WT/DS412/AB/R  
WT/DS426/AB/R  
 
6 May 2013  
(13-2400)  Page: 1/154  
  Original: English  
 
  CANADA – CERTAIN MEASURES AFFECTING THE RENEWABLE ENERGY 
GENERATION SECTOR 
 
CANADA – MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM 
AB-2013-1 
Reports of the Appellate Body 
Note by the Secretariat: 
 
The Appellate Body is issuing these Reports in th e form of a single document constituting two 
separate Appellate Body Reports: WT/DS412/AB/R and WT/DS426/AB/R. The cover page, preliminary pages, sections 1 through 5 and the annexes are common to both Reports. The page header throughout the document bears the two document symbols WT/DS412/AB/R and 
WT/DS426/AB/R, with the following exceptions: section 6 on pages JPN-141 and JPN-142, which 
bears the document symbol for and contains the Appellate Body's findings and conclusions in the Appellate Body Report WT/DS412/AB/R; and section 6 on pages EU-143 and EU-144, which bears 
the document symbol for and contains the Appellate Body's findings and conclusions in the 
Appellate Body Report WT/DS426/AB/R.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 2 - 
 
 
  Table of Contents 
 
1  INTRODUC TION ................................................................................................ 15  
 
2  ARGUMENTS OF THE PARTICIPAN TS AND THIRD PARTICIPANTS ..................... 25  
 
2.1  Claims of error by  Canada – A ppellant .............................................................. 25  
2.1.1  Article III:8(a) of the GATT 1994 ........................................................................... 25 
2.1.2  Article 11 of the DS U – "Commercia l resale" ........................................................... 27 
 
2.2  Arguments of Japan – Appellee ......................................................................... 30  
2.2.1  Article III:8(a) of the GATT 1994 ........................................................................... 30 
2.2.2  Article 11 of the DS U – "Commercia l resale" ........................................................... 31 
 
2.3  Arguments of the Euro pean Union – Appellee ................................................... 32  
2.3.1  Article III:8(a) of the GATT 1994 ........................................................................... 32 
2.3.2  Article 11 of the DS U – "Commercia l resale" ........................................................... 34 
 
2.4  Claims of error by Japan – Other appellant ....................................................... 37  
2.4.1  The order in which the Panel dealt with Japan's claims under the 
SCM Agreement and its claims under the TRIMs Agreement and the GATT 1994 ........... 37 
2.4.2  Claims under Article III:8(a) of the GATT 1994 ........................................................ 38 
2.4.2.1  The Panel's finding that the FIT Programme and Contracts involve "procurement 
by governmental agencies of products purchase d" ................................................... 38 
2.4.2.2  The Panel's interpretation of the word "for" in term "for governmental purposes" ......... 39 
2.4.2.3  The Panel's interpretation and application of the term "with a view to 
commercial resale" .............................................................................................. 40 
2.4.3  The Panel's decision to exercise judicial economy with respect to Japan's 
"stand-alone" claim under Ar ticle III:4 of the GATT 1994 .......................................... 41 
2.4.4  Claims under the SCM Agreement ......................................................................... 42 
2.4.4.1  Article 1.1(a) – "Financial cont ribution" or "income or price support" .......................... 42 
2.4.4.2  Article 1.1(b) – "Benefit" ...................................................................................... 44 
2.4.4.3  Article 11 of the DSU – "Benefit" ........................................................................... 47 
 
2.5  Claims of error by the Euro pean Union – Othe r appellant ................................. 48  
2.5.1  The relationship between the TR IMs Agreement and Article III:4 of the 
GATT 1994 ......................................................................................................... 48 
2.5.2  Claims under Article III:8(a) of the GATT 1994 ........................................................ 49 
2.5.2.1  The Panel's finding that the domestic content requirements "govern" 
procurement of electricity .................................................................................... 50 
2.5.2.2  The Panel's interpretation of  the term "governm ental purposes" ................................ 51 
2.5.3  Claims under the SCM Agreement ......................................................................... 52 
2.5.3.1  Article 1.1(b) – "Benefit" ...................................................................................... 52 
2.5.3.2  Article 11 of the DSU – "Benefit" ........................................................................... 54 
 
2.6  Arguments of Ca nada – A ppellee ...................................................................... 56  
2.6.1  The order in which the Panel dealt with Japan's claims under the 
SCM Agreement and its claims under the TRIMs Agreement and the GATT 1994 ........... 56 
2.6.2  The relationship between the TR IMs Agreement and Article III:4 of the 
GATT 1994 ......................................................................................................... 56 
2.6.3  Claims under Article III:8(a) of the GATT 1994 ........................................................ 57 
2.6.3.1  The Panel's finding that the FIT Programme and Contracts involve "procurement 
by governmental agencies of products purchase d" ................................................... 57 
2.6.3.2  The Panel's finding that the domestic content requirements "govern" the 
procurement of electricity .................................................................................... 58 
2.6.3.3  The Panel's interpretation of  the term "governm ental purposes" ................................ 58 
2.6.3.4  The Panel's interpretation of the word "for" in the term "for governmental 
purpos es" .......................................................................................................... 59 
2.6.3.5  The Panel's interpretation of th e term "with a view to commercial resale" .................... 59 
2.6.3.6  Canada's request for completion of the analysis ....................................................... 60 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 3 - 
 
 
  2.6.4  The Panel's decision to exercise judicial economy with respect to Japan's 
"stand-alone" claim under Ar ticle III:4 of the GATT 1994 .......................................... 61 
2.6.5  Claims under the SCM Agreement ......................................................................... 61 
2.6.5.1  Article 1.1(a) – "Financial cont ribution" or "income or price support" .......................... 61 
2.6.5.2  Article 1.1(b) – "Benefit" ...................................................................................... 63 
2.6.5.3  Article 11 of the DSU – "Benefit" ........................................................................... 65 
 
2.7  Arguments of the third partic ipants .................................................................. 66  
2.7.1  Australia ............................................................................................................ 66 
2.7.2  Brazil ................................................................................................................ 67 
2.7.3  China ................................................................................................................ 68 
2.7.4  India ................................................................................................................. 69 
2.7.5  No rway ............................................................................................................. 69 
2.7.6  Saudi Arabia ...................................................................................................... 69 
2.7.7  Turkey .............................................................................................................. 70 
2.7.8  United States ..................................................................................................... 70 
 
3  ISSUES RAISED IN  THIS APPEAL ...................................................................... 73  
 
4  BACKGROUND AND OVERVIEW OF  THE MEASURES AT ISSUE ........................... 74  
 
4.1  Electricit y networ ks .......................................................................................... 74  
 
4.2  Ontario's elec tricity ma rket .............................................................................. 76  
 
4.3  The FIT Programme .......................................................................................... 81  
 
5  ANALYSIS OF THE APPELLATE BODY ................................................................. 83  
 
5.1  The order in which the Panel dealt with Japan's claims under the 
SCM Agreement and its claims un der the TRIMs Agreement and the 
GATT 1994 ........................................................................................................ 83  
 
5.2  The applicability of Article III: 8(a) of the GATT 1994 to measures 
falling under Article 2.2 of the TRIMs Agreement and the Illustrative 
List annexed thereto ......................................................................................... 85  
5.2.1  The Panel's findings ............................................................................................. 86 
5.2.2  Claims and arguments on appeal ........................................................................... 87 
5.2.3  Is Article III:8(a) of the GATT 1994 ap plicable to measures falling within the 
scope of Article 2.2 of the TRIMs Agreement and the Illustrative List annexed thereto? ............................................................................................................ 88
 
 
5.3  Article III:8(a)  of the GATT 1994 ..................................................................... 91  
5.3.1  The Panel's findings ............................................................................................. 91 
5.3.2  Claims and arguments on appeal ........................................................................... 94 
5.3.3  Interpretation of Arti cle III:8(a) of the GATT 1994 ................................................... 96 
5.3.4  Application of Article III:8(a) of the GATT 1994 to the facts of  these disp utes ............ 101  
 
5.4  Did the Panel properly exercise ju dicial economy when it declined to 
make a finding under Japan's "stand -alone" claim under Article III:4 of 
the GATT 1994? .............................................................................................. 103  
 5.5  Claims under th e SCM Agr eement ................................................................... 108
 
5.5.1  Article 1.1(a) – "Financial contri bution" or "income or  price support" ........................ 108  
5.5.1.1  The Panel's findings ........................................................................................... 109  
5.5.1.2  Whether the Panel erred in finding that the FIT Programme and Contracts are 
government "purchases [of] goods" under Article 1.1(a)(1)(iii) of the 
SCM Agreement ................................................................................................ 110  
5.5.1.3  Did the Panel err in exercising judicial economy with respect to the allegations 
that the measures at issue constitu te "income or pr ice support"? ............................. 116  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 4 - 
 
 
  5.5.2  Article 1.1(b) – "Benefit" .................................................................................... 117  
5.5.2.1  The Panel's findings ........................................................................................... 119  
5.5.2.2  Whether the Panel erred in finding that the European Union and Japan failed to 
establish that the challenged measures confer a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement .................................................................... 121  
5.5.2.3  Whether the Panel acted inconsistently with Article 11 of the DSU in finding that 
the European Union and Japan failed to establish that the challenged measures 
confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement .............. 134  
5.5.2.4  Completion of the analysis ................................................................................. 134  
 
6  FINDINGS AND CONCLUSIONS IN THE APPELLATE BODY REPORT 
WT/DS412/AB/R ..................................................................................... JPN-141  
 
6   FINDINGS AND CONCLUSIONS IN THE APPELLATE BODY REPORT 
WT/DS426/AB/R ....................................................................................... EU-143 
 
 
ANNEX 1 NOTIFICATION OF AN  APPEAL BY CANADA ................................................... 145  
 
ANNEX 2 NOTIFICATION OF AN OTHER APPEAL BY JAPAN ........................................... 146  
 
ANNEX 3 NOTIFICATION OF AN OTHER APPEAL BY THE EU ROPEAN UN ION .................... 149  
 
ANNEX 4 PROCEDURAL RULING BY THE APPELLATE BODY ........................................... 152  
 
  
 
 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 5 - 
 
 
  CASES CITED IN THESE REPORTS 
Short Title Full Case Title and Citation 
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of 
Salmon , WT/DS18/AB/R, adopted 6 No vember 1998, DSR 1998:VIII, 
p. 3327 
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of 
Retreaded Tyres , WT/DS332/AB/R, adopted 17 December 2007, 
DSR 2007:IV, 1527 
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export 
of Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999, 
DSR 1999:III, 1377 
Canada – Aircraft 
(Article 21.5 – Brazil) Appellate Body Report, Canada – Measures Affecting the Export of 
Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU , 
WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, p. 4299 
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the 
Automotive Industry , WT/DS139/AB/R, WT/DS142/AB/R, adopted 
19 June 2000, DSR 2000:VI, 2985 
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/R, WT/DS142/R, adopted 19 June 2000, 
as modified by Appellate Body Report WT/DS139/AB/R, 
WT/DS142/AB/R, DSR 2000:VII, 3043 
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation 
of Milk and the Exportation of Dairy Products , WT/DS103/AB/R, 
WT/DS113/AB/R and Corr.1, adopted 27 October 1999, DSR 1999:V, 
p. 2057 
Canada – Feed-in Tariff 
Program Panel Report, Canada – Measures Relating to the Feed-in Tariff 
Program , WT/DS426/R and Add.1, circulated to WTO Members 
19 December 2012 
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning 
Periodicals , WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada – Renewable 
Energy Panel Report, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector , WT/DS412/R and Add.1, circulated to 
WTO Members 19 December 2012 
Canada – Wheat Exports 
and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of 
Wheat and Treatment of Imported Grain , WT/DS276/AB/R, adopted 
27 September 2004, DSR 2004:VI, p. 2739 
Canada – Wheat Exports 
and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat 
and Treatment of Imported Grain , WT/DS276/R, adopted 
27 September 2004, upheld by Appellate Body Report 
WT/DS276/AB/R, DSR 2004:VI, 2817 
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard 
Measures Relating to Certain Agricultural Products , WT/DS207/AB/R, 
adopted 23 October 2002, DSR 2002:VIII, 3045 (Corr.1, 
DSR 2006:XII, 5473) 
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of 
Automobile Parts , WT/DS339/AB/R / WT/DS340/AB/R / 
WT/DS342/AB/R, adopted 12 January 2009, DSR 2009:I, p. 3 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 6 - 
 
 
  Short Title Full Case Title and Citation 
China – Intellectual Property Rights Panel Report, China – Measures Affecting the Protection and 
Enforcement of Intellectual Property Rights , WT/DS362/R, adopted 
20 March 2009, DSR 2009:V, 2097 
China – Publications and 
Audiovisual Products Panel Report, China –  Measures Affecting Trading Rights and 
Distribution Services for Certain Publications and Audiovisual 
Entertainment Products , WT/DS363/R and Corr.1, adopted 
19 January 2010, as modified by Appellate Body Report 
WT/DS363/AB/R, DSR 2010:II, 261 
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, adopted 22 February 2012 
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting 
Asbestos and Asbestos-Containing Products , WT/DS135/AB/R, 
adopted 5 April 2001, DSR 2001:VII, 3243 
EC – Bananas III Appellate Body Report, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, 
adopted 25 September 1997, DSR 1997:II, 591 
EC – Bananas III  Panel Reports, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas , (Ecuador)  WT/DS27/R/ECU, 
(Guatemala and Honduras)  WT/DS27/R/GTM, WT/DS27/R/HND, 
(Mexico)  WT/DS27/R/MEX, (United States)  WT/DS27/R/USA, adopted 
25 September 1997, as modified by Appellate Body Report 
WT/DS27/AB/R, DSR 1997:II, p.  695 to DSR:1997:III, p. 1085 
EC – Export Subsidies on 
Sugar Appellate Body Report, European Communities – Export Subsidies on 
Sugar , WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 
19 May 2005, DSR 2005:XIII, p. 6365 
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat 
Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 
13 February 1998, DSR 1998:I, p. 135 
EC – Sardines Appellate Body Report, European Communities – Trade Description 
of Sardines , WT/DS231/AB/R, adopted 23 October 2002, 
DSR 2002:VIII, 3359 
EC – Selected Customs 
Matters Panel Report, European Communities – Selected Customs Matters , 
WT/DS315/R, adopted 11 December 2006, as modified by Appellate 
Body Report WT/DS315/AB/R, DSR 2006:IX-X, p. 3915 
EC and certain member 
States – Large Civil Aircraft Appellate Body Report, European Communities and Certain Member 
States – Measures Affecting Trade in Large Civil Aircraft , 
WT/DS316/AB/R, adopted 1 June 2011 
India – Autos Panel Report, India – Measures Affecting the Automotive Sector , 
WT/DS146/R, WT/DS175/R and Corr.1, adopted 5 April 2002, 
DSR 2002:V, p. 1827 
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile 
Industry , WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R  
and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4,  DSR 1998:VI, 2201 
Japan – Alcoholic 
Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages , 
WT/DS8/AB/R, WT/DS10/AB/R, WT/D S11/AB/R, adopted 1 November 
1996, DSR 1996:I, p. 97 
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic 
Random Access Memories from Korea , WT/DS336/AB/R and Corr.1, 
adopted 17 December 2007, DSR 2007:VII, p. 2703 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 7 - 
 
 
  Short Title Full Case Title and Citation 
Korea – Alcoholic 
Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages , 
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, 
DSR 1999:I, 3 
Korea – Various Measures 
on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, 
Chilled and Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 
10 January 2001, DSR 2001:I, 5 
Philippines – Distilled 
Spirits Appellate Body Reports, Philippines – Taxes on Distilled Spirits , 
WT/DS396/AB/R / WT/DS403/AB/R, adopted 20 January 2012 
Turkey – Rice Panel Report, Turkey – Measures Affecting the Importation of Rice , 
WT/DS334/R, adopted 22 October 2007, DSR 2007:VI, 2151 
US – Anti-Dumping and 
Countervailing Duties 
(China) Appellate Body Report, United States – Definitive Anti-Dumping 
and Countervailing Duties on Certain Products from China , 
WT/DS379/AB/R, adopted 25 March 2011 
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on 
Certain Corrosion-Resistant Carbon Steel Flat Products from 
Germany , WT/DS213/AB/R and Corr.1, adopted 19 December 2002, 
DSR 2002:IX, 3779 
US – Certain EC Products Appellate Body Report, United States – Import Measures on Certain 
Products from the European Communities , WT/DS165/AB/R, adopted 
10 January 2001, DSR 2001:I, p. 373 
US – COOL Appellate Body Reports, United States – Certain Country of Origin 
Labelling (COOL) Requirements , WT/DS384/AB/R / WT/DS386/AB/R, 
adopted 23 July 2012 
US – Gasoline Appellate Body Report, United States – Standards for Reformulated 
and Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, 
DSR 1996:I, p. 3 
US – Large Civil Aircraft 
(2nd complaint) Appellate Body Report, United States – Measures Affecting Trade in 
Large Civil Aircraft (Second Complaint) , WT/DS353/AB/R, adopted 
23 March 2012 
US – Section 211 
Appropriations Act Appellate Body Report, United States – Section 211 Omnibus 
Appropriations Act of 1998 , WT/DS176/AB/R, adopted 1 February 
2002, DSR 2002:II, p. 589 
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from 
Canada , WT/DS257/AB/R, adopted 17 February 2004,  
DSR 2004:II, 571 
US – Softwood Lumber IV Panel Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/R 
and Corr.1, adopted 17 February 2004, as modified by Appellate Body 
Report WT/DS257/AB/R, DSR 2004:II, p. 641 
US – Tuna II (Mexico) Appellate Body Report, United States – Measures Concerning the 
Importation, Marketing and Sale of Tuna and Tuna Products , 
WT/DS381/AB/R, adopted 13 June 2012 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , 
WT/DS267/R, Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, 
p. 299 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 8 - 
 
 
  Short Title Full Case Title and Citation 
US – Upland Cotton 
(Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton  
– Recourse to Article 21.5 of the DSU by Brazil , WT/DS267/AB/RW, 
adopted 20 June 2008, DSR 2008:III, 809 
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures 
on Imports of Wheat Gluten from the European Communities , 
WT/DS166/AB/R, adopted 19 January 2001, DSR 2001:II, 717 
US – Wool Shirts and 
Blouses Appellate Body Report, United States – Measure Affecting Imports of 
Woven Wool Shirts and Blouses from India , WT/DS33/AB/R, adopted 
23 May 1997, and Corr.1, DSR 1997:I, p. 323 
 
 
 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 9 - 
 
 
  ABBREVIATIONS USED IN THESE REPORTS 
Abbreviation Description 
CES Clean Energy Supply 
CHP Combined Heat and Power 
complainants Japan and the European Union 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes 
Electricity Act of 1998 Electricity Act, 1998, Service Ontario 1998 , Chapter 15, Schedule A, 
as amended (Panel Exhibit JPN-5) 
Electricity Restructuring 
Act of 2004 An Act to amend the Electricity Act, 1998 and the Ontario Energy 
Board Act, 1998 and to make consequential amendments to other Acts, Service Ontario 2004 , Chapter 23 (Panel Exhibits CDA-18 and 
JPN-8) 
EU Panel Report Panel Report, Canada – Measures Relating to the Feed-in Tariff 
Program  (WT/DS426/R) 
FIT feed-in tariff 
FIT Programme Ontario Power Authority Feed-in Tariff Program 
FIT Programme 
Interpretations FIT Program Interpretations of the Domestic Content Requirements 
(Panel Exhibit EU-7) 
FIT Standard Definitions Ontario Power Authority, Feed-in Tariff Appendix 1 – Standard 
Definitions (version 1.5.1), 15 July 2011 (Panel Exhibit JPN-135) 
GA Global Adjustment 
GATT 1994 General Agreement on Tariffs and Trade 1994 
GPA Agreement on Government Procurement 
Green Energy and Green  
Economy Act of 2009 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, Service 
Ontario 2009 , Chapter 12 (Panel Exhibit JPN-101) 
HCI Hydroelectric Contract Initiative 
HEPCO Hydro-Electric Power Commission of Ontario 
HOEP Hourly Ontario Energy Price 
Hogan Report Professor William W. Hogan, Harv ard University, "Overview of the 
Electricity System in the Province of Ontario", 21 December 2011 
(Panel Exhibit CDA-2) 
IESO Independent Electricity System Operator 
IESO Market Manual Independent Electricity System Operator, Market Manual 
IESO Market Rules Independent Electricity System Operator, Market Rules for the Ontario 
Market  
IPP Independent Power Producer 
Japan Panel Report Panel Report, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector  (WT/DS412/R)  
kW kilowatts 
kWh kilowatt hour WT/DS412/AB/R • WT/DS426/AB/R 
 
- 10 - 
 
 
  Abbreviation Description 
LDC Local Distribution Company 
MCP market clearing price 
Memorandum of 
Agreement Memorandum of Agreement between Her Majesty the Queen in Right 
of the Province of Ontario as Repr esented by the Minister of Energy 
and Hydro One Inc., 27 March 2008 (Panel Exhibit CDA-107) 
Minister's 2009 FIT 
Direction Direction dated 24 September 2009 from the Deputy Premier and 
Minister of Energy and Infrastructu re to the Chief Executive Officer, 
Ontario Power Authority to develop a feed-in tariff (FIT) programme 
(Panel Exhibit JPN-102) 
MW megawatts 
NUG Non-Utility Generator 
OEB Ontario Energy Board 
OEFC Ontario Electricity Financial Corporation 
OPA Ontario Power Authority 
OPA Proposed FIT Price Schedule Presentation OPA, Presentation on "Proposed Feed-in Tariff Price Schedule 
Stakeholder Engagement – Session 4", 7 April 2009 (Panel Exhibit 
CDA-46) 
OPG Ontario Power Generation 
Panel Reports Panel Report, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector  (WT/DS412/R) and Panel Report, Canada – 
Measures Relating to the Feed-in Tariff Program  (WT/DS426/R) 
PJM Interconnection Mid-Atlantic region of the United States 
PV photovoltaic 
RES Renewable Energy Supply 
RESOP Renewable Energy Standard Offer Program 
RPP Regulated Price Plan 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
SSS Standard Supply Service 
TRIM trade-related investment measure 
TRIMs Agreement Agreement on Trade-Related Investment Measures 
TRIPS Agreement Agreement on Trade-Related Aspects of Intellectual Property Rights 
Working Procedures Working Procedures for Appellate Review, WT/AB/WP/6, 16 August 
2010 
WTO  World Trade Organization 
WTO Agreement Marrakesh Agreement Establishing the World Trade Organization 
 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 11 - 
 
 
  PANEL EXHIBITS CITED IN THESE REPORTS 
Exhibit Description 
CDA-2 Professor William W. Hogan, Harvard University, "Overview of the Electricity 
System in the Province of Ontario", 21 December 2011 
CDA-6 Government of Ontario, Ontario's Long-Term Energy Plan  (Queen's Printer for 
Ontario, 2010) 
CDA-16 Ontario Energy Board webpage, "Electricity Prices: … OEB's Role in Electricity 
Prices", available at: <http:// www.ontarioenergyboard.ca/OEB/ 
Consumers/Electricity/Electricity+Prices#role> 
CDA-18 An Act to amend the Electricity Act, 1998 and the Ontario Energy Board Act, 1998 
and to make consequential amendments to other Acts, Service Ontario 2004 , 
Chapter 23  
CDA-46 Ontario Power Authority, Presentation on "Proposed Feed-in Tariff Price Schedule 
Stakeholder Engagement – Session 4", 7 April 2009 
CDA-52 Ontario Ministry of Energy, Request for Proposals for 300 MW of Renewable Energy 
Supply (RES I), issued 24 June 2004 
CDA-53 Ontario Ministry of Energy, Request for Proposals for 1,000 MW of Renewable 
Energy Supply (RES II), issued 17 June 2005 
CDA-54 Ontario Ministry of Energy, Request for Proposals for approximately 500 MW of 
Renewable Energy Supply (RES III), issued 22 August 2008 
CDA-55 Ontario Power Authority, Joint Report to the Minister of Energy: Recommendations 
on a Standard Offer Program for Small Generators connected to a Distribution 
System, 17 March 2006 
CDA-59 Electricity Conservation & Supply Task Force, Tough Choices: Addressing Ontario's 
Power Needs, Final Report to the Minister of Energy (January 2004) 
CDA-64 Ontario Energy Board, EB-2009-0084, Report of the Board on the Cost of Capital 
for Ontario's Regulated Utilities, 11 December 2009 
CDA-85 S. Arrowsmith, "Government Procurement in the WTO", Studies in Transnational 
Economic Law , Vol. 16 (Kluwer Law International, 2002), p. 53 
CDA-106 Independent Electricity System Operator, Market Rules for the Ontario Market, 
Chapter 11 of the 7 March 2012 issue  
CDA-107 Memorandum of Agreement between Her Majesty the Queen in Right of the 
Province of Ontario as Represented by th e Minister of Energy and Hydro One Inc., 
27 March 2008 
CDA-128 S. Arrowsmith, "Government Procurement in the WTO", Studies in Transnational 
Economic Law , Vol. 16 (Kluwer Law International, 2002), p. 51 
CDA-129 A. La Chimia and S. Arrowsmith, "Addressing Tied Aid: Towards a More 
Development-Oriented WTO?", Journal of International Economic Law , Vol. 12 
(September 2009), pp. 707-747 
EU-4 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.5.1), 
31 October 2011 
EU-5 Ontario Power Authority, Feed-in Tariff Contract (version 1.5.1), 31 October 2011 
EU-6 Ontario Power Authority, microFIT Contract (version 1.6.1), 31 October 2011 
EU-7 FIT Program Interpretations of the Domestic Content Requirements  
EU-20 European Wind and Energy Association, The Economics of Wind Energy  
(March 2009) (extracts) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 12 - 
 
 
  Exhibit Description 
JPN-5 Electricity Act of 1998, Service Ontario 1998 , Chapter 15, Schedule A, as amended 
JPN-7 Blake, Cassels & Graydon webpage, "Overview of Electricity Regulation in Canada", 
accessed at: <http://www.blakes.com/englis h/legal_updates/reference_guides/ 
Overview%20of%20Electricity%20in%20Canada.pdf> (no longer available) 
JPN-8 An Act to amend the Electricity Act, 1998 and the Ontario Energy Board Act, 1998 
and to make consequential amendments to other Acts, Service Ontario 2004 , 
Chapter 23  
JPN-11 IESO webpage, "Global Adjustment Archive", available at: 
<http://www.ieso.ca/imoweb /b100/ga_arc hive.asp> 
JPN-26 Ontario Power Authority, A Progress Report on Electricity Supply: Fourth Quarter 
2010 
JPN-30 FIT Price Schedule, 3 June 2011 
JPN-31 microFIT Price Schedule, 13 August 2010 
JPN-32 FIT Price Schedule, 13 August 2010 
JPN-33 FIT Price Schedule, 2 July 2010 
JPN-34 FIT Price Schedule, 24 September 2009 
JPN-38 Ontario Power Authority, Micro Feed-in Tariff Program: Program Overview (2010)  
JPN-41 Hydro One, News Release, "Hydro One Releases 2010 Year-End Financial Results", 
10 February 2011, available at: <http ://www.hydroone.com/OurCompany/Media 
Centre/Documents/NewsReleases2011/02_10_2011_Year-End_Financials.pdf> 
JPN-43 Hydro One webpage, "Our Subsidiaries", available at: 
<http://www.hydroone.com/OurCompany /Pages/OurSubsidiaries.aspx> 
JPN-44 Independent Electricity System Operator webpage, "The Power System",  
available at: <http://www.ieso.ca/imow eb/siteShared/power_system.asp> 
JPN-46 Electricity Distributors Association webpage, "Delivering Safe, Reliable and 
Environmentally Responsible Electricity to Ontarians", July 2010, available at: 
<http://www.eda-on.ca/eda/edaweb.nsf/0 /762d9f4c8b3b490 385257331004c49ba/ 
$FILE/DELIVERING_ECONOMIC_BENEFITS.pdf> 
JPN-47 IESO webpage, "Find Your Local Utility", available at: 
<http://www.ieso.ca/imoweb/sitesha red/local_dist.asp?sid=ic>  
JPN-48 Department of Justice Canada, Constitution Acts, 1867 to 1982, Part VI – 
Distribution of Legislative Powers, Sections 91-95 
JPN-49 Government of Ontario webpage, "All Agencies List", available at: 
<http://www.pas.gov.on.ca/scr ipts/en/BoardsList.asp> 
JPN-50 Government of Ontario webpage, "Agenc y Details, Ontario Power Authority", 
available at: 
<http://www.pas.gov.on.ca/scripts/en/Bo ardDetails.asp?boardID=141181>  
JPN-51 Government of Ontario webpage, "A gencies: Boards, Commissions, Councils, 
Authorities and Foundations", available at: 
<http://www.ontario.ca/en/your_g overnment/ONT 06_018949.html> 
JPN-52 Government of Ontario webpage, "About the Ministry of Energy", available at: 
<http://www.energy.gov.on.ca/en/about/> 
JPN-55 Ontario Power Authority webpage, "Directives to OPA from Minister of Energy", 
available at: <http://www.powerauthority.o n.ca/about-us/directives-opa-minister-
energy-and-infrastructure>  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 13 - 
 
 
  Exhibit Description 
JPN-57 Government of Ontario webpage, "Agency De tails, Independent Electricity System 
Operator", available at: 
<http://www.pas.gov.on.ca/scripts/en/ BoardDetails.asp?boardID=128220> 
JPN-59 Independent Electricity System Operator webpage, "About the IESO", available at: 
<http://www.ieso.ca/imoweb/abo ut/about_the_ieso.asp>  
JPN-62 Independent Electricity System Operator, Settlement Statements and Invoices: 
Marketplace Training (December 2010) 
JPN-63 Government of Ontario webpage, "Agency Details, Ontario Energy Board", available 
at: <http://www.pas.gov.on.ca/scripts/en/BoardDetails.asp?boardID=764> 
JPN-64 Ontario Energy Board webpage, "What We  Do", available at: <http://www.ontario 
energyboard.ca/OEB/Industry/About+the+OEB/What+We+Do> 
JPN-71 Ontario Energy Board, Retail Se ttlement Code, 1 October 2011 revision 
JPN-75 IESO webpage, "Global Adjustment", available at: 
<http://www.ieso.ca/imow eb/b100/b1 00_ga.asp> 
JPN-79 Independent Electricity System Operator, Market Rules for the Ontario Market, 
Chapters 7 and 9 of the 12 October 2011 issue  
JPN-80 Independent Electricity System Operator, Introduction to Ontario's Physical 
Markets: IESO Training (October 2011) 
JPN-82 Independent Electricity System Operator, Market Manual, Part 5.5  
JPN-84 Independent Electricity System Operator, HST Guide for IESO Transactions , 
Issue 26.0 (12 October 2011) 
JPN-90 Independent Electricity System Operator webpage, "Retail Contracts",  
available at: <http://www.ieso.ca/im oweb/siteshared/retailers.asp>  
JPN-91 Independent Electricity System Operator brochure, "What You Need to Know About 
Changes to Electricity Prices Coming November 1, 2009: A Guide For Ontario's 
Public Sector" 
JPN-101 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, Service Ontario 2009 , Chapter 12  
JPN-102 Direction dated 24 September 2009 from th e Deputy Premier and Ontario Minister 
of Energy and Infrastructure to the Chief Executive Officer, Ontario Power Authority 
to develop a feed-in tariff (FIT) program 
JPN-119 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.5.1), 15 July 2011 
JPN-120 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.1), 
30 September 2009 
JPN-121 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.2), 
19 November 2009 
JPN-122 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.3.0), 
9 March 2010 
JPN-123 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.3.1), 2 July 2010 
JPN-124 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.3.2), 
29 October 2010 
JPN-125 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.4), 
8 December 2010 
JPN-126 Ontario Power Authority, Feed-in Tariff Program Rules (version 1.5), 3 June 2011  
JPN-127 Ontario Power Authority, Feed-in Tariff Contract (version 1.5.1), 15 July 2011  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 14 - 
 
 
  Exhibit Description 
JPN-128 Ontario Power Authority, Feed-in Tariff Contract (version 1.1), 30 September 2009 
JPN-129 Ontario Power Authority, Feed-in Tariff Contract (version 1.2), 19 November 2009 
JPN-130 Ontario Power Authority, Feed-in Tariff Contract (version 1.3.0), 9 March 2010 
JPN-131 Ontario Power Authority, Feed-in Tariff Contract (version 1.3.1), 2 July 2010 
JPN-132 Ontario Power Authority, Feed-in Tariff Contract (version 1.3.2), 29 October 2010 
JPN-133 Ontario Power Authority, Feed-in Tariff Contract (version 1.4), 8 December 2010 
JPN-134 Ontario Power Authority, Feed-in Tariff Contract (version 1.5), 3 June 2011 
JPN-135 Ontario Power Authority, Feed-in Tariff Appendix 1 – Standard Definitions 
(version 1.5.1), 15 July 2011 
JPN-145 Ontario Power Authority, FIT Application Form, 1 December 2009 
JPN-154 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", as amended 
JPN-157 Ontario Power Authority, microFIT Rules (version 1.6.1), 10 August 2011 
JPN-158 Ontario Power Authority, microFIT Rules (version 1.1), 30 September 2009 
JPN-159 Ontario Power Authority, microFIT Rules (version 1.2), 19 November 2009 
JPN-160 Ontario Power Authority, microFIT Rules (version 1.3), 10 December 2009 
JPN-161 Ontario Power Authority, microFIT Rules (version 1.4), 2 July 2010 
JPN-162 Ontario Power Authority, microFIT Rules (version 1.5), 25 August 2010 
JPN-163 Ontario Power Authority, microFIT Rules (version 1.6), 8 December 2010 
JPN-164 Ontario Power Authority, microFIT Contract (version 1.6.1), 10 August 2011 
JPN-165 Ontario Power Authority, microFIT Contract (version 1.1), 30 September 2009 
JPN-166 Ontario Power Authority, microFIT Contract (version 1.2), 19 November 2009 
JPN-167 Ontario Power Authority, microFIT Contract (version 1.3), 10 December 2009 
JPN-168 Ontario Power Authority, microFIT Contract (version 1.4), 2 July 2010 
JPN-169 Ontario Power Authority, microFIT Contract (version 1.5), 25 August 2010 
JPN-170 Ontario Power Authority, microFIT Contract (version 1.6), 8 December 2010 
JPN-171 Ontario Power Authority, Conditional Offer of microFIT Contract (version 1.6.1)  
JPN-229 Canada Energy webpage, "Mid and Peak Tier Time-of-Use Rate Rises 8% on 
May 1", news article posting, The Toronto Star , 19 April 2012, available at: 
<http://www.canadaenergy.ca/> 
JPN-230 My Rate Energy Ontario, Canada webpage, "Price Protection for Electricity", 
available at: <http://myrateenergy.ca/electricity-info.php>  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 15 - 
 
 
  WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 Canada – Certain Measures Affecting the 
Renewable Energy Generation Sector 
(DS412)  
Canada – Measures Relating to the Feed-in 
Tariff Program (DS426)  Canada 
Appellant/Appellee  
Japan 
Other Appellant/Appellee/Third Participant  
European Union 
Other Appellant/Appellee/Third Participant 
 
Australia, Third Participant 
Brazil, Third Participant 
China, Third Participant 
El Salvador, Third Participant 
Honduras, Third Participant
1 
India, Third Participant 
Korea, Third Participant 
Mexico, Third Participant  
Norway, Third Participant  
Saudi Arabia, Third Participant 
Separate Customs Territory of Taiwan, Penghu, 
Kinmen and Matsu, Third Participant  
Turkey, Third Participant2 
United States, Third Participant  AB-2013-1 
 
Appellate Body Division:   
Ramírez-Hernández, Presiding Member 
Bhatia, Member Unterhalter, Member  
  1  INTRODUCTION 
1.1.  Canada, Japan, and the European Union each appeals certain issues of law and legal 
interpretations developed in the Panel Reports, Canada – Certain Measures Affecting the 
Renewable Energy Generation Sector
3 and Canada – Measures Relating to the Feed-in Tariff 
Program4 (Panel Reports).5 The Panel was established6 to consider complaints by Japan7 and the 
European Union8 (the complainants) with respect to certain domestic content requirements in the 
feed-in tariff programme (FIT Pr ogramme) established by the Canadian Province of Ontario.  
                                               
1 In DS412 only. 
2 In DS426 only. 
3 WT/DS412/R, 19 December 2012 (Japan Panel Report (DS412)). 
4 WT/DS426/R, 19 December 2012 (EU Panel Report (DS426)). 
5 The Panel issued its findings in th e form of a single document contai ning two separate reports, with a 
common cover page, table of contents , and sections I through VII (including the Panel's findings), and with 
separate conclusions and recommendati ons in respect of the dispute initia ted by Japan and in respect of the 
dispute initiated by the European Union.  
6 At its meetings held on 20 July 2011 and 20 January 2012, the Dispute Settlement Body (DSB) 
established two panels pursuant to, respectively, Japan's request in document WT/DS412/5 and the 
European Union's request in document WT/DS426/5, in accordance with Article 6 of the Understanding on 
Rules and Procedures Governing th e Settlement of Disputes (DSU).  (Panel Reports, para. 1.4) 
On 6 October 2011, the Director-General composed the Panel in DS412. With respect to DS426, 
following the agreement of the parties, the Panel wa s composed, on 23 January 2012, with the same persons 
as in DS412. Following consultations with the parties, th e Panels in the two disputes decided to harmonize their 
timetables to the greatest extent possible, in accordance with Article 9.3 of the DSU. As in the Panel Reports, the Panels in DS412 and DS426 are herein collectively refe rred to as the "Panel". (See ibid., paras. 1.6 and 1.7 
and fn 5 thereto) 
7 Request for the Establishment of a Panel by Japan, WT/DS412/5. 
8 Request for the Establishment of a Pane l by the European Union, WT/DS426/5. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 16 - 
 
 
  1.2.  The measures at issue in these disputes, as identified by the Panel9, are the following:  
a. the FIT Programme, as evidenced by the following measures: 
i. the Electricity Act of 199810, as amended, 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, including in 
particular Section 25.35 – Feed-in tariff program;  
ii. an Act to enact the Green Energy Act of 2009 and to build a green economy, to 
repeal the Energy Conservation Leadership Act of 2006 and the Energy 
Efficiency Act and to amend other statutes11 (Green Energy and Green Economy Act 
of 2009), including in particular Schedule B, amending the Electricity Act of 1998; 
iii. an Act to amend the Electricity Act of 1998 and the Ontario Energy Board Act of 
1998 and to make consequential amendments to other Acts12 (Electricity 
Restructuring Act of 2004), including in particular Schedule A, Sections 29-32, enacting Part II.1 of the Electricity Act of 1998, and Sections 33-38, enacting 
Part II.2 of the Electricity Act of 1998, and Schedule B, Sections 17-18, enacting 
Sections 78.3-78.4 of the Ontario Energy Board Act of 1998; 
iv. Ontario Regulation 578/05, made under the Ontario Energy Board Act of 1998, 
entitled "Prescribed Contracts Re Sections 78.3 and 78.4 of the Act"
13; 
v. the Independent Electricity System Operator (IESO) Market Manual, including in 
particular Part 5.5 – Physical Markets Settlement Statements14; 
vi. the IESO Market Rules, including in particular Chapter 7 – System Operations  
and Physical Markets, Chapter 9 – Settlements and Billing, and Chapter 11 – 
Definitions15; 
vii. Direction dated 24 September 2009 from George Smitherman, Deputy Premier and 
Minister of Energy and Infrastructure, to  Colin Andersen, Chief Executive Officer, 
Ontario Power Authority (OPA), directing the OPA to develop a feed-in tariff (FIT) programme and include a requirement that the applicant submit a plan for 
meeting the domestic (i.e. Ontario) content goals in the FIT Rules
16 (Minister's 2009 
FIT Direction); 
viii. all versions of the FIT Rules17 and microFIT Rules18 issued by the OPA since the 
inception of the FIT Programme; 
ix. all versions of the FIT Contract, including General Terms and Conditions, Exhibits, 
and Standard Definitions19, and microFIT Contract, including Appendices and the 
Conditional Offer of  microFIT Contract20, issued by the OPA since the inception of 
the FIT Programme; 
                                               
9 Panel Reports, para. 2.1. 
10 Service Ontario 1998 , Chapter 15, Schedule A (Panel Exhibit JPN-5). 
11 Service Ontario 2009 , Chapter 12 (Panel Exhibit JPN-101). 
12 Service Ontario 2004 , Chapter 23 (Panel Exhibits CDA-18 and JPN-8). 
13 As amended (Panel Exhibit JPN-154). 
14 IESO, Market Manual, Part 5.5 (Panel Exhibit JPN-82). 
15 IESO, Market Rules for the Ontario Market, Chapters 7 and 9 of the 12 October 2011 issue (Panel 
Exhibit JPN-79), and Chapter 11 of the 7 March 2012 issue (Panel Exhibit CDA-106). 
16 Panel Exhibit JPN-102. 
17 Panel Exhibits JPN-119 through JPN-126 and EU-4. 
18 Panel Exhibits JPN-157 through JPN-163. 
19 Panel Exhibits JPN-127 through JPN-134 and EU-5. 
20 Panel Exhibits JPN-164 through JPN-171 and EU-6. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 17 - 
 
 
  x. all versions of the FIT Application Form21 and online microFIT Application issued by 
the OPA since the inception of the FIT Programme; 
xi. all versions of the FIT Price Schedule22 and microFIT Price Schedule23 issued by the 
OPA since the inception of the FIT Programme; and 
xii. all versions of the FIT Program Interpretations of the Domestic Content 
Requirements24 (FIT Programme Interpretations) issued by the OPA since the 
inception of the FIT Programme; 
b. the individual FIT Contracts for wind or solar photovoltaic (PV) sources executed by the 
OPA since the inception of the FIT Programme; and  
c. the individual microFIT Contracts for solar PV source executed by the OPA since the 
inception of the FIT Programme. 
1.3.  The FIT Programme is a scheme implemented by the Government of the Province of Ontario 
and its agencies in 2009, through which generators of electricity produced from certain forms of renewable energy are paid a guaranteed price per kilowatt hour (kWh) of electricity delivered into 
the Ontario electricity system under 20-year or 40-year contracts.
25 Participation in the 
FIT Programme is open to facilities located in Ontario that generate electricity exclusively from one or more of the following sources of renewable energy: wind, solar PV, renewable biomass, biogas, 
landfill gas, and waterpower.
26 It is administered by the OPA and implemented through the 
application of a standard set of rules, standard  contracts, and, for each class of generation 
technology, standard pricing.27 The FIT Programme is divided into two streams: (i) the FIT stream 
– for projects with a capacity to produce electric ity that exceeds 10 kilowatts (kW), but is no more 
than 10 megawatts (MW) for solar PV projects or 50 MW in the case of waterpower projects; and 
(ii) the microFIT stream – for projects having a capacity to produce up to 10 kW of electricity.28 
The microFIT stream is intended to provide "'a si mplified approach for enabling the development of 
renewable micro-generation projects in Ontario', with a view to attracting participants such as 
homeowners, farmers and small businesses".29 Only projects that satisfy all of the specific 
eligibility requirements, and that can be connected to the Ontario electricity system, will be offered 
a FIT or microFIT Contract by the OPA, and thereby permitted to participate in the 
FIT Programme.30  
1.4.  Under the FIT stream, electricity generation facilities utilizing windpower and solar PV 
technologies must comply with "Minimum Required Domestic Content Levels", which must be 
satisfied in the development and construction of these facilities.31 The microFIT stream also 
imposes Minimum Required Domestic Content Levels, but only on generation facilities utilizing solar PV technology.
32 The "Domestic Content Level" of a facility participating in either stream of 
the FIT Programme is calculated pursuant to a methodology that identifies a range of different 
"Designated Activities" and an associated "Qualifying Percentage".33 For each Designated Activity 
that is performed in relation to a facility, an a ssociated Qualifying Percentage will be achieved. A 
project's Domestic Content Level "will be determined by adding up the Qualifying Percentages 
                                               
21 See Panel Exhibit JPN-145. 
22 Panel Exhibits JPN-30, JPN-32, JPN-33, and JPN-34. 
23 See Panel Exhibit JPN-31. 
24 See Panel Exhibit EU-7. 
25 Panel Reports, para. 7.64. 
26 Panel Reports, para. 7.66 (referring to FIT Rules (version 1.5.1), Section 2.1(a); and OPA, Feed-in 
Tariff Appendix 1 – Standard Definitions (version 1.5.1), 15 July 2011 (FIT Standard Definitions) (Panel Exhibit 
JPN-135), Definition Nos. 215 and 216). 
27 Panel Reports, para. 7.67. 
28 Panel Reports, para. 7.66 (referring to FIT Rules (version 1.5.1), Section 2.1(a)(iii); and microFIT 
Rules (version 1.6.1), Section 2.1(a)(iv)). 
29 Panel Reports, para. 7.209 (quoting OPA, Micro Feed-in Tariff Program: Program Overview (2010) 
(Panel Exhibit JPN-38), p. 1 and Section 1.2(a); and microFIT Rules (version 1.6.1), Section 1.1). 
30 Panel Reports, paras. 7.68 (referring to FIT Rules (version 1.5.1), Sections 2, 3, and 5.2; and 
microFIT Rules (version 1.6.1), Sections 2, 3, and 4.1). 
31 Panel Reports, para. 7.9. 
32 Panel Reports, para. 7.64. 
33 Panel Reports, para. 7.159. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 18 - 
 
 
  associated with all of the Designated Activities pe rformed in relation to that particular project".34 
The Minimum Required Domestic Content Levels prescribed under both streams of the 
FIT Programme are set out in Table 1. 
Table 1 – Minimum Required Domestic Content Levels prescribed under the 
FIT Programme 
 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% 
*Solar PV microFIT applications received by the OPA on or before 8 October 2010 may satisfy the 40% 
domestic content requirement. 
 
Source: Panel Reports, para. 7.158, Table 1, and fn 310 thereto. 
 
1.5.  Further information about the factual aspects of these disputes is set forth in greater detail in 
paragraphs 2.1 and 7.9-7.68 of the Panel Reports, and in section 4 of these Reports. 
1.6.  Both complainants claimed that the challenged  measures are inconsistent with Articles 3.1(b) 
and 3.2 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement), Article 2.1 
of the Agreement on Trade-Related Investment Measures (TRIMs Agreement), and Article III:4 of 
the General Agreement on Tariffs and Trade 1994 (GATT 1994). More specifically, Japan put forward the following claims: 
a. through the FIT Programme, 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 imported goods, in violation of Articles 3.1(b) and 3.2 of the SCM Agreement; 
b. the domestic content requirements of the FIT Programme, as well as individually 
executed FIT and microFIT Contracts for wind and solar PV projects, accord less favourable 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 
c. the FIT Programme and individually executed FIT and microFIT Contracts for wind and 
solar PV projects constitute trade-related investment measures (TRIMs) inconsistent with 
the provisions of Article III of the GATT 1994,  and therefore in violation of Article 2.1 of 
the TRIMs Agreement.
35 
1.7.  For its part, the European Union claimed: 
a. Canada violates Articles 3.1(b) and 3.2 of the SCM Agreement since the FIT Programme 
and its related contracts established by the Government of Ontario are subsidies within the meaning of Article 1.1 of the SCM Agreem ent that are provided contingent 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 equipment and components imported from other Members of the World Trade 
Organization (WTO), including the European Union; 
b. Canada violates Article 2.1 of the TRIMs Agr eement, in conjunction with paragraph 1(a) 
of its Annex, because the FIT Programme an d 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 facilities of Ontario origin 
or source; and 
                                               
34 Panel Reports, para. 7.160. 
35 Panel Reports, para. 3.1. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 19 - 
 
 
  c. Canada violates Article III:4 of the GATT 1994 because the FIT Programme and its 
related contracts established by the Government of Ontario are TRIMs falling under 
paragraph 1(a) of the Annex to the TRIMs Agreement and, in any event, because they impose domestic content requirements on wind and solar PV electricity generators that 
affect the internal sale, purchase, or use of  renewable energy generation equipment and 
components, according less favourable treatment to like products of European Union origin.
36 
1.8.  The Panel Reports were circulated to WTO Members on 19 December 2012.  
1.9.  In its Reports, the Panel explained that it  decided first to assess the complainants' claims 
under the TRIMs Agreement and the GATT 1994 before entertaining the claims under the SCM Agreement. The Panel explained, in this regard, that "the complainants assert, and Canada 
does not contest, that the measures at issue are trade-related investment measures affecting 
imports of renewable energy generation equipment and components."
37 This suggested to the 
Panel that, "compared with the SCM Agreement and Article III:4 of the GATT 1994, it is the 
TRIMs Agreement that deals most directly, specifically and in detail, with the aspects of the 
FIT Programme, and the FIT and microFIT Contracts,  that are at the centre of the complainants' 
concerns."38 The Panel stated that it would therefore proceed as follows: 
In this light, we will commence our evaluation of the complainants' claims by focusing 
on those made under the TRIMs Agreement. Ho wever, it is apparent from the terms of 
Article 2.1 of the TRIMs Agreement that, in undertaking this evaluation, we will also necessarily have to come to a view about the merits of the complainants' allegations 
concerning the consistency of the challenged measures with Article III:4 of the 
GATT 1994. Thus, in the section that follow s we will simultaneously evaluate the 
merits of both of the complainants' claims  under Article 2.1 of the TRIMs Agreement 
and Article III:4 of the GATT 1994.
39  
1.10.   In response to the complainants' claims under the TRIMs Agreement and the GATT 1994, 
Canada invoked Article III:8(a) of the GATT 1994, arguing that the FIT Programme is not subject 
to the obligations of Article III. Canada argued that  this is because the laws and requirements that 
create and implement the FIT Programme are laws and requirements that govern the procurement 
of renewable electricity for the governmental purp ose of securing an electricity supply for Ontario 
consumers from clean sources, and "not with a view to commercial resale or with a view to use in 
the production of goods for commercial sale".40 Both Japan and the European Union disagreed with 
Canada that the measures at issue fall within Article III:8(a) of the GATT 1994.41 The 
European Union additionally countered that Article III:8(a) does not apply to measures that fall 
within the scope of Article 2.2 of the TRIMs Agreem ent and paragraph 1(a) of the Illustrative List 
annexed thereto.42 
1.11.  The Panel thus considered that it had to resolve the following three issues:  
a. whether the measures at issue are TRIMs within the meaning of Article 1 of the 
TRIMs Agreement43; 
b. if so, whether paragraph 1(a) of the Illustrative List in the Annex to the 
TRIMs Agreement precludes the application of Article III:8(a) of the GATT 1994 to the 
challenged measures44; and  
                                               
36 Panel Reports, para. 3.4. 
37 Panel Reports, para. 7.70. 
38 Panel Reports, para. 7.70 (refe rring to Appellate Body Report, EC – Bananas III , para. 204). 
39 Panel Reports, para. 7.70. (fn omitted) 
40 Panel Reports, para. 7.86 (referring to Canada's  first written submission to the Panel (DS412), 
para. 67).  
41 See Panel Reports, paras. 7.74-7.77 and 7.81-7.85. 
42 See Panel Reports, para. 7.80. 
43 Panel Reports, para. 7.108. 
44 Panel Reports, para. 7.113. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 20 - 
 
 
  c. to the extent that paragraph 1(a) of the Illustrative List does not remove the possibility 
of applying Article III:8(a) to the challenged measures, whether those measures are of 
the kind described in Article III:8(a) of the GATT 1994.45 
1.12.  First, the Panel found that "the FIT Prog ramme, and the FIT and microFIT Contracts, to the 
extent they envisage and impose a 'Minimum Required Domestic Content Level', constitute 
TRIMs within the meaning of Article 1 of the TRIMs Agreement."46 Second, the Panel rejected the 
European Union's argument about the applicab ility of Article III:8(a) of the GATT 1994 to 
measures falling within the scope of paragraph 1(a) of the Illustrative List annexed to the 
TRIMs Agreement. The Panel considered that, "[g]iv en the language of Article 2.1, it would … be 
inappropriate to infer from Paragraph 1(a) of the Illustrative List that TRIMs having the characteristics described in that paragraph will always  be inconsistent with Article III:4 of the 
GATT 1994, irrespective of whether they may be covered by the terms of Article III:8(a) of the 
GATT 1994."
47 
1.13.  Next, the Panel assessed the measures in the light of the various elements of 
Article III:8(a) of the GATT 1994. The Panel found that: (i) "the Government of Ontario's 
purchases of electricity under the FIT Programme constitute 'procurement', within the meaning of that term in Article III:8(a)"; and (ii) "the 'Minimum Required Domestic Content Level' prescribed 
under the FIT Programme, and effected through the FIT and microFIT Contracts, is one of the 
'requirements governing' the Government of Ontario's 'procurement' of electricity".
48 However, the 
Panel found that "the Government of Ontario's 'procurement' of electricity under the FIT Programme is undertaken 'with a view to commercial resale'."
49 In the light of the last 
intermediate finding, the Panel concluded: 
[W]e find that the measures at issue are not covered by the terms of Article III:8(a), 
and that consequently, Canada cannot rely on Article III:8(a) of the GATT 1994 to 
exclude the application of Article III:4 of the GATT 1994 to the "Minimum Required 
Domestic Content Level" that the complainants challenge.50  
1.14.  Having found that the measures at issue are not covered by the terms of Article III:8(a), 
the Panel turned to the assessment of these measures  under paragraph 1(a) of the Illustrative List 
of the TRIMs Agreement. The Panel found that: 
… compliance with the "Minimum Required Domestic Content Level" not only involves 
the "purchase or use" of products from a domestic source, within the meaning of 
Paragraph 1(a) of the Illustrative List, but also that such compliance "is necessary" for 
electricity generators using solar PV and windpower technologies to participate in the FIT Programme, and thereby "obtain an advantage", within the meaning of 
Paragraph 1 of the Illustrative List. We are therefore satisfied that the challenged 
measures are TRIMs falling within the scope of Paragraph 1(a) of the Illustrative List, and that in the light of Article 2.2 an d the chapeau to Paragraph 1(a) of the 
Illustrative List, they are inconsistent with Article III:4 of the GATT 1994, and thereby 
also inconsistent with Article 2.1 of the TRIMs Agreement.
51 
                                               
45 Panel Reports, para. 7.113. 
46 Panel Reports, para. 7.112. 
47 Panel Reports, para. 7.120. (original emphasis) 
48 Panel Reports, para. 7.152. 
49 Panel Reports, para. 7.151. 
50 Panel Reports, para. 7.152. 
51 Panel Reports, para. 7.166. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 21 - 
 
 
  1.15.  Hence, as regards Japan's and the European Union's claims under the TRIMs Agreement and 
the GATT 1994, the Panel concluded: 
In the light of the findings we have made in this Section of these Reports, we conclude 
that the FIT Programme, and the FIT and microFIT Contracts, are inconsistent with 
Article 2.1 of the TRIMs Agreemen t and Article III:4 of the GATT 1994.52 
1.16.  As regards the complainants' claims under the SCM Agreement, the Panel noted Japan's 
position that the measures at issue are "direct tran sfer[s] of funds" and "potential direct transfers 
of funds" within the meaning of  Article 1.1(a)(1)(i) of the SCM Agreement. Alternatively, Japan 
submitted that the measures are "income or price support" within the meaning of Article 1.1(a)(2).
53 The European Union's "primary" argument was that the challenged measures 
constitute "income or price support". The European  Union also argued that the measures at issue 
could be characterized as "direct transfer[s] of funds". In the alternative, the European Union 
contended that the measures at issue are "p otential direct transfers of funds" under 
subparagraph (i) or "entrust[ment] or direct[ion "] within the meaning of subparagraph (iv) of 
Article 1.1(a)(1).54 Conversely, Canada asserted that the FIT Programme and related contracts can 
only be legally characterized as financial contributions in the form of government "purchases [of] goods".
55 
1.17.  The Panel determined that the appropriate legal characterization of the FIT Programme and 
the FIT and microFIT Contracts is as a "financial contribution" in the form of government "purchases [of] goods" within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
56 
Furthermore, the Panel disagreed with the complain ants' argument that they could also be legally 
characterized as "direct transfer[s] of fund s" for the purposes of the SCM Agreement.57 The Panel 
also concluded that the measures at issue cannot be "potential direct transfers of funds" under 
subparagraph (i) or a form of financial contributi on involving government entrustment or direction 
within the meaning of subparagraph (iv) of Article 1.1(a)(1).58 Moreover, on the grounds of judicial 
economy, the Panel decided to make no findings on whether the measures at issue may be legally characterized as "income or price support" under Article 1.1(a)(2) of the SCM Agreement.
59 
1.18.  Having determined that the measures constitute a financial contribution, the Panel 
proceeded to examine whether they confer a "benef it" within the meaning of Article 1.1(b) of the 
SCM Agreement. The Panel observed, in this regard, that the complainants' main line of argumentation was that, in the absence of the FIT Programme, a competitive wholesale market for 
electricity in Ontario could not support commercially viable operations of the contested 
FIT generators. To substantiate this argument, the complainants advanced a number of proposed competitive wholesale market electricity price benchmarks, or proxies for this benchmark, that 
they submitted demonstrate that the FIT Programme provides "more than adequate remuneration" 
for the OPA's purchases of electricity under the FIT and microFIT Contracts.
60  
1.19.  The Panel agreed with the complainants that "there can be only one relevant market for the 
purpose of the benefit analysis, namely, the market for electricity that is generated from all 
sources of energy, including solar and wind energy."61 The Panel then examined the complainants' 
claim that the IESO-administered wholesale electricity market would be the appropriate "market" benchmark to conduct the analysis under Article 1.1(b). In this context, the Panel had found that 
"the IESO-administered wholesale market does not arrive at its equilibrium price (the HOEP) 
through forces of supply and demand that are unaffected by the policies of the Government of Ontario."
62 Therefore, the Panel found that:  
                                               
52 Panel Reports, para. 7.167. 
53 Panel Reports, para. 7.169. 
54 Panel Reports, para. 7.176. 
55 Panel Reports, para. 7.181. 
56 Panel Reports, para. 7.222. 
57 Panel Reports, para. 7.243. 
58 Panel Reports, para. 7.248. 
59 Panel Reports, para. 7.249. 
60 Panel Reports, para. 7.276. 
61 Panel Reports, para. 7.318. (original emphasis) 
62 Panel Reports, para. 7.298. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 22 - 
 
 
  … the wholesale electricity market that currently exists in Ontario is not a market 
where there is effective competition. Rather, Ontario's wholesale electricity market is 
perhaps better characterized as a part of an electricity system that is defined in almost all aspects by the Government of Ontario's policy decisions and regulations 
pertaining to the supply mix needed to ensure that Ontario has a safe, reliable and 
long-term sustainable supply of electricity, as well as how the costs of that system will be recuperated.
63 
1.20.  Accordingly, the Panel found that the "Hou rly Ontario Energy Price" (HOEP) and all of the 
HOEP-derivatives that the complainants had advanced64 could not serve as appropriate 
benchmarks for the purpose of the benefit analysis.65 The Panel also rejected four out-of-province 
electricity markets – namely, Alberta, in Canada, and New York State, New England, and the 
Mid-Atlantic region (PJM Interconnection), in the United States – that the complainants had 
submitted as possible proxies for the wholesale market price in Ontario.66 
1.21.  Next, the Panel found that the application of a competitive wholesale market standard would 
ignore that a competitive wholesale electricity market would fail to attract the degree of 
investment to secure a reliable supply of electricity, and that, at present, this goal could only be achieved by means of government intervention in what would otherwise be unacceptable 
competitive market outcomes. Based on this reasoning, the Panel found that it would not be 
appropriate to determine whether the FIT Programme and the FIT and microFIT Contracts confer a benefit within the meaning of Article 1.1(b) of  the SCM Agreement by comparing the terms and 
conditions of participation in the FIT Programme with those that would be available to generators 
participating in a wholesale electricity ma rket where there is effective competition.
67 Therefore, the 
Panel found that Japan and the European Union failed to establish that the challenged measures confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
68 
1.22.  Having rejected the benchmarks proposed by the complainants and found that the 
complainants had failed to establish the existence of a benefit, the Panel made its own suggestion as to what it considered could be an appropriate benchmark in the circumstances of this case. The 
Panel stated that "one way to determine whether the challenged measures confer a benefit … 
would involve testing them against the types of arm's length purchase transactions that would exist in a wholesale electricity market whose broad parameters are defined by the Government of Ontario."
69 In the Panel's view, this approach could be used to determine whether the challenged 
measures confer a benefit by comparing "the rate of return obtained by the FIT generators under 
the terms and conditions of the FIT and microFIT Contracts with the average cost of capital in 
Canada for projects having a comparable risk profile in the same period".70 However, the Panel 
stated that "the record of these disputes does not contain any appropriate information" to conduct 
this analysis.71 
1.23.  In the light of the above findings, the Panel concluded, in the Japan Panel Report (DS412), 
that: 
a. Japan had established that the Minimum Required Domestic Content Levels prescribed 
under the FIT Programme, and implemented through the individual FIT and microFIT Contracts executed since the FIT Programme's inception, placed Canada in breach of its 
obligations under Article 2.1 of the TRIMs Agreement and Article III:4 of the 
GATT 1994
72; and 
                                               
63 Panel Reports, para. 7.308. 
64 Namely, the weighted-average "wholesale rate" during 2010 for generators other than FIT and 
Renewable Energy Standard Offer Program (RESOP) gene rators, and the price paid by retail consumers under 
the "Regulated Price Plan" (RPP) in 2010. 
65 Panel Reports, para. 7.308 and fn 610 thereto. 
66 Panel Reports, para. 7.308. 
67 Panel Reports, para. 7.312. 
68 Panel Reports, para. 7.328(ii). 
69 Panel Reports, para. 7.322. (fn omitted) 
70 Panel Reports, para. 7.323. 
71 Panel Reports, para. 7.326. 
72 Japan Panel Report (DS412), para. 8.2. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 23 - 
 
 
  b. Japan had failed to establish that the FIT Programme, and the individual solar PV and 
windpower FIT and microFIT Contracts executed since the FIT Programme's inception, 
constituted subsidies, or envisaged the gran ting of subsidies, within the meaning of 
Article 1.1 of the SCM Agreement, and thereby that Canada had acted inconsistently 
with Articles 3.1(b) and 3.2 of the SCM Agreement.73  
1.24.  In the EU Panel Report (DS426), the Panel concluded that: 
a. the European Union had established that the Minimum Required Domestic Content Levels 
prescribed under the FIT Programme, and implemented through the individual FIT and 
microFIT Contracts executed since the FIT Programme's inception, placed Canada in breach of its obligations under Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994
74; and 
b. the European Union had failed to establish that the FIT Programme, and the individual 
solar PV and windpower FIT and microFIT Contracts executed since the FIT Programme's inception, constituted subsidies, or envisaged the granting of subsidies, within the 
meaning of Article 1.1 of the SCM Agreem ent, and thereby that Canada had acted 
inconsistently with Articles 3.1(b) and 3.2 of the SCM Agreement.
75  
1.25.  The Panel made the following recommendation in both the Japan Panel Report (DS412) and 
EU Panel Report (DS426): 
We recommend that Canada bring its measures into conformity with its obligations 
under the TRIMs Agreement and the GATT 1994.76 
1.26.  On 5 February 2013, Canada notified the Dispute Settlement Body (DSB), pursuant to 
Articles 16.4 and 17 of the Understanding on Ru les and Procedures Governing the Settlement of 
Disputes (DSU), of its intention to appeal certain issues of law covered in the Panel Reports and certain legal interpretations developed by the Panel and filed a Notice of Appeal
77 and an 
appellant's submission pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures 
for Appellate Review78 (Working Procedures). On 11 February 2013, Japan and the European Union 
each notified the DSB, pursuant to Articles 16.4 and 17 of the DSU, of its intention to appeal 
certain issues of law covered in the respective Panel Report and certain legal interpretations 
developed by the Panel and each filed a Notice of Other Appeal79 and an other appellant's 
submission pursuant to Rule 23 of the Working Procedures. On 25 February 2013, Canada, Japan, 
and the European Union each filed an appellee's submission.80 On 26 February 2013, Australia filed 
a third participant's submission and, on 27 Febr uary 2013, Brazil, China, Saudi Arabia, and the 
United States each filed a third participant's submission.81 O n  t h e  s a m e  d a y ,  E l  S a l v a d o r ,  
Honduras82, India, Korea, Mexico, Norway, the Separate Customs Territory of Taiwan, Penghu, 
Kinmen and Matsu, and Turkey83 each notified its intention to appear at the oral hearing as a third 
                                               
73 Japan Panel Report (DS412), para. 8.3. 
74 EU Panel Report (DS426), para. 8.6. 
75 EU Panel Report (DS426), para. 8.7. 
76 Japan Panel Report (DS412), para. 8.5;  EU Panel Report (DS426), para. 8.9. 
77 WT/DS412/10, WT/DS426/9 (attached as Annex 1 to these Reports). 
78 WT/AB/WP/6, 16 August 2010.  
79 WT/DS412/11 (Japan) (attached as Annex 2 to these Reports); WT/DS426/10 (European Union) 
(attached as Annex 3 to these Reports). On 12 February 2013, the European Union sent a letter to the Appellate Body Secretariat indicating that there was a "clerical mistake" in its Notice of Other Appeal, and 
requesting authorization to correct it . In accordance with Rule 18(5) of the Working Procedures, the Appellate 
Body Division hearing this  appeal provided Canada, Japan, and th e third parties with an opportunity to 
comment in writing on this request. No objections to the European Union's request were received. On 15 February, the Division authorized the correction to the European Union's Notice of Other Appeal, as requested 
in its letter of 12 February 2013. 
80 Pursuant to Rules 22 and 23(4) of the Working Procedures.  
81 Pursuant to Rule 24(1) of the Working Procedures. 
82 In DS412 only. 
83 In DS426 only. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 24 - 
 
 
  participant.84 Also on 27 February 2013, Japan and the European Union each notified that it 
intended to appear at the oral hearing as a third participant in the dispute initiated by the other.85 
1.27.  On 12 February 2013, the Appellate Body received letters from Canada, Japan, and the 
European Union requesting the Appellate Body to  allow observation by the public of the oral 
hearing in these appellate proceedings. Canada requested the Appellate Body to allow public 
observation of the oral statements and answers to qu estions of the participants, as well as those of 
third participants that agree to make their stat ements and responses to questions public. Canada 
proposed that public observation be permitted via simultaneous closed-circuit television 
broadcasting with the option for the transmission to be turned off should the participants find it necessary to discuss confidential information, or if a third participant had indicated its wish to keep its oral statement confidential. In its letter, Japan supported Canada's request, indicating that it 
also wished to make public its statements and an swers to questions by the Appellate Body in the 
course of the hearing, and that it agreed with Canada's request that the Appellate Body hold an 
open hearing in this appeal. Japan further agreed that public observation be allowed by means of 
simultaneous closed-circuit video broadcasting. For its part, the European Union stated that it 
agreed and associated itself with Ca nada's request for an open hearing. 
1.28.  On 13 February 2013, the Appellate Body Di vision hearing this appeal invited the third 
parties to comment in writing on the requests of the participants to open the hearing to public 
observation. On 18 February 2013, the Division re ceived responses from Australia, Brazil, China, 
El Salvador, India, Mexico, Norway, Saudi Arabia, Turkey, and the United States. In their respective comments, Brazil, China, El Salvador, India, Mexico, Saudi Arabia, and Turkey stated 
that they did not object to allowing public observ ation of the oral hearing in the present disputes. 
Brazil, China, India, Mexico, and Turkey emphas ized that this was without prejudice to the 
systemic views each has on the issue of public observation of panel and Appellate Body hearings. 
Saudi Arabia stated that it did not object to allowing public observation of the oral hearing in these 
disputes. Australia, Norway, and the United States stated their support for the participants' request to allow public observation of the oral he aring. China, India, and Saudi Arabia indicated 
that they wished to maintain the confidentialit y of their statements and responses to questions 
during the hearing. 
1.29.  On 19 February 2013, the Division issued a Procedural Ruling authorizing the requests of 
Canada, Japan, and the European Union to open the hearing to public observation and adopting 
additional procedures for the conduct of the hearing. The Procedural Ruling is attached as Annex 4 
to these Reports. 
1.30.  On 7 and 12 March 2013, the Appellate Body received, respectively, unsolicited amicus 
curiae  briefs from an energy company and an academic. The participants and third participants 
were given an opportunity to express their views on  these briefs at the oral hearing. The Division 
did not find it necessary to rely on these amicus curiae  briefs in rendering its decision. 
1.31.  The oral hearing in this appeal was held on 14-15 March 2013.
86 Public observation took 
place via simultaneous closed-circuit television broadcast to a separate room. Transmission was turned off during statements made by those third participants that had indicated their wish to maintain the confidentiality of their submissions. The participants and eight of the 
third participants (Australia, Brazil, China, India, Norway, Saudi Arabia, Turkey
87, and the 
                                               
84 Pursuant to Rule 24(2) of the Working Procedures. 
85 Pursuant to Rule 24(2) of the Working Procedures. 
86 On 5 February 2013, the Appellate Body received a letter from Japan requesting that the oral hearing 
not be scheduled during the period 11-13 March 2013. Because the Working Schedule for Appeal drawn up by the Division provided for the oral hearing to be held on 14-15 March 2013, it was unnecessary for the Division to consider further Japan's request. 
87 Because Turkey was a third party in the Panel proceedings in DS426 only, it was requested to limit its 
statement to that dispute. Honduras was a third pa rty in the Panel proceedi ngs in DS412 only, and was 
therefore requested to limit its statement to that dispute. Honduras, however, did not make an oral statement. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 25 - 
 
 
  United States) made opening statements.88 The participants and third participants responded to 
questions posed by the Members of the Division hearing the appeal. 
1.32.  On 30 April 2013, Japan and the European Un ion requested the Appellate Body to issue two 
reports in one single document with separate sections containing findings and conclusions for each 
complainant.89 On 1 May 2013, Canada was afforded an opportunity to comment on Japan's and 
the European Union's requests, and raised no objection .  
2  ARGUMENTS OF THE PARTICIP ANTS AND THIRD PARTICIPANTS 
2.1  Claims of error by Canada – Appellant 
2.1.1  Article III:8(a) of the GATT 1994 
2.1.  Canada requests the Appellate Body to reverse the Panel's conclusion that the 
FIT Programme and related FIT and microFIT Contracts are inconsistent with Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement,  and to find instead that the FIT Programme 
and Contracts satisfy the prerequisites of Articl e III:8(a) and are therefore not subject to the 
obligations of Article III:4 of the GATT 1994 or Article 2.1 of the TRIMs Agreement.
90 Canada 
alleges that the Panel erred in finding that the measures at issue do not fall within the scope of 
Article III:8(a) of the GATT 1994 because the Gove rnment of Ontario's purchases of electricity 
generated from renewable sources under that programme are "with a view to commercial resale", and raises two allegations of error with respect to the Panel's interpretation of this phrase. 
2.2.  First, Canada asserts that the Panel erred in  its interpretation of Article III:8(a) by focusing 
on whether there is "commercial resale" of electricity by the Government of Ontario while it neglected to interpret properly the term "with a view to" in Article III:8(a). Canada alleges that the Panel failed to examine the ordinary meaning of th e words "with a view to" and thus failed to give 
effect to this term. Canada notes that the ordinary meaning of "with a view to" is "with the aim or 
object of attaining, effecting, or accomplishing something".
91 According to Canada, this ordinary 
meaning was never challenged by the complainants or the Panel. Thus, Canada asserts that a 
purchase "with a view to commercial resale" is a purchase with an aim to "commercial resale".  
2.3.  Furthermore, Canada argues that the Panel failed to take into account the term 
"governmental purposes" as immediate context for the phrase "not with a view to commercial 
resale". Canada refers to the Panel's statement that the phrase "and not with a view to commercial 
resale" serves specifically to inform and limit the otherwise relatively broad meaning of the term "governmental purposes", and argues that this ph rase can only inform the meaning of the term 
"governmental purposes" if it is interpreted to require an "inquiry into the 'purpose' and 'view' 
behind the purchase".
92 Canada contends that, under the FIT Programme and Contracts, the 
Government of Ontario purchases electricity with a view "to help ensure a sufficient and reliable supply of electricity for Ontarians and to protect the environment"
93, and that it does not purchase 
electricity with a view to commercial resale. 
                                               
88 On 6 March 2013, Japan sent a letter to the Appellate Body Secretariat in which it indicated that the 
time-limit of 20 minutes allocated by the Division to Japan for the delivery of its oral statement was not sufficient for it to address th e many points raised by Canada in its ap pellee's submission. The Division  decided 
to grant an additional 5 minutes to Japan, as well as to  Canada and to the European Union, for the delivery of 
their oral statements. 
89 In a letter dated 13 February 2013, Japan indicated that it agreed with the consolidation of the 
appellate proceedings in these two disputes, in which all third parties were invited to participate. However, Japan said it understood that the Divi sion had invited all third parties in bo th disputes to participate in these 
consolidated appellate proceedings on  the condition that, in their submissions and oral statements, the third 
participants would address only the is sues appealed in the dispute(s) to which they were third parties in the 
Panel proceedings.  
90 Canada's appellant's submis sion, paras. 7, 8, and 83. 
91 Canada's appellant's submission, para. 34 (q uoting Oxford English Dictionary online, 
<http://www.oed.com/viewdictionaryentry/Entry/223303 >, p. 5, No. III.17.b). 
92 Canada's appellant's submission, para. 32. 
93 Canada's appellant's submission, para. 34. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 26 - 
 
 
  2.4.  Second, Canada alleges that the Panel misinterpreted the words "commercial resale" in 
Article III:8(a). Canada asserts that the Panel based its assessment solely on interpretations 
advanced by the parties rather than developing its own analysis. Canada further alleges that, in 
doing so, the Panel misstated the interpretations advanced by the parties. In particular, while the 
Panel initially properly acknowledged the complainants' position that the phrase "with a view to 
commercial resale" means "with a view to being sold or introduced into the stream of commerce, trade or market, regardless of any profit"
94, the Panel subsequently, in its application, focused on 
whether Hydro One Inc.95 and "Local Distribution Companies" (LDCs or distributors) compete with 
retailers. The Panel also misstated Canada's interpretation of the term "commercial resale". While Canada explained that "commercial resale" means resale with an underlying intent to profit, the Panel incorrectly stated that Canada interpreted "commercial resale" as a resale for profit. Canada 
contends that, had the Panel properly interpreted this term, it would have concluded that 
"commercial resale" means resale with the underlying intent to profit.  
2.5.  For Canada, the interpretation of the word "commercial" by the Appellate Body in  
US – Anti-Dumping and Countervailing Duties (China)  in the context of Article 14(b) of the 
SCM Agreement, the interpretation of the term "commercial scale" in Article 61 of the Agreement 
on Trade-Related Aspects of Intellectual Property  Rights (TRIPS Agreement) by the panel in  
China – Intellectual Property Rights , and the interpretation of the term "commercial 
considerations" in Article XVII:1(b) of the GATT 1994 by the panel in Canada – Wheat Exports and 
Grain Imports , confirm that the meaning of "commercial resale" is a resale with the underlying 
intent to profit.
96 Canada contends that this meaning is also consistent with academic 
commentary, stating that, in the context of Article III:8(a), a resale is commercial if the activity is 
carried out as a profit-making activity, and not where only a nominal fee is charged.97  
2.6.  With respect to the FIT Programme and Contracts, Canada submits that there is no 
suggestion that the Government of Ontario purchases electricity with an aim to resell for profit. 
Rather, the Government of Ontario purchases electricity under the FIT Programme to help ensure a sufficient and reliable supply of electricity for Ontario consumers and to protect the environment. 
Canada further submits that the Electricity Act of 1998 prevents the OPA from doing anything with 
the aim to profit, because it stipulates that the business and affairs of the OPA shall be carried on without the purpose of gain.
98 Accordingly, Canada requests the Appellate Body to reverse the 
Panel's finding that the Government of Ontario purchases electricity under the FIT Programme 
"with a view to commercial resale" and to find instead that the Government of Ontario's purchases 
of electricity are not "with a view to commercial resale". 
2.7.  Finally, Canada requests the Appellate Body to complete the analysis under Article III:8(a) of 
the GATT 1994 with respect to the requirement of "n ot … with a view to use in the production of 
goods for commercial sale"; to find that the Government of Ontario purchases electricity "not … with a view to use in the production of goods for commercial sale"; and to reverse the Panel's 
conclusion that the FIT Programme and Contracts are inconsistent with Article III:4 of the 
GATT 1994 and Article 2.1 of the TRIMs Agreemen t. Canada asserts that the Government of 
Ontario is not using the electricity purchased by the OPA to make any goods, because the Government of Ontario does not make any goods. Moreover, regardless of what is done with the 
electricity purchased, the Government of Ontario does not purchase that electricity with the aim of 
producing goods to sell for profit. For Canada, the measures at issue satisfy all elements of 
                                               
94 Canada's appellant's submission, para. 37 (quoting Panel Reports, para. 7.146). 
95 We note that Hydro One Inc. is wholly owned and controlled by the Government of Ontario and 
operates 97% of the transmission system in  Ontario. (See Panel Reports, para. 7.34) 
96 Canada's appellant's submission, paras. 40- 44 (referring to Appellate Body Report,  
US – Anti-Dumping and Countervailing Duties (China) , paras. 465-490; and Panel Reports, China – Intellectual 
Property Rights , paras. 7.534, 7.535, 7.544, and 7.577; and Canada – Wheat Exports and Grain Imports , 
paras. 6.87-6.89, 6.96, 6.123, and 6.129). 
97 Canada's appellant's submission, paras. 44 to  46 (referring to Canada's comments on the 
European Union's and Japan's responses to Panel questions (second set), para. 108, in turn referring to A. La Chimia and S. Arrowsmith, "Addressing Tied Aid: Towards a More Development-Oriented WTO?", Journal 
of International Economic Law , Vol. 12, No. 3 (2009) (Panel Exhibit CDA-129), p. 719); Canada's first written 
submission to the Panel (DS412), pa ra. 90; and Canada's comments on the European Union's and Japan's 
responses to Panel questions (second set), para. 86, in turn referring to S.  Arrowsmith, "Government 
Procurement in the WTO", Studies in Transnational Economic Law , Vol. 16 (Kluwer Law International, 2002), 
p. 51 (Panel Exhibit CDA-128)). 
98 Canada's appellant's submission, para. 47 (referring Electricity Act of 1998, Section 25.2(2)). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 27 - 
 
 
  Article III:8(a) and therefore fall within the scope of this Article. Consequently, they are not 
subject to the obligations of Article III of the GATT 1994 or the TRIMs Agreement. 
2.8.  In response to questioning at the oral he aring, Canada clarified its position regarding the 
interpretation of the term "governmental purposes" in Article III:8(a). For Canada, the context 
provided by the words "not with a view to commercial resale" suggests that the inquiry under 
"governmental purposes" needs to go beyond the stated aim of the government, and must include 
an assessment of whether a government has traditionally supplied a certain product, whether it 
has a constitutional mandate to do so, and it must take account of the role of government in a 
particular country, focusing on the history, constitution, and legislation of a particular government. 
2.9.  Furthermore, also in response to questioning at the oral hearing, Canada addressed the 
European Union's objection to Canada's request th at the Appellate Body complete the analysis and 
reverse the Panel's conclusion that the FIT Programme and Contracts are inconsistent with 
Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement, because Canada did not 
expressly request this in its Notice of Appeal. Ca nada argued that such requests relate to the 
"nature of the decision or ruling sought" and th at, pursuant to Rule 22(2)(b)(iv) of the Working 
Procedures for Appellate Review, they must be included in the appellant's submission but not in the notice of appeal. Canada also argued that its Notice of Appeal and appellant's submission were 
provided to the European Union simultaneously, and that, when both documents are read 
together, the errors alleged and relief sought by Canada are clear. 
2.1.2  Article 11 of the DSU – "Commercial resale" 2.10.  Canada claims that the Panel failed to make an objective assessment of the matter before 
it, contrary to Article 11 of the DSU, when fi nding that the Government of Ontario purchases 
electricity under the FIT Programme "with a view to commercial resale" within the meaning of Article III:8(a) of the GATT 1994.  
2.11.  First, Canada asserts that the Panel failed to  "consider evidence before it in its totality" or 
"'evaluate the relevance and probative force' of all the evidence" when it concluded that Hydro One Inc. and distributors compete with electricity retailers.
99 Canada explains that 
Hydro One, distributors, and retailers have very different roles in the Ontario electricity system 
and do not compete with each other. Hydro One an d distributors provide the service of physical 
transmission and distribution of electricity. Conv ersely, retailers do not transmit or distribute 
electricity; rather, they sell a financial product – a hedge on electricity prices. Retailers enter into 
contracts with consumers for a fixed price for the HOEP portion of their electricity bill over a 
certain period.100 Canada underscores that it explained to the Panel that "[r]etailers make their 
profits through their separate financial contracts with end-users" and "guarantee[] some price 
certainty".101 Canada further observes that the Panel acknowledged that "retailers 'sell  contracts  to 
businesses and consumers'".102 Thus, according to Canada, retailers have a different function from 
Hydro One and distributors. 
                                               
99 Canada's appellant's submission, para . 54 (quoting Appellate Body Reports, US – COOL , para. 299 
(fn omitted)). 
100 Canada's appellant's submission, para. 50 (refer ring to the following two retailer websites:  
Canada Energy webpage, "Mid and Peak Tier Time-of-Us e Rate Rises 8% on May 1", news article posting,  
The Toronto Star , 19 April 2012 (Panel Exhibit JPN-229), available at: < http://www.canadaenergy.ca/ >, p. 2; 
and My Rate Energy Ontario, Canada webpage, "Price Protection for Electricity" (Panel Exhibit JPN-230), 
available at: < http://myrateenergy.ca/electricity-info.php >, p. 2). 
101 Canada's appellant's submission, para. 51 (quoting , respectively, Canada's opening statement at the 
second Panel meeting, para. 56; and comments on European Union's and Japan's responses to Panel questions (second set), para. 51). 
102 Canada's appellant's submission, para. 51 (quoti ng Panel Reports, para. 7.147, in turn quoting 
Government of Ontario, Ontario's Long-Term Energy Plan  (Queen's Printer for Ontario, 2010) (Panel 
Exhibit CDA-6), Appendix One) . (emphasis added by Canada) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 28 - 
 
 
  2.12.  In addition, Canada states that Hydro One and distributors continue to perform their 
services to a consumer regardless of whether that consumer chooses to enter into a contract with 
a retailer. Hydro One still transmits the electricity and distributors still distribute it to a consumer with a retailer contract.
103 The consumer is still billed by the distributor and must still pay a fee for 
the transmission (by Hydro One) and for the distri bution (by the distributor) of the electricity.104 
Canada argues that, since consumers must still pay Hydro One and distributors for the transmission and delivery of electricity, regardless of whether a consumer chooses to enter a 
price-hedging contract with a retailer, the revenues  of Hydro One and distributors are not affected 
by this choice. Consequently, Hydro One and distributors are indifferent as to whether a consumer enters into a contract with a retailer, and they do not compete with these retailers. 
2.13.  Second, Canada asserts that the evidence on which the Panel relied does not support its 
conclusion that Hydro One and distributors compet e with retailers. Furthermore, Canada argues 
that the Panel failed to provide "'reasoned and ad equate explanations and coherent reasoning' to 
support its findings".
105 
2.14.  Canada identifies three exhibits on which the Panel allegedly based its conclusion about 
competition between, on the one hand, Hydro One and distributors and, on the other hand, retailers. Canada has reviewed each exhibit and observes that none mentions Hydro One. 
Moreover, while the exhibits mention distributors, none suggests that those distributors compete 
with retailers. 
2.15.  The first exhibit identified by Canada is Section 29 of the Electricity Act of 1998.
106 Canada 
notes that Section 29 merely states that distributors must sell electricity to a consumer in the 
event that a retailer with which a consumer has contracted is unable to do so. In Canada's view, 
this statement reinforces the role of distributors  to ensure a stable supply of electricity and is 
inconsistent with the conclusion that distributors compete with retailers for business. Canada 
further notes that the only mention of competition in Section 29 is in paragraph 4, which 
addresses "competition among retailers ".107 This paragraph does not address competition between 
retailers and distributors.  
2.16.  The second exhibit is the Ontario Energy Board (OEB) Retail Settlement Code108, in 
particular Sections 1.1, 2.7, 10.1, and 12. Canada recognizes that Section 1.1 does refer to a "competitive retailer". However, Canada asserts that such retailer is not one that competes with distributors. Canada explains that the term "com petitive retailer" is defined as "a person who 
retails electricity to consumers who do not take SSS"
109; and "SSS", or "Standard Supply Service", 
is "the service approved by the [OEB] … which … establishes the minimum conditions that a distributor must meet in carrying out its obligations to sell electricity under section 29 of the 
Electricity Act ."
110 Thus, Canada states that a "competitive retailer" is just a retailer – an entity 
that offers fixed prices for the HOEP portion of a consumer's electricity bill over a certain period of time (the length of the contract between the consumer and a retailer) instead of the regulated 
fluctuating prices. As regards Section 2.7, Canada points out that it requires distributors to enter 
into contracts with retailers when requested by  the retailer. This undermines, rather than 
supports, a conclusion that distributors compete with retailers. Moreover, Canada notes that Section 10.1 identifies the service transaction requests to which the Retail Settlement Code 
applies. It underlines that consumers can choose to contract with a retailer and pay a fixed price 
for the HOEP portion of their electricity bill over  a fixed period of time instead of paying the 
                                               
103 Canada's appellant's submission, para. 52 (referring to Electricity Act of 1998, Section 26(1): 
"A transmitter or distributor shall provide generators, retailers and cons umers with non-discriminatory access 
to its transmission or distribution systems in Ontario in accordance with its licence"; and Section 29(1): "A distributor shall sell electricity to  every person connected to the distri butor's distribution system, except a 
person who advises the distributor in writing that the person does not wish to purchase electricity from the 
distributor"). Canada also refers to the Ca nada Energy website (Panel Exhibit JPN-229), supra , fn 100, p. 2. 
104 Panel Reports, para. 7.57. 
105 Canada's appellant's submission, para . 55 (quoting Appellate Body Reports, US – COOL , para. 299, 
in turn quoting, with appr oval, Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , fn 618 to 
para. 293). 
106 Panel Exhibit JPN-5. 
107 Canada's appellant's submission, pa ra. 60. (emphasis added by Canada) 
108 1 October 2011 revision (Panel Exhibit JPN-71). 
109 Retail Settlement Code, Section 1.2, p. 7. 
110 Retail Settlement Code, Section 1.2, p. 11. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 29 - 
 
 
  fluctuating price. Hence, it does not suggest that there is competition between distributors and 
retailers. Lastly, Canada refers to Section 12 as simply confirming the obligation of distributors to 
enter into contracts with retailers and as therefore inconsistent with the contention that they are competing.  
2.17.  The third exhibit identified by Canada is  an extract from a page on the IESO's website.
111 
According to Canada, this webpage merely confir ms that, unlike distributors, retailers sell a 
price-hedging contract. In sum, Canada asserts that neither the IESO website, nor  
Sections 1.1, 2.7, 10.1, and 12 of the Retail Settl ement Code, nor Section 29 of the Electricity Act 
of 1998, supports the Panel's statement that distributors compete with retailers. Canada thus considers that, in relying on these exhibits to support its conclusion, the Panel failed to make "an objective assessment of the facts", as required by Article 11 of the DSU, "by failing to 'ensure that 
its factual findings have a proper basis in [the] evidence'."
112  
2.18.  Consequently, Canada asserts that the Panel erred when relying on the findings that 
Hydro One and distributors compete with retailer s and that the Government of Ontario and the 
municipalities profit from the resale of electricity procured under the FIT Programme to conclude 
that there is a "commercial resale" of renewable electricity in Ontario.  
2.19.  Canada also challenges the Panel's finding that the Government of Ontario and municipal 
governments profit from the resale of electricity that is purchased under the FIT Programme. 
Canada explains that Hydro One's "core mandate is to ensure 'safe, reliable and cost-effective transmission and distribution of electricity to Ontario electricity users'"
113 and that "it must 
'prioritize investments in transmission and distribu tion capacity to support projects necessary to 
maintain ongoing grid security and reliability'."114 It is by maintaining this grid that Hydro One 
earns its revenue. The OEB, which regulates aspects of the Ontario electricity system115, calculates 
the cost of maintaining the assets and adds a rate of return.116 This sum is then recovered from 
consumers through the delivery component on their electricity bills.117 Thus, Canada argues, 
Hydro One's profits are unrelated to the amount of electricity that it transmits to the distribution grid or to consumers. 
2.20.  Canada adds that distributors similarl y profit from maintaining their assets. The OEB 
determines the cost of maintaining the distribu tion assets and then adds a rate of return.
118 This 
sum is also recovered from end-users through the delivery charges on their electricity bills. Hence, as in the case of Hydro One and the transmission  of electricity, the revenues of distribution 
companies are unrelated to the amount of electricity that they deliver.
119 
2.21.  Canada submits that, even if Hydro One and distributors were to profit from any resale of 
electricity, they do not profit from any resale of the electricity purchased under the 
FIT Programme. Hydro One and distributors are paid  for maintaining their assets, regardless of the 
source of the electricity that is transmitted and distributed by those assets. Therefore, according to 
                                               
111 IESO webpage, "Retail Contracts" (Panel Exhibit JPN-90), available at: 
<http://www.ieso.ca/imoweb/siteshared/retailers.asp >. 
112 Canada's appellant's submission, para . 71 (quoting Appellate Body Report, US – Tuna II (Mexico) , 
para. 254 (fn omitted); and referring to Appellate Body Reports, US – Carbon Steel , para. 142; and US – 
Wheat Gluten , paras. 161 and 162). 
113 Canada's appellant's submission, para. 74 (quoti ng Memorandum of Agreement between Her Majesty 
the Queen in Right of the Province of Ontario as Repr esented by the Minister of Energy and Hydro One Inc., 
27 March 2008 (Memorandum of Agreement) (Panel Exhibi t CDA-107), p. 1 (also quoted in Canada's response 
to Panel question No. 13(a) (second set), paras. 41 and 42)). 
114 Canada's appellant's submission, para. 74 (quoting Memorandum of Agreement, p. 2). 
115 Canada's appellant's submission, para. 74 (referring to Canada's first written submission to the Panel 
(DS412), para. 23). 
116 Canada's appellant's submission, para. 74 (referring  to Canada's response to Panel question No. 15 
(first set), para. 80; and OEB, EB-2009-0084, Report of the Board on the Cost of Capital for Ontario's Regulated Utilities, 11 December 2009 (Panel Exhibit CDA-64)).  
117 Panel Reports, para. 7.57. 
118 Canada's appellant's submission, para. 75 (referring  to Canada's response to Panel question No. 15 
(first set), para. 81). 
119 Canada's appellant's submission, para. 75 (refer ring to Canada's comments on the Interim Panel 
Reports, p. 3; and Pane l Reports, para. 7.149). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 30 - 
 
 
  Canada, their revenues are unaffected by the FIT Programme and the Government of Ontario's 
purchase of renewable electricity under the Programme. 
2.22.  For these reasons, Canada considers that, by finding that Hydro One and distributors profit 
from the resale of electricity purchased under the FIT Programme, the Panel failed to make 
"an objective assessment of the facts". Therefore, the Panel failed to comply with Article 11 of the 
DSU, by failing to "ensure that its factual fi ndings have a proper basis in [the] evidence"120, by 
failing to "consider evidence before it in its totality"121, and by failing to "'evaluate the relevance 
and probative force' of all of the evidence".122 
2.2  Arguments of Japan – Appellee 2.2.1  Article III:8(a) of the GATT 1994 2.23.  Japan requests the Appellate Body to uphold, albeit under different reasoning, the Panel's 
finding that the FIT Programme and related FIT and microFIT Contracts involve procurement of 
electricity "with a view to commercial resale" within the meaning of Article III:8(a) of the GATT 1994. Japan contends that Canada's appeal will be rendered moot if the Appellate Body 
finds, pursuant to Japan's claims as other appe llant, that the FIT Programme and Contracts are not 
"procurement by governmental agencies of prod ucts purchased for governmental purposes" under 
Article III:8(a). This is so because an assessment of the element "with a view to commercial 
resale" appealed by Canada presupposes an affi rmative finding by the Appellate Body on the 
existence of "procurement" by the Government of  Ontario "for governmental purposes". Japan 
submits that, therefore, the Appellate Body shou ld, following the fundamental structure and logic 
of Article III:8(a), commence its analysis by addressing the claims raised by Japan relating to the 
existence of "procurement" by the Government of  Ontario "for governmental purposes". If the 
Appellate Body were to agree with Japan either that the FIT Programme and Contracts do not involve "procurement by governmental agencies of products purchased" or that such purchases 
are not "for" governmental purposes, then Canada's entire appeal would be rendered moot. 
2.24.  In response to Canada's allegations of error, Japan disagrees, first, with Canada's 
interpretation of the words "with a view to" and, second, with its reading of "commercial resale". 
First, Japan argues that, under Canada's position that the phrase "with a view to commercial 
resale" requires intent to make a profit, a WTO Member could exclude from its obligations under Article III of the GATT 1994 any resale of goods prev iously purchased simply by stating that such 
resale was not aimed at generating returns or profit. Japan alleges that this approach would ignore 
the context of Article III because it would allow WTO Members to circumvent the national 
treatment obligation and thus render Article III:4 meaningless. Moreover, to the extent profit was 
earned, the Member could argue that it earned  such profit from carrying out its assigned 
governmental purposes, and not from its commercial resale activity. This would give Members an 
unlimited ability to override the national treatment disciplines in Article III by simply asserting that the measures at issue were not undertaken with the aim to make profit. 
2.25.  Second, in response to Canada's contention that the Panel misinterpreted the term 
"commercial resale", Japan submits that the Panel correctly found that "commercial resale" need not necessarily involve profit. Japan asserts that, regardless of whether any profit is earned, the phrase "with a view to commercial resale" means that the product at issue is purchased with a 
view to being sold or introduced into the stream of commerce, trade, or market. Japan argues that 
WTO panels have found the term "commercial" to mean "engaged in commerce; of, pertaining to, 
                                               
120 Canada's appellant's submission, para . 76 (quoting Appellate Body Report, US – Tuna II (Mexico) , 
para. 254 (fn omitted); and referring, in fn 109, to Appellate Body Reports, US – Carbon Steel , para. 142: 
"[N]or may panels make affirmative findings that lack a basis in the evidence contained in the panel record" (fn omitted); and US – Wheat Gluten , paras. 161 and 162). 
121 Canada's appellant's submission, para. 76 (quoti ng, as an example, Appellate Body Reports,  
US – COOL , para. 299). 
122 Canada's appellant's submission, para . 76 (quoting Appellate Body Reports, US – COOL , para. 299 
(fn omitted)). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 31 - 
 
 
  or bearing on commerce"123, and that nothing in this meaning entails a requirement of intent to 
profit. In response to Canada's reliance on the Appellate Body report in US – Anti-Dumping and 
Countervailing Duties (China) , Japan argues that the term "commercial" was considered in the 
context of the interpretation of the term "commerc ial loan" in Article 14(b) of the SCM Agreement, 
and that the context of the present case is very  different. What makes the resale of electricity 
purchased by the Government of Ontario under the FIT Programme and Contracts "commercial" is the fact that this electricity is injected into the transmission grid, comingled with all the other 
electricity generated within Ontario, and delivered to consumers in Ontario. For Japan, the Panel's 
observation that "electricity purchased under the FIT Programme is consumed through precisely the same channels as electricity supplied from all other generating sources" is the critical fact that supports the conclusion that electricity is purchased by the Government of Ontario under the 
FIT Programme and Contracts "with a view to commercial resale".
124 
2.2.2  Article 11 of the DSU – "Commercial resale" 2.26.  If the Appellate Body considers that competition with other entities is relevant for purposes 
of assessing whether a "commercial resale" exists, Japan submits that the Panel did not err in 
finding that Hydro One Inc. and distributors face private-sector competition in the Ontario electricity market.  
2.27.  Japan argues that the fact that the Panel recognized and took into account that 
private-sector retailers "sell contracts"
125 does not detract from or make non-objective the Panel's 
conclusion that such retailers compete with Hydro One and distributors to sell electricity to consumers in Ontario. As the Panel stated in its review of the factual background, "[r]etail 
consumers either purchase electricity based on use from their LDCs, or they enter into contracts 
for electricity with an LDC or [a private-sector] licensed electricity retailer".
126 In other words, 
consumers in Ontario have a choice as from whom they purchase their electricity – either 
distributors or private-sector retailers. Thus, Japan asserts that distributors and private-sector 
retailers compete to sell electricity to consumers in Ontario. 
2.28.  Japan recalls the Panel's finding that four private companies own and operate 3% of the 
transmission system127, and three out of 80 distributors are private companies.128 Thus, Japan 
submits that Ontario has established an electricity system in which Hydro One and municipally owned distributors may compete with private transmission and distribution companies in the resale of electricity to consumers. The Panel recognized these facts in its evaluation of whether electricity 
is purchased under the FIT Programme "with a view to commercial resale".  
2.29.  Moreover, if the Appellate Body were to agree with Canada that the term "commercial 
resale" entails a profit element, Japan submits that the Panel correctly found that the Government 
of Ontario earns financial returns from its "resale"  of electricity to consumers in Ontario, thereby 
making the "resale" a "commercial" one under Canada's own definition of the term. Japan observes that Canada's appeal simply repeats its previous argument that the OPA is intended to 
carry out its functions without the purpose of gain , which the Panel rejected when it noted that, 
"although the OPA does not profit from the resale of electricity through Hydro One and the LDCs, it 
is evident that the Government of Ontario and Ontario's municipal governments will profit from these operations".
129 Moreover, the Panel noted that this was a fact taken from Canada's own 
responses to the Panel's questions.130 Japan points out that Canada itself agrees in its appeal with 
                                               
123 Japan's appellee's submission (DS412), para. 35 (referring to Panel Reports, Canada – Wheat 
Exports and Grain Imports , para. 6.84; and China – Intellectual Property Rights , para. 7.534; both, in turn, 
quoting The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, 
p. 451). 
124 Japan's appellee's submission (DS412), para. 35 (quoting Panel Reports, para. 7.147). 
125 Japan's appellee's submission (DS412), para. 37 (quo ting Canada's appellant's submission, para. 51, 
in turn quoting Panel Reports, para. 7.147). 
126 Japan's appellee's submission (DS412), para. 37 (quoting Panel Reports, para. 7.57). 
127 Japan's appellee's submission (DS412), para. 38 (ref erring to Panel Reports, para. 7.34 and fn 104 
thereto). 
128 Japan's appellee's submission (DS412), para. 38 (referring to Panel Reports, para. 7.35). 
129 Japan's appellee's submission (DS412), para. 40 (quoting Panel Reports, para. 7.150). 
130 See Panel Reports, para. 7.149. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 32 - 
 
 
  this aspect of the Panel's analysis, stating that "Hydro One profits" and that "[d]istributors also 
profit".131  
2.30.  Japan asserts that the evidence on the record also shows that Hydro One operates as a 
"commercial" company that makes "commercial profits", even though its only shareholder is the 
Government of Ontario. For example, Hydro One's financial report for 2010 (which was cited by 
the Panel) indicates that it had the following key financial results: (i) total revenue of Can$5,124 million; (ii) net revenue of Can$232 million; (iii) net income of Can$591 million; and 
(iv) dividend payment of Can$28 million to its shareholder, the Province of Ontario.
132 Any profits 
made by Hydro One, if not reinvested in the company, will eventually flow back to the government and, therefore, the Panel was correct to conclude that the Government of Ontario profits from the resale of renewable electricity. 
2.31.  Japan observes that, in its appeal, Canada attempts to exclude Hydro One and local 
distributors from its own definition of "commercial"  by characterizing their profits, not as profits 
from their transmission or distribution activities (i.e. from the commercial resale of renewable 
electricity), but as profits derived from the "maintenance of their assets".
133 At the same time, 
however, Canada admits that such profits are earn ed through "delivery charges" on the electricity 
bills paid by consumers. Japan recalls that it primarily argues that these facts indicate that 
Hydro One does not "purchase" electricity "for governmental purposes". However, if the 
Appellate Body disagrees with Japan on this argume nt, it should logically find that those "delivery 
charges" are assessed on a per-kWh basis, and ther efore are deemed to be inextricably linked to 
the amount of electricity delivered to and consum ed by consumers. The sources cited by Canada 
also specify that these charges or rates are meant to allow distribution utilities to "recover their 
distribution costs"134 (i.e. the cost of distributing electricity to consumers). Japan therefore 
considers that this cannot be reconciled with Canada's assertion that "Hydro One's and LDCs' 
'profits do not depend on the amount of electricity that they transmit and distribute and, therefore, 
[that] they do not profit from any resale of electricity'."135  
2.32.  Therefore, Japan requests the Appellate Body to find that the Panel did not fail to make an 
objective assessment of the facts as required by Article 11 of the DSU by concluding that 
Hydro One and distributors face private-sector competition, including from private-sector electricity retailers, in the resale of renewable electricity in Ontario and that the Government of Ontario profits from the resale of electricity allegedly purchased under the FIT Programme and 
FIT and microFIT Contracts. 
2.3  Arguments of the European Union – Appellee 2.3.1  Article III:8(a) of the GATT 1994 
2.33.  The European Union requests the Appellate  Body to uphold the Panel's finding that the 
FIT Programme and related FIT and microFIT Contracts involve procurement of electricity "with a view to commercial resale" within the meaning of Article III:8(a) of the GATT 1994. The 
European Union disagrees, first, with Canada's interpretation of the term "with a view to" and, 
second, with Canada's reading of "commercial resale". In addition, the European Union objects to Canada's request that the Appellate Body complete the analysis and reverse the Panel's conclusion that the FIT Programme and Contracts are inconsistent with Article III:4 of the GATT 1994 and 
Article 2.1 of the TRIMs Agreement. 
                                               
131 Japan's appellee's submission (DS412), para. 40 (quoting, respectively, Canada's appellant's 
submission, paras. 74 and 75). 
132 Japan's appellee's submission (DS412), para. 41 (q uoting Hydro One, News Release, "Hydro One 
Releases 2010 Year-End Financial Results", 10 February 2011 (Panel Exhibit JPN-41), available at: <http://www.hydroone.com/OurCompany/MediaCentre/Documents/NewsReleases2011/02_10_2011_Year-
End_Financials.pdf >). 
133 Japan's appellee's submission (DS412), para. 42 (r eferring to Canada's appellant's submission, 
paras. 74-76). 
134 Japan's appellee's submission (DS412), para. 42 (quo ting Canada's appellant's submission, para. 20, 
in turn quoting OEB webpage, "Electrici ty Prices: … OEB's Role in Electricity Prices" (Panel Exhibit CDA-16), 
available at: < http://www.ontarioenergyboard.ca/OEB/Consu mers/Electricity/Electricity+Prices#role >). 
135 Japan's appellee's submission (DS412), para. 42 (quoting Canada's appellant's submission, 
para. 76). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 33 - 
 
 
  2.34.  First, in response to Canada's allegation that the Panel neglected to interpret properly the 
term "with a view to" in Article III:8(a), the European Union contends that the Panel's analysis 
demonstrates that the Panel interpreted the terms "commercial resale" and "not with a view to" together, and that the Panel's conclusion relates to purchases "with a view to commercial 
resale".
136 For the European Union, the Panel's description of the FIT Programme shows that the 
very purpose of the Programme is the delivery of  a certain type of electricity into Ontario's 
electricity market. In particular, the FIT Programme and the OPA's operations thereunder are 
specifically intended to ensure that electricity from renewable sources is introduced into the 
electricity market in order to replace electricity from other generation sources.  
2.35.  The European Union agrees with the Panel's finding that the stated intention as to why the 
Government of Ontario purchases electricity could not be dispositive of the question whether such 
purchase was made "with a view to commercial resale", because this would be a purely subjective, 
and thus not appropriate, standard. Instead, the interpretation should be based on an objective 
standard focusing on the actual circumstances of each case. Governments may characterize any 
given transaction as responding to multiple policy objectives, but, in order to characterize a 
transaction as "with a view to commercial resale", it is sufficient to establish that the goods are intended for the market at the time of their purchase. 
2.36.  Furthermore, the European Union disagrees with Canada's contention that the Panel based 
itself solely on interpretations advanced by the parties rather than developing a proper analysis of the term "with a view to". The Panel agreed  with the interpretation suggested by the 
European Union while explicitly disagreeing with the interpretation proposed by Canada.
137 The 
European Union acknowledges that the Panel could have developed its reasoning in more detail; 
nonetheless, it is clear that the Panel did interpret the term "with a view to" in this case.  
2.37.  Second, the European Union disagrees with Canada's interpretation of the words 
"commercial resale". The European Union maintains that the clause "not with a view to commercial 
resale or with a view to use in the production of goods for commercial sale" in Article III:8(a) serves to avoid circumvention of the disciplines of Article III of the GATT 1994 by prohibiting 
governments to purchase on a discriminatory basis in cases where the purchased product will 
return to the market either directly or indirectly as an input into another product. The European Union contends that this objective, as well as the French and the Spanish versions of the text of Article III:8(a) – in particular the words "revendus dans le commerce"  and "reventa 
comercial"  – provide support for its proposition that the term "commercial resale" does not 
necessarily require that the product in question be resold for profit, but that it merely requires that the purchased product be sold or introduced into  the market through the ordinary channels of 
commerce. The European Union adds that sales at a loss are no less commercial than sales for 
profit, and reselling a product at a price lower th an the price at which it was purchased does not 
make the former transaction "non-commercial". 
2.38.  Furthermore, the European Union submits that the word "commercial" is used in 
Article III:8(a) in order to distinguish purchases made for government use from purchases made with a view to be further traded and introduced into commerce. The term "commercial" was not added to the provision in order to include an idea of "profit", but rather to highlight that 
Article III:8(a) would cover purchases for governmental purposes. Interpreting "commercial 
resale" as requiring a profit would permit WTO Members to circumvent the disciplines of Article III, because governments could discriminate against imported products and then introduce the 
purchased domestic product into the market thereby causing results that the national treatment 
principle is meant to avoid. With regard to Canada's references to the Appellate Body report in  
US – Anti-Dumping and Countervailing Duties (China) , the panel report in China – Intellectual 
Property Rights , and the panel report in Canada – Wheat Exports and Grain Imports , the 
European Union responds that those panel and Appellate Body reports did not interpret the word "commercial" in Article III:8(a), and that the sa me term can have different meanings depending 
on its specific context.  
                                               
136 European Union's appellee's submission (DS426), para . 21 (referring to Panel Reports, paras. 7.146 
and 7.151). 
137 European Union's appellee's submission (DS426), para . 26 (referring to Panel Reports, paras. 7.148 
and 7.151). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 34 - 
 
 
  2.39.  In addition, the European Union requests th e Appellate Body to reject Canada's requests for 
completion of the analysis under Article III:8(a) of the GATT 1994 and reversal of the finding that 
the FIT Programme and Contracts violate Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994. The reason adduced by the European Union is that Canada's Notice of Appeal does 
not contain a request that the Appellate Body either reverse the Panel's finding that the 
FIT Programme and Contracts are inconsistent with Articles 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994 or that the Appellate Body complete the analysis with respect to the 
two elements "with a view to commercial resale" and "with a view to use in the production of 
goods for commercial sale" in Article III:8(a).  
2.40.  The European Union asserts that Canada's failure to include these requests in its Notice of 
Appeal means that such requests are outs ide the Appellate Body's jurisdiction. The 
European Union explains that Canada failed to provide a brief statement of the nature of the 
appeal, including a reference to paragraph 7.167 of the Panel Reports and paragraph 8.6 of the EU Panel Report, and that it also failed to include the nature of the decision or ruling sought with 
respect to those paragraphs, contrary to Rule 20(2)(d) of the Working Procedures for Appellate 
Review. The European Union further asserts that the Appellate Body should refrain from examining Canada's request for completion of the analysis under Article III:8(a), because it is not framed as 
a request to complete the analysis, but as an allegation of failure by the Panel to have made a 
particular finding.  
2.41.  In the event that the Appellate Body decide s to complete the analysis pursuant to Canada's 
request, the European Union asserts that it should  find that the Government of Ontario purchases 
electricity "with a view to use [it] in the production of goods for commercial resale" and that 
therefore the requirements of Article III:8(a) ar e not met. The European Union maintains that 
electricity purchased by the Government of Ontario is injected into the grid to be used by 
consumers in Ontario. Many of them are industri al consumers, who then also manufacture other 
products for sale on the market using this electricity. The European Union disagrees with Canada that the phrase "with a view to use in the production of goods for commercial sale" should be 
understood as referring to the actions of the government, rather than actions of other operators, 
because the terms of Article III:8(a) of the GA TT 1994 do not refer to "use by the government" 
but rather to "use" without further qualification. 
2.3.2  Article 11 of the DSU – "Commercial resale" 
2.42.  The European Union asserts that Canada's allegations that the Panel failed to make an 
objective assessment of the matter including the fact s, as required by Article 11 of the DSU, when 
finding that (i) Hydro One Inc. and distributors compete with private retailers and (ii) Hydro One 
and distributors profit from any resale of renewable electricity are unfounded.  
2.43.  At the outset, the European Union observes that the Appellate Body would only have to 
examine Canada's claim under Article 11 of the DSU if, as a consequence of those errors, the 
Panel's ultimate finding that the Government of Ontario purchases electricity through the 
FIT Programme "with a view to commercial resale" cannot stand. The European Union considers that the Panel's finding is not dependent on any of the factual findings contested by Canada. The European Union notes, in this regard, that the Panel properly determined that "commercial resale" 
does not always necessarily involve profit. Under the same interpretation, the Appellate Body may 
consider it unnecessary to examine the second factual matter raised by Canada, namely, whether Hydro One and distributors profit from any resale of renewable electricity.  
2.44.  The European Union submits that the same conclusion can be reached regarding the first 
factual matter challenged by Canada, that is, the finding that Hydro One and distributors are in competition with retailers. The European Union points out that Canada does not contest the Panel's 
finding that electricity purchased under the FIT Programme is consumed through precisely the 
same channels as electricity supplied from all other generating sources. Likewise, Canada does not contest the Panel's finding that the Government of Ontario's purchases of electricity, through the FIT Programme, "may be considered to be a first step in the resale of electricity to retail 
consumers, and thereby the introduction of electricity into commerce".
138 The Panel agreed that 
the facts at issue (in particular the fact that the electricity purchased under the FIT Programme is 
                                               
138 European Union's appellee's submission (DS426), para. 44 (quoting Panel Reports, para. 7.148). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 35 - 
 
 
  consumed through the same channels as electricit y supplied from all other generating sources and 
thus reintroduced into commerce) support the characterization of the measures at issue as 
undertaken "with a view to commercial resale", thereby not falling under Article III:8(a) of the GATT 1994. Consequently, the European Union argues that the Panel's ultimate finding was not 
dependent on the factual issues Canada challenges in its appeal. 
2.45.  Having said that, the European Union recalls that the Appellate Body has clarified that a 
panel is "entitled, in the exercise of its discretio n, to determine that certain elements of evidence 
should be accorded more weight than other elements".
139 In doing so, the Appellate Body has 
further noted that a panel "is not required to discuss, in its report, each and every piece of evidence"
140, and that, "in view of the distinction between the respective roles of the 
Appellate Body and panels", the Appellate Body will not "interfere lightly" with the panel's 
fact-finding authority141 and "cannot base a finding of inconsistency under Article 11 simply on the 
conclusion that [it] might have reached a different factual finding from the one the panel reached".
142 Thus, the European Union underscores that not every error allegedly committed by a 
panel amounts to a violation of Article 11 of the DSU.  
2.46.  The European Union considers that the Panel properly concluded that, as a matter of fact, 
(i) Hydro One and distributors compete with privat e retailers and (ii) Hydro One and distributors 
profit from the resale of renewable electricity. 
2.47.  The European Union asserts that the Panel's factual finding that Hydro One and distributors 
compete with private retailers is well supported by  the evidence on the record and, consequently, 
the Appellate Body should not interfere with the Pane l's discretion as a trier of facts. First, contrary 
to what Canada alleges, private-sector licensed electricity retailers do not merely sell 
hedge-contracts, but also the electricity that comes with them. The European Union observes that, elsewhere, the Panel noted that there was "evidenc e suggesting that an electricity 'marketer' takes 
title to electricity (and therefore in our view possession), by virtue of purchasing electricity for 
resale from power generators and wholesalers".
143 Also, as noted by the IESO, retailers purchase 
electricity in the market and through contracts with generators. The OEB posts a list on its website 
of energy providers licensed to sell electricity in the province144, and retail contracts are described 
as another way to purchase the electricity, but they do not cover other charges such as delivery charges.
145 Likewise, Canada itself recognized that "[c]ustomers that contract with competitive 
electricity retailers have wholesale electricity and related products and services purchased on their 
behalf by their electricity retailer and are subject to the rates set in their retail contracts".146 This 
suggests that private-sector licensed electricity retailers do take title of the electricity they purchase from generators/distributors in order to resell it to final consumers. At any rate, there is 
resale of electricity (possibly bundled with electricity services) to final consumers. 
2.48.  Furthermore, the European Union explains  that, in the background section of the Panel 
Reports, the Panel noted that retail consumers that do not fall under the "Regulated Price Plan" 
(RPP) may enter into a retail contract with a distributor or licensed electricity retailer, paying a 
contracted price for electricity for a fixed period.
147 Indeed, final consumers in Ontario can choose 
to pay the RPP of the OEB and purchase their electricity from distributors, or may decide to 
                                               
139 European Union's appellee's submission (DS426), para. 45 (quoting Appellate Body Report,  
EC – Asbestos , para. 161). 
140 European Union's appellee's submission (DS426), para. 45 (quoting Appellate Body Report, Brazil – 
Retreaded Tyres , para. 202). 
141 European Union's appellee's submission (DS426), para. 45 (quoting Appellate Body Reports,  
US – Wheat Gluten , para. 151; EC – Sardines , para. 299; and US – Carbon Steel , para. 142). 
142 European Union's appellee's submission (DS426), para. 45 (quoting Appellate Body Report,  
US – Wheat Gluten , para. 151). 
143 European Union's appellee's submission (DS426), para. 49 (quoting Panel Reports, fn 462 to 
para. 7.239). 
144 IESO webpage, "The Power System" (P anel Exhibit JPN-44), available at: 
<http://www.ieso.ca/imoweb/siteShared/power_system.asp >. 
145 IESO brochure, "What You Need to Know About Changes to Electricity Prices Coming November 1, 
2009: A Guide For Ontario's Public Sector" (Panel Exhibit JPN-91). 
146 European Union's appellee's submission (DS426), para. 49 (quoting Professor William W. Hogan, 
Harvard University, "Overview of the Electricity System in the Province of Ontario", 21 December 2011 
(Hogan Report) (Panel Exhibit CDA-2), p. 29). 
147 Panel Reports, para. 7.59. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 36 - 
 
 
  purchase it from private-sector licensed electricity retailers.148 In other words, final consumers can 
choose whether to buy from distributors (and pay the fluctuating regulated prices under the RPP) 
or from private-sector licensed electricity retailers (and pay fixed hedged prices not dependent of the RPP for a particular period of time). The European Union thus asserts that, in this sense, 
private-sector licensed electricity retailers compete with Hydro One and other distributors in selling 
electricity and electricity services to consumers.  
2.49.  Consequently, the European Union argues that, as a matter of fact, private-sector licensed 
electricity retailers do not merely sell hedge-contracts to consumers. Indeed, retailers compete 
with Hydro One and distributors in selling electricity and electricity services to final consumers, who can choose between purchasing such electricity at the fluctuating regulated prices under the RPP or at fixed prices from retailers. 
2.50.  The European Union additionally asserts that  the evidence cited by the Panel in footnote 297 
of its Reports – that is, Section 29 of the Electricity Act of 1998
149, the Retail Settlement Code150, 
and the IESO website page151 – properly supports its finding that Hydro One and distributors sell 
electricity in competition with private-sector licensed retailers. Section 29 of Ontario's Electricity 
Act of 1998 contains the distributor's obligation to sell electricity. Contrary to what Canada alleges, Section 29 does not merely reinforce the role of distributors in ensuring a stable supply of 
electricity, but also shows that there is actual competition between distributors and private-sector 
licensed electricity retailers. In particular, Sect ion 29 contemplates the possibility that a consumer 
does not purchase electricity from the distributor but from private-sector licensed electricity retailers, and yet imposes the obligation on the distributor to sell electricity to the final consumer 
in case the private-sector licensed electricity retailer is unable to do so for any reason. In other 
words, Section 29 reflects the fact mentioned before that consumers in Ontario can choose to purchase electricity and electricity services from distributors or from private-sector licensed 
electricity retailers.  
2.51.  The European Union adds that Sections 1.1, 2.7, 10.1, and 12 of the Retail Settlement 
Code, referred to by the Panel, equally support the Panel's conclusion as to the existence of 
competition between Hydro One and distributors, on the one hand, and private-sector licensed 
electricity retailers, on the other hand. In those sections, it is made clear that consumers in Ontario can choose between purchasing electricity and electricity services from distributors (under the SSS, and then be subject to the OEB's RPP) and purchasing electricity from private-sector 
licensed electricity retailers. In particular, Sectio n 10 explains how to deal with consumer requests 
to switch from electricity supplied to a consum er through the SSS to electricity supplied by a 
competitive retailer. In this sense, it is evid ent that Hydro One and distributors compete with 
private retailers in order to sell electricity and provide electricity services. 
2.52.  Finally, the European Union states that the IESO website page, referred to by the Panel, 
explains that consumers in Ontario can also purcha se their electricity from private-sector licensed 
electricity retailers, and provides detailed information as to when such an option could be 
attractive to final consumers.  
2.53.  In sum, the European Union considers that the evidence cited by the Panel in footnote 297 
of its Reports adequately supports its factual finding that Hydro One and distributors sell electricity 
in competition with private-sector licensed electricity retailers. Thus, contrary to what Canada 
alleges, the Panel did not make an error.   
2.54.  As regards the Panel's second finding challenged by Canada under Article 11 of the DSU  
– that is, that the Government of Ontario profits from the resale of electricity – the 
European Union responds that the Panel rejected Canada's argument because "[d]istributors profit from their service of distributing electricity to  the end-user, rather than any on-sale of the 
renewable electricity, itself".
152 According to the Panel, to the extent that the service of electricity 
                                               
148 Panel Reports, para. 7.42. 
149 Panel Exhibit JPN-5. 
150 Panel Exhibit JPN-71. 
151 IESO webpage, "Retail Contracts" (Panel Exhibit JPN-90), available at: 
<http://www.ieso.ca/imoweb/siteshared/retailers.asp >. 
152 European Union's appellee's submission (DS426), pa ra. 59 (quoting Panel Reports, para. 7.150, in 
turn quoting Canada's opening statement at the second Panel meeting, para. 55). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 37 - 
 
 
  distribution is necessarily tied to, and inseparable from, the sale of electricity as a "commodity", 
there was no basis to conclude that the resale activities of Hydro One and almost all of the 
distributors did not result in making profits. In other words, the Panel concluded that, as a matter of fact, it was not possible to distinguish between remuneration (and profits) generated by 
electricity distribution services (for which the maintenance of the grid is necessary) and the 
remuneration (and profits) generated by the sale of electricity itself (flowing through such grid). The European Union observes that Canada has not indicated any factual elements that the Panel 
would have disregarded or wilfully distorted and th at would contradict the Panel's observations in 
this regard. 
2.55.  Consequently, in the European Union's view, the Panel did not err in finding that Hydro One 
and distributors profit from the resale of elec tricity purchased by the Government of Ontario 
through the FIT Programme. 
2.56.  In view of the foregoing, the European Unio n submits that the Panel di d not fail to make an 
objective assessment of the matter under Article 11 of the DSU, and properly concluded that 
(i) electricity is sold to consumers by Hydro One and distributors in competition with private 
retailers and that (ii) the Government of Ontario profits from the resale of renewable electricity. In any event, the European Union submits that thes e factual findings were not essential for the 
Panel's ultimate finding that the Government of Ontario's purchases of electricity through the 
FIT Programme are undertaken "with a view to commercial resale". Even if they were essential, the Panel provided adequate reasoning and supporte d its conclusion on the basis of the evidence 
on the record.  
2.4  Claims of error by  Japan – Other appellant 
2.4.1  The order in which the Panel dealt wi th Japan's claims under the SCM Agreement 
and its claims under the TRIMs Agreement and the GATT 1994 
2.57.  Japan submits that the Panel improperly decided to commence its evaluation with Japan's 
claims under the TRIMs Agreement and the GATT 1994, instead of Japan's claims under the 
SCM Agreement. 
2.58.  Japan recognizes that, in Chile – Price Band System , the Appellate Body said that 
"arguments regarding the order of analysis chosen  by the Panel [do not] amount to a separate 
'allegation of error'".
153 However, it notes that the Appellate Body suggested in that dispute that 
an improper order of analysis may result in an improper appreciation by a panel of the factual and 
legal issues in a particular dispute.  
2.59.  Japan recalls that it had argued before the Panel that the evaluation should commence with 
Japan's claims under the SCM Agreement, because that Agreement "deals specifically, and in 
detail, with" the measures at issue in this dispute.154 According to Japan, the reason why this is so 
is because the target of Japan's challenge in this dispute has been the provision of subsidies to FIT generators contingent on their use of renewable energy generation equipment produced in 
Ontario over such equipment imported from abroad. 
2.60.  Japan notes that the Panel dismissed Japan's argument because no party had contested 
that "the measures at issue are trade-related investment measures affecting imports of renewable energy generation equipment".
155 Thus, the Panel concluded that it is the TRIMs Agreement that 
"deals most directly, specifically and in detail, with"156 the measures at issue. Japan fails to see 
how the fact that no party had contested that the measures at issue are TRIMs makes the TRIMs Agreement the agreement that "deals most di rectly, specifically and in detail, with" those 
measures. Rather, Japan submits that the Panel conducted no actual analysis of which agreement 
                                               
153 Japan's other appellant's subm ission (DS412), para. 10 (quo ting Appellate Body Report, Chile – Price 
Band System , para. 182). 
154 Japan's other appellant's subm ission (DS412), para. 11 (quo ting Appellate Body Report,  
EC – Bananas III , para. 204). 
155 Japan's other appellant's submission (DS412),  para. 12 (quoting Panel Reports, para. 7.70). 
156 Panel Reports, para. 7.70. (fn omitted) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 38 - 
 
 
  deals most specifically, and in detail, with the measures at issue. By failing to conduct such an 
analysis, the Panel therefore erred. 
2.61.  Japan points out that the Panel appeared to agree that the SCM Agreement deals most 
specifically with the measures at issue given that  the Panel based the interpretation of government 
"purchases" in Article III:8(a) of the GATT 1994 on it s finding on "the proper legal characterization 
of the measures at issue under Article 1 of the SCM Agreement".157 Japan is thus "puzzled"158 by 
the Panel's decision not to commence its evaluation with Japan's claims under the 
SCM Agreement, which would have led the Panel to a correct appreciation of the factual and legal 
issues in this dispute. 
2.62.  In addition, Japan argues that the Panel should have commenced with the SCM Agreement, 
because a remedy under Article 4.7 of that Agreement would resolve this dispute more promptly 
than the remedy under Article 19.1 of the DSU that  would result from a violation of the GATT 1994 
or the TRIMs Agreement. Pursuant to Article 3.7 of the DSU, the aim of dispute settlement is "to secure a positive solution to a dispute" and,  moreover, Article 3.3 provides that the "prompt 
settlement" of disputes is "essential to the e ffective functioning of the WTO". In the present 
dispute, such "prompt settlement" would be ac hieved by a remedy under Article 4.7 of the 
SCM Agreement, which obliges the responding Member to act "without delay" and within a time 
period specified by the panel, which are not obliga tions pursuant to Article 19.1 of the DSU, which 
requires the respondent Member to bring into co nformity measures found to be inconsistent.  
2.63.  For these reasons, Japan requests the Appellate Body to find that the Panel improperly 
began its evaluation with Japan's claims under the TRIMs Agreement and the GATT 1994. Further, 
Japan asserts that, instead of following the Panel' s approach, the Appellate Body should begin its 
evaluation with Japan's claims under the SCM Agreement.  
2.64.  At the oral hearing, Japan acknowledged that it did not consider that the Panel had a legal 
obligation to commence its evaluation with the SCM Agreement. Japan also confirmed that it is not 
requesting the Appellate Body to find that the Panel erred, nor is it requesting reversal of a finding of the Panel. Thus, Japan's sole request is that the Appellate Body itself commence the evaluation 
with its claims under the SCM Agreement. 
2.4.2  Claims under Arti cle III:8(a) of the GATT 1994 
2.65.  Japan requests the Appellate Body to uphold the Panel's conclusion that the FIT Programme 
and related FIT and microFIT Contracts are inconsistent with Article III:4 of the GATT 1994 and 
Article 2.1 of the TRIMs Agreement and to modify, re verse, or declare moot and of no legal effect 
several intermediate findings by the Panel. 
2.4.2.1  The Panel's finding that the FIT Programme and Contracts involve "procurement 
by governmental agencies of products purchased" 
2.66.  Japan alleges that the Panel erred in find ing that the Government of Ontario "purchases" 
electricity. Japan also alleges that the Panel erred in finding that the Government of Ontario 
"purchases" electricity in the context of Japan's claim relating to Article 1.1(a)(1)(iii) of the 
SCM Agreement. Japan maintains that, if the Appellate Body agrees with Japan's proposition in the context of its claim that the Panel erred in finding that the Government of Ontario "purchases" goods in the sense of Article 1.1(a)(1)(iii) of the SCM Agreement, then it must on the same 
grounds reverse the Panel's finding under Article III:8(a) of the GATT 1994 that the measures at 
issue involve "procurement by governmental agen cies of products purchased for governmental 
purposes". 
2.67.  Japan argues that the structure of the energy system in Ontario – in particular the 
unbundling of generation, transmission, and distribution of electricity and the allocation of each of these functions together with corresponding regula tory functions to separate entities – suggests 
that the Government of Ontario does not engage in  the physical supply or sale of electricity. In 
particular, Japan submits that the OPA serves as a financing entity to provide financial support to 
                                               
157 Japan's other appellant's submission (DS412), para. 13 (quoting Panel Reports, para. 7.136). 
158 Japan's other appellant's su bmission (DS412), para. 13. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 39 - 
 
 
  those generators the government desires to promote. In contrast, issues relating to the stable 
supply of electricity are addressed by other entities , but not through purchases of electricity by the 
government.159 In addition, Japan argues that the fact that the government permits privately 
owned entities to take a role in the generation , transmission, and distribution of electricity 
supports the proposition that the Government of Ontario "need not"160 purchase electricity in order 
to achieve a stable supply of electricity in the province of Ontario. 
2.4.2.2  The Panel's interpretation of th e word "for" in term "for governmental 
purposes" 
2.68.  In the event that the Appellate Body does not reverse the Panel's finding that the measures 
at issue involve "procurement by governmental agencies of products purchased", Japan appeals, conditionally, the Panel's interpretation and application of the term "purchased for governmental 
purposes", and requests the Appellate Body to complete the analysis and find that the 
FIT Programme and related FIT and microFIT Contracts do not involve "purchase[s] for governmental purposes". Japan alleges that the Panel failed to interpret the meaning of this 
phrase because it concluded merely that a purchase of goods by a governmental agency for 
governmental purposes could not at the same time constitute a government purchase of goods with a view to commercial resale, and applied the provision based on this assumption rather than 
on a proper interpretation of the term "for governmental purposes".  
2.69.  Japan contends that, by assuming that a purchase for "governmental purposes" could not at 
the same time amount to a government purchase  of goods "with a view to commercial resale" 
under Article III:8(a), the Panel neglected to analyze whether purchases under the FIT Programme 
were made "for" governmental purposes. As a re sult, the Panel failed to analyze whether there 
was "a true and genuine connection between the 'purchase' … and 'governmental purpose[]' at 
issue" and whether purchases of electricity were in fact made "truly and genuinely" in order to 
obtain or achieve the securing of a stable electricity supply from clean sources.
161  
2.70.  Japan argues that electricity is "purchased for governmental purposes" only if the purchase 
is made "in order to obtain certain governmental purposes or with the objective of achieving such 
governmental purposes".162 Japan refers to Canada's proposition that the governmental purpose 
behind the FIT Programme and Contracts is "to help secure the supply of adequate and reliable electricity in Ontario from clean sources".
163 Accordingly, Japan contends that, in order for the 
Government of Ontario's purchases of electricity under the FIT Programme to fall within the scope 
of Article III:8(a), the Panel would have had to find that those purchases were made truly and 
genuinely in order to obtain or achieve the securing of a stable electricity supply from clean energy sources. However, Japan argues that, within the framework of the Ontario electricity market, in 
which generation, transmission, and distribution  of electricity are carried out by distinct 
governmental entities, the Government of Ontario does not have to purchase electricity in order to achieve a stable supply of electricity. For Japan, the purpose of securing a stable electricity supply 
itself does not require that a governmental entity generate, supply, or sell electricity to 
consumers. Moreover, Japan contends that the fact that Ontario allows the operation of privately owned entities to distribute electricity to consumers confirms that the Government of Ontario does not need to take possession of electricity in order to achieve its stated purpose of ensuring a stable 
supply of electricity to Ontario consumers. 
2.71.  Japan also refers to the Appellate Body reports in Philippines – Distilled Spirits  and Korea – 
Alcoholic Beverages  for the proposition that the object and purpose of the GATT 1994 as reflected 
in Article III is to "avoid[] protectionism, requiring equality of competitive conditions and 
protecting expectations of equal competitive relationships".
164 For Japan, an interpretation of 
Article III:8(a) in line with this object and purpose must ensure that the exclusion from the 
                                               
159 Japan's other appellant's submission (DS412), paras. 167, 165, and 40. 
160 Japan's other appellant's su bmission (DS412), para. 41. 
161 Japan's other appellant's submission (DS412), paras. 171 and 174, respectively. 
162 Japan's other appellant's submission (DS412), para. 174. 
163 Japan's other appellant's submission (DS412), pa ra. 174 (quoting Canada's first written submission 
to the Panel (DS412), para. 88). 
164 Japan's other appellant's submission (DS412), para. 175 (quoting Appellate Body Reports, 
Philippines – Distilled Spirits , para. 221, in turn quoting Appellate Body Report, Korea – Alcoholic Beverages , 
para. 120). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 40 - 
 
 
  obligation of Article III for products purchased for governmental purposes is not so expansive that 
it allows WTO Members to avoid the obligations under Article III simply by assigning a 
"governmental purpose" to a particular measure. Japan contends that, therefore, Article III:8(a) 
must be interpreted to require that a government's purchase of products is made "truly and 
genuinely" in order to obtain or achi eve a particular governmental purpose.165 
2.72.  Finally, Japan asserts that the domestic content requirements of the FIT Programme 
undermine the governmental purpose of securing electricity supply from clean sources, because 
these requirements have the effect of limiting ge nerators' access to the best available technology 
from the global marketplace. 
2.4.2.3  The Panel's interpretation and a pplication of the term "with a view to 
commercial resale" 
2.73.  In the event that the Appellate Body reje cts both Japan's appeal relating to the Panel's 
finding that the Government of Ontario "purchases" electricity and Japan's appeal that the measures at issue involve "purchase[s] for governmental purposes", Japan requests the 
Appellate Body to find that the Panel failed to interpret properly the term "commercial resale" by 
concluding that profit earned by the government as  a result of the "resale"  was relevant evidence 
of its "commercial" nature. In place of this erroneous conclusion, the Appellate Body should find 
that the phrase "with a view to commercial resale" means "with a view to being sold in the stream 
of commerce or trade"
166 and that, to the extent the FIT Programme and Contracts involve 
purchases of electricity by the Government of Ontario, such purchases are "with a view to commercial resale" because the electricity is purchased with a view to being sold or introduced into 
the stream of commerce, trade, or market, with out regard to whether the government makes a 
profit from the resale. 
2.74.  Japan takes issue with the Panel's consideration of "profit" when it concluded that "the 
Government of Ontario purchases electricity under  the FIT Programme 'with a view to commercial 
resale' based partly on the fact that 'the Government of Ontario and the municipal governments … profit from the resale of electricity'."
167 Referring to dictionary definitions of the words 
"commercial" and "commerce", Japan contends that the definitions of these words do not include 
any element of profit. Furthermore, Japan refers to the panel reports in Canada – Wheat Exports 
and Grain Imports  and China – Intellectual Property Rights  in support of its proposition that the 
word "commercial" means "engag ed in commerce; of, pertaining to, or bearing on commerce"168 
and that these definitions do not include an element of "profit". 
2.75.  In addition, Japan makes reference to the Appellate Body report in Japan – Alcoholic 
Beverages II  for the proposition that the purpose of Article III of the GATT 1994 is to avoid 
protectionism in the application of internal tax and regulatory measures, and contends that an 
interpretation of "not with a view to commercial resale" as not aiming to resell for profit would allow Members to adopt protectionist measures contrary to the objective of Article III.
169 Under 
this interpretation, a Member that wished to exclude a particular foreign product from its domestic 
market could declare an aim to secure a stable supply of that product for the benefit of its consumers' welfare, establish a non-profit government agency to purchase quantities of that product subject to the requirement that the produc t be produced domestically, and then resell that 
product to consumers without earning profit from the resale.  
                                               
165 Japan's other appellant's submission (DS412), para. 175. 
166 Japan's other appellant's submission (DS412), para. 188. (emphasis omitted) 
167 Japan's other appellant's submission (DS412), para. 184 (quoting Panel Reports, para. 7.151). 
168 Japan's other appellant's submission (DS412), para. 186 (quoting Panel Reports, Canada – Wheat 
Exports and Grain Imports , para. 6.84; and China –  Intellectual Property Rights , para. 7.534; both, in turn, 
quoting The New Shorter Oxford English Dictionary , Lesley Brown (ed.) (Clarendon Press, 1993), Vol. 1, 
p. 451). 
169 Japan's other appellant's submission (DS412), para. 187 (referring to Appellate Body Report, Japan – 
Alcoholic Beverages II , p. 16, DSR 1996:I, p. 109). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 41 - 
 
 
  2.4.3  The Panel's decision to exercise judicial economy with respect to Japan's 
"stand-alone" claim under Article III:4 of the GATT 1994 
2.76.  Japan submits that the Panel failed to ma ke an objective assessment under Article 11 of the 
DSU and exercised false judicial economy by failing  to examine separately Japan's claim that the 
FIT Programme and related FIT and microFIT Contracts are inconsistent with Article III:4 of the 
GATT 1994. Japan notes that the Panel found that the challenged measures are TRIMs falling within the scope of paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement, 
and are therefore inconsistent with the national treatment obligation of Article III:4 of the 
GATT 1994. Having made this finding, the Panel declined Japan's request to undertake a separate analysis of the elements of Article III:4. Japan argu es that the Panel's exercise of judicial economy 
was improper and contrary to the Panel's duty under Article 11 of the DSU in two respects.  
2.77.  First, Japan asserts that the Panel was not entitled to exercise judicial economy, because a 
separate finding under Article III:4 of the GA TT 1994 was required for securing the prompt 
settlement of this dispute in accordance with Article 3.3 of the DSU, in the case that the 
Appellate Body were to disagree with the Panel's characterization of the FIT Programme and 
Contracts as TRIMs, or as TRIMs falling within the scope of paragraph 1(a) of the Illustrative List.  
2.78.  Second, Japan points out that the terms of paragraph 1(a) of the Illustrative List of the 
TRIMs Agreement and Article III:4 of the GATT 1994 are different, such that the Panel did not 
examine Japan's primary claim that the incentive to use domestic parts and components in preference to imported ones resulting from  the domestic content requirements of the 
FIT Programme and Contracts provides less favourable treatment to imported products than that 
accorded to domestic like products, which is inconsistent with Article III:4. Japan explains that the 
Panel analyzed whether, in all situations, the operation of the Minimum Required Domestic Content Levels under the FIT Programme and Contracts require that at least some Ontario-sourced goods 
must be used, and concluded that such a requirement does indeed exist.
170 While Japan agrees 
with this conclusion, it notes that the standard under Article III:4 is different and, in fact, broader. Japan submits, in this regard, that the incentive to use domestic supplies resulting from a 
domestic content requirement that may be satisfied by using goods or services, as it exists under 
the FIT Programme and Contracts, is sufficient to meet the broader "less favourable treatment" standard of Article III:4. According to Japan, the Panel's failure to reach a conclusion under Article III:4 affects the implementation that may be required, and thus may "provide only a partial 
resolution of the matter at issue".
171  
2.79.  Japan requests the Appellate Body to complete the analysis and reach the finding under 
Article III:4 that the Panel erroneously failed to make. To assist the Appellate Body in reaching a 
separate finding under Article III:4, Japan briefly reviews the arguments it put forward during the 
Panel proceedings, while noting that Canada did not contest that, should Article III:8(a) of the GATT 1994 not apply, the FIT Programme and Contract s are inconsistent with Canada's obligations 
under Article III:4. 
2.80.  As regards whether renewable energy generation equipment manufactured domestically in 
Ontario and imported from Japan are "like products", Japan argues that these products are in a directly competitive relationship in the market. Japan submits that there is no substantial 
difference between such domestic and imported equipment in terms of their physical properties, 
end-uses, consumer perceptions, and tariff classifi cations – i.e. they share all four categories of 
"characteristics" identified by the Appellate Body as relevant in an analysis of "likeness".
172 
2.81.  Next, Japan submits that the domestic content rules of the FIT Programme and Contracts 
are "requirements". Japan explains that a renewable energy generator that wishes to obtain the subsidized rates offered by the FIT Programme voluntarily accepts, through the application for and 
execution of a FIT or microFIT Contract, the obli gation to comply with a variety of conditions, 
                                               
170 Japan's other appellant's submission (DS412), para. 149 (referring to Panel Reports, 
paras. 7.158-7.163). 
171 Japan's other appellant's submission (DS412), para. 143 (quoting Appellate Body Report,  
US – Tuna II (Mexico) , para. 403). 
172 See Appellate Body Report, EC – Asbestos , paras. 99 and 101. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 42 - 
 
 
  including the Minimum Required Domestic Content Level relevant to its solar PV (FIT and microFIT) 
or wind (FIT) project. 
2.82.  Japan further asserts that the domestic content requirements of the FIT Programme and 
Contracts "affect[]" the "internal" "sale", "purchase", or "use" of renewable energy generation 
equipment.173 This is because the domestic content requirements incentivize Ontario-based wind 
and solar PV energy generators to choose rene wable energy generation equipment manufactured 
in Ontario over such equipment produced ab road. These requirements thereby modify the 
conditions of competition in favour of such goods made in Ontario and have "an effect on"174 the 
sale, purchase, or use of those goods in Ontario. 
2.83.  Finally, Japan argues that the domestic content requirements of the FIT Programme and 
Contracts accord less favourable treatment to imported renewable energy generation equipment 
than that accorded to like products of Ontario orig in. Japan observes that the focus of this analysis 
is on whether the FIT Programme and Contracts modify the conditions of competition in the relevant market to the detriment of imported products.
175 It then explains that, by requiring the 
use of goods or services of Ontario origin in order to obtain above-market electricity rates, the 
FIT Programme necessarily creates incentives, or a purchasing preference, among Ontario-based wind and solar PV electricity generators to use renewable energy generation equipment produced 
in Ontario, which in turn stimulates domestic production of such equipment. The "Domestic 
Content Grids" require that any such generator use at least some Ontario-origin goods to achieve the Minimum Required Domestic Content Levels, thereby confirming the preference for locally 
produced goods over goods of foreign origin. Japan notes that the Panel itself concurred on this 
latter point in its analysis under paragraph 1(a) of the Illustrative List of the TRIMs Agreement.
176  
2.84.  Therefore, Japan requests the Appellate Body  to find that the Panel's exercise of judicial 
economy with respect to Japan's claim under Article III:4 of the GATT 1994 was improper and 
contrary to Article 11 of the DSU. Japan additionally requests the Appellate Body to complete the 
analysis and find that, because the FIT Programme and Contracts impose domestic content requirements on wind and solar PV electricity generators that affect the internal sale, purchase, or 
use of renewable energy generation equipment, resulting in less favourable treatment to like 
products of Japanese origin, they are inconsistent with Article III:4 of the GATT 1994, independent of any conclusion under the TRIMs Agreement. 
2.85.  At the oral hearing, Japan clarified how Canada's implementation obligations could be 
different if the Panel had made a finding of violation under Japan's "stand-alone" claim under 
Article III:4. According to Japan, Canada could lower the FIT Programme's domestic content requirements to a point where such requirements could be met exclusively through the use of local 
services. Japan was of the view that such a situation would not be addressed by the Panel's finding 
under Article III:4 and the TRIMs Agreement, but that such situation would have been covered had the Panel made a "stand-alone" finding under Article III:4 of the GATT 1994. 
2.4.4  Claims under the SCM Agreement 
2.4.4.1  Article 1.1(a) – "Financial co ntribution" or "income or price support" 
2.86.  Japan argues that the Panel erred in its inte rpretation and application of Article 1.1(a) of the 
SCM Agreement in characterizing the FIT Programme and related FIT and microFIT Contracts as 
government "purchases [of] goods". Japan does not dispute the Panel's findings that: (i) the OPA 
pays for "delivered electricity"; (ii) the Government of Ontario (through its agent Hydro One Inc., which operates 97% of the transmission lines in Ontario) takes possession of the electricity during 
its transmission to end-consumers; and (iii) Ontario laws, regulations, and contracts characterize 
                                               
173 Japan's other appellant's submission (DS412), para. 147. 
174 Japan's other appellant's submission (DS412), para. 147 (referring to Panel Reports, Turkey – Rice , 
paras. 7.221 and 7.222; and Canada – Autos , para. 10.80; and Appellate Body Report, Canada – Autos , 
para. 158). 
175 Japan's other appellant's submission (DS412), para. 148 (referring to Appellate Body Report, Korea – 
Various Measures on Beef , para. 135; and Panel Reports, Turkey – Rice , para. 7.232; and China – Publications 
and Audiovisual Products , para. 7.1532). 
176 Japan's other appellant's submission (DS412), para. 148 (referring to Panel Reports, para. 7.163). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 43 - 
 
 
  the challenged measures as "procurements" or "purchases [of] electricity".177 However, Japan 
submits that the Panel failed to determine the pr oper legal characterization of the challenged 
measures on the basis of an evaluation of their most principal and relevant characteristics. To identify and elucidate the true nature or principa l characteristics of a measure, a panel must fully 
appreciate all relevant facts and surrounding circumstances, which may include whether and to 
what extent such measure would serve to achieve a stated policy goal. In particular, Japan claims that the Panel overlooked the Government of Ontari o's policy decision to unbundle the generation, 
transmission, and distribution of electricity to achieve its goal of ensuring a stable supply of 
electricity in Ontario, as well as the design and operation of the FIT Programme and Contracts within the framework of the Ontario electricity market. Japan adds that neither the OPA nor the Government of Ontario makes payments for electricity generated under the FIT Programme for the 
government's own consumption or for use in providing public services to Ontario residents. 
2.87.  Japan argues that the measures at issue are not appropriately characterized as government 
"purchases [of] goods" for three reasons. First, the OPA serves as a financing entity, instead of a 
purchasing entity, because it never takes posse ssion of electricity. Hydro One, a different 
governmental entity, is the one receiving the delivered electricity. Second, the Government of Ontario's goals regarding its electricity system are addressed through the roles allocated to the 
different entities in the Ontario electricity system and programmes and not through purchases of 
electricity by the government. In this regard, the promotion of environmentally friendly generation is achieved through financing provided under the Renewable Energy Standard Offer Program 
(RESOP) and the FIT Programme. Third, the fact th at the Government of Ontario permits privately 
owned entities to carry out the role of supplying electricity to consumers in Ontario reveals that 
the Government of Ontario need not take possession over (i.e. purchase) electricity in order to achieve its objective of ensuring the stable supply of electricity to Ontario consumers.  
2.88.  Japan contends that the measures at issue are properly characterized as "direct transfer[s] 
of funds" and "potential direct transfers of fund s" under Article 1.1(a)(1)(i) of the SCM Agreement. 
In the first place, Japan elaborates that the me asures constitute "direct transfer[s] of funds" 
because the OPA collects the "Contract Payments" it owes under FIT and microFIT Contracts from 
consumers through the "Global Adjustment" (GA) and distributes them to FIT generators. In the second place, Japan specifies that the measures are "potential direct transfers of funds" since 
FIT generators are entitled to guaranteed payments  for delivered electricity for the entire duration 
of a FIT or microFIT Contract. In the alternative, Japan argues that the FIT Programme and 
Contracts may also be characterized as "income or price support" under Article 1.1(a)(2) of the SCM Agreement because the Government of Ontario contributes to the prices and income enjoyed 
by FIT generators and incentivizes the domestic production of equipment used to produce energy 
from FIT generators.  
2.89.  Consequently, Japan argues that the Panel committed legal error under Article 1.1(a) of the 
SCM Agreement in determining that the appropriat e legal characterization of the FIT Programme 
and Contracts was as government "purchases [of] goods" under Article 1.1(a)(1)(iii). Japan requests the Appellate Body to reverse the Panel' s finding and that it conclude instead that the 
FIT Programme and Contracts are appropriately characterized as "a government practice [that] 
involves a direct transfer of funds … [or] potential direct transfers of funds" or "any form of income 
or price support".
178 In the alternative, if the Appellate Body agrees with the Panel that these 
measures are properly characterized as "purchases [of] goods", Japan requests the Appellate Body 
to modify the Panel's finding in this regard to find that these measures may be characterized in 
addition as "direct transfer[s] of funds", "potential  direct transfers of funds", or "income or price 
support" under Article 1.1(a) of the SCM Agreement. 
2.90.  Furthermore, Japan argues that, in rejecting the complainants' arguments that the 
measures at issue may also be characterized as "d irect transfer[s] of funds" or "potential direct 
transfers of funds", the Panel in effect found subpa ragraphs (i) and (iii) of Article 1.1(a)(1) of the 
SCM Agreement to be mutually exclusive. In Japa n's view, this finding derives from the Panel's 
observation that: "[w]e see no way of reading Articles 1.1(a)(1)(i) and (iii) in a way that enables 
us to conclude that government 'purchases [of] go ods' could also be legally characterized as 'direct 
                                               
177 Japan's other appellant's submis sion (DS412), paras. 30 and 31. 
178 Japan's other appellant's su bmission (DS412), para. 48. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 44 - 
 
 
  transfer[s] of funds'".179 Japan asserts that nothing precludes a panel from determining that a 
measure may be characterized in multiple ways under Article 1.1(a)(1) of the SCM Agreement, as 
long as the panel's findings are based on a proper understanding of the measure's relevant characteristics and an objective assessment of the facts. Japan alleges that this conclusion follows 
from the Appellate Body report in US – Large Civil Aircraft (2
nd complaint ), where the 
Appellate Body stated that "Article 1.1(a)(1) … does not explicitly spell out the intended relationship between the constituent subparagraphs" and that the structure of this provision "does 
not expressly preclude that a transaction  could be covered by more than one subparagraph".
180 
Japan argues that, despite these findings by the Appellate Body, the Panel's finding in this dispute amounts to a conclusion that Article 1.1(a)(1) does expressly preclude government "purchases [of] goods" from also being characterized as "direct tran sfer[s] of funds" or "potential direct transfers 
of funds".  
2.91.  Moreover, Japan rejects the Panel's reliance on the principle of effective treaty 
interpretation for precluding the possibility that government "purchases [of] goods" could also be 
characterized as "direct transfer[s] of funds" or "potential direct transfers of funds". In Japan's 
view, the Panel itself recognized that "there exist distinct situations where a purchase of goods may not also be a direct transfer of funds, namely the situation where the payment for the 
purchase is not monetary in nature."
181 Japan further contends that the principle of effective treaty 
interpretation does not preclude the use of treaty text in a confirmatory manner. Indeed, had the drafters omitted the term "purchases goods" from Article 1.1(a)(1)(iii), "it would have left open the possibility for some Members to argue that the omission of 'purchases [of] goods', particularly 
in an exhaustive list such as Article 1.1(a)(1),  should be interpreted to mean that government 
transfers of funds in exchange for the receipt of goods should not be considered financial 
contributions."
182  
2.92.  According to Japan, the Panel's finding that it could not conclude that government 
"purchases [of] goods" could also be legally characterized as "direct transfer[s] of funds" is a legal error, and Japan requests the Appellate Body to declare it moot and of no legal effect. Thus, Japan 
requests the Appellate Body to find that the FIT Programme and Contracts may be characterized 
as "direct transfer[s] of funds" or "potential dire ct transfers of funds", regardless of whether they 
may also be characterized as government "purchases [of] goods". 
2.93.  Finally, Japan argues that the Panel improperly exercised judicial economy with respect to 
Japan's claim that the FIT Programme and Contracts constitute "income or price support" under 
Article 1.1(a)(2) of the SCM Agreement, and thereby failed to make an objective assessment of the matter as required by Article 11 of the DSU. In particular, Japan argues that the Panel's 
exercise of judicial economy was improper because it failed to explain why its findings 
(i.e. reasoning and conclusion) with respect to Japan's benefit argument in connection with its "financial contribution" claims are exactly applicable to Japan's benefit argument in connection 
with its "income or price support" claim. Japan requests the Appellate Body to find that the 
challenged measures may be characterized as "income or price support", and to find that a benefit exists with respect to this characterization of the FIT Programme and FIT and microFIT Contracts. 
2.4.4.2  Article 1.1(b) – "Benefit" 
2.94.  Japan claims on appeal that the Panel erred in its interpretation and application of 
Article 1.1(b) of the SCM Agreement, and failed to make an objective assessment as required by Article 11 of the DSU, in finding that the compla inants did not establish an appropriate benchmark 
or counterfactual against which to assess "benefit", and in dismissing various benchmarks 
proposed by Japan and a further alternative described by the Panel.  
                                               
179 Japan's other appellant's submission (DS412), para. 49 (quoting Panel Reports, para. 7.246). 
180 Japan's other appellant's submis sion (DS412), para. 50 (quoting , respectively, Appellate Body 
Report, US – Large Civil Aircraft (2nd complaint ), para. 613 and fn 1287 thereto). (emphasis added by Japan) 
181 Japan's other appellant's submission (DS412), para. 53 (referring to Panel Reports, para. 7.246). 
182 Japan's other appellant's submission (DS412),  para. 54. (original emphasis; fn omitted) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 45 - 
 
 
  2.95.  Japan asserts that the Panel concluded that various proposed alternatives were not 
appropriate benchmarks because the relevant market "must be 'a market where there is effective 
competition' in which prices are 'established th rough the operation of unconstrained forces of 
supply and demand, and not by means of government intervention'"183 and that certain objectives 
– namely, securing a reliable electricity system and pursuing health and environmental 
objectives – could only be achieved in a market with "government intervention", which, in turn, 
makes competitive markets unsuitable for use as a benchmark. Japan contends that, in addition to 
being an erroneous interpretation and application of Article 1.1(b), this results in a prejudiced 
(i.e. non-objective) examination of the issue of benefit, which is inconsistent with Article 11 of the DSU. 
2.96.  Japan considers that the proper counterfactual is simply one that reflects a situation 
"but for" the policy in question. For Japan, the history of the Ontario electricity market and the 
design, structure, and operation of the FIT Programme allow for only one conclusion: the FIT Programme allows wind and solar PV electricity generators to operate in the Ontario market 
that would otherwise not do so. This alone constitutes a benefit. Japan states that the Panel 
majority failed to address why this was not so. 
2.97.  For Japan, whether or not the measures are contributing to certain policy goals should have 
no relevance in determining the appropriate benchmark. Japan considers that, as suggested by the 
dissenting member of the Panel, a subsidy may allow a government to achieve certain policy goals that would not be achieved under market conditions prevailing in the absence of that subsidy. Japan notes that "governments regularly use subsidies or other forms of benefits in order to 
achieve outcomes that 'the market' alone cannot fulfil."
184 Japan agrees with the dissenting opinion 
that the necessity of the measures at issue for producers to operate at all confirms the fact that such measures constitute a benefit under prevailing market conditions. Japan argues that the 
Panel majority's approach would leave unregulated subsidies granted to achieve a governmental 
purpose, thus creating a "large loophole"
185 in the SCM Agreement. Japan also notes that 
obligations such as the prohibition against subsidies contingent on the use of local goods in 
Article 3 of the SCM Agreement do not limit Members in their ability to provide subsidies for 
environmental or health purposes.  
2.98.  Japan asserts that in finding that no benefit had been established, solely in the light of the 
guidelines set by Article 14(d) of the SCM Agreement, the Panel erroneously focused on the degree 
or amount of benefit, rather than on the existenc e of a benefit. Japan notes that Article 14(d) does 
not preclude a finding of the existence of a benefit, but provides a particular methodology for calculating the amount of benefit that Members must specify in their own domestic law for the 
purpose of the imposition of countervailing duty measures. According to Japan, the Panel majority 
appeared to recognize the limits of Article 14(d) and that there may be more than one way to demonstrate the existence of a benefit.
186 Japan considers that, even relying on the framework of 
Article 14(d), a comparison of the FIT rates with the weighted-average wholesale rate or the RPP 
commodity charge would itself establish the existence of a benefit.  
2.99.  Japan argues that the Panel failed to a ppreciate the significant difference between what 
non-renewable energy producers expect to receiv e and what FIT producers receive. For example, 
Japan contends that FIT producers currently receive two to eleven times higher rates than the 
weighted-average wholesale rate. In Japan's view, the magnitude of the difference between the rates received by FIT and non-FIT producers leaves no doubt as to the existence of a benefit. 
According to Japan, there is no reason to believe that in a less-regulated, "competitive" market, 
the non-FIT rates would be anywhere close to the FIT rates. 
2.100.  Additionally, Japan claims that, after im properly deciding to rely exclusively on the 
framework of Article 14(d) of the SCM Agreem ent, the Panel chose an improper market 
benchmark. Japan contends that this resulted in a prejudiced examination of the issue of benefit, 
inconsistent with Article 1.1(b) of the SCM Agreement and Article 11 of the DSU.  
                                               
183 Japan's other appellant's submission (DS412), para. 65 (quoting Panel Reports, para. 7.275). 
184 Japan's other appellant's su bmission (DS412), para. 84. 
185 Japan's other appellant's su bmission (DS412), para. 72. 
186 Japan's other appellant's submission (DS412), para. 99 (referring to Panel Reports, paras. 7.271 
and 7.272). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 46 - 
 
 
  2.101.  First, Japan submits that the proper counterfactual or market benchmark would be 
Ontario's current electricity market except for wind and solar PV FIT producers, as these "would 
not exist" absent the FIT Programme.187 Japan submits that the Panel's rejection of this possible 
benchmark as distorted by government regulation is based on an incorrect understanding of the 
Appellate Body's finding in US – Softwood Lumber IV . In that dispute, Japan notes, the main 
question was about the size of a benefit, not it s existence. Japan observes that, to measure the 
size of a benefit, it clearly matters if the market price with which the current price is compared is 
itself influenced by government policies. To show the existence of a benefit, however, it is 
sufficient that the alternative sales price is lower than the current price. Japan considers that the comparison would be "circular" only if the market price were distorted solely because of the FIT Programme or any other government intervention targeted at FIT generators. In Japan's view, 
that is "clearly not the case" in this dispute.
188  
2.102.  Turning to the Panel majority's alternative benchmark, Japan argues that such a 
benchmark would also require that a subsidy had been granted. Japan contends that the Panel 
majority's "erroneous view of the appropriate benchmark" led it to suggest an alternative approach 
to benefit based on "an artificial market for wi nd and solar PV energy", that is, one in which 
commercial distributors would act under a government-imposed obligation to acquire electricity 
from generators operating solar PV and windpower plants.189 While Japan considers that this 
methodology would nevertheless lead to the conclusion that a benefit exists, Japan objects to the use of such an artificial market. In Japan's view, this simply replaces the current government intervention with another: an obligation for commercial distributors to purchase wind- and 
solar PV-generated electricity. 
2.103.  Japan also argues that there is no textual basis in Article 1.1(b) for the consideration of 
environmental protection in a benefit analysis. Japan states that there is no legal basis in the 
SCM Agreement to justify an otherwise prohibited  subsidy under Article 3.1 on grounds such as 
environmental protection, which, according to Ja pan, "is understandable because domestic content 
requirements are irrelevant for purposes such as  protection of the environment or promotion of 
human health".
190 Japan clarifies that it has "no objection whatsoever to Canada promoting 
renewable energy, which can be a crucial tool to  reduce greenhouse gas and other emissions", but 
that "the promotion of renewable energy must be consistent with Members' WTO obligations."191 
Japan considers that the Panel majority's consideration of environmental protection in its 
assessment of the appropriate benchmark was a legal error under Article 1.1(b) of the 
SCM Agreement.  
2.104.   Moreover, according to Japan, the Panel' s approach is essentially based on costs, and 
erroneously ignores the demand-side of the electricity market. Japan contends that the Panel 
majority erroneously ignored the "market reality" that "demand does not necessarily exist for every good or service at a price higher than, or even equal to, its cost."
192 Japan considers that, 
under this approach, commercial distributors woul d have to pay a price that covers generators' 
production costs plus a reasonable rate of re turn, but the Panel majority ignored whether the 
demand-side in Ontario would actually support a price that fully covers these costs. In Japan's view, no rational consumer would in fact ever buy electricity at prices above the costs of solar PV 
and wind energy producers. Japan further argues that a "cost-based" interpretation of "benefit" 
"would subvert the central idea of how subsidies are regulated in the SCM Agreement and lead to absurd results".
193 
2.105.  Japan also notes that the Panel's alternative counterfactual approach relies on artificially 
created separate markets, in contradiction to its own finding regarding the existence of only one market for electricity in Ontario. Japan considers this contradiction to amount to a breach of 
Article 11 of the DSU.  
                                               
187 Japan's other appellant's submission (DS412), para. 104. 
188 Japan's other appellant's submission (DS412), para. 104 (quoting and referring to Appellate Body 
Report, US – Softwood Lumber IV , para. 93). 
189 Japan's other appellant's submission (DS412), para. 108. 
190 Japan's other appellant's submission (DS412), para. 107. 
191 Japan's other appellant's submission (DS412), para. 107. 
192 Japan's other appellant's submission (DS412), para. 109. (original emphasis) 
193 Japan's other appellant's submission (DS412), para. 113. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 47 - 
 
 
  2.106.  Finally, Japan submits that the Panel made contradictory findings under the 
SCM Agreement and the TRIMs Agreement. On the one hand, the Panel stated that mere 
participation in the FIT Programme may be viewed as an "advantage" within the meaning of the Illustrative List of the TRIMs Agreement.
194 On the other hand, it did not find that participation in 
the FIT Programme alone would ensure economically  viable operations and constitute a "benefit" 
for the purposes of the SCM Agreement. Japan submits that this contradiction evidences that the Panel majority failed to make an objective assessm ent of the facts under Article 11 of the DSU.  
2.4.4.3  Article 11 of  the DSU – "Benefit" 
2.107.  Japan presents an additional conditional appeal under Article 11 of the DSU in the event 
that the Appellate Body rejects its principal benefit argument under Article 1.1(b) of the SCM Agreement. Japan requests the Appellate Body  to find that the Panel failed to make an 
objective assessment under Article 11 of the DSU when it concluded that it could not resolve the 
question of benefit under its suggested alternative approach to the issue.
195  
2.108.  Although Japan considers that the Panel majority's alternative benchmark is flawed 
because it effectively results in a benefit analysis based on costs, Japan submits that the Panel 
could have found the existence of benefit by conduc ting an analysis under its proposed alternative 
benchmark. In this respect, Japan contends that the Panel record does contain sufficient evidence 
for the Panel to have completed its proposed analysis. Japan argues that the Panel determined 
that, under the terms of the FIT and microFIT Cont racts, solar PV and wind projects will receive a 
steady stream of income over a 20-year period, pr ovided that the Government of Ontario does not 
default on the payments required under the Cont racts. Japan submits that the "principal risk"196 
under which FIT generators operate is the sovereign risk of default by the Government of Ontario, 
which would allow a comparison with the Ontari o Government long-term bond yield. While the 
Panel recognized that the pre-tax rate of return on equity used to develop the FIT Price Schedule 
in 2009 was 15.8%, it failed to compare the 15.8%  with the Ontario Government long-term bond 
yield that was 4.25% in 2009.197  
2.109.  Japan observes that, instead, the Panel's analysis focused on a comparison of the target 
rates of return for FIT generators and Ontario's regulated utilities (base-load nuclear and hydro 
facilities). Japan submits that, even under this analysis, the Panel should have found a benefit to exist. First, Japan notes that the Panel stated that  the rate of return on other regulated utilities 
"could be as high as 12.96%", which Japan notes is "below OPA's 15.8% pre-tax target rate of 
return" of FIT generators.
198 Second, "the 12.96% figure is based on the most extreme  estimate of 
an appropriate risk premium for electricity utilities".199 Japan considers that 9.75% – the OEB's 
calculation of an average risk premium for all energy generation technologies – would be the 
appropriate benchmark. Japan notes that this is even lower than the OPA's 11% after-tax rate of 
return on equity for FIT generators.200 Third, Japan objects to the Panel's conclusion that a 
comparison of rates of return for wind and solar PV electricity generators with Ontario's regulated 
electricity utilities "is not appropriate because of the 'major technical differences' between the 
operations".201 Japan submits that the Panel found that: solar PV and windpower facilities 
"resemble base-load generation"202; Ontario's regulated utilities have a higher risk than wind and 
solar PV FIT projects because they do not receive government-backed guaranteed prices for 
20 years; and the regulated utilities receive lower rates of return than wind and solar PV 
FIT projects. For Japan, the existence of a benefit in this case is undeniable. In Japan's view, the Panel's failure to conclude that a benefit exists under its alternative approach constitutes a failure 
by the Panel to make an objective assessment of the matter as required by Article 11 of the 
                                               
194 Japan's other appellant's submission (DS412), para. 117.  
195 Japan's other appellant's submission (DS412), para. 119 (referring to panel Reports,  
paras. 7.322-7.327). 
196 Japan's other appellant's submission (DS412), para. 122. 
197 Japan's other appellant's submission (DS412), para. 123 (referring to Panel Reports, paras. 7.325 
and 7.326 and fns 636 and 641 thereto).  
198 Japan's other appellant's submission (DS412), para. 124 (referring to Panel Reports, para. 7.326 and 
fn 641 thereto). 
199 Japan's other appellant's submission (DS412), para. 124. (original emphasis) 
200 Japan's other appellant's submission (DS412), para. 124 (referring to OEB, EB-2009-0084, Report on 
the Cost of Capital for Ontario's Regulated Utilities (Panel Exhibit CDA-64), Table 1, p. 38).  
201 Japan's other appellant's submission (DS412), para. 124 (quoting Panel Reports, para. 7.326).  
202 Japan's other appellant's submission (DS412), para. 124 (quoting Panel Reports, para. 7.19). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 48 - 
 
 
  DSU.203 Japan requests the Appellate Body to complete the analysis if it rejects Japan's main 
benefit argument under Article 1.1(b) of the SCM Agreement.  
2.110.  Should the Appellate Body find that the challenged measures constitute subsidies within 
the meaning of Article 1.1 of the SCM Agreement, Japan requests the Appellate Body to complete 
the analysis and find that the challenged measures are inconsistent with Articles 3.1(b) and 3.2 of 
the SCM Agreement.  
2.111.  Japan states that Canada has never disputed that, if the FIT Programme and Contracts are 
"subsidies", they are inconsistent with Articles 3.1(b) and 3.2. Nonetheless, Japan recalls its 
arguments before the Panel that, as the challenged measures are prohibited subsidies under Article 3 of the SCM Agreement, they are "deemed to be specific" pursuant to Article 2.3 of the 
SCM Agreement. Japan submits that the FIT subsid ies are "contingent … upon the use of domestic 
over imported goods", both in law and in fact, because they are conditional or dependent upon 
satisfying the domestic content requirements of  the FIT Programme (spe cifically, the Minimum 
Required Domestic Content Levels).
204  
2.5  Claims of error by the Eu ropean Union – Other appellant 
2.5.1  The relationship between the TRIMs Agreement and Article III:4 of the GATT 1994 
2.112.  The European Union submits that the Panel erred in the interpretation and application of 
Articles 2.1 and 2.2 of the TRIMs Agreement, re ad in conjunction with paragraph 1(a) of the 
Illustrative List in the Annex to the TRIMs Agreement, when finding that these provisions do not preclude the application of Article III:8(a) of the GATT 1994 to the challenged measures. 
2.113.  The European Union considers that the GATT 1994 and the TRIMs Agreement must be read 
harmoniously and in a holistic manner in order to give meaning and effect to all of their provisions. 
As the Panel noted
205, Article III:8 of the GATT 1994 is a "scope" provision. Article III:8(a) 
excludes certain measures adopted by governments from the national treatment obligation 
contained in Article III of the GATT 1994. In other words, measures falling under Article III:8(a) 
can never be said to be inconsistent with any part of Article III (including Article III:4), because Article III does not apply to such measures.  
2.114.  According to the European Union, the characterization of Article III:8(a) of the GATT 1994 
as a "scope" provision has significant consequences  when examining the text  of Article 2 of the 
TRIMs Agreement. In this regard, the European Union draws a contrast between the text of Article 2.1 and Article 2.2 of the TRIMs Agreem ent. Article 2.1 refers to Article III of the 
GATT 1994, and in doing so includes Article III "as a whole".
206 For its part, Article 2.2 of the 
TRIMs Agreement sets out an illustrative list of measures that are necessarily inconsistent with Article III:4 of the GATT 1994. Articl e 2.2 of the TRIMs Agreement does not refer to Article III of 
the GATT 1994 "as a whole", nor does it qualify in  any way the plain language "are inconsistent 
with" (e.g. it does not say "inconsistent with the terms of Article III:4"). The European Union understands this difference in language to mean that the Panel's reasoning holds only in relation to 
TRIMs other than the specific measures defined through the Illustrative List. For those measures 
that fall within the scope of the Illustrative List, the question whether they could escape a violation through the applicability of Article III:8(a) of the GATT 1994 no longer presents itself because the TRIMs Agreement has conclusively settled the issue. In the European Union's view, paragraph 1 of 
the Illustrative List contains the understanding of Members that the type of measures listed 
therein would under no circumstances escape a violation under Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement. 
                                               
203 Japan's other appellant's submission (DS412), para. 124 (referring to Panel Reports, paras. 7.19 
and 7.326 and fn 641 thereto; and OE B, EB-2009-0084, Report of the Board on the Cost of Capital for 
Ontario's Regulated Utilities, 11 December 2009 (Panel Exhibit CDA-64), Table 1, p. 38). 
204 Japan notes that this is expressly stated in, inter alia , the Green Energy and Green Economy Act of 
2009, the Minister's 2009 FIT Direction, and every version of the FIT and microFIT Rules and FIT and microFIT Contracts. (Japan's other appellant's submission (DS412), paras. 128-130)  
205 Panel Reports, fn 263 to para. 7.113. 
206 European Union's other appellant's submission (DS426), para. 31 (referring to Panel Report, 
Indonesia – Autos , para. 14.61). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 49 - 
 
 
  2.115.  The European Union alleges that the Panel's interpretation "alters the nature and 
function"207 of Articles 2.1 and 2.2 and the Illustrati ve List of the TRIMs Agreement. This is 
because the Panel's approach largely nullifies the effects of Article 2.2 and the Illustrative List in relation to the general obligation in Article 2.1. The European Union explains that Article 2.2 and 
the Illustrative List aim at introducing detail and specificity to the general obligation in Article 2.1. 
Being more specific and precise, Article 2.2 and the Illustrative List inform the application of Article 2.1 (and not the other way around, as contended by the Panel). By contrast, the 
European Union observes that its proposed interpretation is not "inconsistent with the clear terms 
of Article 2.1"
208, because the application of a specific rule, aimed at identifying explicitly a subset  
of measures that are inconsistent with Article III of the GATT 1994 (in particular, in relation to the fourth paragraph of Article III), is not contradictory in any way to the nature of Article 2.1 of the 
TRIMs Agreement as a horizontal obligation that applies to all TRIMs. 
2.116.  In addition, the European Union asserts that  the Panel's interpretation "ignores" the object 
and purpose of the TRIMs Agreement, which is "to 'elaborate' 'further' or 'additional' provisions to 
the already existing ones".
209 The European Union notes that, if Ar ticle 2.2 and the Illustrative List 
were to be read "as merely stating the obvious"210 – that is, that the types of measures listed in 
the Annex discriminate against imported goods – with  no other implications, they would largely be 
redundant. 
2.117.  In sum, the European Union argues that a proper interpretation of Articles 2.1 and 2.2, 
read in conjunction with paragraph 1(a) of the Illustrative List, should lead to the conclusion that the TRIMs listed in the Annex to the TRIMs Agreement are inconsistent with Article III:4 of the 
GATT 1994. In those cases, Article III:8( a) of the GATT 1994 does not apply.  
2.118.  Based on the foregoing, the European Union submits that the Panel wrongly interpreted 
and applied Articles 2.1 and 2.2, read in conjunction  with paragraph 1(a) of the Illustrative List in 
the Annex to the TRIMs Agreement, when findin g that these provisions do not preclude the 
application of Article III:8(a) of the GATT 1994 to the challenged measures. Accordingly, the 
European Union requests the Appellate Body to reverse that Panel finding.  
2.119.  The European Union additionally requests the Appellate Body to complete the analysis and 
correctly apply the legal interpretation set out above to the Panel's factual findings and uncontested facts on the record. The European Union asserts that the measures at issue in the present dispute match exactly the description set out in paragraph 1(a) of the Illustrative List, 
namely, that these are measures "compliance with which is necessary to obtain an advantage, and 
which require … the purchase of or use by an enterprise of products of domestic origin or from any domestic source".
211 The European Union observes that the Panel reached the same conclusion. 
Consequently, the European Union requests the Appellate Body to find that Article III:8(a) of the 
GATT 1994 is not applicable in the present case. Furthermore, as a consequence of this finding, the European Union requests the Appellate Body to  uphold, although modifying the reasoning, the 
Panel's ultimate finding that the challenged measures are TRIMs falling within the scope of 
paragraph 1(a) of the Illustrative List, and that, in the light of Article 2.2 and the chapeau  to 
paragraph 1(a) of the Illustrative List in the A nnex to the TRIMs Agreement, they are inconsistent 
with Article III:4 of the GATT 1994, and thereby also inconsistent with Article 2.1 of the 
TRIMs Agreement. 
2.5.2  Claims under Arti cle III:8(a) of the GATT 1994 
2.120.  The European Union requests the Appellate Body to uphold the Panel's conclusion that the 
FIT Programme and related FIT and microFIT Contracts are inconsistent with Article III:4 of the 
GATT 1994 and Article 2.1 of the TRIMs Agreement, but also to modify, reverse, or declare moot 
and of no legal effect several intermediate findings by the Panel. 
                                               
207 European Union's other appellant's submission (DS426), para. 33. 
208 Panel Reports, para. 7.119. 
209 European Union's other appellant's submission (DS426), para. 35. (fn omitted) 
210 European Union's other appellant's submission (DS426), para. 35. 
211 European Union's other appellant's submission (DS 426), para. 38 (referring to European Union's first 
written submission to the Panel (DS426), paras. 148-153). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 50 - 
 
 
  2.5.2.1  The Panel's finding that the domestic content requirements "govern" 
procurement of electricity 
2.121.  The European Union requests the Appellate Body to reverse the Panel's finding that the 
domestic content requirements with respect to windpower and solar PV generation equipment 
under the FIT and microFIT Contracts "govern" the alleged procurement of electricity for the 
purpose of Article III:8(a) of th e GATT 1994. The European Union alleges that the Panel erred in 
the interpretation and application of Article III:8(a) in making this finding. The European Union 
further requests the Appellate Body to complete the analysis and to find instead that the domestic 
content requirements do not "govern" procurement of electricity. For the European Union, the Panel failed properly to consider the link between the words "procurement" and "products purchased". In the European Union's view, "laws,  regulations or requirements" in the sense of 
Article III:8(a) must be related to the subject ma tter of the procurement – that is, the "products 
purchased for governmental purposes" – in order to "govern" such procurement. Article III:8(a) does not cover requirements or conditions that are not connected with "intrinsic characteristics" or 
the nature of the product purchased.
212 Otherwise, Article III:8(a) would allow discriminatory 
requirements extending far beyond the actual ob ject of the procurement at stake and affecting 
broad areas of economic activity, thereby circumventing the objective of Article III of the 
GATT 1994. 
2.122.  The European Union contends that the dome stic content requirements of the measures at 
issue are not covered by Article III:8(a) because th ey relate to generation equipment, a product 
that is different and "completely disconnected" from the product purchased by the government, 
which is electricity.213 The European Union alleges that the Pa nel erred in finding that there is a 
close relationship between the domestic content re quirements and the electricity purchased by the 
government because the domestic content requiremen ts relate to "the very same equipment that 
is needed and used" to produce the energy purc hased by the government and because compliance 
with the domestic content requirements is a "nec essary prerequisite" for the alleged procurement 
of electricity by the Government of Ontario.214 The Panel ignored that domestic content 
requirements imposed in relation to generation equipment have nothing to do with the intrinsic 
characteristics or the nature of the final products. 
2.123.  In its opening statement at the oral hear ing, the European Union submitted that not every 
condition relating to procurement automatically falls under the terms of Article III:8(a) of the 
GATT 1994. The European Union argued that rules governing procurement activity, such as rules 
imposing deadlines or thresholds, or determining th e type of procedure to follow in the context of 
a bidding process, are covered by Article III:8(a). In addition, conditions regulating the product 
and its charac teristics, such as " technical  specificat ions", are also covered. However, the 
European Union argues that cond itions exogenous to the subject matter of the contract, such as 
the requirements relating to the origin of equipment used to generate electricity procured under 
the FIT Programme, do not fall under Article III:8(a) because they have "no rational link" with the 
attributes of the electricity procured.215 In response to questioning at the oral hearing, the 
European Union responded to Canada's argument  based on Article XVI of the Agreement on 
Government Procurement (GPA) that, because the signatories to the GPA are all bound by the 
obligations in the GATT, they would not have needed to prohibit domestic content requirements on 
inputs into products that are purchased by governments if those requirements fall outside the scope of Article III:8(a) and therefore are, in any event, prohibited by Article III:4 of the 
GATT 1994. The European Union responded that Canada's reference to "inputs" is inapposite, 
because the FIT Programme and related Contracts do not involve inputs incorporated into the final product (electricity). Instead, the domestic conten t requirements at issue relate to equipment and 
components used to generate electricity. The European Union added that the scope of 
Article III:8(a) of the GATT 1994 and Article XVI of the GPA are different, because the latter provision covers not only goods and suppliers, but also services, and because it extends beyond the issue of domestic content. 
                                               
212 European Union's other appellant's submission (DS426), para. 51. 
213 European Union's other appellant's submission (DS426), para. 53. 
214 European Union's other appellant's submissi on (DS426), para. 56 (quoting Panel Reports, 
para. 7.127). 
215 European Union's other appellant's submission (DS426), para. 53. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 51 - 
 
 
  2.5.2.2  The Panel's interpretation of  the term "governmental purposes"  
2.124.  The European Union requests the Appellate Body to reverse or to declare moot and of no 
legal effect the Panel's statement that the term "governmental purposes" in Article III:8(a) may be read to encompass any government purchase "for a stated aim of the government".
216 In the 
event that the Appellate Body, in response to Canada's appeal, reverses the Panel's finding that 
the Government of Ontario's purchases of electricity under the FIT Programme are undertaken "with a view to commercial resale", the European Union requests the Appellate Body to reverse or 
modify the Panel's reasoning as to the meaning of "governmental purposes", to complete the 
analysis, and to find that the Government of Ontario's procurement of electricity under the FIT Programme is not undertaken for "governmental purposes".
217 
2.125.  The European Union maintains that the term "purchased for governmental purposes" in 
Article III:8(a) refers only to "government purchases of goods that are needed to sustain the work 
and functions of the government".218 Thus, they will have to "be actually used or consumed by the 
government in the context of its administrative task s or in the context of the exercise of its public 
functions".219 The European Union notes that the word "purposes" in the English version of 
Article III:8(a) corresponds to the word " necesidades " and " besoins " in the Spanish and French 
versions of the covered agreements. The meanings of these terms are not entirely identical and, 
therefore, in order to interpret the provision in  a manner honouring Article 33(3) of the Vienna 
Convention on the Law of Treaties220 (Vienna Convention), Article III:8(a) of the GATT 1994 must 
be understood as referring to purchases for "pur poses" or "needs" of the government, or for 
purchases of goods that will be used by a gove rnment for its own consumption or used in the 
performance of its functions.221 
2.126.  For the European Union, the decisive factor is whether or not the purchased goods will be 
utilized in some way by the government. The word "purposes" in Article III:8(a) should be 
understood as referring to a situation in which different government bodies and structures would 
be unable to perform their functions without the ac tual use of the good purchased. Such purposes 
or needs may include government purchases of good s in order to be able to provide government 
services to citizens. The European Union contends that the functions a government typically 
performs are delimited by its own constitutional powers. Different governments may have different 
purposes or needs depending on the different roles that governments may play in different societies. While the scope of the governmental functions covered under Article III:8(a) should not 
be defined in the abstract, it may be useful to consider typical governmental functions in the 
Member concerned. The European Union submits that the Appellate Body took a similar approach in US – Anti-Dumping and Countervailing Duties (China) with respect to the question of whether 
an entity is vested with governmental authority in interpreting Article 1.1(a)(1) of the 
SCM Agreement.
222 
2.127.   The purposes or needs of the government cannot include purchases aimed at complying 
with any stated public policy objective, regard less of whether the goods will be used by the 
government, because otherwise government purchases aimed at "protecting local producers against imports" as a stated policy would escape the national treatment obligation in Article III of the GATT 1994.
223 The European Union contends that Article XVII:2 of the GATT 1994 provides 
relevant context and that the negotiating history suggests that Article III:8(a) and Article XVII:2 
should be interpreted in a harmonious manner, in the sense that the terms "for governmental purposes" and "government needs" are coterminous with the phrase "products for immediate or 
ultimate consumption in governmental use".
224  
                                               
216 European Union's other appellant's submissi on (DS426), para. 60 (quoting Panel Reports, 
para. 7.138 (fn omitted)). 
217 European Union's other appellant's submission (DS426), para. 61. 
218 European Union's other appellant's submission (DS426), para. 60. 
219 European Union's other appellant's submission (DS426), para. 60. 
220 Done at Vienna, 23 May 1969, UN Treaty Series, Vol. 1155, p. 331. 
221 European Union's other appellant's submission (DS426), paras. 74 and 75. 
222 European Union's other appellant's submission (DS426), para. 77 (referring to Appellate Body 
Report, US – Anti-Dumping and Coun tervailing Duties (China) , para. 297). 
223 European Union's other appellant's submission (DS426), para. 80. 
224 European Union's other appellant's submission (DS426), para. 85. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 52 - 
 
 
  2.128.  Finally, in the event that the Appellat e Body reverses the Panel's finding that the 
Government of Ontario's purchases of electricity under the FIT Programme are "with a view to 
commercial resale" as requested by Canada, the European Union requests the Appellate Body to complete the analysis and find that the Government of Ontario's purchases of electricity under the 
FIT Programme are not undertaken "for govern mental purposes". In this regard, the 
European Union argues that the Government of Ontario's purchases of electricity are not undertaken "for governmental purposes" because the electricity is not used by the Government of 
Ontario. If the electricity purchased by the government is not used for its own consumption, or in 
the performance of governmental functions such  as the provision of public services, such 
purchases do not fall under Article III:8(a) of the GATT 1994. The European Union contends that 
the creation of an electricity system with a stable, reliable, and sufficient supply of electricity from 
renewable sources is a legitimate policy objective, but it is not in itself a provision of a public 
service. 
2.5.3  Claims under the SCM Agreement 
2.129.  The European Union did not appeal the Panel's finding that the challenged measures 
amount to government "purchases [of] goods" within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 
2.5.3.1  Article 1.1(b) – "Benefit" 
2.130.  The European Union claims that the Pa nel erred in applying Article 1.1(b) of the 
SCM Agreement. In particular, the European Union calls into question the Panel's analysis of whether there was a "benefit" relative to a market benchmark. The European Union requests the 
Appellate Body to reverse the Panel's findings that the European Union failed to establish the 
existence of a benefit and to declare moot and of no legal effect the Panel's findings and observations in paragraphs 7.276-7.327 of the Panel Reports. The European Union also requests 
that the Appellate Body complete the analysis to find that, as the FIT generators would not obtain 
remuneration on the market absent the FIT Progra mme, the challenged measures confer a benefit 
under Article 1.1(b) of the SCM Agreement. Th e European Union submits that, as the Panel's 
findings of benefit are in error, so too is the Panel's ultimate conclusion that the European Union 
failed to establish that the FIT Programme and Contracts constitute subsidies or envisage the granting of subsidies inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement. The European Union requests the Appellate Body to reverse the Panel's finding and to complete the 
analysis to find that the challenged measures amount to subsidies prohibited under Articles 3.1(b) 
and 3.2 of the SCM Agreement, and to recommend that Canada withdraw its prohibited subsidies 
without delay, as required by Article 4.7 of the SCM Agreement.  
2.131.  The European Union takes issue with the Pa nel's finding that the European Union could not 
establish whether the remuneration provided to FIT generators was "adequate" in relation to a "market standard" – that is, a competitive wholesale market for electricity. The Panel found that 
the actual prices found in Ontario could not be us ed as a relevant market benchmark as they were 
distorted by government intervention. Thus, a hy pothetical "market" counterfactual based on a 
competitive wholesale market for electricity could not be used either as it would not achieve the government objectives established in Ontario.
225 The European Union submits that the Panel 
wrongly engaged in examining market counterfactuals in order to make a comparison to determine 
the adequacy of remuneration where, in reality,  the determination of benefit was much simpler. 
2.132.  According to the European Union, the Panel ignored the actual "prevailing market 
conditions" in Ontario that already showed that, absent the FIT Programme, the remuneration 
provided by the FIT Programme to FIT generato rs was not, and could not be, available. The 
European Union contends that the "mere justification for the existence" of the FIT Programme 
"manifestly showed" that such government incentives were necessary in a marketplace like 
Ontario where the supply of electricity generated from windpower and solar PV technologies cannot be achieved by market forces alone and thus necessitates government support.
226 Thus, 
                                               
225 European Union's other appellant's submission  (DS426), paras. 146 and 147 (referring to Panel 
Reports, para. 7.313(b) and (c)).  
226 European Union's other appellant's submission (DS426), para. 147.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 53 - 
 
 
  according to the European Union, the Panel wr ongly found that the European Union did not 
establish whether the remuneration provided to FIT generators was "adequate". 
2.133.  The European Union recalls that Article 14(d) of the SCM Agreement, which may be 
relevant in instances where the challenged measures amount to a financial contribution in the form 
of a government "purchase[] [of] goods", provides that the "purchase[] [of] goods" by a 
government shall not be considered as conferring  a benefit unless the purchase is made for more 
than adequate remuneration. The European Unio n argues that, in making a comparison under 
Article 14(d), there may be no need to have recourse to hypothetical market counterfactuals or 
proxies in cases where it is uncontested that, absent the government purchase, the "prevailing market conditions" show that such a product could not be sold since, for instance, there are identical or similar substitutable products being sold at much lower prices.  
2.134.  Turning to the facts of the present disp ute, the European Union argues that the Panel 
failed to apply the relevant standard correctly when examining the "prevailing market conditions" in Ontario. The European Union observes that the Panel found that the relevant product market for 
the purposes of determining the existence of a bene fit should be the market for electricity, rather 
than the segment corresponding to electricity generated from windpower and solar PV technologies. The European Union states that "'what the recipient would have obtained from the 
market' in Ontario was, simply, no remuneration at all (hence the need for government support 
through the FIT Programme)", and that this was "unambiguously clear from the record of the case".
227 The European Union argues that, where the same or substitutable goods produced by 
other generating technologies were much less remunerated, the Panel should have arrived at a 
conclusion as to the existence of a benefit "with little difficulty".228  
2.135.  For the European Union, the mere nature of the FIT Programme indicates that it was 
introduced to achieve a policy objective of a particular energy supply-mix including renewable 
generation sources that the "prevailing market conditions" in Ontario could not accomplish. 
According to the European Union, Canada's submissions indicate that the FIT Programme was created to induce new renewable energy generation, since Ontario's established market structure 
did not invite sufficient entry of new generators , particularly generators using alternative and 
renewable energy sources. The European Unio n notes that the stated objectives of the 
FIT Programme include to "[i]ncrease capacity of  renewable energy supply to ensure adequate 
generation and reduce emissions", to "[p]rovide incentives for investment in renewable energy 
technologies", and to "[e]nable new green industries through new investment and job creation", as 
well as to "facilitate the increased development of Renewable Generating Facilities of varying sizes, 
technologies and configurations".
229 The European Union notes that the Panel recognized that 
"[the] prevailing conditions of supply and demand  in Ontario suggest that a competitive wholesale 
electricity market would fail to attract the degree of investment in generating capacity needed to secure a reliable supply of electricity, and that, at present, this goal can only be achieved by 
means of government intervention in what would otherwise be unacceptable competitive market 
outcomes".
230 
2.136.  The European Union states that, as regards Article 14(d), what the recipient would have 
obtained from the market is not limited to only the price level but includes all the terms and 
conditions of the transaction as part of such "remuneration". The European Union states that, on 
the one hand, the FIT Programme provides remuneration to FIT generators in the form of "guaranteed rates at a certain level and … for a period of 20 years, including generous price 
escalation conditions, thereby shielding the FIT generators from any market risks".
231 The 
European Union highlights that these conditions are provided regardless of the scale or generation capacity of the project, noting that there is a gu arantee to purchase as much as the FIT generators 
can produce. On the other hand, the European Union argues, such remuneration was not available 
in the relevant marketplace of Ontario in view  of the fact that there are other competing 
generation technologies with lower operating costs also producing electricity. The European Union 
                                               
227 European Union's other appellant's submission (DS426), para. 160. 
228 European Union's other appellant's submission (DS426), para. 162. (fn omitted) 
229 European Union's other appellant's submission (D S426), para. 161 (quoting, respectively, Minister's 
2009 FIT Direction, p 1; and FIT Rules (version 1.5.1), Section 1.1).  
230 European Union's other appellant's submission (DS426), para. 161 (referring to Panel Reports, 
para. 7.312).  
231 European Union's other appellant's submission (DS426), para. 163. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 54 - 
 
 
  argues that the elements included in the FIT remuneration would not be available to 
FIT generators in the market, absent the FIT Programme. The European Union considers that the 
dissenting opinion seemingly agreed with this proposition. 
2.137.  Further, the European Union notes that, in cases involving prohibited subsidies under 
Article 3 of the SCM Agreement, there is no ne ed to quantify the amount of benefit. The 
European Union observes that the Appellate Body does not need to identify the relevant benchmark to establish the amount of benefit conferred by the FIT Programme, but rather it 
suffices to conduct an analysis that permits a determination of the existence of a benefit under 
Article 1.1(b) of the SCM Agreement, regardless of its amount.  
2.138.  The European Union considers that the dissenting opinion agreed with the 
European Union's view that the fact that the market in Ontario alone cannot achieve all policy 
objectives (such as positive environmental externalities that the market does not capture) does 
not mean that such "market" should be dismissed as the relevant point of comparison to determine the existence of a benefit. According to the European Union, it is precisely such a 
"marketplace" that is relevant in determining the existence of a benefit.
232 The European Union 
points to Article 8.2(c) of the SCM Agreement as reflecting the intention of the drafters of the 
Agreement that financial contributions provided by the government to achieve a particular policy 
objective that cannot be achieved by market forces alone may constitute subsidies within the 
meaning of the SCM Agreement. 
2.139.  Finally, the European Union points to the Pa nel's finding in the context of the claims under 
the TRIMs Agreement that " mere participation  in [the] FIT Programme may be viewed as obtaining 
an 'advantage'".233 The European Union fails to understand on what basis the Panel found that the 
remunerating conditions provided by the FIT Programme per se  amount to an "advantage" under 
the chapeau  of paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement, but 
not a "benefit" under the SCM Agreement, considerin g that the Appellate Body has stated that the 
term "benefit" encompasses some form of "advantage".234 In the European Union's view, the same 
analysis that had permitted the Panel to find that the FIT Programme provided an advantage under 
the TRIMs Agreement should have led the Panel to conclude that the FIT Programme confers a 
benefit under Article 1.1(b) of the SCM Agreement.  
2.140.  The European Union requests the Appellate Body to complete the analysis on the basis of 
the fact that, absent the FIT Programme, under the "prevailing market conditions" in Ontario, 
FIT generators would not obtain the remuneration provided by the FIT Programme.  
2.5.3.2  Article 11 of  the DSU – "Benefit" 
2.141.  In the alternative, the European Union submits that the Panel did not make an objective 
assessment of the matter in accordance with Arti cle 11 of the DSU. The European Union submits 
that the Panel failed to consider the totality of  the evidence, as presented and argued by the 
European Union, when finding that, even on the basis of its alternative counterfactual, the 
European Union failed to establish the existence of  "benefit". According to the European Union, the 
Panel's refusal to consider the European Union's arguments and evidence that would have allowed it to complete its analysis under its own hypothetical "market" counterfactual was based on incoherent reasoning and the exercise of false judicial economy.  
2.142.  The European Union recalls that, in its ob servations about a possible alternative approach 
to the determination of benefit under Article 1.1( b) of the SCM Agreement, the Panel "relied on a 
hypothetical 'market' counterfactual where the polic y objective of securing an adequate supply-mix 
was achieved under a government-imposed obligation on distributors to purchase electricity from 
                                               
232 European Union's other appellant's submission (DS426), para. 166.  
233 European Union's other appellant's submissi on (DS426), para. 168 (quoting Panel Reports, 
para. 7.165). (original emphasis) 
234 European Union's other appellant's submission (DS426), para. 169 (referring to Appellate Body 
Report, Canada – Aircraft , para. 153). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 55 - 
 
 
  generators operating solar PV and windpower technologies"235, but where regulation would not 
prevent effective competition among generators of wind and solar PV electricity. 
2.143.  The European Union considers that there is sufficient evidence on the record for the Panel 
to have found the existence of a benefit, even  under the hypothetical market counterfactual 
suggested by the Panel, or another counterfactual based on price negotiations between potential 
generators and the government. The European Union points to its submissions before the Panel that, where the State can select producers, it can "obtain the lowest possible price from each 
producer through direct negotiation or through a bidding process that will ensure purchases at no 
more than the specific costs plus profit expectation by each bidder"
236, and that "the predecessors 
of the FIT Program were administered based on the best prices offered by generators through a bidding process".
237  
2.144.  According to the European Union, this, and other evidence on the record, shows that 
remuneration provided as a result of a bidding process in Ontario led to much lower rates. In particular, the European Union observes how the predecessor of the FIT Programme (the 
Renewable Energy Supply (RES) Initiatives) in 2004-2008 followed a competitive procurement 
process. The highest competitive prices proposed in the context of those tenders (a disclosed average of 8.4 cents per kWh and an estimated highest bid of 9.4 cents per kWh) were "way below 
any of the rates guaranteed under the FIT Programme".
238  
2.145.  The European Union highlights that the FIT Programme "guarantees a minimum of profits 
to the FIT Generators regardless of the market, unlike the case of any producer, which has to compete on price".
239 The European Union considers that an analysis of the "structural elements" 
of the FIT Programme (namely, the standard rate  and guarantee conditions) should have allowed 
the Panel to complete the analysis and find "benefit" under the Panel's own alternative counterfactual. The European Union recalls that at the Interim Review stage it raised the point 
that, even under the approach suggested by the Panel, there was sufficient information on the 
record to determine the existence of a benefit, and requested the Panel to complete its analysis on the basis suggested by the European Union, "or on  any other alternative" basis, "in view of the 
information already available on the record".
240 
2.146.  In addition, the European Union alleges that  the Panel's failure to consider the totality of 
the evidence was based on incoherent reasoning an d the exercise of false judicial economy. The 
European Union states that the Panel's only reasoning as to why it did not consider the 
European Union's evidence was that, having rejected Canada's argument that there was a 
separate market for wind- and solar PV-generated el ectricity, it was not necessary to evaluate the 
merits of the European Union's alternative arguments advanced to demonstrate that, even 
according to Canada's line of argument, the FIT and microFIT Contracts amounted to financial 
contributions that confer a benefit.241  
2.147.  Moreover, the European Union argues th at, on the one hand, the Panel found that a 
separate wholesale market for electricity gene rated by windpower and solar PV technologies 
"would not be the appropriate focus" of the benefi t analysis in the present dispute, while, on the 
other hand, it applied a standard that would require a comparison between the remuneration under the FIT Programme and the remuneration that specifically solar PV and windpower 
generators would obtain within a hypothetical "market" counterfactual.
242 The European Union 
                                               
235 European Union's other appellant's submission (DS426), para. 182.  
236 European Union's other appellant's submission (DS426), para. 186 (referring to European Union's 
closing statement at the second Panel meeting (DS426), para. 11).  
237 European Union's other appellant's submission (DS426), para. 185 (referring to European Union's 
second written submission to the Panel (DS426), para. 85).  
238 European Union's other appellant's submission  (DS426), paras. 189 and 190 (quoting OPA, Joint 
Report to the Minister of Energy: Recommendations on a Standard Offer Program for Small Generators 
connected to a Distribution System, 17 March 2006 (Panel Exhibit CDA-55), pp. 17 and 20; and Hogan Report, p. 34). 
239 European Union's other appellant's submission (DS426), para. 187 (referring to European Union's 
comments on Canada's response to Panel question No. 17 (second set), para. 19).  
240 European Union's other appellant's submissi on (DS426), paras. 191 and 192 (referring to 
European Union's comments on In terim Panel Report, pp. 6-7).  
241 European Union's other appellant's submission (DS426), para. 197.  
242 European Union's other appellant's submission (DS426), paras. 198 and 199. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 56 - 
 
 
  considers that this constitutes incoherent reasoning and false judicial economy contrary to the 
Panel's obligations under Article 11 of the DSU. The European Union requests the Appellate Body 
to reverse the Panel's finding that the European Union failed to establish the existence of a benefit, to complete the analysis on the basis of the uncontested arguments and evidence submitted by 
the European Union, and to find that the challeng ed measures confer a benefit under Article 1.1(b) 
of the SCM Agreement.
243  
2.148.  The European Union claims that, as a consequence of the Panel's errors regarding 
"benefit", the Panel's ultimate conclusion that the European Union failed to establish that the 
challenged measures constitute subsidies or envisage the granting of subsidies inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement is also in error. The European Union requests the Appellate Body to reverse this finding, to complete the analysis, and to find that the measures 
amount to prohibited subsidies. Moreover, the European Union requests the Appellate Body to 
recommend that Canada withdraw its prohibited subsidies without delay as required by Article 4.7 of the SCM Agreement. Should the Appellate Body be unable to complete the analysis under any of 
the requests made by the European Union, the European Union requests the Appellate Body to 
declare moot and of no legal effect the Panel's findings and conclusions in paragraph 7.328(ii) of 
its Reports, and in paragraph 8.7 of the EU Panel Report (DS426).
244 
2.6  Arguments of Canada – Appellee 
2.6.1  The order in which the Panel dealt wi th Japan's claims under the SCM Agreement 
and its claims under the TRIMs Agreement and the GATT 1994 
2.149.  Canada did not address in its appellee's submission Japan's claim that the Panel erred by 
commencing its evaluation with Japan's claims under the TRIMs Agreement and the GATT 1994, 
rather than with its claims under the SCM Agreement.  
2.6.2  The relationship between the TRIMs Agreement and Article III:4 of the GATT 1994 
2.150.  Canada asserts that the Panel correctly found that the TRIMs Agreement does not preclude 
the application of Article III:8(a) of the GATT 1994 to the FIT Programme's domestic content 
requirements.  
2.151.  Canada notes the European Union's argument  that the Panel "ignored" the difference in the 
terms used in paragraphs 1 and 2 of Article 2 of the TRIMs Agreement.245 According to Canada, 
rather than support the European Union's interpretation, the reference to Article III:4 of the GATT 1994 in Article 2.2 of the TRIMs Agreement undermines it. Canada explains that, by 
characterizing the measures in the Illustrative List of TRIMs in the Annex to the TRIMs Agreement 
as inconsistent with "the obligation of national treatment provided for in paragraph 4 of Article III" of the GATT 1994, instead of "Article III", Articl e 2.2 does not address the consistency of the 
measures listed in the Annex to the TRIMs Agre ement with Article III of the GATT 1994, as a 
whole, including Article III:8(a).  
2.152.  Canada also rejects the European Union's argument that the Panel's interpretation renders 
Article 2.2 of the TRIMs Agreement and the Illustrative List "essentially redundant".
246 Canada 
submits that "just because a measure obviously discriminates against imported goods does not mean that the measure satisfies all the elements of Article III:4."
247 Canada adds that Article 2.2 
of the TRIMs Agreement not only identifies measures that are inconsistent with Article III:4 of the 
GATT 1994 but, more specifically, measures that ar e inconsistent with that Article and that can 
also be characterized as TRIMs. Furthermore, it no tes that the list is "illustrative" and, therefore, 
apart from any other function, provides an illust ration of the types of measures that are both 
TRIMs and inconsistent with the national trea tment obligation in Article III:4 of the GATT 1994. 
                                               
243 European Union's other appellant's submission (DS426), para. 204. 
244 European Union's other appellant's submission (DS426), para. 206.  
245 Canada's appellee's submission, para. 28 (referring to European Union's other appellant's submission 
(DS426), paras. 31 and 32). 
246 Canada's appellee's submission, para. 30 (quoting  European Union's other appellant's submission 
(DS426), para. 27). 
247 Canada's appellee's submission, para. 30. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 57 - 
 
 
  2.153.  In addition, Canada argues that the European Union "overlooks"248 that the context to 
paragraph 1 of the Illustrative List undermines its interpretation of that paragraph. Canada points 
out that the Illustrative List also contains, in paragraph 2, examples of TRIMs that are inconsistent with Article XI:1 of the GATT 1994. It further note s that Article XI:2 contains a "scope" provision 
similar to Article III:8(a) of the GATT 1994. Canada draws an analogy between Articles XI:2 
and III:8(a) in their relation to the Illustrative List of the TRIMs Agreement. Consequently, Canada submits that, if the European Union's interpretation of the effect of the Illustrative List of TRIMs 
that are inconsistent with Article III:4 is correct, then this must also be the effect of the 
Illustrative List of TRIMs that are inconsistent with Article XI:1 of the GATT 1994. In other words, under the European Union's reasoning, the TRIMs that are listed in the Illustrative List as inconsistent with Article XI:1 must fall outside the scope of Article XI:2. Yet, Canada submits that 
a comparison between Article XI:2 and the TRIMs listed in the Illustrative List as inconsistent with 
Article XI:1 of the GATT 1994 reveals that this proposition "is untenable".
249 Canada emphasizes 
that the Illustrative List contains measures that "clearly"250 could fall within the scope of 
Article XI:2 of the GATT 1994. As an example, Canada refers to measures that "restrict the 
importation by an enterprise of products used in or related to its local production". Canada argues that such measures can "clearly"
251 fall within the scope of Article XI:2(c)(ii), which states that 
"[t]he provisions of paragraph 1 of this Article shall not extend to … [i]mport restrictions on any 
agricultural or fisheries product … necessary to the enforcement of government measures which operate … to remove a temporary surp lus of the like domestic product". 
2.154.  Therefore, Canada asserts that the Euro pean Union's interpretation of Article 2.2 and 
paragraph 1 of the Illustrative List in the Annex to the TRIMs Agreement is inconsistent with the 
text and its context. Canada thus submits that the European Union has failed to provide grounds to overturn the Panel's decision that the TRIMs Agreement does not preclude the application of 
Article III:8(a) of the GATT 1994 to the FIT Programme's domestic content requirements.  
2.6.3  Claims under Arti cle III:8(a) of the GATT 1994 
2.155.  Canada requests the Appellate Body to uphold the Panel's findings with respect to the 
issues raised under Article III:8(a) of the GATT 1994 in the other appeals by the European Union 
and Japan. 
2.6.3.1  The Panel's finding that the FIT Programme and Contracts involve "procurement 
by governmental agencies of products purchased" 
2.156.  Canada maintains that the Panel correctly found that the Government of Ontario 
"purchases" electricity under the FIT Programme. For Canada, the Panel properly considered the facts that the funds transferred to suppliers are inte nded to pay for the electricity that is delivered 
into Ontario's electricity grid; that the Government of Ontario takes "possession" of the electricity 
because it directs the movement of that electricity to and throughout the grid by means of IESO instructions; and that the Electricity Act of 1998,  the Minister's 2009 FIT Direction, the FIT and 
microFIT Contracts, and other related documents all characterize the challenged measures as a 
"procurement" or "purchase" of electricity. 
2.157.  In response to Japan's argument that th e allocation of the generation, transmission, and 
distribution of electricity to different entities in Ontario suggests that the Government of Ontario 
does not "purchase" electricity, Canada argues that it is irrelevant which specific agency within the 
Government of Ontario takes physical possession of the electricity, as long as the Government of Ontario takes possession. Canada further submits that Japan overlooks that the Panel found that 
an entity can purchase a product even if it does not take "physical possession" of it. According to 
the Panel, even if there is no transfer of physical possession of a product, there can be a "purchase" if the purchaser obtains "an entitlement"
252 to the product, and Canada asserts that the 
Panel effectively found that the OPA has an entitlement to electricity delivered under the FIT and 
microFIT Contracts. 
                                               
248 Canada's appellee's submission, para. 32. 
249 Canada's appellee's submission, para. 33. 
250 Canada's appellee's submission, para. 33. 
251 Canada's appellee's submission, para. 33. 
252 Canada's appellee's submission, para. 38 (referring to Panel Reports, paras. 7.228 and 7.229). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 58 - 
 
 
  2.6.3.2  The Panel's finding that the domestic content requirements "govern" the 
procurement of electricity 
2.158.  Canada contends that the Panel correctly found that the domestic content requirements 
"govern" the procurement of electricity. For Canada, the Panel correctly considered that, because 
the domestic content requirements must be satisf ied by generators wanting to participate in the 
FIT Programme, these requirements "govern" proc urement of electricity by the Government of 
Ontario under the FIT Programme. The European Union argues that the Panel's interpretation 
allows discriminatory requirements to extend far beyond the actual object of the procurement at 
stake, affecting broad areas of economic activity that would be irreconcilable with the objective of Article III of the GATT 1994. In response to this argument, Canada asserts that the European Union overlooks the objective of paragraph 8(a) of Article III, which supports the 
inclusion of domestic content requirements on the inputs into products that are purchased by the 
government. Canada maintains that this provision was included in Article III in order to enable Members to pursue public policy through government procurement. 
2.159.  Furthermore, Canada refers to Article XVI:1 of the GPA, which prohibits conditions on the 
inputs into the product that is purchased. Canada argues that, since the signatories to the GPA are all bound by the obligations in the GATT, they would not have needed to prohibit domestic content 
requirements on inputs into products that are pu rchased by governments if those requirements fall 
outside the scope of Article III:8(a) and, therefore,  are in any event prohibited by Article III:4 of 
the GATT 1994. Furthermore, Canada refers to Article XVI:2 of the GPA, which allows developing countries to negotiate exemptions from the disciplin es on domestic content requirements on inputs 
into products that are purchased by the government. Canada argues that there would have been 
no need to include this exemption if developing countries nevertheless faced such disciplines under the GATT 1994. In addition, Canada alleges th at the European Union overlooks academic 
commentary, suggesting that "it is clear"
253 that requirements imposed on the inputs into products 
purchased by the government fall within the scope of Article III:8(a) of the GATT 1994.  
2.6.3.3  The Panel's interpretation of the term "governmental purposes" 
2.160.  Canada submits that the Panel correctly interpreted the term "governmental purposes". In 
particular, Canada supports the Panel's statemen t that the ordinary meaning of "governmental 
purposes" is relatively "broad"254 and may encompass all three of the meanings advanced by the 
parties, including the meaning proposed by Cana da that a purchase for "governmental purposes" 
is a purchase for a stated aim of the government. Canada maintains that the European Union's 
interpretation of the word "purposes" as "needs" is not supported by dictionary definitions of the 
word "purpose". For Canada, the term "governmen tal purposes" must be interpreted in context 
with the phrase "and not with a view to commercial resale or with a view to use in the production 
of goods for commercial sale", and that this phrase confirms that the term "governmental 
purposes" also refers to the "view" or "aim" be hind the purchase. Thus, Canada argues that the 
inquiry must be into the "purpose", "view", or "aim" behind the purchase and whether it is 
governmental or commercial. 
2.161.  Canada further submits that, even if the term "governmental purposes" refers to "needs" 
of the government, as the European Union argues, it is not clear why purchases for the "needs" of 
the government are only those for consumption or physical use by the government. With respect 
to the European Union's reference to the negotiating history of Article III:8(a) and its argument that the provision originally referred to purchases for "governmental use", Canada asserts that the 
European Union has failed to explain why the negotiators of the provision ultimately chose the 
word "purposes" instead of "use".  
                                               
253 Canada's appellee's submission, para. 54 (quoting  S. Arrowsmith, "Government Procurement in the 
WTO", Studies in Transnational Economic Law , Vol. 16 (Kluwer Law International, 2002), p. 53 (Panel Exhibit 
CDA-85)). 
254 Canada's appellee's submission, para. 59 (quoting Panel Reports, para. 7.140).  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 59 - 
 
 
  2.162.  Moreover, in response to the European Un ion's argument that the context of Article XVII:2 
of the GATT 1994 lends support to its reading of  the term "governmental purposes", Canada 
argues that the inclusion of the word "use" in Article XVII:2 highlights that negotiators chose not to include this word when describing the purchases falling within the scope of Article III:8(a) of the 
GATT 1994. 
2.6.3.4  The Panel's interpretation of the word "for" in the term "for governmental 
purposes" 
2.163.  Canada contends that the Panel correctly interpreted the word "for" in the term "for 
governmental purposes". In response to Japan's argument that the Panel neglected to analyze whether there was a "true and genuine connectio n between the 'purchase' … and 'governmental 
purpose[]' at issue"
255, Canada maintains that Japan is raising a new argument and that it is 
therefore challenging neither an "issue[] of law covered in the panel report" nor a "legal 
interpretation[] developed by the panel" as required under Article 17 of the DSU. Canada asserts that this issue is outside the scope of the Appella te Body's mandate under Article 17.6 of the DSU, 
because the Panel was never aske d to define the word "for" in the manner now advanced by 
Japan. Canada submits that the appeal of this issue is also outside the scope of Article 17.6 
because there are insufficient facts on the Panel record for the Appellate Body to assess it, given 
that the issue was not pleaded before the Panel. 
2.164.  Alternatively, if the Appellate Body finds this issue to be properly before it, Canada asserts 
that the dictionary definition of the word "for" provided by Japan does not support its 
interpretation of this word in Article III:8(a) of  the GATT 1994. In response to Japan's argument 
that the object and purpose of the GATT 1994 sugges ts that an interpretation of Article III:8(a) 
should "ensure that the exclusion for products 'purchased for governmental purposes' is not so expansive that it allows WTO Members to avoid their obligations under Article III simply by 
assigning a 'governmental purpose' to a particular trade-restrictive measure"
256, Canada agrees. 
In Canada's view, "Article III:8(a) should be interpreted 'to require that a government's purchase of products is made truly and genuinely in order to obtain or achieve a particular governmental 
purpose,' as argued by Japan."
257 For Canada, however, this does not mean that only those 
purchases that are necessary  to achieve a particular governmental purpose fall within the scope of 
Article III:8(a). Canada submits that the decision of the negotiators of the GATT not to include a necessity test in Article III:8(a) was a deliberate choice. 
2.6.3.5  The Panel's interpretation of the term "with a view to commercial resale" 
2.165.  Canada alleges that both Japan and the Panel misinterpreted the term "commercial 
resale". Canada refers to the arguments set out in its appeal of the Panel's interpretation of the 
phrase "with a view to commercial resale", where it submits that "commercial resale" is a resale 
with the underlying intent to profit. Canada argues that the Appellate Body report in  US – Anti-Dumping and Countervailing Duties (China)
258 supports its interpretation of the term 
"commercial resale". In response to Japan's challe nge of the Panel's interpretation of this term, 
Canada argues that Japan's interpretation of "commercial resale" as resale "into the stream of commerce, trade or market"
259 is incorrect, because dictionary definitions of "commerce" include 
transactions with intent to realize a profit. 
2.166.  In addition, Canada asserts that Japan's interpretation "overlooks"260 that the word 
"commercial" qualifies the word "resale" in Article III:8(a). A "resale" of a product necessarily means that the product will be "sold into the stream of commerce or trade". Hence, a "commercial 
resale" cannot mean the same thing. The addition of the word "commercial" must qualify the 
"resale" in some way. For Canada, the word "commercial" qualifies the "resale" in that it stipulates 
                                               
255 Japan's other appellant's submission (DS412), para. 171. 
256 Canada's appellee's submission, para. 71 (quoting Japan's other appellant's submission (DS412), 
para. 175). 
257 Canada's appellee's submission, para. 71 (quoting Japan's other appellant's submission (DS412), 
para. 175 (original emphasis)). 
258 Appellate Body Report, US – Anti-Dumping and Co untervailing Duties (China) , para. 478. (fn omitted) 
259 Canada's appellee's submission, para. 10 (referring to Japan's other appellan t's submission (DS412), 
paras. 182-188). 
260 Canada's appellee's submission, para. 77. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 60 - 
 
 
  that it must be for an underlying intent to profit. Furthermore, Canada alleges that Japan's 
interpretation ignores relevant context provided by the term "governmental purposes". Intent to 
introduce a product "into the stream of commerce or trade" can still be "governmental". Canada presents the example of a government purchasi ng books for community libraries and medical 
vaccines. That the government recovers some of the cost for the purchase of those products does 
not diminish the governmental nature of that purchase. In Canada's view, the purchase only loses its governmental character and becomes commercial if the government seeks to profit from it. 
2.167.  Canada argues that both Japan and the Pa nel misinterpreted the term "with a view to" in 
Article III:8(a) of the GATT 1994. Canada refers to the arguments set out in its appeal of the 
Panel's interpretation of the phrase "with a view to commercial resale". Canada maintains that both Japan and the Panel failed to examine the meaning or effect of the term "with a view to" and 
instead focused solely on the meaning of the term "commercial resale". As a result, Japan and the 
Panel incorrectly focused on whether there is commercial resale of the electricity that is purchased under the FIT Programme, rather than the view to which that electricity is purchased.  
2.168.  Canada refers to Japan's argument that Canada's interpretation is contrary to the object 
and purpose of the GATT 1994 because it would allow a Member that wished to exclude a particular foreign product from its domestic market to declare an aim to secure a stable supply of 
that product for the benefit of its consumers' welfare, establish a non-profit government agency to 
purchase quantities of that product subject to  the requirement that the product be produced 
domestically, and then resell that product to consumers without earning profit from that resale. Canada contends that this is not correct, because Japan overlooks that a purchase must be for 
"governmental purposes and not with a view to commercial resale", and that the purpose of 
excluding a foreign product from a domestic market cannot be a governmental purpose.  
2.169.  Canada further submits that the governmental nature of a purchase will partly depend on 
the role that a government plays in a particular country and the government's role in supplying the 
product at issue. Canada maintains that, if the government has not traditionally supplied the product and has no constitutional mandate to do so, then this will indicate that the purchase of the 
product for the alleged benefit of consumers is not actually for a governmental purpose. 
2.6.3.6  Canada's request for completion of the analysis 2.170.  In the event that the Appellate Body comp letes the analysis under Article III:8(a) of the 
GATT 1994, Canada submits that the evidence on th e record demonstrates that the Government of 
Ontario purchases solar PV- and wind-generated electricity under the FIT Programme "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". Canada maintains that the relevant factors for 
characterizing the aim behind the purchase are the role of the government within a particular 
country (including its constitutional and legislative mandate), the stated aims of the government behind the purchase, and whether the government has an intention to profit from the resale or use 
of the product. For Canada, the application of these three elements demonstrates that the 
Government of Ontario's purchases of electricity under the FIT Programme are "for [a] governmental purpose[] and not with a view to commercial resale or … use in the production of goods for commercial sale".  
2.171.  Regarding the first element, Canada maintains that the aim behind the purchase of 
electricity under the FIT Programme is the governmental aim of helping to ensure a sufficient and reliable supply of electricity from clean sources for Ontarians. With respect to the second element, 
Canada argues that the Government of Ontario plays a significant role in ensuring the provision of 
a sufficient and reliable supply of electricity from clean sources. Canada submits that the Canadian Constitution Act of 1982
261 gives Canadian provinces, including Ontario, the power to "make laws 
in relation to … development, conservation and management of sites and facilities in the province 
for the generation and production of electrical energy"262, and asserts that the Government of 
Ontario has relied on this power expressly to commit in legislation to pursue for Ontarians a 
                                               
261 The Constitution Act, 1982 was enacted as Schedule B to the Canada Act, 1982 (UK) 1982, 
Chapter 11, which came into force on 17 April 1982. 
262 Canada's appellee's submission, para. 90 (referring  to Department of Just ice Canada, Constitution 
Acts, 1867 to 1982, Part VI – Distribution of Legislative Powers (Panel Exhibit JPN-48), Section 92A(1)(c)).  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 61 - 
 
 
  reliable and sufficient supply of electricity from clean sources. Canada argues that the Government 
of Ontario plays a significant role in all aspects of the province's electricity system. The Ontario 
Government, along with local municipal governments, owns the vast majority of the transmission and distribution network that physically supplies electricity to Ontario consumers. It controls the 
flow of electricity through its agent, the IESO, and regulates the price of electricity and the cost of 
physically supplying electricity through its agent, the OEB. Canada further submits that the Government of Ontario owns the majority of electricity-generating assets in Ontario through its 
agent, Ontario Power Generation (OPG), and that the Government also supplements its generation 
of electricity by purchasing electricity through its agent, the OPA.  
2.172.  As to the third element, Canada submits th at the OPA is prevented from profiting from any 
aspect of its operations, including the purchase of electricity under the FIT Programme. In that 
respect, Canada notes that Section 25.2(2) of the El ectricity Act of 1998, entitled "Not for profit", 
states that "[t]he business and affairs of the OPA shall be carried on without the purpose of gain". In sum, for Canada, the role of the Government of Ontario, the stated aims of the government 
when purchasing renewable electricity, and the government's "not for profit" mandate with regard 
to the purchase and any resale or use of the electricity, all confirm that the aim of the Government of Ontario behind the purchase of electricity under the FIT Programme is governmental and not 
commercial.  
2.173.  Canada maintains that this conclusion is supported by findings of the Panel. Canada 
submits that the Panel did not directly address the purpose behind the Government of Ontario's 
purchase of electricity under the FIT Programme, but that it did acknowledge that the 
FIT Programme serves two fundamental objectives, namely, encouraging the participation of new 
generation facilities using renewable sources of energy into the Ontario electricity system, and 
stimulating local investment in the production of renewable energy generation equipment. In 
addition, Canada refers to the Panel's findings that the objectives of the FIT Programme "are 
pursued through the execution of the FIT and microFIT Contracts"
263 and to the Panel's finding that 
"one of the fundamental objectives of the FIT Programme is to secure investment in new 
generation facilities for the purposes of diversifying Ontario's supply-mix and helping to fill the 
supply gap that is expected from the closure of Ontario's coal-fired facilities by 2014."264 
2.6.4  The Panel's decision to exercise judicial economy with respect to Japan's 
"stand-alone" claim under Article III:4 of the GATT 1994 
2.174.  Canada did not address in its appellee's submission Japan's claim that the Panel erred by 
failing to make a finding with respect to Japan's "stand-alone" claim under Article III:4 of the GATT 1994. At the oral hearing, Canada noted that  the Panel did make a finding under Article III:4 
of the GATT 1994 and said that it did not see why it would have been necessary for the Panel to 
have made an additional finding under Japan's "stand-alone" claim under Article III:4. 
2.6.5  Claims under the SCM Agreement 
2.6.5.1  Article 1.1(a) – "Financial co ntribution" or "income or price support" 
2.175.  With respect to Japan's challenge to the Panel's finding that the measures at issue 
constitute government "purchases [of] goods", Canada submits that the Panel was correct in finding that the FIT Programme and related FIT and microFIT Contracts constitute a "financial 
contribution" in the form of government "purchases  [of] goods". Canada submits that this finding 
by the Panel is in accordance with the relevant legal standard, which requires a factual assessment of the transaction at issue to determine its "inherent or essential quality".
265 I n  t h i s  r e g a r d ,  
Canada points to the Panel's "extensive analysis of the FIT Program, its legal basis, the mandate 
and powers of the OPA, the FIT and microFIT Contra cts, the intangible nature of electricity, and 
the role of Hydro One Inc. and the IESO to find that the OPA pays for 'delivered electricity' into 
Ontario's electricity system".266 Canada emphasizes that the Panel found that "fundamental" to the 
FIT and microFIT Contracts was an "exchange" of certain core obligations between generators and 
                                               
263 Canada's appellee's submission, para. 96 (quoting Panel Reports, para. 7.216). 
264 Canada's appellee's submission, para. 96 (quoting  Panel Reports, para. 7.223 (original emphasis)). 
265 Canada's appellee's submission, para. 108.  
266 Canada's appellee's submission, para. 111 (referring to Panel Reports, paras. 7.223 and 7.224).  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 62 - 
 
 
  the OPA.267 In particular, FIT and microFIT suppliers must deliver electricity into the Ontario 
electricity system and, in return, the OPA agrees to make the payments called for under the 
FIT and microFIT Contracts.  
2.176.  Canada disagrees with Japan's arguments that the Panel erred in characterizing the 
measures at issue as government "purchases [of] goods". In response to Japan's claim that "it is 
other government entities and not the OPA that actually takes possession of the FIT-generated electricity"
268, Canada submits that the Panel correctly found that possession by the actual 
purchasing entity was not necessary for a finding of government "purchases  [of] goods". According 
to the Panel, there can be a purchase even if th ere is no transfer of physical possession of a 
product if the purchaser obtains "an entitlement"269 to the product. In Canada's view, the Panel 
effectively found that the OPA has an entitlement to electricity pursuant to the FIT and 
microFIT Contracts that it directs be fed into the system. It is not important which government 
entity takes physical possession of the electricity, because physical possession is not necessary for a purchase to be made. 
2.177.  With respect to Japan's arguments that "Ontario's stated objective of ensuring a stable 
supply of electricity does not require that the government purchase the electricity"
270, and that the 
presence of private parties in Ontario's electricity system "demonstrates that Ontario does not 
need to take possession of or purchase electricity to meet the need of ensuring a stable supply"271, 
Canada argues that whether a government purchase is necessary or whether private entities supply electricity is irrelevant for purposes of the proper legal characterization of the FIT Programme and Contracts under Article 1.1(a)(1) of the SCM Agreement.
272 
2.178.  With respect to Japan's assertion that the Panel erred in finding subparagraphs (i) and (iii) 
of Article 1.1(a)(1) to be mutually exclusive, Ca nada submits that the Panel correctly found that 
the FIT Programme could not properly be characteri zed as both "direct transfer[s] of funds" and 
government "purchases [of] goods". In Canada's vi ew, the customary rules of interpretation do not 
permit a blurring of the distinction between "direct transfer[s] of funds" and government 
"purchase[s] [of] goods" as this would make the explicit reference to government "purchase[s] 
[of] goods" in subparagraph (iii) meaningless. Canada recalls the Panel's conclusion that the 
Appellate Body's statement in US – Large Civil Aircraft (2nd complaint)  does not amount to a 
finding that "transactions properly characterized as 'purchases [of] goods' can also constitute 'direct transfer[s] of funds'".
273 In Canada's view, the Panel's finding is entirely consistent with the 
Appellate Body's statement. In particular, while, in a general sense, "[t]he structure of 
[Article 1.1(a)(1)] does not preclude that a transaction could be covered by more than one subparagraph"
274, Canada points out that, in the present case, where the same aspects of the 
same measure are at issue, one cannot properly characterize them both as government 
"purchases [of] goods" and "direct transfer[s] of funds".  
2.179.  Canada submits that the Panel properly exercised judicial economy with respect to Japan's 
characterization of the measures at issue as "income or price support". Canada notes that the 
Appellate Body has clarified that panels are not required to examine each legal claim made by a 
complainant. The exercise of judicial economy is proper where a finding is not necessary to resolve fully the matter at issue. Canada argues that Japan's appeal of this issue should be rejected 
because the complainants' "benefit" arguments with respect to "income or price support" were 
"essentially the same" as those related to "financial contribution". In this regard, Canada points out that Japan's "benefit" argument with respect to "income or price support" is entirely based on 
the alleged "market" benchmarks proposed in the context of establishing whether a "benefit" was 
                                               
267 Canada's appellee's submission, paras. 103 and 104. 
268 Canada's appellee's submission, para. 113 (refer ring to Japan's other appellant's submission 
(DS412), para. 39).  
269 Panel Reports, paras. 7.228 and 7.229. 
270 Canada's appellee's submission, para. 113 (refer ring to Japan's other appellant's submission 
(DS412), para. 40).  
271 Canada's appellee's submission, para. 113 (refer ring to Japan's other appellant's submission 
(DS412), para. 41).  
272 Canada's appellee's submission, paras. 39 and 114. 
273 Canada's appellee's submission, para. 116 (quoting Panel Reports, para. 7.247). 
274 Canada's appellee's submission, para. 117. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 63 - 
 
 
  conferred by a "financial contribution".275 Given that the Panel majority rejected the entirety of 
Japan's "benefit" claim with respect to "financial co ntribution", including all of the alleged "market" 
benchmarks, the entire basis on which Japan's "income or price support" "benefit" allegation rests was rejected by the Panel. Therefore, the outcome of the dispute would have been no different if 
the Panel had not exercised judicial economy with  respect to Japan's "income or price support" 
claim. 
2.180.  In the alternative, if the Appellate Body de cides to reverse the Panel's exercise of judicial 
economy, Canada argues that Japan has failed to establish that the FIT Programme constitutes a 
form of "income or price support". In Canada's view, the term "income or price support" not only 
means that incomes or prices must be maintained  through government measures, but also implies 
that income or price levels were determined by supply and demand (i.e. by a market) prior to the 
government's intervention. Canada highlights that the OPA is not responding to some market 
signal indicating when it must intervene in the ma rket to purchase enough renewable electricity to 
maintain a certain price level under the FIT Programme.
276 Finally, in the context of the 
requirement in Article XVI of the GATT 1994 that income or price support "operates directly or 
indirectly to increase exports of any product … or to reduce imports", Canada argues that Japan has provided no evidence suggesting that imports of wind or solar electricity into Ontario have 
declined as a result of the FIT Programme or that exports of wind or solar electricity have 
increased. Consequently, the conditions to find that the challenged measures are "income or price support" within the meaning of Article 1.1(a)(2) have not been met by Japan. 
2.6.5.2  Article 1.1(b) – "Benefit" 
2.181.  Canada states that both the European Union and Japan adopt the dissenting member of 
the Panel's "but for" conclusion with regard to "b enefit": that is, a "benefit" may be found because, 
absent the FIT Programme, windpower and solar ge nerators under the FIT Programme "would not 
otherwise be present".
277 Canada submits that the question of  whether a benefit is conferred must, 
instead, turn on whether the terms of the transaction reveal that the government has paid more than an "adequate" price, for that specific form of electricity, with its specific inherent qualities.  
2.182.  Canada alleges that a proper approach to assessing whether a benefit is conferred should 
reflect the ordinary meaning of Article 1.1(b) of  the SCM Agreement, in the relevant context of 
Article 14 and the related jurisprudence. Canada refers to the Appellate Body's jurisprudence regarding the relevance of Article 14(d) of the SCM Agreement as a guideline in interpreting 
Article 1.1(b). It recalls that, in EC and certain member States – Large Civil Aircraft , the 
Appellate Body stated that Article 14(d) "highlights that a proper market benchmark is derived from an examination of the conditions pursuant to which the goods … at issue would under market 
conditions, be exchanged".
278 Canada further recalls that, in respect of the term "adequate 
remuneration", "'[r]emuneration' is defined as  'reward, recompense; payment, pay'. Thus, a 
benefit is conferred when a government provides goods to a recipient and, in return, receives 
insufficient payment".279 Canada submits that, in a case of a government "purchase[] [of] goods", 
a benefit is conferred only when a government purchases goods from a recipient and makes more than sufficient payment or compensation for those goods.  
2.183.  With respect to the question of whether Article 14(d) of the SCM Agreement is concerned 
with the existence or with the amount of benefit, Canada stresses that Article 14(d) begins with 
the phrase "purchase of goods by a government shall not  be considered as conferring a benefit 
unless  the … purchase is made for more than adequate remuneration".
280 Canada considers that 
Article 14(d) demonstrates that whether a benefit is being conferred depends on the price paid by 
                                               
275 Canada's appellee's submission, para. 125. 
276 In addition, Canada points out that price support should also alter the market price for the good in 
question for other sellers in that market and that Ja pan has made no such allegation. (Canada's appellee's 
submission, para. 132) 
277 Canada's appellee's submission, para. 138 (quoting Panel Reports, para. 9.23).  
278 Canada's appellee's submission, para. 163 (quoting Appellate Body Report, EC and certain member 
States – Large Civil Aircraft , para. 975). 
279 Canada's appellee's submission, para. 164 (quoting Appellate Body Report, US – Softwood 
Lumber IV , para. 84 (fn omitted)). 
280 Canada's appellee's submission, pa ra. 179. (emphasis added by Canada) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 64 - 
 
 
  the government and that this provision deals with  the existence of a benefit in the context of a 
government "purchase[] [of] goods" and not mere ly how to calculate the amount of benefit.  
2.184.  Canada agrees that, in a general sense, the Appellate Body has found that a benefit is an 
"advantage" conferred on a recipient and is determined by a comparison based on whether the 
recipient is "better off" than it would be absent the contribution. However, the actual comparison 
required in a specific benefit analysis is to be conducted by comparing the terms of a government's "financial contribution" to terms available in the market for a comparable transaction. In Canada's 
view, a proper benefit analysis assumes a counterfactual market purchase and the central question 
is whether the terms of a financial contribution are more beneficial than a similar transaction between two arm's-length private entities on the market. In Canada's view, the most appropriate 
benchmark to test "adequacy of remuneration" of the FIT rates would be rates for both wind and 
solar electricity established through an arm's-length transaction between private entities in 
Ontario. At the oral hearing, Canada stated that the Panel record contains no such evidence. 
2.185.  Canada alleges that the complainants' approach ignores the distinction between a 
"financial contribution" and a "benefit … confe rred". Canada states that the architecture of 
Article 1.1 is clear and that there are two discrete components to the definition of a "subsidy". Canada submits that, under the approach advocated by the complainants, the mere provision of a 
"financial contribution" by a government beco mes the "benefit". Every time a government 
purchases a good for which there is no private-sector demand, the fact of that purchase itself would demonstrate a benefit conferred regardless of the price at which that purchase is made. 
Canada gives the example of the government purcha se of armoured vehicles or vaccines, noting 
that, under the complainant's approach, if these goods would not be purchased on the market 
absent the government's purchase, then there would be a benefit conferred regardless of the 
purchase price. To Canada, this would render Article 1.1(b) meaningless.  
2.186.  Canada disagrees with the European Union' s contention that, where the "prevailing market 
conditions" show that such a product could not be sold, the comparison is between "something" and "nothing", and there is a benefit. According to Canada, the standard to find "benefit" is quite 
clear – "more than adequate remuneration". Hence,  Japan and the European Union have failed to 
prove that Ontario's purchase of wind and solar electricity under the FIT Programme "is made for more than adequate remuneration".
281  
2.187.  Canada reiterates its view that, in limited circumstances where prices are distorted by a 
government's predominant position as a purchaser of goods, alternative benchmarks may be used. 
However, such proxies must nevertheless relate to the "prevailing market conditions" in the 
country of purchase. Canada contends that the European Union ignores that it was a finding of 
distortion in US – Softwood Lumber IV  that led the Appellate Body to recognize that prices from 
such a market could not be used in a proper comparison. Canada states that the dissenting opinion agreed "with the majority that all of the complainants' proposed benchmarks are inappropriate", 
and that "the price outcomes of the IESO-administered wholesale market (the HOEP) are 
significantly distorted by the actions and policies of the Government of Ontario".
282 Canada 
highlights also that the dissenting member of th e Panel stated that the proposed benchmarks do 
not represent prices established on a competit ive wholesale electricity market in Ontario. 
2.188.  Canada alleges that the approach advocated by the complainants ignores factual findings 
made by the entire Panel (including the dissenting member of the Panel) on the nature of the Ontario electricity system. In particular, the complainants' "benefit" arguments (that are premised 
on the dissenting conclusions) assume that the FIT Programme brings into the market generators 
that would be otherwise excluded due to competitio n. In this respect, Canada disagrees with the 
European Union and Japan that it is an uncontested fact that, absent the FIT Programme, 
FIT generators would not have entered the market. According to Canada, this ignores the Panel's 
findings of fact that absent the FIT Programme new entrants would probably negotiate a price for wind and solar electricity with Ontario and that the IESO-administered "market" based mechanism is not a "market" appropriate for the purposes of a "benefit" analysis. Canada points out that, in 
Ontario, the government represents the demand-side of the relevant purchase transaction and 
                                               
281 Canada's appellee's submission, para. 180.  
282 Canada's appellee's submission, para. 149 (referring to Panel Reports, para. 9.10).  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 65 - 
 
 
  determines which generators can participate in the Ontario electricity system and that generators, 
regardless of the form of generation, do not compete with each other.  
2.189.  With respect to the European Union's claim that the existence of a benefit should have 
been made "with little difficulty"283 and its reference to the panel's decision in US – Large Civil 
Aircraft (2nd complaint) , Canada distinguishes that situation from the present one. Canada notes 
that the panel in that dispute dealt with "revenue foregone" pursuant to Article 1.1(a)(1)(ii) of the SCM Agreement. Canada recognizes that certain forms of government "financial contribution" do 
not have terms that require any comparison to market terms. They "do not have terms per se  in 
the same sense that equity capital, loans, loan  guarantees, provision of goods and services and 
the purchase of goods do."
284 According to Canada, in the case of grants and revenue forgone, 
"the fact of the government action (i.e. the 'financial contribution' itself) may very well 
demonstrate the conferral of a benefit."285 However, Canada considers that, consistent with the 
Appellate Body's treatment of such "financial contri butions" as "purchases [of] goods", that is not 
the case with "financial contributions" that have terms.  
2.6.5.3  Article 11 of  the DSU – "Benefit" 
2.190.  In response to the European Union's and Japan's arguments that there was sufficient 
evidence on the record for the Panel to find "benefit" on the basis of the Panel majority's 
observations on how an appropriate benefit analys is might have been conducted, Canada responds 
that, while the Panel offered "observations" in response to specific requests from the complainants, it is clear that these "observations" were not findings. Canada considers that the Panel recognized that the complainants bear the bu rden of making their case and that this is not 
the Panel's role. Moreover, Canada observes that these observations are simply the Panel 
majority's views on an alternative approach to  "benefit" made at the complainants' urging. 
2.191.  Responding to the European Union's claim that the Panel acted inconsistently with 
Article 11 of the DSU by not making a finding as to  the existence of a benefit on the basis of the 
European Union's arguments, Canada states that the Panel majority was correct in stating that the "observations" raise "a number of important questions and factual issues [that] would [have] 
need[ed] to be explored and resolved in or der for any such analysis to be undertaken".
286 
Considering that these observations are not findings, Canada argues that the European Union's claim under Article 11 of the DSU "is of no effect".
287 
2.192.  Canada also rejects Japan's claims made before the Panel that the weighted-average 
wholesale rate and the RPP commodity charge could support the finding of a benefit because, 
absent the FIT Programme, the generators in question would not be in Ontario's wholesale electricity "market".
288 Canada contends that Japan's statement that the unaffected rates are 
significantly lower than the FIT rates, given the magnitude of difference between Japan's original 
benchmarks and the FIT rates, "ignores the fact  that the entire Panel, including the dissent, 
comprehensively rejected all these benchmarks because they do not represent prices determined 
by market forces".289 In this regard, Canada recalls that the Panel found that price offers by 
generators in this "market" are "not motivated by the need to cover marginal costs of production (as would typically be the case in a competitive wholesale electricity market …)".
290 Rather, the 
primary motivation for generators is to ensure they are dispatched in order to receive their 
regulated or contract-based rates of remuneration. Canada argues that, "[o]n this basis, the Panel 
rejected the HOEP and HOEP derivative benchmarks proposed by Japan and the European Union", finding that the IESO-administered wholesale mark et clearing mechanism that generates the HOEP 
was actually "best characterized as a tool for the IESO to make the dispatch decisions needed to 
                                               
283 Canada's appellee's submission, para. 185 (quoting  European Union's other appellant's submission 
(DS426), para. 162 (fn omitted)). 
284 Canada's appellee's submission, para. 186. 
285 Canada's appellee's submission, para. 186. 
286 Canada's appellee's submission, para. 206 (quoting Panel Reports, para. 7.327).  
287 Canada's appellee's submission, para. 206. 
288 Canada's appellee's submission, para. 208 (referring to Japan's other appellant submission (DS412), 
para. 85).  
289 Canada's appellee's submission, para. 210 (referring to Panel Reports, paras. 7.293-7.298 
and 9.8-9.10).  
290 Canada's appellee's submission, para. 211 (quoting Panel Reports, para. 7.298).  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 66 - 
 
 
  balance physical  supply and demand for electricity".291 Canada states that the dissenting member 
of the Panel agreed that the HOEP is "directly related to the electricity pricing policy and supply-
mix decisions of … Ontario"292 and concluded that the HOEP, its derivatives, and the proposed out-
of-province benchmarks "do not represent a price established on a competitive wholesale 
electricity market in Ontario".293 
2.193.  For these reasons, Canada requests the Appellate Body to reject the complainants' other 
appeals and uphold the Panel's finding that they have failed to demonstrate that Ontario's 
purchase of wind and solar electricity under the FIT Programme constitutes a "subsidy" that is 
inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.  
2.7  Arguments of the third participants 2.7.1  Australia 
2.194.  With respect to the claims raised under Article III:8(a) of the GATT 1994, Australia shares 
the concerns raised by the European Union regarding the Panel's interpretation of the term "governmental purposes". Australia supports the European Union's request that the Appellate Body 
reverse or declare moot and of no legal effect the Panel's statement that the term "governmental 
purposes" is relatively broad and may encompass the meaning proposed by Canada – that is, that a purchase for "governmental purposes" may exist whenever a government purchases a product 
for a stated aim of the government.
294 In Australia's view, the Panel's interpretation of the term 
"for governmental purposes" is not consistent with the ordinary meaning of the word "purposes", the French and Spanish versions of Article III:8(a) , or the negotiating history of Article XVII:2 of 
GATT 1994, all of which denote the concept of practical advantage or use by the government, 
rather than a purchase for an aim of the government. Australia agrees with Japan that, if any 
purchase by a governmental agency for a stated aim of the government were to be covered by 
Article III:8(a), as Canada suggests, then a WTO Member could circumvent the disciplines of 
Article III simply by inserting itself as an intermediary in any given market.  
2.195.  As to the determination of "benefit" under Article 1.1(b) of the SCM Agreement, Australia 
stated at the oral hearing that it considered that the relevant inquiry is whether the financial 
contribution is provided on terms that confer an  advantage on the recipient. Australia emphasized 
that there is nothing inherently wrong with a subsidy; the SCM Agreement simply requires that Members avoid recourse to subsidies that are prohibited or cause adverse trade effects. Australia submitted, however, that, if the burden of esta blishing the existence of a subsidy is too high, 
many government programmes that were intended to be disciplined by the SCM Agreement would 
escape scrutiny. Australia submitted that, if the decision of the Panel majority stands, then it could be difficult for any government support programme to be captured by the SCM Agreement. 
Indeed, the determination of a market benchmark would become difficult and the evaluation of 
whether there is a subsidy could be unduly constrained in any market where the government intervenes with regard to price.  
2.196.  At the oral hearing, Australia added that the guidance in Article 14(d) of the 
SCM Agreement does not provide an exclusive standard for determining whether a benefit is conferred. Australia recalled that, in Canada – Aircraft , the Appellate Body found that the ordinary 
meaning of "benefit" clearly encompasses some form of advantage, and that, in EC and certain 
member States – Large Civil Aircraft , the Appellate Body explained that, in identifying such 
advantage, a comparison is required to determine whether the recipient of the financial contribution is made "better off"
295 than it would otherwise have been, absent the government 
action. In Australia's view, this jurisprudence provides the appropriate legal standard and should 
have provided the basis for the Panel's inquiry, rather than seeking to determine whether FIT generators were given more than adequate  remuneration under Article 14(d) of the 
SCM Agreement. Australia submitted that, given the Panel's finding of an advantage under the 
                                               
291 Canada's appellee's submission, para. 211 (quoting Panel Reports, para. 7.298 (original emphasis)).  
292 Canada's appellee's submission, para. 212 (referring to Panel Reports, para. 9.10). 
293 Canada's appellee's submission, para. 212 (referring to Panel Reports, para. 9.10). 
294 Australia's third participant's submission, para . 6 (referring to Panel Reports, para. 7.139). 
295 Australia's opening statem ent at the oral hearing. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 67 - 
 
 
  TRIMs Agreement, a finding of "benefit" under the SCM Agreement should have been made with 
little difficulty. 
2.197.  Finally, Australia indicated at the oral he aring that it agreed with the approach of the 
dissenting member of the Panel to determining "benefit". In particular, Australia stated that 
the FIT Programme confers a benefit because electricity generators supplying wind- or 
solar PV-sourced electricity would not be able to enter the market unless the Government of Ontario purchased this electricity at elevated prices through FIT and microFIT Contracts. Thus, the 
FIT Programme accords an advantage on FIT ge nerators and thereby confers a benefit under 
Article 1.1(b) of the SCM Agreement. 
2.7.2  Brazil 2.198.  Brazil alleges that the Panel's interpretation of the terms "governmental purposes" and 
"not with a view to commercial resale" in Article III:8(a) of the GATT 1994 conflates two different 
legal requirements into a single one and thereby renders part of the text of this provision redundant and without legal effect. For Brazil, the Panel's failure to consider the use of the word 
"and" joining these two terms in Article III:8(a) amounts to establishing that the simple existence 
of a "commercial resale" is enough to set aside the applicability of this provision altogether, regardless of its rationale or its relation with the first requirement of this provision, that is, the 
purchase of goods for "governmental purposes". Br azil considers that, should this interpretation 
prevail, the term "governmental purposes" would be rendered inutile. In the present case, the 
Panel never arrived at a conclusion with regard to the question of whether purchases of electricity under the FIT Programme were made for "governmen tal purposes". In Brazil's view, in order to 
assess if a measure falls outside the purview of Article III:8(a), it would be necessary to analyze 
both requirements separately.  
2.199.  Moreover, Brazil considers that the purpose of any governmental action can only be 
assessed on a case-by-case basis, and should be informed by the functions performed by a given 
government in each sector of its economy. Brazil submits that most governments have the constitutional or legal responsibility to provide certain services to their citizens – such as health, 
education, water, electricity, transportation, and pu blic security – and that providing these services 
constitutes a "governmental purpose" within the meaning of Article III:8(a).  
2.200.  Brazil further submits that, if the negotiat ors had intended to restrict the meaning of the 
term "governmental purposes" to purchases made by governmental agencies for their own use or 
consumption, they would have done so expressly,  as they did in Article XVII:2 of the GATT 1994. 
Brazil contends that not all purchases of goods made by the government qualify as purchases for 
"governmental purposes" within the meaning of Article III:8(a), because this would allow the 
government of a WTO Member to circumvent the disciplines of Article III by inserting itself as an 
intermediary in any given market. Rather, Braz il submits that the appropriate analysis under 
Article III:8(a) requires comparing the overall desi gn, structure, and architecture of a procurement 
programme with the legal and regulatory framew ork of the responding Member to determine 
"whether the purchase of goods under scrutiny genui nely pertains to a governmental function in 
the specific sector of that Member's economy, in li ght of the legitimate policy objectives within that 
State's society".
296  
2.201.  At the oral hearing, Brazil further stated that the jurisprudence developed in the context of 
Article XX of the GATT 1994 provides useful guidance for assessing whether a government procurement programme pursues a governmental purpose. For Brazil, this guidance calls for an 
examination of whether the measure makes a contribution to its objective. Brazil argued that the 
other two elements of the "necessity test" – i. e. the "restrictiveness" of the measure and the 
importance of the objective pursued – are not as relevant in the context of Article III:8(a), given 
that a discriminatory government procurement programme will necessarily be restrictive, and that 
there seems to be no criteria to establish a hier archy between different governmental purposes in 
the context of this provision. 
                                               
296 Brazil's third participant's submission, para. 27. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 68 - 
 
 
  2.202.  With respect to the determination of "ben efit" under Article 1.1(b) of the SCM Agreement, 
Brazil argues that the conclusion reached by the Panel majority that the FIT Programme does not 
confer a benefit was based on a flawed analysis of the Ontario electricity market. In particular, Brazil contends that the Panel majority's conclusion that none of the benchmarks presented by the 
complainants were appropriate to evaluate the existence of a benefit is "at odds" with prior 
decisions of the Appellate Body.
297 Brazil agrees with the dissenting opinion that the fact that a 
competitive market might not exist in the absence of government intervention, or that it may not 
achieve all of the objectives set by a government, does not mean that it cannot be used as a 
benchmark for the benefit analysis.  
2.203.  According to Brazil, it "seems rather obviou s" that, "if a producer that increases its market 
share as a result of a financial contribution is 'better off' in relation to the 'prevailing market 
conditions', then a producer that did not have an economically viable enterprise [that] enters the 
market through a financial contribution will also be 'better off' in relation to 'prevailing market conditions'."
298 For Brazil, it is "clear" that, in this case, the producers of solar PV and windpower 
electricity are "better off" in relation to the "prevailing market conditions" for the simple fact that 
they became market participants with a long-term, guaranteed participation in the market.299 This 
provides a strong indication that the FIT and microFIT Contracts confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement.  
2.204.  Brazil emphasizes that subsidies are not, in and of themselves, inconsistent with the 
covered agreements, provided they are not prohibit ed under Article 3.1(b) of the SCM Agreement, 
and may be appropriate to promote legitimate objectives.  
2.7.3  China 
2.205.  With respect to the claims raised under  Article III:8(a) of the GATT 1994, China supports 
the European Union's appeal of the Panel's finding that the Minimum Required Domestic Content 
Levels are "requirements governing" the procurement of electricity within the meaning of this 
provision. China argues that, because the word "procurement" in Article III:8(a) is linked to the words "products purchased", the provision does not apply to procurement of any product, but only 
to the procurement of products falling within the scope of Article III. China maintains that the 
Minimum Required Domestic Content Levels with  respect to generation equipment under the 
FIT Programme are only remotely related to the procurement of electricity by the Government of Ontario, and that the Government of Ontario may purchase electricity without such Minimum 
Required Domestic Content Levels. China submits that it is therefore difficult to justify the 
application of Article III:8(a) with respect to the local content requirements concerning generation equipment. 
2.206.  Moreover, China disagrees with Canada's proposition that the phrase "with a view to 
commercial resale" in Article III:8(a) must be interpreted as referring to the intention behind a purchase. For China, this requirement requires an examination of evidence, rather than of the 
intention asserted by a governmental agency. Ch ina contends that Canada's interpretation may 
lead to the "absurd situation"
300 that a transaction would fall within the scope of Article III:8(a) as 
long as a governmental agency claims not to have  an intention of commercial resale, even if that 
agency actually conducts commercial resale. China also disagrees with Canada's interpretation of 
the term "commercial resale" as referring to resale with the underlying intent to profit. China 
submits that a resale may be considered "commercial" under Article III:8(a) even if it does not involve a profit. In addition, China alleges that Canada's interpretation of the phrase "with a view 
to commercial resale" renders the words "with a view to" redundant, because, for Canada, both 
the term "commercial resale" and the term "with a view to" refer to the aim or intent of the government. China submits that, when determining whether a resale is "commercial" within the 
meaning of Article III:8(a), the existence of profit should not be the legal standard that resolves 
the issue, but only one factor to be taken into account. 
                                               
297 Brazil's third participant's submission, para . 36 (referring to Appellate Body Reports, EC and certain 
member States – Large Civil Aircraft , paras. 982 and 1122 (the latter para. referring in turn to Appellate Body 
Report, US – Upland Cotton , para. 480); and Japan – DRAMs (Korea) , para. 172). 
298 Brazil's third participant's submission, para. 46. 
299 Brazil's third participant's submission, para. 44.  
300 China's third participant's submission, para. 15. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 69 - 
 
 
  2.7.4  India 
2.207.  Pursuant to Rule 24(2) of the Working Procedures, India chose not to submit a third 
participant's submission. At the oral hearing, India stated that the Panel was correct in finding that, under Article III:8(a) of the GATT 1994, a purchase for "governmental purposes" may exist 
whenever a government purchases goods for a stated aim of the government. India considered 
that Japan's contention that the scope of the te rm "government purpose" is limited to purchases 
for the government's own use unduly limits the scope of this term. With respect to the 
interpretation of the term "commercial resale" in Article III:8(a), India indicated that the focus 
should be on the nature of the sale, that is, whether it is an action that is in pursuance of a government policy objective. 
2.208.  Moreover, India expressed its disagreement with Japan's claim that the measures at issue 
constitute "income or price support" within the meaning of Article 1.1(a)(2) of the 
SCM Agreement. For India, acceptance of Japa n's interpretation would mean that any price 
regulation of public utilities or services could be susceptible to challenge as a subsidy, irrespective 
of the nature and intent of such price interven tion. In India's view, regulatory oversight that 
simply ensures pricing based on market principles cannot be characterized as a subsidy. 
2.209.  With respect to the determination of "benefit" under Article 1.1(b), India contested Japan's 
and the European Union's argument that the FIT Programme confers a benefit because, in India's 
view, absent the FIT Programme, there would be no demand for renewable energy. India urged the Appellate Body to reject this claim since, und er this reasoning, there would be no marketplace 
for renewable energy. For India, the alternative benchmark proposed by the Panel majority was 
appropriate and should be upheld by the Appellate Body. India observed that, while it may have 
been possible to determine whether a benefit is conferred by examining whether rates of return 
are significantly above average cost of capital in  Canada for projects having a comparable risk 
profile, the facts on the record do not support such a finding.  
2.7.5  Norway 2.210.  Pursuant to Rule 24(2) of the Working Procedures, Norway chose not to submit a third 
participant's submission. At the oral hearing, Norway expressed its concern with the Panel's 
interpretation that the term "governmental pu rposes" in Article III:8(a) of the GATT 1994 is 
relatively broad and may encompass all situations where a government purchases a product for a stated aim of the government. In Norway's view, this interpretation would allow every single 
purchase made by a government to constitute a purchase for "governmental purposes", as every 
such purchase will have some sort of aim. 
2.211.  Norway agreed with the Panel that a purc hase "with a view to commercial resale" cannot, 
at the same time, be considered a "product purchased for governmental purposes". However, as 
the term "governmental purposes" has independent meaning, Norway considered that the Panel erred by basing its joint assessment of the two requ irements only on its conclusion of the meaning 
of the phrase "with a view to commercial resale", and thereby not concluding on the interpretation 
of the term "governmental purposes".
301 
2.7.6  Saudi Arabia 2.212.  With respect to the determination of "ben efit" under Article 1.1(b) of the SCM Agreement, 
Saudi Arabia asserts that the Panel correctly considered Article 14(d) of the SCM Agreement to be 
relevant in these disputes. Saudi Arabia points out that Article 14(d) describes how the adequacy of remuneration is to be determined in relation to "prevailing market conditions" for the goods in 
question in the country of purchase. Saudi Arabia submits that the word "market" in Article 14(d) 
is intended to refer to the in-country market in which the government measure in question has been adopted and that the word "prevailin g" means "existing" market conditions.
302 
                                               
301 Norway's opening statemen t at the oral hearing. 
302 Saudi Arabia's third participant's submission, para. 9. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 70 - 
 
 
  2.213.   Saudi Arabia submits that the term "adequate remuneration" does not mean profit 
maximization, nor does it require that a transact ion seek the highest price for the seller or the 
lowest price for the purchaser. Saudi Arabia agrees with the Panel that "[t]he relevant 'market' need not be a 'pure' marketplace that is devoid of any degree of government intervention".
303 At 
the oral hearing, Saudi Arabia requested the Appellate Body to affirm that government 
intervention does not preclude the use of a domestic price benchmark.  
2.214.  Moreover, Saudi Arabia states that the Pa nel's rejection of external benchmarks was sound 
because such benchmarks are appropriate only in "very limited"304 situations. Saudi Arabia 
cautions that an external benchmark that does not reflect domestic market conditions is an arbitrary measure that could negate the comparative advantages of the country under investigation. According to Saudi Arabia, in-country cost-based benchmarks have distinct 
advantages as alternatives to in-country price benchmarks, especially in contrast with external 
benchmarks. For instance, in-country cost-based benchmarks can be tailored to the unique circumstances of the country, industry, and enterprises concerned to reflect the prevailing market 
conditions in the country of purchase. Thus, Saudi Arabia requests the Appellate Body to affirm, as 
a general rule, and consistent with the text of Article 14(d), that in-country cost-based benchmarks are to be preferred over external benchmarks because the latter inevitably require 
speculative adjustments to reflect prevailing in-country market conditions.  
2.7.7  Turkey 2.215.  Pursuant to Rule 24(2) of the Working Procedures, Turkey chose not to submit a third 
participant's submission. At the oral hearing, wi th respect to Article III:8(a) of the GATT 1994, 
Turkey argued that the measures that are excepted  from the obligations of Article III by virtue of 
the application of Article III:8(a) also include measures that breach Article III:4, such as those set forth in the Illustrative List in the Annex to the TRIMs Agreement. Moreover, Turkey stated that, 
although they constitute a single requirement, the terms "governmental purposes" and "not with a 
view to commercial resale or with a view to use in the production of goods for commercial sale" need to be analyzed separately. Therefore, Turkey  does not agree with the Panel that a purchase 
of goods for "governmental purposes" cannot at the same time amount to a governmental 
purchase of goods "with a view to commercial resale".
305 
2.7.8  United States 2.216.  The United States addresses five aspects of the Panel's interpretation and application of 
Article III:8(a) of the GATT 1994. First, the United  States disagrees with the Panel's finding that 
there was a "close relationship"
306 between the product procured by the government 
(i.e. electricity) and the products affected by the domestic content requirements (i.e. generation 
equipment) under the FIT Programme. For the United States, the use of the word "governs" in 
Article III:8(a) indicates that the "laws, regulations or requirements" must directly pertain to the procurement by a government of a specific product.  
2.217.  Second, the United States agrees with the European Union that the products purchased by 
the government must be for use in pursuit of its functions, including consumption by the government, or in the provision of goods or services to its citizens. Third, the United States contends that the Panel correctly interprete d and applied the term "with a view to" in 
Article III:8(a) of the GATT 1994. The United States  argues that the Panel considered the "aim" or 
"purpose" of the purchase and correctly concluded that the Government of Ontario purchases electricity with an aim to commercial resale, because it purchases electricity in the full knowledge 
and intent that the electricity will be resold on the market to private consumers rather than put to 
a governmental purpose.  
                                               
303 Saudi Arabia's third participant's submission, para. 15 (quoting Panel Reports, para. 7.274 
(fn omitted)).  
304 Saudi Arabia's third participant's submissi on, para. 19 (quoting A ppellate Body Report,  
US – Softwood Lumber IV , para. 102). 
305 Turkey's opening statement at the oral hearing (DS426). 
306 United States' third participant's submission , para. 18 (quoting Panel Reports, para. 7.127). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 71 - 
 
 
  2.218.  Fourth, the United States argues that the words "commercial resale" should be interpreted 
to mean "to be sold into the market".307 By including in its ambit government purchases made "for 
governmental purposes" and excluding those made for "commercial resale", Article III:8(a) seeks to distinguish between purchases made for "governmental" reasons and those made for 
"commercial" reasons, and thus clarifies that "a purchase leading to a commercial resale is not a 
purchase for governmental purposes, and vice versa ."
308 Fifth, regarding the phrase "use in the 
production of goods for commercial sale", the United States argues that this provision is not 
limited to use in the government's production of goods for commercial sale, but that it applies 
equally to goods purchased by a government for use in private production of goods for commercial sale.  
2.219.  With respect to the relationship between the TRIMs Agreement and Article III:4 of the 
GATT 1994, the United States agrees with the Panel that a measure excepted from the obligations 
of Article III of the GATT 1994 by paragraph 8( a) would not breach the national treatment 
obligation in paragraph 4 by virtue of being included in the Illustrative List in the Annex to the 
TRIMs Agreement. The United States observes th at Article 2.2 of the TRIMs Agreement and the 
Illustrative List do not establish independent obligations. Rather, a national treatment breach under Article 2 of the TRIMs Agreement only occurs in the event of a breach of Article III of the 
GATT 1994, which will not arise if one of its exceptions applies. 
2.220.  With respect to the determination of whether the measures at issue confer a benefit within 
the meaning of Article 1.1(b) of the SCM Agreemen t, the United States considers that the Panel 
majority erred in several respects. First, the Un ited States considers that the Panel majority's 
finding that the FIT generators would be "unable to conduct viable operations"
309 in a competitive 
wholesale market in Ontario in the absence of the FIT Programme should have led the Panel to 
find that the FIT Programme and FIT and microFIT Contracts are financial contributions with terms 
"more favourable to what is available to the recipient on the market"310 and thus confer a benefit. 
Moreover, like the European Union and Japan, th e United States notes that the Panel found the 
price guarantee to be an "advantage"311 in relation to the TRIMs Agreement, and considers that 
this should have informed the question of whether the guarantee of those rates conferred a benefit 
for the purposes of the SCM Agreement. 
2.221.  Second, the United States submits that th ere is no requirement in Article 1.1(b) that 
"benefit" be demonstrated on the basis of such  a purely competitive market, nor is there any 
context provided by Article 14 that would lead to that conclusion. The United States recalls that 
the Panel majority concluded that the word "market" in Article 14(d) refers to "a market where there is effective competition"
312 solely on the basis of the Appellate Body's findings in  
US – Softwood Lumber IV  concerning the acceptable use by an investigating authority of 
benchmarks other than in-country private prices. Th e United States emphasizes that the task of a 
panel under Article 1.1(b) is to determine the existence of a benefit, not to calculate its amount. 
The United States also notes that, in US – Softwood Lumber IV , the Appellate Body used the 
phrase "may use a benchmark other than private prices"313, and that the Appellate Body did not 
find that an investigating authority must rely on a benchmark solely based on a theoretical competitive market or resort to an actual competitive market outside the market at issue. Further, 
the United States points out that, even if the HOEP alone is an inappropriate basis for a 
benchmark, it may still play a role as part of a benchmark. Thus, the Panel majority erred in rejecting any benchmarks that derived from the HOEP. 
                                               
307 United States' third participant's submission, para. 10. 
308 United States' third participant's submission, para. 12. 
309 United States' third participant's submission , para. 24 (quoting Panel Reports, para. 7.311). 
310 United States' third participant's submissi on, para. 24 (quoting A ppellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 974). 
311 United States' third participant's submission, fn 28 to para. 23 (referring to Panel Reports, 
paras. 7.165 and 7.166). 
312 United States' third participant's submission , para. 31 (quoting Panel Reports, para. 7.275). 
313 United States' third participant's submission, fn  53 to para. 34 (quoting Appellate Body Report,  
US – Softwood Lumber IV , para. 103). (underlining added by the United States) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 72 - 
 
 
  2.222.  The United States argues that a benefit benchmark is not required to include a 
government's policy choices. In particular, the United States objects to the position expressed by 
the Panel majority that a suitable benefit benchmark must "reflect 'the particular situation in Ontario', namely policy decisions … with regard to the level of supply and sources of energy"
314, as 
this amounts to a requirement that a suitable benchmark must "reflect certain policy choices made 
by a government".315 The United States sees no textual basis for such an interpretation and 
observes that every subsidy reflects a policy decision. The United States thus agrees with Japan 
that "[t]o require that the applicable benchmark be adjusted to reflect the government's policy 
would … threaten to make the finding of a subsidy impossible."316  
2.223.  The United States observes that, where a government mandate to purchase a given level 
of green-sourced electricity is enough by itself for green-sourced electricity to enter the market, 
there will not necessarily be an impact on electricity prices. This would be so, for instance, in cases 
where the cost of producing green-sourced electricity – albeit higher – is close to the cost of producing electricity from traditional sources. Th e United States considers that the hypothetical 
benchmark proposed by the Panel majority invo lving a government-impos ed mandate to acquire 
solar PV and windpower energy in fact illustrates the error in its approach. Even with such a mandate, if the cost is significantly higher than the cost of producing electricity from traditional 
sources, a rational producer will not enter the green energy sector unless the prices are sufficiently 
high to cover the cost of producing green-sourced electricity (including a return on investment).  
2.224.  Moreover, recalling that the Panel rejected the benchmarks put forth by the complainants 
based on the HOEP, the United States contends that the Panel majority erred when it rejected 
wholesale and retail prices because th ey were "derived" from the HOEP.
317 The United States 
points out that the wholesale and retail prices are derived not just from the HOEP but also from the Global Adjustment (GA).
318 The United States considers that the Panel majority should have 
considered these benchmarks rather than simply dismissing them on the basis that they are 
"HOEP-derivative".319 
2.225.  At the oral hearing, the United States argued that, by purchasing electricity produced from 
solar PV and windpower sources, the Government of Ontario is creating demand that would 
otherwise not exist. This is supported by the fact that solar PV- and wind-powered generators would not enter the market "but for" the FIT Programme, due to their higher costs. The United States pointed out that, by making a financial contribution that allows otherwise unviable 
producers to enter the market, the FIT Programme confers a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement.  
                                               
314 United States' third participant's submission, para. 38 (quoting Panel Reports, para. 7.312).  
315 United States' third participant's submission, para. 38.  
316 United States' third participant's submission, para. 40 (referring to Japan's other appellant's 
submission (DS412), para. 97).  
317 United States' third participant's submission, para. 47.  
318 United States' third participant's submission, pa ra. 47 (referring to Panel Reports, para. 7.55).  
319 United States' third participant's submission, para. 48.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 73 - 
 
 
  3  ISSUES RAISED IN THIS APPEAL 
3.1.  The following issues are raised in this appeal: 
a. Whether the analysis of Japan's claims in this appeal should commence with Japan's 
claims under the SCM Agreement (raised by Japan); 
b. With respect to the relationship betw een Article III of the GATT 1994 and the 
TRIMs Agreement, whether the Panel erred in the interpretation and application of Articles 2.1 and 2.2 of the TRIMs Agreement, read in conjunction with paragraph 1(a) of 
the Illustrative List in the Annex to the TRIMs Agreement, when finding that these 
provisions do not preclude the application of Article III:8(a) of the GATT 1994 to the 
challenged measures (raised by the European Union);  
c. With respect to the Panel's interpretation and application of Article III:8(a) of the 
GATT 1994, whether the Panel: 
i. erred in finding that the domestic content requirements at issue "govern" the 
procurement of electricity (raised by the European Union);  
ii. erred in finding that the FIT Programme and related FIT and microFIT Contracts 
involve "procurement by governmental agen cies of products purchased" (raised by 
Japan);  
iii. erred in the interpretation and application of the terms "for governmental purposes" 
(conditional appeals raised by Japan and the European Union);  
iv. erred by considering evidence of profit as a relevant factor in assessing whether the 
Government of Ontario's purchases of electricity under the FIT Programme are 
undertaken "with the view to commercial resale" (conditionally raised by Japan);  
v. erred in finding that the Government of Ontario's purchases of electricity under the 
FIT Programme are undertaken "with the view to commercial resale" (raised by 
Canada); and 
vi. failed to make an objective assessment of the matter before it, contrary to 
Article 11 of the DSU, when finding that the measures at issue involve purchases 
"with a view to commercial resale". More specifically, whether the Panel acted 
inconsistently with Article 11 of the DSU in finding that: 
- Hydro One Inc. and Local Distribution Companies sell electricity in competition 
with private-sector licensed retailers (raised by Canada); and  
 
- the Government of Ontario and the municipal governments profit from the resale 
of electricity purchased under the FI T Programme to consumers (raised by 
Canada);  
 
d. Whether the Panel failed to comply with its duties under Article 11 of the DSU and 
exercised false judicial economy by failing to make a finding of inconsistency with 
Article III:4 of the GATT 1994 independent of its findings relating to the TRIMs Agreement (raised by Japan);  
e. With respect to Article 1.1(a) of the SCM Agreement, whether: 
i. the Panel erred in finding that it could not conclude that government "purchases 
[of] goods" could also be legally characterized as "direct transfer[s] of funds" (raised by Japan);  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 74 - 
 
 
  ii. the Panel erred in finding that the FIT Programme and related FIT and microFIT 
Contracts are government "purchases [of] goods" (raised by Japan); and 
iii. even if the FIT Programme and related FIT and microFIT Contracts are 
characterized as government "purchases [o f] goods", then whether they may also 
be characterized as "direct transfer[s] of  funds", "potential direct transfers of 
funds", or "income or price support" (raised by Japan); 
f. Whether the Panel erred in exercising judicial economy with respect to the Japan's claim 
that the measures at issue may be legally characterized as "income or price support" 
under Article 1.1(a)(2) of the SCM Agreement,  and thereby acted inconsistently with its 
obligations under Article 11 of the DSU (raised by Japan); and 
g. With respect to the Panel's interpretation and application of Article 1.1(b) of the 
SCM Agreement, whether the Panel: 
i. erred in finding that the European Union and Japan failed to establish that the 
challenged measures confer a benefit (raised by Japan and by the European Union); 
and 
ii. failed to make an objective assessment of the matter under Article 11 of the DSU in 
finding that the European Union and Japan failed to establish that the challenged 
measures confer a benefit (raised by Japan and by the European Union). 
4  BACKGROUND AND OVERVIEW OF THE MEASURES AT ISSUE 4.1  Electricity networks 4.1.  Before addressing the claims raised by the participants on appeal, we provide an overview of 
the measures at issue and outline certain relevant facts identified by the Panel. For additional 
details in this regard, recourse should be had to the Panel Reports.
320 We note that some of the 
Panel's factual findings seem to refer generally to electricity markets, while others seem to refer to 
the Ontario electricity market in particular. To th e extent we reproduce the Panel's statements that 
seem to relate generally to electricity markets, we do so because we consider them to be of particular application to the circumstances of these disputes and not necessarily because we are of 
the view that they necessarily reflect the characteristics of all electricity markets. 
4.2.  Electricity is delivered to consumers through high-voltage transmission lines, which connect 
generators to distributors and large consumers, and through lower-voltage distribution lines, which deliver electricity to individual consumers. In order to ensure the integrity of the electricity system 
as a whole, it is necessary to maintain a continuous supply-demand balance between generators 
and consumers. Electricity delivery networks may fail if the quantity of electricity demanded (known as "load") is greater or less than the quanti ty of electricity supplied for any length of time. 
In particular, when important imbalances occur, electricity networks may be destabilized, leading 
to brownouts, blackouts or, in extreme cases, the interruption of power to all consumers.
321 Due to 
the need to maintain a continuous supply-demand balance across an entire electricity system, 
uncoordinated bilateral trades between buyers and sellers of electricity cannot take place.322 As a 
consequence, "electricity systems require some kind of central coordination mechanism to ensure that the output of generators is exactly equal to the amount demanded by consumers".
323 
                                               
320 See, in particular, Panel Reports, paras. 7.9-7.68 and 7.195-7.219. 
321 Panel Reports, para. 7.11. 
322 Panel Reports, para. 7.12. 
323 Panel Reports, para. 7.12 (referri ng to Professor William W. Hogan,  Harvard University, "Overview of 
the Electricity System in the Province of Ontario", 21 December 2011 (Hogan Report) (Panel Exhibit CDA-2), p. 13). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 75 - 
 
 
  4.3.  Given that electricity cannot be stored in large quantities and that demand for electricity 
fluctuates over any given day324, electricity systems generally satisfy demand by utilizing a mix of 
generation technologies, each with different co st structures and operational requirements. The 
Panel found that electricity "facilities may be described as 'base-load', 'intermediate' or 'peaking', 
depending upon when and for how long they operate, whether they can raise or lower their output 
rapidly in a controlled manner ('dispatchability'), and whether their costs are mostly fixed or variable."
325 In particular, the Panel found that base-load generation is that portion of an electricity 
s y s t e m ' s  s u p p l y - m i x  t h a t  i s  e x p e c t e d  t o  b e  a b l e  t o  o p e r a t e  d u r i n g  b o t h  l o w -  a n d  h i g h - d e m a n d  
periods.326 Typical examples of base-load generation are hydroelectric327 and nuclear stations.328 
This function, however, may also be performed by other technologies (e.g. coal) depending on the supply-mix in a given jurisdiction and on the cost of fuel.
329 In turn, intermediate-load generation 
supplies power when system demand is above its minimum level but still below its maximum 
level.330 Coal and natural gas plants are frequently used for intermediate-load generation.331 
Finally, peak-load generators tend to have a hi gh degree of dispatchability and may only run 
infrequently, usually at times when demand is near the system-wide capacity limit.332 Single-cycle 
gas-combustion turbines are an example of peak-load generators. The ability of generators to adjust their level of output quickly (i.e. their dispatchability) tends to be lowest for base-load 
generators and highest for peak-load generators.
333 Furthermore, the Panel found that electricity 
generation produced from solar photovoltaic (PV)  and windpower technologies resemble base-load 
generation in that most of their costs are capita l costs, but they differ in that their capacity 
utilization is lower due to intermittent output.334 
4.4.  The Panel noted that "[n]on-dispatchable loads account for most of the energy consumed in 
Ontario".335 It further explained that electricity demand  is largely unresponsive to prices in the 
short run (i.e. it is relatively inelastic).336 Thus, the demand curve can be represented by a 
(nearly) vertical line in a traditional supply/demand diagram.337 In addition, the Panel found that 
plotting the bids submitted by generators in a wholesale electricity market where there is effective competition against their output defines the electricity supply curve.
338 The Panel described the 
supply curve of a typical mix of generators "as an upward sloping step function that rises sharply 
as output approaches the market's capacity limit".339 The Panel further explained that the 
intersection of supply and demand determines th e market clearing price (MCP) and quantity of 
electricity.340 Due to the steepness of the supply and demand  curves in typical electricity markets, 
prices may be extremely volatile, rising or falling sharply in response to small changes in demand 
                                               
324 The Panel found that, as there are no close substitu tes for electricity, electricity demand is largely 
unresponsive to prices in the short run (i.e. it is relatively price inelastic). Thus, electricity demand fluctuates over the course of a day, week, month, or year when factors other than price (e.g. air temperature and hours 
of daylight) cause the demand for electricit y to change. (Panel Reports, para. 7.13) 
325 Panel Reports, para. 7.14.  
326 Panel Reports, para. 7.15. 
327 Base-load generators tend to have limited dispatchability. However, hydroelectric plants are an 
exception in that their output can be raised or lowered on relatively shor t notice. (Panel Reports, para. 7.15) 
328 Panel Reports, para. 7.15. 
329 Panel Reports, para. 7.15. 
330 Panel Reports, para. 7.16. 
331 Panel Reports, para. 7.16. 
332 Panel Reports, para. 7.17. 
333 Panel Reports, para. 7.280. The Panel noted, howeve r, that "[a]lthough hydroelectricity is usually 
classified as base load power, certai n types of hydroelectric facilities can be dispatched". (Ibid. (referring to 
Hogan Report, p. 5))  
334 Panel Reports, paras. 7.19 and 7.280. The Panel found that generation facilities utilizing solar PV and 
windpower technologies are considered intermittent gene rators because power is produced only during certain 
times of the day and/or night. In part icular, wind turbines only produce electricity when the wind is blowing, 
and electricity from solar PV sources is only produced during the day. (Ibid.) 
335 Panel Reports, fn 526 to para. 7.279 (quoting IESO, Introduction to Ontario's Physical Markets: IESO 
Training (October 2011) (Panel Exhibit JPN-80), p. 4). 
336 Panel Reports, para. 7.279 (referring to IESO, In troduction to Ontario's Physical Markets: IESO 
Training (October 2011) (Panel Exhibit JPN-80), p. 4). In particular, the Panel explained that electricity demand is relatively inelastic because there are no close subs titutes for electricity and there is a lack of easily 
observable price signals on the demand-side. (Ibid.) 
337 Panel Reports, para. 7.279. 
338 Panel Reports, para. 7.281 (referring to Hogan Report, p. 16). 
339 Panel Reports, para. 7.281. 
340 Panel Reports, para. 7.282. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 76 - 
 
 
  and/or supply.341 According to the Panel, "[t]his is not necessarily an undesirable feature in an 
electricity market."342 The Panel cited as an example a situation where high prices encourage 
households and businesses to consume less of the scarce commodity, as well as provide incentives for incumbent generators to increase their output and for new firms to enter the market by 
investing in new generation.
343 Therefore, the Panel found th at, although a "well-designed" 
electricity market would provide adequate incentives for investment in new electricity generation, "this theoretical market ideal has not yet been achieved in many electricity systems, including in 
Ontario".
344 The Panel stated that "one of the main reasons for this is the complexity of 
incorporating appropriate demand-side responsiveness to supply-side price signals in times of scarcity".
345 
4.5.  The Panel explained that, partly because of  the absence of a more responsive demand in 
electricity markets, many governments have sought to control price volatility by intervening in the 
market. Consequently, many countries have expe rienced insufficient investment in generation 
because the prices set in their "organized" wholesale market are not allowed to rise to a level that, 
in the long run, fully compensates generators for the all-in cost of their investments (including 
fixed and sunk costs).346 In such situation, referred to in the Hogan Report and by the Panel as the 
"missing money" problem, "[p]rivate investors will not be willing to finance construction of new 
generation under such conditions; and in the absence of such investment, an electricity market will 
be unable to reliably meet future electricity demand."347 The Panel found that the "missing money" 
problem affects both conventional generation technologies and the more expensive solar PV and windpower generation technologies.
348 
4.2  Ontario's electricity market 
4.6.  The Government of Ontario established the Hydro-Electric Power Commission of Ontario 
(HEPCO) in 1906.349 HEPCO, which was renamed Ontario Hydro in 1974, was organized as 
"a vertically integrated public utility with generation, transmission and distribution functions".350 
The Energy Competition Act of 1998, which enacted the Electricity Act of 1998351, authorized the 
"unbundling"352 of Ontario Hydro into five successor enti ties: (i) the Independent Market Operator, 
later renamed the Independent Electricity System Operator (IESO), which is an "agency" of the 
Government of Ontario353 that "administers Ontario's electricity markets and operates and 
maintains the IESO-controlled grid to ensure real-time coordination between electricity supply and demand"
354; (ii) Ontario Power Generation (OPG), which inherited Ontario Hydro's generation 
assets; (iii) Hydro One Inc., which received Ontario Hydro's transmission network and rural local 
distribution businesses; (iv) the Ontario Electricity Financial Corporation (OEFC), which inherited other Ontario Hydro assets and liabilities, including contracts with "Non-Utility Generators" 
                                               
341 Panel Reports, para. 7.282. 
342 Panel Reports, para. 7.282. 
343 Panel Reports, para. 7.282. 
344 Panel Reports, para. 7.282 (quoting Hogan Report, pp. 16 and 17, respectively). 
345 Panel Reports, para. 7.282 (referring to Hogan Report, p. 16).  
346 Panel Reports, para. 7.283 (referring to Hogan Report, pp. 13 and 15-19). 
347 Panel Reports, para. 7.283 (referring to Hogan Report, pp. 17-19). 
348 Panel Reports, para. 7.283 (referring to Hogan Report, p. 17). 
349 Panel Reports, para. 7.21. 
350 Panel Reports, para. 7.22. 
351 Service Ontario 1998 , Chapter 15, Schedule A, as amended (Panel Exhibit JPN-5). 
352 Panel Reports, para. 7.22 (referri ng to Government of Ontario, Ontario's Long-Term Energy Plan  
(Queen's Printer for Ontario, 2010) (Panel Exhibit CDA-6), p. 5). 
353 As an "agency" of the Government of Ontario, th e IESO falls under the "legislative responsibility" 
of the Government of Ontario's Ministry of Energy. (P anel Reports, para. 7.39 (ref erring to Government of 
Ontario webpages, "All Agen cies List" (Panel Exhibit JPN-49), available at: 
<http://www.pas.gov.on.ca/scripts/en/BoardsList.asp >; "About the Ministry of En ergy" (Panel Exhibit JPN-52), 
available at: < http://www.energy.gov.on.ca/en/about/ >; and "Agency Details, Inde pendent Electricity System 
Operator" (Panel Exhibi t JPN-57), available at: 
<http://www.pas.gov.on.ca/scripts/en/BoardDetails.asp?boardID=128220 >; and IESO webpage, "About the 
IESO" (Panel Exhibit JPN-59) , available at: < http://www.ieso.ca/imoweb/about/about_the_ieso.asp >)) 
354 Panel Reports, para. 7.40 (referring to Electricity Act of 1998, Section 5). The Panel found that, in 
particular, the IESO manages Ontario's wholesale electricity market, which involves monitoring and directing 
the movement of electricity across the IESO-controlled grid and the settlement of payments between market participants. (Ibid. para. 7.40) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 77 - 
 
 
  (NUGs); and (v) the Electrical Safety Authority, which was tasked with regulating the system's 
safety.355 
4.7.  In addition, the Panel found that the Ontario Energy Board Act of 1998 designated the 
Ontario Energy Board (OEB), an "agency" of th e Government of Ontario, as the regulator of 
"Ontario's electricity and natural gas sectors in conformity with the public interest".356 In the 
electricity sector, the OEB sets the transmission and distribution rates, determines the prices that will be received by OPG's "regulated" assets for electricity delivered into Ontario's electricity grid, 
and maintains the "Regulated Price Plan" (RPP), which establishes the prices paid by retail 
consumers that purchase electricity from "Local Distribution Companies" (LDCs).
357 
4.8.  In May 2002, the Ontario wholesale electricity market was opened to competition.358 It was 
expected that the restructuring of the electricity sector would attract private investment into 
electricity generation. However, although electricity prices rose 30% in the months following the 
market opening359, the anticipated investment failed to materialize.360 Instead, according to the 
Panel, the relatively high electricity prices led the Government of Ontario temporarily to freeze 
electricity prices for residential, institutional, and small business consumers.361 In particular, the 
Panel found that, "in addition to the price volatility problems associated with the inherent attributes of competitive wholesale electricity markets, a combination of other factors shaping the 
interaction of supply and demand for electricity in Ontario affected the operation of the competitive 
wholesale market that existed between May and November 2002".
362 These factors included: very 
high temperatures during the summer of 2002, which drove up demand to levels that could not be satisfied by existing suppliers without significant price increases; the delay in re-establishing 
production at the Pickering Unit 4 nuclear plant; the impact of Enron's collapse on financial 
markets and the temporary failure of the long-t erm energy trading market; and the retreat of 
financial markets from the electricity industry.
363 
4.9.  The Panel found that, due to the proble ms encountered during the 2002 market opening 
experience, the Government of Ontario decided to once again restructure Ontario's electricity system in 2004 by enacting the El ectricity Restructuring Act of 2004.
364 This Act created the 
Ontario Power Authority (OPA) as "an 'agency' of the Government of Ontario responsible for 
managing Ontario's electricity supply and resources in order to meet its medium and long-term 
                                               
355 Panel Reports, para. 7.22 (referring to Hogan Report, pp. 20-21). 
356 Panel Reports, para. 7.42 (referring to Govern ment of Ontario webpages, "All Agencies List" 
(Panel Exhibit JPN- 49), available at: < http://www.pas.gov.on.ca/sc ripts/en/BoardsList.asp >; and 
"Agency Details, Ontario Energy Board"  (Panel Exhibit JP N-63), available at: 
<http://www.pas.gov.on.ca/scripts /en/BoardDetails.asp?boardID=764 >; and OEB webpage, 
"What We Do" (Panel Exhi bit JPN-64), available at: 
<http://www.ontarioenergy board.ca/OEB/Industry/About+the+OEB/What+We+Do >). 
357 Panel Reports, para. 7.42. 
358 Panel Reports, para. 7.285 (referring to Canada's first written submission to the Panel (DS412), 
para. 25) Between May and November 2002, electricity generated from facilities accounting for 94% of 
Ontario's generation capacity was bought and sold on the wholesale market at prices set through a market 
clearing mechanism administered by the Independent Mark et Operator. (Ibid. (referring to Canada's response 
to Panel questions Nos. 1 and 19 (second set); and first written submission to the Panel (DS412), para. 22(iv)) The mix of electricity generation technologies that oper ated in 2002 included nuclear, coal, hydroelectric, and 
oil/gas facilities, which together accounted for over 99% of total available capacity (29,523 megawatts) and 
total electricity output (149,690 gigawatt hours) in 2002. (Ibid., para. 7.286 (referring to Canada's response to Panel question No. 1 (second set)) 
359 Panel Reports, para. 7.287 (referring to Government of Ontario, Ontario's Long-Term Energy Plan  
(Queen's Printer for Ontario, 2010) (Panel Exhibit CDA-6), p. 6). 
360 Panel Reports, para. 7.23. 
361 Panel Reports, para. 7.23. 
362 Panel Reports, para. 7.289. (fn omitted) 
363 Panel Reports, paras. 7.287-2.289 (referring to Government of Ontario, Ontario's Long-Term Energy 
Plan (Panel Exhibit CDA-6), p. 6; Canada's response to  Panel Question No. 1(g) (second set); Japan's first 
written submission to the Panel (DS412), para. 25; and El ectricity Conservation and Supply Task Force, Tough 
Choices: Addressing Ontario's Power Needs, Final Repo rt to the Minister of Energy (January 2004) (Panel 
Exhibit CDA-59), p. 84). 
364 An Act to amend the Electricity Act, 1998 and the Ontario Energy Board Act, 1998 and to make 
consequential amendments to other Acts, Service Ontario 2004 , Chapter 23 (Panel Exhibits CDA-18 and 
JPN-8). See Panel Reports, para. 7.24. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 78 - 
 
 
  needs".365 The OPA is under the "legislative responsibility" of the Government of Ontario's Ministry 
of Energy and receives and executes di rectives from the Minister of Energy.366 The Panel found 
that the OPA's statutory objectives include engaging in: 
[A]ctivities in support of the goal of ensuring adequate, reliable and secure electricity 
supply and resources in Ontario; [and] 
… activities to facilitate the diversification of sources of electricity supply by promoting 
the use of cleaner energy sources and te chnologies, including alternative energy 
sources and renewable energy sources; …367 
The Panel further found that, in order to achieve these objectives, the OPA was given the 
power to:  
[E]nter into contracts relating to the procur ement of electricity supply and capacity in 
or outside Ontario; [and] 
… enter into contracts relating to the procurement of electricity supply and capacity 
using alternative energy sources or renewable energy sources to assist the 
Government of Ontario in achieving goals in  the development and use of alternative or 
renewable energy technology and resources; …
368 
4.10.  In its current form, Ontario's electricity system is a partially liberalized "hybrid" system 
where both public and private entities participat e in generation, transmission, distribution and 
retail activities.369 T h e  G o v e r n m e n t  o f  O n t a r i o ,  h o w e v e r ,  " c o n t i n u e s  t o  p l a y  a  c r i t i c a l  r o l e  i n  a l l  
aspects of the system's functioning".370 There are three groups of generators in Ontario: (i) the 
government-owned assets of OPG,  which is a wholly owned corporation of the Government of 
Ontario371; (ii) NUGs, which are private generators that entered into supply contracts in the 1980s 
and 1990s with Ontario Hydro372; and (iii) "Independent Power Producers" (IPPs), which include all 
the other generators in Ontario that have started to operate since the wholesale market was 
restructured.373 The Panel set out in a table the mix of electricity generation that existed in Ontario 
in 2010: 
                                               
365 Panel Reports, para. 7.37 (referring to Govern ment of Ontario webpages, "All Agencies List" 
(Panel Exhibit JPN- 49), available at: < http://www.pas.gov.on.ca/sc ripts/en/BoardsList.asp >; and "Agency 
Details, Ontario Power Authority" (Panel Exhibit JPN-50), available at: 
<http://www.pas.gov.on.ca/scripts/en/BoardDetails.asp?boardID=141181 >). 
366 Panel Reports, para. 7.37 (refe rring to Government of Ontario webpage, "About the Ministry of 
Energy" (Panel Exhibit JPN-52), available at: < http://www.energy.gov.on.ca/en/about/ >; and OPA webpage, 
"Directives to OPA from Minister of Ener gy" (Panel Exhibit JPN-55), available at: 
<http://www.powerauthority.on.c a/about-us/directives-opa-minister-energy-and-infrastructure >). 
367 Panel Reports, para. 7.37 (quoting Electricity Act of 1998, Section 25.2(1)(c) and (d)). 
368 Panel Reports, para. 7.37 (quoting Electricity Act of 1998, Section 25.2(5)(b) and (c)). 
369 Panel Reports, para. 7.25 (quoting Hogan Report, p. 21). 
370 Panel Reports, para. 7.25. 
371 OPG produced approximately 58% of all electricit y generated in Ontario in 2010. OPG's nuclear and 
base-load hydroelectric generation facilities are classi fied as "OPG Regulated Assets" and receive a price for 
electricity set by the OEB. Other "unregulated" hydroelect ric and coal-fired facilities owned by OPG receive the 
Hourly Ontario Energy Price (HOEP) for the supply  of electricity. (Panel  Reports, para. 7.27) 
372 Panel Reports, para. 7.26. The Panel found that the prices paid to NUGs for delivered electricity, 
which were negotiated 20 years ago, are known to be generally higher than the HOEP. (Ibid., para. 7.31) 
373 Panel Reports, para. 7.26. The Panel found that  IPPs, which generate ar ound 40% of Ontario's 
electricity supply, receive prices that are negotiated  or set under different types of OPA initiatives and 
contracts including: the Clean Energy Supply (CES) co ntracts for natural gas; th e Renewable Energy Supply 
(RES) Requests for Proposals I, II, and III; the Hydroe lectric Contract Initiative  (HCI) for grid-connected 
non-OPG-owned hydro faciliti es; the Combined Heat and Power (CHP) Re quests for Proposals I, II, and III; the 
Renewable Energy Standard Offer Programme (RES OP); and the FIT Programm e. (Ibid., para. 7.28) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 79 - 
 
 
  Table 2 – Ontario electr icity generation mix 
Generation 
technology Share of 
2010 
installed 
capacity Approximate 
share of 
2010 
projected 
generation Type of 
capacity Relative 
capital 
cost Relative 
operating 
cost per 
kWh Relative 
dispatchability 
Nuclear 31% 52% base-load high low low 
Hydropower 22% 19% base-load, 
peak-load, 
renewable high low low for run-of-river, 
high for pondage 
Coal 12% 8% intermediate medium low high 
Gas and oil 25% 15% peak-load low high high 
Wind 4% 2% intermittent, 
renewable very high very low low 
Solar PV 0.3% <0.1% intermittent, 
renewable very high very low low 
Bioenergy 0.7% 1% intermediate, 
renewable medium low low 
Conservation 5% 4% base-load, 
peak-load n/a n/a n/a 
Source: Panel Reports, para. 7.280, Table 2. 
 
4.11.  Generators with capacity greater than 10 megawatts (MW) typically connect to the 
transmission system.374 The Panel found that 97% of the transmission system in Ontario is owned 
and operated by Hydro One Networks Inc., a subsidiary of Hydro One Inc.375 The remaining 3% is 
owned and operated by four other private companies. Generators that are connected to the 
transmission system must register with the IESO. Generators with capacity of 10 MW or less generally connect to the distribution system via an LDC.
376 Hydro One owns and operates 
approximately one quarter of Ontario's distribution  system. The remainder of Ontario's distribution 
system is operated by 80 LDCs, 77 of wh ich are owned by municipal governments.377  
                                               
374 Panel Reports, para. 7.33. 
375 Panel Reports, para. 7.34 (referring to Hydro One We bsite, "Our Subsidiaries" (Panel Exhibit JPN-43), 
available at: < http://www.hydroone.com/OurCompany/Pages/OurSubsidiaries.aspx >. The Panel found that 
"Hydro One is a holding company wholly-owned by the Government of Ontario and an 'agent' of the 
Government of Ontario." (Panel Reports, para. 7.147)  
376 Panel Reports, paras. 7.33 and 7.35 (referring to Hydro One Website, "Distribution-connected 
Generators" (Panel Exhibit JPN-45); and Electricity Tran smission and Distribution in Ontario (Panel Exhibit 
JPN-36), p. 4). 
377 Panel Reports, para. 7.35 (referring to Hydro One webpage, "Our Subsid iaries" (Panel Exhibit 
JPN-43), available at: < http://www.hydroone.com/OurCompany /Pages/OurSubs idiaries.aspx >; Electricity 
Distributors Association webpage, "Delivering Safe, Reliable and Environmentally Responsible Electricity to 
Ontarians", July 2010 (Panel Exhibit JP N-46), available at: <http://www.eda-
on.ca/eda/edaweb.nsf/0/762d9f4c8b3b490385257 331004c49ba/$FILE/DELIVERING_ECONOMIC_ 
BENEFITS.pdf>; Blake, Cassels & Graydon webpage, "O verview of Electricity Regulation in Canada"  
(Panel Exhibit JPN-7), pp. 11 and 16, accessed at: 
<http://www.blakes.com/english/legal_updates/refe rence_guides/Overview%20o f%20Electricity%20in%20Ca
nada.pdf >, (no longer available); and IESO webpage, "Find Your Local Utility" (Panel Exhibit JPN-47), 
available at: < http://www.ieso.ca/imoweb/siteshared/local_dist.asp?sid=ic >). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 80 - 
 
 
  4.12.  The Panel found that the price for electricity sold at the wholesale level in Ontario is 
established by the IESO through the operation of a mechanism that uses supply and demand 
"stacks"378 to determine for every five-minute interval: (i) which generators supply electricity and 
which consumers consume electricity; (ii) the amount of electricity to be supplied and consumed; 
and (iii) the MCP for that electricity.379 The MCP is thus set every five minutes at the intersection 
between electricity supply and demand stacks in the IESO wholesale market. In turn, the average 
of the twelve MCPs set during the course of an hour is the "Hourly Ontario Energy Price" 
(HOEP).380 
4.13.  Generators in Ontario's electricity market whose rates are not regulated or contracted 
receive the MCP/HOEP for the electricity they deliv er into the system. The Panel found that "[t]he 
only generators that receive the HOEP alone  are the OPG's unregulated hydroelectric facilities and 
two of its coal-fired generation facilities"381, which account for 8% of electricity generation in 
Ontario.382 By contrast, facilities accounting for 92% of Ontario's 2010 generation capacity do not 
receive the HOEP, but a contracted or regulated rate.383 These generators are subject to an 
adjustment to account for the difference between the MCP/HOEP and the generators' contracted or 
regulated price.384 This adjustment is known as the "Global Adjustment" (GA) and it is a charge 
borne by either final electricity consumers or electricity generators depending on the relationship 
between the MCP/HOEP and the contracted or regulated rate. For instance, if the MCP/HOEP is 
lower than the regulated or contracted price, th e GA will be a positive number representing a 
charge to consumers that must be paid to generators. However, if the MCP/HOEP is higher than the regulated or contracted price, the GA will be a negative number representing a charge to 
generators that must be paid to consumers. The Panel found that "[t]he GA has been consistently 
positive since at least 2009."
385 
4.14.  Due to the fact that most generators participating in the IESO-administered wholesale 
market do not receive the HOEP alone, but a higher price established by the OEB (50% of 
capacity) or under contracts with the OPA or the OEFC (42% of capacity)386, the primary 
motivation behind a generator's price offers is to be selected to dispatch electricity, and not to 
cover its marginal costs of production.387 Thus, the Panel found that: 
                                               
378 The Panel understood the functioning of the IESO "stack system" to be as follows:  
The IESO "stack system" is established on the premise that certain generators are capable of 
easily varying their electricity production wh ile others are not, and likewise that certain 
consumers are capable of easily varying their electricity consumption while others are not. 
Generators and consumers that ca n easily vary their electricity production or consumption are 
termed "dispatchable", and receive "dispatch" instructions from the IESO every five minutes stating the quantity to be supplied or consumed. Those generators and consumers that cannot easily vary their electricity production or cons umption are termed "non-dispatchable"; they do 
not receive "dispatch" instructions from the IESO, but rather their supply and demand is 
considered fixed and automaticall y placed by the IESO at the front of the supply and demand 
stacks.  
(Panel Reports, para. 7.46) 
379 Panel Reports, para. 7.45. 
380 Panel Reports, para. 7.51. 
381 Panel Reports, para. 7.296 (referring to Canada's first written submission, para. 38). (original 
emphasis) 
382 Panel Reports, para. 7.27. 
383 Panel Reports, para. 7.296. 
384 Panel Reports, para. 7.53. 
385 Panel Reports, para. 7.55 (referring to IESO  webpage, "Global Adjust ment Archive" (Panel 
Exhibit JPN-11), available at: < http://www.ieso.ca/imo web/b100/ga_archive.asp >). The Panel explained that 
"[t]he total GA owed to gene rators is allocated to consumers pro-rata based on the amount of electricity (kWh) 
they consume, regardless of which ge nerators are supplying electricity at the time of their consumption." 
(Ibid., para. 7.56 (referring to IESO, HST Guide for IESO Transactions , Issue 26.0, 12 October 2011 (Panel 
Exhibit JPN-84), Section 8.11, p. 35)) 
386 Panel Reports, para. 7.296 (referring to Canada's first written submission to the Panel (DS412), 
para. 37). 
387 Panel Reports, para. 7.297. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 81 - 
 
 
  … the price offers attached to a generator's supply bids in the IESO-administered 
wholesale market are not motivated by the need to cover marginal costs of production 
… but rather by the need for each generator to  be chosen to supply electricity into the 
Ontario grid in order to receive its contracted or regulated prices. Thus, the 
IESO-administered wholesale market does not arrive at its equilibrium price (the 
HOEP) through forces of supply and demand that are unaffected by the policies of the Government of Ontario.
388  
4.15.  The IESO is also responsible for settling the "physical" electricity market in which 
participants buy and sell energy, which involves collecting electricity payments from consumers and distributing these funds to electricity generators.
389 
4.16.  Retail prices are generally determined by adding up the MCP/HOEP, the GA, other fees and 
charges, and the additional distribution charge to cover the cost of delivering electricity to the 
consumer.390 Consumers at the retail level either purchase electricity based on use from their LDCs 
or they enter into contracts for electricity with an LDC or licensed electricity retailer.391 The Panel 
found that "[t]he former retail consumers pay for the electricity commodity according to the OEB's 
RPP, and the latter retail consumers pay for the electricity commodity according to a retail contract."
392 Under this retail contract, consumers "pay[] a contracted price for electricity for a 
fixed period, plus the GA".393 
4.3  The FIT Programme 4.17.  The feed-in tariff programme (FIT Programme)
394 is a scheme implemented by the 
Government of Ontario in 2009 to increase the supply of electricity generated from certain 
renewable sources of energy into the Ontario electricity system.395 It is the third in a series of 
initiatives adopted by the Government of Ontario since 2004 to diversify its energy supply-mix and 
help replace coal-fired facilities.396 The FIT Programme was formally launched by the OPA in 2009 
pursuant to the Direction of the Ontario Minister of Energy and Infrastructure397 (Minister's 2009 
FIT Direction) acting under the authority of the Electricity Act of 1998, as amended by the Green Energy and Green Economy Act of 2009.
398 Generators participating in the FIT Programme "are 
paid a guaranteed price per kWh of electricity delivered into the Ontario electricity system under 
20-year or 40-year contracts with the OPA".399 Participation in the FIT Programme is open to 
                                               
388 Panel Reports, para. 7.298.  
389 Panel Reports, para. 7.60 (referring to IESO, Settlement Statements and Invoices: Marketplace 
Training (December 2010) (Panel Exhibit JPN-62), p. 1).  
390 Panel Reports, para. 7.57. 
391 Panel Reports, para. 7.57. 
392 Panel Reports, para. 7.57. (fn omit ted) The Panel further noted that RPP prices vary according to the 
type of meter used by the customer (con ventional or smart). (Ibid., para. 7.58) 
393 Panel Reports, para. 7.59 (referring to IESO we bpage, "Global Adju stment" (Panel Exhibit JPN-75), 
available at: < http://www.ieso.ca/imoweb/b100/b100_ga.asp >). 
394 The complainants challenge the WTO-consistency of the FIT Programme, the individual FIT Contracts 
utilizing wind and solar PV sources and the individual micr oFIT Contracts utilizing a so lar PV source executed by 
the OPA since the FIT Programme's inception. The compla inants argue that the FIT Programme is evidenced by 
a number of measures listed supra  in para. 1.2. 
395 Panel Reports, para. 7.65. 
396 The Panel found that the two earlier initiatives were the RES I (2004), II (2005), and III (2008), and 
the RESOP (2006). The Panel further determined that: 
[u]nder the RES initiative, the OPA awarded su pply contracts through a competitive bidding 
process which set prices for delivered electricity at the levels of the lowest bids meeting the specified conditions. ... Under the RESOP, the pr ices paid to solar PV generators are based 
primarily on the principle of cost recovery. For non-solar RESOP generators, prices are based on 
those applied under the RES initiative.  
(Panel Reports, para. 7.29 (fn omitted)) 
397 Direction dated 24 September 2009 from George Smitherman, Deputy Premier and Minister of 
Energy and Infrastructure, to Colin Andersen, Chief Exec utive Officer, Ontario Power Authority (OPA), directing 
the OPA to develop a feed-in tariff (FIT) programme (Panel  Exhibit JPN-102), and to include a requirement that 
the applicant submit a plan for meeting the domestic  (i.e. Ontario) content goals in the FIT Rules. 
398 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, Service Ontario 
2009, Chapter 12 (Panel Exhibit JPN-101). See Panel Reports, paras. 7.65 and 7.195. 
399 Panel Reports, para. 7.64. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 82 - 
 
 
  facilities located in Ontario that produce electric ity from the following renewable energy sources: 
wind, solar PV, renewable biomass, biogas, landfill gas, and waterpower.400 
4.18.  The FIT Programme is divided into two streams: (i) the FIT stream – for all renewable 
energy projects with a capacity to produce electr icity over 10 kilowatts (kW), except for solar PV 
projects, which must have a capacity of over 10 kW and no more than 10 MW, and waterpower 
projects, which must have a capacity of over  10 kW and no more than 50 MW; and (ii) the 
microFIT stream – for projects having a capacity to produce up to 10 kW of electricity. Participants 
under the microFIT stream are typically small household, farm, or business generation projects.401 
4.19.  The OPA implements the FIT Programme throug h the application of a standard set of rules, 
standard contracts (i.e. FIT and microFIT Contracts) and, for each class of generation technology, standard pricing. The standard rules are found in a series of instruments, including the FIT and 
microFIT Rules developed by the OPA
402, the IESO Market Rules403, and the IESO Market 
Manual.404 The Panel found that, in order fully to understand the parties' contractual rights and 
obligations, the FIT and microFIT Contracts must be read together with, respectively, the FIT and 
microFIT Rules.405  
4.20.  An entity that enters into a FIT or microFIT Contract is required to, inter alia , build, operate, 
and maintain the approved generation facility in accordance with all relevant laws and regulations, 
and deliver the electricity produced into the Onta rio electricity system. In return for performing 
these and other contractual obligations, such enti ty will be remunerated, over the term of the 
particular contract, in accordance with a formula that is based on a standard "Contract Price" established by the OPA.
406 
4.21.  In addition to these obligations, the FIT Programme imposes "Minimum Required Domestic 
Content Levels" that must be satisfied in the deve lopment and construction of solar PV electricity 
generation facilities participating in both streams of the FIT Programme and of windpower 
electricity generation facilities taking part in the FIT stream. The Minimum Required Domestic 
Content Levels do not apply to qualifying projects using any of the other renewable energy sources covered by the FIT Programme.
407 The applicable Minimum Required Domestic Content Levels 
prescribed under both streams of the FIT Progra mme are summarized in Table 1 at paragraph 1.4 
of these Reports. 
4.22.  Under the FIT stream, the "Domestic Content Level" of a facility is calculated pursuant to 
the methodology set out in Exhibit D of the FIT Contract. Exhibit D contains four different 
Domestic Content Grids, each of which identifies a range of different Designated Activities  and an 
associated qualifying percentage .408 The two Domestic Content Grids under the microFIT stream 
are set forth in Appendix C to the microFIT Contract.409 For each Designated Activity that is 
performed in relation to a "Contract Facility", an associated qualifying percentage will be 
                                               
400 Panel Reports, para. 7.66. Under the FIT Programme, all renewable fuels other than waterpower are 
awarded 20-year contracts. Waterpow er facilities are awarded 40-year  contracts. (Ibid., paras. 7.64 
and 7.195) 
401 Panel Reports, para. 7.66 (referring to FIT Rule s Exhibit (version 1.5.1), Section 2.1(a)(iii); and 
microFIT Rules (version 1.6.1), Section 2.1(a)(iv)). 
402 The FIT and microFIT Rules set out, inter alia : (i) the project eligibility and application requirements; 
(ii) the tests for the connection of the project to the Ontario electricity system; and (iii) an overview of some of the key aspects of the respective contract, such as the duration, price, and settlement of payments. (Panel Reports, paras. 7.199 and 7.210) 
403 The Panel found that "[t]he IESO Market Rules go vern the IESO-controlled grid, including the terms 
and conditions pursuant to which payments due to electricity generators participating in the 'IESO-
administered markets' will be settled." (Panel Reports, para. 7.204) 
404 Panel Reports, para. 7.67. The Pane l found that Part 5.5 of the IESO  Market Manual provides detailed 
instructions on how the GA is to be  determined and settled.  (Ibid., para. 7.54 (referring to IESO Market 
Manual, Part 5.5 (Panel Exhibit JPN-82), Sections 1.6.7 and 1.6.11)) 
405 Panel Reports, paras. 7.199 and 7.210. 
406 Panel Reports, para. 7.68 (referring to FIT Rules (version 1.5.1), Sections 7.1(a), 7.1(b), 
and 10.1(a); FIT Price Schedule, 3 June 2011 (Panel Exhibit JPN-30); FIT Contract (version 1.5.1), Article 3.1 and Exhibit B; and microFIT Price Schedu le, 13 August 2010 (Panel Exhibit JPN-31). 
407 Panel Reports, para. 7.64. 
408 Panel Reports, para. 7.159 (referring to FIT Contract (version 1.5.1), Exhibit D). 
409 Panel Reports, paras. 7.159 and 7.161 (referring to microFIT Rules (version 1.6.1), Definitions, 
pp. 14-16). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 83 - 
 
 
  achieved.410 A project's Domestic Content Level is determined by adding up the qualifying 
percentages associated with all of the Designated Activities performed in relation to that particular 
project. The Panel found that, pursuant to the Minimum Required Domestic Content Levels imposed by the FIT Programme, at least some Ontario-sourced goods  (in particular, renewable 
energy generation equipment and components) mu st be used by FIT and microFIT suppliers 
utilizing solar PV technology and by FIT generators using windpower technology.
411 
4.23.  The FIT and microFIT Contract Prices are established by the OPA and published in the 
FIT and microFIT Price Schedules.412 Such prices are intended to cover the development costs plus 
a reasonable rate of return over the duration of the FIT and microFIT Contracts.413 The Panel found 
that "[t]he after tax rate of return on equity used to develop the FIT Price Schedule in 2009 was 11%."
414 The OPA has ultimate contractual liability for all FIT and microFIT "Contract Payments". 
However, in practice, the actual payments are made by a combination of the OPA, the IESO, and 
relevant LDCs.415 In particular, under the settlement process for payments to transmission-
connected FIT suppliers, in the event that the GA  is positive, the IESO transfers the MCP/HOEP 
directly to FIT generators, while the GA is paid to generators by the OPA.416 By contrast, 
distribution-connected FIT and microFIT suppliers receive their full Contract Payments (i.e. the HOEP plus the GA) from the relevant LDC to which they are connected. The relevant LDC then 
seeks reimbursement of the GA from the OPA via the IESO.
417 
5  ANALYSIS OF THE APPELLATE BODY 5.1  The order in which the Panel dealt wi th Japan's claims under the SCM Agreement 
and its claims under the TRIMs Agreement and the GATT 1994 
5.1.  We begin with Japan's allegation concerning  the proper sequence of analysis of its claims 
under the GATT 1994 and TRIMs Agreement
418, on the one hand, and the SCM Agreement, on the 
other hand.  
                                               
410 By way of example, the Panel explained that "where the wind turbine blades of a windpower project 
have been 'cast in a mould in Ontario' and the 'instrumentation that is within the blades has been assembled in Ontario', the Contract Facility will achieve a Qualifyi ng Percentage of 16%." (P anel Reports, para. 7.160) 
411 Panel Reports, para. 7.163. 
412 Panel Reports, paras. 7.202 and 7.213 (referring to FIT Rules (version 1.5.1), Sections 7.1(a), 
7.1(b), and 10.1(a); microFIT Rules (version 1.6.1), Section 5.2 and Definitions; FIT Price Schedule, 
3 June 2011 (Panel Exhibit JPN-30 ); and microFIT Price Schedule, 13 August 2010  (Panel Exhibit JPN-31 )). 
413 Panel Reports, paras. 7.202 and 7.213. The Panel found that:  
[t]he Contract Prices applicable to the measures at issue were determined using a discounted cash flow model taking into account "reasonabl e" capital costs (i.e. "project development, 
construction and equipment costs"), "reasonable"  operating and maintenance costs (i.e. "project 
staffing and maintenance costs, including on-going  capital expenditures and property taxes") and 
"reasonable" connection costs (i.e. "project co nnection costs, no significant upgrade costs 
assumed").  
(Ibid., para. 7.202 (fn omitted)) 
The Panel further determined that, "[f]or certain technologies, a spec ified percentage of the Contract 
Price will escalate annually based on increases in th e consumer price index". (Panel Reports, para. 7.202 
(fn omitted)) Prices for electricity produced by windpo wer projects are eligible for annual escalation, whereas 
the ones applicable to projects utilizing solar PV technologies are not eligible for such escalation. (Ibid., para. 7.30) 
414 Panel Reports, para. 7.29. See also para. 7.202 (ref erring to Canada's response to Panel question 
No. 26 (first set) and No. 12 (second set); and OPA, Pr esentation on "Proposed Feed-in Tariff Price Schedule 
Stakeholder Engagement – Session 4", 7 April 2009 (Panel Exhibit CDA-46) (OPA Proposed FIT Price Schedule Presentation), slide 30). 
415 Panel Reports, paras. 7.68, 7.204, and 7.213. 
416 Panel Reports, paras. 7.62 and 7.204. 
417 Panel Reports, para. 7.63. The Pa nel found that, after paying a supp lier its full Co ntract Payment, 
"the relevant LDC will … seek to reco ver any amounts paid in excess of the wholesale price of electricity for the 
electricity delivered by the Supplier in question, from the OPA, through the IESO." (Ibid., para. 7.205 
(fns omitted)) 
418 In this part of its appeal, Japan is not suggesting that there is a particular sequence of analysis as 
between the TRIMs Agreement and the GATT 1994. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 84 - 
 
 
  5.2.  Before the Panel, Japan and the European Union brought claims under the SCM Agreement, 
the TRIMs Agreement, and the GATT 1994. The co mplainants requested the Panel to evaluate 
these claims by first focusing on those made under the SCM Agreement, because that Agreement deals most specifically and in detail with the measures at issue, including with respect to the 
nature of the remedy that is available in the event of a finding of violation. By contrast, Canada 
argued that the Panel should first address the cl aims under Article III:4 of the GATT 1994, because 
this provision deals most specifically, and in detail, with the focus of the complainants' challenge, 
namely, the Minimum Required Domestic Content Levels prescribed under the FIT Programme and 
related FIT and microFIT Contracts.
419 
5.3.  The Panel first noted that Canada did not contest the complainants' assertion that the 
measures at issue are trade-related investment measures (TRIMs) affecting imports of renewable 
energy generation equipment and components. In the Panel's view, "[t]his suggests that, 
compared with the SCM Agreement and Article III: 4 of the GATT 1994, it is the TRIMs Agreement 
that deals most directly, specifically and in detail, with the aspects of the FIT Programme, and the 
FIT and microFIT Contracts, that are at the centre of the complainants' concerns."420 On this basis, 
the Panel decided to commence its evaluation of the complainants' claims by focusing on those made under the TRIMs Agreement. The Panel noted, however, that examining the claims under 
Article 2.1 of the TRIMs Agreement also entailed ev aluating the merits of the complainants' claims 
under Article III:4 of the GATT 1994. Consequently, the Panel simultaneously evaluated the merits 
of both claims brought by the complainants.
421 
5.4.  In its other appellant's submission, Japan argued that the Panel should have commenced its 
evaluation with Japan's claim under the SCM Agreement.422 However, at the oral hearing, Japan 
clarified that its request in this appeal was limited to asking us to commence our own analysis with the allegations of error relating to the SCM Agreem ent. Japan is not suggesting that we reverse or 
modify a finding or legal interpretation of the Pa nel, or that the Panel's decision to commence its 
evaluation with the SCM Agreement constituted le gal error or resulted in the Panel failing to 
conduct an objective assessment of the matter contrary to Article 11 of the DSU.
423  
5.5.  Both the national treatment obligat ions in Article III:4 of the GATT 1994 and the 
TRIMs Agreement, and the disciplines in Article 3.1(b) of the SCM Agreement, are cumulative 
obligations. Article III:4 of the GATT 1994 and the TR IMs Agreement, as well as Article 3.1(b) of 
the SCM Agreement, prohibit the use of local cont ent requirements in certain circumstances. These 
provisions address discriminatory conduct. We see nothing in these provisions to indicate that 
there is an obligatory sequence of analysis to be followed when claims are made under Article III:4 of the GATT 1994 and the TRIMs Agreement, on  the one hand, and Article 3.1(b) of the 
SCM Agreement, on the other hand. Nor has Japan argued that the disposition of its claim under 
Article 3.1(b) of the SCM Agreement would some how pre-empt our assessment under Article III:4 
of the GATT 1994 and the TRIMs Agreement.  
5.6.  We are aware that, in a series of previo us disputes, issues concerning the sequence of 
analysis have been dealt with by seeking to identi fy the agreement that "deals specifically, and in 
detail, with" the measures at issue.
424 Japan and the European Union both emphasized before the 
Panel that the focus of their complaints is the domestic content requirements that form part of the 
FIT Programme and FIT and microFIT Contracts.425 We note that the TRIMs Agreement deals 
specifically with investment measures related to trade in goods or TRIMs. It does not regulate anything else. Domestic content requirements are one type of TRIM regulated under the 
TRIMs Agreement. One of the examples in the I llustrative List annexed to the TRIMs Agreement 
refers specifically to requirements relating to "the  purchase or use by an enterprise of products of 
domestic origin or from any domestic source, whether specified in terms of particular products, in 
terms of volume or value of products, or in terms of a proportion of volume or value of its local 
                                               
419 Panel Reports, para. 7.69. 
420 Panel Reports, para. 7.70. (fn omitted) 
421 Panel Reports, para. 7.70. 
422 Japan's other appellant's subm ission (DS412), paras. 10-15. 
423 Japan's response to questioning at the oral hearing. 
424 Appellate Body Report, EC – Bananas III , para. 204. See also Panel Reports, Indonesia – Autos , 
paras. 14.61-14.63; EC – Bananas III , paras. 7.185-7.187; Canada – Autos , paras. 10.63 and 10.64; and 
India – Autos , paras. 7.157-7.162. 
425 Panel Reports, paras. 7.6, 7.7, and 7.70. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 85 - 
 
 
  production".426 The SCM Agreement deals specifically with subsidies. It defines what government 
conducts constitute subsidies, classifies different kinds of subsidies, and establishes different 
regulations for each type of subsidy. The SCM Ag reement also sets out the remedies available to 
WTO Members affected by subsidies and provides detailed guidance on how domestic 
countervailing duty investigations should be conducted. The local content requirements of the 
FIT Programme and related FIT and microFIT Contracts are being challenged by Japan under Article 3.1(b) of the SCM Agreement. This provision regulates so-called import-substitution 
subsidies, which are one of only two kinds of su bsidies prohibited under the SCM Agreement. At 
the same time, the SCM Agreement regulates a broader universe of measures. Thus, based on the above discussion, we are not persuaded that, compared to the GATT 1994 and the TRIMs Agreement, the SCM Agreement can be described as regulating more "specifically, and in 
detail,"
427 the measures challenged in this dispute.  
5.7.  Japan has emphasized the differences in the remedies foreseen under the SCM Agreement 
and the remedy foreseen in Article 19 of the DSU.428 The specific remedy provided under 
Article 4.7 of the SCM Agreement is an important consideration. In EC – Export Subsidies on 
Sugar , the remedy provided under Article 4.7 was th e reason why the Appellate Body found that 
the panel had improperly exercised judicial economy when it failed to make findings under the 
SCM Agreement once it had found a violation of the Agreement on Agriculture.429 While the 
difference in remedy would be releva nt to a decision as to whether or not there would be a need to 
address the claims under the SCM Agreement, having made findings under the GATT 1994 and the TRIMs Agreement, we do not see its relevance in this case for the question of which claim to 
address first. In any event, this was not a case in which the Panel exercised judicial economy; the 
Panel made findings under Article III:4 of th e GATT 1994 and the TRIMs Agreement. It then 
examined Japan's claims under the SCM Agreement and found that Japan had failed to establish 
that the challenged measures confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement.
430 Japan has appealed the Panel's finding on benefit, and we address Japan's 
appeal in section 5.5.2 of these Reports.  
5.8.  Issues of sequencing may become relevant to a logical consideration of claims under different 
agreements. However, no such issues arise in this case. The Panel examined the claims under Article III:4 of the GATT 1994 and the TRIMs Agreement, and then the claims under the 
SCM Agreement. Japan has not indicated why co mmencing the analysis with the SCM Agreement 
could lead to a different outcome than commencing with the GATT 1994 and the 
TRIMs Agreement, as the Panel did in this case. We see no obligation in this case to begin the analysis with the claims under the SCM Agreement. Ultimately, the decision in this case as to 
whether to commence the analysis with the claims under the SCM Agreement or those under the 
GATT 1994 and the TRIMs Agreement was within the Panel's margin of discretion.
431 The Panel 
opted to commence the analysis with the claims under the GATT 1994 and the TRIMs Agreement. 
We see some practical value in following the same  sequence as the Panel. Therefore, we decline 
Japan's request that we commence our evaluation with the allegations of error relating to the 
SCM Agreement.  
5.2  The applicability of Article III:8(a) of the GATT 1994 to measures falling under 
Article 2.2 of the TRIMs Agreement and the Illustrative List annexed thereto 
5.9.  We now turn to the European Union's cl aim that Article III:8(a) of the GATT 1994 is 
applicable to measures that fall under Article 2.2 of the TRIMs Agreement and the Illustrative List 
annexed thereto. Before assessing the European Un ion's claim, we summarize the Panel's findings 
and the arguments raised on appeal. 
                                               
426 TRIMs Agreement, Annex (Ill ustrative List), para. 1(a). 
427 Appellate Body Report, EC – Bananas III , para. 204. 
428 Japan's other appellant's su bmission (DS412), para. 14. 
429 Appellate Body Report, EC – Export Subsidies on Sugar , paras. 332-335. 
430 Panel Reports, para. 7.328(ii). 
431 See Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 126. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 86 - 
 
 
  5.2.1  The Panel's findings 
5.10.  The Panel began its analysis of this issue with Article 2.1 of the TRIMs Agreement. The 
Panel noted that Article 2.1 expressly refers to "the provisions of Article III … of GATT 1994" and understood this to include Article III:8(a) of th e GATT 1994. From this, the Panel reasoned that 
"any government procurement transactions covered by the terms of Article III:8(a) of the 
GATT 1994 will be removed from the scope of the obligations set out in Article III, including Article III:4" and "where a particular TRIM involves the same kind of government procurement 
transactions described in Article III:8(a), it cannot be found to be inconsistent with the obligation 
in Article 2.1 of the TRIMs Agreement."
432  
5.11.  Turning to Article 2.2 of the TRIMs Agreemen t, the Panel observed that this provision "does 
not impose any obligations on Members, but rather informs the interpretation of the prohibition set 
out in Article 2.1".433 The Panel then addressed the relationship between Article 2.2 of the 
TRIMs Agreement and Article III:8 of the GATT 1994 as follows: 
Article 2.2 explains that the TRIMs described in the Illustrative List of the Annex to the 
TRIMs Agreement are to be considered inconsistent with Members' specific obligations 
under Articles III:4 and XI:1 of the GATT 1994. It does not follow, however, that TRIMs having the same characteristics as those described in Paragraph 1(a) of the 
Illustrative List must be automatically found to be inconsistent with Article III:4 of the 
GATT 1994 when they would otherwise be covered by the terms of Article III:8(a) of 
the GATT 1994 . Such a reading of Article 2.2 would be inconsistent with the clear 
terms of Article 2.1, which explicitly state that  there will be a violation of Article 2.1 of 
the TRIMs Agreement whenever a measure is inconsistent with Article III of the 
GATT 1994. This refers to the whole of Article III, including Article III:8(a) .
434  
5.12.  The Panel went on to dismiss the European Union's argument because it did not "reflect the 
proper sequence of the legal analysis that is  envisaged under Articles 2.1 and 2.2 of the 
TRIMs Agreement".435 The Panel explained what it consider ed to be the proper sequence of 
analysis as follows: 
Where in a particular case it is found that the national treatment obligation in 
Article III:4 applies to a challenged measure, the Illustrative List may be used to determine whether the challenged measure is inconsistent with that obligation through the operation of Article 2.1 of the TRIMs Agreement. Where such a measure 
has the characteristics that are described in Paragraph 1(a) of the Illustrative List, it 
follows from the clear language of this provision that it will be in violation of Article III:4 of the GATT 1994, and thereby al so Article 2.1 of the TRIMs Agreement. 
Given the language of Article 2.1, it would, in our view, be inappropriate to infer from 
Paragraph 1(a) of the Illustrative List that TRIMs having the characteristics described in that paragraph will always  be inconsistent with Article III:4 of the GATT 1994, 
irrespective of whether they may be covered by the terms of Article III:8(a) of the 
GATT 1994.
436  
5.13.  On the basis of the above, the Panel concluded that: 
Paragraph 1(a) of the Illustrative List in  the Annex to the TRIMs Agreement does not 
obviate the need for us to undertake an an alysis of whether the challenged measures 
are outside of the scope of application of Article III:4 of the GATT 1994 by virtue of the operation of Article III:8(a) of the GATT 1994.
437 
                                               
432 Panel Reports, para. 7.118. 
433 Panel Reports, para. 7.119. 
434 Panel Reports, para. 7.119. (original emphasis) 
435 Panel Reports, para. 7.120. 
436 Panel Reports, para. 7.120. (original emphasis) 
437 Panel Reports, para. 7.121. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 87 - 
 
 
  5.2.2  Claims and arguments on appeal 
5.14.  On appeal, the European Union asserts th at the Panel erred in the interpretation and 
application of Articles 2.1 and 2.2 of the TRIMs Agreement, read in conjunction with paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement, when finding that 
they do not preclude the application of Articl e III:8(a) of the GATT 1994 to the challenged 
measures.  
5.15.  The European Union distinguishes the text of Article 2.1 and Article 2.2 of the 
TRIMs Agreement. It notes that, while Article 2.1 refers to Article III of the GATT 1994, Article 2.2 
sets out an Illustrative List of measures "that are necessarily 'inconsistent with Article III:4'".
438 
The European Union understands this difference in language to mean that the Panel's reasoning holds only in relation to TRIMs other than the specific measures defined through the 
Illustrative List. For those that fall within the scope of the Illustrative List, the question of whether 
they could escape a violation through the applicab ility of Article III:8 of the GATT 1994 no longer 
presents itself, because the TRIMs Agreement has conclusively settled the issue. 
5.16.  The European Union requests us to complete the analysis and correctly apply the legal 
interpretation set out above to the Panel's findings and uncontested facts on the record. 
5.17.  Canada asserts that the Panel correctly found that the TRIMs Agreement does not preclude 
the application of Article III:8(a) of the GATT 1994 to the FIT Programme's domestic content 
requirements.
439 Canada explains that, by describing the me asures in the Illustrative List of TRIMs 
as inconsistent with "the obligation of national treatment provided for in paragraph 4 of Article III", instead of "Article III", "Article 2.2 does not address the consistency of the measures 
listed in the Annex with Article III, as a whole, including Article III:8(a)."
440  
5.18.  In addition, Canada argues that the European Union "overlooks"441 that the context of 
paragraph 1 of the Illustrative List undermines its interpretation of that paragraph. Canada points 
out that the Illustrative List annexed to the TRIMs Agreement also contains, in paragraph 2, 
examples of TRIMs that are inconsistent with Arti cle XI:1 of the GATT 1994. It further notes that 
Article XI has a scope provision similar to Article III:8(a) of the GATT 1994. This scope provision is 
found in Article XI:2, which states that "[t]he provisions of paragraph 1 of this Article shall not 
extend to the following …". Consequently, Canada submits that, if the European Union's interpretation were correct, then this interpretation would also hold for TRIMs that are inconsistent with Article XI:1 of the GATT 1994. In other words, under the European Union's reasoning, the 
TRIMs that are listed in the Illustrative List as inconsistent with Article XI:1 must fall outside the 
scope of Article XI:2. Yet, Canada submits that a comparison between Article XI:2 of the GATT 1994 and the TRIMs listed as inconsistent with Article XI:1 of the GATT 1994 in the Annex 
reveals that this proposition "is untenable".
442 Canada emphasizes that the Annex contains 
measures that "clearly"443 could fall within the scope of Arti cle XI:2 of the GATT 1994. Therefore, 
Canada asserts that the European Union's interpre tation of Article 2.2 of the TRIMs Agreement and 
paragraph 1 of the Annex is inconsistent with the text and its context. Canada thus submits that 
that the European Union has failed to provide grounds to overturn the Panel's decision that the TRIMs Agreement does not preclude the application of Article III:8(a) of the GATT 1994 to the FIT Programme's domestic content requirements.  
                                               
438 European Union's other appellant's submission (DS426), para. 31. (fn omitted) 
439 Canada's appellee's submission, para. 27. 
440 Canada's appellee's submission, para. 29. 
441 Canada's appellee's submission, para. 32. 
442 Canada's appellee's submission, para. 33. 
443 Canada's appellee's submission, para. 33. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 88 - 
 
 
  5.2.3  Is Article III:8(a) of the GATT 1994 applicable to measures falling within the 
scope of Article 2.2 of the TRIMs Agreement and the Illustrative List annexed thereto? 
5.19.  We begin our analysis with Article 2 of the TRIMs Agreement, which provides: 
National Treatment and Quantitative Restrictions 
1. Without prejudice to other rights and obligations under GATT 1994, no Member 
shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994. 
2. An Illustrative List of TRIMs that are inconsistent with the obligation of national 
treatment provided for in paragraph 4 of Article III of GATT 1994 and the obligation of 
general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained in the Annex to this Agreement. 
5.20.  Article 2.1 of the TRIMs Agreement prohibits Members from applying a TRIM – that is, an 
investment measure related to trade in goods
444 – "that is inconsistent with the provisions of 
Article III or Article XI of GATT 1994". The cross-reference in the latter part of Article 2.1 to 
Article III of the GATT 1994 is unqualified. We understand this to be a reference to Article III of 
the GATT 1994 in its entirety, including Article III:4.  Thus, as the Panel explained, a measure that 
is inconsistent with Article III:4 of the GATT 1994 would also be a TRIM that is incompatible with 
Article 2.1 of the TRIMs Agreement.445 Importantly, the cross-reference to Article III also includes 
paragraph 8(a) of that provision. As we discuss in  more detail in section 5.3 of these Reports, a 
measure that falls within the scope of paragraph 8(a) cannot violate Article III of the GATT 1994. 
This, in turn, means that a Member applying such a measure would not violate Article 2.1 of the 
TRIMs Agreement. We note, in this respect, th at the relationship between Article 2.1 of the 
TRIMs Agreement and Article III of the GATT 1994 is not a point of contention between the 
participants.446  
5.21.  The issue that is contested, and that we need to resolve in this appeal, concerns the 
relationship between, on the one hand, Article 2.2 and the Illustrative List of the TRIMs Agreement 
and, on the other hand, Articles III:4 and III:8( a) of the GATT 1994. The European Union takes 
the position that TRIMs that fall within the scope of Article 2.2 and the Illustrative List of the 
TRIMs Agreement are inconsistent with Article III:4 of the GATT 1994, irrespective of whether they 
also fall within Article III:8(a) of the GATT 1994. According to the European Union, Article 2.2 and 
the Illustrative List of the TRIMs Agreement establish that measures falling within their scope and 
that violate the national treatment obligation in Article III:4 of the GATT 1994 cannot be justified 
because the derogation in Article III:8(a) is unavailable. The Panel rejected the European Union's interpretation, and Canada supports the Panel's interpretation in this appeal. 
5.22.  Article 2.2 refers to the obligation of national treatment provided for in paragraph 4 of 
Article III of the GATT 1994, as well as the obli gation of general elimination of quantitative 
restrictions provided for in paragraph 1 of Article XI of the GATT 1994. Article 2.2 also refers to an 
illustrative list of TRIMs that is found in the A nnex to the TRIMs Agreement. The term "illustrative" 
indicates that the examples in the list do not cons titute a closed list. In other words, there can be 
other types of TRIMs that are inconsistent with the national treatment obligation in Article III:4 and the obligation of general elimination of quantitative restrictions in Article XI:1 of the GATT 
                                               
444 See Article 1 of the TRIMs Agreement. The Panel found that "the FIT Programme, and the FIT and 
microFIT Contracts, to the extent they envisage and impose a 'Minimum Required Domestic Content Level', 
constitute TRIMs within the meaning of Article 1 of the TRIMs Agreement." (Panel Reports, para. 7.112) This 
finding has not been appealed. 
445 Panel Reports, para. 7.117. 
446 European Union's and Canada's responses to questioning at the oral hearing.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 89 - 
 
 
  1994. The use of the term "include" in paragraph 1 of the Illustrative List further supports this 
understanding.447  
5.23.  Turning to the Illustrative List referred to in Article 2.2, we note that the Panel found that 
the measures fall within the coverage of paragraph 1(a), which provides: 
1. TRIMs that are inconsistent with the obligation of national treatment provided for in 
paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under ad ministrative rulings, or compliance with 
which is necessary to obtain an advantage, and which require:  
(a) the purchase or use by an enterprise of products of domestic origin or from any 
domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local 
production; ... 
5.24.  By its terms, a measure that falls within the coverage of paragraph 1(a) of the Illustrative 
List is "inconsistent with the obligation of national treatment provided for in paragraph 4 of 
Article III of GATT 1994". Thus, like Article 2.2 of  the TRIMs Agreement, paragraph 1(a) of the 
Illustrative List refers to the obligations in Article III:4 of the GATT 1994.  
5.25.  The European Union draws attention to the differences in language between Article 2.2 of 
the TRIMs Agreement and the Illustrative List , on the one hand, and Article 2.1 of the 
TRIMs Agreement, on the other hand. It underscores that the latter provision refers to Article III of 
the GATT 1994 "as a whole"
448, while Article 2.2 and the Illustrative List refer specifically to 
Article III:4 of the GATT 1994.  
5.26.  In our view, Article 2.2 provides further specification as to the type of measures that are 
inconsistent with Article 2.1. The operative part of Article 2.2 is the reference to the Illustrative List, which provides examples of measures that  are inconsistent with the national treatment 
obligation. While Article 2.2 and the Illustrative Li st focus on the specific provisions where such 
obligation is reflected – that is, Article III:4 of the GATT 1994 – we do not believe it responds to the question of whether such measures are inconsistent with Article III of the GATT 1994 in its 
entirety. Where a measure falls within the scope of Article III:8(a), the measure is not inconsistent 
with Article III overall. Thus, we agree with the Panel that Article 2.2 and the Illustrative List must be understood as clarifying to which TRIMs the general obligation in Article 2.1 applies.
449 
Furthermore, we understand the absence of a re ference to Article III:8(a) of the GATT 1994 in 
Article 2.2 of the TRIMs Agreement and in the Illust rative List as indicating that these provisions 
are neutral as to the applicability of the former provision. This results in a harmonious interpretation of Articles 2.1 and 2.2 of the TRIM s Agreement and Articles III:4 and III:8(a) of the 
GATT 1994. By contrast, the interpretation advo cated by the European Union would result in 
different obligations for those TRIMs that fall within the Illustrative List and those that do not. 
5.27.  We find additional support for this interpretation in the initial clause of Article 2.1 and 
Article 3 of the TRIMs Agreement. The opening clau se of Article 2.1 reads: "Without prejudice to 
other rights and obligations under GATT 1994". This  language suggests that the provision is not 
intended to curtail other rights that Members ha ve under the GATT 1994. The right to discriminate 
in government purchases – subject to the conditio ns and requirements of Article III:8(a) – is one 
such right recognized in the GATT 1994. Moreover , Article 3 of the TRIMs Agreement, entitled 
"Exceptions", provides contextual support for our interpretation. It states that "[a]ll exceptions under GATT 1994 shall apply, as appropriate, to th e provisions of this Agreement." As the title and 
                                               
447 Article 1(e) of the Agreement on Agriculture defines "export subsidies" as "subsidies contingent upon 
export performance, including the export subsidies listed in Arti cle 9 of this Agreement". In US – Upland 
Cotton , the Appellate Body noted that the use of the word "including" in Article 1(e) of the Agreement on 
Agriculture suggests that the list of export subsidies in Article 9 is not exhaustive. (Appellate Body Report,  
US – Upland Cotton , para. 615) 
448 European Union's other appellant's submission (DS426), para. 30. 
449 Panel Reports, para. 7.119: "Article 2.2 of the TR IMs Agreement does not impose any obligations on 
Members, but rather informs the interpretation of the prohibition set out in Article 2.1. In particular, Article 2.2 
explains that the TRIMs described in the Illustrative List of the Annex to the TRIMs Agreement are to be considered inconsistent with Members' specific obli gations under Articles III:4 and XI:1 of the GATT 1994." WT/DS412/AB/R • WT/DS426/AB/R 
 
- 90 - 
 
 
  text of Article 3 indicate, this provision refers to "exceptions". The Panel and the participants have 
characterized Article III:8(a) as a "scope" provision.450 Even though Article III:8(a) is not one of 
the exceptions that "apply, as appropriate," to the TRIMs Agreement, Article 3 further suggests that the provisions of the TRIMs Agreement are not intended to constrain other rights that 
Members have under the GATT 1994.  
5.28.  The European Union argues that the Panel's interpretation "alters the nature and function of 
Articles 2.1, 2.2 and the Illustrative List" and "largely nullifies the effects of Article 2.2 and of the 
Illustrative List in relation to the general obligation in Article 2.1."
451 Under the Panel's 
interpretation, Article 2.2 and the Illustrative Li st continue to provide examples of TRIMs that 
involve discrimination and that are inconsistent with the national treatment obligation in Article III:4, and consequently would violate the ob ligation in Article 2.1 of the TRIMs Agreement. 
Contrary to the European Union's assertion, Article 2.2 and the Illustrative List continue to 
"introduc[e] detail and specificity to the general obligation in Article 2.1".
452 We agree that the 
Panel's interpretation means that a limited set of measures that fall both within one of the 
examples of the Illustrative List of the TRIM s Agreement and Article III:8(a) of the GATT 1994 
ultimately would not be found to be inconsistent with Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement. Yet, we do not see this as nullifying the effects of Article 2.2 and the 
Illustrative List. Rather, it is a result of interpreting Article 2.2 and the Illustrative List 
harmoniously with the other provisions of th e TRIMs Agreement and with Article III of the 
GATT 1994. In any event, the broader subset of TRIM s that fall within the Illustrative List and do 
not qualify for derogation under Article III:8(a) of the GATT 1994 remains inconsistent with the 
national treatment obligation in Article III:4 of the GATT 1994 and Article 2.1 of the 
TRIMs Agreement.  
5.29.  We note that Canada has pointed out that the European Union's interpretation would apply 
equally to the examples in paragraph 2 of the Il lustrative List of the TRIMs Agreement. Canada 
asserts that this would mean that measures falling within this paragraph 2 would be inconsistent with Article XI:1 of the GATT 1994 and that Article XI:2 would be unavailable to justify such 
measures.
453 At the oral hearing, the European Union referred to some of the requirements in 
Article XI:2 and questioned whether such provis ion would apply to the measures described by 
Canada. It would appear that the reasoning set out above in relation to Articles 2.1 and 2.2 of the TRIMs Agreement and Article III:4 of the GATT 1994 would apply mutatis mutandis  to the 
relationship between Articles XI:1 and XI:2 of the GATT 1994. Nevertheless, we need not 
determine this issue conclusively in this case because we have already determined that the application of Article III:8(a) of the GATT 1994 is  not precluded where the challenged measure 
falls within the scope of Article 2.2 and para graph 1(a) of the Illustrative List of the 
TRIMs Agreement.  
5.30.   The European Union emphasizes the language in the first paragraph of the preamble of the 
TRIMs Agreement, stating that "the object and purpose of the TRIMs Agreement was precisely to 
'elaborate' 'further' or 'additional' provisions to the already existing ones."
454 The European Union 
adds that the Panel's interpretation contradicts the TRIMs Agreement's object and purpose because, "[i]f Article 2.2 and the Illustrative List were to be read as merely stating the obvious i.e. 
that the types of measures listed in the annex di scriminate against imported goods, with no other 
implications, they would largely be redundant."
455 
5.31.   The first paragraph of the preamble of the TRIMs Agreement quotes the negotiating 
mandate of the Punta del Este Declaration456, referring to the "trade restrictive and distorting 
effects of investment measures" and calling for negotiations to "elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade". The fourth paragraph 
recognizes that "certain investment measures can cause trade-restrictive and distorting effects".  
                                               
450 Panel Reports, fn 263 to para. 7.113; Canada's response to questioning at the oral hearing.  
451 European Union's other appellant's submission (DS426), para. 33. 
452 European Union's other appellant's submission (DS426), para. 33. 
453 Canada's appellee's submission, para. 33. 
454 European Union's other appellant's submission (DS426), para. 35. (fn omitted) 
455 European Union's other appellant's submission (DS426), para. 35. 
456 Ministerial Declaration adopted at Punta del Este, Uruguay on 20 September 1986 to launch the 
Uruguay Round of Multilat eral Trade Negotiations. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 91 - 
 
 
  5.32.  We do not find the European Union's reliance on the language of the Punta del Este 
negotiating mandate to be persuasive. Looking at the TRIMs Agreement as a whole, we consider 
that the "further" provisions that it contains mainly clarify the application of Articles III and XI of the GATT 1994 to a specific set of measures – namely, TRIMs. In doing so, however, there is little, 
if any, indication that the provisions of the TRIMs Agreement were intended to override rights 
recognized in the GATT, such as the right provided in Article III:8(a). On the contrary, several provisions of the TRIMs Agreement – particularly the initial clause of Article 2.1, and Articles 3 
and 4 – would seem to reflect reiterative attempts  to safeguard rights recognized in the GATT, 
rather than to override them.  
5.33.  For the reasons stated above, we consider that the Panel correctly rejected the 
European Union's argument that Article III:8(a) of the GATT 1994 is not applicable to measures 
that fall within the scope of Article 2.2 of the TRIMs Agreement and the Illustrative List annexed 
thereto. Therefore, we uphold the Panel's findin g, in paragraph 7.121 of the Panel Reports, that 
"Paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement d[id] not obviate the 
need for [the Panel] to undertake an analysis of whether the challenged measures are outside of 
the scope of application of Article III:4 of the GATT 1994 by virtue of the operation of 
Article III:8(a) of the GATT 1994." As we have upheld the Panel's finding, there is no basis for us 
to entertain the European Union's request that we complete the analysis and find that 
Article III:8(a) of the GATT 1994 is not applicable  in the present case because the measures fall 
within Article 2.2 and the Illustrative List of the TRIMs Agreement.457 
5.3  Article III:8(a) of the GATT 1994 
5.34.  We turn to Article III:8(a) of the GATT 19 94. The three participants challenge on appeal 
different aspects of the Panel's interpretation and application of this provision. 
5.35.  Canada alleges that the Panel erred in finding that the FIT Programme and related FIT and 
microFIT Contracts are not covered by Article III:8(a) and that, consequently, Canada cannot rely 
on that provision to exclude the application of Article III:4 of the GATT 1994 to the Minimum 
Required Domestic Content Levels.458 Canada requests us to reverse this finding, complete the 
legal analysis under Article III:8(a), and find that the FIT Programme and Contracts fall within the 
scope of Article III:8(a). Consequently, Canada requests us to find that the FIT Programme and Contracts do not breach Article III:4 of the GA TT 1994 or Article 2.1 of the TRIMs Agreement.
459 
5.36.  The European Union and Japan request us to uphold the Panel's finding that the 
FIT Programme and Contracts are not covered by Article III:8(a) and that, consequently, Canada 
cannot rely on that provision to exclude the application of Article III:4 of the GATT 1994. The European Union and Japan also support the Panel's conclusion that the FIT Programme and 
Contracts are inconsistent with Article 2.1 of  the TRIMs Agreement and Article III:4 of the 
GATT 1994. However, in their other appeals, they each appeal several aspects of the Panel's interpretation and application of Article III:8(a) of the GATT 1994 and request us to modify certain 
intermediate findings by the Panel. 
5.37.  The Panel's findings are summarized in subs ection 5.3.1. The claims and arguments of the 
participants are set out in subsection 5.3.2. Su bsection 5.3.3 provides our interpretation of 
Article III:8(a) of the GATT 1994. Finally, in subsec tion 5.3.4, we address the Panel's application of 
Article III:8(a) to the facts of these disputes.  
5.3.1  The Panel's findings 5.38.  At the outset of its analysis, the Panel addressed the question of whether the 
FIT Programme and related FIT and microFIT Contracts are "trade-related investment measures" 
(TRIMs) within the meaning of Article 1 of the TR IMs Agreement. The Panel found that one aim of 
the FIT Programme and Contracts is to encourage in vestment in the local production of equipment 
associated with the generation of electricity from renewable sources in Ontario.
460 Furthermore, 
                                               
457 European Union's other appellant's submission (DS426), para. 38. 
458 Panel Reports, para. 7.152. 
459 Canada's appellant's submission, para. 7. 
460 Panel Reports, para. 7.109 (referring to Minister's 2009 FIT Direction, p. 1). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 92 - 
 
 
  the Panel found that the FIT Programme and Contracts "compel[] [electricity generators] to 
purchase and use certain types of renewable ener gy generation equipment sourced in Ontario in 
the design and construction of their facilities".461 On this basis, the Panel concluded that the 
FIT Programme and Contracts constitute TRIMs "to the extent they envisage and impose" domestic 
content requirements.462 
5.39.  The Panel then assessed whether the FIT Programme and Contracts are consistent with 
Article 2.1 of the TRIMs Agreement. The Panel noted that this provision contains a reference to 
Article III of the GATT 1994 and, consequently, it assessed whether the FIT Programme and 
Contracts fall within the scope of Article III:4 of the GATT 1994, or whether they are "outside the 
scope of application of Article III:4 … by virtue of the operation of Article III:8(a)".463 In this 
respect, the Panel addressed three issues, namely: 
a. whether the FIT Programme and Contracts can be characterized as "laws, regulations or 
requirements governing procurement" of electricity; 
b. whether the FIT Programme and Contracts involve "procurement by governmental 
agencies of products purchased"; and  
c. whether "procurement" is undertaken "for gove rnmental purposes and not with a view to 
commercial resale or with a view to use in the production of goods for commercial sale". 
5.40.  Regarding the first issue, the Panel found that a measure "governing" procurement is one 
that "controls, regulates or determines that procurement".464 With respect to the FIT Programme 
and Contracts, the Panel found that the domestic content requirements for renewable energy generation equipment are a condition that must be satisfied by generators utilizing solar PV or 
windpower technologies in order to participate in  the FIT Programme. The Panel explained that the 
domestic content requirements thus compel the purchase and use of certain generation equipment originating in Ontario as a necessary prerequisi te for the procurement of electricity by the 
Government of Ontario to take place. The Panel found that, consequently, the domestic content 
requirements are requirements "governing" the pr ocurement of electricity by the Government of 
Ontario under the FIT Programme and Contracts.
465 The Panel found further support in the fact 
that the electricity procured by the Government  of Ontario is produced using the very same 
generation equipment that is subject to the domestic content requirements. Thus, for the Panel, there was a "close relationship" between the products affected by the domestic content 
requirements (renewable energy generation equi pment) and the product procured (electricity).
466 
5.41.   Second, with respect to the question of whether the FIT Programme and Contracts involve 
"procurement by governmental agencies of products purchased" within the meaning of Article III:8(a), the Panel stated that the term "procurement", when interpreted in its immediate 
context, should be understood to have the same meaning as the term "purchase".
467 Turning to its 
assessment of whether the FIT Programme and Contracts involve "purchases" of electricity, the Panel referred to its analysis of the phrase "a government … purchases goods" in 
Article 1.1(a)(1)(iii) of the SCM Agreement. In that respect, the Panel found government 
"purchase" of goods to mean the action by whic h the government obtains possession (including via 
obtaining an entitlement) over goods through some  kind of payment. The Panel stated that this 
interpretation was "equally applicable to guide [the Panel's] analysis … under Article III:8(a) of the 
GATT 1994".
468 Accordingly, the Panel concluded that the FIT Programme and Contracts involve 
"procurement by governmental agencies of products purchased" within the meaning of Article III:8(a) of the GATT 1994. 
                                               
461 Panel Reports, para. 7.111. 
462 Panel Reports, para. 7.112. 
463 Panel Reports, para. 7.113. 
464 Panel Reports, para. 7.124 (referring to Canada's first written submission to the Panel (DS412), 
para. 83, in turn referring to Panel Report, EC – Selected Customs Matters , para. 7.529). 
465 Panel Reports, para. 7.124. 
466 Panel Reports, para. 7.127. 
467 Panel Reports, paras. 7.131 and 7.135. 
468 Panel Reports, para. 7.136 (referring to Panel Reports, section VII.C.2(c)(iii), pp. 98-107). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 93 - 
 
 
  5.42.  Third, with regard to the issue of whether procurement by the Government of Ontario is "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" within the meaning of Article III:8(a), the Panel noted that the parties had advanced different meanings of the term "for governmental purposes". 
Canada had suggested that a purchase "for governmental purposes" may exist whenever a 
government purchases a product for a stated aim of the government. Japan, on the contrary, had 
proposed that a purchase "for governmental purposes" covers only purchases of products for 
governmental use, consumption, or benefit; and the European Union had submitted that the term 
"for governmental purposes" refers to purchases for governmental needs, including the purchase 
of products consumed by the government itself and products necessary for a government's provision of public services.
469 
5.43.  The Panel stated that the ordinary meanin g of the term "for governmental purposes" was 
relatively broad and that it may encompass all three meanings advanced by the parties.470 The 
Panel, however, also considered that the immediately following phrase "and not with a view to 
commercial resale" informs and limits the otherwise relatively broad ordinary meaning of the term 
"governmental purposes", and that procuremen t of products purchased "for governmental 
purposes" could not at the same time be "procurement … with a view to commercial resale or with 
a view to use in the production of goods for commercial sale".471 The Panel then stated that, if it 
found that procurement of electricity by the Government of Ontario is undertaken "with a view to commercial resale or with a view to use in the production of goods for commercial sale", such procurement would not be covered by Article III:8(a). Without making a finding on whether the 
FIT Programme and Contracts involve purchases "for governmental purposes", the Panel turned to 
assess whether the Government of Ontario purchases electricity "with a view to commercial resale or with a view to use in the production of goods for commercial sale". 
5.44.  The Panel noted that the parties had advanced different meanings also of the phrase "with a 
view to commercial resale". While Canada had argued that the phrase referred to a purchase with the "aim to resell for profit", the complainants ha d submitted that it meant "with a view to being 
sold or introduced into the stream of commerc e, trade or market, regardless of any profit".
472 The 
Panel stated that, under the interpretation adva nced by the complainants, the Government of 
Ontario's purchases of electricity under the FIT Programme and Contracts are undertaken "with a view to commercial resale", because the purchased electricity is introduced into commerce in 
competition with private-sector electricity retailers.
473 The Panel then addressed the interpretation 
advanced by Canada that the phrase "with a view to commercial resale" refers to resale with the underlying intent to profit. In this respect, the Panel found it evident that the Government of 
Ontario and municipal governments profit from the resale of electricity, and, consequently, the 
Panel found that Canada's argument that the Government of Ontario does not purchase electricity with a view to commercial resale failed even on the terms of Canada's own interpretation of the 
term "commercial resale".
474 The Panel emphasized that it was not of the view that "commercial 
resale" will always necessarily involve profit, but that, because the Government of Ontario and municipal governments profit from the resale of electricity under the FIT Programme and Contracts, and because the resales of electricity are made in competition with licensed electricity 
retailers, the purchases of electricity by the Government of Ontario are undertaken "with a view to 
commercial resale". 
5.45.  On this basis, the Panel concluded that the FIT Programme and Contracts are not covered 
by Article III:8(a) and that they are therefore su bject to the disciplines of Article III:4 of the 
GATT 1994.
475 The Panel then found that the FIT Programme and Contracts are inconsistent with 
Article III:4 of the GATT 1994 and Article 2.1 of  the TRIMs Agreement because they require the 
purchase or use of products of Canadian origin, and because compliance with that requirement is 
necessary in order to participate in the FIT Programme.476 
                                               
469 Panel Reports, para. 7.138. 
470 Panel Reports, para. 7.139. 
471 Panel Reports, para. 7.140. 
472 Panel Reports, para. 7.146. (fns omitted) 
473 Panel Reports, para. 7.148. 
474 Panel Reports, para. 7.151. 
475 Panel Reports, para. 7.152. 
476 Panel Reports, para. 7.167. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 94 - 
 
 
  5.3.2  Claims and arguments on appeal 
5.46.  Canada alleges that the Panel erred in findin g that the measures at issue do not fall within 
the scope of Article III:8(a) of the GATT 1994 beca use the Government of Ontario's purchases of 
electricity generated from renewable sources under the FIT Programme are "with a view to 
commercial resale", and raises two allegations of e rror with respect to the Panel's interpretation of 
this phrase. First, Canada asserts that the Panel erred in its interpretation of Article III:8(a) by focusing on whether there is "commercial resale" of electricity by the Government of Ontario while 
it neglected to interpret properly the term "with a view to" in Article III:8(a). Canada contends 
that, under the FIT Programme and Contracts, the Government of Ontario purchases electricity with a view "to help ensure a sufficient and reliable supply of electricity for Ontarians and to protect the environment"
477, and that it does not purchase electricity with a view to commercial 
resale. Second, Canada alleges that the Panel misinterpreted the term "commercial resale" in 
Article III:8(a). Canada contends that, had the Panel properly interpreted this term, it would have concluded that "commercial resale" means resale with the underlying intent to profit. With respect 
to the FIT Programme and Contracts, Canada submits that there is no suggestion that the 
Government of Ontario purchases electricity with an aim to resell for profit.  
5.47.  Canada additionally claims that the Pane l failed to make an objective assessment of the 
matter, contrary to Article 11 of the DSU, in find ing that the Government of Ontario's procurement 
of electricity under the FIT Programme is undertaken "with a view to commercial resale" within the meaning of Article III:8(a) of the GATT 1994.
478 Canada challenges two findings of the Panel in 
this respect. First, Canada challenges the Panel's finding that Hydro One Inc. and distributors sell 
electricity in competition with private-sector licensed retailers.479 Second, Canada challenges the 
Panel's finding that the Government of Ontario and the municipal governments profit from the resale of electricity that is purchased under the FIT Programme.
480  
5.48.  Japan and the European Union request us to uphold the Panel's conclusion that the 
FIT Programme and Contracts are inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994. However, in their ot her appeals, they each appeal several aspects 
of the Panel's interpretation and application of Article III:8(a) of the GATT 1994 and request us to 
modify certain intermediate findings of the Panel. 
5.49.  Japan alleges that the Panel erred in find ing that the Government of Ontario "purchases" 
electricity. Japan argues that the structure of th e energy system in Ontario, in particular the 
unbundling of generation, transmission, and distribution of electricity and the allocation of each of 
these functions together with corresponding regu latory functions to separate entities, suggests 
that the Government of Ontario does not engage in the physical supply or sale of electricity.  
5.50.  In the event that we do not reverse the Panel's finding that the measures at issue involve 
"purchases" by the Government of Ontario, Japan a ppeals, conditionally, the Panel's interpretation 
and application of the term "purchased for govern mental purposes", and requests us to complete 
the analysis and find that the FIT Programme and Contracts do not involve "purchase[s] for 
governmental purposes". Japan alleges that the Panel failed to interpret the meaning of this phrase because it concluded merely that a purchase of goods by a governmental agency for governmental purposes could not at the same time constitute a government purchase of goods 
with a view to commercial resale, and applied the provision based on this assumption rather than 
based on a proper interpretation of the term "for governmental purposes". Japan argues that electricity is "purchased for governmental purposes" only if the purchase is made "in order to 
obtain certain governmental purposes or with the objective of achieving such governmental 
purposes".
481  
                                               
477 Canada's appellant's submission, para. 34. 
478 Canada's appellant's submission, para. 48. 
479 Canada's appellant's submission, para. 72. 
480 Canada's appellant's subm ission, paras. 76 and 77.  
481 Japan's other appellant's submission (DS412), para. 174. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 95 - 
 
 
  5.51.  In the event that we reject both Japan's appeal relating to the Panel's finding that the 
Government of Ontario "purchases" electricity and Japan's appeal that the measures at issue 
involve "purchase[s] for governmental purposes", Japan requests us to find that the Panel failed to interpret properly the term "commercial resale" by concluding that profit earned by the 
government as a result of the "resale" was relevant evidence of its "commercial" nature. Japan 
submits that, in place of this erroneous conclusion, we should find that the phrase "with a view to commercial resale" means "with a view to being sold into the stream of commerce or trade"
482 and 
that, to the extent the FIT Programme and Contracts involve purchases of electricity by the 
Government of Ontario, such purchases are "with a view to commercial resale", because the electricity is purchased with a view to being sold or introduced into the stream of commerce, trade, or market, without regard to whether the government makes a profit from the resale. 
5.52.  The European Union requests us to reverse the Panel's finding that the domestic content 
requirements with respect to windpower and solar PV generation equipment under the FIT and microFIT Contracts "govern" the alleged procurement of electricity for the purpose of 
Article III:8(a) of the GATT 1994. In the Euro pean Union's view, "laws, regulations or 
requirements" within the meaning of Article III:8(a) must be related to the subject matter of the procurement – that is, the "products purchased for governmental purposes" – in order to "govern" 
such procurement. Article III:8(a) does not cover requirements or conditions that are not 
connected with "intrinsic characteristics"
483 or the nature of the product purchased. The 
European Union argues that cond itions exogenous  to the subject matter of the contract, such as 
the requirements relating to the origin of equipment used to generate electricity procured under 
the FIT Programme, do not fall under Article III:8(a) of the GATT 1994 because they have 
"no rational link" with the attributes of the electricity procured.484 
5.53.  The European Union also requests us to reverse or to declare moot and of no legal effect the 
Panel's statement that the term "governmental purposes" in Article III:8(a) may be read to 
encompass any government purchase "for a stated aim of the government".485 In the event that 
we reverse, in response to Canada's appeal, the Panel's finding that the Government of Ontario's 
purchases of electricity under the FIT Programme are undertaken "with a view to commercial 
resale", the European Union requests us to reverse or modify the Panel's reasoning as to the meaning of "governmental purposes", to complete the analysis, and to find that the Government 
of Ontario's procurement of electricity under the FIT Programme is not undertaken for 
"governmental purposes".
486 The European Union maintains that the term "purchased for 
governmental purposes" in Article III:8(a) refers only to "government purchases of goods that are needed to sustain the work and functions of the government".
487 Thus, such goods will have to 
"be actually used or consumed by the government in the context of its administrative tasks or in 
the context of the exercise of its public functions".488 In that event, the European Union also 
requests us to complete the analysis and find that the Government of Ontario's purchases of 
electricity under the FIT Programme are not under taken "for governmental purposes". In this 
regard, the European Union argues that the Government of Ontario's purchases of electricity are not undertaken "for governmental purposes" be cause the electricity is not used by the 
Government of Ontario. If the electricity purchased by the government is not used for its own 
consumption, or in the performance of governme nt functions such as the provision of public 
services, such purchases do not fall under Articl e III:8(a) of the GATT 1994. The European Union 
contends that the creation of an electricity system with stable, reliable, and sufficient supply of 
electricity from renewable sources is a legitimate policy objective, but it is not in itself a provision 
of a public service. 
                                               
482 Japan's other appellant's submission (DS412), para. 188. (emphasis omitted) 
483 European Union's other appellant's submission (DS426), para. 51. (fn omitted) 
484 European Union's other appellant's submission (DS426), para. 53. 
485 European Union's other appellant's submissi on (DS426), para. 60 (quoting Panel Reports, 
para. 7.139 (fn omitted)). 
486 European Union's other appellant's submission (DS426), para. 61. 
487 European Union's other appellant's submission (DS426), para. 60. 
488 European Union's other appellant's submission (DS426), para. 60. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 96 - 
 
 
  5.3.3  Interpretation of Arti cle III:8(a) of the GATT 1994 
5.54.  The three participants challenge on appeal different aspects of the Panel's interpretation of 
Article III:8(a) of the GATT 1994. This is the first time that the Appellate Body is called upon to 
interpret this provision. Article III:8(a) of the GATT 1994 stipulates: 
The provisions of this Article shall not apply 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. 
5.55.  We observe that Article III:8(a) begins with the words "The provisions of this Article shall 
not apply to …". This introductory clause establishes a linkage with the remainder of Article III. The title of Article III is "National Treatment on Internal Taxation and Regulation". The national 
treatment principle enshrined in Article III has be en a cornerstone of the multilateral trading 
system since its inception. This general principle, which is articulated in the first paragraph of Article III, postulates that internal measures "should not be applied … so as to afford protection to 
domestic production".
489 Other paragraphs of Article III "constitute specific expressions" of this 
"overarching, 'general principle'".490  
5.56.  The opening clause of Article III:8(a) uses the term "apply" in the negative, thus precluding 
the application of the other provisions of Article III to measures that meet the requirements of that 
paragraph. Article III:8(a) therefore establishes a derogation from the national treatment obligation of Article III for government procurement activities falling within its scope. Measures satisfying the requirements of Article III:8(a) are not subject to the national treatment obligations 
set out in other paragraphs of Article III. Article III:8(a) is a derogation limiting the scope of the 
national treatment obligation and it is not a justification for measures that would otherwise be inconsistent with that obligation. At the same time, we note that the characterization of the 
provision as a derogation does not pre-determine the question as to which party bears the burden 
of proof with regard to the requirements stipulated in the provision.
491  
5.57.  Article III:8(a) contains several elements describing the types and the content of measures 
falling within the ambit of the provision. Some of  the terms qualify other terms used in the same 
provision, or provide guidance for the interpretati on of those terms. Indeed , the participants have 
emphasized the relationships between the various terms in Article III:8(a), although they do not 
agree on the interpretation of all of them. We consider that Article III:8(a) should be interpreted 
holistically. This requires consideration of the linkages between the different terms used in the 
provision and the contextual connections to other parts of Article III, as well as to other provisions of the GATT 1994. At the same time, the principle of effective treaty interpretation requires us to 
give meaning to every term of the provision.
492 
5.58.  Article III:8(a) describes the types of measur es falling within its ambit as "laws, regulations 
or requirements governing the procurement by gove rnmental agencies of products purchased". We 
note that the word "governing" links the words "l aws, regulations or requirements" to the word 
"procurement" and the remainder of the paragraph.  In the context of Article III:8(a), the word 
"governing", along with the word "procurement" an d the other parts of the paragraph, define the 
subject matter of the "laws, regulations or requ irements". The word "governing" is defined as 
"constitut[ing] a law or rule for".493 Article III:8(a) thus requires an articulated connection between 
the laws, regulations, or requirements and the procurement, in the sense that the act of procurement is undertaken within a binding structure of laws, regulations, or requirements. 
                                               
489 Appellate Body Report, Japan – Alcoholic Beverages II , p. 18, DSR 1996:I, p. 111. 
490 Appellate Body Report, EC – Asbestos , para. 93. 
491 We recall that, in China – Raw Materials , the Appellate Body distinguished between "exceptions" 
(such as the general exception of Article XX) and li mitations of the scope of an obligation (such as 
Article XI:2(a)). (Appe llate Body Reports, China – Raw Materials , para. 334) 
492 See Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, p. 21. 
493 Oxford English Dictionary online, < http://www.oed.com/view/Entry/80304 >. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 97 - 
 
 
  5.59.   The term "procurement" may refer genera lly to "[t]he action of obtaining something; 
acquisition", or it may refer more specifically to "the action or process of obtaining equipment and 
supplies".494 In a more technical sense, procurement usually refers to formal procedures used by 
governments to acquire goods or services.495 In Article III:8(a), the word "procurement" is related 
to the words "products purchased". In this respect, the Panel found that the term "procurement" in 
Article III:8(a) should be given the "same essential meaning" as the word "purchased" and vice versa .
496 However, in our view, the concepts of "procurement" and "purchase" are not to be 
equated. As we see it, "procurement" is the operative word in Article III:8(a) describing the 
process and conduct of the governmental agency. The word "purchased" is used to describe the type of transaction used to put into effect that  procurement. Not every procurement needs to be 
effectuated by way of a purchase, and not every purchase is part of a process of government 
procurement. The use of the word "purchased" in  the same provision suggests reading the word 
"procurement" as referring to the process of obtaining products, rather than as referring to an acquisition itself, because, if procurement was understood to refer simply to any acquisition, it 
would not add any meaning to Article III:8(a) in addition to what is already expressed by the word 
"purchased". We therefore understand the word "procurement" to refer to the process pursuant to which a government acquires products. The precise range of contractual arrangements that are 
encompassed by the concept of "purchase" is no t a matter we need to decide in this case. 
5.60.  Article III:8 further specifies what is pr ocured and by whom. The subject matter of the 
procurement is a "product", and it is being pr ocured by a "governmental agency". The term 
"agency" is defined as "[a] business, body, or organization providing a particular service, or 
negotiating transactions on behalf of a person or group".
497 T h e  w o r d  " a g e n c y "  i s  u s e d  i n  
connection with the word "governmental" and, accordingly, Article III:8(a) refers to entities acting for or on behalf of government. The Appellate Body  has held that the meaning of "government" is 
derived, in part, from the functions that it performs and, in part, from the authority under which it 
performs those functions.
498 We therefore consider that the qu estion of whether an entity is a 
"governmental agency", in the sense of Articl e III:8(a), is determined by the competences 
conferred on the entity concerned and by whether that entity acts for or on behalf of government. 
5.61.  We consider that Articles XVII:1 and XVII:2 of the GATT 1994 provide relevant context for 
the interpretation of the term "governmental agency" in Article III:8(a). Article XVII:1 stipulates obligations for state trading enterprises and Article XVII:2 sets out a derogation from those 
obligations for certain government procurement transactions. In contrast to Article III:8(a), the 
provisions of Article XVII relate to "state tradin g enterprises" and not to "governmental agencies". 
According to Article XVII:1, this includes state enterprises and enterprises that are conferred 
exclusive or special privileges from the state. It  follows that the GATT 1994 recognizes that there 
is a public and a private realm, and that governme nt entities may act in one, the other, or both. 
Governments may limit the actions of entities to the public realm or give entities competences to 
act in the private realm. In our view, the term "governmental agencies" refers to those entities 
acting for or on behalf of government in the pu blic realm within the competences that have been 
conferred on them to discharge governmental func tions. This further confirms our understanding 
that a "governmental agency" is an entity acting for or on behalf of government and performing 
governmental functions within the competences conferred on it. 
5.62.  We turn next to the term "products purchased" within the meaning of Article III:8(a). 
A "product" in the sense of this provision is something that is capable of being traded. The term 
"product" is also found in other provisions of Article III of the GATT 1994 that provide relevant 
context. Paragraphs 2 and 4, in particular, fo cus on the treatment accorded to "products". 
Article III:4 prohibits discrimination against imported products, that is, it prohibits a Member from 
treating imported products less favourably than like products of national origin. In the context of 
Article III:2, the national treatment obligation appl ies also to the treatment of imported products 
that are directly competitive to or substitutable with domestic products.  
                                               
494 Oxford English Dictionary online, < http://www.oed.com/view/Entry/151913 >. 
495 Such procedures typically express principles, such as efficiency or transparency. See e.g. the 2011 
Model Law on Public Procurement prepared by the United Nations Commission on International Trade Law (UNCITRAL). 
496 Panel Reports, para. 7.131. 
497 Oxford English Dictionary online, < http://www.oed.com/view/Entry/3851 >. 
498 Appellate Body Reports, Canada – Dairy , para. 97; and US – Anti-Dumping and Countervailing Duties 
(China) , para. 290. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 98 - 
 
 
  5.63.   We have found above that Article III:8(a) stipulates conditions under which derogation 
from the obligations in Article III takes place. The derogation in Article III:8(a) becomes relevant 
only if there is discriminatory treatment of foreign products that are covered by the obligations in Article III, and this discriminatory treatment results from laws, regulations, or requirements 
governing procurement by governmental agencies of products purchased. Both the obligations in 
Article III and the derogation in Article III:8(a) refer to discriminatory treatment of products. Because Article III:8(a) is a derogation from the obligations contained in other paragraphs of 
Article III, we consider that the same discriminatory treatment must be considered both with 
respect to the obligations of Article III and with respect to the derogation of Article III:8(a). Accordingly, the scope of the terms "products purc hased" in Article III:8(a) is informed by the 
scope of "products" referred to in the obligations set out in other paragraphs of Article III. 
Article III:8(a) thus concerns, in the first instance, the product that is subject to the 
discrimination. The coverage of Article III:8 extends not only to products that are identical to the 
product that is purchased, but also to "like" products. In accordance with the Ad Note to 
Article III:2, it also extends to products that are directly competitive to or substitutable with the 
product purchased under the challenged measure. Fo r convenience, this range of products can be 
described as products that are in a competitive relationship. What constitutes a competitive 
relationship between products may require consideration of inputs and processes of production 
used to produce the product. In its rebuttal of Canada's claim under Article III:8(a), the European Union acknowledges that the cover of Article III:8(a) may also extend to discrimination relating to inputs and processes of production us ed in respect of products purchased by way of 
procurement.
499 Whether the derogation in Article III:8(a) can extend also to discrimination of the 
kind referred to by the European Union is a matter we do not decide in this case.500 
5.64.  We now turn to the next element of Articl e III:8(a). The provision refers to purchases "for 
governmental purposes". The participants have pu t forward divergent views as to the meaning of 
the term "for governmental purposes" in Article III:8(a). Canada advocates a broad interpretation that may encompass any purchase for a stated aim of the government.
501 Canada claims that its 
interpretation was accepted by the Panel.502 In response to questioning at the oral hearing, 
Canada clarified that the inquiry under "governmental purposes" needs to go beyond the stated aim of the government, and must include an assessment of whether a government has traditionally supplied a certain product, whether it has a constitutional mandate to do so, and that 
it must take account of the role of government in a particular country, focusing on the history, 
constitution, and legislation of a particular government. The European Union considers Canada's interpretation to be overly broad. For the Europe an Union, the key issue is whether the "products 
purchased" are needed to sustain the work and functions of the government and therefore will 
genuinely by utilized in some way by the government in the exercise of its public functions (including the provision of public services).
503 The European Union accepts that "products 
purchased for governmental purposes" need not be confined to those for the consumption or 
physical use by the government.504 Japan emphasizes the word "for", which it considers requires 
an inquiry into whether there is a true and genuine connection between the "purchase" and the "governmental purpose" at issue.
505  
5.65.  Contrary to what Canada alleges, it is not apparent to us that the Panel developed its own 
interpretation of the term "for governmental pu rposes". The Panel did suggest that the "ordinary 
meaning" of the term "governmental purposes" is "relatively broad" and could encompass all three 
meanings put forward by the parties, including Canada's interpretation.506 Yet, the Panel did not 
                                               
499 The European Union explains that , when it refers to product "cha racteristics", it does so not as 
necessarily referring to physically dete ctable characteristics, but as referrin g to elements that define the nature 
of the product more broadly. The European Union submits that the environmental profile or the environmental attributes that a particular product may incorporate, even if they do not materialize in to any particul ar physical 
characteristic, could legitimately form part of the re quirements of the product purchased that are closely 
related to the subject matter of the contract. (European Union's other appellant's submission (DS426), fn 43 to 
para. 51) 
500 We do not address in this case rules for determining the origin of  products purchased. It has not 
been alleged in this case that the Minimum Required Domestic Content Levels are rules of origin. 
501 Canada's appellee's submission, para. 59. 
502 Canada's appellee's submission, para. 59 (referring to Panel Reports, paras. 7.138 and 7.139). 
503 European Union's opening statement at the oral hearing. 
504 European Union's opening statement at the oral hearing. 
505 Japan's other appellant's submission (DS412), para. 171.  
506 Panel Reports, para. 7.139. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 99 - 
 
 
  stop there. Immediately after this statement, the Panel indicated that it had to "interpret this 
expression within its context".507 Ultimately, however, the Panel did not define "governmental 
purposes". Instead, the Panel stated that "the te rm 'governmental purposes' should be interpreted 
in juxtaposition to the expression 'not with a view to commercial resale or with a view to use in the 
production of goods for commercial sale' that appears in Article III:8(a)."508 Based on the 
proposition that a purchase "for governmental purposes" cannot at the same time amount to a government purchase of goods "with a view to commercial resale", the Panel did not come to a 
conclusion on whether the FIT Programme and Contracts involve purchases of electricity for 
"governmental purposes". Rather, the Panel turned to the question of whether those purchases are 
made with a view to commercial resale, based on the assumption that, if it found that to be the 
case, this would also imply that the purchases are not made for "governmental purposes".
509 
5.66.  The word "purpose" may refer to "an object in view; a determined intention or aim" or it 
m a y  r e f e r  t o " t h e  e n d  t o w h i c h  a n  o b j e c t  o r  a c t i o n  i s  d i r e c t e d " .510 In Article III:8(a), the word 
"purpose" is used in conjunction with the word "governmental". Accordingly, the term 
"governmental purposes" may refer either to the in tentions or aims of a government, or it may 
refer to government as the end to which the product purchased is directed. We note that in Article III:8(a) the word "governmental" is used once in connection with "purposes", and again in 
connection with the word "agencies". The refe rence to "governmental agencies" defines the 
identity of the entity carrying out the procuremen t. Yet, because governmental agencies by their 
very nature pursue governmental aims or objectiv es, the additional reference to "governmental" in 
relation to "purposes" must go beyond simply requiring some governmental aim or objective with 
respect to purchases by governmental agencies.  
5.67.  We further note that the French version of Article III:8(a) refers to " les besoins des pouvoirs 
publics " and the Spanish version of the provision refers to " las necesidades de los poderes 
públicos ". The term "purposes" thus corresponds to the terms " besoins " and " necesidades ", 
respectively, in the French and the Spanish te xts. Both the French and the Spanish terms 
correspond closely to the English term "needs".
511 As such, the French and the Spanish text can be 
read harmoniously512 with an interpretation of the word "purposes" in English as referring to 
purchases of products directed at the government or purchased for the needs of the government in the discharge of its functions. By contrast, the words " besoins " or " necesidades " cannot be read 
harmoniously with the definition of the term "purpose" as "objectives" or "aims" of the 
government, because neither the word " besoins " in French, not the word " necesidades " in Spanish 
encompass the notion of an aim or objective.
513 
5.68.  Article XVII:2 of the GATT 1994 provides relevant context for the interpretation of the words 
"governmental purposes" in Article III:8(a). The provision refers to "imports of products for 
immediate or ultimate consumption in governmental use". By referring to immediate and ultimate consumption in governmental use, Article XVII:2 identifies instances in which a product may be 
said to be purchased for governmental purposes. An obvious example is where a governmental 
agency purchases a good, uses it to discharge its governmental functions, and the good is totally 
consumed in the process. None of the participants  disputes that this would constitute an example 
of a good purchased for governmental purposes. We also note that Article XVII:2 is phrased more 
narrowly than Article III:8(a), as the former provision refers to "immediate or ultimate 
consumption in governmental use". This in turn suggests that, where products purchased are consumed in governmental use, Article III:8(a) does not require that this be "immediate or 
ultimate". Therefore, we are of the view that the phrase "products purchased for governmental 
purposes" in Article III:8(a) refers to what is consumed by government or what is provided by government to recipients in the discharge of its pu blic functions. The scope of these functions is to 
                                               
507 Panel Reports, para. 7.139. 
508 Panel Reports, para. 7.145. 
509 Panel Reports, para. 7.145. 
510 Oxford English Dictionary online, < http://www.oed.com/view/Entry/154972 >. 
511 The Oxford Spanish Dictionary , B. Galimberti and R. Russell (eds.) (Oxford University Press, 1994), 
p. 523; Le Nouveau Petit Robert , P. Varrod (ed.) (Dictionnaires Le Robert, 1993), pp. 246-247. 
512 Article 33 of the Vienna Convention reflects the principle that the treaty text is equally authoritative 
in each language, unless the treaty provides or the part ies agree that, in case of di vergence, a particular text 
shall prevail. For the covered agreements, Article XVI of  the WTO Agreement provides that the English, French, 
and Spanish language each are authentic. Consequently, the terms of Article III:8(a) of the GATT 1994 are 
presumed to have the same meaning in each authentic text. 
513 Diccionario de la Lengua Española , 22nd edn (Real Academia Española, 2001), p. 1065. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 100 - 
 
 
  be determined on a case by case basis.514 Finally, we recall that Article III:8(a) refers to purchases 
"for governmental purposes".515 The word "for" relates the term "products purchased" to 
"governmental purposes", and thus indicates that the products purchased must be intended to be 
directed at the government or be used for governmental purposes. Thus, Article III:8(a) requires 
that there be a rational relationship between the product and the governmental function being 
discharged. 
5.69.  We turn next to the analysis of the last element of the text of Article III:8(a), namely, the 
phrase "and not with a view to commercial resale or with a view to use in the production of goods 
for commercial sale". In the context of Article III:8(a), the words "with a view to commercial resale" relate back to the "products purchased" and thus attach to the same textual element as t h e  c l a u s e  " f o r  g o v e r n m e n t a l  p u r p o s e s " .  B o t h  the terms "for governmental purposes" and "not 
with a view to commercial resale" further qualify and limit the scope of "products purchased". 
These two requirements are linked by the words "a nd not", which suggests that the requirement of 
purchases not being made with a view to commercial resale must be met in addition to the 
requirement of purchases being made for governme ntal purposes. Accordingly, a purchase that 
does not fulfil the requirement of being made "for governmental purposes" will not be covered by Article III:8(a) regardless of whether it complies with the requirement of being made "not with a 
view to commercial resale". These are cumulative  requirements. We therefore disagree with the 
Panel's proposition that where a government purchase of goods is made "with a view to commercial resale", it is for that reason also not a purchase "for governmental purposes". 
5.70.  Turning then to the meaning of the word s "commercial resale", we note that the term 
"resale" is defined as the "sale of something previously bought".
516 In the context of 
Article III:8(a), the word "resale" refers to the term "products purchased". Accordingly, the product not to be "resold" on a commercial basis is the product "purchased for governmental 
purposes". As we see it, "commercial resale" is a resale of a product at arm's length between a 
willing seller and a willing buyer. Much of th e debate in this case has focused on whether 
procurement "with a view to commercial resale" must involve profit. Canada, in particular, has 
argued that procurement "with a view to commercia l resale" is procurement "with the aim to resell 
for profit".
517 Japan and the European Union reject the pr oposition that profit, or an intent to 
profit, is a required element.518 Although the Panel ultimately found the existence of profit in this 
case519, it seemed unpersuaded by Canada's argument that a profit element is required for a 
resale to be "commercial".520 The Panel observed, in this regard, that "it is a fact that loss-making 
sales can be, and often are, a part of ordinary commercial activity."521  
5.71.  As we see it, whether a transaction constitutes a "commercial resale" must be assessed 
having regard to the entire transaction. In doing so, the assessment must look at the transaction 
from the seller's perspective and at whether the transaction is oriented at generating a profit for the seller. We see profit-orientation generally as an indication that a resale is at arm's length. 
Profit-orientation indicates that the seller is acti ng in a self-interested manner. Yet, as the Panel 
noted, there are circumstances where a seller enters into a transaction out of his or her own interest without making a profit. There are different circumstances in which a seller may offer a product at a price that does not allow him or her to make a profit, or sometimes even fully to 
recoup cost. In such circumstances, it may be useful to look at the seller's long-term strategy. This 
is because loss-making sales could not be sustained indefinitely and a rational seller would be expected to be profit-oriented in the long term, th ough we accept that strategies can vary widely 
and thus do not see this as applying axiomatically. The transaction must also be assessed from the 
perspective of the buyer. A commercial resale would be one in which the buyer seeks to maximize his or her own interest. It is an assessment of the relationship between the seller and the buyer in 
                                               
514 At the oral hearing an example was discussed, in which a public hospital purchases pharmaceuticals 
and provides them to patients. Both Canada and the Eu ropean Union accepted that  this could qualify as a 
purchase "for govern mental purposes".  
515 Emphasis added.  
516 Oxford English Dictionary online, < http://www.oed.com/view/Entry/163370 >. 
517 Panel Reports, para. 7.146. 
518 Panel Reports, para. 7.146. 
519 This finding has been appealed by Ca nada under Article 11 of the DSU. See infra, paras. 5.83 
and 5.84. 
520 Panel Reports, para. 7.151. 
521 Panel Reports, para. 7.151. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 101 - 
 
 
  the transaction in question that allows a judgement to be made whether a transaction is made at 
arm's length. 
5.72.  Finally, we turn to the clause "not … with a view to use in the production of goods for 
commercial sale" in Article III:8(a). Where the provision uses the same words as in the phrase 
"not with a view to commercial resale", we cons ider that these words have the same meaning in 
both clauses. Furthermore, while the penultimate clause of Article III:8(a) refers to commercial "resale", the last clause refers simply to "sale". To  us, this is due to the fact that the penultimate 
clause addresses the sale of the product previous ly bought by the governmental agency and the 
last clause addresses the sale of a product that is different from the product previously bought by the government. However, we consider that both clauses refer essentially to the same type of 
sales transactions. 
5.73.  The provision further refers to "use in th e production of goods". The word "use" is defined 
as "[t]he act of putting something to work, or employing or applying a thing, for any ( esp. a 
beneficial or productive) purpose".
522 The relevant purpose in the sense of the provision is then 
specified by the words "in the production of good s". The preposition "in" expresses a relation of 
inclusion and thus suggests that the product has a role in the production of goods. Finally, we note that the clause "not with a view to commercial resale" and the clause "with a view to use in the 
production of goods for commercial sale" are connected with the word "or", which suggests that 
the provision covers only products that are neither purchased with a view to commercial resale, nor purchased with a view to use in the production of goods for commercial sale. 
5.74.   In sum, we consider that Article III:8(a) sets out a derogation from the national treatment 
obligation contained in Article III of the GATT 1 994. The provision exempts from the national 
treatment obligation certain measures containing rules for the process by which government purchases products. Under Article III:8(a), the entity procuring products for the government is a 
"governmental agency". We have found above that a "governmental agency" is an entity 
performing functions of government and acting fo r or on behalf of government. Furthermore, we 
have found that the derogation of Article III:8(a) must be understood in relation to the obligations 
stipulated in Article III. This means that the product of foreign origin must be in a competitive 
relationship with the product purchased.
523 Furthermore, Article III:8(a) is limited to products 
purchased for the use of government, consumed by  government, or provided by government to 
recipients in the discharge of its public functions.  On the contrary, Article III:8(a) does not cover 
purchases made by governmental agencies with a view to reselling the purchased products in an 
arm's-length sale and it does not cover purchases made with a view to using the product previously purchased in the production of goods for sale at arm's length. 
5.3.4  Application of Articl e III:8(a) of the GATT 1994 to th e facts of these disputes  
5.75.  We now turn to consider whether the Panel erred in finding that the FIT Programme and 
related FIT and microFIT Contracts are not covered by Article III:8(a) and that they are therefore 
subject to the disciplines of Article III:4 of the GATT 1994.
524 We note that the product that is 
subject to the Minimum Required Domestic Content Levels of the FIT Programme and Contracts challenged by the complainants as discriminat ory under Article III:4 of the GATT 1994 and the 
TRIMs Agreement is certain renewable energy generation equipment.
525 The product purchased by 
the Government of Ontario under the FIT Programme and Contracts, however, is electricity and 
not generation equipment.526 The generation equipment is purchased by the generators 
themselves. Accordingly, the product being purcha sed by a governmental agency for purposes of 
Article III:8(a) – namely, electricity – is not the same as the product that is treated less 
favourably as a result of the Minimum Required Domestic Content Levels of the FIT Programme and Contracts.  
                                               
522 Oxford English Dictionary online, < http://www.oed.com/view/Entry/220635 >. 
523 Whether the derogation in Article III:8(a) can extend also to discri mination relating to inputs and 
processes of production used in resp ect of products purchased by way of procurement is a matter we do not 
decide in this case. (See supra , para. 5.63) 
524 Panel Reports, para. 7.152. 
525 Panel Reports, para. 7.124. See also paras. 7.158-7.160.  
526 Panel Reports, para. 7.64.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 102 - 
 
 
  5.76.  We observe that the Panel noted the difference between the product subject to the 
Minimum Required Domestic Content Levels and the product subject of procurement.527 However, 
the Panel found that, in the present case, purchases of electricity nonetheless fall within the scope of the derogation of Article III:8(a), because the generation equipment "is needed and used" to 
produce the electricity, and therefore there is a "c lose relationship" between the products affected 
by the domestic content requirements (gener ation equipment) and the product procured 
(electricity).
528 
5.77.  Canada supports the Panel's finding that th ere is a "close relationship" between the product 
affected by the domestic content requirements (generation equipment) and the product procured by the Government of Ontario (electricity), because the domestic content requirements for 
electricity generation equipment are a condition that must be satisfied by generators utilizing solar 
PV or windpower technologies in order to participate in the FIT Programme, and because the 
electricity procured by the Government of Ontario is produced using the very same generation equipment that is subject to the domestic content requirements.
529  
5.78.  We recall our finding above that laws, regulations, or requirements "governing" 
procurement must articulate a connection between those legal instruments and procurement in the sense that the act of procurement is taken within a binding structure of laws, regulations, or 
requirements. We acknowledge that, under the challenged measures, a connection is articulated 
between the procurement of electricity and th e Minimum Required Domestic Content Levels 
regarding generation equipment. However, in our view, this connection under municipal law is not dispositive of the issue, because Article III:8(a) imposes also other conditions.  
5.79.  We have found above that the conditions for derogation under Article III:8(a) must be 
understood in relation to the obligations stipulated in the other paragraphs of Article III. This means that the product of foreign origin allege dly being discriminated against must be in a 
competitive relationship with the product purchased. In the case before us, the product being 
procured is electricity, whereas the product discriminated against for reason of its origin is generation equipment. These two products are no t in a competitive relationship. None of the 
participants has suggested otherwise, much less offe red evidence to substantiate such proposition. 
Accordingly, the discrimination relating to gene ration equipment contained in the FIT Programme 
and Contracts is not covered by the deroga tion of Article III:8(a) of the GATT 1994.
530 We 
therefore reverse the Panel's findings, in paragrap hs 7.127, 7.128, and 7.152 of the Panel Reports, 
that the Minimum Required Domestic Content Levels of the FIT Programme and related FIT and 
microFIT Contracts are laws, regulations, or requirements governing the procurement by governmental agencies of electricity within the meaning of Article III:8(a) of the GATT 1994. 
Instead, we find that the Minimum Required Domestic Content Levels cannot be characterized as 
"laws, regulations or requirements governing the procurement by governmental agencies" of 
electricity within the meaning of Article III:8(a) of the GATT 1994. 
5.80.  We recall that both Japan and the European Union directed claims to various parts of the 
Panel's analysis regarding Article III:8(a). In particular, Japan claims that the Panel erred in finding that the Government of Ontario's purchases of electricity under the FIT Programme constitute "procurement" within the meaning of Article III:8(a)
531, because the structure of the 
energy system in Ontario, in particular the unbundling of generation, transmission, and distribution 
of electricity and the allocation of each of thes e functions together with corresponding regulatory 
functions to separate entities, suggests that the Government of Ontario does not engage in the 
physical supply or sale of electricity. The European Union contends that the domestic content 
requirements of the measures at issue are not co vered by Article III:8(a) because they relate to 
generation equipment, a product that is different and "completely disconnected" from the product 
purchased by the government, which is electricity.532 
                                               
527 Panel Reports, paras. 7.125 and 7.126 and fn 271 thereto. 
528 Panel Reports, para. 7.127. 
529 Canada's appellee's subm ission, paras. 47-57.  
530 We recall that we do not address in this case ru les for determining the origin of products purchased. 
It has not been alleged in this case that the Minimum Required Domestic Content Levels are rules of origin. 
531 Panel Reports, para. 7.136. 
532 European Union's other appellant's submission  (DS426), para. 53; Panel Reports, para. 7.128. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 103 - 
 
 
  5.81.  Both Japan and the European Union have raised additional claims but have done so on a 
conditional basis. Japan and the European Union conditionally appeal the Panel's interpretation and 
application of the term "for governmental purposes".533 Japan conditionally appeals the Panel's 
interpretation and application of the term "commercial resale".534 
5.82.  We have addressed the various elements of Article III:8(a) to which the claims of Japan and 
the European Union relate in a holistic interpretation of this provision set out above. Having found that the Minimum Required Domestic Content Levels do not fall within the ambit of the derogation 
in Article III:8(a), we need not address these further allegations of error raised by the 
European Union and Japan seeking reversal of inte rmediate findings by the Panel. These findings 
are moot. 
5.83.  Canada claims that the Panel erred in finding that the Government of Ontario's purchases of 
electricity under the FIT Programme are undertaken "with a view to commercial resale". It 
additionally makes two claims under Article 11 of the DSU in connection with this finding. In particular, Canada argues that the Panel failed to make an objective assessment of the matter 
before it, contrary to Article 11 of the DSU, wh en finding that the measures at issue involve 
purchases "with a view to commercial resale" within the meaning of Article III:8(a) of the GATT 1994. More specifically, Canada claims that the Panel acted inconsistently with Article 11 of 
the DSU in finding that: (i) Hydro One Inc. and distributors sell electricity in competition with 
private-sector licensed retailers; and (ii) the Government of Ontario and the municipal governments profit from the resale of electricity purchased under the FIT Programme to consumers.  
5.84.  Our conclusion that the measures at issue are not covered by Article III:8(a) of the 
GATT 1994 is not premised on a finding that the Government of Ontario's procurement of electricity under the FIT Programme is undertaken "with a view to commercial resale". Rather, it is 
based on our finding that Article III:8(a) does not cover discriminatory treatment of the equipment 
used to generate the electricity that is procured by the Government of Ontario. Furthermore, we have mooted the Panel's intermediate findings, including the finding that the Government of 
Ontario's procurement of electricity under the FIT Programme and Contracts is undertaken "with a 
view to commercial resale". Thus, we do not consider it necessary to address further Canada's claims.  
5.85.   In the light of our finding that the Minimum Required Domestic Content Levels do not fall 
within the ambit of Article III:8(a), and in the light of the fact that Canada has not appealed the 
Panel's finding that the FIT Programme and Contracts are inconsistent with Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement
535, the Panel's conclusion, in paragraph 8.2 of 
the Japan Panel Report and in paragraph 8.6 of the EU Panel Report, that the Minimum Required 
Domestic Content Levels prescribed under the FIT Programme and related FIT and microFIT Contracts are inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 
1994 stands. 
5.4  Did the Panel properly exercise judicial economy when it declined to make a finding 
under Japan's "stand-alone" claim under Article III:4 of the GATT 1994? 
5.86.  We now turn to Japan's allegation that the Panel failed to comply with its duties under 
Article 11 of the DSU and exercised false judicial economy by failing to make a finding with respect 
to Japan's claim under Article III:4 of the GATT 1994, which was independent of Japan's claim involving both Article III:4 of the GATT 1994 and the TRIMs Agreement.  
                                               
533 Panel Reports, para. 7.145. 
534 Panel Reports, para. 7.151. 
535 Panel Reports, para. 7.167. Canada did not contest before the Panel that the measures at issue are 
TRIMs. (Ibid., para. 7.70) Also, the Panel noted that, "apa rt from Canada's reliance on Article III:8(a) of the 
GATT 1994, Canada has not advanced any specific arguments to reject the complainants' claims under Article 2.1 of the TRIMs Agreement and Article I II:4 of the GATT 1994." (Ibid., fn 254 to para. 7.107) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 104 - 
 
 
  5.87.  We recall briefly how this issue was argued before the Panel. Japan claimed that the 
measures at issue are inconsistent with Article III:4 of the GATT 1994 because they impose 
"requirements" on renewable energy generators "a ffecting" the "internal" "sale", "purchase", and 
"use" of renewable energy generation equipment, and accord imported equipment treatment less 
favourable than "like products" of Ontario origin.536 This claim was independent from, and 
additional to, its claim of violation of the TRIMs Agreement, which also included Article III:4.537 For 
convenience, we refer below to the first claim as Japan's "stand-alone Article III:4 claim". We refer 
to the second claim as Japan's "TRIMs–Article III:4 claim".  
5.88.  As described in Section 5.2, the Panel decided to "simultaneously evaluate the merits of 
both of the complainants' claims under Article 2. 1 of the TRIMs Agreement and Article III:4 of the 
GATT 1994".538 The Panel explained that it was "apparent from the terms of Article 2.1 of the 
TRIMs Agreement" that, in undertaking its evalua tion under the TRIMs Agreement, it would "also 
necessarily have to come to a view about the merits of the complainants' allegations concerning the consistency of the challenged measures with Article III:4 of the GATT 1994."
539 
5.89.  At the end of its analysis, the Panel found that "the challenged measures are TRIMs falling 
within the scope of Paragraph 1(a) of the Illustrative List, and that in the light of Article 2.2 and the chapeau to paragraph 1(a) of the Illustrative List, they are inconsistent with Article III:4 of the 
GATT 1994, and thereby also inconsistent with Article 2.1 of the TRIMs Agreement."
540 The Panel 
then concluded: 
In the light of the findings we have made in this Section of these Reports, we conclude 
that the FIT Programme, and the FIT and microFIT Contracts, are inconsistent with 
Article 2.1 of the TRIMs Agreemen t and Article III:4 of the GATT 1994.541 
5.90.  At the interim review stage, Japan requested the Panel to "address Japan's other argument 
and that it do so by undertaking a separate  analysis of Article III:4 of the GATT 1994."542 Japan 
argued that "this separate analysis is necessary in order for the Panel to discharge its 
responsibilities under Articles 3 and 11 of the DSU."543 Canada did not comment on Japan's 
request.544 
5.91.  The Panel responded as follows: 
[W]e have found that the challenged measures are TRIMs falling within the scope of 
Paragraph 1(a) of the Illustrative List, and that in the light of Article 2.2 of the TRIMs Agreement and the chapeau to Paragraph 1(a) of the Illustrative List, the 
challenged measures are inconsistent with both Article 2.1 of the TRIMs Agreement 
and Article III:4 of the GATT 1994. Having made this finding, we do not believe it is necessary for the purpose of resolving the disputes before us to also address Japan's 
other argument and perform an entirely separate and stand-alone analysis of Japan's 
claim under Article III:4 of the GATT 1994. Thus, we have declined Japan's request.
545 
                                               
536 Japan's first written submission  to the Panel (DS412), para. 262. 
537 Japan's first written submission to  the Panel (DS412), para. 295 et seq. 
538 Panel Reports, para. 7.70. 
539 Panel Reports, para. 7.70. 
540 Panel Reports, para. 7.166. 
541 Panel Reports, para. 7.167. The Panel made the following recommendation on the basis of its earlier 
conclusion: 
Accordingly, we conclude that to the extent Cana da has acted inconsistently with Article 2.1 of 
the TRIMs Agreement and Articl e III:4 of the GATT 1994, Canada has nullified or impaired 
benefits accruing to Japan.  We recommend that Canada bring its measures into conformity with its obligations under the TRIMs Agreement and the GATT 1994. 
(Japan Panel Report (DS412), paras. 8.4 and 8.5) 
542 Panel Reports, para. 6.71. 
543 Panel Reports, para. 6.71. 
544 Panel Reports, para. 6.71. 
545 Panel Reports, para. 6.72. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 105 - 
 
 
  5.92.  On appeal, Japan claims that the Panel improperly exercised judicial economy when it 
declined to make a finding with respect to Japan's stand-alone Article III:4 claim. We note that the 
Panel did not use the term "judicial economy" to describe its disposition of Japan's stand-alone Article III:4 claim. The only explanation offered by the Panel is in the interim review section of the 
Panel Reports quoted above. While the Panel did not state explicitly that it was exercising judicial 
economy, the explanation offered by the Panel in  the interim review suggests that is what the 
Panel had in mind.  
5.93.   The question before us, therefore, is wh ether the Panel's exercise of judicial economy in 
this case was proper. Since panels have a margin of discretion with respect to the exercise of judicial economy, to succeed in its claim on appeal Japan has to demonstrate that the Panel exceeded this discretion. In accordance with Appellate Body jurisprudence, this means that Japan 
would have to show that the Panel provided only a "partial resolution of the matter at issue", or 
that an additional finding with respect to Japan's stand-alone Article III:4 claim "is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow 
for prompt compliance"
546 by Canada with those recommendations and rulings. 
5.94.  At the outset, we emphasize that this is not a case in which the panel failed to make a 
finding under a provision alleged by the complainant to have been violated. The Panel in this case 
has made a finding of violation of Article III:4 of the GATT 1994. It is true that this finding of 
violation rests on an assessment of the measures at issue under the Illustrative List of TRIMs annexed to the TRIMs Agreement, and in particular on paragraph 1(a). While it is not said in so many words, paragraph 1(a) is an instance in which an imported product is treated less favourably 
than a like domestic product. Understood in this manner, it is not obvious what a stand-alone 
finding of violation of Article III:4 of the GA TT 1994 would add to a finding of violation of 
Article III:4 that is consequential to an assessment under the Illustrative List of the 
TRIMs Agreement.  
5.95.  Japan argues that a stand-alone finding under Article III:4 would result in broader 
implementation obligations. Different implementati on obligations have been one of the factors 
used in the past to assess whether the exercise  of judicial economy was proper or improper. 
However, this is not a case like EC – Export Subsidies on Sugar , where the remedy available as a 
result of a finding of violation of the SCM Agreement
547 was different to the remedy available in 
relation to a finding of violation of the Agreem ent on Agriculture. There is no difference here 
between the remedy that would be available unde r Article 19.1 of the DSU in the case of a 
stand-alone Article III:4 finding of violation and the TRIMs–Article III:4 finding of violation entered by the Panel.  
5.96.  At the oral hearing, Japan clarified its position on the differences in implementation 
obligations, explaining that Canada could lower the FIT Programme's domestic content requirements to a point where such requirements could be met exclusively through the use of local 
services. Japan was of the view that such a si tuation would not be addressed by the Panel's 
TRIMS–Article III:4 finding, but that such situation would have been covered had the Panel made a stand-alone finding under Article III:4 of the GATT 1994. 
5.97.  We note that Japan's argument is premised on a change to the Minimum Required Domestic 
Content Levels of the FIT Programme. Japan has not suggested that the Minimum Required 
Domestic Content Levels under either the FIT or microFIT stream could be fulfilled at present using services exclusively. In fact, before the Panel, Japan emphasized that the opposite was the case, 
explaining 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."
548 In 
other words, as the Panel noted, it was Japan's contention that "purely service activities contained 
                                               
546 Appellate Body Reports, Australia – Salmon , para. 223; and EC – Export Subsidies on Sugar , 
para. 331. See also Appellate Body Reports, Canada – Wheat Exports and Grain Imports , para. 133; and  
US – Upland Cotton , para. 732. 
547 Article 4.7 of the SCM Agreement provides: 
If the measure in question is found to be a prohibited subsidy, the panel shall recommend that the subsidizing Member withdraw the subsidy without delay. In this regard, the panel shall 
specify in its recommendation the time period within which the measure must be withdrawn. 
548 Japan's first written submission to the Panel (D S412), para. 173. (original emphasis) See also Panel 
Reports, para. 7.161. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 106 - 
 
 
  in each Domestic Content Grid[] are not sufficient to meet the 'Minimum Required Domestic 
Content Levels'."549 The Panel "carefully reviewed the operation of the 'Minimum Required 
Domestic Content Level'" and agreed with Japan "that in all of the situations described … by Japan, at least some Ontario-sourced (and therefore Canadian-sourced) goods must be used to satisfy 
them."
550 Thus, Japan's argument regarding implementation is based on a measure that is 
different from the measure that was before the Panel. We do not believe that it was necessary or appropriate for the Panel to make an additional finding so as to anticipate that Canada would 
modify the measures at issue in the manner suggested by Japan.  
5.98.  Moreover, it does not appear that Japan asked the Panel for different kinds of relief for each 
of its two Article III:4 lines of argumentation. Japan simply requested that the Panel recommend 
that Canada "bring the FIT Programme, 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."
551 In the event, the Panel 
recommended "that Canada bring its measures into conformity with its obligations under the 
TRIMs Agreement and the GATT 1994."552 Thus, besides the short-hand way the Panel referred to 
the measures at issue and the order in which the agreements are listed, the Panel's recommendation closely follows what Japan requested. 
5.99.  Japan also relies on the Appellate Body report in US – Tuna II (Mexico)  to support its 
position. In that case, the Appellate Body faulted the panel for failing to make findings on Mexico's claims under Articles I and III of the GATT 1994 ha ving assessed the measure under Articles 2.1, 
2.2, and 2.4 of the Agreement on Technical Barriers to Trade (TBT Agreement). The Appellate 
Body explained: 
To us, it seems that the Panel's decision to exercise judicial economy rested upon the 
assumption that the obligations under Article 2.1 of the TBT Agreement  and 
Articles I:1 and III:4 of the GATT 1994 are substantially the same. This assumption is, 
in our view, incorrect. In fact, as we have found above, the scope and content of these provisions is not the same. Moreover, in our view, the Panel should have made 
additional findings under the GATT 1994 in the event that the Appellate Body were to 
disagree with its view that the measure at issue is a "technical regulation" within the meaning of the TBT Agreement . As a result, it would have been necessary for the 
Panel to address Mexico's claims under the GATT 1994 given that the Panel found no 
violation under Article 2.1 of the TBT Agreement . By failing to do so, the Panel 
engaged, in our view, in an exercise of "false judicial economy" and acted 
inconsistently with its obligations under Article 11 of the DSU.
553 
                                               
549 Panel Reports, para. 7.161. Japan demonstrated this by showing that, under the FIT stream, the use 
of services would yield a maximum qu alifying percentage of 20% for wind  projects, and of between 22% and 
28% for solar PV projects depending on the technology used. The Minimum Required Domestic Content Levels under the FIT Programme are: wind projects, 25% for 2009-2011 milestones and 50% as of 2012; and solar PV projects, 50% for 2009-2010 milestones and 60% as of 2011. As regards microFIT solar PV projects, Japan 
explained that the maximum qualifying percentage for services is 27% or 28% depending on the technology 
used, whereas the Minimum Required Domestic Content Level is 40% for 2009-2010 milestones and 60% as of 2011. (See Panel Reports, paras. 7.158 and 7.161; and Japan's first written submission to the Panel 
(DS412), para. 173) 
550 Panel Reports, para. 7.163. 
551 Panel Reports, para. 3.2(b). Japan did request se parate findings, asking the Panel to find that: 
(b) the domestic content requirement of the FIT Pr ogramme, as well as in dividually executed FIT 
and microFIT Contracts for wind and solar PV projects, accords less favourable treatment to 
Japanese renewable energy generation equipmen t than accorded to like products of Ontario 
origin, in violation of Article III:4 of the GATT 1994; and (c) the FIT Programme, as well as  individually executed FIT and microFIT Contracts for wind and 
solar PV projects, constitute trade-related investment measures inconsistent with the provisions of Article III of the GATT 1994, and are therefore in violation of Article 2.1 of the TRIMs Agreement.  
(Ibid., para. 3.1(b) and (c)) 
552 Japan Panel Report (DS412), para. 8.5. 
553 Appellate Body Report, US – Tuna II (Mexico) , para. 405 (referring to Appellate Body Report, 
Australia – Salmon , para. 223). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 107 - 
 
 
  5.100.  There is a key difference between the situ ation in the present case and the situation that 
was before the Appellate Body in US – Tuna II (Mexico) . In this case, the Panel made findings of 
violation under both Article 2.1 of the TRIMs Ag reement and Article III:4 of the GATT 1994, while 
in US – Tuna II (Mexico) , the panel made no findings of violation under Articles I:1 and III:4 of the 
GATT 1994 or Article 2.1 of the TBT Agreement. Thus , the situation in this case and the situation 
in US – Tuna II (Mexico)  are the diametrical opposite.  
5.101.  In our view, the circumstances of this case more closely resemble US – Upland Cotton  
rather than US – Tuna II (Mexico) . We recall that, in US – Upland Cotton , Brazil claimed that 
export credit guarantees provided by the United St ates to certain agricultural products were export 
subsidies prohibited under Articles 3.1(a) and 3.2 of the SCM Agreement.554 The panel in that case 
determined that the export credit guarantees were indeed export subsidies prohibited under 
Articles 3.1(a) and 3.2 of the SCM Agreement. Fo r purposes of its assessment, the panel relied on 
item (j) of the Illustrative List of Export Subsidies annexed to the SCM Agreement.555 At the 
interim review stage, the panel denied Brazil's request "to make certain additional 'factual' findings 
regarding the parties' evidence and argumentation re lating to Brazil's allegation that the … export 
credit guarantee programmes at issue constitute prohibited export subsidies under the elements of Articles 1 and 3.1(a) of the SCM Agreement ".
556  
5.102.  Brazil subsequently appealed the Panel's fi nding, arguing that it constituted false judicial 
economy. The Appellate Body observed that Brazil 's claim was premised "on its submission that 
item (j) of the Illustrative List of Export Subsides annexed to the SCM Agreement  is a distinct 
obligation from that contained in Article 3.1(a), read together with Article 1.1".557 The 
Appellate Body declined to decide whether the premise on which Brazil based its argument was 
correct, because, "even if [the Appellate Body] we re to assume that such a claim were possible, 
[it] would conclude that the Panel was within its discretion in exercising judicial economy in 
respect of Brazil's claim".558 According to the Appellate Body, the panel's finding that US export 
credit guarantee programs constituted a prohibited export subsidy under Article 3.1(a) because they did not meet the criteria in item (j) was "sufficient to resolve the matter".
559 Consequently, 
the Appellate Body rejected Brazil's claim and found that the panel's exercise of judicial economy 
was proper.560  
5.103.  The circumstances described above are similar to those surrounding Japan's claim in the 
present case. Both cases involve findings of inconsistency that proceeded on the basis of the 
application of an illustrative list. In the case of item (j) of the Illustrative List of Export Subsides, 
fulfilment of the elements of that provision results in a finding that there is a prohibited export subsidy under Article 3.1(a) of the SCM Agreement. In the present case, fulfilment of the elements 
in paragraph 1(a) of the Illustrative List of TRIMs results in a finding of inconsistency with 
Article III:4 of the GATT 1994. In both cases, the elements that must be demonstrated under the 
relevant paragraphs of the Illustrative Lists are not necessarily the same as those that must be 
demonstrated pursuant to the underlying obligation. In addition, in both cases, the underlying 
                                               
554 Brazil also challenged the export credit gu arantees under the Agre ement on Agriculture. 
555 Item (j) of the Illustrative Li st of Export Subsides provides: 
The provision by governments (or special institutions controlled by governments) of export credit guarantee or insurance programmes, of insurance or guarantee programmes  against increases in 
the cost of exported products or of exchange  risk programmes, at premium rates which are 
inadequate to cover the long-term operat ing costs and losses of the programmes. 
556 Panel Report, US – Upland Cotton , para. 6.31. Brazil alleged that, "in the event one of the parties 
appeals and the Appellate Body reverses the Panel's conc lusion on item (j), it mi ght not have the necessary 
facts at its disposal to 'complete the analysis' with respect to Brazil's claims under Articles 1 and 3.1(a) of the SCM Agreement ". (Ibid.) 
557 Appellate Body Report, US – Upland Cotton , para. 730 (referring to Brazil's other appellant's 
submission, para. 22).  
558 Appellate Body Report, US – Upland Cotton , para. 731. In fn 1139 thereto, the Appellate Body 
explained that the panel did not expres sly state that it was exercising judicial economy. Instead, the panel 
stated that it did not believe that it was "necessary to address Brazil's additional  arguments". (Panel Report, 
US – Upland Cotton , para. 6.31 (emphasis omitted)) Brazil initially described the panel's failure to make a 
finding as an error by the panel in the "interpr etation and application of Article 3.1(a) of the SCM Agreement , 
as well as of Article 3.7 of the DSU". (Brazil's other appellant's submission in US – Upland Cotton , para. 22) 
Later in its submission, however, Br azil described the panel's error as a "misapplication of the principle of 
judicial economy". (Ibid., para. 23;  see also paras. 33 and 39-41)  
559 Appellate Body Report, US – Upland Cotton , para. 732. 
560 Appellate Body Report, US – Upland Cotton , para. 733. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 108 - 
 
 
  obligation captures a broader set of measures than the examples in the Illustrative Lists. Thus, the 
Panel's decision to exercise judicial economy in the present case with respect to Japan's 
stand-alone Article III:4 claim is consistent with the panel's approach in US – Upland Cotton , 
which the Appellate Body found not to have been an improper exercise of judicial economy.  
5.104.  In sum, we are not persuaded that the Panel's failure to make a finding on Japan's 
stand-alone Article III:4 claim provided only a "partial resolution of the matter at issue" or that an additional finding on Japan's stand-alone Article III:4 claim "is necessary in order to enable the 
DSB to make sufficiently precise recommendations and rulings so as to allow for prompt 
compliance"
561 by Canada with those recommendations and rulings. Therefore, we reject Japan's 
claim that the Panel failed to fulfil its obligations under Article 11 of the DSU and exercised false judicial economy by declining to make a finding on Japan's stand-alone Article III:4 claim.  
5.105.  Japan requests, if we were to conclude that the Panel's exercise of judicial economy was 
false, that we complete the analysis of its stand-alone Article III:4 claim. Given that we have found that it was not improper for the Panel to have declined to make a finding on Japan's 
stand-alone Article III:4 claim, we need not further consider Japan's request.  
5.5  Claims under the SCM Agreement 5.5.1  Article 1.1(a) – "Financial cont ribution" or "income or price support" 
5.106.  Japan appeals several aspects of the Panel's findings under Article 1.1(a) of the 
SCM Agreement. In particular, Japan argues th at the Panel erred in its interpretation and 
application of Article 1.1(a) in finding that the FIT Programme and related FIT and microFIT Contracts constitute government "purchases [of] goods" under Article 1.1(a)(1)(iii).
562 With 
respect to the Panel's interpretation of Article 1.1(a)(1), Japan contends that the Panel erred in 
finding that subparagraphs (i) and (iii) of Article 1.1(a)(1) are mutually exclusive.563 With respect 
to the application of Article 1.1(a), Japan requests us to reverse the Panel's finding that the 
FIT Programme and Contracts are government "purchases [of] goods" and to find instead that the 
measures at issue are appropriately characterized as "direct transfer[s] of funds", "potential direct transfers of funds", or "income or price support" under Article 1.1(a). In the alternative, Japan 
requests us to modify the Panel's finding in this regard to find that the measures at issue may also 
be characterized as "direct transfer[s] of funds", "p otential direct transfers of funds", or "income or 
price support" under Article 1.1(a) of the SCM Agreement.
564 
5.107.  In addition, Japan argues that the Pane l improperly exercised judicial economy with 
respect to Japan's claim that the measures at issue constitute "income or price support" within the 
meaning of Article 1.1(a)(2) of the SCM Agreement, and thereby failed to make an objective assessment of the matter as required by Article 11 of the DSU. Japan requests us to find that the 
FIT Programme and Contracts may be characterized as "income or price support" and that a 
benefit exists with respect to this characterization of the challenged measures.
565 
5.108.  We first summarize the Panel's findings under Article 1.1(a) of the SCM Agreement and 
then address each of Japan's claims on appeal. 
                                               
561 Appellate Body Report, US – Tuna II (Mexico) , para. 403 (quoting Appellate Body Report, Australia – 
Salmon , para. 223). 
562 Japan's other appellant's su bmission (DS412), para. 29. 
563 Japan's other appellant's su bmission (DS412), para. 49. 
564 Japan's other appellant's su bmission (DS412), para. 48. 
565 Japan's other appellant's su bmission (DS412), para. 59. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 109 - 
 
 
  5.5.1.1  The Panel's findings 
5.109.  Before the Panel, Japan argued that the FIT Programme and related FIT and microFIT 
Contracts are "direct transfer[s] of funds" and "p otential direct transfers of funds" within the 
meaning of Article 1.1(a)(1)(i) of the SCM Agreem ent. Alternatively, Japan submitted that the 
measures at issue are "income or price support" within the meaning of Article 1.1(a)(2).566 Canada 
disagreed with this position and asserted that the measures at issue can only be legally characterized as financial contributions in the form  of government "purchases [of] goods" within 
the meaning of Article 1.1(a)(1)(iii).
567 
5.110.  Following an examination of the measures at issue, the Panel found that the appropriate 
legal characterization of the FIT Programme and Contracts is as "financial contribution[s]" in the form of government "purchases [of] goods" within the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement.
568 The Panel's reasoning in reaching this conclusion was based on three key 
elements. First, it noted that the OPA transfers fund s to FIT suppliers for "delivered electricity" into 
Ontario's electricity grid.569 It is by paying a FIT Contract Price for delivered electricity that the 
Government of Ontario seeks to achieve the object ive of securing investment in new generation 
facilities for the purposes of diversifying Ontario's supply-mix. Thus, in the Panel's view, there is no grant element inherent in the design and operation of the FIT Programme. The Panel 
highlighted that, while FIT and microFIT Contracts facilitate suppliers' search for project financing, 
it would be wrong to characterize the Contract Payments themselves as finance payments for the construction of a generation facility.
570 
5.111.  Second, the Panel found that the Government of Ontario takes possession over electricity 
and thus "purchases electricity".571 The Panel found that government "purchases [of] goods" will 
arise under the terms of Article 1.1(a)(1)(iii) of the SCM Agreement when a "government" or 
"public body" obtains possession (including in the form of an entitlement) over a good by making a 
payment of some kind (monetary or otherwise).572 In particular, given the specific characteristics 
of electricity, the Panel preferred to characterize a purchase of electricity as involving the transfer 
of an entitlement  to electricity, rather than the taking of physical possession of the electricity.573 
Moreover, the Panel rejected the European Union's argument that the notion of government 
"purchases [of] goods" implies that the government is the entity being supplied with something for its use .
574 
5.112.  The Panel then observed that government "purchases [of] goods" require the involvement 
of the "government" or a "public body". In the Pa nel's view, this is exactly what happens through 
the FIT Programme and Contracts, where the combined actions of all three "public bodies" involved (i.e. the OPA, Hydro One Inc., and the IESO) demonstrate that the Government of 
Ontario purchases electricity within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
575 
                                               
566 Panel Reports, para. 7.169. Before the Panel, the European Union submitted that the measures at 
issue may each be legally characterized as a "financial contribution" in the fo rm of a "direct transfer of funds" 
within the meaning of Article 1.1(a) (1)(i), or as a form of "income or  price support" under the terms of 
Article 1.1(a)(2) of the SCM Agreement.  As an alternative to these two lin es of argument, th e European Union 
maintained that the challenged measures might also be characterized as "potential direct transfers of funds" 
under Article 1.1(a)(1)(i), or as govern mental action that involves "entrust [ment] or direct[ion]" in the sense 
of Article 1.1(a)(1)(iv). (Ibid., para. 7.176) 
567 Panel Reports, para. 7.181. 
568 Panel Reports, paras. 7.222 and 7.243. 
569 Panel Reports, paras. 7.223 and 7.224. 
570 Panel Reports, para. 7.224. In particular, the Pane l found that "[t]he OPA does not pay for renewable 
energy equipment or facilities. It does not make any up front lump-sum advances to the FIT generators". (Ibid., 
para. 7.223) 
571 Panel Reports, paras. 7.239. 
572 Panel Reports, para. 7.231. 
573 Panel Reports, para. 7.229. (original emphasis) 
574 Panel Reports, para. 7.230. 
575 Panel Reports, paras. 7.231-7.239. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 110 - 
 
 
  5.113.  Third, the Panel found that the legislativ e and regulatory framework of the FIT Programme 
and Contracts supports the conclusion that the challenged measures are perceived by the 
Government of Ontario and by others in Ontario as governmental activity that involves the procurement or purchase of electricity.
576 
5.114.  Next, the Panel explained why it disagreed with the complainants' proposed legal 
characterizations of the measures at issue. It recognized that the challenged measures exhibit some of the basic features of certain forms of "d irect transfer[s] of funds", in that the measures 
involve an exchange of rights and obligations that includes the payment of money.
577 However, the 
Panel did not agree with the complainants that this means that they can also be legally characterized as "direct transfer[s] of funds" for the purposes of the SCM Agreement. For the 
Panel, to conclude that government "purchases [o f] goods" can also be legally characterized as 
"direct transfer[s] of funds" would infringe the prin ciple of effective treaty interpretation, as this 
reading would result in reducing subparagraph (iii) of Article 1.1(a)(1) to "redundancy or inutility".
578 The Panel disagreed that the complainants' request was supported by the 
Appellate Body's interpretation in US – Large Civil Aircraft (2nd complaint)  that "[t]he structure of 
[Article 1.1(a)(1)] does not expressly preclude that a transaction could be covered by more than one subparagraph."
579 In the Panel's view, this statement "does not amount to a finding  that 
transactions properly characterized as 'purchases [of] goods' can also constitute 'direct transfer[s] 
of funds'".580 In addition, the Panel concluded that the measures at issue cannot be "potential 
direct transfers of funds" under Article 1.1(a)(1)(i) or a form of financial contribution involving government "entrust[ment] or direct[ion]" with in the meaning of Article 1.1(a)(1)(iv) of the 
SCM Agreement.
581 
5.115.  Moreover, the Panel decided to exercise ju dicial economy with respect to the complainants' 
allegation that the measures at issue may be legally characterized as "income or price support" 
under Article 1.1(a)(2) of the SCM Agreement. The Panel considered that such finding was not 
necessary to resolve the complainants' claims under the SCM Agreement given that: (i) the Panel majority ultimately rejected the complainants' allegations regarding "benefit" as they relate to 
government "purchases [of] goods"; and (ii) when the challenged measures are characterized as 
"income or price support", the complainants' arguments regarding "benefit" are "essentially the same" as those rejected by the Panel majority in its assessment of the measures at issue as government "purchases [of] goods".
582 
5.5.1.2  Whether the Panel erred in findin g that the FIT Programme and Contracts are 
government "purchases [of] goods" under Article 1.1(a)(1)(iii) of the SCM Agreement 
5.116.  On appeal, Japan challenges the Panel's in terpretation and application of Article 1.1(a)(1) 
of the SCM Agreement. First, we examine Japan' s challenge to the Panel's interpretation of 
Article 1.1(a)(1) and then we turn to address Ja pan's claim regarding the Panel's application of 
this provision. With respect to the interpretation of Article 1.1(a)(1), Japan argues that the Panel 
erred in finding that subparagraphs (i) and (iii) are "mutually exclusive".583 In Japan's view, after 
concluding that the measures at issue are properly characterized as government "purchases [of] goods", the Panel, in effect, made such finding of  mutual exclusivity by rejecting the complainants' 
argument that the measures at issue may also be legally characterized as "direct transfer[s] of 
funds" or "potential direct transfers of funds". For Japan, this finding mainly derives from the 
Panel's observation that "[w]e see no way of reading Articles 1.1(a)(1)(i) and (iii) in a way that enables us to conclude that government 'purchases [of] goods' could also be legally characterized 
as 'direct transfer[s] of funds'".
584 Japan argues that nothing precludes a panel from determining 
                                               
576 Panel Reports, para. 7.242. 
577 Panel Reports, para. 7.243. 
578 Panel Reports, para. 7.246 (quoting Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 
p. 21). 
579 Panel Reports, para. 7.247 (quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
fn 1287 to para. 613). 
580 Panel Reports, para. 7.247. (original emphasis)  
581 Panel Reports, para. 7.248. 
582 Panel Reports, para. 7.249. 
583 Japan's other appellant's su bmission (DS412), para. 49. 
584 Japan's other appellant's submission (DS412), para. 49 (quoting Panel Reports, para. 7.246 
(fn omitted)). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 111 - 
 
 
  that a measure may be characterized in multiple ways under Article 1.1(a)(1) of the 
SCM Agreement, as long as the panel's findings are based on a proper understanding of the 
measure's relevant characteristics and an objective assessment of the facts. Japan submits that this conclusion follows from the Appellate Body's findings in US – Large Civil Aircraft 
(2
nd complaint)  that Article 1.1(a)(1) "does not explicitly spell out the intended relationship 
between the constituent subparagraphs" and that it s structure "does not expressly preclude that a 
transaction could be covered by more than one subparagraph".585 
5.117.  Canada argues that there is no merit to Japan's claim that the Panel erred by finding that 
subparagraphs (i) and (iii) of Article 1.1(a)(1) ar e mutually exclusive. Canada submits that the 
Panel correctly found that the FIT Programme and Contracts could not be properly characterized as "direct transfer[s] of funds" as well as government "purchases [of] goods", and that this finding is 
entirely consistent with the Appellate Body report in US – Large Civil Aircraft (2
nd complaint) . In 
particular, Canada argues that, while in a general sense the structure of Article 1.1(a)(1) does not preclude that a transaction could be covered by more than one subparagraph, the same aspects of 
the same measure cannot at the same time be properly characterized as government "purchases 
[of] goods" and "direct transfer[s] of funds".
586 
5.118.  We begin by providing an overview of th e relevant findings by the Panel regarding the 
interpretative issue raised by Japan. In addressi ng the legal characterization of the FIT Programme 
and Contracts under the SCM Agreement, the Panel found the measures at issue to be government "purchases [of] goods" under subparagraph (iii) of Article 1.1(a)(1). Then, the Panel rejected the complainants' argument that the challenged measures could also be legally characterized as 
"direct transfer[s] of funds" under subparagraph (i).
587 In rejecting the complainants' argument, 
the Panel recognized that the measures at issue exhibit some of the basic features of certain forms of "direct transfer[s] of funds", in that they in volve an exchange of rights and obligations that 
includes the payment of money.
588 In addition to rejecting the complainants' request regarding the 
characterization of the measures at issue, the Pa nel went on to make the interpretative finding 
that it could not conclude that "government 'purchases [of] goods' could also be legally 
characterized as 'direct transfer[s] of funds' without infringing [the] principle [of effective treaty 
interpretation]".589 Moreover, the Panel disagreed that the complainants' request was supported by 
the Appellate Body's interpretation in US – Large Civil Aircraft (2nd complaint)  that "[t]he structure 
of [Article 1.1(a)(1)] does not expressly preclude  that a transaction could be covered by more 
than one subparagraph. There is, for example, no 'or' included between the subparagraphs."590 
In the Panel's view, this statement "does not amount to a finding  that transactions properly 
characterized as 'purchases [of] goods' can al so constitute 'direct transfer[s] of funds'".591  
5.119.  To the extent that this finding by the Pa nel means that the coverage of subparagraphs (i) 
and (iii) of Article 1.1(a)(1) is mutually exclusive, we disagree. We recall that, in US – Large Civil 
Aircraft (2nd complaint) , the Appellate Body found that Article 1.1(a)(1) "does not explicitly spell 
out the intended relationship between the constituent subparagraphs"592 and that the structure of 
this provision "does not expressly preclude that a transaction could be covered by more than one subparagraph".
593 In that dispute, the Appellate Body also found that "a direct transfer of funds" 
under subparagraph (i) "may involve reciprocal rights and obligations"594, given that it covers 
                                               
585 Japan's other appellant's subm ission (DS412), para. 50 (quo ting Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , para. 613 and fn 1287 thereto, respectively ). (emphasis added by Japan omitted) 
586 Canada's appellee's submission, para. 117. 
587 Panel Reports, para. 7.243. We note that, although the Panel rejected Japan's claim that the 
measures at issue constitute "direct transfer[s] of funds"  and "potential direct transfers of funds", the Panel's 
arguments mainly focused on explaining why the challeng ed measures do not constitute "direct transfer[s] of 
funds". (Panel Reports, paras. 7.243-7.248)  
588 Panel Reports, para. 7.243. 
589 Panel Reports, para. 7.246. 
590 Panel Reports, para. 7.247 (quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , 
fn 1287 to para. 613). 
591 Panel Reports, para. 7.247. (original emphasis) The Panel indicated that, while it may be possible to 
characterize different aspects of the same measure as  different types of financ ial contributions (e.g. a 
governmental programme involving loans and governme nt purchases of goods), the customary rules of 
interpretation do not lend support to the po sition advanced by the complainants. (Ibid.) 
592 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 613. 
593 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , fn 1287 to para. 613. 
594 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 617. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 112 - 
 
 
  situations where the recipient assumes obligations  to the government in exchange for the funds 
provided, such as loans and equity infusions.595 The Appellate Body further held that the term 
"purchase" under subparagraph (iii) usually means "that the person or entity providing the goods will receive some consideration in return".
596 
5.120.  When determining the proper legal characterization of a measure under Article 1.1(a)(1) of 
the SCM Agreement, a panel must assess whether th e measure may fall within any of the types of 
financial contributions set out in that provision. In doing so, a panel should scrutinize the measure 
both as to its design and operation and identify its principal characteristics.597 Having done so, the 
transaction may naturally fit into one of the types of financial contributions listed in Article 1.1(a)(1). However, transactions may be complex and multifaceted. This may mean that different aspects of the same transaction may fall under different types of financial contribution. It 
may also be the case that the characterization exercise does not permit the identification of a 
single category of financial contribution and, in that situation, as described in the US – Large Civil 
Aircraft (2
nd complaint)  Appellate Body report, a transaction may fall under more than one type of 
financial contribution. We note, however, that the fact that a transaction may fall under more than 
one type of financial contribution does not mean that the types of financial contributions set out in Article 1.1(a)(1) are the same or that the distinct legal concepts set out in this provision would 
become redundant, as the Panel suggests.
598 We further observe that, in US – Large Civil Aircraft 
(2nd complaint) , the Appellate Body did not address the question of whether, in the situation 
described above, a panel is under an obligation to  make findings that a transaction falls under 
more than one subparagraph of Article 1.1(a)(1). 
5.121.  In the light of these considerations, we believe that the Panel's finding that 
subparagraphs (i) and (iii) are mutually exclusiv e is not consistent with the Appellate Body's 
interpretations in US – Large Civil Aircraft (2nd complaint).  Consequently, we declare moot and of 
no legal effect the Panel's finding, in paragraph 7.246 of the Panel Reports, that "government 
'purchases [of] goods' could [not] also be legally characterized as 'direct transfer[s] of funds' 
without infringing [the] principle [of effective treaty interpretation]", inasmuch as it negates the 
possibility that a transaction may fall under more than one type of financial contribution under 
Article 1.1(a)(1) of the SCM Agreement. 
5.122.  Turning to the application of Article 1.1(a)(1) of the SCM Agreement, Japan challenges on 
appeal the Panel's finding that the FIT Programme and Contracts are government "purchases [of] 
goods" within the meaning of Article 1.1(a)(1)(iii). Japan requests us to reverse this finding and to 
find instead that the measures at issue are appropriately characterized as "direct transfer[s] of funds", "potential direct transfers of funds", or "income or price support" under Article 1.1(a) of 
the SCM Agreement, or alternatively modify the Panel's finding in this regard to find that these 
measures may also be characterized as "direct transfer[s] of funds", "potential direct transfers of 
funds", or "income or price support" unde r Article 1.1(a) of the SCM Agreement.
599 
5.123.  We recall that the Panel found that government "purchases [of] goods" within the meaning 
of Article 1.1(a)(1)(iii) of the SCM Agreement occu r "when a 'government' or 'public body' obtains 
possession (including in the form of an entitlem ent) over a good by making a payment of some 
kind (monetary or otherwise)".600 At the oral hearing, Japan clarified that it is not challenging this 
interpretation by the Panel on appeal. Nor does Japan dispute the Panel's findings that: (i) the OPA 
pays for delivered electricity; (ii) the Government of Ontario through Hydro One takes possession of the electricity during its transmission to end co nsumers; and (iii) the legislative, regulatory, and 
contractual framework of the FIT Programme characterizes the challenged measures as 
procurements or purchases of electricity.
601 Rather, Japan submits that the Panel failed to 
                                               
595 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 617. The Appellate Body 
indicated that, in the case of grants, "the conveyance of  funds will not involve a reciprocal obligation on the 
part of the recipient". (Ibid.) 
596 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 619. 
597 Appellate Body Reports, China – Auto Parts , para. 171. See also, Appellate Body Report, US – Large 
Civil Aircraft (2nd complaint) , para. 586. 
598 Panel Reports, para. 7.246. 
599 Japan's other appellant's submission (DS412), paras. 48 and 189 (referring to Panel Reports, 
paras. 7.243 and 7.328(i)). 
600 Panel Reports, para. 7.231. 
601 Japan's other appellant's submis sion (DS412), paras. 30 and 31. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 113 - 
 
 
  determine the proper legal characterization of the challenged measures on the basis of an 
evaluation of their "principal and relevant characteristics".602 In Japan's view, this requires a panel 
to appreciate fully all relevant facts and surrounding circumstances, which may include whether, and to what extent, a measure would serve to achieve a stated policy goal. In particular, Japan 
claims that the Panel overlooked the Government of Ontario's policy decision to unbundle the 
generation, transmission, and distribution of electricity to achieve its goal of ensuring a stable supply of electricity in Ontario, as well as the design and operation of the FIT Programme and 
Contracts within the framework of the Ontario electricity market.
603 On this basis, Japan puts 
forward the following arguments to support its assertion that the Panel erred in characterizing the measures at issue as government "purchases [of] goods". 
5.124.  First, Japan argues that, given the Government of Ontario's policy choice of unbundling the 
different functions of electricity supply, the role of the OPA should be central for the proper 
characterization of the FIT Programme and Contracts under Article 1.1(a)(1). In particular, Japan alleges that the characterization of the measures at issue should be informed by the fact that one 
government entity (the OPA) makes the payments for electricity, while a different government 
entity (Hydro One) receives and transmits electricity delivered by suppliers. Thus, in Japan's view, the OPA serves as a financing entity, not a purchasing entity, because it never takes possession of 
electricity.
604 We do not consider this argument to be persuasive. Ontario's policy decision to 
unbundle its electricity system and to allocate responsibilities between different government entities does not undermine the conclusion that the Government of Ontario purchases electricity through the FIT Programme and Contracts. While it is true that the OPA is the entity charged with 
paying FIT suppliers for delivered electricity and Hy dro One is the entity transmitting electricity, 
both entities were found by the Panel to be "public bod[ies]" within the meaning of Article 1.1(a)(1) of the SCM Agreement.
605 Similarly, the Panel found the IESO to constitute a 
"public body" under Article 1.1(a)(1).606 Since in the present case all the entities involved are 
public bodies and thus their activities are attributable to the government, it is not relevant whether the Government of Ontario acts through one or several of these entities. Indeed, the Panel found 
that "the combined actions  of all three 'public bodies'"
607 – the OPA, Hydro One, and the IESO – 
demonstrate that the Government of Ontario purchases electricity within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. The Pa nel's findings that the OPA, Hydro One, and the 
IESO are public bodies under Article 1.1(a)(1) have not been appealed by Japan. Consequently, 
Japan's argument that the OPA itself does not take possession over electricity does not undermine 
the Panel's finding that the Government of Ontario purchases electricity through the FIT Programme and Contracts. This is so because Hydro One, which is the entity transmitting 
electricity, was also found to be a public body, and the Panel found that the "combined actions" of 
the OPA, Hydro One, and the IESO demonstrate that the Government of Ontario purchases electricity. 
5.125.  Japan's second argument on appeal is that the Government of Ontario's goals of achieving 
a stable supply of electricity and stimulatin g renewable energy are not addressed through 
purchases of electricity by the government, but rather through the allocation of distinct roles to the entities operating in Ontario's electricit y system and the implementation of certain 
                                               
602 Japan's other appellant's submission (DS412), para. 31. (emphasis omitted) 
603 Japan's other appellant's su bmission (DS412), para. 31. 
604 Japan's other appellant's su bmission (DS412), para. 39. 
605 Panel Reports, paras. 7.234, 7.235, 7.239, and fn 464 thereto. We note that the Panel found that the 
OPA and the IESO are agents of the Government of On tario and noted that there is no dispute between the 
parties that they are a "public bod[ie s]" for the purpose of Article 1.1(a)(1 ) of the SCM Agreement. (Ibid., fn 
464 to para. 7.239) We observe that the Panel found th at "Hydro One is an agent of the Government of 
Ontario", thereby being "a provincial  government organization … to whic h the government has assigned or 
delegated authority and responsibility, or which otherwis e has statutory authority and responsibility to perform 
a public function or service". (Ibid., para. 7.234 (ref erring to and quoting Government of Ontario webpages, 
"All Agencies List" (Panel Exhibit JPN-49), available at: <http://www.pas.gov.on.ca/scripts/en/BoardsList.asp >; and "Agencies: Boards , Commissions, Councils, 
Authorities and Foundations" (Panel Exhibit JPN-51), available at: 
<http://www.ontario.ca/en/your_government/ONT06_018949.html >, p. 1)) The Panel further found that 
Hydro One's status as an agent of the Government of On tario and the fact that "the  Government of Ontario has 
'meaningful control' over Hydro One's activities" demonstrate th at it is a "public body" within the meaning of 
Article 1.1(a)(1) of the SCM Agreement. (Ibid., paras. 7.234 and 7.235) 
606 Panel Reports, para. 7.239 and fn 464 thereto. 
607 Panel Reports, para. 7.239. (emphasis added; fn omitted) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 114 - 
 
 
  programmes.608 Although it may be correct that the Government of Ontario seeks to meet its goals 
of achieving a stable supply of electricity and stimulating renewable energy through various 
entities and programmes, Japan's argument disregards that the Government of Ontario implements these policies through, inter alia , programmes involving purchases of electricity by the 
government.
609 This is the case of the FIT Programme. We recall that the OPA, a public body under 
the SCM Agreement, enters into FIT and microFIT Contracts with suppliers participating in the FIT Programme. As found by the Panel, the function of these contracts is the delivery of electricity 
by FIT and microFIT suppliers and, in return, the OPA undertakes to pay the supplier remuneration 
in the form of a Contract Price.
610 We highlight that "[t]he FIT Rules provide that the OPA is 
responsible for making all Contract Payments to the Supplier."611 Similarly, "ultimate liability for 
[payments of the Contract Price] under the microFIT Contract lies with the OPA."612 Moreover, we 
note that, as part of Ontario's policy decision of unbundling responsibilities and functions between 
different governmental entities within its electricity system, Japan has not identified any financing provided by the OPA to FIT and microFIT suppliers  beyond the remuneration provided in exchange 
for delivering electricity into the system. As stated above, this remuneration constitutes the 
payment for electricity delivered into the system by FIT and microFIT suppliers. Hence, the fact that Ontario's goals to ensure a stable supply of  electricity and to provide renewable energy are 
pursued through several entities and programmes does not change the fact that the Government 
of Ontario purchases electricity pursuant to the FIT Programme and Contracts. 
5.126.  Moreover, Japan argues that the existenc e of private entities supplying electricity to 
consumers in Ontario shows that it is unnecessary for a governmental agency to take possession 
over (i.e. purchase) electricity in order to achieve its objectives.
613 We disagree that this is of 
particular relevance for the proper characterization of the FIT Programme and Contracts under the SCM Agreement. Determining the proper legal char acterization of the measures at issue under 
Article 1.1(a)(1) does not require assessing whether it is necessary  for government entities to take 
possession of electricity to achieve Ontario's objectives or whether or not private entities are permitted to supply electricity to consumers in Ontario. The issue is whether the FIT Programme 
and Contracts in fact involve purchases of electricity by the Government of Ontario and thus fall 
within subparagraph (iii) of Article 1.1(a)(1). In the present case, the Panel concluded that the combined actions  of the OPA, Hydro One, and the IESO demonstrate that the Government of 
Ontario purchases electricity within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
614 
Japan's argument, in our view, does not undermine this finding by the Panel. 
5.127.  Finally, Japan suggests that the Panel erred by assuming that, if a measure is 
characterized in a particular manner under domestic  law (e.g. as a government purchase), it can 
never be characterized in a different manner under WTO law.615 We understand Japan to be 
arguing that the Panel erred in finding that the characterization of a measure under domestic law is dispositive of its legal characterization under WTO law. Japan is correct in arguing that the 
manner in which municipal law characterizes a measure is not determinative for its 
characterization under the covered agreements. We recall that the Appellate Body has found that "a panel may examine the municipal law of a WTO Member for the purpose of determining whether that Member has complied with its obligations under the WTO Agreement "
616 and that "[t]he label 
given to an instrument under municipal law … is not dispositive and cannot be the end of our 
analysis".617 However, we do not consider that, in reaching its conclusion as to the proper 
                                               
608 Japan's other appellant's su bmission (DS412), para. 40. 
609 In addition to generators participating in the FIT Programme, ot her generators in Ontario receive 
prices that are set under different ty pes of electricity supply contracts, including under the RES Requests for 
Proposals I, II, and III and the RESOP. (P anel Reports, para s. 7.27 and 7.28)  
610 Panel Reports, paras. 7.208 and 7.214. 
611 Panel Reports, para. 7.204 (referring to FIT Rules (version 1.5.1), Sections 6.3(a) and 8.4; and 
FIT Contract (version 1.5.1), Section 3.1). 
612 Panel Reports, para. 7.213 (referring to microFIT Contract (version 1.6.1), Section 4.4.1). 
613 Japan's other appellant's su bmission (DS412), para. 41. 
614 Panel Reports, para. 7.239. 
615 Japan's other appellant's su bmission (DS412), para. 43. 
616 Appellate Body Report, US – Section 211 Appropriations Act , para. 105. 
617 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 593. Similarly, in  
US – Softwood Lumber IV , the Appellate Body found that "it woul d be inappropriate to characterize, for 
purposes of applying any provisions of the WTO covere d agreements, the same thing or transaction differently, 
depending on its legal categorization within the jurisdic tions of different Members. " (Appellate Body Report,  
US – Softwood Lumber IV , para. 56) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 115 - 
 
 
  characterization of the measures at issue under the SCM Agreement, the Panel relied exclusively 
on their characterization under Ontario law, as Japan contends. On the contrary, the Panel 
recognized that the label given to an instrument under municipal law is not dispositive of the analysis under WTO law and found that the measures at issue constitute government "purchases 
[of] goods" under Article 1.1(a)(1)(iii) for three main reasons. First, the OPA pays for electricity 
that is delivered into Ontario's electricity grid.
618 Second, the Government of Ontario takes 
possession over electricity and therefore purchases electricity.619 Third, only as "a relevant factor" 
in its analysis, the Panel took into account that "the Electricity Act of 1998 , the Ministerial 
Direction, the FIT and microFIT Contracts and other documents, all in one way or another characterize the challenged measures as a procurement or purchase of electricity".
620 The Panel 
concluded that the legislative and regulatory framework of the FIT Programme, as well as the 
language found in certain clauses of the FIT and microFIT Contracts, "leave no doubt that the 
challenged measures are perceived by the Government of Ontario, and others in Ontario, as governmental activity that involves the procurement or purchase of electricity".
621 Consequently, 
we disagree with Japan that the Panel's anal ysis was based on the proposition that the 
characterization of a measure under domestic law is dispositive of its legal characterization under WTO law. 
5.128.  For these reasons, we do not consider that the Panel erred in its characterization of the 
measures at issue under Article 1.1(a)(1) of th e SCM Agreement. Accordingly, we uphold the 
Panel's finding, in paragraphs 7.243 and 7.328(i) of the Panel Reports, that the FIT Programme 
and related FIT and microFIT Contracts are governme nt "purchases [of] goods" within the meaning 
of Article 1.1(a)(1)(iii) of the SCM Agreement. 
5.129.  Having upheld the Panel's finding that the measures at issue are properly characterized as 
government "purchases [of] goods" under Article 1.1(a)(1)(iii), we turn to examine Japan's 
alternative claim that we modify the Panel's finding in this regard to find that these measures may 
also be characterized as "direct transfer[s] of funds"  or "potential direct transfers of funds" under 
Article 1.1(a)(1)(i) of the SCM Agreement.622 Japan also requests us to find that the 
FIT Programme and Contracts may be characterized as "income or price support" under 
Article 1.1(a)(2) of the SCM Agreement.623 We note that Japan also claims that the Panel acted 
inconsistently with Article 11 of the DSU by exerci sing false judicial economy with respect to its 
claim that the challenged measures constitute "income or price support". We will thus address 
Japan's request to find that the measures at issue may be characterized as "income or price 
support" once we have made a determination on whether the Panel exercised false judicial economy regarding this claim of Japan. 
5.130.  As a preliminary matter, we note that the characterization of a transaction under 
Article 1.1(a) of the SCM Agreement may have implications for the manner in which the assessment of whether a benefit is conferred is to be conducted. For instance, the context 
provided by Article 14 of the SCM Agreement pr esents different methods for calculating the 
amount of a subsidy in terms of benefit to th e recipient depending on the type of financial 
contribution at issue. However, although different characterizations of a measure may lead to different methods  for determining whether a benefit has been conferred, the issue to be resolved 
under Article 1.1(b) remains to ascertain whether a "financial contribution" or "any form of income 
or price support" has conferred a benefit to the recipient.
624 
5.131.  With this in mind, we do not believe that the arguments advanced by Japan are sufficient 
to demonstrate that the measures at issue are "dir ect transfer[s] of funds" or "potential direct 
transfers of funds". We recall that Japan argued that the challenged measures are "direct transfer[s] of funds" because the OPA distribu tes funds to FIT generators from the amounts 
                                               
618 Panel Reports, para. 7.223. 
619 Panel Reports, paras. 7.231 and 7.239. 
620 Panel Reports, para. 7.242. 
621 Panel Reports, para. 7.242. 
622 Japan's other appellant's submission (DS412), paras. 48 and 189. 
623 Japan's other appellant's submission (DS412), paras. 48 and 189. 
624 In the context of examining a financial contribution, the Appellate Body found in Canada – Aircraft  
that the analysis under Article 1.1(b)  of the SCM Agreement requires assess ing whether a financial contribution 
"makes the recipient 'better off' than it would otherwise have been, absent that contribution". (Appellate Body 
Report, Canada – Aircraft , para. 157) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 116 - 
 
 
  collected from consumers through the GA. Japan further argues that the fact that FIT and microFIT 
generators are entitled to guaranteed payments fo r all electricity generated for the duration of the 
FIT and microFIT Contracts makes the payments under these contracts "potential direct transfers of funds".
625 Japan's arguments in this respect do not present any new characteristics of the 
measures at issue that go beyond, or are different from, the payment of consideration by the 
Government of Ontario through the OPA in exchange for electricity delivered into the grid by FIT and microFIT suppliers during a 20-year contract. To us, Japan's arguments merely underscore 
and reiterate certain specific aspects of the FIT Programme and Contracts, such as the conveyance 
of funds in exchange for delivered electricity and the fact that the OPA commits to pay for such electricity for the duration of the contracts. Japa n overlooks that all these aspects are part of a 
broader transaction that involves an exchange of rights and obligations, that is, the payment of 
consideration in return for electricity delivered into Ontario's electricity system. Pursuant to this 
composite transaction, the Government of Ontario,  through the OPA, enters into 20-year contracts 
with FIT and microFIT suppliers and pays them a Contract Price as consideration in exchange for 
electricity delivered into the system. We do not see in Japan's arguments any aspects different 
from, or in addition to, those characteristics that led us to agree with the Panel that the transactions at issue constitute government "purchases [of] goods". We are not persuaded that, 
on the basis of these arguments and features of the challenged measures, Japan has established 
that these measures should in addition be characterized as "direct transfer[s] of funds" or "potential direct transfers of funds". 
5.132.  For these reasons, we reject Japan's appeal that the FIT Programme and FIT and microFIT 
Contracts may also be characterized as "direct transf er[s] of funds" or "potential direct transfers of 
funds" under Article 1.1(a)(1)(i) of the SCM Agreement. 
5.5.1.3  Did the Panel err in exercising judi cial economy with respect to the allegations 
that the measures at issue constitute "income or price support"?  
5.133.  Japan argues that the Panel improperly ex ercised judicial economy with respect to Japan's 
claim that the FIT Programme and related FIT and microFIT Contracts constitute "income or price 
support" under Article 1.1(a)(2) of the SCM Agreement, and thereby failed to make an objective 
assessment of the matter as required by Article 11 of the DSU. Japan requests us to find that the 
challenged measures may be characterized as "income or price support", and to find that a benefit exists with respect to this characterization of the FIT Programme and Contracts.
626 
5.134.  We recall that the Appellate Body has found in relation to the principle of judicial economy 
that "[a] panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute."
627 The Appellate Body has, however, cautioned that "panels may 
r e f r a i n  f r o m  r u l i n g  o n  e v e r y  c l a i m  a s  l o n g  a s  i t  d o e s  n o t  l e a d  t o  a  ' p a r t i a l  r e s o l u t i o n  o f  t h e  
matter'."628 In this regard, the Appellate Body has found that "[a] panel has to address those 
claims on which a finding is necessary in order to enable the DSB to make sufficiently precise 
recommendations and rulings ... 'in order to secure effective resolution of disputes to the benefit 
of all Members.'"629 
5.135.  On appeal, Japan contends that the Panel failed to explain why the Panel's findings with 
respect to Japan's benefit argument in connection with its financial contribution claim under 
Article 1.1(a)(1) would also be applicable to Japan's benefit argument in connection with its 
income or price support claim under Article 1.1(a)(2). Japan argues that whether the measures confer a benefit must be examined in relation to the particular subparagraph of Article 1.1(a) at 
issue. In Japan's view, it is not clear why the Panel's rejection of Japan's benefit argument in 
                                               
625 Japan's other appellant's su bmission (DS412), para. 46. 
626 Japan's other appellant's subm ission (DS412), paras. 57-59. 
627 Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR 1997:I, p. 340. (fn omitted) 
628 Appellate Body Report, US – Upland Cotton , para. 732 (quoting Appellate Body Report, Australia – 
Salmon , para. 223). 
629 Appellate Body Report, Australia – Salmon , para. 223 (quoting Article 21.1 of the DSU). See also, 
Appellate Body Reports, Canada – Wheat Exports and Grain Imports , para. 133; and EC – Export Subsidies on 
Sugar , para. 335. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 117 - 
 
 
  connection with its financial contribution claim necessarily implies rejection of its benefit argument 
in relation to income or price support claim.630 
5.136.  We observe that Japan's request for findings before the Panel did not distinguish between 
situations where the measures would be characterized as a "financial contribution" and as "income 
or price support". Rather, Japan focused on requ esting the Panel to make a recommendation that 
Canada "withdraw its prohibited subsidies without delay".631 Thus, the thrust of Japan's claim 
concerned the existence of prohibited subsidies and the specific remedy associated with such 
finding, rather than the specific characterization of the challenged measures as financial 
contribution and/or income or price support.  
5.137.  Moreover, although the characterization of a transaction under Article 1.1(a) may have 
implications for the manner in which the determination of benefit under Article 1.1(b) of the 
SCM Agreement is conducted, Japan has not elaborated whether and in which way the benefit 
analysis would have been different, or would have led to a different outcome, if the Panel had characterized the FIT Programme and Contracts as "income or price support" instead of as a 
"financial contribution". Rather, as argued by Canada, Japan's benefit argument before the Panel 
relied on the same benchmarks in both situations, in particular, the HOEP and the average wholesale rate for electricity in competitive markets outside of Ontario.
632 We note that the Panel 
rejected these benchmarks for the purposes of determining whether the measures at issue confer 
a benefit.633  
5.138.  Thus, given that the basis of Japan's benefit arguments in both instances was "essentially 
the same"634, and that the Panel rejected Japan's benefit arguments as they relate to 
Article 1.1(a)(1), we do not believe that an addi tional finding by the Panel that the challenged 
measures constitute "income or price support" within the meaning of Article 1.1(a)(2) was necessary to resolve fully the dispute. Accordingly, we reject Japan's claim that the Panel failed to 
fulfil its obligations under Article 11 of the DSU an d exercised false judicial economy by declining 
to make a finding on Japan's claim that the measures at issue constitute "income or price support" under Article 1.1(a)(2) of the SCM Agreement. 
5.139.  Given that we have rejected Japan's claim that the Panel exercised false judicial economy 
by declining to make a finding on Japan's claim that the measures at issue constitute "income or price support", we decline to make a finding on whether the FIT Programme and Contracts may be 
characterized as "income or price support" under Article 1.1(a)(2) of the SCM Agreement. 
5.5.2  Article 1.1(b) – "Benefit" 
5.140.  In this section we address the claims by the European Union and Japan that the Panel 
erred in finding that the complainants failed to establish that the challenged measures confer a 
benefit within the meaning of Article 1.1(b) of the SCM Agreement, as well as their alternative 
claim that the Panel acted inconsistently with Article 11 of the DSU. 
5.141.  Japan claims that the Panel erred both in  the interpretation and in the application of 
Article 1.1(b) of the SCM Agreement. Japan argues, first, that the Panel erred in interpreting 
Article 1.1(b) because it failed to analyze the ques tion of benefit from a perspective other than the 
framework of Article 14(d) of the SCM Agreement. Second, Japan claims that the Panel erred because it wrongly rejected benchmarks of the current Ontario electricity market and chose an 
improper benchmark for its alternative counterfactual analysis, which was based on costs and 
ignored the demand-side of the market.
635 
                                               
630 Japan's other appellant's su bmission (DS412), para. 58. 
631 Japan's first written submission  to the Panel (DS412), para. 304. 
632 Canada's appellee's submission, para. 125. See also , Japan's first written submission to the Panel 
(DS412), paras. 219, 220, 222, 234, and 244. 
633 Panel Reports, paras. 7.313 and 7.319. 
634 Panel Reports, paras. 7.249. 
635 Japan's other appellant's submission (DS412), para. 110. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 118 - 
 
 
  5.142.  The European Union claims that the Panel wrongly applied Article 1.1(b) of the 
SCM Agreement to the facts of this case by  engaging into the examination of market 
counterfactuals when it was an uncontested fact that FIT generators would not have obtained any remuneration from the market in Ontario absent the FIT Programme. According to the 
European Union, the conclusion as to the existence of a benefit should have been made "with little 
difficulty"
636 by the Panel without the need to examine market counterfactuals or proxies. 
5.143.  The European Union and Japan request that we reverse the Panel's finding that the 
complainants failed to establish that the challenged measures confer a benefit, within the meaning 
of Article 1.1(b) of the SCM Agreement, and that we complete the legal analysis and find that the 
challenged measures confer a benefit, based on the factual findings made by the Panel and uncontested facts on the Panel record. This evidence shows that, absent the FIT Programme, FIT 
generators would not have obtained the remune ration provided by the FIT Programme on the 
basis of the prevailing market conditions in Ontario.
637 Moreover, the European Union requests us 
to declare moot and of no legal effect the Panel's findings and observations, in paragraphs 7.276 
to 7.327 of the Panel Reports, concerning hypothetical counterfactuals and market proxies.638 
5.144.  In the alternative, should we agree with  the Panel's finding under Article 1.1(b) of the 
SCM Agreement, the European Union and Japan claim that the Panel failed to make an objective 
assessment of the matter, under Article 11 of the DSU, in concluding that there was not enough 
evidence on the record that would allow it to make findings on the existence of benefit under Article 1.1(b) of the SCM Agreement, based on its own approach to the question of benefit.
639 The 
European Union and Japan request that we complete the analysis based on the factual findings by 
the Panel and uncontested facts on the record and find that the challenged measures confer a 
benefit within the meaning of Article 1.1(b) of the SCM Agreement. 
5.145.  Whether we reverse the Panel's findings under Article 1.1(b) of the SCM Agreement or find 
that the Panel failed to make an objective assessment under Article 11 of the DSU, both the 
European Union and Japan request that we complete the analysis and find that the challenged measures amount to subsidies prohibited under Articles 3.1(b) and 3.2 of the SCM Agreement.
640 
5.146.  Canada requests that we reject the cross-appeals of the European Union and Japan and 
uphold the Panel's finding that the complainants failed to establish that the challenged measures confer a benefit within the meaning of Articl e 1.1(b) of the SCM Agreement and constitute 
prohibited subsidies inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.
641 In 
particular, Canada contends that the European Union's and Japan's approach to benefit ignores the 
Panel's findings that the IESO-administered wholesale market is not a "market" appropriate for the purposes of a "benefit" analysis and that, absent the FIT Programme, new entrants into the 
market would probably negotiate a price for wind- and solar PV-generated electricity.
642 Canada 
also considers that the complainants' criticisms on appeal of the Panel majority's observations about an alternative constructed benchmark are mi splaced, because these were simply the Panel 
majority's views about an alternative approach to benefit, made at the complainants' urging and 
were not legal findings by the Panel.
643  
                                               
636 European Union's other appellant's submission (DS426), para. 162. (fn omitted) 
637 European Union's other appellant's submission  (DS426), para. 171; Japan's other appellant's 
submission (DS412), para. 118. 
638 European Union's other appellant's submission (DS426), para. 170. 
639 European Union's other appellant's submission  (DS426), para. 173; Japan's other appellant's 
submission (DS412), para. 119. 
640 European Union's other appellant's submissi on (DS426), paras. 172 and 205; Japan's other 
appellant's submission (DS412), para. 126. 
641 Canada's appellee's submission, para. 214. 
642 Canada's appellee's submission, para. 189. 
643 Canada's appellee's submission, para. 205. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 119 - 
 
 
  5.5.2.1  The Panel's findings 
5.147.  The Panel found that Japan and the European Union failed to establish that the challenged 
measures confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.644 
5.148.  The Panel began its analysis by setting  out the legal standard for determining the 
existence of a benefit under Article 1.1(b) of the SCM Agreement. The Panel recalled that a 
financial contribution will confer a benefit within the meaning of Article 1.1(b) when it provides an advantage to its recipient, and that the existence of any such advantage is to be determined by 
comparing the position of the recipient in the marketplace with and without the financial 
contribution. The Panel pointed out that Articl e 14(d) of the SCM Agreement, although not 
intended to define the circumstances when a gove rnment's purchase of goods will confer a benefit 
within the meaning of Article 1.1(b), provides useful context for such a determination.
645 
5.149.  The Panel then reviewed the Ontario electricity market and its 2002 market opening 
experience. Based on the evidence submitted by the parties, the Panel found that there is no 
effective competition in Ontario's current wholesale electricity market. Rather, in the Panel's view, 
Ontario's wholesale electricity market is better characterized as a part of an electricity system that 
is defined by the Government of Ontario's policy  decisions and regulations. These decisions and 
regulations govern the supply-mix (including electricity generated from renewable sources) that is 
necessary to ensure a safe, reliable, and long-term supply of electricity in Ontario, and the process 
to recover the electricity system's costs.646 
5.150.  Regarding the specific market benchmarks proposed by the complainants, the Panel found, 
first, that electricity wholesale prices in Ontario (i.e. the HOEP) result from the operation of forces 
of supply and demand that are significantly affected by government intervention in a way that 
renders them an inappropriate benchmark to conduct the present benefit analysis. In particular, the Panel found that generators' price offers in the IESO-administered wholesale market are not 
motivated by the need to cover marginal costs of production, but rather by the need to be chosen 
to supply electricity into the Ontario grid in order to receive the contracted or regulated prices. Thus, the HOEP is not an "equilibrium price" de termined by the forces of supply and demand, but 
rather "a tool for the IESO to make the dispatch decisions needed to balance physical  supply and 
demand for electricity".
647 
5.151.  Therefore, the Panel concluded that th e Ontario prices on the basis of which the 
complainants had made their case of benefit – namely, the HOEP and all of the HOEP-derivatives 
advanced by the complainants, such as the weighted-average wholesale rate for generators other 
than FIT or RESOP648 in 2010, retail prices under the RPP in 2010, and import and export prices – 
could not serve as appropriate benchmarks for the purpose of the benefit analysis.649 
5.152.  The Panel also rejected four benchmarks from out-of-province electricity markets – 
Alberta, in Canada, and New York State, New England, and the Mid-Atlantic region (PJM Interconnection), in the United States – submitted by the complainants as proxies for the 
wholesale electricity market price in Ontario. As regards Alberta, the Panel considered that the 
"market approach"
650 introduced in Alberta could not be reproduced in Ontario with the same 
degree of success in the light of the particular co nditions of supply and demand in Ontario and of 
the renewable and non-renewable generating capacity that would need to be renewed, replaced, 
or added to the Ontario electricity system by 2030.651 As for the other three markets, the Panel 
was persuaded by evidence on the record showing that these markets do not provide participating 
generators with all of the revenues they need to be present on the market. Thus, these three 
markets do not represent competitive wholesale electricity markets that are capable, on their own, 
                                               
644 Panel Reports, para. 7.328(ii). 
645 Panel Reports, para. 7.271. 
646 Panel Reports, para. 7.308. 
647 Panel Reports, para. 7.298 (referring to Canada's first written submission to the Panel (DS426), 
para. 71; opening statement at the first Panel meetin g, para. 83; and Hogan Report, pp. 37-41). (original 
emphasis) 
648 Renewable Energy Standard  Offer Program (RESOP). 
649 Panel Reports, para. 7.308. 
650 Panel Reports, para. 7.306. 
651 Panel Reports, para. 7.310. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 120 - 
 
 
  of attracting sufficient investment in generation ca pacity to secure a reliable system of electricity 
supply.652 
5.153.  Moreover, the Panel was not persuaded of the premise underlying the complainants' 
arguments – namely, that, in the absence of the FIT Programme, FIT generators would be faced 
with having to operate in a competitive wholesale electricity market. The Panel considered that 
competitive wholesale electricity markets will only rarely remunerate the mix of generators needed to secure a reliable electricity system with enough revenue to cover all their costs (including fixed 
and sunk costs), let alone a system that ensures the inclusion of facilities using solar PV and 
windpower technologies in the supply-mix.
653 
5.154.  The Panel was of the view that, under th e prevailing conditions of supply and demand in 
Ontario, a competitive wholesale electricity market  would fail to attract the degree of investment 
in generating capacity needed to secure a reliable supply of electricity. Therefore, the Panel did not 
consider it appropriate to determine whether the FIT Programme and related FIT and microFIT Contracts confer a benefit, within the meaning of Article 1.1(b) of the SCM Agreement, by 
comparing the terms and conditions of participation in the FIT Programme with those that would 
be available to generators participating in a whol esale electricity market where there was effective 
competition.
654 
5.155.  At the end of its benefit benchmark analysis, the Panel rejected Canada's argument that 
the relevant "market" for the purpose of the benefit analysis should be the market for electricity produced from solar PV and windpower technologies. The Panel observed that consumers of electricity in Ontario do not distinguish electricity on the basis of different generation technologies, 
either by way of price or usage, and that no arguments had been advanced to suggest that the 
physical properties of electricity change depending upon how it is generated. Accordingly, the Panel found that, in Ontario, there is only one single market for electricity that is generated from 
all sources of energy.
655 
5.156.  Having rejected the benchmarks proposed by the complainants, the Panel made its own 
suggestion as to what it considered could be an appropriate benchmark in the circumstances of 
this case. The Panel explained that one way to de termine whether the challenged measures confer 
a benefit, within the meaning of Article 1.1(b) of the SCM Agreement, would involve testing them 
against the types of arm's-length purchase transactions that would exist in a wholesale electricity market whose broad parameters are defined by th e Government of Ontario. In the circumstances 
of the present case, this could be done by comp aring the terms and conditions of the challenged 
FIT and microFIT Contracts with those that would be offered by commercial distributors of electricity that acquire electricity pursuant to a governmental obligation from solar PV and 
windpower generator facilities of a comparable scale to those functioning under the 
FIT Programme.
656 
5.157.  According to the Panel, this approach could be used to determine whether the challenged 
measures confer a benefit by comparing the rate of return obtained by FIT generators under the 
terms and conditions of the FIT and microFIT Contracts with the average cost of capital in Canada for projects with a comparable risk profile in the same period. The Panel observed that such a comparison would allow for an immediate and clear determination of whether FIT generators are 
being overcompensated by the government, and ther efore receive a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement.
657 The Panel then assessed whether there was sufficient 
factual information on the record to apply its own proposed benchmark. After reviewing the 
evidence on the record, the Panel found that the information available was insufficient to 
determine the average cost of capital in Canada fo r projects with a risk profile comparable to the 
challenged FIT and microFIT Contracts during the relevant period.658 
                                               
652 Panel Reports, para. 7.310. 
653 Panel Reports, para. 7.309. 
654 Panel Reports, para. 7.312. 
655 Panel Reports, para. 7.318. 
656 Panel Reports, para. 7.322. 
657 Panel Reports, para. 7.323. 
658 Panel Reports, para. 7.326. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 121 - 
 
 
  5.5.2.2  Whether the Panel erred in finding that the European Union and Japan failed to 
establish that the challenged measures confer a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement 
5.158.  In addressing the claims by the European Union and Japan under Article 1.1(b) of the 
SCM Agreement, we begin by reviewing the le gal standard adopted by the Panel in its 
Article 1.1(b) analysis. We then address the Panel's analysis of the relevant market followed by an analysis of the appropriate benchmark for the remuneration of wind- and solar PV-generated 
electricity. Finally, in the light of the appropriate market benchmark, we consider the Panel's 
assessment of the benefit benchmarks submitted by the complainants. 
5.5.2.2.1  The legal standard for the determin ation of benefit under Article 1.1(b) of the 
SCM Agreement 
5.159.  We begin our analysis of the Panel's find ing under Article 1.1(b) of the SCM Agreement by 
reviewing the legal standard adopted by the Panel for the determination of benefit. Relying on the 
jurisprudence of the Appellate Body under Article 1.1(b), the Panel considered that a financial 
contribution confers a benefit within the meaning of  Article 1.1(b) when it confers an advantage on 
its recipient, and that such an advantage is to be determined by comparing the position of the 
recipient in the marketplace with and without the financial contribution.
659 The Panel further 
observed that Article 14(d) of the SCM Agreemen t – which establishes guidelines for calculating 
the amount of subsidy for the purpose of counterva iling duties investigations under Part V of the 
SCM Agreement in cases involving purchases of g oods by a government – provides useful context 
for the determination of benefit in the present disputes.660  
5.160.  According to the Panel, one way  to assess whether the challenged measures confer a 
benefit within the meaning of Article 1.1(b) is to examine whether, under the benchmark provided in Article 14(d) of the SCM Agreement, the remuneration obtained by windpower and solar PV 
generators under the FIT Programme is "mor e than adequate" when compared to the 
remuneration the same generators would, in the light of the "prevailing market conditions", otherwise receive on the relevant "market" for electricity in Ontario.
661 The Panel noted that the 
relevant market need not be one that is "undisto rted by government intervention", or that is 
devoid of any degree of government intervention.662 Nevertheless, the Panel recalled that, where 
the role of the government in the market is so predominant that it effectively determines prices, 
there would be no way of telling whether the recipient is better off absent the financial 
contribution, and the market that is the object of  the government intervention cannot serve as an 
appropriate benchmark under Article 14(d).663 
5.161.  Japan argues that the Panel erred in interpreting Article 1.1(b) because it failed to analyze 
the question of benefit from a perspective othe r than the framework of Article 14(d) of the 
SCM Agreement. Japan points out that, while Article 14(d) provides a particular methodology for calculating the amount of the benefit for the purpose of the imposition of countervailing measures, 
no precise quantification of the benefit is required  in a prohibited subsidy dispute under Article 3.1 
of the SCM Agreement, where a complainant merely needs to demonstrate that a benefit exists.
664 
The European Union does not challenge the Panel's interpretation of Article 1.1(b), but, in the context of its challenge of the Panel's application of Article 1.1(b), it also remarks that, in a 
prohibited subsidies case, the issue of the amount of the subsidy is irrelevant, such that, in these 
disputes, there is no need to identify the relevant benchmark in order to establish the amount of the benefit conferred by the FIT Programme.
665  
                                               
659 Panel Reports, para. 7.271 (referring to Appellate Body Reports, US – Softwood Lumber IV , para. 51; 
and Canada – Aircraft , para. 157).  
660 Panel Reports, para. 7.271 (referring to Appellate Body Report, Canada – Aircraft , paras. 157 
and 158). 
661 Panel Reports, para. 7.272. 
662 Panel Reports, para. 7.274 (quoting Appellate Body Report, US – Softwood Lumber IV , para. 87; and 
referring to Panel Report, US – Softwood Lumber IV , paras. 7.50-7.51). 
663 Panel Reports, para. 7.274 (referring to Appellate Body Report, US – Softwood Lumber IV , 
paras. 157 and 158). 
664 Japan's other appellant's su bmission (DS412), para. 98. 
665 European Union's other appellant's submis sion (DS426), para. 162 and fn 170 thereto. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 122 - 
 
 
  5.162.  We are not persuaded that, by analyzing wh ether a benefit is conferred on the basis of the 
guidelines contained in Article 14(d), the Panel erred in the interpretation of Article 1.1(b) of the 
SCM Agreement. We observe that the Panel stated at the beginning of its analysis that Article 14(d) is "not intended to define the circumstances when a government purchase of goods 
will confer a benefit in disputes involving Part[s II and] III of the SCM Agreement"
666, but that it 
provides useful context in a benefit analysis under  Article 1.1(b). Moreover, the Panel clarified that 
Article 14(d) simply suggests one way  to demonstrate that the challenged measures confer a 
benefit.667 
5.163.  The Appellate Body has stated in previous disputes that whether a benefit has been 
conferred should be determined by assessing whether the recipient has received a "financial contribution" on terms more favourable than those available to the recipient in the market.
668 
Moreover, in previous disputes under both Part s II and III of the SCM Agreement, the Appellate 
Body has relied on Article 14 as the relevant context for the interpretation of benefit under Article 1.1(b).
669 Article 14(d) contains guidelines for determining whether government purchases 
of goods make a recipient "better off" than it would otherwise be in the marketplace. Article 14 is 
used in countervailing duties cases to calculate the amount of the subsidy in terms of the benefit to the recipient. Although Article 14 is in Part V of the SCM Agreement, the Panel was correct in 
pointing out that it is relevant context to the interpretation of Article 1.1(b) for the purpose of 
Part II of the SCM Agreement, and that it can be used as relevant context to determine whether a subsidy exists.
670 
5.164.  We do not think that a different approach should be adopted when, as in the case of 
prohibited subsidies, one has to determine whether a benefit exists as opposed to its precise 
quantification. A market benchmark can tell us whether a benefit exists and usually its size. However, in the absence of a market benchmark, it will not be possible to establish if a subsidy 
exists at all. That a financial contribution confers an advantage on its recipient cannot be 
determined in absolute terms, but requires a comparison with a benchmark, which, in the case of subsidies, derives from the market. This is so, in our view, regardless of whether the advantage 
needs to be precisely quantified or not.  
5.165.  We thus consider that the Panel's interpretative approach to the question of benefit under 
Article 1.1(b) of the SCM Agreement, including th e reliance on the context found in Article 14(d), 
is the correct one. We do not consider that the de termination of the mere existence, as opposed to 
the amount, of the subsidy calls for a different in terpretation of how to determine benefit under 
Article 1.1(b). A determination of the existence of a benefit under Article 1.1(b), read in the context of Article 14(d) of the SCM Agreemen t, requires a comparison between actual 
remuneration and a market-based benchmark or pr oxy, and thus between amounts, in order to 
determine the existence of a benefit. 
5.166.  In the light of the above, we do not co nsider that the Panel committed an error in the 
interpretation of the legal standard for the determination of benefit under Article 1.1(b) of the 
SCM Agreement. 
                                               
666 Panel Reports, para. 7.271. 
667 Panel Reports, paras. 7.271-7.273. 
668 Appellate Body Report, Canada – Aircraft , para. 157. 
669 Appellate Body Reports,  Canada – Aircraft , para. 155; and EC and certain member States – Large 
Civil Aircraft , paras. 972-975. 
670 In Canada – Aircraft , the Appellate Body noted that: 
[a]lthough the opening words of Article 14 state that the guidelines it establishes apply "[f]or the purposes of Part V" of the SCM Agreement , which relates to "countervailing measures", 
our view is that Article 14, nonetheless, consti tutes relevant context fo r the interpretation of 
"benefit" in Article 1.1(b).  
(Appellate Body Report, Canada – Aircraft , para. 155) See also Appellate Body Report, EC and certain member 
States – Large Civil Aircraft , para. 703. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 123 - 
 
 
  5.5.2.2.2  The relevant market 
5.167.  Having identified the legal standard applicable to the benefit analysis, the Panel first 
reviewed the economics of wholesale electricity markets and the Ontario 2002 market opening experience to conclude that "competitive wholes ale electricity markets will only rarely attract 
sufficient investment in the generation capacity needed to secure a reliable supply of electricity" 
and that this "could not have been achieved in Ontario in 2002 solely on the basis of the operation 
of a competitive wholesale electricity market".
671 Then the Panel reviewed several in-province and 
out-of-province benchmarks that were put forward by the complainants and which were all based 
on the assumption that the relevant market for the benefit comparison was a single market for electricity generated from all sources of energy. As we consider further below, the Panel considered all these benchmarks to be distorted, and thus not appropriate, for a proper benefit 
analysis. 
5.168.  The Panel undertook and completed a full benefit benchmark analysis before it reached a 
conclusion on the definition of the relevant market. The Panel defined the relevant market only in 
paragraph 7.318, after it had rejected all the benchmarks proposed by the complainants. In 
defining the relevant market, the Panel stated that "[t]here is … no basis to accept that a separate wholesale market for electricity generated from solar PV and windpower technologies would be the 
appropriate focus of the benefit analysis in the present disputes", considering that, "at present, 
consumers of electricity in Ontario, whose de mand instantaneously determines the purchases 
made at the wholesale level, do not distinguish electricity on the basis of different generation technologies, either by way of price or usage"
672, and that no arguments had been advanced to 
suggest that the physical properties of electric ity change depending upon how it is generated. 
Accordingly, the Panel agreed with the complainan ts that the relevant market for the purpose of 
the benefit analysis was the market for electricity generated from all sources of energy.673 
5.169.  We see two main problems with the Panel's analysis of the relevant market for the purpose 
of the benefit comparison in these disputes. First, we are of the view that the Panel should have started, rather than concluding, its benefit analysis with the definition of the relevant market. The 
definition of the relevant market is central to, and a prerequisite for, a benefit analysis under 
Article 1.1(b) the SCM Agreement. The existence of a benefit can properly be established only by comparing the prices of goods and services in the relevant market where they compete. It would seem logical for a panel that is tasked with a benefit determination to begin its analysis by defining 
the relevant market, which will be used for th e purposes of undertaking the benefit analysis. 
Instead, in this case, the Panel took note of th e parties' divergent views on the relevant market
674, 
and proceeded to analyze the benefit benchmarks put forward by the complainants, before taking 
a position on the relevant market for the benefit comparison. At the end of its benefit analysis, the 
Panel defined the relevant market for the benefit analysis as a single market for electricity generated from all sources of energy, but concluded that the competitive wholesale electricity 
market could not be the appropriate focus of the benefit analysis in these disputes.
675 
5.170.  Second, we observe that, on the one hand, the fact that electricity is physically identical, 
regardless of how it is generated, suggests that there is high demand-side substitutability between electricity generated through different technolo gies. On the other hand, however, there are 
additional factors that may be used to differentiate on the demand-side, which the Panel did not 
consider in its analysis of the relevant market. Factors such as the type of contract, the size of the customer, and the type of electricity generated (base-load versus  peak-load) may differentiate the 
market.
676 
                                               
671 Panel Reports, para. 7.292. 
672 Panel Reports, para. 7.318. (fns omitted) 
673 Panel Reports, para. 7.318. 
674 Panel Reports, para. 7.278. 
675 Panel Reports, para. 7.320. 
676 For instance, certain customers, due to their size, operation, and contract, may require electricity at 
certain times of the day or night, thus increasing demand for base-load or pe ak-load electricity. Large 
industrial-sized customers are likely to be able to negoti ate more favourable contract  conditions than will be 
offered to household customer s. The market may also be differentiated by  contract type – i.e. its duration or 
whether prices are hedged or flexible. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 124 - 
 
 
  5.171.  In addition, the Panel did not analyze supply-side factors in the definition of the relevant 
market. In EC and certain member States – Large Civil Aircraft , in addressing market definition for 
the purposes of Articles 6(3)(a) and 6(3)(b) of the SCM Agreement, the Appellate Body found that 
both demand-side and supply-side considerations shou ld be taken into account in the definition of 
the relevant market. The Appellate Body found: 
Demand-side substitutability – that is, when two products are considered substitutable 
by consumers – is an indispensable, but not the only relevant, criterion to consider 
when assessing whether two products are in a single market. Rather, a consideration 
of substitutability on the supply-side may al so be required. For example, evidence on 
whether a supplier can switch its production at limited or prohibitive cost from one product to another in a short period of time may also inform the question of whether 
two products are in a single market.
677 
5.172.  Had the Panel undertaken an analysis of demand-side and supply-side factors, and in 
particular supply-side factors, the significance of government intervention in the electricity market 
to the definition of the relevant market would have become evident. Such an analysis would have 
permitted the Panel to reach different conclusions, particularly if, as it explained later in its Reports, it was of the view that the competitive wholesale electricity market was not the 
appropriate focus of the benefit analysis in these disputes. 
5.173.  The Panel recognized that "Ontario's wholesale electricity market is perhaps better 
characterized as a part of an electricity system that is defined in almost all aspects by the Government of Ontario's policy decisions and regulations pertaining to the supply mix".
678 
However, considerations as to the relevance of re gulatory intervention in the Ontario electricity 
market are entirely absent from the definition of  the relevant market, which the Panel used for the 
purpose of the benefit analysis.  
5.174.  In the present disputes, supply-side factors suggest that windpower and solar PV 
producers of electricity cannot compete with other electricity producers because of differences in cost structures and operating costs and characteri stics. Windpower and solar PV technologies have 
very high capital costs (as compared to other generation technologies), very low operating costs, 
and fewer, if any, economies of scale. Windpower and solar PV technologies produce electricity intermittently (depending on the availability of  wind and sun) and cannot be relied on for base-
load and peak-load electricity. Differences in cost structures and operating costs and 
characteristics between windpower and solar PV technologies, on the one hand, and other 
technologies, on the other hand, make it very unlikely, if not impossible, that the former may exercise any form of price constraint on the latter. In contrast, conventional generators produce an 
identical commodity that can be used for base-load and peak-load electricity. They have larger 
economies of scale and exercise price constraints on windpower and solar PV generators.
679 
5.175.  In circumstances where the supply of electricity from different sources is blended and, for 
as long as the differences in costs for convention al and renewable electricity are so significant, 
markets for wind- and solar PV-generated electricity can only come into existence as a matter of government regulation. It is often the government's choice of supply-mix of electricity generation technologies that creates markets for wind- and solar PV-generated electricity. A government may 
choose the supply-mix by setting administered prices (based on the principles of cost recovery and 
reasonable margin) for technologies that would not otherwise be able to recover their costs on the spot market. Alternatively, a government may require that private distributors or the government 
itself buy part of their requirements of electricity from certain specified generation technologies. As 
we consider further below, in both instances, the definition of a certain supply-mix by the government cannot in and of itself  be considered as conferring a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement. 
                                               
677 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1121. 
678 Panel Reports, para. 7.308. 
679 See Hogan Report, pp. 6-8. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 125 - 
 
 
  5.176.  We also note that the Panel's analysis of the relevant market focused on the preferences of 
the final consumers and ignored that electricity is purchased by the Government of Ontario at the 
wholesale level and then resold to consumers at the retail level. Final consumers at the retail level may not distinguish between electricity on the basis of generation technology, because all 
electricity fed into the grid is blended regardle ss of the energy generation technology used. 
However, at the wholesale level, the government's purchase decisions are shaped by its definition of the energy supply-mix. The decisions taken by  the government on the energy supply-mix as 
including wind- and solar PV-generated electricity necessarily dictate its electricity purchase 
decisions at the wholesale level. In this respect, where government decisions require a certain supply-mix, electricity from different generation technologies is not substitutable at the wholesale level. Had the Panel distinguished between the cond itions of supply and demand at the wholesale 
and retail levels, it would have reached conclusions on the relevant market definition that took into 
account the Government of Ontario's choice of energy supply-mix. 
5.177.  A government's definition of the energy supply-mix will generally reflect a variety of policy 
imperatives that inform governmental action. As we discuss further below, among these is 
reducing reliance on fossil fuels to secure the sustainability of electricity markets in the long term, as well as addressing the negative and positive externalities that are associated with conventional 
and renewable electricity production. Moreover, the government definition of the energy 
supply-mix may reflect the fact that consumers are ready to purchase electricity that results from the combination of different generation technologies, even if this is more expensive than electricity 
that is produced exclusively from conventional generation sources. 
5.178.  In our view, not only should the Panel have defined the relevant market at the outset of its 
benefit analysis, but, in its analysis of the relevant market, it should also have considered that in Ontario the government definition of the energy supply-mix for electricity shapes the markets in 
which generators of electricity through different technologies compete. We recall that Canada had 
argued before the Panel that the relevant market for the purpose of the benchmark analysis should be the market for electricity produc ed from windpower or solar PV technology.
680 Had the 
Panel more thoroughly scrutinized supply-side factors, it would have come to the conclusion that, 
even if demand-side factors weigh in favour of defining the relevant market as a single market for electricity generated from all sources of energy, supply-side factors suggest that important differences in cost structures and operating costs and characteristics among generating 
technologies prevent the very existence of windpower and solar PV generation, absent government 
definition of the energy supply-mix of electricity generation technologies. This, in turn, would have 
lead the Panel to conclude that the benefit comparison under Article 1.1(b) should not be 
conducted within the competitive wholesale electricity market as a whole, but within competitive 
markets for wind- and solar PV-generated electricity, which are created by the government definition of the energy supply-mix.  
5.179.  Bearing in mind the relevant market in th e light of the Government of Ontario's definition 
of the energy supply-mix and the prevailing mark et conditions for wind- and solar PV-generated 
electricity in Ontario, we now turn to the identification of what we consider would be in the circumstances of these disputes the appropriate benchmark for the benefit comparison under 
Article 1.1(b) of the SCM Agreement. 
5.5.2.2.3  Identification of a benefit benchm ark for electricity produced from windpower 
and solar PV technologies 
5.180.  Although the Panel defined the relevant market as a single market for electricity generated 
from all energy sources and, as we consider further below, engaged in an in-depth analysis of all market benchmarks for blended electricity put forw ard by the complainants, the Panel stated in its 
conclusions on benefit that, in the case of electr icity, the competitive wholesale electricity market 
is not an appropriate benchmark, given that govern ment intervention is required to achieve certain 
policy goals, such as ensuring a stable and reliabl e supply of electricity, including from renewable 
sources. The Panel's finding that the complainants failed to establish benefit was based on two 
fundamental considerations. 
                                               
680 Panel Reports, paras. 7.277 and 7.318. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 126 - 
 
 
  5.181.  First, the Panel remarked that "competitive wholesale electricity markets, although a 
theoretical possibility, will only rarely operate in a way that remunerates the mix of generators 
needed to secure a reliable  electricity system with enough revenue to cover their all-in costs, let 
alone a system that pursues human health and environmental  objectives through the inclusion of 
facilities using solar PV and wind technologies into the supply-mix."681 Second, the Panel remarked 
that the prevailing conditions of supply and demand in Ontario suggest that a competitive wholesale electricity market would fail to attract the degree of investment in generating capacity 
needed to secure a reliable supply of electricity. The Panel was of the view that, "at present, this 
goal can only be achieved by means of government intervention in what would otherwise be unacceptable competitive market outcomes."
682 
5.182.  These considerations by the Panel on the determination of benefit in electricity markets, 
and specifically in Ontario, stand in contrast to the Panel's definition of the relevant market for the 
benefit comparison as a single market for electricity generated from all sources of energy, and to its analysis of the blended electricity benchmarks submitted by the complainants. We understand 
these statements by the Panel to suggest that a benchmark for wind- and solar PV-generated 
electricity in Ontario should take into account the government's definition of the energy supply-mix as including windpower and solar PV generation. However, we do not consider that these 
statements should be interpreted as suggesting that the policy objectives underlying electricity 
production and supply entirely prevent a market-bas ed approach to the determination of benefit. 
To do so would mean to read an exception into Ar ticle 1.1(b) based on the rationale of the subsidy 
that has no textual basis in the Agreement. 
5.183.  A benefit analysis under Article 1.1(b), read in the context of Article 14(d) of the 
SCM Agreement, involves a comparison with a market benchmark or proxy. Article 14(d) states, on the one hand, that purchases of goods should be considered as conferring a benefit if "the 
purchase is made for more than adequate re muneration" and, on the other hand, that the 
adequacy of remuneration has to be determined in relation to the "prevailing market conditions" for the good or service in question in the country  of purchase. The adequacy of remuneration is 
only one aspect of the Article 14(d) comparison, the other being the "prevailing market  
conditions"
683 in the country of purchase, which requires a comparison with a market benchmark. 
5.184.  That Article 14(d) requires a comparison with market  conditions was confirmed by the 
Appellate Body in US – Softwood Lumber IV . The Appellate Body found that, in cases where the 
private prices of the goods in question in the coun try of provision are distorted, it is possible to 
resort to an out-of-country benchmark or to a constructed benchmark, provided that the necessary adjustments are made to reflect conditions in the market of purchase.
684 The very 
purpose of resorting to an out-of-country or to a constructed benchmark is to replicate competitive 
market conditions that are absent in the country of purchase. Thus, resorting to a benchmark that does not reflect market conditions would not be consistent with the guidelines of Article 14(d), as 
interpreted by the Appellate Body in US – Softwood Lumber IV . 
5.185.  Nevertheless, while introducing legitimate policy considerations into the determination of 
benefit cannot be reconciled with Article 1.1(b) of the SCM Agreement, we do not think that a market-based approach to benefit benchmarks excludes taking into account situations where 
governments intervene to create markets that  would otherwise not exist. For example, 
governments create electricity markets with co nstant and reliable supply. By regulating the 
quantity and the type of electricity that is supplied through the network (base-load, 
intermediate-load, or peak-load) and the timing of  such supply, governments ensure that there is 
a continuous supply-demand balance between generators and consumers, thus avoiding imbalances that would destabilize the network an d cause interruptions of power supply. Although 
this type of intervention has an effect on market  prices, as opposed to a situation where prices are 
determined by unconstrained forces of supply and demand, it does not exclude per se  treating the 
resulting prices as market prices for the purposes of a benefit analysis under Article 1.1(b) of the 
                                               
681 Panel Reports, para. 7.309. (original emphasis) 
682 Panel Reports, para. 7.312. 
683 Emphasis added. 
684 Appellate Body Report, US – Softwood Lumber IV , para. 103. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 127 - 
 
 
  SCM Agreement. In fact, in the absence of such  government intervention, there could not be a 
market with a constant and reliable supply of electricity.685 
5.186.  Similarly, considerations relating to th e choice of energy supply-mix by a government, 
including wind- and solar PV-generated electricity, may be crucial to the viability and sustainability 
of the electricity market in the long term. Gove rnments intervene by reducing reliance on fossil 
energy resources and promoting the generation of electricity from renewable energy resources to 
ensure the sustainability of electricity markets in the long term. Fossil energy resources are 
exhaustible, and thus fossil energy needs to be replaced progressively if electricity supply is to be 
guaranteed in the long term. Government intervention in favour of the substitution of fossil energy with renewable energy today is meant to ensure the proper functioning or the existence of an 
electricity market with a constant and reliable su pply of electricity in the long term. Like the 
government regulation that ensures the stability and reliability of supply in the electricity market, 
a government's choice to include windpower and solar PV generation in the energy supply-mix 
should not be considered as preventing the iden tification or adaptation of competitive benefit 
benchmarks for purposes of an analysis under Article 1.1(b) of the SCM Agreement. 
5.187.  Government intervention ensures that electricity markets may exist in the current form 
where consumers have a constant and reliable access to electricity. However, the regulation of 
electricity markets by governments is guided not only by immediate and short-term considerations 
relating to the nature of electricity and electricity systems, and requiring the management of "dispatchable" and "non-dispatchable" generators and loads, but also by long-term considerations aimed at ensuring that consumers have stable access to electricity in the coming years and 
increasingly from renewable sources. It is in the latter situation that the government's 
management of the energy supply-mix plays a key role. 
5.188.  Nevertheless, a distinction should be drawn between, on the one hand, government 
interventions that create markets that would ot herwise not exist and, on the other hand, other 
types of government interventions in support of cert ain players in markets that already exist, or to 
correct market distortions therein. Where a government creates a market, it cannot be said that 
the government intervention distorts the mark et, as there would not be a market if the 
government had not created it. While the creation of markets by a government does not in and of 
itself give rise to subsidies within the meaning of the SCM Agreement, government interventions in 
existing markets may amount to subsidies when they take the form of a financial contribution, or 
income or price support, and confer a benefit to specific enterprises or industries.  
5.189.  We further note that a comparison between renewable energy electricity generators and 
conventional energy electricity generators requires consideration of the full costs associated with 
the generation of electricity. In this respect, if, on the one hand, higher prices for renewable 
electricity have certain positive externalities, such as guaranteeing long-term supply and addressing environmental concerns, on the other hand, lower prices for non-renewable electricity 
generation have certain negative externalities, such as the adverse impact on human health and 
the environment of fossil fuel energy emissions an d nuclear waste disposal. Considerations related 
to these externalities will often underlie a governme nt definition of the energy supply-mix and thus 
be the reason why governments intervene to create markets for renewable electricity generation. 
On this point, we agree with the Panel's stat ement that, where government intervention that 
internalizes social costs and benefits is limited to defining the broad parameters of the market, "significant scope will remain for private actors to operate within those parameters on the basis of 
commercial considerations".
686 
5.190.  In the light of the above, and in particular in view of the fact that the government's 
definition of the energy supply-mix for electricity generation does not in and of itself  constitute a 
subsidy, we believe that benefit benchmarks for wind- and solar PV-generated electricity should be 
found in the markets for wind- and solar PV-generated electricity that result from the supply-mix definition. Thus, where the government has define d an energy supply-mix that includes windpower 
and solar PV electricity generation technologies, as in the present disputes, a benchmark 
                                               
685 In particular, the Panel points out that, if su pply and demand were not continuously balanced 
between generators and consumers, th is would destabilize the networks, "l eading to brownouts, blackouts or, 
in extreme cases, the interruption of power to all cons umers". (Panel Reports, para. 7.11 (referring to Hogan 
Report, p. 13)) 
686 Panel Reports, fn 633 to para. 7.322. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 128 - 
 
 
  comparison for purposes of a benefit analysis fo r windpower and solar PV electricity generation 
should be with the terms and conditions that would be available under market-based conditions for 
each of these technologies, taking the supply-mix as a given. 
5.191.  Having determined that an appropriate benefit benchmark for windpower and solar PV 
generators should take into account the governme nt definition of the energy supply-mix, we now 
turn to consider the Panel's analysis of the benefit benchmarks submitted by the complainants. 
5.5.2.2.4  The Panel's benefit benchmark analysis 
5.192.  After setting out the interpretative framework of Articles 1.1(b) and 14(d) of the 
SCM Agreement and before defining the relevant market, the Panel proceeded to examine various 
Ontario blended electricity market benchmarks  put forward by the complainants. The Panel 
examined: (i) the HOEP – that is, the price for electricity sold at the wholesale level in the 
IESO-administered market; (ii) the retail prices offered under the RPP; and (iii) the export and 
import prices to and from neighbouring provinces and the United States. The Panel rejected all these benchmarks, as it had found that they were distorted by the government intervention in the 
market, and thus not suitable.
687 
5.193.  Having rejected all Ontario prices as distorted, the Panel, following the Appellate Body's 
finding in US – Softwood Lumber IV , examined as possible benchmarks prices in four 
out-of-province electricity markets: Alberta, New York State, New England, and the 
PJM Interconnection. The Panel rejected Alberta because of the differences in the conditions of supply and demand as compared to Ontario. It rejected New York State, New England, and the 
PJM Interconnection because it found that generators in these markets also receive capacity 
payments.
688 As we have considered above, after it had rejected all the benchmarks put forward 
by the complainants, the Panel found that the relevant market for the benefit comparison was the wholesale market in Ontario for electricity generated from all sources of energy.
689 
5.194.  The European Union claims that the Panel wrongly applied Article 1.1(b) of the 
SCM Agreement to the facts of this case. The Pane l should not have engaged in the examination of 
market counterfactuals in order to make a comparison to determine the adequacy of the 
remuneration provided to FIT generators through the FIT Programme.690 In the view of the 
European Union, recourse to hypothetical market counterfactuals or proxies was not necessary, as it was uncontested that FIT generators would not have obtained any remuneration from the market in Ontario in view of the "prevailing mark et conditions" where the same good (electricity) 
produced by using other generating technologies was much less remunerated. In the light of this, 
the European Union argues that the conclusion as to the existence of benefit should have been made "with little difficulty" by the Panel without the need to examine market counterfactuals or 
proxies.
691 
5.195.  Japan agrees with the dissenting opinion in the Panel Reports that the history of the 
Ontario electricity market and the design, structure, and operation of the FIT Programme 
demonstrate that solar PV and windpower generators would not be able to operate in the Ontario 
market without the FIT Programme, and that this fact alone is sufficient to establish the existence of benefit under Article 1.1(b) of the SCM Agreement.
692 
5.196.  We observe that the arguments of the European Union and Japan on appeal are very 
similar to those put forward in the dissenting opinion in the Panel Reports. We understand the 
European Union and Japan to argue that the Panel erred under Article 1.1(b) of the SCM Agreement because it embarked in a full bene fit benchmark analysis instead of establishing 
the existence of benefit based on a simple "but for" test. Under such a test, the history, structure, 
and objectives of the FIT Programme, as well as the uncontested fact that, absent the 
                                               
687 Panel Reports, paras. 7.293-7.302 and 7.317. Th e Panel also rejected the weighted-average 
wholesale rate during 2010 for generators other than FIT and RESOP generators, as a "HOEP-derivative[]". 
(Panel Report, para. 7.308 and fn 610) 
688 Panel Reports, paras. 7.305-7.307. 
689 Panel Reports, para. 7.318. 
690 European Union's other appellant's submission (DS426), para. 168. 
691 European Union's other appellant's submission (DS426), para. 162. (fn omitted) 
692 Japan's other appellant's su bmission (DS412), para. 76. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 129 - 
 
 
  FIT Programme, solar PV and windpower generators would not operate in the Ontario electricity 
market, would reveal the existence of a benefit. 
5.197.  We first observe that if, as the Panel acknowledged, windpower and solar PV energy 
generation would not occur in Ontario absent the government's definition of the energy 
supply-mix, a "but for" approach would be inappo site for establishing benefit, because such an 
approach would, by definition, not measure what the recipient could obtain in the marketplace for 
windpower and solar PV energy generation. Benefit cannot be established on the basis of a 
"but for" market counterfactual, which presupposes that the relevant market is electricity 
generated from all energy sources, in a situation where the government defines its energy supply-mix as including wind- and solar PV-generated electricity, and accordingly creates separate markets for wind- and solar PV-generated electricity. Assuming that benefit could be established 
by determining whether or not windpower and sola r PV generators would have entered the market 
"but for" the FIT Programme, the fundamental ques tion that needs to be answered is "what" 
market provides the appropriate benchmark. Befo re answering the question of whether windpower 
and solar PV generators would have entered the market, the relevant market in which they would 
operate needs to be defined. It is in this market that the appropriate benchmark would need to be identified.  
5.198.  We further observe that Canada states that what it has accepted is that the HOEP and its 
derivatives are insufficient to attract investment in new generation technology of any kind and 
that, absent the FIT Programme, prospective windpower and solar PV generators would most probably agree on a negotiated price with the Government of Ontario.
693 This is different from 
accepting that windpower and solar PV FIT generators would not be in the market absent the 
FIT Programme, as Japan and the European Union argue Canada did. Canada argued before the Panel that the relevant market for the purpose of the benefit analysis is electricity generated 
through solar PV and windpower technologies. Although the Panel rejected Canada's argument 
that the relevant market from an economic perspe ctive is wind- and solar PV-generated electricity, 
it seems to have agreed with Canada that, ab sent the FIT Programme, FIT generators would not 
have to operate in a competitive wholesale electricity market, but would negotiate their rates with 
the government.
694  
5.199.  We have disagreed with the relevant market definition underpinning the Panel's benefit 
analysis. We consider, for the reasons given above, that markets for wind- and solar PV-generated 
electricity exist in Ontario only because of government intervention. Thus, we do not consider that 
the Panel could have determined that benefit exists because FIT generators would not have entered the Ontario wholesale blended electricity ma rket "but for" the FIT Programme. This is so 
because, as we have explained above, we do not consider that the relevant benchmark is to be 
found in the wholesale market for electricity gene rated from all sources of energy, but rather in 
the markets for wind- and solar PV-generated electricity, which are defined by the Government of 
Ontario's choice of the energy supply-mix. Therefor e, in our view, the relevant question is whether 
windpower and solar PV electricity suppliers would have entered the wind- and solar PV-generated electricity markets absent the FIT Programme, no t whether they would have entered the blended 
wholesale electricity market. 
5.200.  Japan also considers that the conclusion that benefit exists because FIT generators would 
not have been on the market absent the FIT Programme is also supported by comparisons with market benchmarks based on Article 14(d) of the SCM Agreement. Specifically, Japan refers to the 
weighted-average wholesale rate and the commodity portion of Ontario retail prices under the RPP 
(RPP retail prices). These prices, which are significantly lower than the FIT rates, do not depend on the HOEP, as they are fixed by contract or regulation.
695 
                                               
693 Canada's appellee's submission, para. 170 and fn 190 thereto. 
694 Panel Reports, para. 7.315. 
695 According to Japan, the weighted-average wholesale rate in 2010 was between 7.02 and 
7.13 cents/kWh, while the highest commodity portion of RPP retail prices was 10.8 cents/kWh. 2009 FIT prices 
for wind-generated electricity were 13.5 cents/kWh for on-shore and 19 cents/kWh for off-shore. 2009 FIT 
prices for solar PV-generated electricity ranged fro m 44.3 to 80.2 cents/kWh. (Japan's other appellant's 
submission (DS412), paras. 90-92; Panel Reports, para. 7.30) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 130 - 
 
 
  5.201.  Japan contends that the Panel wrongly rejected these benchmarks because they were 
distorted by government intervention. It argues that a market price to be used as a benchmark in 
a subsidy determination can be influenced by government intervention without resulting in a circular comparison, as affirm ed by the Appellate Body in US – Softwood Lumber IV , particularly 
where the question is about the existence of the subsidy, not its size.
696 The European Union does 
not directly address on appeal the Panel's rejection of in-province and out-of-province electricity prices as a benefit benchmark. As considered abov e, in the view of the European Union, the Panel 
erred in engaging in a benefit benchmark analysis when it could have determined easily the 
existence of benefit based on a "but for" test. Accordingly, the European Union asks us to determine the existence of benefit and to declar e the Panel's findings on the in-province and 
out-of-province market benchmarks "moot and with no legal effect".
697 
5.202.  In addressing the market benchmarks pu t forward by the complainants, the Panel found 
that there is no effective competition in Ontario's wholesale electricity market, and that this market is better characterized as a part of an electricity system defined by the Government of 
Ontario's policy decisions and regulations governin g the supply-mix (including electricity generated 
from renewable sources) that is necessary to en sure a safe, reliable, and long-term supply of 
electricity in Ontario, and the process to recover the electricity system costs.
698 
5.203.  The Panel found that generators' price offers in the IESO-administered wholesale market 
are not motivated by the need to cover marginal co sts of production, but rather by the need to be 
chosen to supply electricity into the Ontario grid in order to receive the contracted or regulated prices. Thus, the HOEP, the wholesale electricity price in the IESO-administered market, is not an 
"equilibrium price" determined by the forces of supply and demand, but rather "a tool for the IESO 
to make the dispatch decisions needed to balance physical  supply and demand for electricity".
699 
The Panel observed that 92% of generators do no t receive the HOEP, but a contracted or regulated 
price that is higher than the HOEP, and that contracted or regulated prices have been constantly 
above the HOEP since at least 2009.700 Therefore, the Panel concluded that the HOEP and all of the 
HOEP-derivatives (such as the weighted-average wholesale rate for generators other than FIT or 
RESOP in 2010, the RPP retail prices in 2010, and import and export prices) advanced by the 
complainants as benefit benchmarks could not serve as appropriate benchmarks for the purpose of the benefit analysis.
701 
5.204.  We recall that we have considered above that the proper benchmark for wind- and 
solar PV-generated electricity should take into a ccount the Government of Ontario's definition of 
the energy supply-mix as including wind- and sola r PV-generated electricity, which implies the 
existence of separate markets for wind- and solar PV-generated electricity. The weighted-average 
wholesale rate and the RPP retail prices are prices for blended electricity, that is, electricity 
generated from all sources of energy. As such, we consider that the weighted-average wholesale rate and the RPP retail prices are not appropriate benchmarks to determine whether the 
FIT Programme confers a benefit on windpower and solar PV generators. For the same reason, we 
consider that all the other in-province and out-of-province blended electricity benchmarks that were submitted to the Panel are not appropriate benefit benchmarks. 
5.205.  Both Japan and the European Union also argue that the Panel's error under Article 1.1(b) 
of the SCM Agreement is underscored by the fact that the Panel found that mere participation in 
the FIT Programme confers an "advantage" within the meaning of the chapeau  of paragraph 1(a) 
of the Illustrative List of the TRIMs Agreement, based on the objective, design, and operation of 
the FIT Programme, while it did not consider that , for the same reasons, it confers a "benefit" 
within the meaning of Article 1.1(b) of the SCM Agreement.
702 Japan considers that this 
                                               
696 Japan's other appellant's submission (DS412), para. 104 (referring to Appellate Body Report,  
US – Softwood Lumber IV , para. 93). 
697 European Union's other appellant's submis sion (DS426), para. 170. (emphasis omitted) 
698 Panel Reports, para. 7.308. 
699 Panel Reports, para. 7.298. (original emphasis; fn omitted) 
700 Panel Reports, para. 7.55.  
701 Panel Reports, para. 7.308. 
702 European Union's other appellant's submission  (DS426), para. 169; Japan's other appellant's 
submission (DS412), para. 117. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 131 - 
 
 
  contradiction also evidences a lack of objective assessment by the Panel and thus constitutes a 
violation of Article 11 of the DSU.703 
5.206.  In its analysis of the compatibility of the challenged measures with the GATT 1994 and the 
TRIMs Agreements, the Panel found that, in the light of the fixed price to be paid over a period of 
20 years, " mere participation  in [the] FIT Programme may be viewed as obtaining an 'advantage' 
within the meaning of the chapeau of Paragraph 1(a) of the Illustrative List."704 Under the 
SCM Agreement, the Panel, however, found that Japan and the European Union failed to establish 
that the challenged measures confer a benefit within the meaning of Article 1.1(b).705 
5.207.  Article 1.1(b) of the SCM Agreement does not refer to "advantage", but to "benefit". 
However, in Canada – Aircraft , the Appellate Body noted that "[t]he dictionary meaning of 'benefit' 
is 'advantage', 'good', 'gift', 'profit', or, more generally, 'a favourable or helpful factor or 
circumstance'."706 The Appellate Body further stated that "t he ordinary meaning of 'benefit' clearly 
encompasses some form of advantage".707 
5.208.  In Canada – Aircraft  and in its later jurisprudence, the Appellate Body did not equate the 
notions of "benefit" and "advantage". The Appe llate Body's interpretation of "benefit" in 
Article 1.1(b) of the SCM Agreement clearly suggests that, while benefit involves some form of advantage, the former has a more specific meaning under the SCM Agreement. "Benefit" is linked 
to the concepts of "financial contribution" and "i ncome or price support", and its existence requires 
a comparison in the marketplace. The same cannot be said about an "advantage" within the meaning of the TRIMs Agreement. Paragraph 1 of the Illustrative List of the TRIMs Agreement 
simply refers to TRIMs that are necessary to obtain an advantage.
708 The concept of "advantage" 
in the TRIMs Agreement has to be interpreted in  the context of this Agreement and, without 
entering into the merit of such an interpretation, it seems to us that "advantage" under the TRIMs Agreement may take other forms than a "financial contribution" or a "benefit" under the 
SCM Agreement. In any event, a finding of an "advantage" under the TRIMs Agreement does not 
require a comparison with a benefit benchmark in the relevant market, as required for a benefit 
analysis under the SCM Agreement. 
5.209.  Thus, while we do not exclude that certain measures that provide an advantage within the 
meaning of paragraph 1 of the Illustrative List of the TRIMs Agreement may also confer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement, it is conceivable that a measure that confers an advantage within the meaning of paragraph 1 of the Illustrative List of the 
TRIMs Agreement be found not to confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement.  
5.210.  In sum, we do not consider that the Panel finding that mere participation in the 
FIT Programme constitutes an advantage within the meaning of paragraph 1 of the Illustrative List 
of TRIMs while, at the same time, not finding that benefit exists under Article 1.1(b) of the SCM Agreement demonstrates that the Panel committed an error under Article 1.1(b). Neither are 
we persuaded that, in doing so, the Panel entered into a contradiction, which Japan argues would 
constitute a violation of Article 11 of the DSU. 
                                               
703 Japan's other appellant's submission (DS412), para. 117. 
704 Panel Reports, para. 7.165. (original emphasis) 
705 Panel Reports, para. 7.328(ii). 
706 Appellate Body Report, Canada – Aircraft , para. 153 (quoting The New Shorter Oxford English 
Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 214; The Concise Oxford Dictionary , 
9th edn, D. Thompson (ed.) (Clarendon Press, 1995), p. 120; and Webster's Third New International Dictionary  
(unabridged) (William Benton, 1966), Vol. I, p. 204). 
707 Appellate Body Report, Canada – Aircraft , para. 153. (fn omitted) 
708 The chapeau  to paragraph 1 of the Illustrative Li st of the TRIMs Agreement states that: 
TRIMs that are inconsistent with the obligation of  national treatment provided for in paragraph 4 
of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance wi th which is necessary to obtain an advantage, … WT/DS412/AB/R • WT/DS426/AB/R 
 
- 132 - 
 
 
  5.211.  In the light of all of the above, we cons ider that the approach and the benefit benchmarks 
advanced by the European Union and Japan are not appropriate to determine the existence of 
benefit for windpower and solar PV generation under the FIT Programme.  
5.5.2.2.5  Conclusions under Arti cle 1.1(b) of the SCM Agreement 
5.212.  In its benefit analysis, on the one hand, the Panel correctly considered that the need to 
secure a reliable supply of electricity through an energy supply-mix that included windpower and solar PV generation rendered inappropriate a comp arison of the FIT remuneration with the terms 
and conditions available on the competitive wholesale electricity market.
709 On the other hand, the 
Panel accepted the complainants' line of argument, including their market definition, and proceeded to evaluate whether a benefit had been  conferred based on benefit benchmarks for a 
single market for electricity generated from all sources of energy. 
5.213.  Further, in its "observations on one approach to the question of benefit"
710 made after its 
finding under Article 1.1(b) of the SCM Agreement, the Panel proposed to compare FIT remunerations for windpower and solar PV generators with the remuneration that windpower and 
solar PV generators would obtain on competitive markets for wind- and solar PV-generated 
electricity. The benchmark under the Panel's approach was "the terms and conditions that would be offered by commercial distributors of electricity acting under a government-imposed obligation 
to acquire electricity from generators operating solar PV and windpower plants of a comparable 
scale to those functioning under the FIT Programme".
711 This approach clearly suggests that the 
benefit comparison should take place within markets for windpower and solar PV technologies that result from the government's definition of th e energy supply-mix. Thus, while the Panel first 
conducted a benefit benchmark analysis that presu pposed a single market for electricity generated 
from all sources of energy, it then proposed an alternative approach to assessing benefit, which required a comparison within the windpower and solar PV generation technologies, respectively. 
5.214.  It seems to us that, in its "observations on one approach to the question of benefit", the 
Panel identified the proper market for the benefit comparison in respect of windpower and solar PV generation in Ontario that would not exist absent government definition of the energy supply-mix. 
We fail to understand, however, why the Panel did not then choose to conduct its benefit analysis 
on the basis of a benchmark that reflected the en ergy supply-mix. Instead, the Panel reviewed the 
complainants' line of argument that was based on a single wholesale electricity market and limited itself to making some obiter dicta  observations on the appropriate benchmark only after it had 
found that the complainants had failed to demonstrate the existence of benefit under an approach 
that the Panel considered to be incorrect. 
5.215.  We note that, in making a claim, a compla inant has the responsibility of providing evidence 
and arguments that the panel must objectively assess. While a panel cannot make the case for a 
complainant, it has the competence "freely to use arguments submitted by any of the parties – or to develop its own legal reasoning – to support its own findings and conclusions on the matter 
under its consideration".
712 Panels also have broad fact-finding powers and may seek information 
from any source. We do not think that the Panel should have limited its analysis to the proposed benefit approach, and/or to the benchmarks that were part of the complainants' principal argument, in a situation where the evidence an d the arguments presented by the complainants, 
and the arguments in response by Canada, may have allowed it to develop its own reasoning and 
to make findings based on a benchmark that took into account the government's definition of the 
energy supply-mix. Provided the complainants ha d presented relevant evidence and arguments to 
make a prima facie  case, it was for the Panel to analyze the appropriate benchmark or proxy. We 
observe that arguments and evidence were presented before the Panel that could have been useful in identifying a benefit benchmark that took into account the Government of Ontario's definition of 
the energy supply-mix, including wind- and solar PV-generated electricity. 
                                               
709 Panel Reports, para. 7.312. 
710 Panel Reports, para. 7.321. (emphasis omitted) 
711 Panel Reports, para. 7.322. 
712 Appellate Body Report, EC – Hormones , para. 156. See also Appellate Body Report, US – Certain EC 
Products , para. 123. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 133 - 
 
 
  5.216.  In making a prima facie  case of benefit under Article 1.1(b) of the SCM Agreement, the 
burden was on the complainants to identify a suitable benchmark and to make adjustments, where 
necessary. While the complainants focused their main arguments before the Panel on blended electricity market benchmarks (the HOEP, the average wholesale rate, retail rates, import and 
export prices, as well as out-of-province rates), the European Union also presented arguments and 
evidence on electricity rates from renewable sources in Ontario and in Quebec in response to Canada's argument that the relevant markets for the benefit comparison were the markets for 
wind- and solar PV-generated electricity. The European Union argued in its second written 
submission and in its opening oral statement at th e second meeting of the Panel that benefit could 
be demonstrated by comparing the FIT remuneration with the terms and conditions under the Request for Proposals of Renewable Energy Suppl y (RES) I, II, and III and with the Quebec 2005 
and 2008 competitive contracts for wind farms.
713 Thus, if the Panel believed, as is evident from 
its Reports, that the appropriate benefit comparison could not take place in the competitive wholesale electricity market, it could have explored instead these arguments. 
5.217.  In its "observations on one approach to the question of benefit", the Panel proposed a 
benefit benchmark based on the Government of Ontario's choice of the energy supply-mix as 
including wind- and solar PV-generated electricity. The Panel attempted to apply such benchmark 
by comparing the rates of return obtained by FIT generators with the average cost of capital in 
Canada for projects having a comparable risk profile in the same period, but found that there was not enough evidence on the record to make such a comparison. We express no views about the merits of a comparison between FIT rates of retu rn and the average cost of capital in Canada. 
However, we note that the Panel did not even ex plore the possibility of an electricity supply-mix 
benchmark based on the evidence submitted by the complainants regarding previous renewable 
energy programmes in Ontario (RES) and out-of-province (Quebec). 
5.218.  The complainants' principal benefit claims focused on benchmarks in the competitive 
wholesale blended electricity market. However, the European Union also presented arguments and evidence that would have allowed the Panel to compare the FIT remuneration with a benchmark 
reflecting competitive prices in generation technology-specific markets, provided that appropriate 
adjustments would have been proposed by the Eu ropean Union and reviewed by the Panel. This 
could have allowed the Panel to conduct its benefit analysis on the basis of the appropriate benefit 
benchmark that it evoked in paragraphs 7.309 to 7.313 of its Reports and that it later developed 
in its obiter dicta  observations on an alternative approach to the question of benefit. 
5.219.  In the light of the above, we consider that the Panel committed an error in not conducting 
the benefit analysis on the basis of a market that is shaped by the government's definition of the 
energy supply-mix, and of a benchmark located in that market reflecting competitive prices for 
windpower and solar PV generation. We, therefore, reverse the Panel's findings, in paragraph 
7.328(ii) of the Panel Reports, paragraph 8.3 in the Japan Panel Report, and paragraph 8.7 in the 
EU Panel Report, that Japan and the European Union failed to establish that the challenged 
measures confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement and thereby 
that Canada acted inconsistently with Articles 3.1(b) and 3.2 of the SCM Agreement.  
5.220.  Having reversed the Panel's finding that the complainants failed to establish the existence 
of benefit, no determination exists as to whether or not the challenged measures confer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement. We shall consider further below, whether, on the basis of factual findings of the Panel and undisputed facts on the Panel record, we 
can complete the analysis and determine whether th e challenged measures confer a benefit within 
the meaning of Article 1.1(b) of the SCM Agreemen t and whether Canada acted inconsistently with 
Articles 3.1(b) and 3.2 of the SCM Agreement. 
                                               
713 European Union's second written submission to the Panel (DS426), paras. 82-84; and opening 
statement at the second Panel meeting, paras. 25 and 26. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 134 - 
 
 
  5.5.2.3  Whether the Panel acted inconsistently  with Article 11 of the DSU in finding that 
the European Union and Japan failed to establ ish that the challenged measures confer a 
benefit within the meaning of Arti cle 1.1(b) of the SCM Agreement 
5.221.  Both the European Union and Japan claim, in the alternative, should we agree with the 
Panel's findings under Article 1.1(b) of the SCM Agreement, that the Panel failed to make an 
objective assessment of the matter, under Article 11 of the DSU, in concluding that there was not enough evidence on the record that would allow it to reach conclusions on benefit under 
Article 1.1(b) of the SCM Agreement, based on its own approach to the question of benefit.
714 
Moreover, the European Union and Japan also claim that the fact that the Panel first defined the relevant market as the market for electricity that is generated from all sources of energy, but later developed its own counterfactual relying on a separate market for solar PV- and wind-generated 
electricity, constitutes a contradiction, which is itself a violation of Article 11 of the DSU.
715 
5.222.  We have reversed the Panel's findings that the European Union and Japan failed to 
demonstrate that the challenged measures confer a benefit within the meaning of Article 1.1(b) of 
the SCM Agreement. Thus, the condition for us to consider the European Union's and Japan's 
alternative claims under Article 11 of the DSU is not met. Therefore, we do not address the alternative claims that the Panel failed to make an objective assessment of the matter according to 
Article 11 of the DSU. We further note that , having reversed the Panel's finding under 
Article 1.1(b) of the SCM Agreement, there is no need for us to address the alternative claims under Article 11 of the DSU to provide a positive solution to these disputes.  
5.5.2.4  Completion of the analysis 
5.223.  Both Japan and the European Union have requested, should we reverse the Panel's 
"benefit" finding, that we complete the legal analysis on the basis of the factual findings made by the Panel and uncontested evidence on the Panel's record and find that the challenged measures 
confer a benefit within the meaning of Articl e 1.1(b) of the SCM Agreement and constitute 
prohibited subsidies inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement.
716 
5.224.  Therefore, having reversed the Panel's "ben efit" finding, we now turn to consider whether 
we can complete the legal analysis and determine first whether the FIT Programme and related FIT 
and microFIT Contracts confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement. In previous disputes, the Appellate  Body has completed the analysis with a view 
to facilitating the prompt settlement and effective resolution of the dispute.
717 However, the 
Appellate Body has held that it can do so only if the factual findings of the panel and the 
undisputed facts on the panel record provide it with a sufficient basis for its own analysis.718 The 
Appellate Body has found it impossible to complete the legal analysis due to insufficient factual 
findings in the panel report or a lack of undisputed facts on the panel record.719 Also among the 
reasons that have prevented the Appellate Body from completing the legal analysis are the 
                                               
714 European Union's other appellant's submission  (DS426), para. 173; Japan's other appellant's 
submission (DS412), para. 119. 
715 European Union's other appellant's submission  (DS426), para. 199; Japan's other appellant's 
submission (DS412), para. 111. 
716 Japan's other appellant's submission (DS412), para. 118; European Union's other appellant's 
submission (DS426), para. 171. 
717 See e.g. Appellate Body Reports,  Australia – Salmon , paras. 117-118; US – Wheat Gluten , 
paras. 80-92; and Canada – Aircraft (Article 21.5 – Brazil) , paras. 43-52. 
718 See Appellate Body Reports, Australia – Salmon , paras. 209, 241, and 255; Korea – Dairy , paras. 91 
and 102; Canada – Autos , paras. 133 and 144; and Korea – Various Measures on Beef , para. 128. The 
Appellate Body has indicated that it may complete the analysis only if the provision that a panel has not 
examined is "closely related" to a provision that the panel has examined, and that the two are "part of a logical continuum". (Appell ate Body Report, Canada – Periodicals , p. 24, DSR 1997:I, p. 469) See also Appellate Body 
Reports, EC – Asbestos , para. 79; and EC – Export Subsidies on Sugar , para. 337. 
719 See Appellate Body Reports, US – Section 211 Appropriations Act , para. 343; and EC – Asbestos , 
para. 78. In US – Large Civil Aircraft (2nd complaint) , the Appellate Body comple ted the analysis "assuming 
that the evidence submitted by the United States [w as] accurate and uncontested" (Appellate Body Report,  
US – Large Civil Aircraft (2nd complaint) , para. 662), or, in other words, on the basis of what the losing party 
had admitted or submitted. (Ibid. fn 1561 to para. 741) WT/DS412/AB/R • WT/DS426/AB/R 
 
- 135 - 
 
 
  complexity of the issues, the absence of full ex ploration of the issues before the panel, and, 
consequently, considerations for parties' due process rights.720 
5.225.  In the present disputes, the assessment of whether benefit is conferred would require 
completing the analysis. This would involve conducting a comparison with a benefit benchmark to 
determine whether the remuneration obtained by FI T generators confers on them an advantage as 
compared to the remuneration they would otherwise have been able to obtain in the marketplace. 
However, as explained above, the parameters of the marketplace would need to take into account 
the energy supply-mix defined by the Government of Ontario. We also recall that we have agreed 
with the Panel that Article 14(d) constitutes relevant context for the determination of the existence of benefit under Article 1.1(b) of the SCM Agreem ent. A determination of benefit in the framework 
of Article 14(d) requires a comparison betw een actual remuneration and a market-based 
benchmark or proxy. For the purposes of that comparison in these disputes, the market-based, 
price-discovery mechanism would have to take as a given the supply-mix defined by the government.  
5.226.  Article 14(d) requires that the adequacy of remuneration in a benefit comparison be 
determined in relation to the prevailing market conditions for the good or service in question in the country of provision or purchase. Nevertheless, th e Appellate Body has held in previous disputes 
that a benchmark other than private prices in the country of provision under Article 14(d) can be 
used "if it is first established that private prices in that country are distorted because of the government's predominant role in providing those goods".
721 The Appellate Body has stated that it 
is possible to resort to both out-of-country benchmarks and constructed benchmarks, provided 
adjustments are made "to ensure that the resulting benchmark relates or refers to, or is connected 
with, prevailing market conditions in the country of provision, and must reflect price, quality, 
availability, marketability, transportation and other conditions of purchase or sale, as required by 
Article 14(d)".722 
5.227.  We have considered above that the appropriate benchmark to establish whether the FIT 
remuneration confers a benefit within the meaning of Article 1.1(b) of the SCM Agreement should 
take into account that the Government of Ontario defines the energy supply-mix for electricity 
generation as including wind- and solar PV-generated electricity and the progressive phase-out of fossil fuels, in particular coal-based electricity generation. This is so because, as explained above, creating a market by defining the energy su pply-mix as including windpower and solar PV 
generation cannot in and of itself  be considered as conferring a benefit. Accordingly, an 
appropriate benefit benchmark for windpower and solar PV electricity generation in Ontario should be one that, within the parameters of the Governme nt of Ontario's definition of the energy supply-
mix, reflects what a market benchmark would yield for wind- and solar PV-generated electricity. 
Moreover, based on the guidelines contained in Article 14(d), an appropriate benchmark should first be sought in the windpower and solar PV generation markets in Ontario. If no suitable 
benchmark is available in Ontario, an appropriate benchmark outside Ontario or a proxy may also 
be considered. 
5.228.  Government-administered prices such as FIT may or may not reflect what a hypothetical 
market would yield. Thus, the fact that the government sets prices does not in itself establish the 
existence of a benefit. In challenging a benefit comparison under Article 1.1(b) of the 
SCM Agreement, a complainant would have to show that such prices do not reflect what a market outcome would be. An analysis of the methodology that was used to establish the administered 
prices may provide evidence as to whether the pric e does or does not provide more than adequate 
remuneration. There may be circumstances where there is no information about the methodology that was used or the methodology used does not assist in determining whether the administered 
price is or is  not reflective of what a market would yield. I f it becomes necessary to identify a 
market benchmark or to construct a proxy, such benchmark or proxy may be administered prices for the same product (in the country of purchase or in other countries, subject to adjustments), provided that it is determined based on a price-setting mechanism that ensures a market 
outcome. Alternatively, such benchmark may also be found in price-discovery mechanisms such as 
                                               
720 Appellate Body Report, EC – Export Subsidies on Sugar , fn 537 to para. 339. 
721 Appellate Body Report, US – Softwood Lumber IV , para. 90. (fn omitted)  
722 Appellate Body Report, US – Softwood Lumber IV , para. 106. See also Appellate Body Report,  
US – Anti-Dumping and Countervailing Duties (China) , para. 486, regarding the use of proxies under 
Article 14(b) of the SCM Agreement. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 136 - 
 
 
  competitive bidding or negotiated prices, which ensure that the price paid by the government is 
the lowest possible price offered by a willing supply contractor. 
5.229.  With these considerations in mind, we turn to the relevant facts and arguments submitted 
by the participants and assess to what extent th ey are undisputed or the Panel has made pertinent 
factual findings. Evidence submitted by Canada before the Panel shows that "[t]he weighted 
average price for the winning projects [under RES II] was disclosed to be 8.64 cents per kWh" and 
that "the highest accepted bid could be in the range of 9.4 cents per kWh."723 In responding to 
Panel question No. 4 following the second meeting with the parties, Canada stated that "[r]ates for 
wind projects under the [three] RES request[s] for proposal process range from $0.08/kWh to $0.11/kWh."
724 
5.230.  In its second written submission to the Pa nel, the European Union submitted that, "even if 
the cost of generating wind and solar electricity would have to be taken into account, as Canada 
alleges, … the structure of the FIT Programme  leads to payments in excess of costs".725 The 
European Union argued that the structure of  the FIT Programme, and in particular the 
standardized rates, leads to payments in excess of the cost of production, as compared to RES I 
(2004), RES II (2005), and RES III (2008), which were administered based on the best prices offered by generators through a bidding process.
726 In its opening oral statement at the second 
meeting of the Panel, the European Union also  submitted evidence regarding prices outside 
Ontario, namely, the prices for wind-generated electricity in Quebec. The European Union observed that competitive contracts for wind-generated electricity in Quebec in 2005 and 2008 showed average rates of 6.5 cents and 8.7 cents per kWh respectively, which it argued 
demonstrated that the FIT Programme did not reflect the costs of generation.
727  
5.231.  In its closing oral statement at the second meeting of the Panel, Canada stated that "an 
analytical approach based on Appellate Body jurisprudence … might have been used to arrive at an 
appropriate benchmark in this case" and that, "even if a private price for wind and solar electricity 
in Ontario could not be found, there might have been appropriate alternative in-jurisdiction benchmarks proposed in this case"
728, but that no such evidence ha d been presented to the Panel. 
In its comments on the responses of Japan and the European Union to the Panel's questions 
following the second meeting with the parties, Canada contends that, while "both Japan and the European Union admit that the benchmark or comparator that should be used is one for renewable electricity", the complainants have not constructed "any benchmark for wind or solar electricity 
based on costs of production and other relevant prevailing market conditions in Ontario".
729 
5.232.  The Panel found that, under the RES initiative, "the OPA awarded supply contracts through 
a competitive bidding process which set prices for delivered electricity at the levels of the lowest 
bids meeting the specified conditions."730 The parties did not seem to dispute the accuracy of the 
evidence concerning various prices under RES and in Quebec. The Panel, however, did not make any factual findings on this evidence, or draw conclusions on whether these prices can serve as 
appropriate benefit benchmarks for windpower and/or solar PV electricity generators in Ontario, or 
whether any adjustments within the meaning of Article 14(d) were necessary. 
                                               
723 OPA, Joint Report to the Minister of Energy: Recommendations on a Stan dard Offer Program for 
Small Generators connected to a Distribution System (RESOP), 17 March 2006 (Panel Exhibit CDA-55), p. 20. 
724 In the light of the Panel's question about "prices paid for electricity", we understand these rates to 
refer to the prices for wind-generated electricity resultin g from the bidding process. (See Canada's response to 
Panel question No. 4 (second set), para. 16) 
725 European Union's second written submission to the Panel (DS426), para. 82.  
726 European Union's second written submission to the Panel (DS426), paras. 82-85.  
727 European Union's opening statement at the seco nd Panel meeting (DS426), paras. 25 and 26. We 
further note that, in its response to Panel question No . 34 (second set), the European Union restated its views 
that the FIT standard rate overcompensated FIT generators, as compared to the terms and conditions available under the RES initiatives that were the result of a bidding  process, or as compared to rates of wind-generated 
electricity in Quebec that also resulted from a bidding process. (European Union's response to Panel question 
No. 34 (second set), paras. 45-53) 
728 Canada's closing statement at th e second Panel meeting, para. 27. 
729 Canada's comments on the European Union's and Japan's responses to Panel questions (second set), 
paras. 30 and 63.  
730 Panel Reports, para. 7.29. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 137 - 
 
 
  5.233.  The RES initiative, like the FIT Programme, reflects the Government of Ontario's choice of 
energy supply-mix as including renewable energy  generation sources. Moreover, under the RES 
initiative, prices are not fixed by the government, but determined by a competitive bidding process, which is a market-based, price-discovery process. A bidding process that is competitive 
will ensure that the price paid by the government  is the lowest possible price offered by a willing 
supply contractor. As we have noted above, market-based price discovery is not necessarily tied to a competitive bidding process. The methodology adopted to determine government-administered 
prices may also show that these do not provide more than adequate remuneration and thus reflect 
what a market would yield.  
5.234.  We have noted above that government-administered prices may or may not reflect what a 
hypothetical market would yield. In the case of FIT, however, while FIT prices were intended to 
cover costs plus a reasonable rate of return
731, there are no undisputed facts on the record or 
factual findings by the Panel that would allow us to assess whether the methodology the OPA used to establish the FIT prices resulted in prices that provide more than adequate remuneration. 
Indeed, the only factual finding by the Panel regarding this methodology is that the FIT prices 
were determined using a discounted cash flow model taking into account "reasonable" capital costs, "reasonable" operating and maintenance costs, and "reasonable" connection costs.
732 
Evidence adduced by Canada shows that the FIT Price Schedule was designed with a view to 
balancing several objectives. These objectives include promoting broad participation in the FIT Programme (e.g. different technologies, project sizes, and proponents), providing price stability necessary to promote the investment objectives of the Green Energy and Green Economy 
Act of 2009, and encouraging efficient project development.
733 Such evidence further indicates 
that the OPA used a cost-based price methodology to enable a wide range of technologies to participate in the FIT Programme.
734 Moreover, in order to develop the FIT Price Schedule, the OPA 
had to make assumptions about the costs and perf ormance characteristics of a "typical" project.735 
For these reasons, we are not in a position to determine whether the FIT prices represent what a market would have yielded by analyzing the methodology by which they are established. 
5.235.  Turning to RES, while in principle RES I, II, and III prices, which resulted from competitive 
bidding, may represent a market outcome for renewable electricity generation, in order to carry out a meaningful comparison of the FIT Programme and the RES initiative, it is necessary to ensure that the comparison is made between prices  referring to the same period, the same type of 
generation technology, the same overall supply-mi x, projects of the same or similar scale, and 
supply contracts of the same duration.
736 If any of these conditions are not met by the proposed 
benchmark, adjustments in the light of the factors listed in Article 14(d) and of the supply-mix 
defined by the government may be necessary to ensure comparability. We believe that, on the 
basis of this approach, it should be possible to determine whether prices under RES constitute an 
appropriate benchmark for a comparison with FIT prices in order to establish the existence of 
benefit consistently with Article 1.1(b) of the SCM Agreement. 
5.236.  Although the RES initiative was also open to solar PV generators, there does not seem to 
be any evidence on the Panel record that solar PV  generators were awarded contracts under any of 
the three RES initiatives. Rather, Canada's Ho gan Report asserts that the RES experience 
demonstrates that solar PV generators cannot compete with other less-costly technologies. To 
promote investment in solar PV technology thro ugh the RESOP and the FIT Programme, prices for 
solar PV-generated electricity were cost-based and set by the OPA.737 Japan submitted as an 
exhibit a "Progress Report on Electricity Supply" by the OPA that contains a table that sets out the 
different renewable energy contracts in force as of the fourth quarter 2010, which indicates that 
                                               
731 Panel Report, para. 7.202. 
732 Panel Report, para. 7.202 (referring to OPA Proposed FIT Price Schedule Presentation, slides 22-28). 
The Panel defined capital costs as "project developmen t, construction and equipment costs"; operating and 
maintenance costs as "project staffing and maintenanc e costs, including on-going capital expenditures and 
property taxes"; and connection costs as "project conn ection costs, no significant upgrade costs assumed". 
(Ibid., para. 7.202) 
733 OPA Proposed FIT Price Schedule Presentation, slide 5. 
734 OPA Proposed FIT Price Schedule Presentation, slide 21. 
735 OPA Proposed FIT Price Schedule Presentation, slide 6. 
736 Canada did not make specific ar guments as to what extent and in what manner adjustments would 
be necessary. The complainants submitted no evidence or arguments on adjustments that might have been 
necessary to ensure the comparability of the prices under the FIT and RES programmes.  
737 Hogan Report, p. 34. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 138 - 
 
 
  there were no solar RES Contracts recorded as of that date.738 Against this background, it does not 
appear that the FIT remuneration for solar PV generators can be compared to prices under the RES 
initiative to establish whether the FIT Programme confers a benefit in respect of solar PV energy generation.
739 
5.237.  We note, in respect of windpower generation, that the requests for proposals under the 
three RES initiatives were issued in 2004 (RES I), 2005 (RES II), and 2008 (RES III). The European Union argued before the Panel that the costs of windpower generation had decreased in 
the years preceding the launch of the FIT Programme. The European Union submitted various 
documents suggesting that, due to technological advancements, costs of wind-generated electricity have decreased rather than increased in recent years.
740 While we have found no 
specific evidence on the record regarding the ev olution of windpower generation costs in Ontario 
between 2004 and 2009, we note that the latest RES initiative was launched in 2008 – that is, only 
one year before the FIT Programme – and that the RES prices submitted by Canada for the period 2004 to 2008 range from 8 cents to 11 cents per kWh.
741 It is thus conceivable that RES III (2008) 
contracts for windpower generators, concluded less than a year before the launch of the 
FIT Programme in 2009, received a remuneration of 11 cents per kWh or less versus  the lowest 
FIT remuneration for windpower generators of 13.5 cents per kWh.742  
5.238.  Several contracts for wind-generated electricity were awarded under the three RES 
initiatives, although, according to Canada, for "much smaller capacity than the capacity provided by wind projects under the FIT Programme".
743 While the RES initiative and FIT Programme 
overlap for projects between 500 kW and 200 MW , the FIT Programme has a broader scope than 
the RES initiative, covering also projects of smaller capacity than 500 kW and greater than 
200 MW.744 RES contracts, like FIT Contracts for windpower and solar PV generation, were 
concluded for the duration of 20 years745 and, thus, significant overlap exists between the duration 
of the RES contracts awarded in 2004, 2005, an d 2008 and the FIT Contracts awarded in 2009. 
5.239.  We do not consider that a comparison of FIT prices with the prices of wind-generated 
electricity in Quebec would be possible for the purposes of completing the analysis in this appeal, 
considering that the standard of comparability that would be required for such an out-of-province 
benchmark was not raised before the Panel, or be fore us. In this respect, we recall that the 
Appellate Body has considered in previous disputes that, while it may be possible to resort to external benchmarks, it is necessary to ensure that such benchmarks reflect the prevailing market 
conditions in the country of provision or purchase.
746 We, therefore, conclude that we are not able 
                                               
738 OPA, A Progress Report on Electricity Supply – Fourth Quarter 2010 (Panel Exhibit JPN-26), 
Table at p. 4.  
739 The Quebec prices referred to by  the European Union are also only  for windpower generation and not 
for solar PV generation. 
740 See European Wind and Energy Association, The Economics of Wind Energy  (March 2009) (Panel 
Exhibit EU-20), pp. 13 and 15; and European Union's op ening statement at the second Panel meeting (DS426), 
para. 26. See also Government of Ontario, Ontario's Long-Term Energy Plan  (Queen's Printer for Ontario, 
2010) (Panel Exhibit CDA-6) ; and Electricity Conservation & Supply Task Force, Tough Choices: Addressing Ontario's Power Needs, Final Report to the Minister of  Energy (January 2004) (Panel Exhibit CDA-59), p. 50. 
741 Hogan Report, p. 32; Canada's  response to Panel question No. 4 (second set), para. 16. 
742 Panel Reports, para. 7.30. 
743 Canada's response to Panel ques tion No. 4 (second set), para. 16. 
744 RES I (2004) was open to renewable generators with a capacity range of 0.5 to 100 MW; RES II 
(2005) to generators with a capacity range of 20 to 200 MW; and RES III (2008) to generators with a capacity range of 10.1 to 199.9 MW. (Hogan Report, p. 32) We recall that, under the FIT Programme, FIT Contracts are for qualifying generators with capacity over 10 kW, while generators with capacity of up to 10 kW are eligible 
for microFIT Contracts. (Ibid.) It is not clear whether RE S contracts of specific scale and prices can be matched 
with FIT Contracts of similar size, and thus we are not in a position to make a comparison of RES and FIT prices and contract size. 
745 Ontario Ministry of Energy, Request for Proposal s for 300 MW of Renewable Energy Supply (RES I), 
issued 24 June 2004 (Panel Exhibit CDA-52), p. 41; Request for Proposals for 1,000 MW of Renewable Energy Supply (RES II), issued 17 June 2005 (Panel Exhibit CDA-53), p. 56; Request for Proposals for approximately 500 MW of Renewable Energy Supply (RES III), is sued 22 August 2008 (Panel Exhibit CDA-54), p.2. 
746 Appellate Body Report, US – Softwood Lumber IV , para. 103. We observe that, while Ontario and 
Quebec are in the same "country", that is, Canada, they  have separate regional markets for electricity. Thus, 
the "prevailing market conditions" in the country of purchase within th e meaning of Article 14(d) of the 
SCM Agreement is to be read in this  case as referring to the Ontario re gional market as opposed to other 
out-of-province markets, within Canada or in another country. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 139 - 
 
 
  to consider the prices for wind-generated electricity in Quebec in our attempt at completing the 
analysis under Article 1.1(b) of the SCM Agreement. 
5.240.  In contrast, we are of the view that it would be, in principle, possible to make a 
comparison of the FIT remuneration of windpower generators with the remuneration that 
windpower generators obtain under the RES initiative to determine whether the former confers a 
benefit. We observe that there are clearly no fact ual findings by the Panel or undisputed evidence 
on the Panel record that would allow us to complete the analysis with respect to the remuneration 
for solar PV electricity generation under the FIT Programme.  
5.241.  Nevertheless, while a comparison between prices under FIT and RES seems to suggest that 
the former confers a benefit, we do not consider that we are able to complete the analysis on that basis alone. We recall that both complainants' main line of argumentation with respect to benefit 
was focused on a single electricity market and on an approach that sought to establish the 
existence of benefit by reference to other electricity generation technologies. The complainants also submitted a number of in-province and out-of-province benchmarks based on a single 
electricity market definition. In other words, all these benchmarks were not based on the 
Government of Ontario's definition of the energy  supply-mix. Only at the second Panel meeting, 
and especially in written responses and comments to questions after the second meeting, did the 
parties engage in argumentation on benefit benchmarks for renewable energy generation.  
5.242.  We further recall that the Panel made very limited findings regarding benchmarks that take 
into account the Government of Ontario's defi nition of the energy supply-mix. The Panel 
considered in its conclusions under Article 1.1(b) of the SCM Agreement that an appropriate 
benchmark could not, and should not, be found in the competitive wholesale electricity market, 
and then, after its finding under Article 1.1(b), it developed in its "observations on one approach to the question of benefit"
747 a benchmark that took into account the Government of Ontario's 
definition of the energy supply-mix. The Panel attempted to apply its alternative benchmark by 
comparing the FIT rates of return with the average cost of capital in Canada for projects having a 
comparable risk profile in the same period. 
5.243.  The Panel, however, did not make a finding on whether RES constituted an appropriate 
benchmark in the light of the Government of Ontari o's definition of the energy supply-mix. Nor did 
it consider conducting a comparison of the FIT remuneration with the remuneration under the RES initiative. Indeed, the Panel's only finding in respect of RES was a factual finding concerning the 
price-discovery mechanism, which the Pane l found was based on competitive bidding.
748 Finally, 
we observe that the applicability to the challeng ed measures of a benefit benchmark based on a 
supply-mix including wind- and solar PV-generated electricity was not sufficiently debated in this 
appeal, so as to provide us with further elements that would allow us to complete the analysis. 
5.244.  We recall that the Appellate Body has refrained from completing the legal analysis in the 
light of the complexity of the issues and in the ab sence of full exploration of the issues before the 
panel, which raised concerns about the parties' due process rights.749 W e  b e l i e v e  t h a t  t h e s e  
elements are present in the benefit issues raised in this appeal. The identification of a benchmark 
that takes into account the government's definition of the energy supply-mix involves consideration of the fact that the government has created markets for wind- and 
solar PV-generated electricity, and is a more comp lex exercise than evaluating benchmarks in the 
wholesale electricity market as the Panel did. The Panel has made no findings on the adequacy of 
proposed benchmarks for wind- and solar PV-generated electricity. In these circumstances, 
completing the analysis would raise due process concerns for the parties.  
5.245.  In sum, we have found evidence on the Panel record that is relevant to a benefit analysis 
based on a benchmark that takes into account the Government of Ontario's definition of the 
energy supply-mix. Based on this evidence, we have considered that RES prices for windpower 
generation contracts awarded through competitive bidding may qualify as benchmarks for a benefit comparison and seem to suggest that benefit may exist in the case of FIT windpower generation contracts. We conclude, however, that  such evidence was neither sufficiently debated 
                                               
747 Panel Reports, para. 7.321. (emphasis omitted) 
748 Panel Reports, para. 7.29. 
749 Appellate Body Report, EC – Export Subsidies on Sugar , fn 537 to para. 339. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 140 - 
 
 
  before the Panel, nor before us. Moreover, the Panel did not make factual findings on this evidence 
that would assist us in completing the analysis. 
5.246.  In the light of the above, we do not consider that there are sufficient factual findings by 
the Panel and uncontested evidence on the Panel re cord that would allow us to complete the legal 
analysis and conduct a benefit benchmark compar ison between the prices of wind-generated 
electricity under the FIT Programme and the prices for wind-generated electricity under the RES initiative. Consequently, we cannot determine whet her the challenged measures confer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement and whether they constitute prohibited 
subsidies inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement. 
 
 WT/DS412/AB/R 
 
- JPN-141 - 
 
 
  6  FINDINGS AND CONCLUSIONS IN THE APPELLATE BODY REPORT WT/DS412/AB/R 
6.1.  In the appeal of the Panel Report, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector  (WT/DS412/R) (Japan Panel Report), for the reasons set out in this 
Report, the Appellate Body: 
a. declines Japan's request to commence its evaluation with Japan's allegations of error 
relating to the SCM Agreement; 
b. as regards Article III:8(a) of the GATT 1994: 
i. reverses the Panel's findings, in paragraphs 7.127, 7.128, and 7.152 of the 
Japan Panel Report, that the Minimum Requ ired Domestic Content Levels of the 
FIT Programme and related FIT and microFIT Contracts are laws, regulations, or requirements governing the procurement by  governmental agencies of electricity 
within the meaning of Article III:8(a) of the GATT 1994; 
ii. declares moot and of no legal effect the other intermediate findings made by the 
Panel, in particular in paragraphs 7.136, 7.145, and 7.151; 
iii. finds that the Minimum Required Domestic Content Levels prescribed under the 
FIT Programme and related FIT and microFIT Contracts do not meet the conditions 
of the derogation in Article III:8(a) of the GATT 1994; and 
iv. in the light of this finding, does not find it necessary to address Canada's claim that 
the Panel failed to fulfil its obligations under Article 11 of the DSU by exercising 
judicial economy; and 
v. finds that the FIT Programme and related FIT and microFIT Contracts are not 
covered by Article III:8(a) of the GATT 1994 and that, consequently, the Panel's 
conclusion, in paragraph 8.2 of the Japan Panel Report, that the Minimum Required Domestic Content Levels prescribed under the FIT Programme and related FIT and 
microFIT Contracts are inconsistent with Article 2.1 of the TRIMS Agreement and 
Article III:4 of the GATT 1994, stands;  
c. rejects Japan's claim that the Panel failed to fulfil its obligations under Article 11 of the 
DSU and exercised false judicial economy by  declining to make a finding on Japan's 
stand-alone claim under Article III:4 of the GATT 1994; 
d. as regards Article 1.1(a) of the SCM Agreement: 
i. declares moot and of no legal effect the Panel's finding, in paragraph 7.246 of the 
Japan Panel Report, that "government 'purchases [of] goods' could [not] also be 
legally characterized as 'direct transfer[s] of funds' without infringing [the] principle [of effective treaty interpretation]", inasmuch as it negates the possibility that a 
transaction may fall under more than one type of financial contribution under 
Article 1.1(a)(1) of the SCM Agreement; 
ii. upholds the Panel's finding, in paragraphs 7.243 and 7.328(i) of the Japan Panel 
Report, that the FIT Programme and related FIT and microFIT Contracts are 
g o v e r n m e n t  " p u r c h a s e s  [ o f ]  g o o d s "  w i t h i n  the meaning of Article 1.1(a)(1)(iii) of 
the SCM Agreement;  
iii. rejects Japan's appeal that the FIT Programme and FIT and microFIT Contracts may 
also be characterized as "direct transfer[s] of funds" or "potential direct transfers of 
funds" under Article 1.1(a)(1)(i) of the SCM Agreement; WT/DS426/AB/R 
 
- EU-143 - 
 
 
  6  FINDINGS AND CONCLUSIONS IN THE APPELLATE BODY REPORT WT/DS426/AB/R 
6.1.  In the appeal of the Panel Report, Canada – Measures Relating to the Feed-in Tariff Program  
(WT/DS426/R) (EU Panel Report), for the reasons set out in this Report, the Appellate Body:  
a. as regards Article III:8(a) of the GATT 1994: 
i. upholds the Panel's finding, in paragraph 7.121 of the EU Panel Report, that 
paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement did not 
obviate the need for the Panel to undertake  an analysis of whether the challenged 
measures are outside of the scope of a pplication of Article III:4 of the GATT 1994 
by virtue of the operation of Article III:8(a) of the GATT 1994;  
ii. reverses the Panel's findings, in paragraphs 7.127, 7.128, and 7.152 of the 
EU Panel Report, that the Minimum Required Domestic Content Levels of the 
FIT Programme and related FIT and microFIT Contracts are laws, regulations, or requirements governing the procurement by  governmental agencies of electricity 
within the meaning of Article III:8(a) of the GATT 1994; 
iii. declares moot and of no legal effect the other intermediate findings made by the 
Panel, in particular in paragraphs 7.136, 7.145, and 7.151; 
iv. finds that the Minimum Required Domestic Content Levels prescribed under the 
FIT Programme and related FIT and microFIT Contracts do not meet the conditions 
of the derogation in Article III:8(a) of the GATT 1994; and 
v. in the light of this finding, does not find it necessary to address Canada's claim that 
the Panel failed to fulfil its obligations under Article 11 of the DSU by exercising 
judicial economy; and 
vi. finds that the FIT Programme and related FIT and microFIT Contracts are not 
covered by Article III:8(a) of the GATT 1994 and that, consequently, the Panel's 
conclusion, in paragraph 8.6 of the EU Panel Report, that the Minimum Required 
Domestic Content Levels prescribed under the FIT Programme and related FIT and 
microFIT Contracts are inconsistent with Article 2.1 of the TRIMS Agreement and 
Article III:4 of the GATT 1994, stands; and 
b. as regards Article 1.1(b) of the SCM Agreement: 
i. reverses the Panel's finding, in paragraphs 7.328(ii) and 8.7 of the EU Panel Report, 
that the European Union failed to establish that the challenged measures confer a 
benefit within the meaning of Article 1.1( b) of the SCM Agreement and thereby that 
Canada acted inconsistently with Articles 3.1(b) and 3.2 of the SCM Agreement;  
ii. in the light of these findings, does not find it necessary to address the 
European Union's alternative claim that the Panel acted inconsistently with 
Article 11 of the DSU; and 
iii. is unable to complete the analysis as to whether the challenged measures confer a 
benefit within the meaning of Article 1. 1(b) of the SCM Agreement and whether 
Canada acted inconsistently with Articles 3.1(b) and 3.2 of the SCM Agreement.  
6.2.  The Appellate Body recommends that the DSB request Canada to bring its measures found in 
this Report, and in the EU Panel Report as modified by this Report, to be inconsistent with the 
TRIMs Agreement and the GATT 1994 into conformity  with its obligations under those Agreements. 
 WT/DS412/AB/R • WT/DS426/AB/R 
 
- 145 - 
 
 
  ANNEX 1 
  
  
WT/DS412/10  
WT/DS426/9  
 
6 February 2013  
(13-0616)  Page: 1/1  
  Original: English  
CANADA – CERTAIN MEASURES AFFECTING THE RENEWABLE  
ENERGY GENERATION SECTOR 
 
CANADA – MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM 
NOTIFICATION OF AN APPEAL BY CANADA 
UNDER ARTICLE 16.4 AND ARTICLE 17 OF THE UNDERSTANDING ON RULES 
AND PROCEDURES GOVERNING THE SE TTLEMENT OF DISPUTES (DSU),  
AND UNDER RULE 20(1) OF THE WORKING PROCEDURES FOR APPELLATE REVIEW 
 The following notification, dated 5 February 201 3, from the Delegation of Canada, is being 
circulated to Members.  
_______________ 
 
Pursuant to Article 16.4 and Article 17 of the Understanding on Rules and Procedures 
Governing the Settlement of Disputes (DSU) and Rule 20 of the  Working Procedures for Appellate 
Review , Canada notifies its appeal of certain issues in the Reports of the Panel in Canada – Certain 
Measures Affecting the Renewable Energy Generation Sector (WT/DS412/R) and Canada – 
Measures Relating to the Feed-In Tariff Program (WT/DS426/R) and certain legal interpretations 
developed by the Panel in these Reports. 
 
Canada seeks review by the Appellate Body of the Panel's findings and conclusion that the 
Government of Ontario's FIT Program, as implemented through the FIT and MicroFIT Contracts
1, is 
not covered by the terms of Article III:8(a) of GATT 1994.2 This conclusion is in error and is based 
on erroneous findings on issues of law and legal interpretation including the Panel's finding that the Government of Ontario purchases renewable electricity "with a view to commercial resale".
3 
 
Canada also requests the Appellate Body to find that the Panel acted inconsistently with 
Article 11 of the DSU by failing to make an objectiv e assessment of the facts related to this issue, 
specifically with respect to the Panel's finding that the resale of electricity purchased under the 
FIT Program is "commercial" in nature, and by using this faulty factual finding to support its conclusion about the applicability of Article III:8(a) of GATT 1994 to the FIT Program.
4 
 
Canada also requests the Appellate Body to find that the Panel failed to find that the 
Government of Ontario does not purchase renewable electricity "with a view to use in the production of goods for commercial sale".  
 
                                               
1 For a summary of the measure at issue, se e paras. 7.6 and 7.7 of the Panel Reports. 
2 See e.g., para. 7.152 of the Panel Reports. 
3 See e.g., paras. 7.147-7.151 of the Panel Reports. 
4 Ibid. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 146 - 
 
 
  ANNEX 2 
  
  
WT/DS412/11  
 
15 February 2013  
(13-0863)  Page: 1/3  
  Original: English  
CANADA – CERTAIN MEASURES AFFECTING THE RENEWABLE  
ENERGY GENERATION SECTOR 
NOTIFICATION OF AN OTHER APPEAL BY JAPAN 
UNDER ARTICLE 16.4 AND ARTICLE 17 OF THE UNDERSTANDING ON RULES 
AND PROCEDURES GOVERNING THE SE TTLEMENT OF DISPUTES (DSU),  
AND UNDER RULE 23(1) OF THE WORKING PROCEDURES FOR APPELLATE REVIEW 
 The following notification, dated 11 February 2013, from the Delegation of Japan, is 
being circulated to Members. 
 
_______________ 
 
Pursuant to Article 16.4 and Article 17 of the Understanding on Rules and Procedures 
Governing the Settlement of Disputes ("DSU") an d Rule 23(1) of the Working Procedures for 
Appellate Review ("Working Procedures"), Japan hereby notifies its decision to appeal to the Appellate Body certain issues of law covered in the Panel Report in Canada – Certain Measures 
Affecting the Renewable Energy Generation Sector  (WT/DS412/R) ("Panel Report"), and certain 
legal interpretations developed by the Panel in this dispute.   
For the reasons to be elaborated in its submissions to the Appellate Body, Japan appeals the 
following errors of law and legal interpretation contained in the Panel Report, and requests the Appellate Body to reverse, modify, or declare m oot and of no legal effect the related findings, 
conclusions and recommendations of the Panel, and where indicated to complete the analysis.
1 
 1. With respect to Japan's claims under the Agreement on Subsidies and Countervailing 
Measures ("SCM Agreement"): 
 
a. The Panel erred in its interpretation and application of Article 1.1(a) of the 
SCM Agreement in concluding that the appropriate legal characterization of the 
FIT Program and Contracts
2 is "government … purchases [of] goods".3 Japan requests 
the Appellate Body to reverse the Panel's finding in this regard, and complete the analysis to find instead that the FIT Program and Contracts are appropriately 
characterized as "a government practice [that] involves a direct transfer of funds … [or] 
potential direct transfers of funds" or "any form of income or price support" or 
                                               
1 Pursuant to Rule 23(2)(c)(ii)(C) of the Working Pr ocedures, this Notice of Other Appeal includes an 
indicative list of the paragraphs of the Panel Report containing the alleged errors, without prejudice to the ability of Japan to refer to other paragraphs of  the Panel Report in the context of its appeal. 
2 Throughout this Notice of Other Appeal, Japan uses  the term "FIT Program and Contracts" to refer to 
the Government of Ontario's feed-in tariff program (inc luding microFIT), and the FIT and microFIT contracts 
entered into by the Government of Ontario under that pr ogram, that are at issue in this dispute – i.e., the 
"challenged measures". 
3 Panel Report, paras. 7.220-7.249. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 147 - 
 
 
  alternatively modify the Panel's finding in this regard to find that these measures may 
also be characterized as "direct transfer[s] of funds", "potential direct transfer of funds", 
or "income or price support" under Article 1.1(a) of the SCM Agreement. 
b. The Panel erred in its interpretation and application of Article 1.1(a)(1) of the 
SCM Agreement by concluding that government "purchases [of] goods" under 
Article 1.1(a)(1)(iii) could not also be legally characterized as "direct transfer[s] of funds" or "potential direct transfer s of funds" under Article 1.1(a)(1)(i).
4 Japan requests 
that the Appellate Body declare this finding to be moot and of no legal effect, and to find 
that the Government of Ontario provides financial contributions in the form of "direct transfer[s] of funds" or "potential direct tr ansfers of funds" through the FIT Program and 
Contracts, regardless of whether they may be characterized as government "purchases 
[of] goods". 
c. The Panel failed to make an objective assessment of the matter as required by Article 11 
of the DSU by improperly exercising judicial  economy, and failing to make findings with 
respect to Japan's claim that the FIT Program and Contracts may be legally 
characterized as "income or price support" under Article 1.1(a)(2) of the SCM Agreement.
5 Japan requests the Appellate Body to find that the Government of 
Ontario provides "income or price support" through the FIT Program and Contracts, 
regardless of whether they may be characteri zed as government "purchases [of] goods". 
d. The Panel erred in its interpretation and application of Article 1.1(b) of the 
SCM Agreement, and failed to make an objective assessment of the matter as required 
by Article 11 of the DSU, when it found that it cannot resolve whether the challenged 
measures confer a benefit by applying a benchmark derived from the conditions for purchasing electricity in a competitive wholesale electricity market, particularly in 
disregarding Japan's argument that the challenged measures confer a benefit because 
the objective design, structure and operation of the FIT Program demonstrates that solar PV and wind generators would not be present in Ontario's wholesale electricity market 
absent the FIT Program.
6 Japan requests the Appellate Body to reverse these findings by 
the Panel and instead to find that the challenged measures confer a "benefit".  
e. The Panel failed to make an objective assessment of the matter, including an objective 
assessment of the facts of the case, as requir ed by Article 11 of the DSU, in failing to 
resolve the question of benefit under Article 1.1(b) of the SCM Agreement based on its 
preferred comparison between the relevant ra tes of return of the challenged FIT and 
microFIT Contracts with the relevant average cost of capital in Canada.7 Japan requests 
the Appellate Body to complete the analysis, and find that the FIT Program and 
Contracts confer a benefit under the Panel's preferred approach. However, this appeal is conditional on the Appellate Body rejecting Japan's argument that the challenged 
measures confer a benefit pursuant to item 1.d above.  
f. Should the Appellate Body find the FIT Prog ram and Contracts to be a subsidy within the 
meaning of Article 1.1 of the SCM Agreemen t, Japan requests the Appellate Body to 
complete the analysis, and find the FIT Program and Contracts to be inconsistent with 
Articles 3.1(b) and 3.2 of the SCM Agreement. 
g. In addition to its error in failing to find the FIT Program and Contracts to be prohibited 
subsidies, the Panel erred in failing to recommend, pursuant to Article 4.7 of the 
SCM Agreement, that Canada withdraw the subsidies without delay, by eliminating the 
domestic content requirement of the FIT Program and Contracts, and erred in failing to specify the time period within which the measures must be withdrawn. Accordingly, if 
the Appellate Body completes the analysis and makes the findings requested by Japan in 
item 1.f above, Japan further requests that the Appellate Body make the 
                                               
4 Panel Report, paras. 6.83-6.85, 7.243-7.248, particularly paras. 7.246-7.247. 
5 Panel Report, paras. 6.88, 7.249. 
6 Panel Report, paras. 6.94-6.95, 7.271-7.313, 7.315, 7.317, and 7.319-7.320, particularly 
paras. 7.308-7.313. 
7 Panel Report, paras. 7.322-7.327. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 148 - 
 
 
  recommendation, and specify the time peri od within which the measure must be 
withdrawn, pursuant to Article 4.7 of the SCM Agreement. 
2. With respect to Japan's claims under the General Agreement on Tariffs and Trade 1994 
("GATT 1994"): 
 
a. The Panel failed to make an objective assessment of the matter as required by Article 11 
of the DSU by exercising false judicial econ omy and failing to separately examine Japan's 
claims under Article III:4 of the GATT 1994.8 Japan requests the Appellate Body to 
complete the analysis, and find that the FIT Program and Contracts are inconsistent with the terms of Article III:4 independent of the Panel's findings under the Agreement on Trade-Related Investment Measures ("TRIMs Agreement"). 
b. The Panel erred in its interpretation and ap plication of Article III:8(a) of the GATT 1994 
in the following respects: 
i. The Panel erred when it found the FIT Program and Contracts to involve 
"procurement by governmental agencies of products purchased" under 
Article III:8(a) of the GATT 1994, based on its conclusion that these measures are "government … purchases [of] goods" under Article 1.1(a) of the SCM Agreement.
9 
ii. The Panel erred when it interpreted the term "governmental purposes" in isolation, 
rather than the entire term "purchased for governmental purposes", and failed to separately assess whether purchases under the FIT Program and Contracts were "for" governmental purposes.
10 Japan requests the Appellate Body to complete the 
analysis, and find that the FIT Program and Contracts are not "purchase[s] [by 
governmental agencies] for governmental purposes". However, this appeal is conditional on the Appellate Body rejecting Japan's argument pursuant to item 2.b.i 
above. 
iii. The Panel erred when it found evidence of profit earned by the Government of 
Ontario and Ontario's municipal governments may be a relevant consideration in 
determining that the FIT Program is undertaken "with a view to commercial resale".
11 
In this regard, Japan seeks only modification of the Panel's findings to conclude that the Government of Ontario's procurement of electricity under the FIT Program and Contracts is undertaken "with a view to commercial resale" by virtue of the fact that 
the electricity "is resold to retail consumers through Hydro One and the LDCs"
12, 
without regard to whether those entities make profits. However, this appeal is conditional on the Appellate Body rejecting Japan's arguments pursuant to 
items 2.b.i and 2.b.ii above.  
 
 
 
                                               
8 Panel Report, paras. 6.72, 7.155-7.167. See also id. , para. 7.70 ("in the section that follows we will 
simultaneously evaluate the merits of both of the complainants' claims under Article 2.1 of the 
TRIMs Agreement and Article III:4 of the GATT 1994"). 
9 Panel Report, paras. 7.129-7.136, particularly paras. 7.135-7.136. 
10 Panel Report, paras. 7.138-7.145, particularly paras. 7.140, 7.144-7.145. 
11 Panel Report, paras. 7.146-7.151, particularly paras. 7.149-7.151. 
12 Panel Report, para. 7.147. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 149 - 
 
 
  ANNEX 3 
  
  
WT/DS426/10  
 
15 February 2013  
(13-0866)  Page: 1/3  
  Original: English  
CANADA – MEASURES RELATING TO THE FEED-IN TARIFF PROGRAM 
NOTIFICATION OF AN OTHER APPEAL BY THE EUROPEAN UNION 
UNDER ARTICLE 16.4 AND ARTICLE 17 OF THE UNDERSTANDING ON RULES 
AND PROCEDURES GOVERNING THE SE TTLEMENT OF DISPUTES (DSU),  
AND UNDER RULE 23(1) OF THE WORKING PROCEDURES FOR APPELLATE REVIEW 
 The following notification, dated 11 Fe bruary 2013, from the Delegation of the 
European Union, is being circulated to Members.  
_______________ 
 
Pursuant to Article 16.4 and Article 17.1 of the DSU the European Union hereby notifies to 
the Dispute Settlement Body its decision to appeal to the Appellate Body certain issues of law 
covered in the Panel Report and certain legal interpretations developed by the Panel in the dispute Canada – Measures Relating to the Feed-In Tariff Program  (WT/DS426). Pursuant to Rule 23(1) of 
the Working Procedures for Appellate Review , the European Union simultaneously files this Notice 
of Other Appeal with the Appellate Body Secretariat. 
For the reasons to be further elaborated in its submissions to the Appellate Body, the 
European Union appeals, and requests the Appellate  Body to modify, reverse and/or declare moot 
and with no legal effect the findings and conclusi ons of the Panel and complete the analysis with 
respect to the following errors of law and legal interpretations contained in the Panel Report.
1 
 The European Union submits that the Panel erred in the interpretation and application of 
Articles 2.1 and 2.2 of the TRIMs Agreement read  in conjunction with Paragraph 1(a) of the 
Illustrative List in the Annex to the TRIMs Agr eement when finding that they do not preclude 
the application of Article III:8(a) of the GATT 1994 to the challenged measures.2 
 The European Union requests the Appellate Body to reverse the Panel's finding in 
paragraph 7.121, complete the analysis and fi nd that Article III:8(a) of the GATT 1994 was 
not applicable in the present case. As a consequence, the European Union requests the Appellate Body to uphold, although modifying the reasoning, the Panel's ultimate finding in 
paragraph 7.166 that the challenged measures are TRIMs falling within the scope of 
Paragraph 1(a) of the Illustrative List, and that in the light of Article 2.2 and the chapeau to Paragraph 1(a) of the Illustrative List, they are inconsistent with Article III:4 of the 
GATT 1994, and thereby also inconsistent with Article 2.1 of the TRIMs Agreement. 
                                               
1 Pursuant to Rule 23(2)(c)(ii)(C) of the Working Pr ocedures for Appellate Review this Notice of Other 
Appeal includes an indicative list of  the paragraphs of the Panel Report containing the alleged errors, without 
prejudice to the ability of the European  Union to refer to other paragraphs of  the Panel Report in the context of 
its appeal. 
2 Panel Report, paras. 7.114-7.121, and in  particular, paras. 7.119 and 7.120.  WT/DS412/AB/R • WT/DS426/AB/R 
 
- 150 - 
 
 
   The Panel erred in its interpretation and application of Article III:8(a) of the GATT 1994 
when finding that that the "Minimum Required Domestic Content Level" contained in the 
FIT Programme should be properly characterise d as one of the "requirements governing" the 
alleged procurement of electricity for the purpose of Article III:8(a) of the GATT 1994.3  
 The European Union requests the Appellate Bo dy to reverse such finding, complete the 
analysis and find instead that the "Minimum Required Domestic Content Level" are not "requirements governing the procurement … of the products purchased" in the present case. 
As a consequence of the Appellate Body's reversal of the Panel's finding in paragraph 7.128, 
the European Union requests the Appellate Body to reverse the Panel's finding in paragraph 7.152 that "(ii) the "Minimum Required Domestic Content Level" prescribed under the FIT Programme, and effected through the FIT and microFIT Contracts, is one of the 
"requirements governing" the Government of Ontario's "procurement" of electricity", and 
find instead that the "Minimum Required Domestic Content Level" does not constitute "requirements governing the procurement … of the products purchased" in the present case.  
 The Panel erred in its interpretation of Arti cle III:8(a) of the GATT 1994 when stating that 
the ordinary meaning of the terms "governmental purposes" is relatively broad and may encompass the meaning proposed by Canada, i.e., that a purchase for "governmental 
purposes" may exist whenever a government purchases a product for a stated aim of the 
government.
4 The European Union requests the Appellate Body to reverse this statement or, 
at the very least, to declare it moot and with no legal effect. In addition, should the Appellate Body reverse the Panel's finding that the Government of Ontario's procurement of 
electricity under the FIT Programme is undertaken "with a view to commercial resale",
5 the 
European Union requests the Appellate Body to modify and/or reverse the Panel's reasoning6 
as to the meaning of "governmental purposes " in view of the arguments raised by the 
European Union as to the proper interpretation of those terms, complete the analysis and 
find that the Government of Ontario's procurement of electricity under the FIT Programme is not undertaken for "governmental purposes". As a consequence, the Panel's findings in 
paragraph 7.152 should also be amended accordingly to reflect another reason why Canada 
could not rely on Article III:8(a) of the GATT 1 994 to exclude the application of Article III:4 
of the GATT 1994 to the "Minimum Required Domestic Content Level". 
 The Panel erred in its application of Article 1. 1(b) of the SCM Agreement as well as did not 
make an objective assessment of the matter in accordance with Article 11 of the DSU when 
finding that the European Union had failed to established that the FIT Programme and its related contracts confer a "benefit" under Article 1.1(b) of the SCM Agreement.
7 In 
particular: 
(a) the Panel erred in the application of Articl e 1.1(b) of the SCM Agreement to the facts 
of this case.8 The "prevailing market conditions" in Ontario, as evidenced by the 
purpose of the FIT Programme, showed that the FIT generators would not be able to 
obtain the necessary remuneration to be present in such marketplace;  
(b) the Panel did not make an objective assessment of the matter in accordance with 
Article 11 of the DSU by failing to consider the totality of the evidence, by providing 
incoherent reasoning and exercising false judicial economy, when finding that, even 
on the basis of a hypothetical "market" counterfactual as the one suggested in its observations, the European Union had failed to establish the existence of "benefit".
9 
                                               
3 Panel Report, paras. 7.126-7.128, and 7.152. 
4 Panel Report, para. 7.139, first sentence (and the follow-up statement in para. 7.140, second 
sentence). 
5 Panel Report, para. 7.151. 
6 Panel Report, paras. 7.138-7.145. 
7 Panel Report, para. 7.328(ii). 
8 Panel Report, paras. 7.276-7.327. 
9 Panel Report, paras. 7.322-7.328(ii). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 151 - 
 
 
  In view of these errors, the European Union requests the Appellate Body to reverse  the 
Panel's finding in paragraph 7.328(ii) that the European Union failed to establish the existence of 
benefit in the present case, that the challenged measures conferred a "benefit" under Article 1.1(b) of the SCM Agreement, complete the analysis  on the basis of the Panel's findings and 
uncontested facts on the record, and find that the challenged measures conferred a "benefit" 
under Article 1.1(b) of the SCM Agreement. As a consequence, the Panel's ultimate conclusion that the European Union had failed to establish that the FIT Programme and its related contracts 
constitute subsidies or envisage the granting of subsidies inconsistent with Articles 3.1(b) and 3.2 
of the SCM Agreement is also in error.
10 The European Union requests the Appellate Body to also 
reverse  such a conclusion, complete the analysis  on the basis of the Panel's findings and 
uncontested facts on the record, and find that the challenged measures amount to subsidies 
prohibited under Articles 3.1(b) and 3.2. Accordingly, the European Union requests the Appellate 
Body to recommend  that Canada withdraws its prohibited subsidies without delay (and, in no case, 
n o  m o r e  t h a n  w i t h i n  9 0  d a y s ) ,  a s  r e q u i r e d  b y  Article 4.7 of the SCM Agreement. Should the 
Appellate Body be unable to complete the analysis under any of the requests made by the 
European Union, the European Union requests the Appellate Body to declare moot and with no 
legal effect  the Panel's findings and conclusions in paragraphs 7.328(ii) and 8.7.11  
 
 
                                               
10 Panel Report, para. 8.7. 
11 The European Union observes that on 11 Febr uary 2013 Japan appealed the panel report in Canada – 
Certain Measures Affecting the Renewable Energy Generation Sector (WT/DS412) . That report contains 
identical findings and conclusions as those contained in para. 7.328(ii) and para. 8.7 in the Panel Report in 
DS426. The European Union incorporates hereto Japan's Notice of Other Appeal dated 11 February 2013 with 
respect to the errors of law and legal interpretations, including any request for completing the analysis, made 
in connection with para. 7.328(ii) of the panel report in DS412. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 152 - 
 
 
  ANNEX 4 
 
ORGANISATION MONDIALE   ORGANIZACIÓN MUNDIAL  
 DU COMMERCE   DEL COMERCIO  
 
WORLD TRADE ORGANIZATION 
 
APPELLATE BODY 
 
Canada – Certain Measures Affecting th e Renewable Energy Generation Sector  
Canada – Measures Relating to the Feed-in Tariff Program 
 
AB-2013-1 
 
 
Procedural Ruling 
 
1. On 12 February 2013, we received letters from Canada, Japan, and the European Union 
requesting that the Appellate Body Division he aring the above appeal allow observation by the 
public of the oral hearing in these appellate proceedings.  
2. Specifically, Canada requested that the Division allow public observation of the oral 
statements and answers to questions of the participants, as well as those of third participants that agree to make their statements and responses to questions public. Canada proposed that public observation be permitted via simultaneous closed-cir cuit television broadcasting with the option for 
the transmission to be turned off should the participants find it necessary to discuss confidential 
information, or if a third participant has indicated its wish to keep its oral statement confidential.  
3. In its letter, Japan supported Canada's request, indicating that it also wished to make public 
its statements and answers to questions by the Division in the course of the Appellate Body 
hearing, and that it agreed with Canada’s request that the Division hold an open hearing in this appeal. Japan further agreed that public obse rvation be allowed by means of simultaneous 
closed-circuit video broadcasting. For its part, the European Union stated that it agreed and 
associated itself with Canada's request for an open hearing. The participants referred to the rulings by the Appellate Body in nine previous proceedin gs authorizing public observation of the oral 
hearing.
1 
                                               
1These proceedings are:  
 United States / Canada – Continued Suspension of Obligations in the EC – Hormones Dispute  
(WT/DS320/AB/R /  WT/DS321/AB/R);  
 European Communities – Re gime for the Importation, Sale and Distribution of Bananas – Second 
Recourse to Article 21.5 of the DSU by Ecuador (WT/DS27/AB/RW2/ECU) and Recourse to 
Article 21.5 of the DSU by the United States  (WT/DS27/AB/RW/USA);  
 United States – Continued Existence an d Application of Zeroing Methodology (WT/DS350/AB/R);  
 United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing") 
– Recourse to Article 21.5 of the DSU by the European Communities  (WT/DS294/AB/RW);  
 United States – Measures Relating to Zeroing an d Sunset Reviews – Recourse to Article 21.5 of 
the DSU by Japan  (WT/DS322/AB/RW);  
 Australia – Measures Affe cting the Importation of Apples from New Zealand  (WT/DS367/AB/R);  
 European Communities and Certain Member States  – Measures Affecting Trade in Large Civil 
Aircraft  (WT/DS316/AB/R);  
 United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint)  
(WT/DS353/AB/R); and  
 United States – Certain Country of  Origin Labelling Requirement ( WT/DS384/AB/R / 
WT/DS386/AB/R). WT/DS412/AB/R • WT/DS426/AB/R 
 
- 153 - 
 
 
  4. On 13 February 2013, we invited the third parties to comment in writing on the requests of 
the participants. On 18 February 2013, we received responses from Australia, Brazil, China, 
El Salvador, India, Mexico, Norway, the Kingdom of Saudi Arabia, Turkey, and the United States. No comments were received from Honduras, Korea,  or the Separate Customs Territory of Taiwan, 
Penghu, Kinmen and Matsu. In their respective co mments, Brazil, China, India, Mexico, and Turkey 
stated that they do not object to allowing public observation of the oral hearing in these disputes, but emphasized that this is without prejudice to th e systemic views each has on the issue of public 
observation of panel and Appellate Body hearings. In dia and China stated that they wished to keep 
their oral statements and responses to questions confidential. The Kingdom of Saudi Arabia stated that it does not object to allowing public observat ion of the oral hearing in these disputes, but also 
exercised its right to keep its oral statement and responses to questions confidential. El Salvador 
stated that it does not object to allowing public observation of the oral hearing in these disputes, 
based on the conditions and modalities set out in Canada's request. 
5. Norway and Australia stated their support for the participants' request to allow public 
observation of the oral hearing, including th eir statements and answers to questions as 
third participants. The United States supported the participants' request to allow public observation of the oral hearing, arguing that opening hearings  to public observation serves to strengthen the 
legitimacy of the WTO dispute settlement system and that increased confidence in the dispute 
settlement process can translate into a great acce ptance of the outcome of a dispute settlement 
proceeding. It further noted that past experience  in holding open Appellate Body hearings has 
been positive. The United States confirmed that, should the Appellate Body authorize public 
observation of the oral hearing in this appeal, the United States would make its oral statement and 
answers to questions open to observation by the public. 
6. We recall that requests to allow public observation of the oral hearing have been made, and 
have been authorized, in nine previous appellate proceedings.
2 In its rulings, the Appellate Body 
has held that it may authorize such requests by the participants, provided that this does not affect the confidentiality in the relationship between th e third participants and the Appellate Body, or 
impair the integrity of the appellate process. We consider that the reasons previously expressed by 
the Appellate Body, and its interpretation of Article 17.10 of the Understanding on Rules and 
Procedures Governing the Settlement of Disputes (DSU) in this regard, apply equally to the circumstances prevailing in these appellate proceedings. 
7. In this appeal, the participants have suggest ed that the Appellate Body allow observation by 
the public of the oral hearing by means of simultaneous closed-circuit television broadcasting. They have further suggested that provision be made  for the transmission to be turned off should 
the participants find it necessary to discuss confidential information or if a third participant should 
wish to keep its oral statement or responses to questions confidential. We agree that such modalities would operate to protect confidential information in the context of a hearing that is 
open to public observation, and would not have an adverse impact on the integrity of the 
adjudicative function performed by the Appellate  Body. We also consider that, during public 
observation in previous appeals, the rights of those third participants that did not wish to have their oral statements made subject to public observation were fully protected. 
8. For these reasons, the Appellate Body Division in these appellate proceedings authorizes the 
public observation of the oral hearing on the terms set out below. Accordingly, pursuant to Rule 16(1) of the Working Procedures for Appella te Review, we adopt the following additional 
procedures for the purpose of this appeal: 
a. The oral hearing will be open to pub lic observation by means of simultaneous 
closed-circuit television broadcast, shown in a separate room to which duly registered 
delegates of WTO Members and members of the general public will have access.  
b. Oral statements and responses to questions by the third participants that have indicated 
their wish to maintain the confidentiality of th eir submissions will not be subject to public 
observation. 
                                               
2See fn 1. WT/DS412/AB/R • WT/DS426/AB/R 
 
- 154 - 
 
 
  c. Any request by a third participant – that has not already done so – wishing to maintain 
the confidentiality of its oral statements an d responses to questions should be received 
by the Appellate Body Secretariat no late r than 17:00 Geneva time on Thursday, 
7 March 2013. 
d. An appropriate number of seats will be reserved for delegates of WTO Members in the 
room where the closed-circuit television broadcast will be shown. WTO delegates wishing to observe the oral hearing are requested to register in advance with the Appellate Body 
Secretariat. 
e. Notice of the oral hearing will be provid ed to the general public on the WTO website. 
Members of the general public wishing to observe the oral hearing will be required to register in advance with the Appellate Bo dy Secretariat, in accordance with the 
instructions set out in the WTO website notice. 
Geneva, 19 February 2013 
 
__________