited subsidy.  
 44. For the reasons above, Canada requests that the Panel reject Japan's claims and find that 
Canada has not acted inconsistently with Article  III:4 of the GATT and Article 2.1 of the TRIMS 
Agreement.  
 
II. CANADA'S FIRST WRITTEN SUBMISSION IN DS426 
 
45. The European Union supports its claims largel y by repeating the arguments set out in Japan's 
first written submission in DS412. Canada demonstr ated that these arguments were unfounded in its 
first written submission in DS412 and, therefore, incorporates that submission here.  
 
A. THE FIT PROGRAM IS NOT SUBJECT TO GA TT ARTICLE III AS IT FALLS WITHIN THE 
SCOPE OF ARTICLE III:8(A) 
 
46. For the reasons described in Canada's first written submission in DS412, the FIT Program is a 
procurement program within the scope of Article III: 8(a). The fact that the OPA purchases electricity 
is confirmed by its payment of sales tax under FIT contracts.   
47. The European Union argues that  the OPA's role to facilitate the diversification of electricity 
supply sources by promoting the use of cleaner energy sources does not require purchasing electricity from FIT generators. However, the European Union overlooks the fact that the OPA is also required 
to "support […] the goal of ensuring adequate, re liable and secure electricity supply". While 
                                                                                                                                                                     
Response to question No. 20 (Second Set): The OPA does not carry cash reserves. Any excess cash at 
the end of a month is used to pay the operating expenses in the following month.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-69 
 
 
  "promoting the use of cleaner energy sources" may not require purchase, this is how the Government 
of Ontario has chosen to promote that goal.   48. The European Union argues that the dicti onary meaning of "for governmental purposes" 
would imply that the acquisition is "in favour of a reason pertaining to the government". This accords 
with Canada's definition, as reasons pertaining to th e government can also be described as the aims of 
the government. The European Union also argue s that "governmental purposes" means for the 
"consumption, benefit or use" of the government and relies on the French and Spanish versions of 
Article III:8(a) to conclude that this means th e purchase is for the "needs" of the government. 
However, the European Union does not explain how purchases for the "needs" of a government are 
purchases for the consumption, benefit or use of a go vernment. Indeed, the "needs" of the government 
can be interpreted as simply what is  required to fulfil the government's aims
25. The European Union 
has also relied on Canada's General Notes to  Appendix 1 to the Agreement on Government 
Procurement (GPA). This is not relevant contex t as the Notes do not fall under any of the categories 
recognized in Article 31(2) of the Vienna Conven tion on the Law of Treaties. These Notes were not 
made in connection with the conclusion of the GATT and were drafted solely by Canada concerning a 
treaty concluded decades after the GATT between differe nt parties. Canada's Notes merely clarify the 
extent of its commitments under a different agreemen t, the GPA. Canada was not advancing a general 
meaning of "procurement", let alone any such meaning for the purposes of GATT Article III:8(a). 
 
49. Further, the European Union's reference to  the Background Note from the WTO Secretariat 
does not support its interpretation of "government purposes". The Note only ob serves that, originally, 
the two provisions were meant to refer to the same type of procurement but says nothing of the 
drafters' final intention. Indeed, the Note highlight s that the drafters ultimately did not confine its 
scope to purchases for "consumption in governmental use".  
 
50. The OPA's purchase is not with a view to commercial resale as it is not with an aim to resell for profit. The centrality of profit to the meani ng of "commercial" is confirmed by several WTO 
decisions, namely, US – Anti-Dumping and Countervailing Duties (China) (Appellate Body) 
previously discussed; China – Intellectual Property Rights (panel), which stated, "[t]he distinguishing 
characteristic of a commercial activity is  that it is carried out for profit"; and Canada – Wheat Exports 
and Grain Imports (panel), which held that a state trad ing enterprise acting in accordance with 
"commercial considerations" should seek to pur chase or sell on terms that are "economically 
advantageous".    51. Further, the European Union's example of a supermarket selling goods at a loss does not 
support its interpretation of "commercial", as the s upermarket can still hope to profit through the sale 
of other goods to customers who are attracted by th is "loss-leader". As explained in Canada's first 
written submission in DS412, the purchase of electricity  is not "with a view to production of goods for 
commercial sale" as it is to ensure a reliable and sufficient source of electricity for Ontarians. 
 
B. THE EUROPEAN UNION'S SCM AGREEMENT CLAIM  
 52. The Panel has no jurisdiction to hear this cl aim as the European Union failed to provide the 
legal basis for its claim in its panel request in acco rdance with Article 6.2 of the DSU. The European 
Union failed to identify the type of financial contribution or form of income or price support, the 
                                                      
25 Response to question No. 28 (First Set): This inte rpretation is confirmed by the English text of 
GATT Article III:8(a). That text does not refer to a purcha se for the "needs" of the government.  Rather, it refers 
to a purchase for "governmental purposes". The ordinary meaning of a purchase for "governmental purposes" is a purchase for the aims of the government . Since the French and Spanish text can be read as consistent with this 
interpretation, as explained above, this must be the proper interpretation of that phrase. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-70 
 
 
  beneficiary, and how a benefit is conferred. Cana da asks the Panel to find that both the European 
Union's and Japan's panel requests are inconsistent  with Article 6.2 and to refuse jurisdiction.  
 53. In the alternative, the European Union fa ils to demonstrate that the FIT Program is 
inconsistent with the SCM Agreement for the reasons  set out in Canada's first written submission in 
DS412 (summarized above).   54. The European Union has adopted Japan's mi scharacterization of the OPA's purchase, but 
suggests that it is only the difference between the HOEP rate and the FIT rate that represents the funds 
being directly transferred. Yet, separating the HOEP payments does not transform these "purchases of 
goods" into "direct transfers of funds".   55. As the Appellate Body held in US – Softwood Lumber IV , the "evaluation of the existence of a 
financial contribution involves consideration of th e nature of the transaction through which something 
of economic value is transferred by a gove rnment". The appropriate focus is on the nature of the 
transaction as a whole, not simply how payments are made.  56. The Appellate Body recognized that, in additi on to the monetary contributions enumerated in 
paragraphs 1.1(a)(1)(i) and (ii), "a contribut ion having financial value can also be made in kind  
through governments providing goods or services, or through government purchases". The "financial 
contributions" enumerated in (i) are all examples of  "monetary contributions". Those enumerated in 
(iii) either do not involve  a monetary contribution at all (in-kind provisions of goods or services) or do 
not simply  involve a monetary contribution (i.e. the pu rchase of goods). What differentiates a simple 
monetary contribution such as a "direct transfer of  funds" from a "purchase of goods" is that the latter 
involves a monetary contribution in exchange  for a good. Here, the OPA's transaction with FIT 
generators involves a monetary contribution (payments) in exchange  for electricity – a good – that the 
OPA directs be supplied into the system once generated. Thus, this transaction is properly 
characterized as a "purchase of goods" and not a transfer of funds.  57. The European Union also argues that the OPA's purchase constitutes a form of "income or 
price support". In its first written submission in DS412, Canada showed th is interpretation would 
render Article 1.1(a)(1)(iii) "redunda nt and inutile". Further, the European Union has misinterpreted 
the terms "any product" in GATT Article XVI to support its position. "Any product" in Article XVI 
does not refer to unsubsidized input goods. Rather, it refers to goods actually impacted by the notified subsidy. The European Union alleges that the OP A subsidizes renewable electricity, not input goods. 
Hence, the European Union would need to demonstrat e that trade in electricity, not in the equipment, 
is affected by the alleged subsidy. 
 58. The European Union relies on Japan's proposed benchmarks to determine that a benefit has 
been conferred on renewable electricity producers. It  claims that the HOEP is established by market 
forces and thus is an appropriate benchmark. Howe ver, as Canada has demonstrated in response to 
Japan's first written submission, the HOEP is not an appropriate benchmark because it does not reflect 
the cost of producing renewable electricity
26. As a result of restructuring in 2004, the formerly 
                                                      
26 Response to question No. 55 (First Set): Based on the Appellate Body's decisions in US – Softwood 
Lumber IV and EC and Certain Member States – Larg e Civil Aircraft, Article 14(d) of the SCM Agreement 
does not qualify in any way the market conditions that are to be used as the benchmark. As such, the text does not explicitly refer to a "pure" market, or market "undis torted by government intervention", or to "fair market 
value". Thus, the fact that there is government regulation does not necessarily prevent the use of prices in a 
jurisdiction subject to such regulation for the purpose of a benefit analysis. The Appellate Body has also acknowledged that, in limited circum stances, for example where prices are distorted by a government's 
predominant position as a provider of a good, benchmarks other than private prices in the relevant jurisdiction  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-71 
 
 
  competitive wholesale market became a mechanis m primarily aimed at enabling the IESO to 
physically balance supply and demand through dispatch instructions.   59. Thus, the IESO wholesale market is primarily a dispatch mechanism in which electricity is 
offered at rates that do not reflect the true cost of  generation. The true costs for most generators are 
accounted for by OEB-regulated rates or in contract s. In addition, FIT wind and solar generators are 
not dispatchable, that is, they do not submit offers  into the IESO market mechanism. Thus, their 
generation does not affect the HOEP price. Instead, th ey provide the IESO, on a day-ahead basis, with 
hourly estimates of the volume of electricity they forecast they will generate.  
 
60. For the reasons described above, Canada request s that the Panel reject the European Union's 
claims. Canada also requests that the Panel find that it does not have jurisdiction under the SCM 
Agreement claim.  III. CANADA'S OPENING STATEMENT AT THE FIRST MEETING OF THE PANEL  
A. THE GATT CLAIM 
 61. The OPA's purchase of renewable electricity is  evidenced by five facts. First, the OPA only 
pays money in exchange for renewable electricity th at is produced. Articles 3.1 and 1.4 of Exhibit B 
to the FIT Contract show that the OPA pays producer s only for the electricity that they deliver into the 
grid
27. Second, the OPA acquires the right to future revenue, as well as by-products from the 
                                                                                                                                                                     
may be used in an adequacy of remuneration analysis. It follows that, when prices are distorted by the 
government's predominant position as a purchaser of a go od, alternative benchmarks may be used. However, the 
Appellate Body also cautioned that, whatever the alternative chosen, it must relate to the prevailing market conditions in that country, and must reflect price, quality, marketability and other conditions of purchase and 
sale as required by Article 14(d). In Canada's view, it is not possible to determine in the abstract a "point" at 
which the involvement of a government in a market deprives that market of its price-setting ability for the purpose of a benefit analysis. Such a determination must be made on a case-by-case basis.  
Response to question No. 57 (First Set): 57(a): A "ben efit" analysis must begin with an examination of 
the "market" and an effort to locate a proper comparator. However, there ma y be situations where a market test 
cannot be applied "strictly". In this respect, the startin g-point, when determining adequacy of remuneration, is 
the prices at which the goods in question are purchased by private buyers in arm's-length transactions in the 
country of purchase (US – Softwood Lumber IV). However, alternative benchmarks may be used and "could 
include proxies that take into accoun t prices for similar goods quoted on wo rld markets, or proxies constructed 
on the basis of production costs".  
57(b): The structure of Article 14 of the SCM Agreement im plies that a benefit can be determined in 
different ways taking into account the type of financial contribution. While the underlying principles should be 
similar, Article 14 acknowledges that some flexibility exists  to tailor the benefit analysis to the type of "financial 
contribution" in question. Furthermore, the type of product at issue may require the benefit determination to be 
conducted in different ways as the nature of the produc t itself may influence relevant market conditions. In this 
case, for example, we are dealing with a unique good, the production and consumption of which requires government regulation to ensure adequate supply. Furtherm ore, the physical nature of electricity requires central 
planning due to the physical constraints of needing to constantly balance supply and demand. 
27 Response to question No. 17 (First Set); question No. 10 (Second Set): The obligation in FIT Rule 
6.3 is implemented through Article 3.1 and 1.4 of Exhibit B to the FIT Contract. In practice, the OPA discharges 
the 'payment obligations' referred to in FIT Rule 6.3(a) by calculating each month the amount of its obligations 
under the FIT contracts. It reports this to the IESO who uses this amount, together with amounts for other OPA and OEFC Power Purchase Agreements , to calculate the Global Adjustment. This Global Adjustment is 
included in the monthly electricity bill paid by households and businesses, usually to an LDC. The LDC 
recovers its charge for distribution and sends the rest to the IESO, which extracts the Global Adjustment and 
sends it to the OPA. The OPA uses this to pay its oblig ations under its Power Purchase Agreements. Exhibits 
B3A and B3B to the FIT Contract both relate to distribution-connected projects.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-72 
 
 
  production of renewable electricity, as shown in Article 2.10(a) of the FIT Contract
28. Third, the OPA 
pays sales tax on the payments to the producers, as shown in Article 3.5 of the FIT Contract29. Fourth, 
the contracts describe the OPA as purchasing electricity30 in the Definitions, Article 3.4, 3.5, 
Appendix A of the FIT Contract, and Article 2.1 of the microFIT Contract31. Fifth, other legislation 
and OPA documents recognize that the OPA "procu res" and "purchases" electricity, as seen in the 
Electricity Act, 1998 , the Ministerial Direction and the Retail Settlement Code. 
 62. Japan also relied on the panel decision in US – Sonar Mapping . However, the panel there was 
addressing the meaning of a different term – "govern ment procurement" – and a different treaty, the 
Tokyo Round Agreement on Government Procurement.  That panel was not addressing the meaning of 
"procurement" within GATT Article III:8(a).    63. Japan argues that the OPA does not purchase electricity because it is supplied by producers 
directly into the grid. However, electricity is uni que because it cannot be stored and is consumed 
almost at the same time as it is produced. Thus, it is  not helpful to try to determine ownership through 
physical possession. Further, possession is not a condition for its purchase, as exemplified by a 
purchase of a book over the internet by someone who pays with a credit card and directs Amazon to 
deliver the book to a different recipient. Another example is the trade of products in transit through bills of lading.  
                                                                                                                                                                     
Response to question No. 9 (First Set): Canada does not agree with footnote 69 of the 
European Union's first written submission. The Government of Ontario (Government "A" in the European 
Union's example) does not "direct" an y company to sell anything. The Gove rnment, through the OPA, enters 
into a contract under which it agrees  to purchase electricity that the supplier injects into the grid.  
28 Response to question No. 18 (First Set): FIT Rule  7.3(c) refers to the OPA's purchase of revenue 
from Future Contract Related Products. Through the FIT Contract, the OPA acquires 80% of the revenue from 
any Future Contract Related Products. In addition, it also acquires Environmental Attributes. This helps demonstrate that the OPA is purchasing the renewable electricity. 
Response to question No. 2 (First Set): This Artic le refers to Environmen tal Attributes, which are 
defined as the "interests or rights arising out of attributes […] associated with a Renewable Generating Facility". Through its payment to suppliers, the OPA ac quires by-products, such as carbon credits.  
29 Response to question No. 11 (Second Set): There is  no provision dealing with the liability for sales 
tax in the microFIT Contract. This is  because the OPA anticipated that micr oFIT suppliers would qualify for the 
tax exemption from the requirement to charge and collect sales tax that is applicable to those with revenues of 
less than $30,000 a year.  
30 Response to question No. 25 (Second Set): The FIT contracts provide for the purchase of electricity. 
Like every purchase contract, they c ontain provisions to ensure that the good meets the requirements of the 
purchaser, i.e. that the electricity supplied helps fulfil th e government of Ontario's goal of a secure electricity 
supply. To that end, the contract prov ides for payment for electricity that is  injected into the grid. It imposes 
conditions concerning the design and construction of the facilities for safety and grid compatibility reasons. 
Insurance covenants in the contract help ensure that the facility is actually built. Lenders' rights and provisions for re-negotiations help ensure the continued operation of  the facility. Even if FIT contracts are more than just 
purchase contracts (which they are not),  as long as the contract does not chan ge the nature of the transaction into 
one of the other forms of "financial contribution" identifie d in Article 1.1(a)(1), then  the transaction will be one 
where the government purchases goods. None of the "f acets" identified by the Panel in its question changes the 
nature of the transaction.  
Comment on Japan's response to question No. 25 (Second Set): Japan argues that "the OPA promises to 
pay […] [a] rate that guarantees the recovery of costs plus a reasonable return on investment over a 20-year 
period " but it is the price that is guaranteed, not the r ecovery of costs or a reason able rate of return. The 
efficiencies of generators determine whether they recover their costs and obt ain a reasonable rate of return. An 
inefficient generator may be unable to recover its costs.  
31 See response to question No. 1 (First Set).   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-73 
 
 
  64. The scope of Article III:8(a) is not confined to  the purchase of products that are the focus of a 
claim of a breach of Article III. This is because th e drafters of the GATT did not include such specific 
limits, such as the obligations imposed in the GP A. Article XVI of the GPA prohibits the imposition 
of "offsets" (i.e. "measures used to encourage lo cal development or improve the balance-of-payments 
accounts [including] by means of domestic content […]"). The GPA prohibits such offsets. 
Signatories to the GPA would not have needed to pr ohibit offsets if they were already prohibited by 
the GATT32. There would have been no point.  
 65. Japan and the European Union have argued that the purchase by the OPA falls outside the 
scope of Article III:8(a) as it is with a view to  commercial resale. In response, Canada notes the 
following. First, the renewable electricity purchased  by the OPA is not "resold"; instead, it is co-
mingled with electricity from other sources and is available for consumption. Second, the OPA does 
not purchase with the aim to make any profit. Thir d, despite the European Union's reliance on the 
French version of Article III:8(a), which refers to  "revendus dans le commer ce", the French text can 
be interpreted as a resale for profit. "Commerce" can be defined as " opération ayant pour objet de 
mettre les divers produits […] à la portée des consommateurs et des clients, à l'effet d'en tirer un profit". The choice of words in the English and Spanis h version, i.e. "commerc ial resale" and "reventa 
commercial", instead of "resale in comme rce", confirms this interpretation
33.  
 66. Purchases with a view to resell outside governme nt to recover costs fall within the scope of 
Article III:8(a) because that resale might be n ecessary to fulfil the government purpose for which the 
product was purchased.   67. Finally, the purchase of renewable electric ity by the OPA is not "with a view to the 
production of goods for commercial sale". A pur chase will only fall outside the scope of 
Article III:8(a) if it is "with a view to" the u se of the product in the production of goods for 
commercial sale. A purchase does not fall outside the scope of the Article merely if the product is 
used in the production of goods for commercial sale.  However, renewable electricity is purchased 
with a view to ensure a reliable and sufficient suppl y of electricity. It is not purchased with a view to 
the use to which some consum ers may put that electricity. 
 
B. THE SCM AGREEMENT CLAIM  
 68. Canada focuses its submissions on two key po ints. First, contrary to the complainants' 
continued mischaracterizations of the nature of the transaction, the OPA purchases renewable 
electricity through the FIT Program. In US – Large Civil Aircraft (2nd complaint) , the Appellate Body 
                                                      
32 Response to question No. 22 (First Set): WTO Me mbers have a means to accept disciplines on the 
conditions they impose on the inputs – i.e. the GPA, not the GATT. Further, Article XVI(2) of the GPA allows 
developing countries to negotiate exemptions from the disciplines on offsets. There would be no point to this if 
they faced such disciplines under the GATT. Professor Sue Arrowsmith explains th at it is common practice for 
governments to require private firms to purchase na tional products as a cond ition of access to government 
contracts. Such measures are generally referred to as "offsets". When such offset s relate only to work in 
connection with the government contr act, it is clear that they are meas ures governing procurement and are 
excluded from the national treatment rule.   
33 Response to question No. 25 (First Set): Any "lack of purity" in the market conditions does not 
directly determine whether a resale in that market is "commercial". Rather, it is directly determined by whether 
the intention of the reseller is to profit. Nevertheless, there may be circumstances where the regulation of a market helps demonstrate the welfare to consumers and, in turn, helps indicate that the product was purchased 
with a view to ensuring it is available for consumption by  consumers, rather than with  a view to profit from the 
resale. The regulation of the enviro nment in which a transaction takes place does not affect whether that 
transaction is a purchase under GATT Article III:8(a) or the SCM Agreement. The "purchase" is determined by 
whether there is an "acquisition"  in exchange for "payment".  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-74 
 
 
  characterized "direct transfers for funds" as "[…] action involving the conveyance of funds from the 
government to the recipient" where "funds" include "not only money, but also financial resources and 
other financial claims more generally". In c ontrast, it characterized the "purchase of goods" as 
situations in which "[...] goods are provided to the government by the recipient […]". It noted that 
"purchase" is usually understood to mean that th e person or entity providing the goods will receive 
some consideration in return"
34.  
 69. The Appellate Body also noted in US – Softwood Lumber IV that the "range of government 
measures capable of providing subsidies is broadened still further  by the concept of 'income or price 
support' […]"
35.  
 70. Thus, the methods by which a government can  transfer economic value are differentiated by 
reference to their inherent qualities. "Direct transf ers of funds" are transactions "by which money, 
financial resources, and/or financial claims are made  available to a recipient". Forms of "income or 
price support" involve transactions whose nature is  to support incomes or prices for a particular 
commodity. However, in government "purchases", pa yment is made "in consideration" for the 
exchange of a good.    71. Second, one must look at the whole  transaction to ascertain the essential nature  of the 
transaction. As shown earlier, the nature  of the OPA's transaction is that payments are made in 
consideration  for renewable electricity. 
 72. The complainants have failed to demonstrate that the OPA's purchases confer a benefit. In 
accordance with Article 14(d) of the SCM Agreem ent, there is no benefit conferred unless the 
"purchase is made for more than adequate rem uneration" "in relation to  the prevailing market 
conditions for the good in qu estion in the country of purchase". As recognized in EC and Certain 
Member States – Large Civil Aircraft,  "locating a proper comparator" is  critical to this determination. 
Thus, the Panel must locate a benchmark that focu ses on the conditions of exchange of, specifically, 
wind and solar electricity, as the measure at issu e concerns only these OPA purchases. Neither Japan 
nor the European Union has identified such benchmarks.  
73. Instead, the complainants have focused on benchmarks for non-renewable electricity. This 
focus may be due to the fact that, to an end-user, all electricity is the same. While it is true that 
ultimate consumers cannot distinguish between th e electricity they consume, their views are 
                                                      
34 See response to question No. 19 (First Set).  
35 Response to question No. 58 (First Set): 58 (a): Whatever "income or price support" might precisely 
mean, it is a concept not covered by "financial contributions". Article 1.1(a)(1) and (2) are separated by the 
disjunctive "or", indicating that "financial contributions" are distinct from "income or  price support". The fact 
that Article 1.1(a)(2) refers to GATT Article XVI means that the type of "income or price support" captured by 
the SCM Agreement is the type of "income or price support" notified under Article XVI.  
58(b): Agricultural import tariffs, indeed any import tariff, may confer benefits on producers of goods, 
but they should not be treated as subsidies. As the pa nel in US – Export Restraints held, not all governmental 
action capable of conferring a benefit should be treated as a subsidy, such as import tariffs. With respect to what 
distinguishes such governmental action from "income or price support", the focus must be on the nature of the measure. Where prices for a good ar e supported by government purchases, such action may be characterized as 
income or price support if the support decreases imports  of competitive products or increases exports of the 
supported product. However, this is not the case with  respect to the FIT Program. The nature of the OPA's 
purchase is to ensure sufficient supply of electricity from clean sources. Regarding minimal wage requirements, 
Canada does not consider that they could support prices as they would presumably add costs to the production 
of a good.  
58(c): It is likely that "income or price support" under the SCM Agreement would involve some kind 
of fiscal commitment.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-75 
 
 
  irrelevant. The focus of any benefit analysis must be  on the alleged recipients of the benefit, i.e. the 
wind and solar generators.   74. To Ontario, the purchaser in question, how th e electricity is produced is an essential condition 
of purchase, as this condition is intended to help  meet the objective of a secure and clean energy 
supply. The Panel must examine the behaviour of wind and solar generators and purchasers of wind 
and solar electricity in relation to the cond itions of supply and demand in Ontario.  
 75. The HOEP is an inappropriate benchmark for r easons Canada has explained in its first written 
submissions. The IESO market mechanism is not the classical competitive market where supply and 
demand meet. Furthermore, despite the fact that 8%  of Ontario generators do receive only the HOEP, 
this is only because these generators are old government-owned facilities whose capital costs have 
been largely depreciated and, in the case of coal faciliti es, will be shut down by the end of 2014. For 
92% of generators, the HOEP is not an adequate pri ce. Moreover, most users of electricity simply pay 
the price required by the system.  
 76. In sum, Japan and the European Union have failed to present an appropriate benchmark and, 
consequently, failed to demonstrate the existence of a subsidy. Thus, the FIT Program cannot be 
found to violate Article 3.1(b) of the SCM Agreement.   IV. CANADA'S SECOND WRITTEN SUBMISSION IN DS412 AND DS426  
77. The first hearing reinforced that the FIT Pr ogram is a program for the purchase of renewable 
electricity to help secure a sufficient and reliable s upply of electricity for Ontario's citizens from clean 
sources. It also reinforced that the Government's  purchase of renewable electricity falls within the 
scope of Article III:8(a) of the GATT.   
 78. During the first hearing, Japan and the European Union failed to prove that the FIT Program involves "direct transfers of funds" within the mean ing of Article 1.1(a)(1) of the SCM Agreement. 
Instead, the complainants continued to repeat their assertions from their first written submissions. 
Japan and the European Union also failed to carry their burden of proving the FIT Program involves a 
form of "income or price support" within the mean ing of Article 1.1(a)(2) of the SCM Agreement. 
 79. Further, Japan and the European Union fa iled to prove that the FIT Program confers a 
"benefit" on FIT suppliers, as required by Article 1.1(b) of the SCM Agreement. 
 
80. In terms of the order of analysis in this case,  in response to question No. 24 of the Panel's first 
set of questions, Canada noted that, according to the Appellate Body in EC – Bananas III , when the 
GATT 1994 and another Agreement in  Annex 1A to the WTO Agreement (for example, the SCM 
Agreement) both appear to apply to the measure in  question, the measure should be examined on the 
basis of the agreement that "deals specifica lly and in detail" with the measure.  
 
81. In this case both Japan and the European Union have taken great pains to be clear that what 
they are challenging in the FIT Program and FIT contracts is the domestic content requirements.  In its first written submission Japan states, at the outset:  
To be clear, Japan challenges the FIT program and individually executed FIT and 
microFIT contracts, not because they have the effect of promoting investment in 
renewable energy generation, but rather because, in light of the domestic content 
requirement, they discriminate against imports of renewable energy generation 
equipment in favor of Ontario-made renewable energy generation equipment. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-76 
 
 
  82. In a similar vein, the European Uni on states in its first written submission: 
 
At issue in the present dispute are the dom estic content requirements included in the 
FIT Program (including the microFIT Program) issued by the Government of Ontario 
in 2009.  To be clear, the European Union does not bring claims against other 
elements included in the FIT Program, nor does the European Union contest the general purpose of the FIT Program, as helping promote electricity supply from renewable energy sources. […] However, WTO Members cannot use FIT programs in order to achieve other trade-distorti ng purposes, such as the protection of its 
domestic industries to the detriment of ot hers, by including by domestic content 
requirements.  
83. It is thus clear that the domestic conten t requirements and their impact on imports of 
renewable energy generation equipment from these tw o countries are central to the complaint of both 
Japan and the European Union. The agreement that deals most specifi cally with the treatment of these 
goods is the GATT and, more specifically, GATT Artic le III.  Therefore, in this case, the Panel's 
analysis should begin with the GATT.  
A. THE GATT CLAIM 
 
84. Canada reaffirms its explanations in previ ous submissions that the OPA purchases renewable 
electricity. Japan and the European Union have ch allenged Canada's relianc e on descriptions of the 
OPA purchasing and procuring electricity set out in legislation and related doc uments that authorize 
the OPA's purchase. In response, Canada notes that it is relying on the characterization by various 
government and private entities that have nothing to  do with this dispute and have no incentive to 
mischaracterize it. Moreover, WTO panels have  acknowledged the importance of a Member's 
description of its own law. In EC – Trademarks and Geographical Indications  (US)  the panel 
observed that a Member is normally "well-placed to explain the meaning of its own law".   85. Japan argues that "[g]overnment acquisition and payment are certainly aspects of the 'procurement analysis', but critically, so too is gove rnment use, consumption or benefit". None of the 
sources that Japan relies on to support its definition of "procurement" is apposite.  
 86. With respect to Japan's reliance on US – Sonar Mapping , Canada notes that the panel was not 
addressing the meaning of the term "procurement", either generally or with in Article III:8(a). The 
panel even stressed that it was "not intending to o ffer a definition of government procurement within 
the meaning of Article I:1(a)".  
 87. Japan has argued that the word "use" in Artic le III:8(a) shows that the Article "contemplates 
consideration of how th e acquired products are used". Contrary to Japan's assertions, the word "use" 
at the end of the Article highlights that drafters did not intend to impose a requirement that 
government purchases that fall within the scope of Ar ticle III:8(a) be for governmental use. Despite 
Japan's reliance on comments of GATT and WTO Secretariats, these are not valid sources for 
interpreting the GATT. Moreover, the Secretariats do  not suggest that "government procurement" is 
confined to the circumstances described in Article XVII:2
36. In fact, the Secretariat stated that 
                                                      
36 Response to question No. 45 (Second Set): Ther e are similarities between Articles III:8(a) and 
XVII:2. Both limit the scope of GATT obligations. Both Articles contain the word "governmental" and both 
refer to "products", "resale" and "use  in the production of goods". However, there are significant differences. 
Article III:8(a) applies to "laws, regulations or requir ements", whereas Article XVII:2 applies to "imports of 
products". While Article III:8(a) refers to "product s purchased", Article XVII:2 refers to "products for 
immediate or ultimate consumption". Article III:8(a) refe rs to "products purchased for governmental purposes",  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-77 
 
 
  "originally , the two provisions were meant to refer to th e same type of procurement", but says nothing 
about the drafters' ultimate  intention.  
 88. Japan also seeks to confine the meaning of "procurement" by relying on the purpose of GATT 
Article III, "to avoid protectionism […]". In doing so, Japan ignores the purpose of Article III:8(a), 
which is to allow Members scope to pursue policies through their procurements outside their national 
treatment obligation, as recognized by Japan's Mini stry of Economy, Trade and Industry statement on 
this Article.   
                                                                                                                                                                     
whereas Article XVII:2 refers to "consumption in governme ntal use". Article III:8(a)  excludes from its scope 
those purchases "with a view to" "commercial resale" or "use in the production of goods for commercial sale", whereas Article XVII:2 excludes from its scope those purchases "for" "resale or use in the production of goods 
for sale". Whereas Article III:8(a) qualifies the words "resale" and "sal e" with "commercial", Article XVII:2 
does not. Article XVII:2 imposes an obligation on the imports that fall within the scope of the paragraph – 
Members must "accord to the trade of the other contra cting parties fair and equ itable treatment" – whereas 
Article III:8(a) imposes no obligation. Finally, Article II I:8(a) links the first conditions on the application of the 
paragraph with the second conditions through the words "and not" – it states that "[t]he provisions of this Article 
shall not apply to laws, regulations or requirements g overning the procurement by governmental agencies of 
products purchased for governmental purposes and not with a view to commercial resale […]". Conversely, Article XVII:2 links the conditions with the words "and not  otherwise" – it states that "[t]he provisions of 
paragraph 1 of this Article shall not apply to imports of products for immediate or ultimate consumption in 
governmental use and not otherwise for resale […]". 
The ordinary meaning of "otherwise" is "in circumstances different from those present or considered". 
Its use in Article XVII:2 could indicate that the import of  "products […] for resale" is a different circumstance 
to the import of "products for immediate or ultimate consumption in governmental use". These significant differences in the structure and word ing of Article XVII:2 undermine its utility as context for the purpose of 
interpreting Article III:8(a). Nonetheless, whatever cont ext is provided by the Article helps demonstrate that 
"governmental purposes" in Article III:8(a) is not confined to "consumption in governmental use" but has a wider scope. Article XVII:2 also helps demonstrate that  the conditions in Article III:8(a) are cumulative. The 
inclusion of the word "otherwise" in Article XVII:2 highlight s that the drafters chose not to include this word in 
Article III:8(a). By instead linking those conditions w ith the word "and", the drafters indicated that the 
conditions are cumulative – to fall within the scope of Ar ticle III:8(a) a purchase must be for "governmental 
purposes" and also "not with a view to commercial resale or with a view to use in the production of goods for 
commercial sale".  
Since the conditions in Article III:8(a) are cumulativ e, a purchase for "governmental purposes" must be 
capable of also being a purchase "with a view to commercial resale or with a view to use in the production of goods for commercial sale" – otherwise, there would be no point including the condition that the purchase is not 
with such a view. This reinforces that a purchase for " governmental purposes" cannot be confined to a purchase 
for consumption by the government, as suggested by Japan and the European Union. A government agency cannot purchase a product to consume and,  at the same time, purchase it with a view to its commercial resale or 
its use in the production of goods for commercial sale. Conversely, a government agen cy can purchase a product 
for an aim of the government but also with a view to th e product's commercial resale or use in the production of 
goods for commercial sale. (For example, the Liquor Control Board of Ontario purchases alcohol for 
commercial resale to the public but for the governmental aim of financing the provision of public services with 
the profits from that resale.) 
Comment on Japan's response to question No. 45 (Second Set): Although Japan relies on commentary 
by Dr. Ping Wang that the differences between Article III: 8(a) and XVII:2 are not subs tantial, the sole authority 
for this statement is an unpublished lecture note of Professor Arrowsmith. However, Professor Arrowsmith has written that "purchases [of] books for distribution at a nominal charge to community libraries" are "within the 
exclusion". Clearly, a governmental ag ency that purchases books for distribution to community libraries is not 
purchasing to consume the books itself. Similarly, she has written that the purchase of goods as part of aid for a 
foreign country falls within the scope of Article III:8(a), even though it is the foreign country that will consume 
the goods.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-78 
 
 
  89. Japan's reliance on the negotiating history, i.e. an alleged comment from the WTO Secretariat 
regarding "purchases effected for governmental use" is based on a statement that has been misquoted 
by the GATT Analytical Index  and, in turn, the Secretariat. The actual document does not state this.  
 
90. Japan has also selectively quoted from John Jackson to support its interpretation of 
government purposes. However, in his comments on which Japan relies, Jackson was not referring to 
the meaning of "governmental purposes", but a different aspect of Article III:8(a).     91. Finally, Japan cannot rely on negotiating histor y with respect to the United States' proposal to 
extend the national treatment obligation, as this proposal was rejected.  
 92. Even if Japan's interpretation of "procurement " is correct, the OPA's purchase still falls within 
all four elements of Japan's interpretation. First, the OPA " pays" for the electricity. Second, as 
"benefit " means "advantage, profit or good", this purchase  is for the "advantage" and "good" of the 
Government of Ontario since it helps fulfil its governmental policy of a sufficient and reliable 
electricity supply from clean sources. Third, the OPA " obtains " and " acquires " the electricity by 
paying and stipulating that the electricity must be  injected into the grid. Use or possession is not 
necessary as a government often obtains and acquires me dicine that is used by the sick. The IESO's 
statement that it does not take title to energy say s nothing about the OPA's acquisition. Fourth, the 
OPA and the Ministry of Energy have " control " over obtaining the electricity because they decide the 
terms of the purchase, including price and length of the contract, while consumers only obtain 
electricity from the co-mingled pool through their use.   93. Japan relies on Australia's definition of "purpo se", to mean "practical advantage or use" but 
fails to mention that Australia acknowledged that this meaning may not be as common as the meaning 
cited by Canada, and that the context of this defi nition is specific to "to work to good purpose", which 
is not similar to the phrase "governmental purposes".   94. Japan's definition further ignores the context of Article III:8(a). In addition to excluding from its scope those purchases "with a view to the produc tion of goods for commercial sale", this Article 
also excludes those purchases "with  a view to commercial resale". However, a government cannot 
purchase a product for its "use" or "consumption" and, at the same time, purchase it "with a view to 
commercial resale". Thus, defining the purchase as one for governmental "use" or "consumption" 
denies the requirement that the purchase is not "with a view to commercial resale" of any effect.   95. Japan and the European Union assert that in terpreting a purchase for "governmental purposes" 
as a purchase for an aim of the government would re nder the requirement limitless. This is incorrect. 
First, only purchases that are objectively discernible as for the aims of the government will be for 
"governmental purposes". Second, the aim must be discernible before the purchase
37. Third, 
                                                      
37 Response to question No. 47 (Second Set): The provision of public services is an aim of any 
government. The Panel can distinguish between public services that should be considered to fall under Article III:8(a) and those that should not by distinguishing between those that are publicly identified by the 
government before the time of the purchase as a service that it is providing and those that are not. Thus, the 
provision of a reliable and sufficient supp ly of electricity from clean sources is a public service that falls within 
the meaning of "government purposes" as the Government of Ontario identified this as a public service that it 
would provide through legislation enacted before the time of the purchase.  
In the alternative, the Panel can still distinguish objectively in line with an approach suggested by 
Brazil where "governmental purpose" includes the provision of public services for which the government has 
"constitutional or legal responsibility". With respect to the "specific function performed by a given government" 
in the "sector of its economy", the Government of Ontari o regulates the electricity s ector, and owns many of the 
generation facilities and the majority of the transmission  and distribution network. The government's role is 
performed under the authority of the Canadian constitution. Under the European Union's interpretation, the  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-79 
 
 
  discrimination, itself, cannot be the aim behind the purchase. To interpret a di scriminatory purpose as 
a "governmental purpose" would ensure that a purchase could fall within the scope of Article III:8(a) simply because it is inconsistent with the nationa l treatment obligation of Article III:4. Such an 
interpretation, therefore, could re nder Article III:4 ineffective.   
 
96. In addition, Japan and the European Union ov erlook the limits imposed by the GPA. While a 
purchase that is for the aims of the government and that satisfies the other requirements of 
Article III:8(a) is not subject to the disciplines of Ar ticle III, it will be subject to the disciplines of the 
GPA if the Member chose to accept them.  
 
97. Even if a purchase for "governmental purpo ses" is not a purchase for the aims of the 
government, the OPA's purchase of renewable elec tricity is still for governmental purposes. The 
OPA's purchase is for governmental purposes, according to the interpretation of that term by Brazil. 
 
98. Brazil rejected the suggestion that a pu rchase for "governmental purposes" within GATT 
Article III:8(a) is confined to purchases for consumpt ion by the government. According to Brazil, this 
interpretation would "indicate that the sole purpose of the government is to provide services that 
enable its own maintenance and the regular func tioning of its bureaucracy". However, "state 
bureaucracy is only a means to the achievement of  a myriad of ends, defined by each society". 
 
99. Brazil noted that "[t]he 'purpose of a govern ment' cannot be conceptually construed" but it 
will depend on the "role" a government "may […] pl ay" and "the degree of intervention exerted in 
practice in any given country". Brazil observed that, for example, "most governments do have the constitutional or legal responsibility to provide a gr eat number of services to their citizens, such as 
health, education, water, electricity, transportati on and public security" and notes that "[p]roviding 
these services is certainly regarded as a governmental purpose by these governments". 
 100. Thus, the OPA's purchase is for "governmenta l purposes", according to the interpretation of 
that term by Brazil. To apply Brazil's example, the Canadian Constitution Act, 1982  gives Canadian 
provinces powers to make laws related to the deve lopment of sites and facilities in the province for 
the generation of electricity
38. Thus, the Government of Ontario ha s enacted legislation to pursue a 
reliable and sufficient supply of electricity from cl ean sources. It is for this purpose that the 
government, through the OPA, purchases renewable electricity.   101. Japan and the European Union argue that the purchase of renewable electricity by the OPA is 
"with a view to commercial resale". Japan interprets  this phrase as meaning "with a view to being sold 
into the stream of commerce or trade (as opposed to being used or consumed by the government)". 
Similarly, the European Union argues that "the de termining factor is whether the goods are sold on 
the market place, where other similar goods are trad ed". However, this interpretation denies the word 
"commercial" of any effect.   102 Moreover, the grounds on which Japan and the European Union rely to support their 
interpretation of "commercial" ha ve no foundation. To support its inte rpretation of the phrase "with a 
                                                                                                                                                                     
purchase of electricity through the FIT Program is also for a public service as it is no different to a government's 
purchase of "drugs to be used in public hospitals or books to be used by students at public schools".  
38 Response to question No. 35 (First Set): The distri bution of legislative authority between the Central 
Government of Canada and the Province of Ontario is established under sections 91 and 92 of the Constitution 
Act, 1867. Provinces have legislative authority over the generation of electricity, including developing 
renewable energy facilities, subject to  two exceptions. First, the federal government has legislative authority 
over generation from nuclear power (under its exclusive authority over atomic energy), and, second, it has 
authority over international exports of electricity (und er its exclusive authority ov er trade and commerce).  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-80 
 
 
  view to commercial resale", Japan relies on a dictiona ry definition of "commercial" as meaning "[o]f 
or pertaining to commerce or trade". Japan then pr ovides several definitions of  "commerce" which, it 
states, "do not include any element of 'profit'". However, Japan overlooks th at "commerce" has been 
defined as "the exchange of the products […], with an intent to realize a profit". The WTO Secretariat 
comment relied upon by Japan actually undermines Japan 's interpretation of "commercial resale" as it 
indicates that a resale of a second-hand product after its use will not be a commercial resale. The resale of a second-hand product is not with the aim to profit; it is to recover some of the costs of the 
original purchase.   
B. THE SUBSIDY CLAIM 
 103. Japan and the European Union bear the burde n of demonstrating that the FIT Program is a 
subsidy. They both claim to have made a prima facie  case and thereby hope to shift the burden to 
Canada to rebut the claim. Howeve r, as Canada has demonstrated, the complainants have continued to 
mischaracterize the transaction at issue and continue d to rely on inappropriate benchmarks to assess 
benefit. As a result, they have failed to meet th eir burden. This burden is only met when there is 
sufficient evidence adduced to raise a presumption th at what is claimed is true. Only when this 
presumption has been established does this burden shift to the respondent to rebut.   
104. Canada reiterates its previ ous explanations which show that transactions under the FIT 
Program are purchases of renewable electricity and not a "direct transfer of funds" or "income or price 
support". The OPA enters into a variety of procurem ent contracts with different generators through 
bilateral negotiations, requests for proposals and st anding offer programs such as the FIT Program. In 
doing so, it is fulfilling its statutory mandate to pr ocure sufficient electricity supply. This is not 
"income or price support". Under the complainants' theory, any government contract for the purchase 
of goods at a contracted price would constitute "income or price support".   105. The European Union suggests that the FIT Progr am functions in a similar manner to a typical 
support scheme for agricultural products wher e governments ensure that producers obtain a 
guaranteed price that a market otherwise would not  have provided. This is incorrect because the 
HOEP does not represent a market price for electricity, a nd, in a typical situation of price support, the 
price is received not only by sellers who sell to th e government, but also by other sellers of the good 
in question.   106. In response to the complainants' continue d focus on the HOEP as a benchmark, Canada 
reiterates its previous explanations on the inappropriateness of doing so.  
 
V. CANADA'S OPENING STATEMENT AT THE SECOND MEETING OF THE 
PANEL 
 
A. THE GATT CLAIM 
 107. Canada has demonstrated that the FIT Program is not subject to the obligations in GATT Article III:4 and Article 2.1 of the TRIMs Agreement as it falls within the scope of GATT Article III:8(a). Canada reiterates its previous e xplanations and will elaborate on several issues in 
response to the complainants.  
 108. In its question No. 59, the Panel asked a bout the purpose of GATT Article III:8(a). In its 
answer, Japan did not address the statement of its Mi nistry of Economy, Trade and Industry. Instead, 
Japan relied on paragraph 1 of Article III to restrict  the scope of Article III:8(a). However, its reliance 
is misplaced. This Article begins by stating, " [t]he provisions of this Article shall not apply to laws,  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-81 
 
 
  regulations or requirements governin g" certain procurements. Thus, all the provisions of Article III, 
including paragraph 1, do not apply to laws, re gulations or requirements governing procurements.  
 109. Canada explained that physical possession is  not a condition for a purchase, as exemplified by 
the purchase of a book over the internet, and products s ubject to a bill of lading. Japan now appears to 
have shifted ground as it argues that, in these examples, "the alleged purchasers have the right  to take 
possession". However, Japan provides no sources to support this new definition of "purchase". Japan 
also suggests that the purchaser must either use th e product itself or seek profit from the resale of the 
product. This is not consistent with the purchase by non-profit organizations  of food and medicine, 
which they do not use themselves, nor derive any profit.  
 110. Japan also contrasted the role of the OPA with the role of electricity "marketers" and 
"aggregators" in certain US states who are describ ed by those state governments as taking "title" to 
electricity. Although electricity "marketers" and "a ggregators" may take "title" to electricity, they 
never physically possess it as the electricity is passed from the generator to the end-consumer, through 
transmission and distribution lines. Even if possession is a condition of a purchase, the Government of 
Ontario still purchases electricity as it owns 97% of the transmission lines, and only three of the 80 
local distribution companies in Ontario are private
39. Consequently, when a FIT supplier injects 
electricity into the grid, the vast majority is tran sferred to the physical po ssession of the Government 
of Ontario. 
 
111. The contract condition that requires the OPA to pay for electricity that a supplier is directed not to produce is needed to prevent oversupply of electricity into the grid and is a common condition 
in electricity purchase contracts. The IESO h as never directed a FIT supplier not to produce 
electricity, contrary to the European Union's statement
40. The IESO also cannot make such a request 
of smaller FIT suppliers because they are not connected directly to the grid.  
 
                                                      
39 Response to question No. 13 (Second Set): While Hydro One (transmission company) is required to 
operate as a "commercial enterprise", its core mandate is to ensure "safe, reliable a nd cost-effective transmission 
and distribution of electricity". It must "prioritize investments in transmission and distribution capacity to support projects necessary to  maintain ongoing gr id security and reliability". Th e 77 publicly owned LDCs are 
mandated to provide "reliable delivery of electricity". LD Cs are required to incorpor ate in accordance with the 
Electricity Act, 1998. They receive rate s for the distribution of electricity that  allow for cost recovery and a rate 
of return that is "just and reasonable". The OEB is responsible for approving the rates of Hydro One and LDCs 
according to this principle.  
40 Response to question No. 21 (First Set): 21(a): A FIT generator has never been directed by the IESO 
to reduce production. 
21(b): If a generator is directed to reduce all of its  output, the nature of the transaction should still be 
characterized as a "purchase of goods". The "Additiona l Contract Payment" provision is a condition on the 
purchase of renewable electricity. Furthermore, this is a common clause in Power Purchase Agreements for 
electricity produced from any source, as system administrators must be able to reduce supply into the grid to 
safeguard against overloads. It is not unusual for purcha se and sale agreements for a variety of commodities to 
contain conditions requiring payments even when the purchaser cannot take supply. This may be the case, for 
example, where the purchaser has committed to paying for goods but is unable to take them into inventory.  
21(c): This situation does not a pply to microFIT and Type 3B fac ilities because they are not connected 
to the transmission grid. Only transmission-conn ected generators are dispatched by the IESO.  
21(d): A similar condition applies to certain cont racts with nuclear facilities, which cannot easily 
moderate the volume of electricity they produce in resp onse to IESO instructions. In particular, contracts with 
Bruce Power (nuclear) have provisions allowing for full payments when its generators are required to reduce 
production or be dispatched off in order to manage grid congestion. Most dispatchable generators (such as coal and hydro) do not require such provisions as they can mo re easily respond to instructions to turn supply on or 
off.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-82 
 
 
  112. The OPA's purchase of electricity is anal ogous to the European Union's examples of 
purchases for governmental purposes, i.e. medical equipm ent and drugs to be used in public hospitals, 
and books to be used in public schools "in order to provide health and education services for the 
benefit of citizens". Similarly, electricity is purchase d to be used by Ontarians in order to provide the 
government service of a secure supply of electric ity from clean sources for the benefit of Ontario's 
citizens.  113. The European Union has argued that a pur chase for "governmental purposes" is a purchase 
for the "needs" of the government. It clarifies th at "[s]uch needs may include government purchases in 
order to be able to provide government services to  citizens […]". However, the European Union has 
focused on the wrong purpose when it argues that the domestic content requirement is not imposed in order to provide services. The domestic content requirement is a condition  of the purchase and 
Article III:8(a) does not impose any limits on th e purpose of such conditions. For example, in 
purchasing books to be used by students at public  schools, the government could impose the condition 
that the books be published domestically. Thus, the purpose behind this purchase is governmental. 
Similarly, the OPA's purchase of renewable electricity is for "governmental purposes" as it is to help secure a sufficient and reliable supply of electricity  for Ontario's citizens from clean sources and it is 
also "in order to be able to provide government services to citizens".   114. The European Union and Japan have also argue d that a "commercial resale" is a resale with 
the intention of anyone  to profit, and that the FIT suppliers, distributors and retailers will all profit 
from the alleged resale. However, the elements of Article III:8(a) focus on the actions of the 
government : the purchase is "by governmental  agencies"; the purposes are " governmental "; and the 
view with which the purchase is made is that of the government . Thus, the "commercial" nature of the 
resale is determined by the intention that the government  profit.  
 
115. Further, any resale of electricity is irrelevant to the profits of FIT suppliers as they make their 
profit on the FIT Contract as soon as they deliver electricity into the grid. Distributors also do not profit from the resale, but from the service  of distributing electricity. Finally, retailers make their 
profit through separate financial contracts with e nd-users and not through the use of electricity by 
those end-users.  
 
116. The European Union has argued that the domestic content requirement  does not govern  any 
procurement by the OPA. However, it is not the domestic content requirement  that must govern the 
procurement. Nothing in Article III:8(a) obliges th e "requirement governing procurement" to be the 
same requirement alleged to breach the national treat ment obligation. Even if the European Union is 
correct, the domestic content requirement does " govern" the OPA's procurement, as to "govern" 
means to "control, regulate, or determine", and the OPA is not allowed to purchase the electricity if 
the condition is not satisfied.   117. Moreover, the domestic content requirement is not "disconnected from the basic nature of the 
product" as it concerns the process and production met hod of the electricity that is purchased, i.e. the 
services and inputs used to produce the electricity. As stated by Professor Sue Arrowsmith, "[w]hen 
such offsets or secondary measures relate only to work in connection with the government contract 
awarded […] it is clear  that they are measures 'governing' procurement […]".  
 
B. THE SUBSIDY CLAIM 
 118. In this statement, Canada will focus on the following issues: first, the correct analytical 
approach to determine "financial contribution" or  "income or price support"; and, second, the proper 
characterization of FIT transactions. 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-83 
 
 
  119. The European Union relies on three cases to argue that the same measure can be 
simultaneously characterized under several sub-headi ngs in Article 1.1(a)(1).  However, these cases do 
not support the European Union's theory.    
120. In Japan – DRAMs (Korea) , the panel was speaking in obiter  and actually dealing with 
whether the modification of loan repayment terms a nd debt-to-equity swaps were "direct transfers of 
funds" and not whether they could be treated  as some other "financial contribution".  
 121. In US – Countervailing Measures on Certain EC Products , the Appellate Body was not 
dealing with an Article 1.1 "financial contributio n" analysis. Rather, it was interpreting the term 
"recipient" in the context of a benefit analysis and determining whether a recipient had to be a "legal 
person" or whether they could be a natural pers on. The Appellate Body's point was simply that 
"financial contributions" can be provided directly to legal persons such as corporations or through 
natural persons such as the owners of a corporation through a tax concession. This is not the same as 
saying that the same transaction can be properly char acterized as both a "direct transfer of funds" and 
"revenue foregone" at the same time.    122. The European Union also relies on US – Large Civil Aircraft (2nd complaint) , where the 
Appellate Body stated in a footnote that: "[t]he stru cture of [Article 1.1(a)(1) of the SCM Agreement] 
does not expressly preclude that a transaction could be  covered by more than one subparagraph". The 
Appellate Body's point is that "Article 1.1(a )(1) […] does not explicitly spell out the intended 
relationship between the constituen t subparagraphs". Contrary to the European Union's assertions, 
what is clear from this jurisprudence is that th e Appellate Body has not specifically ruled that a 
particular measure or transaction could be proper ly found to be multiple forms of "financial 
contribution" at the same time
41. 
 
123. With respect to the nature of "income and price support", Canada notes that the type of "income or price support" captured by GATT Article XVI  has been incorporated by reference into the 
text of Article 1.1(a)(2)
42. Article XV1:1 requires notification of "any subsidy, including any form of 
income or price support, that operates directly or indirectly to increase exports […] or reduce imports 
[…]". Thus, this requires "trade effects". There is no evidence suggesting that imports of wind or solar 
electricity into Ontario have declined as a result of the FIT Program or that exports have increased. In 
fact, there is no evidence that wind or solar electricity is traded at all. Thus, one of the requirements of 
"income and price support" cannot be met.   124. The ordinary meaning of "price support" is "a ssistance from a government or other official 
body in maintaining prices at a certain level regard less of supply or demand", and applies equally to 
the concept of income support. Thus, this not only m eans that incomes or prices must be maintained 
through government measures, but that there would be income or price levels  first established by 
supply and demand (i.e. by a market).  
                                                      
41 Response to question No. 24 (Second Set): The Appellate Body did not, contrary to the European 
Union's assertions, find that a particular measure could be properly found to be multiple forms of "financial 
contribution" at the same time. A panel should come to a view as to where the measure properly fits. If that is within Article 1.1(a)(1) as a "financial contributio n", then a proper characterization will lead to one 
subparagraph. When the Panel's choice is between one of the subparagraphs in Article 1.1(a)(1) and possible 
(2), then the same proper characterization analysis will again lead to a conclusion that places it in one or the 
other but not both at the same time. The "or" betw een the two paragraphs reinforces this approach.  
42 Response to question No. 20 (First Set): Article 1.1(a)(2) does not require a finding of "serious 
prejudice" in order to find "income or price support". This dispute is not a "serious prejudice" case (pursuant to Articles 5(c) and 6 of the SCM Agreem ent). In such cases, an assessment  of serious prejudice should be 
conducted only after a finding of benefit, and of "s pecificity" under Article 2 of the SCM Agreement.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-84 
 
 
  125. So, "income or price support" necessarily pr esupposes a market that provides a signal causing 
a government to take measures to maintain inco me or prices when they fall below a certain level.  The 
European Union acknowledges this when it provides the example of a system for milk in which 
producers will obtain payments if the market  price is below the guaranteed price. The FIT Program is 
not based on any such signal. 
 126. Recipients of price support will not be limite d to sellers who sell to the government. Indeed, 
price support should also alter the market price for ot her sellers in that mark et. For example, when a 
government purchases sugar to support its price, this should alter the price of sugar not only for those 
selling to the government but for other sellers as well . Here, there are no allegations that any sellers 
apart from the FIT generators selling to the government receive FIT prices.  127. With respect to a "direct transfer of funds" , Japan has now claimed that the FIT Program is a 
"conditional grant". It is incorrect because, first, the obligation to generate electricity and deliver it 
into the system is the central characteristic of  all OPA contracts. Japan may characterize it as a 
"reciprocal obligation" made in "performance" for receiving payment, but this is only another way of describing a "purchase of goods". Second, Japan fail s to reference the Appellate Body's conclusion 
that grants are normally given "[…] without an obligation or expectation that anything will be 
provided to the grantor in return ". Japan's theory seeks to blur the distinction between a "direct 
transfer of funds" and a "purchase of goods" to th e point that the latter is rendered redundant.  
 
128. Turning now to the issue of "benefit", Canada  has repeatedly demonstrated that all of the 
complainants' proposed benchmarks are rates for co-mingled commodity electricity and, therefore, do 
not reflect the conditions of purchase and sale for wind or solar electricity in Ontario. The underlying 
premise of the complainants' position that rates fo r blended commodity electricity are appropriate 
benchmarks is untenable. They argue that there is a single market for electricity in Ontario and all 
sources of generation compete with each other in that single market. This is simply not the case for the reasons set out below.  129. First, the IESO administered market mechanism or algorithm
43 is not a "venue where buyers 
and sellers meet with the aim of exchanging go ods or services […]". Such a wholesale market for 
electricity in Ontario both began and ended in 20 02. Subsequently, the government created a system 
with a market mechanism to allow the IESO to balance physical supply and demand and make 
dispatch decisions. The OEB was also mandated to  regulate the rates of certain OPG facilities.  
 130. As a result, the HOEP no longer represents a rate  for electricity determined by the interaction 
of buyers and sellers, and only 8%  of generation is paid the HOEP. Canada notes that the European 
Union questions this figure based on certain data in Table 1 of Japan's first written submission. 
However, the European Union assumes that all the generation Japan has included under "Unregulated 
Thermal" "OPG Assets" receives the HOEP price alone . This is a faulty assumption. Japan's Exhibit 
JPN-15, on which Table 1 is based, includes thr ee facilities – the Lambton, Nanticoke and Lennox 
stations – under this category that account fo r over 11.5 TWh of production. These facilities all 
                                                      
43 Response to question No. 31 (First Set): There is one algorithm, the "dispatch algorithm" that is run 
in two modes – "constrained" and "unconstrained". The difference is that the constrained mode considers all 
physical limitations of the system, while the unconstrained mode ignores these. The constrained mode produces 
the dispatch instructions, while the unconstrained mode is  run to stack offers (from the lowest to the highest) 
and determine the MCP. Consumers pay the HOEP plus Global Adjustment.  
The price paid by consumers is based on the RPP developed and reviewed every six months by the 
OEB. These prices reflect a forecast of the HOEP a nd Global Adjustment for th e next 12 months and any 
variance recovery from the previous year. The average HOEP in 2011 was $31.47/MWh, representing about 
22% of the average residential bill. The Global Adjustment averaged $40.48/ MWh in 2011.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page A-85 
 
 
  receive contractual rates under agreements with th e OEFC or the OPA. They do not receive the HOEP 
alone. When properly taken into acc ount, the proportion receiving the HOEP alone is indeed 8% in 
2010. Although imports receive the HOEP, this is st ill not an appropriate benchmark as imports also 
constitute co-mingled commodity electricity. 
 
131. Second, contrary to the assertions of Japan  and the European Union, different sources of 
electricity in Ontario do not compete with each other in the manner asserted by Japan and the European Union as they have different costs and inherent attributes
44. Further, despite the European 
Union's admission that the government represents the demand side of the transaction, it continues to 
focus on the views of end-users who do not even pa rticipate in the IESO mechanism that allegedly 
constitutes the relevant market.   132. Third, the complainants have also argued that  the HOEP is the rate generators would obtain 
but for the FIT Program. However, even prior to the program, Ontario had specific procurement 
programs for purchasing renewable electricity. In  all likelihood, but for the FIT Program, a 
prospective renewable electricity  generator would approach the government through the OPA and 
attempt to negotiate a contract at rates reflective of prevailing market conditions, including its costs and the government's supply requirement.   133. The various out-of-jurisdicti on benchmarks presented by Japan and the European Union are 
also rates for commodity electricity and, thus, ina ppropriate. The European Union further argues that 
Canada has not shown that the proposed in-jurisdic tion benchmarks are distorted. Canada underscores 
that it is the party wanting to rely on out-of-jurisdi ction benchmarks that must justify their use, as 
exemplified in US – Softwood Lumber IV and US – Anti-Dumping and Countervailing Duties (China) .  
 
134. Even if there were justification for using such  benchmarks, they would need to be adjusted to 
reflect prevailing market conditions for wind and sola r electricity in Ontario. The Appellate Body has 
recognized that making the necessary adjustments w ould be very difficult. Japan has not made any 
adjustment to the out-of-jurisdiction rates presented.  As such, they are inappropriate for the Panel's 
analysis.   
135. Finally, if the HOEP or any of the other pr oposed benchmarks were appropriate, this would 
mean that any generator earning a rate higher than  these benchmarks would be conferred a benefit, 
                                                      
44 Response to question No. 3 (First Set): Renewabl e electricity has significantly higher costs of 
production than electricity from non-renewable sources. The production of renewable electricity also results in environmental attributes such as carbon credits that  may have economic value in carbon credit markets. 
Response to question Nos. 41 and 43 (Second Se t): There is no competition between FIT wind and 
solar electricity – either on the basis of rates or volumes – and any other form of electricity generation in Ontario in the manner alleged by the complainants. Beca use the FIT contracts themse lves establish the rates 
paid to generators, there is no price competition. Al so, because FIT wind and so lar generators produce non-
dispatchable forms of generation, the IESO accepts all their generation volume estimates  into the dispatch stack 
before all other forms of generation and without any rate offer. The rates for other forms of renewable 
generation are also set by contracts and such generators do not submit offers to the IESO. Since the rates for 
OPG regulated generation are set by the OEB, there is  no price competition. Likewise, there is no price 
competition between contracted forms of generation. With respect to older coal and smaller hydro facilities that 
receive the HOEP alone, this is not a re sult of rate competition between forms of electricity. Rather, the rate is a 
function of a government policy decision.  
No competitive wholesale electricity market currently exists in Ontario in the manner alleged by the 
complainants. As the European Union admits, the HOEP, which is ultimately  set by the final accepted offer of 
electricity into the IESO stack, is generally set by the of fers of gas generators with OPA contracts. These offers 
are determined by a formula containe d in the contracts. Thus, the HOEP is  a rate set by OPA contracts, not 
competitive market forces. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page A-86 
 
 
  even if the rates were insufficien t to cover the costs of production
45, 46. Generators losing money every 
day would be found to be receiving a subsidy. This Panel would have to  find that a rate for electricity 
much lower than the costs of producing that el ectricity would constitute "more than adequate 
remuneration" – this simply cannot be.  
 
136. An analytical approach that might have been taken could have started by locating in-
jurisdiction private prices for the goods in questi on. The complainants have not provided any such 
evidence. If no private prices for wind and solar electri city in Ontario are available, an alternative, 
such as a constructed benchmark based on the costs of  production, could possibl y be used, as noted by 
the Appellate Body. In response to the Panel's que stion Nos. 65 and 67, Saudi Arabia effectively 
makes the same point. The complainants ha ve not offered such an alternative.  
 137. If an appropriate in-jurisdic tion benchmark were ultimately e xhausted, the prospect for using 
an out-of-jurisdiction benchmark might still have existe d, but such rates must be justified and adjusted 
to reflect prevailing market conditions in Ontari o. Despite clear Appellate Body guidance, the 
complainants chose not to pursue such an appr oach and have instead provided inappropriate 
benchmarks. These benchmarks cannot be the b asis of a proper benefit analysis. Thus, the 
complainants have failed to meet their burden of establishing that the FIT Program is inconsistent 
with the SCM Agreement.   
 
_______________ 
 
                                                      
45 Response to question No. 44 (Second Set): The Euro pean Union seems to suggest that climate is the 
most important cost factor in a wind or solar facility and that, since it will vary from location to location, a standard rate will ensure that FIT facilities will not exis t where it would just cover capital and operating costs. 
The implication of this argument is that FIT generators will only locate their facilities where the rate would be 
considerably higher than costs, meaning that "structurally" the FIT Program cannot be said to reflect the costs of generation and therefore confers a benefit. This assertion is untenable. First, the European Union provides no 
textual or jurisprudential support for its position that a benefit can be simply determined because the payment 
for a good is at a fixed rate. Second, suggesting that standard rates necessarily confer a benefit on some 
producers would lead to absurd results. Take the example of a government's purchase of pens at a list price 
applicable to all consumers. Obviously, any given pen manufacturer will have inhe rently different costs and 
relative efficiencies. If a benefit analysis were conduc ted on the basis suggested by the European Union, a 
government would be found to be providing subsidies to all manufacturers despite the fact that other non-
governmental purchasers pay the same price for the good. This cannot be the proper analysis.  
The Quebec wind rates presented by the European Union are from a jurisdiction other than Ontario. 
The European Union has provided no justification for the use of these rates as a benchmark. Further, any such 
use must first be adjusted for prevailing market conditions in the jurisdiction in question. As this has not been done, the rates are not useful to the Panel's consideration of benefit.  
46 Response to question No. 42 (Second Set): Japan's argument that the history of Ontario's electricity 
market demonstrates that the FIT Program confers a benef it is unpersuasive. First, Japan seems to argue that the 
Panel may find a benefit conferred in an abstract manner. However, the Panel must determine whether the 
OPA's purchases are for more than adequate remunera tion according to Ar ticle 14(d) of th e SCM Agreement. 
Second, Japan fails to acknowledge that the competitiv e wholesale market ended in November 2002 and there 
has been no return to such a market. Third, the analysis of benefit must be based on a comparison with a 
contemporaneous benchmark. It would be illogical to compare the purchase price for any good with market 
conditions that existed year s before the transactions in question.  Here, the impugned rates for FIT wind and 
solar electricity came into effect on 24 September 2009. Four th, referring to a historical  market price in the form 
of the HOEP as it was during liberalization is still a reference to a rate for co-mingled electricity.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-1 
 
 
 ANNEX B 
 
 
WRITTEN SUBMISSIONS AND ORAL STATEMENTS  
OF THE THIRD PARTIES 
 
 
Contents Page 
Annex B-1 Integrated Executive Summary of Australia B-2 
Annex B-2 Integrated Executive Summary of Brazil B-6 
Annex B-3 Integrated Executive Summary of China B-8 
Annex B-4 Integrated Executive Summary of El Salvador B-12 
Annex B-5 Integrated Executive Summary of the European Union 
(in WT/DS412) B-14 
Annex B-6 Integrated Executive Summary of Japan (in WT/DS426) B-18 
Annex B-7 Integrated Executive Summary of Korea B-24 
Annex B-8 Integrated Executive Summary of Mexico B-28 
Annex B-9 Norway's Third-Party Statement B-32 
Annex B-10 Integrated Executive Summary of Saudi Arabia, Kingdom of B-34 
Annex B-11 Integrated Executive Summary of the United States  B-38 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-2 
 
 
 ANNEX B-1 
 
 
INTEGRATED EXECUTIVE SUMMARY  
OF AUSTRALIA 
  
I. INTRODUCTION 
 
1. These proceedings initiated by Japan and th e European Union present Members with the 
opportunity to consider the interpretation of Members'  international trade obligations in the context of 
domestic environmental measures.  Australia addresses the following key issues:   
a. the definition of a subsidy under Article 1.1 of the Agreement on Subsidies and 
Countervailing Measures (SCM Agreement); 
b. the determination of benefit under Article  1.1(b) of the SCM Agreement;  and  
c. the scope of Article III:8(a) of the Ge neral Agreement on Tariffs and Trade 1994 
(GATT 1994). 
 
II. SUBSIDY 
 
A. F
INANCIAL CONTRIBUTION OR INCOME OR PRICE SUPPORT  
 
2. Australia agrees with the arguments of the European Union and Japan  with respect to the 
classification of the FIT contracts as a form of income or price support under Article 1.1(a)(2) of the 
SCM Agreement.   3. As an alternative, Australia considers it woul d be open to the Panel to consider an argument 
that the Government of Ontario "purchases goods" und er Article 1.1(a)(1)(iii) of the SCM Agreement 
through the operation of the FIT contracts. 
 
4. Canada argues that the Ontario Power Au thority (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".
1 
 
5. The Appellate Body in US – Large Civil Aircraft identified two aspects of a purchase of 
goods within Article 1.1(a)(1)(iii):  
a. goods are provided to the government by the recipient;  and 
2  
b. the person or entity providing the goods w ill receive some consideration in return.3 
 
6. Australia considers that in determining wh ether a financial contribution is a purchase of 
goods, it is not necessary for the government to use the goods purchased.  Rather, in Australia's view, 
a purchase of goods for the purposes of Article 1.1(a)(1)(iii) occurs where a government pays a person or entity for the provision of goods.  
7. In the current dispute, the OPA is an agen t of the Government of Ontario.  The OPA is 
contractually bound under an executed FIT contract to pay the contract rate for electricity produced by 
                                                      
1 Canada's first written submission, para.120. 
2 Appellate Body Report, United States – Large Civil Aircraft , para. 619. 
3 Ibid.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-3 
 
 
 FIT generators.  The contract rate received by FI T generators could be a ppropriately classified as 
consideration for the electricity supplie d to the Ontario electricity market.  
 8. Australia considers that the Panel could use th is reasoning to find that the transaction between 
the OPA and FIT generators could be appropriate ly characterised as a purchase of goods within the 
definition of financial contribu tion in Article 1.1(a)(1)(iii). 
 
B. B
ENEFIT  
 
9. Australia does not accept Canada's argument that comparators used by Japan and the 
European Union are inappropriate for assessing whether the OPA's procurement of wind and solar electricity under the FIT Program contracts confers a "benefit".
4  
 10. Australia notes that a financial contribution c onfers a benefit if the terms of the financial 
contribution are more favourable than the terms ava ilable to a recipient on the market.  In Australia 's 
view the relevant market in this dispute is the elec tricity market.  In this regard, Australia notes that 
the Appellate Body in EC and Certain Member States – Large Civil Aircraft stated that a calculation 
of benefit in relation to the prevailing market c onditions "demands an exam ination of behaviour on 
both sides of the transaction, and in particular in  relation to the conditions of supply and demand as 
they apply to that market".
5   
 11. In Australia's view, Canada's defence of the FIT program predominantly focuses on the conditions of supply of renewable energy in its analys is of benefit.  That is, Canada repeatedly points 
out that renewable energy production costs are significantly higher than non-renewable energy 
production costs.  Australia does not dispute this.  Ho wever, in Australia's view, the Panel should also 
consider the demand side of the electricity market in examining benefit.  In this regard, Australia 
submits that although the FIT program distinguish es 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 mark et place.  Further, consumers of electricity in 
Ontario do not (and cannot) distinguish between re newable and non-renewable sources of electricity. 
 
12. Australia does not consider that the differ ence in the production costs for different energy 
types precludes a benefit analysis using the market price for electricity.  In Australia's view, the 
subsidised product in question is electricity, not th e subset of electricity generated from renewable 
sources.    
 
13. In Australia's view, there are two possible ways  in which the FIT contracts confer a benefit to 
FIT generators.  First, the government support establis hes a buyer for the renewable energy that would 
not otherwise exist.  Absent the government support, there would not be sufficient compensation to stimulate investment in renewable energy – market forces alone would not engender profitable participation in the renewable energy sector.  S econd, the FIT generators receive a higher price for 
their product than that which is otherwise available on the market.  
 14. In relation to the second issue, Australia consid ers that the HOEP used by  Japan and the EU is 
an appropriate comparator for determining benefit.  The HOEP is the rate of electricity as determined 
by supply and demand of electricity in Ontario and is  the rate that a generator of electricity would 
receive in the wholesale market, absent an y contractual and regulatory arrangements.
6   
 
                                                      
4 Ibid, para. 130. 
5 Appellate Body Report, EC and Certain Members States – Large Civil Aircraft , para. 981. 
6 Japan's first written submission, para. 220. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-4 
 
 
 III. GOVERNMENT PROCUREMENT 
 
15. A significant issue that arises in this case is whether the purchase of electricity for distribution 
to the general public should be properly characterised as government procurement for the purposes of 
Article III:8(a) of GATT 1994.  
 16. Australia submits that the mere labelling 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.   A. G
OVERNMENT PURPOSES  
 
17. 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 On tario can be appropriately characterised as for 
"governmental purposes".   
 
18. Australia notes that "purpose" can mean "practical advantage or use".7  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".8  Australia notes that the French version of Article III:8(a) 
provides in relevant part:   
 
"Les dispositions du présent article ne s'a ppliqueront pas aux lois, règlements et 
prescriptions régissant l'acquisition, par des organs gouvernmentaux, de produits 
achetés pour les besoins  de pouvoirs publics…(emphasis added)" 
19. This version of the text, and in particular th e 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".9 
 20. Australia submits that the Panel will need to consider whether, in the absence of a practical 
advantage or use by the government, the Government  of Ontario's procurement of electricity is for 
"governmental purposes" under Article III:8(a) of GATT 1994.  
B. C
OMMERCIAL RESALE  
 
21. If the Panel accepts that the purchase of elect ricity by the Government of Ontario is for 
"governmental purposes", Australia submits that th e 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.  
22. Australia notes that the online New Oxford Dictionary defines "commercial" as concerned 
with or engaged in "commerce"; commerce is de fined as the activity of buying and selling.  The 
concept of profit in both these defin itions is a secondary consideration.
10 
                                                      
7 Collins English Dictionary online, accessed 9 January 2012:   
  http://www.collinsdictionary.com/dictionary/english/purpose  
8 US – Final CVD for Softwood Lumber,  para. 59. 
9 Canada's first written submission, para. 86. 
10 Oxford New Dictionary, onlin e, accessed 9 January 2012:   
http://oxforddictionaries.com/definition/commercial?q=commercial ;  
 http://oxforddictionaries.com/definition/commerce?q=commerce   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-5 
 
 
 23. Although the OPA does not operate for profit, it procures electricity which is fed into the 
electricity grid for immediate resale and distributi on.  The electricity grid is characterised as a 
"physical market" where electricity is bought and sold.11  The OPA procures the electricity with the 
intention that the electricity will be resold on market terms.  
 
24. Australia submits that to interpret "with a view to commercial resale" as meaning a purchase 
with an aim to re-sell for profit would be an overl y narrow definition.  Such an interpretation would 
expand the possible exemptions to the national tr eatment 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.  
 25. The Government of Ontario does not use the vast majority of electricity it purchases.  The electricity is purchased for distribution to consumer s 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 or pu rchase of electricity at fixed prices, which it then 
sells on a market for general consumption.  
IV. CONCLUSION 
 
26. In Australia's view, the FIT program could be  categorised as either a purchase of goods within 
the meaning of financial contribution in Article 1. 1(a)(1)(iii) or a form of income or price support 
under Article 1.1(a)(2) of the SCM Agreement.    27. Australia does not consider that the differ ence in the production costs for different energy 
types precludes a benefit analysis using the market price for electricity.   
 
28. Finally, in Australia's view, interpreting Artic le III:8(a) of GATT in the manner suggested by 
Canada would extend the scope of the provision well beyond its ordinary meaning.  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 Article  III:1 of GATT 1994. 
 
 
                                                      
11 Japan's first written submission, para. 68, footnote 120.   WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-6 
 
 
 ANNEX B-2 
 
INTEGRATED EXECUTIVE SUMMARY  
OF BRAZIL 
 
 
I. INTRODUCTION 
 
1. Brazil offers comments on aspects of:  (i) th e meaning of "for governmental purposes" in 
Article III:8(a) of the GATT;  and (ii) the interpreta tion of the term "benefit" in Article 1.1(b) of the 
SCM Agreement and the appropriate benc hmark for a determination thereof.  
 II. ARTICLE III:8(A) OF THE GATT:  "FOR GOVERNMENTAL PURPOSES" 
 
2. By maintaining that only purchases for the government's own use or benefit should be 
considered to serve the purposes of the government , Japan and the EU unduly limit the scope of the 
term "for governmental purposes" in Article III:8( a) of the GATT.  This interpretation seems to 
indicate that the sole purpose of the government is  to provide for the maintenance and the regular 
functioning of its bureaucracy and disregards the fact that state bureaucracy is only a means to 
achieve a myriad of ends, defined by each society.  If negotiators wished to restrict the meaning of the 
term "for governmental purposes" to purchases made by governmental agencies for their "own use", 
they should have expressly done so.  Instead, the wo rding of Article III:8(a) reads "procurement by 
governmental agencies of products purchased for governmental purposes ", which means that the 
proper interpretation of this provision must give meaning to the term "for governmental purposes".  
 3. The "purpose of the government" cannot be con ceptually construed, in a general aprioristic 
manner.  Rather, it can only be understood on a case-by-case basis, informed by the specific function 
performed by a given government in each sector of  the economy.  Brazil proposes that such concept 
can be seen as a spectrum: at one end of the spect rum, the Member may be acting as an intervening 
agent, constitutionally or legally bound to guarantee the supply of a certain good or service;  at the other, it may act as an economic agent like any other,  wholly subject to market conditions.  On the 
first case, the governmental purpose is central, ther efore clearly covered by Article III:8(a); on the 
second, it is at best marginal, and outside the scope  of said exception.  The scope of governmental 
purposes may be perceived as falling within the follo wing categories of governmental action:  i) as 
providers of goods or services (sometimes constituti ng a state monopoly);  ii) as fomenting agents, 
promoting strategic sectors to ensure the developm ent of areas where private enterprise alone may not 
suffice;  iii) as regulators, closely monitoring the purveyance of a certain service, while not legally 
obliged to provide such goods or services;  and iv ) as economic agents, subject to market conditions.  
In the first two categories governmental purposes would be readily discernible.  In the third, it would 
require that other considerations be taken into acc ount.  In the fourth, governmental action would fall 
outside the range of governmental purposes.   4. The Panel should thus compare the overall desi gn, structure and architecture of a procurement 
program with the specific function exercised by the government.  Moreover, in interpreting the meaning of "governmental purposes", adjudicat ors should refrain from making abstract 
determinations of what is a legitimate "governmental  purpose".  Just as an "accordion" (in reference to 
the analogy developed for "like product" by the Appellate Body in Japan – Alcoholic Beverages II ) 
the definition of governmental purpose stretches a nd squeezes according to how and to which extent a 
particular government acts to achieve its pur poses, as inferred from the legitimate framework 
applicable and from the facts of each case.  
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-7 
 
 
 5. Nonetheless, the definition of "governmenta l purposes" cannot be as broad as suggested by 
Canada ("all purchases by a governmental agency direct ed in legislation, regulations, policy or an 
executive direction"), or else the scope of the nationa l treatment obligation set out in Article III would 
be significantly undermined.  
 
III. ARTICLE 1.1(B) OF THE SCM AGREEMENT:  "BENEFIT" AND BENCHMARKS 
 
6. The parties in the dispute disagree on the proper benchmark, or "comparators", that would allow an assessment of whether there is a "ben efit" in the sense of Article 1.1(b) of the 
SCM Agreement conferred by the rates paid for th e energy producers that participate in the FIT 
programme.  For Brazil, the appropriate benchmar k in this case should be assessed in light of the 
Appellate Body's decision in EC and other member States – Large Civil Aircraft,  which built upon the 
concept of "marketplace" established in Canada – Aircraft  to conclude that:  
 
"[…] Even where a market is limited for a particular good or service, that market 
price is not dictated solely by the price a seller wishes to charge, or by what a buyer 
wishes to pay. Rather, the equilibrium price established in the market results from the 
discipline enforced by an exchange that is reflective of the supply and demand of 
both sellers and buyers in that market."
1 
7. Though the costs of production are relevant to  analyse whether a benefit is being conferred 
(as it determines whether a producer would offer a product but for government intervention), they are 
incomplete parameters to inform benchmarks, for they only refer to the supply-side of the market2.  In 
order to properly analyse a market and therefore adequately establish its benchmarks, there needs to 
be a complete assessment of both buyers and sellers, looking at not only the price at which sellers are 
willing to offer their products, but also the price buyers are willing to pay for the goods or services in 
question.  
 8. When there is significant government participa tion in the market, private prices may not be an 
appropriate benchmark, as the A ppellate Body has acknowledged in US – Softwood Lumber VI ).  In 
that case, the Appellate Body emphasized that th e use of alternative benchmarks needs to be 
connected with "prevailing market conditions in the country of provision, (including price, quality, 
availability, marketability, transportation and other conditions of purchase or sale), with a view to 
determining, ultimately, whether the goods at issu e were provided by the government for less than 
adequate remuneration".
3 
 9. As to the appropriate benchmark to be used in  this case, Brazil considers that both the supply 
and the demand sides in the energy market should be taken into account.  The benchmark cannot be 
based solely on the prices for which producers of a certain kind are willing to sell or the prices 
government set forth, neither can wholesale unregulated market prices in a strategic sector of an economy form the basis for this benchmark.  
                                                      
1 EC and certain member Stat es – Large Civil Aircraft  (AB Report, paragraph 981). 
2 "We acknowledge that, in certain circumstances, a se ller's costs may be a relevant factor to consider 
in assessing whether goods or services were provided for less than adequate remuneration.  As we see it, 
however, the difficulty with the Panel's an alysis is not that it referred to these costs as a factor in its analysis, but 
rather as the sole basis for its findings" ( EC and certain member States – Large Civil Aircraft.   AB Report, 
paragraph 980).  
3 US – Softwood Lumber IV , (AB Report, paragraph 115). WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-8 
 
 
 ANNEX B-3 
 
 
INTEGRATED EXECUTIVE SUMMARY  
OF CHINA 
  
I. WHETHER ARTICLE III:8 (A) OF THE GATT 1994 APPLIES IN THE PRESENT 
DISPUTE 
 
1. Canada submits that the procurement of rene wable electricity under the FIT Program shall fall 
within the scope of GATT Article III:8(a), theref ore, shall be exempted from the discipline of 
Article III:4 of the GATT 1994.  
2. In order to apply the exemption, several conditions need to be satisfied, which are, inter alia , 
"for governmental purposes" and "not for commercial r esale".  In China's view, the two terms refer to 
two parallel conditions, a nd failure to meet any condition shall lead to non-application of GATT 
Article III:8 (a).  
a. For governmental purposes 
 
3. In its submission, Canada claims that a purchase for "governmental purposes" is a purchase 
for an aim of the government.  In China's view , the phrase of "a purchase for governmental purpose" 
shall be read as a whole.  If it is read as a whole,  the ordinary meaning of "a purchase for government 
purposes" shall be that government is the reas on for purchase, government shall benefit from the 
result or effect of purchase, or governme nt is the aim or the end of purchase. 
 4. There is no doubt electricity "purchased" by OPA will be injected into the grid for sale to end 
users of Ontario.  Therefore, the electricity is purchased for end users instead of government.  
Government itself will not directly benefit from the result of effect of purchase.  Although the Government of Ontario also purchases the electrici ty through the OPA, the quantity of electricity 
consumed by Government of Ontario only accounts fo r a very insignificant part.  Therefore, the 
government is not the aim or end of purchase. Furthe rmore, since majority of electricity are sold to 
end users instead of government, how can government  benefit from such a "purchase"?  Therefore, 
China is not convinced by the assertion of Canada that the "purchase" by OPA is for governmental 
purpose. 
 
b. Not with a view to commercial resale or no t with a view to use in the production of 
goods for commercial sale 
 
5. China takes note of the statement by Canada that OPA does not aim to profit, nor does it profit in fact, from the sale of renewable electricity – the OPA simply recovers the cost of purchasing 
that renewable electricity.  However, in China's view, the fact that government does not make any 
profit may only prove that the purchase by OPA does not constitute commercial resale, the panel shall 
continue to examine if the purchase constitute use in the production of goods for commercial sale.  
According to Canada, the electricity will be delivered  into the grid for use by all Ontario consumers, 
whether they are homeowners, government or busin ess operators.  The electricity sold to business 
operators will surely be used in the production of goods for commercial sal e.  Although Canada 
argues that neither the OPA, nor any other part of the Government of Ontario, is using the renewable 
electricity which is purchased by the OPA to make  any goods, Canada can not  prevent other end users 
of electricity to make goods for commercial resale.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-9 
 
 
 6. In conclusion, China believ es that since the purchase of electricity by OPA is not for 
governmental purpose, and the electricity will be so ld by OPA to end users and some end users may 
use the electricity in the production of goods for commercial sales, FIT program does not meet the criteria of GATT Article III: 8(a). 
 
II. WHETHER THE FIT PROGRAM CONCERNED CONSTITUTES A SUBSIDY 
UNDER SCM AGREEMENT 
 
7. Canada argues that Japan fails to demonstrat e that the FIT Program and Contracts confer a 
"benefit" on FIT Producers of wind and solar electric ity under Article 1.1(b) of the SCM Agreement. 
 8. Japan proposes four benchmarks in support of its allegation that the FIT Program and 
contracts confer a benefit under Article 1.1(b) of  the SCM Agreement, including the HOEP.  Canada 
argues that all of Japan's proposed comparators are improper because they do not reflect the 
fundamental condition of purchase in a FIT contract, namely that renewable electricity be produced.  
Canada stressed that the unique cost and operati ng conditions make comparing prices of some or all 
non-renewable electricity and wind and solar electr icity inappropriate.  However, China is not 
convinced by Canada's assertion.  
a. Whether or not confer a benefit does not depend on the proportion of non-subsidized 
recipient 
 
9. Canada argues that Japan fails to demonstrat e that the FIT Program and Contracts confer a 
"benefit" on FIT Producers of wind and solar electric ity under Article 1.1(b) of the SCM Agreement. 
 
10. As indicated by Appellate bod y in Canada-Aircraft, a financia l contribution will only confer a 
"benefit" i.e., an advantage, if it is provided on terms that are more advantageous than those that 
would have been available to  the recipient on the market .
1  Furthermore, in accordance with the 
criteria set by the Appellate Body in DS379, in order to deny the market price, i.e. HOEP as the appropriate benchmark, Canada has to prove that (1) the government of Ontario is a " predominant " 
supplier (or purchaser);  (2) the market of electric ity in Ontario is distorted due to the presence of 
"predominant" role of the government of Ontario;  (3) other factors.  However, Canada only states that 
92% producers received more than HOEP, therefore, it seems that the government of Ontario is a 
"predominant " purchaser.  However, Canada did not address in detail why the market is distorted due 
to the presence of "predominant" role of the government  of Ontario, nor did it address in detail if there 
are any other factors which may affect the assessing appropriate benchmark.  Therefore, in China's 
view, Canada's rebuttal on "benefit" does not meet th e requirement of Appellate Body in this regard. 
 
b. Whether or not confer a benefit does not depend on the cost of recipient of subsidy 
 
11. Canada argues that wind and solar energy n eed significant investment in capital and face 
considerable ongoing fixed costs, and no rational inv estor in wind or solar generation would ever sell 
electricity below the cost.  Therefore, Canada subm its that the benchmark prices proposed by Japan is 
below the cost of production, and can not be appropr iate benchmark for determining the existence of 
"benefit".
2  China also can not agr ee with such an assertion. 
 12. In China's view, the benchmark price is not decided by the cost of the production.  As 
indicated above, conferring a benefit depends on whet her or not there is advantage compared with 
prices available in the market.  It clearly does not  depend on the cost of recipient of subsidies. 
                                                      
1 Appellate Body Report, Canada – Aircraft , para. 149. (emphasis original) 
2 Canada's first written submission, para. 147. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-10 
 
 
 13. Canada argues that cost of de veloping renewable energy is great er than other forms of energy.  
However, even if it is true, the high cost may only prove the existence of subsidy, because unless 
intervened by government there is no reason for ratio nal end users to pay more to buy the electricity 
generated from renewable energy since its quality is not  superior to the electricity from fossil.  Since 
the electricity from renewable energy and those from other forms of energy are similar and 
comparable, we fail to see the reason why HOEP ava ilable to electricity from other forms of energy 
can not be the appropriate benchmark.  Taking a step back, even if HOEP is not an appropriate 
benchmark, we still fail to see the reason why the cost  of production of recipient of subsidies shall be 
decisive for assessing the existence of conferring a "benefit", which does not have any legal basis in 
the WTO Agreements and case laws. 
 14. In conclusion, China believes that Canada's assertion on "benefit" is not consistent with 
Article 1.1(b) of the SCM Agreement and relevant WTO case law.  III. WHETHER EXPORT RESTRICTION COULD BE CONSIDERED AS "INCOME 
SUPPORT" UNDER ARTICLE 1.1(A)(2) OF THE SCM AGREEMENT 
 
15. China noted that Paragraph 33 of the EU's submission in DS426 referred to United States — 
Measures Treating Export Restraints as Subsidies  (DS194) and China — Measures Related to the 
Exportation of Various Raw Materials  (DS394, DS395 and DS398), asserting that export restriction 
could be considered as "income support" under Article 1.1(a)(2) of the SCM Agreement. 
 16. China submits that export restriction is not "income or price support", and illustrates the reasoning as the below:  
17. Firstly, reading the term "income or price support" in its context, it does not exhaust all 
government interventions that may have an effect on income or price, such as tariffs and quantitative 
restrictions.  In China's view, the term "income or price support" shall base on the nature of a 
government action rather solely on the basi s of the effects of such an action.  
 18. Secondly, applying the "effect" test to the ex istence of an "income or price support" would 
have far-reaching implications.  In particular, it would seem to imply that any government measure 
that creates market conditions favourable to or resu lting in the increased supply of a product in the 
domestic market would constitute a "income or pr ice support", and hence a "subsidy" under the SCM 
Agreement.  It is inevitable that  the effect test will exaggerate the reasonable scope of "income or 
price support".  
 
19. Thirdly, since Article XI of the GATT 1994 has dealt with deals with Members' obligation of 
"general elimination of quantitative restrictions", it is very doubtful that the concept of "income or 
price support" contained in Article 1.1(a) of the SCM Agreement seeks to bring such government action within the ambit of the SCM Agreement.  
20. Fourthly, we note that a concept of "marke t price support" is included in the Annex 3 of 
Agreement on Agriculture, which provides that "marke t price support" is calculated as the difference 
between an external reference price and the "applied administered price".  It indicates that a direct 
control over domestic price by the government is re quired in order to prove the existence of "price 
support".  Therefore, in terms of "income or pr ice support", the core issue should be the direct 
government action and the nature of such an action,  rather than a movement in prices which is an 
indirect effect of another form of government intervention.  21. Lastly, the EU reached its conclusion by re ferring to Paragraph 7.430 of the Panel Report in 
China — Measures Related to the Ex portation of Various Raw Materials  (DS394, DS395 and  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-11 
 
 
 DS398).  However, by referring to the Panel Report, the EU failed to notice the footnote therein added 
by the Panel, which explicitly expressed that "The  use of the term "subsidy" herewith does not 
implicate a legal conclusion under the WTO Ag reement on Subsidies and Countervailing Duties".3  
 
22. To sum up, China believes that the term of "income or price support" shall be interpreted 
narrowly, and export restriction is not "income or  price support".  Having said that, China does not 
challenge the assertion of the EU that relevant FIT programs constitute subsidies.  What China 
disagree is that the EU uses an inappropriate example of export restriction to illustrate the term of "income or price support". 
 
 
                                                      
3 Panel Report, China — Measures Related to the Exportation of Various Raw Materials  (DS394, 
DS395 and DS398), footnote 674. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-12 
 
 
  ANNEX B-4 
 
 
INTEGRATED EXECUTIVE SUMMARY 
OF EL SALVADOR* 
  
I. INTRODUCTION 
 1. El Salvador has expressed its interest in participating as a third party in these proceedings 
because they address various systemic issues ch iefly relating to the WTO Agreement on Subsidies 
and Countervailing Measures.  El Salvador believes th at subsidies are vital tools for the management 
of a country's trade policy, since in some cases th ey are essential to a country's economic and social 
development. 
 
2. This summary raises two issues of systemic im portance to El Salvador:  (a) the key element 
that the subsidy must come from a government or any public body within the territory of a Member;  
and (b) income or price support must be provide d "in the sense of Article" XVI of the GATT 1994. 
 
II. DISCUSSION 
 
A. A
 GOVERNMENT OR ANY PUBLIC BODY WITHIN THE TERRITORY OF A MEMBER  
 3. This dispute has given rise to a debate over the nature of the relationship between different 
entities operating on the renewable energy market in  the Province of Ontario, as can be seen in 
Question 15 from the Panel to the Parties. 
 4. El Salvador considers it important to undersco re the relevance of the fact that the Local 
Distribution Companies (LDCs) are owned by the Gove rnment of Ontario, given the predominant role 
that the complainants claim is being played by these companies in the direct or potential direct 
transfer of funds, in the sense of Article 1.1(a )(1) of the SCM Agreement, to FIT generators.
1 
 
5. In this connection, we would point out that , for purposes of determining government or public 
body intervention in a subsidy, the Appellate Body in United States - Definitive Anti-Dumping and 
Countervailing Duties on Certain Products from China  called upon investigating authorities and 
panels to engage in a " careful evaluation of the entity in qu estion and to identify its common features 
and relationship with government in the narrow sense,  having regard, in particular, to whether the 
entity exercises authority on behalf of government.  An investigating authority must, in making its 
determination, evaluate and give due consideration to all relevant characteristics of the entity and, in 
reaching its ultimate determination as to how that  entity should be characterized, avoid focusing 
exclusively or unduly on any single characteristic without affording due consideration to others that 
may be relevant ".2 
 
6. We consider the foregoing relevant to this di spute, because in this way it will be possible to 
ascertain the amount of generation tariff-related financia l transactions in favour of FIT generators, in 
                                                      
* This Executive Summary was originally made in Spanish. 
1 Japan's First Written Submission (DS412), Attachment  1:  Reproduction of Flow of Electricity and 
Money Diagrams Presented as Figures 2 and 3. 
2 Appellate Body Report, United States - Definitive Anti-Dumping and Countervailing Duties on 
Certain Products from China , para. 319.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-13 
 
 
  the exercise of Ontario Government authority,  since both complainants, namely Japan and the 
European Union, have asserted that the " majority " of LDCs are owned by the Government of Ontario. 
 B. I
NCOME OR PRICE SUPPORT MUST BE PROVIDED "IN THE SENSE OF ARTICLE " XVI  OF THE 
GATT  1994 
 7. In its first third-party submission, El Salva dor referred to the requirement that the form of 
income or price support under Article 1. 1(a)(2) of the SCM Agreement be in " the sense of Article " 
XVI of the GATT 1994.
3 
 
8. In the same submission, we expressed our vi ew that objective parameters should be provided 
for the Panel to determine that there had been a decline in imports of renewable energy generation 
equipment and components in favour of equipment and components from the Province of Ontario.  
9. We also note that in its Question 20 to th e Parties the Panel referred to this element of 
Article 1.1(a)(2) of the SCM Agreement.  10. El Salvador considers that the SCM provisi on in question requires evidence that a subsidy 
falls within the meaning of Article XVI:1 of the GATT 1994, i.e. that it be shown in what way it 
operates " directly or indirectly " to " reduce imports of any product into its territory ". 
 
11. Under the Agreement, price s upport is required to meet certain criteria.  To assess this, the 
direct or indirect effects on trade based on impor ts and exports of the s ubsidized product should be 
taken into account.  Price support will therefore exist insofar as it causes or has an  impact in the form 
of a decline in imports. 
 
12. We consider that the methods employed unde r other WTO provisions may be used to deal 
with the measure at issue in this dispute.  In matte rs relating to safeguards, for example, there is a way 
to examine the correlation between the increase in injury and the domestic industry;  this may be a 
time-related correlation (i.e. ascertaining whether a correlation exists between the moment when 
imports increased and the injury).  The other way is  to analyse the conditions of competition between 
imports and the like domestic product. 
 13. In El Salvador's view, there must be an assessment and a positive, method-based determination that income or price support has been provided in the sense of Article XVI of the 
GATT 1994. 
 
III. CONCLUSION 
 
14. This case raises important questions of a system ic nature relating to the implementation of the 
Agreement on Subsidies and Countervailing Measures.  El Salvador therefore trusts that the Panel will 
take the foregoing into consideration. 
                                                      
3 First Written Submission of El Salvador (DS426), paras. 13-16. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-14 
 
 
  ANNEX B-5 
 
 
INTEGRATED EXECUTIVE SUMMARY OF THE  
EUROPEAN UNION (WT/DS412) 
   
TABLE OF CONTENTS 
 
 
I. INTRODUCTION ............................................................................................................. B -15 
II. CANADA'S REQUEST FOR A PRELIMINARY RULING ......................................... B-15  
III. MEASURES AT  ISSUE .................................................................................................... B-1 5 
IV. SCM AGREEMENT ......................................................................................................... B-1 5 
V. GATT 1994 .................................................................................................................. ....... B-16  
VI. TRIMS AGREEMENT ..................................................................................................... B-17 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-15 
 
 
  I. INTRODUCTION 
 
1. The European Union interv enes in this case because of its  systemic interest in the 
interpretation of fundamental provisions of the Agreement on Subsidies and Countervailing Measures  
("SCM Agreement"), the General Agreement on Tariffs and Trade 1994  (the "GATT 1994"), the 
Agreement on Trade-Related Investment Measures  ("TRIMs Agreement") and the Understanding on 
Rules and Procedures Governing the Settlement of Disputes  ("DSU").  The European Union also has 
a substantial commercial interest in this matter, wh ich led to its own request  for consultations with 
Canada on 11 August 2011 (DS426).  In the cont ext of its third party intervention, the 
European Union will provide its views on the legal cl aims advanced by Japan, while not taking a final 
position on the specific facts of this case or prejudging the European Union's possible claims and arguments in the context of dispute DS426.    
II. CANADA'S REQUEST FOR A PRELIMINARY RULING 
 
2. The European Union fails to understand why the parties did not provide copies of their submissions to third parties when they were filed.   Due process is a fundamental principle of WTO 
dispute settlement that informs and finds reflection in  the provisions of the DSU.  Due process implies 
that the interests and views of third parties "s hall be fully taken into account during the panel 
process".  This can only be achieved if the parties pr ovide copies of their submissions to third parties 
when they are filed (or shortly thereafter).  Th e European Union also fa ils to understand why the 
Panel did not forward the parties' submissions to th e third parties when it received them and, in any 
event, before taking a preliminary decision on the issues raised by Canada.  On substance, the 
European Union agrees with Japan that Canada's request for a preliminary ruling is unwarranted.  
 III. MEASURES AT ISSUE 
 
3. The European Union understands that Japan  challenges the FIT Program (including the 
microFIT Program) as well as the FIT and microFIT contracts.   
IV. SCM AGREEMENT 
 
4. The European Union agrees with Japan that th e measures at issue, i.e. the FIT Program, and 
FIT and microFIT contracts, by imposing a domestic  content requirement on FIT Generators of wind 
and solar PV electricity as a condition for receiving guaranteed, above-market electricity rates, would 
provide subsidies contingent upon the use of do mestic over imported goods, which are prohibited by 
Articles 3.1(b) and 3.2 of the SCM Agreement.   
 5. The European Union considers that the FIT Program amounts to a subsidy as defined by Article 1.1 of the SCM Agreement.  First, no matter how regarded, either as a direct transfer of funds 
or a potential direct transfer of funds, the FIT Program implies a financial contribution by the 
government of Ontario, through its public agenci es (and, in particular, through the OPA) and/or 
through private bodies entrusted or directed by the government to make FIT payments (i.e. LDCs).  
The Canadian province of Ontario, through the FIT Contract signed between the OPA and the FIT Generator, commits to pay the agreed price for the el ectricity generated by the FIT Generator.  In the 
European Union's view, this commitment could be be tter characterised as a "dir ect transfer of funds" 
in the sense of Article 1.1(a)(1)(i) of the SC M Agreement because future payments are made 
unconditionally (other than the nature of the contract , i.e. the expected delivery of electricity in 
exchange of the payment).  Second, in the alterna tive, the FIT Program provides a form of income or 
price support to the FIT Generator through guaranteed prices in the sense of Article 1.1(a)(2).  Third, 
the FIT Program also provides a benefit to the recipien t, i.e. the FIT Generator.  The FIT Program will 
result in most cases in a benefit to the FIT Genera tor resulting from the difference between the market WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-16 
 
 
  prices and the guaranteed prices.  In the European Union's view, in an ex-ante  analysis, the benefit 
assessment should focus on the relevant market benc hmark at the time the financial contribution is 
granted to the recipient.  That benchmark entails a consideration of what a market participant would 
have been able to secure on the market at that time.  The market benchmark is predicated upon a 
projection as to the anticipated flow of returns that are expected to accrue as a result of the financial 
contribution.  Japan has illustra ted this in various ways.  No matter how the Panel addresses this 
question, the European Union cons iders that the FIT Program confers a benefit to the recipient. 
 6. The subsidy appears to be "contingent" in th e sense that compliance with the domestic content 
requirements is mandatory:  if the FIT Generator does not show that it has met the domestic content 
requirements before starting its operations, the contra ct will be in default. Moreover, the FIT Program 
would require the use of domestic over imported goods, "solely or as one of several other conditions".   
 
V. GATT 1994 
 
7. According to Japan the renewable energy ge neration equipment manufactured in Ontario and 
the one imported from Japan, and to the EU's understanding also in other countries, are "like products" in the sense of Article III:4 of the GAT T 1994.  The European Union agrees with Japan's 
assessment.  According to the information pr ovided by Japan, the contested measures are 
"requirements" in the sense of Article III:4.  On the basis of the information provided by Japan, the 
Domestic Content Grid is enforceable, mainly in view  of the fact that a failure to comply with those 
domestic content requirements implies that the cont ract is in default.  Concerning the question 
whether the measure affects the internal sale, purchase or use of the imported goods, the European Union wishes to recall that it is sufficien t that it may be reasonably expected that this 
measure will adversely modify the conditions of compe tition. It is therefore sufficient to analyse, on 
the basis of the available elements of fact, whethe r that is the case as regards the measures challenged 
by Japan.   8. The European Union considers that an analysis of the actual effects of the measure at issue on 
the sale of imported products is not required under Article III:4.  Concerning the issue whether Japan 
has discharged its burden of proof in respect of th e question whether the challenged measure modifies 
the conditions of competition to the detriment of  imported goods, the Europ ean Union observes that 
the Appellate Body recently noted that the analysis of whether imported products are accorded less 
favourable treatment requires a careful examinati on grounded in close scrutiny of the fundamental 
thrust and effect of the measure itself, including th e implications of the measure for the conditions of 
competition between imported and like domestic pr oducts.  This analysis however does not need, 
according to the Appellate Body, to be based on em pirical evidence as to the actual effects of the 
measure at issue in the internal market of the Me mber concerned.  The FIT Program creates incentives 
among Ontario-based wind and solar PV energy ge nerators to use renewable energy generation 
equipment produced within Ontario.  In particular, on the basis of the inform ation provided in Japan's 
first written submission, the FIT Program attaches th e contractually guaranteed standard rate only to 
the use (to an important extent, see Domestic Content Grid) on Ontario sourced goods. 
 
9. Finally, on the basis of the facts provi ded in Japan's first written submission, the 
European Union shares the analysis concerning the inapplicability of Article III:8 of the GATT 1994.  
First, it seems that no "procurement" in the sense of Article III:8(a) exists.  The Government of 
Ontario is at no stage acquiring any products for its  own use or benefit under the FIT Program.  In any 
event, it seems that even if one could argue that it is being done, quod non , this would be the case 
only with a view to commercial resale or use in  production of goods for commercial sale.  On the 
basis of the information provided by Japan, electrici ty delivered under the FIT Program is sold to all 
consumers at commercial prices.  Second, the excep tion of Article III:8(b) does not apply either.  
Japan's case is not that the FIT Program favours On tario-based renewable energy generators, but that  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-17 
 
 
  FIT Program discriminates against imported renewabl e energy generation equipment.  On the basis of 
the constant case-law, Article III:8(b) does not serve as a defence for measures which discriminate between imported and domestic products.  
10. Consequently, the European Union considers th at the measures at issue are inconsistent with 
Article III:4 of the GATT 1994.  
VI. TRIMS AGREEMENT 
 11. According to Japan, the FIT Program, FIT and mi croFIT contracts are also inconsistent with 
Article 2.1 of the TRIMs Agreement.  The European  Union generally agrees with Japan's assessment.  
In addition to the arguments presented by Japan, the European Union would like to underline that the 
panel in Indonesia-Autos  noted that the TRIMs Agreement is a "fully fledged agreement in the WTO 
system", which applies independently to GATT Article III and which contains special transitional 
provisions including notification requirements;  concluded that the TRIMs Agreement has an 
"autonomous legal existence".  In that case the pane l decided to examine the claims first under the 
TRIMs Agreement, "since the TRIMs Agreement is more specific than Article III:4 as far as the 
claims under consideration are concerned".  The Eur opean Union is of the opinion that, should this 
Panel follow the approach chosen by the panel in Indonesia-Autos , the requirements to find a breach 
of Article 2.1 of the TRIMs Agreement would be met.  
 
12. Finally, the European Union also notes th at the measures at issue would be covered by 
Annex 1(a) of the TRIMs Agreement, which refers to a category of measures that are deemed inconsistent with the obligation of national treat ment provided for under Article III:4 of GATT 1994.  
A finding that a measure falls under Annex 1(a) of the TRIMs Agreement results, in and of itself, in a 
finding of violation of Article 2.1 of the TRIM s Agreement and, consequently, in a finding of 
violation of Article III:4 of the GATT 1994.  Thus, in the European Union's view, the Panel does not 
need to examine first whether ther e is a violation of Article III:4 of the GATT 1994 to then conclude 
that there is a violation of Article 2.1 of the TRIMs Agreement.    
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-18 
 
 
 ANNEX B-6 
 
 
INTEGRATED EXECUTIVE SUMMARY  
OF JAPAN (WT/DS426) 
   
TABLE OF ABBREVIATIONS 
 
Abbreviation  Description
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes 
EC European Communities  
EU European Union 
FIT feed-in tariff 
FIT Program Ontario's Feed-In Tariff Program  
GATT 1994 General Agreement on Tariffs and Trade 1994 
OED  Oxford English Dictionary  
OPA  Ontario Power Authority  
SCM Agreement Agreement on Subsidies and Countervailing Measures 
US United States 
Vienna Convention Vienna Convention on the Law of Treaties 
WTO World Trade Organization  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-19 
 
 
 TABLE OF CASES 
 
Short Title Full Case Title and Citation 
China – Raw Materials Appellate Body Reports, China – Measures Related to the 
Exportation of Various Raw Materials , WT/DS394/AB/R / 
WT/DS395/AB/R / WT/DS398/AB/R, circulated to WTO 
Members 30 January 2012, adopted 22 February 2012  
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected 
Customs Matters , WT/DS315/AB/R, adopted 
11 December 2006, DSR 2006:IX, 3791 
EC – Trademarks and Geographical 
Indications (US) Panel Report, European Communities – Protection of 
Trademarks and Geographical Indications for Agricultural Products and Foodstuffs , Complaint by the United States, 
WT/DS174/R, adopted 20 April 2005, DSR 2005:VIII, 3499 
India – Patents (US) Appellate Body Report, India – Patent Protection for 
Pharmaceutical and Agricultural Chemical Products , 
WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9 
US – 1916 Act (EC) Panel Report, United States – Anti-Dumping Act of 1916, 
Complaint by the European Communities , WT/DS136/R and 
Corr.1, adopted 26 September 2000, upheld by Appellate Body 
Report WT/DS136/AB/R, WT/DS162/AB/R, DSR 2000:X, 4593 
US – Countervailing Measures on Certain 
EC Products Panel Report, United States – Countervailing Measures 
Concerning Certain Products from the European Communities , 
WT/DS212/R, adopted 8 January 2003, as modified by Appellate 
Body Report WT/DS212/AB/R, DSR 2003:I, 73 
US – Section 301 Trade Act Panel Report, United States – Sections 301-310 of the Trade Act 
of 1974 , WT/DS152/R, adopted 27 January 2000, DSR 2000:II, 
815 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-20 
 
 
 1. Japan addresses three issues in this submission:   (i) the sufficiency of the European Union's 
panel request;  (ii) the relevance of the character ization of measures in domestic law for purposes of 
WTO law;  and (iii) the meaning of "income or price support".
1 
 I. THE EUROPEAN UNION'S PANEL REQUEST IS SUFFICIENT UNDER 
ARTICLE 6.2 OF THE DSU, AND ACCORDINGLY, THE PANEL SHOULD REJECT CANADA'S PRELIMINARY RULING REQUEST 
 
2. In a letter to the Panel dated 14 February 2 012, Canada repeated the request for a preliminary 
ruling that it made with respect to Japan's panel request in DS412.  The panel in DS412 did not find 
merit in Canada's request, stating explicitly that it was "not convinced of the merits of Canada's 
request".
2  This Panel should similarly find no merit in  Canada's request for a preliminary ruling in 
this dispute largely for the same reasons expr essed by Japan in its 11 November 2011 response to 
Canada's preliminary ruling request in DS412.3 
 
3. Canada raises two new points that were not mentioned in DS412 and warrant a response.  
First, Canada suggests that the Appellate Body's recent report in China – Raw Materials  supports a 
finding that the EU's panel request is insufficient.   Second, Canada suggests that the EU's use of a 
term that Japan did not use in its own panel re quest in DS412 – i.e., the term "above-market" – 
establishes that Japan's panel request in DS412 w as inadequate.  For the reasons provided below, 
these arguments by Canada have no merit. 
 A. T
HE APPELLATE BODY'S ANALYSIS IN CHINA – RAW MATERIALS  DOES NOT SUPPORT A 
FINDING THAT THE EU'S PANEL REQUEST IS INSUFFICIENT  
 
4. The European Union's panel request is sufficient pursuant to Article 6.2 of the DSU, and a 
decision by this Panel to reject Canada's preliminar y ruling request would be fully consistent with the 
Appellate Body's reasoning in China – Raw Materials .  Japan also observes that the Appellate Body 
in China – Raw Materials  relied on much of the same jurisprudence that the parties in DS412 
addressed in their submissions on this issue.4 
 
5. The Appellate Body in China – Raw Materials  emphasized that the determination of 
sufficiency under Article 6.2 "involves a case-by-case analysis".5  Moreover, a determination of 
sufficiency "may depend on whether it is sufficien tly clear which 'problem' is caused by which 
                                                      
1 At the outset, Japan notes that it incorporates its arguments from DS412 into DS426, where 
applicable. 
2 Panel’s Communication to the Parties, WT/DS412, 21 November 2011. 
3 Japan’s Response to Canada’s Preliminary Ruling Request, WT/DS412, 17 November 2011. 
4 See Appellate Body Reports, China – Raw Materials , paras. 218-235.  Canada appears to rely 
primarily on the Appellate Body’s reiteration in that dispute of its finding in the previous dispute that a brief summary of the basis under Article 6.2 should “explain succinctly how and why  the measure at issue is 
considered by the complaining Member to be violating the WTO obligation in question”.  Appellate Body 
Report, China – Raw Materials , para. 226, quoting the Appellate Body Report, EC – Customs Matters , 
para.130.  However, Japan notes that in its preliminary ruling submission in DS412, Canada had already 
advanced its arguments relying on this finding of the Appellate Body in EC – Customs Matters  (See Annex 1 of 
Canada’s preliminary Ruling Submission of 14 February 2012 in DS426, para.5) but Canada’s request was squarely rejected by the panel in DS412.  See the panel’s communication of 21 November 2011 to the parties in 
DS412.  Thus Canada’s perfunctory arguments in DS426 relying on the Appellate Body’s mere reiteration of its 
previous finding hardly establishes a prima facie  case that would disturb, or warrant departure from, the panel’s 
preliminary ruling in DS412. 
5 Appellate Body Reports, China – Raw Materials,  para. 220.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-21 
 
 
 measure or group of measures", and whether "a panel's ability to perfo rm its adjudicative function" is 
"impair[ed]".6 
 6. The key issue in the present dispute is whet her the EU's panel request "provide[s] a brief 
summary of the legal basis of the complain t sufficient to present the problem clearly".
7  The Appellate 
Body in China – Raw Materials , relying on its earlier jurisprudence, explained that "a brief summary 
of the legal basis of the complaint as required by  Article 6.2 of the DSU should 'explain succinctly 
how or why  the measure at issue is considered by the complaining Member to be violating the WTO 
obligation in question'".8 
 
7. The Appellate Body in China – Raw Materials  concluded that the panel request at issue in 
that dispute did not satisfy this aspect of DSU Article 6.2.9  The Appellate Body further observed that 
the listed WTO provisions "contain[ed] a wide array of dissimilar obligations"10, and found that the 
panel request was insufficient pursuant to Article 6. 2 because of its "failure to provide sufficiently 
clear linkages between the broad ra nge of obligations contained [in the 13 listed WTO provisions] and 
the 37 challenged measures".11 
 8. None of these facts and circumstances exis ts in the present dispute (or in DS412).  The 
European Union's panel request does not involve a complex array of measures and WTO provisions, 
without providing sufficiently clear linkages between the measures and legal oblig ations alleged to be 
violated.  Rather, the European Union's panel request makes it abundantly clear which "problem"
12 
with respect to the SCM Agreement is caused by the enumerated measures relating to the FIT 
Program – that is, the FIT measures are "subs idies" as defined in Article 1.1 of the  SCM Agreement, 
that are "provided contingent upon the use of domestic over imported goods", and thereby 
inconsistent with Articles 3.1(b)  and 3.2 of the SCM Agreement.  The European Union does not 
obscure "how or why"13 the measures at issue violate the WTO obligations in question.  And those 
obligations are contained in Articles 3.1(b) and 3. 2 of the SCM Agreement, not Article 1.1 of the 
SCM Agreement.  Accordingly, it is clea r that the Appellate Body's reasoning in China – Raw 
Materials, when read in the context of the facts of that dispute, supports  a finding by the current Panel 
that the European Union's panel request is  sufficient under Article 6.2 of the DSU. 
 
B. T HE PRESENCE (OR ABSENCE ) OF THE TERM "ABOVE -MARKET " IN THE EU'S PANEL REQUEST 
IS OF NO SIGNIFICANCE  
 9. Further, it is difficult to understand what si gnificance the Panel could attach to the term 
"above-market" that the European Union inserted in its description of the measures  at issue, in the 
Panel's consideration of Canada's request for a preliminary ruling wh ere Canada allege s a failure to 
provide a brief summary of the legal basis  of the complaint. 
                                                      
6 Appellate Body Reports, China – Raw Materials,  para. 220. 
7 DSU Article 6.2. 
8 Appellate Body Reports, China – Raw Materials , para. 226 (emphasis in original), quoting Appellate 
Body Report, EC – Selected Customs Matters , para. 130. 
9 Appellate Body Reports, China – Raw Materials , para. 226. 
10 Appellate Body Reports, China – Raw Materials , para. 228. 
11 Appellate Body Reports, China – Raw Materials , para. 234. 
12 DSU Article 6.2. 
13 Appellate Body Reports, China – Raw Materials , para. 226. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-22 
 
 
 II. THE GOVERNMENT OF ONTARIO'S CHARACTERIZATION AND TREATMENT 
OF ITS FIT PROGRAM DOES NOT DETERMINE THE STATUS OF THE MEASURES UNDER ARTICLE III:8(A) OF THE GATT 1994 AND ARTICLE 1.1(A)(1)(III) OF THE SCM AGREEMENT 
 
10. Canada asserts that the characterization and tr eatment of the FIT Program in the text of the 
Ontario measures at issue establishes that the FIT Program constitutes the "procurement" or 
"purchase" of renewable electricity within th e meaning of Article III:8(a) of the GATT 1994
14, and 
the "purchase" of such electric ity within the meaning of Article 1.1(a)(1)(iii) of the SCM 
Agreement.15  However, the characterization and treatment  provided in the text of domestic measures 
cannot have any bearing on applyi ng or interpreting these provisions of  the WTO agreements, or more 
generally on determining whether an y WTO obligations have been viol ated.  This is because domestic 
measures are to be taken as facts by a WTO panel;  treaty language is to be interpreted by a WTO 
panel in accordance with the custom ary rules of treaty interpretation as codified at Articles 31 and 32 
of the Vienna Convention on the Law of Treaties; and then the available facts are to be applied to the 
proper legal interpretation to determine whether a vi olation has taken place.  Indeed, it would be no 
more compelling for the Panel's analysis had the Gove rnment of Ontario explicitly declared within its 
FIT contracts that "this contract is deemed to be  consistent with the provisions of the GATT 1994" or 
"this contract constitutes procurement pursuant to the Agreement on Government Procurement". 
 
11. A conclusion to the contrary would be tant amount to enabling Canada to determine whether 
its measures are consistent with its WTO ob ligations, which the Appellate Body said in India – 
Patents (US) , "clearly, cannot be so".16  Simply put, WTO panels are not bound by a Member's 
interpretation or characterization of its own domestic measures.17  Rather, as the panel aptly 
summarized in US – Countervailing Measures on Certain EC Products , WTO panels are tasked with 
"establish[ing] the meaning of the disputed [measu res] as a factual element and determin[ing] whether 
the factual element constitutes conduct by the respon dent Member contrary to its WTO obligations".18 
 12. For similar reasons, precisely how a Member c hooses to administer its tax system has little 
relevance for whether a particular transaction is or is not a "procurement" or "purchase" for purposes 
of Article III:8(a) of the GATT 1994, and/or a "pur chase" for purposes of Article 1.1(a)(1)(iii) of the 
SCM Agreement.  This is purely a question of fina nce internal to the government of the Member in 
question, and undoubtedly a government may choose to  tax many activities other than purchases.  At 
most, the alleged fact indicates that the Governme nt of Ontario has determined the scope of the 
"sales" subject to its "sales" tax.
19  This is nothing other than a ma tter of legal characterization under  
domestic law , which cannot bind the panel's legal character ization of the government action at issue 
under  the WTO Agreement . 
 
                                                      
14 Canada’s first written submission, paras. 16-17. 
15 Canada’s first written submission, para. 54. 
16 Appellate Body Report, India – Patents (US) , para. 66. 
17 See Panel Report, EC – Trademarks and Geographical Indications (US) , para. 7.55;  Panel Report, 
US – Section 301 Trade Act , para. 7.19;  Panel Report, US – 1916 Act (EC) , para. 6.51. 
18 Panel Report, US – Countervailing Measures on Certain EC Products , para. 6.38 (emphasis 
omitted), citing Panel Report, US – Section 301 Trade Act , para. 7.18 and Appellate Body Report, India – 
Patents (US) , para. 66. 
19 Japan also observes that the particular tax at issue is described as a tax “that applies to the supply  of 
most property and services in Canad a”, and therefore does not appear to be  a tax applied to the “purchase” of 
property and services, despite us e of the term “sales tax”.  See Canada Revenue Agency, How GST/HST Works, 
Exhibit CDA-56 (emphasis added).  This further illustrates why a panel should not rely upon a Member’s 
characterization of a measure in its domestic legal syst em for purposes of applying and interpreting WTO law.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-23 
 
 
 III. ARTICLE XVI:1 OF THE GATT 1994 DO ES NOT LIMIT "INCOME OR PRICE 
SUPPORT" TO SUPPORT PROVIDED FO R THE GOODS ACTUALLY IMPACTED 
BY THE SUBSIDY 
 13. Canada suggests that for "income or price support" to constitute a "subsidy" within the 
meaning of Article 1.1 of the SCM Agreement, th e support must be provided to the goods whose trade 
is actually impacted by the support.  Canada bases this view on the notification requirements listed in 
Article XVI:1 of the GATT 1994, and particularly its view that the reference to "any product" in that 
provision "is not a reference to unsubsidized input goods ", but rather a reference to "the subject of the 
alleged subsidy".
20 
 14. Japan notes that Article XVI:1 of the GATT 1994  does not define the meaning of "subsidy";  
the definition of "subsidy" is provided by Article 1.1 of the SCM Agreement.  Article XVI:1 of the 
GATT 1994 provides the conditions under which the notification requirements and the discussion 
obligation imposed by that provision shall take place. 
 15. To the extent Article XVI:1 may serve as rele vant context for interpreting "income or price 
support" under Article 1.1(a)(2) of the SCM Agreem ent, it does not support Canada's view.  Canada 
offers no support or analysis of any kind for its in terpretation that the term "any product" is a 
reference to the "subject of the alleged subsidy", and may not be a reference to "unsubsidized input 
goods".  It is noteworthy that Article XVI:1 uses the term " any product", and not a term such as " like 
product".
21  With regard to the definition of "any", the Oxford English Dictionary provides:  "In 
affirmative sentences it asserts concerning a being or thing of the sort named, without limitation as to 
which, and thus constructively of every  one of them, since every one may in turn be taken as a 
representative".22  Thus, the term "any product" in Article  XVI:1 refers to every product, including 
unsubsidized input goods, whose e xports may increase or imports may decrease as a result of the 
income or price support provided.  In other words,  for "income or price support" to fall within the 
scope of GATT Article XVI, and thereby within  the meaning of Article 1.1(a)(2) of the 
SCM Agreement, it need not be provided to a product th at is identical to or ev en "like" the affected 
products.  Rather, income or price support provided to a product falls within the definition of a 
"subsidy" if it increases exports or reduces imports of any product , whether an identical product, a 
"like" product, or any other product. 
 
                                                      
20 Canada’s first written submission, paras. 61-62. 
21 Emphases added. 
22 The Oxford English Dictionary , OED Online, Oxford University Press, 
http://www.oed.com/view/Entry/8973  (emphasis in original). WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-24 
 
 
 ANNEX B-7 
 
 
INTEGRATED EXECUTIVE SUMMARY  
OF KOREA 
  1. In Korea's view, the measures adopted by Ontario that are the subject of this dispute appear to be intended, fundamentally, to address a critical issue of environmental protection — to provide 
incentives that will encourage the development of  methods for generating electricity that are 
ultimately environmentally-sustainable and economically-v iable.  It is critical that the provisions of 
the WTO Agreements not impede these global effort s.  At the same time, the goal of promoting 
environmentally-sound energy policies should not be allowed to serve as a pr etext for discriminatory 
measures adopted not to protect the environment,  but to promote domestic production over imports. 
 
2. In light of this, this dispute carries import ant systemic implications that go beyond the factual 
details of Ontario's incentive programs.  The ruling by  the Panel in this case will provide an important 
indication of how actions taken to  develop sustainable energy alte rnatives can and should be squared 
with the WTO rules.   A. Interpretation of Article III:8(a) of the GATT 1994 
 
3. Canada does not appear to dispute that Ontari o's program fails to comply with the obligations 
of GATT Article III:4 and Article 2.1 of the TRIM s Agreement.  Instead, Canada contends that 
Article III:4 is simply inapplicable here, because Ontario's program falls under the exception set forth 
in GATT Article III:8(a).  And, in light of its clai ms that Article III:4 does not apply, Canada also 
contends that there can be no derivative viola tion of Article 2.1 of the TRIMs Agreement. 
 4. Examining the specific terms of Article III:8(a) of GATT, the term "procurement" is not defined in the article — or, for that matter, in the plurilateral Agreement on Government Procurement 
(the "GPA").  The text of Article III:8(a), when read as a whole, does suggest that the meaning of 
"procurement" is not completely identical to the meaning of "purchase" — since Article III:8(a) uses 
both terms in the same sentence in a manner that su ggests that there may be types of procurement that 
do not involve purchases.  The term "procurement," then, would appear to encompass any form of 
government acquisition, including but not limited to "purchase."  
5. Complaining Members assert that there is  no "procurement" in this case "because the 
Government of Ontario is not acquiring any pr oducts for its own use or benefit under the FIT 
Program."
1  The Panel's evaluation of that argument w ill require not only interp retation of the legal 
meaning of the term "procurement," but also assessme nt of the precise role played by the Government 
of the Ontario in the transactions covered by Ontario's FIT program.  
6. Canada asserts that it is beyond dispute that "renewable electricity" is a "product."
2  Its only 
support for this contention is an online dictionary that defines "product" as "[a]n object produced by a 
particular action or process; the result of mental or physical work or effort."  However, electric power 
is not a material object.3  It is, instead, a form of energy typically generated when coils of wire are 
                                                      
1 See Japan's First Written Submission, para. 287. 
2 See Canada's First Written Submissi on, para. 70 ("Nor can there be  any dispute that renewable 
electricity is a product."). 
3 In this regard, it should be noted that the Shorter Oxford English Dictionary does not define "product" 
as any "object," as Canada suggests.  Instead, it defines "product" as a " thing  produced by an action, operation,  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-25 
 
 
 turned in a magnetic field to cause a quantity of elect rons (the electric current) to flow as a result of a 
difference in potential (the voltage).  As a techni cal matter, electric power (measured in watts or 
kilowatts) is the result of current multiplied by volt age.  Electric energy (measured, for example, in 
kilowatt-hours) is electric power multiplied by time.4   
 
7. At the time that the GATT was negotiated,  the classification of electric power under the 
provisions of the GATT was raised in a discussion of  the Article XX exception for exhaustible natural 
resources.  According to the New York (Drafting Committee) Report, "As it seemed to be generally 
agreed that electric power should not be classified as a commodity, two delegates did not find it 
necessary to reserve the right for their countries to prohibit the export of electric power."5  It is clear, 
then, that there was some doubt as to whether electric power was cons idered to be a "product" for 
purposes of the GATT at the time the GATT was negotiated.  8. This doubt appears to continue to exist ev en today.  For example, while the Harmonized 
Tariff System does include a heading for electrical energy (HTS Code 27.16.00), it also indicates that 
this heading is "optional."
6  In other words, the HTS takes the position that it is possible, but not 
necessary, to classify electrical power as a commodity for tariff purposes.  9. Furthermore, even if electric power is properly classified as a "product" for purposes of 
Article III:8(a), it is not clear that "renewable  energy" — the term used by Canada and the 
Complaining Members for electricity generated using wind, solar photovoltaic, or other "clean" 
alternatives — is a distinct product.  The WTO juri sprudence has consistently defined "products" in 
terms of the characteristics of the item in questio n, and not in terms of the "processes and production 
methods" (or "PPM") used to make them.
7  While the Appellate Body's decision in US – Shrimp  
suggests that certain restrictions based on the me thod of production may be permitted when justified 
under Article XX of the GATT, such restric tions represent an exception to the normal GATT 
disciplines, and not an application of a defi nition of "product" based on production methods. 
 10. It therefore remains an open question whether, in  the circumstances of this dispute, electricity 
should be considered a "product," or whether a de finition of "product" that considers the methods 
used to produce the electric power would be approp riate where the definition is intended to achieve 
important environmental objectives.  The Panel will need to consider these issues carefully using all 
of the tools for the interpretation of treaties.  It is not, in Korea's view, sufficient just to cite a single 
                                                                                                                                                                     
or natural process;" and it defines, a "thing" as an "inanimate material object."  See Shorter Oxford English 
Dictionary (6th ed.2007) at 2359 and 3239. 
On the other hand, other dictionaries indicate that a "product" may be a "good" or a "service" that is 
marketed or sold as a commodity.  See Merriam Webster's Collegiate Dictionary (11th ed. 2003) at 991. 
4 In mathematics, the result of multiplying two figure s together is referred to as the "product" of those 
figures.  Id.  However, there is no indication that the drafters of  Article III:8 intended to adopt this mathematical 
usage. 
5 See Analytical Index: Guide to GATT Law and Practice (6th ed. 1995) at 585, citing New York 
Report, p. 31, general comments on Article 37, and EPCT/C.6/89, p. 4.   
6 See World Customs Organization, Harmonized Nomenclature 2007, Chapter 27, available at 
«www.wcoomd.org/home_hsoverviewboxes_tools_and_instruments_hsnomenclaturetable2007.htm». 
7 See, e.g., United States – Measures Concerning the Importation, Marketing and Sale of Tuna and 
Tuna Products , Panel Report, WT/DS381/R, 15 September 2011, paras. 7.216 to 7.219.  See also id. at 4.244 
(reporting Mexico's argument that:  "The obligations in the WTO Agreements must not be interpreted so as to 
allow a WTO Member to condition access to its domestic market based on complian ce with that Member's 
unilateral policy relating to actions outside its terr itory including unincorporated process and production 
methods.  The only circumstances where such actions should be permitted are where they can be justified under 
one of the specific exceptio ns to the WTO obligations.").  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-26 
 
 
 dictionary definition and assert that there can be no dispute as to the meaning of the term or its 
application in the circumstances of this case.  11. At the same time, relying on a dictionary defi nition of the term "purpose," Canada asserts that 
"'a purchase for governmental purposes' is a purchase for an aim of the government."  And, because 
"Governments express their aims through legislation,  regulations, policies and executive directions," 
Canada claims that any "purchase by a governmental  agency which is directed in legislation, 
regulations, policy or an executive direc tion is a purchase for governmental purposes."
8 
 
12. Under Canada's interpretation, however, there would be no reason for Article III:8 to refer to 
purchases for government purposes, because almost all procurements made by a government would be "for government purposes."  In short, in or der to avoid rendering the "government purposes" 
language of Article III:8 inutile, that term must im ply something more than an act consistent with 
"legislation, regulations, policies or executive directions." 
 
13. Canada also seems to suggest that " governmental purposes" can be discerned from the 
societal interest in the alleged aim of the government  action.  Canada certainly is correct in stressing 
the importance of adequate and reliable elect rical energy supplies to the public welfare.
9  But the same 
description could be applied to almost any other field of economic activity:  Adequate and reliable 
food supplies, health care, education, inform ation collection and dissemination, clothing, 
transportation, employment, arts and entertainmen t, and individual expression are all important, in 
their own way, to the public welfare.  Consequently , if the term "government purpose" is to provide 
any meaningful limitation under Article III:8, a test that requires only some connection of the purchase to some matter relevant to public  welfare would appear to be inadequate. 
 B. Ontario's Feed-In-Tariff System and the SCM Agreement 
 
14. In the present dispute, Complaining Members also contend that the incentives provided under 
Ontario's FIT program should be prohibited under Article 3 of the SC M Agreement, because they are, 
in their view, subsidies contingent upon the use of domestic over imported goods.   
 
15. There appears to be a factual dispute between Complaining Members and the Responding 
Member concerning whether the disbursements to  electric-power generators under Ontario's FIT 
system represent payments for purchases of electric power, or other transfers of monies that are distinct from electricity purchase transactions.  Furthe rmore, to the extent that the disbursements are 
payments for purchases of electric power, a furt her question arises whether the electric power 
represents goods, services, or some other category.  In Korea's view, a proper analysis of the 
transactions under Article 1.1(a)(1) of the SCM Agre ement is not possible until these complex factual 
issues are satisfactorily resolved.   16. Articles 2 and 14 of the SCM Ag reement require the application of  a benchmark, to the extent 
feasible, in the analysis of "benefit."  Because "benefit" is a relational concept that requires a 
comparison between a transaction under a government program with a transaction with market terms, 
identifying a proper market benchmark is critical to  a proper benefit analysis.  At the very least, a 
benchmark should provide an objective yardstick for measuring the existence and amount of the 
benefit, based on consideration of actual situa tions in the market for business transactions.  
 
17. Korea notes that selection of a "market pri ce" (and, thus, the benchmark for the benefit 
analysis) at times requires a complex analysis th at may involve an examination of returns over a 
                                                      
8 See Canada's First Written Submission, para. 86. 
9 See, e.g. Canada's First Written Submission, paras. 16 to 17.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-27 
 
 
 longer period of time.  Because individuals have di fferent time horizons, rati onal market participants 
may assign different weights to the short-term and long-term consequences of a transaction, and thus 
value the overall return quite differently.  Mo re generally, it is common for profit-maximizing 
businesses to accept a short-term loss in order to obtain a greater long-term profit.  Research and 
development programs — whether funded by corpor ations or by governments — would provide good 
examples of such long-term thinking.    18. Viewed from this perspective, it seems far fro m easy or simple to select a benchmark where, 
as in this case, complex long-term business and polic y considerations, and investments with lengthy 
pay-back periods, are involved.  In these circumstan ces, a snap shot at a single moment of time may 
not necessarily ensure a reliable comparison that tak es into account the real market situation, as 
mandated by Article 14 of the SCM Agreement.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-28 
 
 
 ANNEX B-8 
 
 
INTEGRATED EXECUTIVE SUMMARY  
OF MEXICO
1 
  
I. INTRODUCTION 
 1. Mexico expressed its intention to participat e as a third party in this proceeding because it 
raises important systemic issues in connection with  the SCM Agreement, the TRIMs Agreement, and 
certain provisions of the GATT 1994.  Moreover, we  take this opportunity to state our position on 
another procedural matter of considerable rele vance to Mexico, namely the interpretation of 
Article 6.2 of the DSU. 
 
2. We acknowledge that the WTO rules do not prevent Members from promoting the creation of infrastructure to generate alternative, environmenta lly friendly sources of energy.  We also underscore 
the importance that countries should encourage the genera tion of this type of energy, provided that the 
obligations in the covered agreements are met.  However, the parties' submissions give us to 
understand is that this is not a disput e concerning trade and the environment. 
 
3. This submission addresses two issues of systemic importance to Mexico:  (i) analysis of the request for the establishment of a panel under Article 6.2 of the DSU;  and (ii) relationship between 
the SCM Agreement and Article III of the GATT 1994 and the TRIMs Agreement, in the case of 
subsidies contingent upon the u se of domestic over imported goods. 
 
II. DISCUSSION 
 
A. I
NTERPRETATION OF ARTICLE 6.2 OF THE DSU 
 4. Mexico notes that many dispute settlement  cases recently referred to the WTO have seen 
preliminary objections being put fo rward in relation to Article 6.2 of the DSU.  Mexico's concern is 
that such preliminary objections should become the ru le rather than the exception and be used as a 
dispute strategy that impedes and delays the proceedings.  5. Canada contends in its preliminary objections  that the panel requests filed by Japan and the 
European Union do not meet the requirements of Articl e 6.2 of the DSU in respect of their complaints 
relating to the SCM Agreement.  6. Firstly, we note that Article 6.2 of the DSU sti pulates, in its relevant part, that a request for a 
panel "shall . . . identify the specific measures at i ssue and provide a brief summary of the legal basis 
of the complaint sufficient to present the problem clearly". 
 
7. As is evident from the text of Article 6.2 of  the DSU, a request for the establishment of a 
panel calls for no more than:  (i) the identification of  the specific measures at issue;  and (ii) a brief 
summary of the legal basis of the complaint suffici ent to present the problem clearly.  The text of 
Article 6.2 requires identification, rather than an e xplanation, of the measures at issue, and a summary 
of the legal basis of the complaint, rather than a set  of arguments - provided that this is sufficient to 
present the problem clearly.  
                                                      
1 This Executive Summary was originally made in Spanish.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-29 
 
 
 8. Article 6.2 of the DSU has been interpreted as meaning that the panel request not only 
determines the Panel's terms of reference, but also serves the due process objective of notifying the respondent of the nature of the case to be defended.  In EC - Fasteners (China) (paragraph 562) and 
China - Raw Materials (paragraph 219), the Appellate Body noted as follows: 
 
Article 6.2 of the DSU lays out the key requirements for a panel request and, by implication, the establishment of a panel's terms of reference under Article 7.1 of the 
DSU.  The complaining party must identify the specific measure at issue and provide 
a brief summary of the legal basis of the complaint, sufficient to present the problem 
clearly.  The Appellate Body has found that  the panel request "assists in determining 
the scope of the dispute" in respect of each measure, and "consequently, establishes 
and delimits the jurisdiction of the panel".  The panel request also serves the important due process objective of notifying th e respondent of the nature of the case 
it must defend.  As the Appellate Body stated in EC and certain member 
States - Large Civil Aircraft , "[t]his due process objective is not constitutive of, but 
rather flows from, the proper establishment of a panel's jurisdiction".  The panel 
request must therefore be examined "as it ex isted at the time of filing" in order to 
determine whether a particular claim falls w ithin the panel's terms of reference.  For 
its part, a panel must "scrutinize carefully the panel request, read as a whole, and on the basis of the language used", in order to determine whether it is "sufficiently 
precise" to comply with Article 6.2 of the DSU. 
The Appellate Body has explained that Article 6.2 of the DSU serves a pivotal 
function in WTO dispute settlement and sets out two key requirements that a 
complainant must satisfy in its panel re quest, namely, the "identification of the 
specific measures at issue, and the provision of a brief summary of the legal basis of 
the complaint (or the claims)".  Togeth er, these two elements constitute the " matter  
referred to the DSB", so that, if either of  them is not properly identified, the matter 
would not be within the panel's terms of re ference.  Fulfilment of these requirements, 
therefore, is "not a mere formality".  As the Appellate Body has noted, a panel request 
forms the basis for the terms of reference of  panels, in accordance with Article 7.1 of 
the DSU.  Moreover, it serves the due pr ocess objective of notifying the respondent 
and third parties of the nature of the complainant's case.  The identification of the 
specific measures at issue and the provision of "a brief summary of the legal basis of the complaint sufficient to present the problem clearly" are therefore central to defining the scope of the dispute to be addressed by the panel. 
9. Mexico recognizes the importance of the role  played by the panel request, not only in 
determining the panel's terms of reference but also  in meeting the due process objective.  However, 
the preliminary objections provided for in Article 6.2 of the DSU should lie only in the event of 
exceptional circumstances and where an act ual deficiency jeopardizes due process. 
 10. In its panel request, we note that Japan id entifies the specific measures at issue as "those 
taken by the Government of Cana da or its provinces relating to the FIT Program established by the 
Canadian province of Ontario in 2009 providing for guaranteed, long-term pricing for the output of 
the renewable energy generation facility that contai n a defined percentage of domestic content".  For 
its part, the European Union identifies the measure s as "those relating to the FIT Program established 
by the Canadian province of Ontario in 2009 pr oviding for guaranteed, above-market, long-term 
pricing for the output of renewable energy generatio n facilities that contain a minimum percentage of 
domestic content". 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-30 
 
 
 11. In their requests, Japan and the European Union also identify the legal instruments pertaining 
to the measure.  Finally, both requests advance th ree complaints, specifying the type of violation 
involved, in other words, stating the legal basis of th e complaint.  In Mexico's view, this is sufficient 
to present the problem clearly in terms of Article 6.2 of the DSU. 
 
12. Canada argues, moreover, that a complain t relating to a subsidy in accordance with the 
SCM Agreement requires identification of the relevant elements of the subsidy in order to satisfy the 
requirements of Article 6.2 of the DSU, that is, the financial contribution, the government, public 
body or private body entrusted with gr anting it, and the benefit conferred. 
 
13. As regards the constitutive elements of the subsidy which Canada argues should be identified 
in order to meet the requirements of Article 6.2 in subsidy complaints - and without prejudging 
whether the argument is correct or whether th e elements identified actually fall within the 
corresponding definitions in the SCM Agreement - we  can identify the authority granting the subsidy, 
i.e. the Government of Canada or its provinces, specifically, the province of Ontario, from the panel 
requests filed by Japan and the European Union.  Like wise, Mexico is of the view that a reading of the 
requests shows that the financial contribution can be identified as guaranteed , long-term pricing for 
the output of renewable energy generation facilities that contain a defined percentage of domestic 
content.  Lastly, we can see that the benefit conf erred would be that obtained from the guaranteed 
fixed rates. 
 
14. Although the European Union and Japan could ha ve been more specific regarding the public 
bodies granting the subsidy and also been clearer in  noting that the guaranteed rates were provided 
through the contracts under the FIT Program, Mexico therefore considers that the panel requests filed 
by the two complainants were sufficiently speci fic and clear for Canada to know what the case 
involved, thus meeting the requirements of Article 6.2 of the DSU to identif y the specific measures at 
issue and provide a brief summary of the legal basi s of the complaint sufficient to present the problem 
clearly.  Moreover, it seems to us that the identif ication of the subsidy is sufficient to fulfil the 
requirements of Article 6.2 of the DSU.  15. We thus reiterate our concern that the prel iminary objections relating to Article 6.2 of the 
DSU could become a mere dispute strategy intended  to avoid going into the substance of a matter 
instead of being a legitimate recourse to ensure that the defence in a case could be put forward 
properly.  B. R
ELATIONSHIP BETWEEN THE SCM  AGREEMENT , ARTICLE III OF THE GATT  AND THE TRIM S 
AGREEMENT  
 16. As Mexico understands it, where the SCM Agre ement is determined to have been violated 
owing to the existence of a prohibited subsidy c ontingent upon the use of domestic over imported 
goods, this necessarily implies a breach of the princi ple of national treatment contained in Article III 
of the GATT 1994.  In other words, a programme c ontingent upon the use of domestic over imported 
goods is discriminatory in that it grants less favourab le treatment to foreign goods.  Moreover, these 
types of programme contingent upon the use of national products constitu te investment-related 
measures, and in contravening Artic le III of the GATT 1994, they auto matically violate Article 2.1 of 
the TRIMs Agreement.  
17. However, an additional element of complexity in the case before us is Canada's argument that 
the measures constitute governme nt procurement and that therefore Article III of the GATT 1994 
does not apply.  The Panel's determination as to whether or not the measures constitute 
government procurement will be decisive in resolving this case.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-31 
 
 
 18. As Mexico sees it, in the case of government  procurement a violation of the SCM Agreement 
would not automatically entail a breach of Ar ticle III of the GATT 1994:  Article III of the 
GATT 1994 contains specific provisions excluding  government procurement from its scope of 
application (i.e. Article III:8(a) of the GATT 199 4).  Furthermore, where Article III of the 
GATT 1994 does not apply to government procurement th ere would be no violation of Article 1.2 of 
the TRIMs Agreement.  19. We have found no specific provision in the SCM Agreement excluding government procurement from its scope.  None theless, it remains an open question whether 
government procurement, by virtue of the fact th at the government receives something in exchange 
for payment, may be construed as a financial contri bution for purposes of the definition of a subsidy 
within the meaning of the SCM Agreement.  20. However, if the Panel were to determine that this is not a case of government procurement, 
the measure would not fall under the exception set forth in Article III of the GATT 1994 and could 
therefore be in violation of GATT Article III and the TRIMs Agreement.  If so, it should also be determined whether the elements for the definiti on of a subsidy under the SCM Agreement are met. 
 21. In view of the foregoing, the Panel's dete rmination whether or not the measure constitutes 
government procurement will define, in this pa rticular case, the relationship between the 
three agreements in this dispute. 
 
III. CONCLUSION 
 
22. Mexico hopes that the Panel will give cons ideration to the viewpoints expressed in this 
third party submission, because the decision in this  dispute involves issues that are of systemic 
importance in the interpretation of the rele vant provisions of the SCM Agreement, the 
TRIMs Agreement and the GATT 1994.    WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-32 
 
 
 ANNEX B-9 
  
NORWAY'S THIRD-PARTY STATEMENT 
 
 Mr. Chairman, Members of the Panel,  1. Norway welcomes this opportunity to present its views on the issues raised in these panel 
proceedings.  Norway's comments relate to both DS412 and DS 426.  Norway did not present a 
written third party submission to the Panel, and will th erefore in this oral statement briefly set out its 
views on one legal issue;  the applicability of the GATT Article III:8.
1 
 2. In response to Japan's and the European Union's claims that the "FIT Program" is contrary to 
Canada's obligations under the GATT Article III:4, Canada argues that this provision is not applicable 
in this case because the measure  falls within the scope of the GATT Article III:8.  
 3. According to the GATT Article III:8, Article  III of the GATT "shall not apply to laws, 
regulations or requirements governing the proc urement by governmental agencies of products 
purchased for governmental purposes and not with a view  to commercial resale or with a view to use 
in the production of goods for commercial sale".  
 4. Canada asserts that the Ontario Power Author ity (the OPA) is a governmental agency which 
procures the product of renewable energy for govern mental purposes.  Norway notes that there is 
disagreement between the parties as to whether there is  any "procurement" in this case. In this respect, 
Norway agrees with Japan and the European Union that the crucial question is whether the OPA is 
actually  "purchasing" renewable energy or whether the Aut hority is just an intermediary, some sort of 
"clearing house".
2  As we see it, it is not sufficient that the activities of the OPA is called or referred 
to as "procurement".  The FIT program may only fa ll within the ambit of GATT Article III:8 if the 
OPA actually acquires renewable energy.  Without going too deeply into the facts of this dispute, 
Norway tends to agree with the Eu ropean Union that the OPA seems to be more of an intermediary 
than an entity actually purchasing – or procuring – renewable energy.3  
 5. If the Panel, however, should reach the conc lusion that the OPA is actually procuring 
renewable energy, it will need to consider wh ether this purchase – or procurement – is for 
"governmental purposes".  Canada stresses that the purchase is "in furtherance of aim of the 
Government of Ontario", and that this constitutes "governmental purposes".
4  This interpretation by 
Canada would in practice allow every single pur chase made by a government to constitute a 
"governmental purpose" as every such purchase will have some sort of aim by that entity.  
 6. Like other third parties in their written subm issions, Norway would urge the Panel to show 
caution when interpreting the term "governmental purpose".  If Canada's interpretation is accepted, 
this could, as noted by others, have the conseque nce that every governmental procurement effected 
                                                      
1 The General Agreement on Tariffs and Trade 1994 ("the GATT"). 
2 Japan’s first written submission, paras. 287-28 9; European Union’s first written submission, 
paras. 114-115.  
3 European Union’s first written submission, para. 57. 
4 Canada’s first written submission para. 88.   WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-33 
 
 
 through purchase would fall under Article III:8.  Th is would result in the language "governmental 
purposes" being made inutile, and also circum vent the obligation of the GATT Article III:4.5   
 7. Before concluding, Mr. Chairman, Norway notes that some of the third parties have discussed 
the term "public body" and other questions related to the case US – Anti-Dumping and Countervailing 
Duties .
6  Although this has not been extensively raised by the Parties in this case, Norway would like 
to support Saudi-Arabia in urging that the principles with respect to the terms "public body" and "governmental control" as established by the Appe llate Body in the above-mentioned case should be 
respected.  
 
8. Thank you for your attention.  Norway stands  ready to respond to any questions the Panel 
may have.  
                                                      
5 Australia’s third party submission, para. 41.  Korea’s third party submission, para. 32.  China’s 
third party submission, para. 15. 
6 Saudi Arabia’ third party submission, paras. 2-17 . El Salvador’s third’ party submission paras. 5-8.  WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-34 
 
 
 ANNEX B-10 
  
INTEGRATED EXECUTIVE SUMMARY OF  
SAUDI ARABIA, KINGDOM OF 
  
I. INTRODUCTION 
 1. The Kingdom of Saudi Arabia has joined as a Third Party in these disputes to provide its 
views on two important issues relating to the in terpretation of the Agreement on Subsidies and 
Countervailing Measures (the SCM Agreement).  These issues are of systemic importance to all WTO 
Members. 
 
II. A "PUBLIC BODY" IS AN ENTITY THAT POSSESSES, EXERCISES OR IS 
VESTED WITH GOVERNMENTAL AUTHORITY 
 
2. The Appellate Body ruling in US — Anti-Dumping and Countervailing Duties (China)  sets 
out the authoritative standard that a Panel must use to determine whether an entity is a "public body".  
The Appellate Body established in that decision that a public body is an entity that possesses, 
exercises or is vested with governmental auth ority.  The Appellate Body found that only 
governmental authority is determinative of whether an  entity is a public body, and that other factors, 
such as government ownership, are not sufficient to satisfy the legal standard.
1 
 
A. "G OVERNMENTAL AUTHORITY " IS THE POWER TO COMMAND OR COMPEL PRIVATE 
BODIES  
 
3. Saudi Arabia respectfully requests that the Pa nels recognize the unique defining elements of 
"governmental authority" – the authority to command or compel.  The Appellate Body in US — Anti-
Dumping and Countervailing Duties  defined "government" as the "continuous exercise of authority 
over subjects; authoritative direction or regulation and control".2  The Appellate Body found that the 
"defining elements" of the term " government" – "the effective power to  regulate, control, or supervise 
individuals, or otherwise restrain their conduct, thro ugh the exercise of lawful authority" – necessarily 
inform the meaning of the term "public body".3   
 4. In elaborating on "governmental authority", the Appellate Body explained that a public body 
must have the power to "entrust or direct" a private body to act, as provided for in Article 1.1(a)(1)(iv) 
of the SCM Agreement
4, and that such "direction" requires the authority "to compel or command a 
private body, or govern a private body's actions".5  Thus, a public body must possess the ability to 
compel, command, control or govern a private body.  This is the essence of "governmental authority", 
consistent with the plain text of Article 1.1 of the SCM Agreement. 
 
                                                      
1 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , paras. 318, 346. 
2 Ibid. para. 290. 
3 Ibid. 
4 Ibid. paras. 293-294. 
5 Ibid. para. 294.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-35 
 
 
 B. N ON-DISCRETIONARY ADHERENCE TO A GOVERNMENT MANDATE DOES NOT 
CONSTITUTE THE EXERCISE OF GOVERNMENTAL AUTHORITY  
 
5. If an entity's role is merely to follow a governmental mandate and it is powerless as to the 
manner in which it pursues governmental functions, then it has no "governmental authority" and is 
instead merely acting at the direction of the go vernment.  WTO jurisprudence has distinguished 
between "discretionary" action – "involving an  exercise of judgment and choice" – and 
"implementation of a hard-and-fast rule".6  If an entity is required by law to implement a certain 
policy or program, without discretion, implementation of the law does not indicate that the entity 
possesses or exercises governmental authority.  Unde r such circumstances, a Panel's analysis of 
whether the entity's transactions may constitute a "financial contribution" must be based on the 
"entrustment or direction" standard of Ar ticle 1.1(a)(1)(iv) of the SCM Agreement. 
 
C. P UBLIC BODY DETERMINATION REQUIRES OBJECTIVE EVALUATION OF ALL EVIDENCE 
WITHOUT UNDUE EMPHASIS ON ANY SINGLE FACTOR  
 
6. Panels have an affirmativ e obligation to examine objectivel y all evidence related to the 
question of public body, and not to give undue emphasis to any one characteristic of the entity in question.  According to the Appellate Body, this examination requires a Panel to analyse thoroughly 
the legal status and actions of the entity in question.
7  A Panel "must point to positive evidence" 
establishing that the relevant entity is a public body, i.e., that it possesses or exercises governmental 
authority.8  If no such evidence exists, then the entity cannot be found to be a "public body", although 
a Panel may subsequently consider whether the en tity has been "entrusted or directed" by the 
government.  D. E
VIDENCE OF GOVERNMENTAL CONTROL IS NOT SUFFICIENT TO SATISFY THE "PUBLIC 
BODY" STANDARD  
 
7. The government's exercise of "meaningful control" over an entity alone is not sufficient to determine that the entity is a public body.  Inst ead, government control is merely one element of 
evidence that may be considered when dete rmining whether the entity at issue possesses 
"governmental authority", as define d above.  The Appellate Body in US — Anti-Dumping and 
Countervailing Duties (China)  made this point clear.
9   
 8. Although evidence of a government's exercise  of meaningful control over an entity may 
establish a rebuttable presumption that the entity is a "public body", the Appellate Body has held that 
such evidence alone is not dispositive of the issue, and may be rebutted by evidence that the entity at 
issue does not possess or exercise any governmental authority.
10  The Panels therefore must ensure 
that any determination that an entity is a public body is supported by positive evidence that the 
relevant entity possesses governmental authority and exercises that authority in the performance of 
governmental functions.  Evidence of government c ontrol may be considered, but only insofar as it 
serves to establish the entity's possessi on of governmental authority. 
                                                      
6 Panel Report, China – Audiovisual Services , para. 7.324.  See also Panel Report, Turkey – Rice , 
para. 7.128. 
7 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 319. 
8 Ibid.  para. 326. 
9 Ibid. paras. 318-319. 
10 Ibid. para. 318. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-36 
 
 
 III. EXTERNAL SUBSIDY BENCHMARKS ARE GENERALLY INAPPROPRIATE 
 
9. In determining the existence and magnitude of a subsidy benefit, resort to external 
benchmarks, such as international market prices or pr ices in third countries, is generally inappropriate.  
WTO rules establish that the domestic market, not external markets, provides the most appropriate 
benchmark.  
1. Measurement of a Benefit Should Be Based on a Domestic Market Benchmark 
 10. The home market of the country at issue is th e starting point for any determination of benefit 
under Article 1.1(b) of the SCM Agreement.  The term  "benefit" is not defined in the Agreement, but 
the Appellate Body in Canada – Aircraft  stated that the term "implies some kind of comparison", 
which measures whether the "financial contribution" at issue has made "the recipient 'better off' than it 
would otherwise have been, absent that contribution".
11  The Appellate Body added that the 
benchmark for measuring a subsidy benef it must be based in the "marketplace". 
 11. Article 14 of the SCM Agreement, which the A ppellate Body has used as context to interpret 
benefit under Article 1.1(b), expressly establishes that  the "marketplace" is the home market of the 
WTO Member providing the "financial contribution".  Article 14(d) states that the adequacy of remuneration "shall" (not "may" or "should") be determined in relation to prevailing market 
conditions in the country of provision.   
 
2. External Benchmarks Are Not Permitted Except In "Very Limited" Circumstances 
 
12. Although the Appellate Body has not ruled on  the use of external, out-of-country subsidy 
benchmarks to calculate a benefit under Article 1.1(b), its rulings on Ar ticle 14(d) strictly limit the use 
of such external benchmarks.  Price is foremost  among the "prevailing mark et conditions" enumerated 
in Article 14(d), and it should be the first reference point used to determine benefit. 
 13. The Appellate Body confir med this interpretation in US – Softwood Lumber IV , where it 
stated that Article 14(d) "emphasize[s] by its te rms that prices of sim ilar goods sold by private 
suppliers in the country of provision are the primary benchmark that investigating authorities must 
use when determining whether goods have been provided by a government for less than adequate 
remuneration…".
12  The Appellate Body also has made clear that "the starting-point, when 
determining adequacy of remuneration, is the prices  at which the same or similar goods are sold by 
private suppliers in arm's length tran sactions in the country of provision".13  The Appellate Body 
emphasized that the circumstances under which an investigating authority could use alternative 
benchmarks are "very limited" – only when it has been proven  that private prices are distorted.14  The 
Appellate Body also warned in this regard that  subsidy disciplines must not be used to "offset 
differences in comparative advantages between countries".15 
 14. Thus, a Panel may not use external benchmarks  to measure the amount of "benefit", if any, 
conferred upon the recipient of a financial c ontribution unless it establis hes the "very limited" 
circumstances necessary to permit such a benchmark.   
                                                      
11 Appellate Body Report, Canada – Aircraft , para. 157.  (emphasis added) 
12 Appellate Body Report, US – Softwood Lumber IV , para. 90.  (emphasis added) 
13 Ibid. 
14 Ibid. paras. 102-103.   
15 Ibid. para. 109.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-37 
 
 
 IV. CONCLUSION 
 
15. Saudi Arabia respectfully urges the Pane ls to consider the Kingdom's positions on the 
interpretive issues set out above. 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-38 
 
 
  ANNEX B-11 
 
 
INTEGRATED EXECUTIVE SUMMARY 
OF THE UNITED STATES 
  
I. INTERPRETATIVE QUESTIONS RELATING TO ARTICLE III:4 
 1. Japan discusses past reports concerning Article III:4 of the GATT 1994.  The United States 
supplements the discussion of "likeness" in one re spect:  several panels, including the panel in 
Canada – Wheat , have found significant the fact that a measure distinguishes between a domestic and 
an imported product solely on the basis of origin.  The panel in US – FSC (Article 21.5)  upon finding 
that the statute at issue in that dispute made a distinction between imported and domestic articles 
solely on the basis of origin, stated that "there is no need to demonstrate the existence of actually 
traded like products in order to establish a violation of Article III:4."  
II. INTERPRETATIVE QUESTIONS RELATING TO ARTICLE III:8(A) 
 
2. Canada has improperly assigned an "object a nd purpose" to Article III:8(a), employed an 
overly broad interpretation of "governmental purposes" , and incorrectly identified the relevant product 
for purposes of Article III:8(a).    
A. OBJECT AND PURPOSE OF THE GATT 1994 
 
3. Canada states that the object and purpose of Article III:8(a) is to allow governments to pursue 
public policy through procurements.  4. The Vienna Convention on the Law of Treaties  ("Vienna Convention") instructs that "[a] 
treaty shall be interpreted in good faith in accordan ce with the ordinary meaning to be given to the 
terms of the treaty in their context and in the light  of its object and purpose."  The reference to "its 
object and purpose" is in the singular.  In contrast, th e other two interpretive tools set out in Article 31 
of the Vienna Convention – ordinary meaning and c ontext – are with reference to "the terms of the 
treaty" (plural).  The reference in the singular – " its object and purpose" – therefore relates back to 
"[a] treaty."  Thus, the object and purpose that must inform the interpretation of treaty provisions is 
the object and purpose of the entire agreement. 
 
5. Accordingly, proper identification of the object and purpose of an agreement is not derived by 
reviewing an isolated subsection of an agreemen t.  The object and purpose that must inform the 
Panel's interpretation of Article III:8(a) is the object and purpose of the GATT 1994.  Canada assigns 
an object and purpose to Article III:8(a) and then attempts to use this self-proclaimed object and purpose to inform the interpretation of Article III:8(a).  That approach is  incorrect.   
 
6. Moreover, aside from the fact that Canada's  approach to object and purpose is incorrect, 
Canada has provided no support for its chosen object  and purpose.  The passage Canada relies on for 
its alleged object and purpose of Article III:8(a) is no t the text of the agreement, an interpretation of 
the Ministerial Conference or General Council, or  guidance from a panel or the Appellate Body.  
Rather, Canada bases its entire theo ry for the object and purpose of Article III:8(a) on one statement 
found in a Japanese government document.  A single Member's views are not authority or guidance 
upon which Canada can rely to make its case a bout the object and purpose of Article III:8(a).    WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page B-39 
 
 
  B. GOVERNMENTAL PURPOSES IN ARTICLE III :8(a) 
 
7. Building from this concept of object and purpose, Canada puts forth an overly broad 
definition of "purchased for governmental purposes" in  Article III:8(a).  Canada states that a purchase 
for a governmental purpose is a purchase made with any aim of the government in mind.  Moreover, 
Canada argues that aims of governments ar e expressed through documents promulgated by a 
government, and any procurement that occurs pursu ant to a government document is procurement 
pursuant to a governmental purpose.  
8. This definition of governmental purpose is clearly  too broad.  First, Article III:8(a) already 
specifies that it only applies to "laws, regulati ons, or requirements governing the procurement by 
governmental agencies."  It is difficult to conceive  of a situation in which a government would say it 
is not acting with a governmental aim in mind.  An interpretation of "gov ernmental purposes" that 
amounts to saying that if a procurement is by a gove rnment agency then it is for government purposes 
is circular and would render the phrase "for governmental purposes" inutile. 
 9. Second, nearly every government procurement is "directed by" a government document of some sort.  As a practical matter, Canada's defi nition would collapse "for governmental purposes" into 
the very act being considered in the first place – the purchase of a product by a government.  Such a 
definition would render meaningless the phrase "purchased for governmental purposes" in 
Article III:8(a) and is therefore incorrect.    
 
C. PRODUCT AT ISSUE  
 10. Canada takes the position that in this di spute the relevant "products" for purposes of 
Article III:8(a) of the GATT 1994 are "electricity."  Assuming for the sake of ar gument that Ontario is 
procuring electricity, it would then be important to determine what are the relevant "products" in this 
dispute for purposes of invoking Article III:8(a) in order to assess whether the local content requirements at issue are justified.      11. Canada's reliance on the purported procurement of electricity appears misplaced.  The 
particular purchases to which the Ontario FIT local content requirements apply – sales of equipment 
by equipment manufacturers to private power generators  – appear to differ in nature and by contract 
from the purported governmental procurement of el ectricity that is at the core of Canada's 
Article III:8(a) defense.  Although Canada consis tently identifies "electricity" as the "product" 
covered by Article III:8(a), it seeks to justify local content requirements that apply to "equipment."  
Yet the two products are not the same.  It does not follow that a purported governmental procurement 
of one class of goods under Article III:8(a) justif ies a local content requirement covering private 
purchases of a different class of goods.  Indeed, Cana da's approach would appear to read into 
Article III:8(a) language that is not there, in eff ect adding a sentence at the end of Article III:8(a) 
along the lines:  "Additionally, the provisions of this  Article shall not apply to laws, regulations or 
requirements governing the purchase by private parties of other products." 
 
12. Furthermore, the interpretation advanced  by Canada would extend the scope of 
Article III:8(a) well beyond its ordinary meaning,  effectively broadening it to permit a government 
procurement of a good to be used to leverage a ll manner of domestic content requirements.  For 
example, it would appear to permit a government  to condition the procurement of a good on the 
supplier discriminating against im ported products throughout a supplier's operations.  A government 
could require that a supplier use only domes tically manufactured equipment for all of its 
manufacturing, its facilities to be built only with do mestic materials, and that it purchase its inputs 
only from those who met similar discriminatory require ments.  Because the local content requirement WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page B-40 
 
 
  at issue here applies to private purchases of rene wable energy equipment, Article III:8(a) cannot be 
cited to justify those local content re quirements on the bases cited by Canada. 
 
III. INTERPRETATIVE QUESTIONS RELATING TO ARTICLE 6.2 
 
13. In its submission, Canada reiterates its claim that Japan violated Article 6.2 of the DSU by 
failing to provide a brief summary of the legal basis of its complaint sufficient to present the problem clearly.  The United States notes that Canada's argum ent that Japan's panel request did not include a 
brief summary of the legal basis of its complain t is similar to that recently addressed in the 
preliminary ruling of the panel in China – EPS .  As that panel stated, "the term 'legal basis' in 
Article 6.2 of the DSU refers to the claim made by the complaining party."  It further explained that 
"[a] claim 'sets forth the complainant's view that the respondent party has violated, or nullified or 
impaired the benefits arising from, an identif ied provision of a particular agreement'."  
 
14. It appears to the United States that Japan has satisfied that requiremen t.  Japan identified the 
measures at issue and then provided a brief summary  of the legal basis of its complaint by setting 
forth its view that the measures violated specific pr ovisions of the WTO Agreement.  As such, Japan's 
panel request satisfied Article 6.2 of the DSU.    15. Canada's argument that a Member cannot  claim a measure viol ates Article 3 of the 
SCM Agreement without identifying specifically "the form of the subsidy, as well as who provided 
the subsidy, who benefitted from the subsidy and the form of the benef it" is also without merit.  As 
Canada acknowledges, Article 1.1(a) defines a type of  measure – a subsidy.   Japan properly stated in 
its panel request that it believed the measures it iden tified were subsidies.  It then stated which 
provisions of the SCM Agreement it believes these me asures violated.  Article 6.2 does not require 
that Japan provide arguments as to why it believ es the measures meet the definition of subsidy.  
Rather, Japan was required to state the legal basis of  its complaint, and it is apparent that it did. 
   
_______________ 
 
  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page C-1 
 
 
 ANNEX C 
 
 
REQUESTS FOR THE ESTABLISHMENT OF A PANEL  
 
 
Contents Page 
Annex C-1 Request for the Establishment of a Panel by Japan  C-2 
Annex C-2 Request for the Establishment of a Panel by the European Union C-6 
 
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page C-2 
 
 
 ANNEX C-1 
  
REQUEST FOR THE ESTABLISHMENT OF  
A PANEL BY JAPAN 
  
WORLD TRADE  
ORGANIZATION   
WT/DS412/5 
7 June 2011  
 
(11-2786) 
 Original:   English 
  
 
CANADA - CERTAIN MEASURES AFFECTING THE RENEWABLE  
ENERGY GENERATION SECTOR 
 
Request for the Establishment of a Panel by Japan 
 
 
 The following communication, dated 1 June 2011, from the delegation of Japan to the 
Chairperson of the Dispute Settlement Body, is ci rculated pursuant to Article 6.2 of the DSU. 
 
_______________ 
 
  My authorities have instructed me to request the establishment of a Panel on behalf of the 
Government of Japan ("Japan").   On 13 September 2010, Japan requested cons ultations with the Government of Canada 
("Canada") pursuant to Article 4 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement on Tariffs and Trade 1994  
("GATT 1994"), Article 8 of the Agreement on Trade-Related Investment Measures ("TRIMs 
Agreement "), and  Articles 4.1 and 30 of the Agreement on Subsidies and Countervailing Measures  
("SCM Agreement "), with respect to Canada's measures re lating to domestic content requirements in 
the feed-in tariff program ("the FIT Program").
1 The request was circulated on 16 September 2010 as 
document WT/DS412/1, G/L/926, G/TRIMS/D/27, G/SCM/D84/1.   Consultations were held on 25 October 2010 with a view to reaching a mutually satisfactory 
solution.  Unfortunately, the consulta tions failed to resolve the dispute. 
 
 As a result, Japan respectfully  requests that a Panel be established to examine this matter  
pursuant to Articles 4.7 and 6 of the DSU, Article XXIII of the GATT 1994, Article 8 of the TRIMs 
Agreement , and Articles 4.4 and 30 of the SCM Agreement . 
                                                      
1 The reference to "FIT Program" in this request includes both projects over 10 kilowatts and projects 
of 10 kilowatts or less ( i.e., microFIT).  See http://fit.powerauthority.on.ca/ ; 
http://fit.powerauthority.on. ca/what-feed-tariff-program ; and http://microfit.powerauthority.on.ca/ .  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page C-3 
 
 
  
 The measures that are the subject of this request are those taken by the Government of Canada or its provinces relating to the FIT Program  established by the Canadian province of Ontario 
in 2009 providing for guaranteed, long-term prici ng for the output of renewable energy generation 
facilities that contain a defined percentage of dom estic content.  These measures include, but are not 
limited to, the following:  
 the Electricity Act, 1998 ,
2 as amended,3 including in particular Part II (Independent 
Electricity System Operator), Part II.1 (Ontario Power Authority) and Part II.2 (Management of Electricity Supply, Capacity and Demand) thereof, including in 
particular Section 25.35 (Feed-in tariff program); 
 an Act to enact the Green Energy Act, 2009  and to build a green economy, to repeal 
the Energy Conservation Leadership Act, 2006  and the Energy Efficiency Act  and to 
amend other statutes (the " Green Energy and Green Economy Act, 2009 "),
4 including 
in particular Schedule B amending the Electricity Act, 1998 ; 
 an Act to amend the Electricity Act, 1998  and the Ontario Energy Board Act, 1998  
and to make consequential amen dments to other Acts (the " Electricity Restructuring 
Act, 2004 "),5 including in particular Schedule A, Sections 29-32, enacting Part II.1 of 
the Electricity Act, 1998 , and Sections 33-38, enacting Part II.2 of the Electricity Act, 
1998 , and Schedule B, Sections 17-18, en acting Sections 78.3-78.4 of the Ontario 
Energy Board Act, 1998 ; 
 Ontario Regulation 578/05  made under the Ontario Energy Board Act, 1998  entitled 
"Prescribed Contracts Re Sections 78.3 and 78.4 of the Act"; 
 Independent Electricity System Operator  ("IESO") Market Manual, including in 
particular Part 5.5 ("Physical Markets Settlement Statements"); 
 IESO Market Rules, including in partic ular Chapter 7 ("System Operations and 
Physical Markets"), Chapter 9 ("Settlements and Billing") and Chapter 11 ("Definitions"); 
 FIT direction dated 24 September 2009, fro m George Smitherman, Deputy Premier 
and Minister of Energy and Infrastruct ure, to Colin Andersen, Chief Executive 
Officer, Ontario Power Authority ("OPA"), directing OPA to develop a FIT Program 
and include a requirement that the applicant submit a plan for meeting the domestic 
(i.e., Ontario) content goals in the FIT rules; 
 individual FIT and microFIT contracts executed by the OPA since the inception of 
the FIT Program on 24 September 2009;
6 
                                                      
2 S.O. 1998, c. 15, Sched. A. 
3 The latest amendment was by: 2010, c. 15, s. 223. 
4 S.O. 2009, c. 12. 
5 S.O. 2004, c. 23. 
6 These contracts include, but are not limited to, those referenced at 
"http://fit.powerauthority.on.ca/Storage/1 0989_FIT_Contracts_Offered_April_8_10_-
_Applicant_Legal_Name_Order3.pdf " and 
http://fit.powerauthority.on.ca/Storage/11216_FIT_Co ntract_Awards_-_Final_List_-_February_24,_2011.pdf . WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page C-4 
 
 
  the FIT Rules, Version 1.4 (8 December 2010), and the microFIT Rules, Version 1.6 
(8 December 2010), issued by the OPA; 
 the FIT Contract, Version 1.4 (8 Dece mber 2010), including General Terms and 
Conditions, Exhibits, and Standard Definitions, the microFIT Contract, Version 1.6 (8 December 2010), including Appendices, and the Conditional Offer of microFIT 
Contract, Version 1.0, issued by the OPA; 
 the FIT Application Form (1 December 2009), and online microFIT Application, 
issued by the OPA; 
 the FIT Price Schedule (13 August 2010), and the microFIT Price Schedule 
(13 August 2010), issued by the OPA; 
 the FIT Program Interpretations of th e Domestic Content Requirements (14 
December 2009, as updated on 4 October 2010 and 26 April 2011), issued by the OPA; and 
 any amendments or extens ions of the foregoing, a ny replacement measures, any 
renewal measures, any implementing measures, and any related measures.
7 
 These measures are inconsistent with Canada's obligations under the SCM Agreement , the 
GATT 1994, and the TRIMs Agreement  because they constitute a pr ohibited subsidy, and also 
discriminate against equipment for renewable ener gy generation facilities produ ced outside Ontario.  
In particular, Japan considers that these measures are inconsistent with the following provisions: 
 
1. Articles 3.1(b) and 3.2 of the SCM Agreement , because the measures are subsidies 
within the meaning of Article 1.1 of the SCM Agreement  that are provided contingent 
upon the use of domestic over imported goods, namely contingent upon the use of equipment for renewable energy generati on facilities produced in Ontario over such 
equipment imported from other WTO Members such as Japan;
8 
2. Article III:4 of the GATT 1994, be cause the measures acco rd less favourable 
treatment to imported equipment for renewable energy generation facilities than accorded to like products originating in Ontario; and 
3. Article 2.1 of the TRIMs Agreement , in conjunction with paragraph 1(a) of the 
Agreement's Illustrative List, because the measures are trade-related investment 
measures inconsistent with Article III :4 of the GATT 1994 which require the 
purchase or use by enterprises of equipment for renewable energy generation facilities of Ontario origin. 
                                                      
7 Japan notes that, as a matter of convenience, the above list identifies th e most recent versions 
available as of the date of this request of the FIT Rule s, microFIT Rules, FIT Contract, microFIT Contract, FIT 
Application Form, microFIT Application, FIT Price Schedule, microFIT Price Schedule, and FIT Program 
Interpretations of the Domestic Content Requirements.  Japan's request, however, encompasses all versions of 
these measures adopted since the inception of the FIT Program on 24 September 2009. 
8 As subsidies falling under the provisions of Article 3 of the SCM Agreement , the measures are 
deemed to be specific under Article 2.3 of the SCM Agreement .  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page C-5 
 
 
  Further, Japan considers that Canada's measur es nullify or impair benefits accruing to Japan 
directly or indirectly under the cited Agreements  in a manner described in Article XXIII:1 of the 
GATT 1994.  
 Japan requests the establishment of a Panel w ith standard terms of reference in accordance 
with Article 7.1 of the DSU.      
 WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page C-6 
 
 
 ANNEX C-2
 
 
 
REQUEST FOR THE ESTABLISHMENT OF A PANEL 
BY THE EUROPEAN UNION 
   
WORLD TRADE  
ORGANIZATION   
WT/DS426/5 
10 January 2012 
 
 (12-0144) 
 Original:   English 
 
 
 
CANADA – MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM 
 
Request for the Establishment of a Panel by the European Union 
 
 
 The following communication, dated 9 Ja nuary 2012, from the delegation of the 
European Union to the Chairperson of the Dispute Settlement Body, is circulated pursuant to Article 
6.2 of the DSU.  
_______________ 
 
 
On 11 August 2011, the European Union requested consultations with the Government of 
Canada ("Canada") pursuant to Article 4 of the Understanding on Rules and Procedures Governing 
the Settlement of Disputes  ("DSU "), Article XXII:1 of the General Agreement on Tariffs and Trade 
1994  ("GATT 1994 "), Article 8 of the Agreement on Trade-Related Investment Measures  (the 
"TRIMs Agreement "), and Articles 4(1) and 30 of the Agreement on Subsidies and Countervailing 
Measures  (the " SCM Agreement "), regarding Canada's measur es relating to domestic content 
requirements in the feed-in tariff program (the "FIT Program").
1 The request was circulated on 
16 August 2011 as document WT/DS426/1, G/L/959, G/TRIMS/D/28, G/SCM/D87/1.2 
Consultations were held on 7 Se ptember 2011 with a view to reaching a mutually satisfactory 
solution. Unfortunately, the consultatio ns failed to resolve the dispute. 
As a result, the European Union respectfully re quests that a Panel be established to examine 
this matter  pursuant to Articles 4.7 and 6 of the DSU , Article XXIII of the GATT 1994 , Article 8 of 
the TRIMs Agreement , and Articles 4.4 and 30 of the SCM Agreement . 
                                                      
1 "FIT Program" referred to in this request include s both projects over 10 kilowatts (kW) and projects 
of 10 kW or less (microFIT). See http://fit.powerauthority.on.ca/ . 
2 An addendum to the European Union's request for consultations was circulated on 24 August 2011 
since the statement of availa ble evidence with regard to the existence and nature of the subsidies in question was 
erroneously omitted from the request for consultations.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page C-7 
 
 
 The measures that are the subject of this request are those relating to the FIT Program 
established by the Canadian province of Ontari o in 2009 providing for guaranteed, above-market, 
long-term pricing for the output of renewable energy generation facilities3 that contain a minimum 
percentage of domestic content.  These measures include the following: 
 the Electricity Act, 1998,4 as amended,5 incl uding in particular Part II (Independent 
Electricity System Operator), Part II.1 (Ontario Power Authority) and Part II.2 (Management of Electricity Supply, Capacity and Demand) thereof, including in particular Section 25.35 (Feed-in tariff program); 
 
 an Act to enact the Green Energy Act, 2009  and to build a green economy, to repeal 
the Energy Conservation Leadership Act, 2006  and the Energy Efficiency Act  and to 
amend other statutes (the " Green Energy and Green Economy Act, 2009 "),
6 including 
in particular Schedule B amending the Electricity Act, 1998 ; 
 an Act to amend the Electricity Act, 1998  and the Ontario Energy Board Act, 1998  
and to make consequential amen dments to other Acts (the " Electricity Restructuring 
Act, 2004 "),7 including in particular Schedule A, Sections 29-32, enacting Part II.1 of 
the Electricity Act, 1998 , and Sections 33-38, enacting Part II.2 of the Electricity Act, 
1998 , and Schedule B, Sections 17-18, en acting Sections 78.3-78.4 of the Ontario 
Energy Board Act, 1998 ; 
 Ontario Regulation 578/05  made under the Ontario Energy Board Act, 1998  entitled 
"Prescribed Contracts Re Sections 78.3 and 78.4 of the Act"; 
 Independent Electricity System Operator  ("IESO") Market Manual, including in 
particular Part 5.5 ("Physical Markets Settlement Statements"); 
 IESO Market Rules, including in partic ular Chapter 7 ("System Operations and 
Physical Markets"), Chapter 9 ("Settlements and Billing") and Chapter 11 
("Definitions"); 
 FIT direction dated 24 September 2009, fro m George Smitherman, Deputy Premier 
and Minister of Energy and Infrastruct ure, to Colin Andersen, Chief Executive 
Officer, Ontario Power Authority ("OPA"), directing OPA to develop a FIT Program 
and include a requirement that the applicant submit a plan for meeting the domestic (i.e., Ontario) content goals in the FIT rules; 
 the FIT Rules, Version 1.5.1 (31 October 2011), and the microFIT Rules, Version 
1.6.1 (10 August 2011), issued by the OPA; 
 the FIT Contract, Version 1.5.1 (31 Oc tober 2011), including General Terms and 
Conditions, Exhibits, and Standard Definiti ons, the microFIT Contract, Version 1.6.1 
(31 October 2011), including Appendices, a nd the Conditional Offer of microFIT 
Contract, Version 1.6.1, issued by the OPA; 
                                                      
3 In particular, facilities utilising windpower with a contract capacity greater than 10 kW, and facilities 
utilising solar (PV). 
4 S.O. 1998, c. 15, Sched. A. 
5 The latest amendment was by: 2010, c. 15, s. 223. 
6 S.O. 2009, c. 12. 
7 S.O. 2004, c. 23. WT/DS412/R/Add.1 
WT/DS426/R/Add.1 Page C-8 
 
 
  the FIT Application Form (1 December 2009), and online microFIT Application, 
issued by the OPA; 
 the FIT Price Schedule (3 June 2011), and the microFIT Price Schedule (13 August 
2010), issued by the OPA; 
 the FIT Program Interpretations of th e Domestic Content Requirements (14 
December 2009, as updated on 4 October 2010 and 26 April 2011), issued by the 
OPA;
8 
 individual FIT and microFIT contracts executed by the OPA since the inception of 
the FIT Program on 24 September 2009;9 and 
 any amendments or extens ions of the foregoing, a ny replacement measures, any 
renewal measures, any implementing measures, and any related measures.10 
These measures are inconsistent with Canada's obligations under the SCM Agreement , the 
GATT 1994 , and the TRIMs Agreement  because they constitute a prohibited subsidy, and also 
discriminate against imports of equipment and com ponents for renewable energy generation facilities. 
In particular, the European Union considers that these measures are inconsistent with the following 
provisions: 
1. Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures are subsidies within the 
meaning of Article 1.1 of the SCM Agreement that are provided contingent upon the use of 
domestic over imported goods, name ly contingent upon the use of equipment and components 
for renewable energy generation facilities pr oduced in Ontario over such equipment and 
components imported from other WTO Members, including the European Union; 
2. Article III:4 of the GATT 1994 , because the measures accord less favourable treatment to 
imported equipment and component s for renewable energy generation facilities than accorded 
to like products originating in Ontario; and 
3. Article 2.1 of the TRIMs Agreement , in conjunction with paragra ph 1(a) of the Agreement's 
Illustrative List, because the measures are trade-re lated investment measures inconsistent with 
Article III:4 of the GATT 1994  which require the purchase or use by enterprises of equipment 
and components for renewable energy generati on facilities of Ontario origin or source. 
 
                                                      
8 See "http://fit.powerauthority.on.ca/domestic-content-0 , and http://fit.powerauthority.on.ca/table-
final-interpretations ". 
9 These contracts include, but are not limited to, those referenced at 
"http://fit.powerauthority.on.ca/Storage/1 0989_FIT_Contracts_Offered_April_8_10_-
_Applicant_Legal_Name_Order3.pdf " and 
http://fit.powerauthority.on.ca/Storage/11216_FIT_Co ntract_Awards_-_Final_List_-_February_24,_2011.pdf . 
10 The European Union notes that, as a matter of conv enience, the above list identifies the most recent 
versions available as of the date of this request of the FIT Rules, microFIT Rules, FIT Contract, microFIT Contract, FIT Application Form, microFIT Application, FIT Price Schedule, microFIT Price Schedule, and FIT 
Program Interpretations of the Do mestic Content Requirements ( see "http://fit.powerauthority.on.ca/what-feed-
tariff-program/ ; and http://microfit.powerauthority.on.ca/ ". The European Union's request, however, 
encompasses all versions of these measures ad opted since the inception of the FIT Program on 
24 September 2009.  WT/DS412/R/Add.1 
 WT/DS426/R/Add.1 
 Page C-9 
 
 
 Accordingly, the European Union respectfully requ ests the establishment of a Panel with standard 
terms of reference in accordance with Article 7.1 of the DSU . The European Union asks that this 
request be placed on the agenda for the meeting of  the Dispute Settlement Body to be held on 
20 January 2012. 
 
 
__________