1. Introduction: climate change and renewable energy projects
Since 2009, the international community has strived to deal with various issues related to global climate change, and this effort is now placed at the top of the global agenda.Footnote 1 Developing ‘clean’ and ‘sustainable’ sources of energy has indeed become a crucial task for the governments of many countries. For instance, in the case of Canada–Renewable Energy/FIT, a recent WTO dispute that addressed the WTO consistency of a renewable energy project of a provincial government of Canada, the objectives of Canada's FIT program were found to (i) increase the capacity of renewable energy supply to ensure adequate generation and reduce emissions; (ii) introduce a simpler method of procuring and developing generating capacity from renewable sources of energy; (iii) enable new green industries to continue their businesses through new investment and job creation; and (iv) provide incentives for investment in renewable energy technologies.Footnote 2
While the governmental initiatives are indispensable for implementing this global drive, those initiatives may have certain implications for the WTO Agreements as they may also affect international trade. Various covered agreements of the WTO can be implicated, such as the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Trade-Related Investment Measures (TRIMs), the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement), and the Agreement on Subsidies and Countervailing Measures (SCM Agreement), to name just a few. Among these, when the focus is placed on whether and how a government can design and support renewable energy programs, the SCM Agreement is arguably the one that is most directly relevant to the subject, because after all this covered agreement is the one that deals with a government's support and assistance for private industries within its territory.
As a matter of fact, if anything, ‘sustainable’ sources of energy must be both environmentally sustainable and legally sustainable. In particular, green programs’ or more specifically renewable energy-related programs’ compliance with the norms of the WTO Agreements is critical. If not, then various types of disputes would soon follow. Under the present WTO regime, any form of government initiative which is found to contravene covered agreements arguably cannot be maintained in the long run, since the dispute settlement mechanism of the WTO imposes a specific and binding obligation to withdraw such measures after a dispute settlement proceeding. However, compliance with the WTO Agreements becomes difficult if there is (i) a conflict between the WTO norms and those of other international agreements or commitments, or (ii) a structural gap between the existing norms and the pronounced legitimate policy objectives of Members. In this case, an amendment of the WTO Agreements would be ultimately inevitable. Such an amendment, however, has turned out to be elusive and impractical given the fluctuations and twists of the Doha Development Agenda (DDA), now entering its 16th year of negotiations. The question then becomes: is there a way to interpret present norms of the WTO Agreements in a way that does not conflict with governmental initiatives, which are an indispensable requirement for attaining the goal of global importance such as combating climate change?
It is against this backdrop that the Appellate Body's decision in Canada–Renewable Energy/FIT Footnote 3 touches upon new challenges and provides important guidance for WTO Members with respect to climate change projects being undertaken by many. Of course, there have been other WTO disputes that addressed dilemmatic situations involving trade norms and environmental change initiatives; however, at the time of this writing, the decision by Canada–Renewable Energy/FIT is the first and the only case in which a renewable energy policy has been examined by the WTO's panel and the Appellate Body. At the same time, the jurisprudence provided by the decision also shows some fundamental challenges faced by many governments in this regard. The dispute involves the GATT 1994, the TRIMs, and the SCM Agreement. All three agreements are important, and the discussions about these agreements offer critical jurisprudence in this regard. This article, however, confines its analysis to the subsidy side of the dispute. While Article III:4 National Treatment issue, one of the core questions of the dispute, raises an important issue of discriminatory treatment between domestic product and imported product, the subsidy issue touches upon the question at its core – i.e., is it permissible under the current trade regime for a government to introduce and implement a measure that provides certain forms of governmental support to industries and private corporations in an effort to facilitate their participation in global ‘green’ activities?
With this in mind, Section 2 first looks into some fundamental questions to initiate discussions on this issue. Section 3 then explains the relationship between renewable energy projects and the SCM Agreement, and argues that the current subsidy jurisprudence fails to provide a guidance to Members so that they can devise green programs, including renewable energy programs on a long-term basis. In particular, the section points out that the current SCM jurisprudence is not able to help Members distinguish permitted green programs and prohibited (or regulated) green programs, apparently inviting more disputes in the future. Section 4 then offers some suggestions to deal with this issue within the framework of the existing SCM Agreement so as to ensure the continued development of renewable energy in line with the subsidy norms of the WTO Agreements. A conclusion then follows in Section 5.
2. Some framework questions
Discussions of counter-climate change programs of various governments require, from the perspective the SCM Agreement, consideration of some framework questions, as such discussions raise structural characteristics of the WTO Agreements in general and the SCM Agreement in particular. These framework questions involve both the legal dimension and practical dimension.
2.1 Legal dimension
First, it must be borne in mind that the WTO is regarded as a ‘self-contained regime’. Article 3.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) states that ‘the recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements’. Also, Article 19.2 of the DSU states that ‘in their findings and recommendations, a WTO panel and the Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements’. At the same time, the collective consideration of various provisions of the DSU stands for the proposition that other non-WTO international treaties and agreements cannot have binding effects on the decisions of a panel or the Appellate Body.Footnote 4
This framework of the WTO regime would then basically render the WTO Agreements green-blind. That is, the regime does not necessarily encourage, let alone permit, Members to actively deal with environmental issues. Arguments can be made that Article XX of the GATT 1994 can be invoked to address these ‘green’ issues, given that a Member can justify its eco-friendly but trade restrictive measures by resorting to this article (especially Article XX (g)). This provision, however, has been interpreted as limited in scope, and, furthermore, it can provide an exception only to an alleged violation of the GATT provisions. There are other covered agreements then that are left unaffected or uncovered by the provision – most notably, the SCM Agreement. Consequently, when it comes to various sorts of green programs, Members are confronted with a situation where they have to deal with a variety of international legal norms in fragmented forms. While legal obligations under different international conventions may direct Members to proceed one way, the WTO covered agreements dictate otherwise.
Now, to the extent that governmental support to industries and private companies is involved, provisions of the SCM Agreement are inevitably implicated. Therefore, it is critical that the governments of Members are apprised of the jurisprudence of the SCM Agreement when they consider and implement programs to assist their private sectors, regardless of the legitimacy or appropriateness of objectives of such assistance. According to the SCM Agreement, the definition of a subsidy is ‘a financial contribution by a government body (Article 1.1(a)) that confers a benefit (Article 1.1(b)) to a specific enterprise or industry (Article 2)’. In other words, a subsidy to be regulated by the SCM Agreement means something of financial value that has been granted by a government to selected companies and industries. These subsidies are then subject to respective penalties, either in the form of countervailing measures by another importing Member or through direct legal action at the WTO dispute settlement proceeding, depending upon whether additional requirements are satisfied.Footnote 5 In short, the SCM Agreement regulates financial support by Members’ governments for their domestic industries.
The governmental support to be captured by the SCM Agreement is in fact quite broad: not only the provision of cash grants, tax exemptions, or goods, but also the provision of governmental support in many different forms is equally regulated by the agreement.Footnote 6 As shown in recent currency disputes between the United States and China, governmental policies relating to the operation of economic or financial systems could also sometimes lead to findings of financial contribution.Footnote 7 Likewise, provision of Research and Development (R&D) assistance from an exporting Member's government to its domestic industries has also been found to constitute a financial contribution. Although sometimes no money changes hands, provision of such supports could lead to the finding of financial contribution by the government within the meaning of Article 1.1(a)(1) of the SCM Agreement.Footnote 8 It should be noted that the Appellate Body has explained that ‘the requirement of a financial contribution from the outset was intended by its proponents precisely to ensure that not all government measures that conferred benefits could be deemed to be subsidies’.Footnote 9 Nonetheless, the broad coverage of the financial contribution covering both direct and indirect support from the government has been interpreted to cover a wide range of governmental programs as falling under Article 1.1(a)(1) of the SCM Agreement. In other words, as much as governmental support is provided to private entities participating in green programs such as renewable energy projects, financial contribution is likely to be confirmed to exist under the current jurisprudence of the SCM Agreement.Footnote 10
A benefit finding under Articles 1.2 and 14 of the SCM Agreement also follows to the extent that recipients of the governmental support become ‘better off’ than they would otherwise be. While this issue entails complex discussions of relevant markets and benchmarks as seen in Canada–Renewable Energy/FIT, recipient companies’ enjoyment of a competitiveness edge in the manufacturing and sales as a result of green programs, which is arguably a frequent outcome of such governmental support, would also render it more likely than not that benefit is found to exist. Only in rare situations, such as when a new market is created for the first time or when recipients do not become better off than before, could one prove absence of benefit.
Likewise, under Article 2 of the SCM Agreement, a subsidy is specific if it is limited to ‘an enterprise or industry or group of enterprises or industries’. The precise meaning of the terms ‘industry’ and ‘group of enterprises or industries’ in this provision has not been clearly defined in the SCM Agreement or in the decisions of the past disputes.Footnote 11 Much discretion is given to a reviewing panel or an investigating authority in this regard. As such, if a prospective governmental program specifically limits the beneficiary to a particular industry, or alternatively if a particular industry turns out to be a recipient of disproportionate share of the assistance under the program, a reviewing panel or an investigating authority, may well find the existence of ‘specificity’. So, if the government of a Member were to intend to adopt renewable energy support programs, it would not be easy to overcome the specificity argument from other complaining trading partners, to the extent that the programs are designed, on its face or in effect, in a way that benefits a particular group of industries relating to green projects.
In summary, in the absence of an exception clause in the SCM Agreement and under the current subsidy jurisprudence, which interprets financial contribution, benefit, and specificity within the confinement of the text of the agreement, it is possible that green programs such as renewable energy projects are found illegal subsidies, regardless of the objectives of the programs. Some green programs may survive the scrutiny of the SCM Agreement while others may fail; the dividing line between the two does not necessarily lie in the objectives or necessity of the governmental programs, but rather in the satisfaction or non-satisfaction of the somewhat detailed, technical requirements of the SCM Agreement.
2.2 Practical dimension
As for the practical side of the issue, with respect to the anti-climate change policies there arguably exists a widespread sentiment that ‘anything “green” passes or should pass’, considering the urgent need to cope with the climate problem. This sentiment can be found not only in the minds of domestic constituents of each Member state, but also in the minds of decision makers or opinion leaders of the international community. As a matter of fact, domestic and international pressure to ‘go green’ has been building up, and this tendency, in principle, is laudable and encouraging given the increasing threat of global environmental degradation, in particular the serious threat of the global climate change.
A problem, however, arises when ‘green’ meets ‘gray’. It may be the case that some Members view the global green drive as a new vehicle or pretext to introduce and implement restrictive trade measures vis-à-vis foreign imports to protect domestic industries in the new market and new competition. A persistent tendency to devise non-tariff barriers (NTBs), taking a wide range of different forms since the global financial crisis in 2008, can find a new anchor in green projects; protective governments may purport to formulate the projects in a way that accords preferential treatment for domestic products over imported products.
At the same time, another aspect to be considered in the practical dimension is the fact that ‘green’ sells fast in the market. There seems to be a distinctive trend both in the domestic and global market for sales volumes of green energy parts and equipment to increase, as green products and equipment become more popular and are emerging as major industries in terms of commercial aspect as well. Not surprisingly, those products and equipment are now becoming major export items for certain Members. As such, confrontations among Members over those items as major exports are destined to increase as time passes. Trade remedy investigations and ensuing disputes concerning solar panels and energy efficiency parts offer a good example.
In order to sort out protective intent-motivated gray measures or disguised measures from bona fide green programs, a reliable legal guideline is indeed in order. While the breadth and amorphous nature of green programs and the case-specific trait of subsidy disputes may not be amenable to an introduction of a kind of a bright line test, some reliable guidelines in this regard, at least, can and should be explored for the future administration of the SCM Agreement in the new landscape.
3. Government initiatives for renewable energy development and the SCM Agreement
Based on the discussions of the framework issues in the previous section, this section then looks at how specifically renewable energy programs of various countries are implicated in subsidy disputes under the SCM Agreement, and also whether a reliable safe harbor can be found in the agreement so as to permit Member governments to undertake bona fide renewable energy programs in a stable manner. As evidenced by policy announcements of many governments, development and utilization of renewable energy constitute a cornerstone of climate change policies.Footnote 12 Therefore, the fate of the renewable energy programs is indicative of the overall fate of the climate change mitigation policies of many countries. Should renewable energy programs be somehow restricted by the SCM Agreement, the long-term consequences could be both embarrassing and dilemmatic; the most important task of the global community would arguably run aground due to provisions of the WTO Agreements.
3.1 Renewable energy as a key subject of subsidy disputes
How can a government be involved in the area of renewable energy? It can be via public bodies and/or government agencies that take charge of projects concerning renewable energy development. Some governments create a fund to support green energy activities of private corporations. Others guide or help private entities to conduct green energy-related R&D activities. Tax exemption is also another commonplace government policy to incentivize private entities to develop and utilize renewable energy. In short, a wide range of governmental measures are being contemplated and introduced domestically to support the process of production, sales, and distribution of renewable energy.
It is not surprising that these governmental initiatives are arguably indispensable in the field of renewable energy, because the private market for renewable energy has not been fully developed yet.Footnote 13 Thus, at this stage, it is not possible to expect private bodies to fully perform their roles as developers and traders of renewable energy.Footnote 14 It is in this regard that the panel in Canada–Renewable Energy/FIT stated the following:
Because of the specific features of electricity and the nature of …electricity markets, government intervention will often be necessary in order to secure an electricity supply that is safe, reliable and sustainable in the long term.
Obviously, governmental initiatives for renewable energy may implicate a plethora of different issues such as trade in goods, trade in services, and foreign investments. With respect to the goods trade aspect, issues relating to the GATT 1994 (especially Article III), the TRIMs, the Agreement on Technical Barriers to Trade, or the SCM Agreement may arise. Once services trade is affected by governmental initiatives, then the General Agreement on Trade in Services (GATS) may be implicated as well. Furthermore, in some cases where foreign entities as investors in the energy sector face certain discriminations or restrictions, bilateral investment treaties may be invoked as well.
Canada–Renewable Energy/FIT offers a showcase example of how these kinds of governmental initiatives may violate, even if within the specific context of the goods trade under the Canadian provincial programs, Article III:4 of the GATT 1994, Article 2.1 of the TRIMs, and Article 3 of the SCM Agreement. With respect to the subsidy issue, the focus of the dispute centered on the identification and existence of ‘benefit’ – the second condition for determining the existence of a subsidy under the SCM agreement. Since government support was explicit in this case, financial contribution by the government, the first condition for determining the existence of a subsidy, was relatively easily satisfied.Footnote 15 In addition, as the financial support from the Canadian government was definitively aimed at helping the renewable energy industry or the electricity industry, it was also apparently clear that specificity, the third prong for a subsidy, was satisfied in this case.Footnote 16 Therefore, the most important issue concerning the existence of government subsidy in that dispute was whether the second condition of benefit was indeed satisfied. The panel stated that the claimants failed to establish the existence of benefit, but the Appellate Body reversed the panel decision. The Appellate Body, however, had not been able to complete the analysis due to the absence of factual information on the record.Footnote 17 If the necessary factual information had been available to the Appellate Body, it might well have concluded that the Canadian measure constituted a prohibited subsidy under Article 3 of the SCM Agreement. Setting aside the fact that the Appellate Body was not able to reach a conclusion here because a remand authority does not exist in the WTO dispute settlement mechanism, it is likely that next time a full analysis to determine the existence of benefit is performed, similar measures may well be found to fall under the category of a prohibited subsidy or an actionable subsidy, depending upon factual information of the particular measures challenged.
Among the WTO covered agreements, arguably the SCM Agreement is the one most concerned with the core element of green and renewable energy policies, since the SCM Agreement regulates whether a Member's government can or cannot provide financial assistance to industries and corporations operating within its territories, and since the core element of green policy is to provide such governmental support to those entities. Thus, to the extent that ‘governmental support’ remains the centerpiece of renewable energy programs, it is the SCM Agreement that addresses the core of the program. This explains why the SCM Agreement is critical in terms of introducing and maintaining renewable energy programs. Discussions and findings of the three conditions of a subsidy in Canada–Renewable Energy/FIT dispute are set forth below, respectively. They would provide a glimpse of the outcome of the application of the subsidy norms to green programs such as various renewable energy-related projects.
Financial contribution by the government
The panel in Canada–Renewable Energy/FIT found that the appropriate legal characterization of the FIT Programme and Contracts was ‘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.Footnote 18 According to the panel, the Ontario Power Authority (OPA) transferred funds to FIT suppliers for ‘delivered electricity’ into Ontario's electricity grid,Footnote 19 and then the Government of Ontario took possession over electricity and thus ‘purchase[d] electricity’.Footnote 20 The panel also found that these measures were perceived by interested entities as governmental procurement or purchase of electricity.Footnote 21 These findings of the panel were upheld by the Appellate Body.Footnote 22
So, in this dispute, the panel and the Appellate Body recognized electricity as ‘goods’, noting that Members have included electricity in their tariff schedules.Footnote 23 Some critics, however, argue that panel's description of features of electricity tends to support its categorization as services rather than goods,Footnote 24 which may also reflect the original intent of some of the GATT drafters.Footnote 25 While electricity may qualify as both goods and services, different views on the nature of the item at issue at least indicate rather unique situations surrounding energy creation and distribution policies of a Member.
Benefit
In the panel proceeding, the claimants (Japan and the European Union) argued that the Canadian FIT program confers a benefit on the renewable electricity generators because it either guarantees a minimum electricity price for them in the wholesale electricity market or Ontario, or alternatively, because it has changed the prior market structure in order to facilitate the private investment in the wholesale electricity market of Ontario.Footnote 26 The panel found that the claimants failed to establish that the challenged measures conferred a benefit within the meaning of Article 1.1(b) of the SCM Agreement.Footnote 27 The Appellate Body, however, found that the panel had erred in using the market for electricity generated from all sources of energy as the relevant market for its benefit analysis.Footnote 28 The Appellate Body opined that the benefit analysis should have been based on a market that was shaped by the government's definition of the energy supply-mix, and of a benchmark located in that market reflecting competitive prices for wind power and solar photovoltaic (PV) generation.Footnote 29 The Appellate Body, however, was unable to determine whether the challenged measures conferred a benefit within the meaning of Article 1.1(b), due to the lack of sufficient factual information to complete the analysis.Footnote 30
The benefit analysis of the panel and the Appellate Body has induced robust debates. Some commentators have expressed positive views of the analysis. Steve Charnovitz and Carolyn Fischer, for instance, noted the contribution of the decision, stating that it has ‘adapt[ed] the existing rules to serious challenges arising from global climate change’, by ‘carv[ing] out some policy space’ for Members’ effort to create an environment-friendly market.Footnote 31 They also opined that the Appellate Body's bifurcated approach to the roles of a government between creation of the market on the one hand and encouragement of participation in the market on the other would make a future WTO challenge more difficult.Footnote 32 Another commentator also observed that the benefit analysis of the Appellate Body in this dispute would mainly save a government's market creation situation where a private market would not exist due to ‘high-cost and economical … inefficien[cy]’,Footnote 33 in which case an out-of-country benchmark may be obtained. It was further submitted that the clarification of the situation warranting out-of-country benchmarks in the context of climate-friendly projects has contributed to ‘filling the lacuna’ of present subsidy rules.Footnote 34
It may be argued, however, that a difficulty in raising a claim or prevailing in the WTO proceeding, while important for a government contemplating a policy or a measure, may not necessarily provide a legal safe harbor so that governments can pursue policies in a certain direction on a long-term basis. Nor would the clarification of the situations warranting out-of-country benchmarks provide a reliable assurance to governments in contemplating and formulating a climate-friendly project because non-participation of private entities in the relevant situation may well change over time with the evolution of profit scale.
Critical views expressed by other commentators also largely focus on the unpredictability stemming from the benefit analysis of the panel and the Appellate Body. Rajib Pal criticized the Appellate Body's selection of the relevant market for purposes of its benefit analysis.Footnote 35 He argued that both supply-side and demand-side factors should be contemplated in determining the relevant market in the benefit analysis,Footnote 36 which is ‘more consistent with the Appellate Body's earlier interpretation of benefit’.Footnote 37 Aaron Cosbey and Petros Mavroidis also gave a critical view of the Appellate Body's distinction of two different interventions in the market: creation of the new market on the one hand and encouragement in the existing market on the other. They opined that this distinction does not have a textual basis.Footnote 38 They also pointed out that ‘the extent and nature’ of the scope of such distinction of markets ‘are entirely unclear’.Footnote 39
‘Lack of cogency’ in the Appellate Body's decision was also mentioned by Steve Charnovitz and Carolyn Fisher who questioned how the analysis is to be applied to future cases.Footnote 40 They underscored the need to introduce a mechanism to reflect ‘policy considerations’ as seen in Article 8 of the SCM Agreement (Non-Actionable Subsidies).Footnote 41 Luca Rubini in turn argued that the relevant market analysis and benchmark discussion of the Appellate Body were erroneous. He argued that the relevant market should have ‘encompass[ed] all electricity, irrespective of … origin’, which would have proved the existence of benefit.Footnote 42
The critical views expressed by some scholars indicate that the jurisprudence for a benefit analysis of green projects is anything but clear at present. While the benefit analysis of the Appellate Body provided a meaningful contribution, it has not reached the point where clear guidelines are provided or where bona fide counter-climate change projects are accommodated within the framework of the SCM Agreement.
Specificity
In this case, the panel and Appellate Body did not conduct a separate analysis on specificity. The Canadian measure was challenged as a domestic content subsidy, a prohibited subsidy under Article 3.1(b), thus inherently specific under Article 2.3 of the SCM Agreement.Footnote 43 Consequently, specificity claims were not presented by claimants, nor discussed by the panel or the Appellate Body. Even in the context of actionable subsidies or ordinary countervailing duty investigations, specificity can be relatively easily found for green programs, including renewable energy projects, because by their very nature industries operating in these sectors are few in number and selective.
3.2 Non-actionable subsidies in a revised SCM Agreement
One of the key questions regarding green measures such as renewable energy programs is whether they can find a safe haven in the non-actionable subsidy provision of the SCM Agreement. As a matter of fact, the SCM Agreement's original inclusion of non-actionable subsidies category shows that it has been most careful not to disturb legitimate national economic policies. Although the category lapsed five years after the entry into force of the SCM Agreement because the Members could not reach an agreement by that time,Footnote 44 the general consensus at the time had been that the category could be revived when it becomes necessary.Footnote 45 In fact, the lapse of non-actionable subsidies at the end of 1999 largely reflects the absence of negotiations to amend the SCM Agreement rather than the absence or change of consensus for non-actionable subsidies. It is against this backdrop that the proposed revision of the SCM Agreement in the course of the DDA negotiations includes the resurrection of the non-actionable subsidies in their original form.
It should be noted that among the various WTO Agreements mentioned above, the SCM Agreement is the only one being considered for amendment at the time of this writing.Footnote 46 The proposal for the new SCM Agreement submitted by the Chairman of the Rules Negotiation of the WTO summarizing the previous discussion of the Members includes the revival of the clauses for non-actionable subsidies in Part IV of the agreement. The non-actionable subsidy provision in Part IV stipulates R&D activities, rural area development projects, and environmental protection projects as being exempted from the SCM Agreement. Among the three, R&D activities and environmental protection projects are directly related to the renewable energy issue. The newly proposed SCM Agreement thus reads as follows in its pertinent part:
PART IV: NON-ACTIONABLE SUBSIDIES
Article 8
Identification of Non-Actionable Subsidies
8.2 Notwithstanding the provisions of Parts III and V, the following subsidies shall be non-actionable:
(a) assistance for research activities conducted by firms or by higher education or research establishments on a contract basis with firms: if the assistance covers not more than 75 per cent of the costs of industrial research or 50 per cent of the costs of pre-competitive development activity; and provided that such assistance is limited exclusively to:
(i) costs of personnel (researchers, technicians and other supporting staff employed exclusively in the research activity);
(ii) costs of instruments, equipment, land and buildings used exclusively and permanently (except when disposed of on a commercial basis) for the research activity;
(iii) costs of consultancy and equivalent services used exclusively for the research activity, including bought-in research, technical knowledge, patents, etc.;
(iv) additional overhead costs incurred directly as a result of the research activity;
(v) other running costs (such as those of materials, supplies and the like), incurred directly as a result of the research activity.
(c) assistance to promote adaptation of existing facilities to new environmental requirements imposed by law and/or regulations which result in greater constraints and financial burden on firms, provided that the assistance:
(i) is a one-time non-recurring measure; and
(ii) is limited to 20 per cent of the cost of adaptation; and
(iii) does not cover the cost of replacing and operating the assisted investment, which must be fully borne by firms; and
(iv) is directly linked to and proportionate to a firm's planned reduction of nuisances and pollution, and does not cover any manufacturing cost savings which may be achieved; and
(v) is available to all firms which can adopt the new equipment and/or production processes.
Footnotes: The term ‘existing facilities’ means facilities which have been in operation for at least two years at the time when new environmental requirements are imposed.
Assuming that non-actionable subsidy provisions would be revived in the near future when the DDA negotiations are concluded, Members may then find some breathing space for their renewable energy policies. Setting aside the unpredictable issue of when the DDA package can be agreed upon, the introduction of these provisions would certainly exempt enumerated governmental programs from the reach of the SCM Agreement. In this respect, it is indeed true that renewable energy programs can find some way out. Unfortunately, however, the proposed revision and the inclusion of non-actionable subsidies would neither be sufficient nor appropriate to assist renewable energy programs.
Environmental subsidies
Paragraph (c) of Article 8.2 does provide an exception for environmental subsidies, but a careful reading of the provision reveals that the purported exception is quite limited in scope. The provision is supposed to apply only to ‘adaptation of existing facilities to new environmental requirements’. Therefore, the provision only applies to situations where governments provide financial assistance to private corporations to upgrade or install new facilities to meet the new environmental standard. This means various green programs, including programs to develop renewable energy, would not be covered by this provision, since it only covers programs that help firms adapt their existing facilities to new green standards set by the government. If anything, it does not permit governments to freely pursue any type of governmental initiatives for green activities, but instead only allows certain, stipulated types of government support for private entities. Furthermore, the provision also requires governmental initiatives to satisfy five more specific conditions, which further narrows the scope of the exception.
In order to further understand how this provision came to be formulated as it is now, it is necessary to look back to when it was first introduced. As the proposed provision does not differ much from the original provision of non-actionable subsidies adopted in the Uruguay Round, the provision must be understood with the perspectives and issues raised in 1995 in mind. However, in the 1990s, climate change was not such a widely discussed global problem as it is now, and, therefore, it can be deduced that the drafters of the provision arguably did not take into account the problems that might arise with government policies to combat climate change. Thus, an argument can be made that the amendment of the SCM Agreement in the manner it has been discussed so far would not necessarily provide an answer to the problem.
Nevertheless, it is possible that Members may agree to expand the scope of exceptions from the SCM agreement through further negotiations in the DDA. Given how the DDA negotiations have fared so far and also how the rules negotiations have been conducted, however, it may be too optimistic to expect such an optimal outcome at this stage.
R&D subsidies
It should be noted that the same problem also appears in paragraph (a) of Article 8.2. R&D subsidies are exempted only to the extent of the stipulated amount and only with respect to certain types of costs. In many instances, R&D programs play a central role in the economic development and/or academic capacity enhancement of many countries, and thus are closely related to the pursuit of various kinds of legitimate public policies. As a matter of fact, almost all governments are actively involved in numerous projects to foster technological and scientific development of the academic institutions and industries within their territories.Footnote 47 Genuine R&D programs deserve careful scrutiny by an investigating authority or a panel. The objectives, operation schemes, and actual impact of the R&D programs should be carefully examined, and the authority that a WTO Member's government retains in carrying out important socio-economic functions should not be unduly restricted. Hence an exception is introduced in paragraph (a) of Article 8.2.
The provision, however, can only be applied to situations where a corporation conducts its industrial R&D with government support. It certainly does not cover nationwide R&D activities conducted by government agencies or conducted under the auspices of government agencies, including the government–private joint partnership. Even if this provision is to be activated once more, only a few specific types of R&D programs would be able to enjoy the benefit of the exception. Not only does the provision cover a small fraction of R&D activities in the first place, but also it does not even touch upon various green support measures that do not take the form of R&D activities.
Therefore, both provisions of environmental subsidies and R&D subsidies exceptions envisaged in the revised SCM Agreement are simply insufficient to address current problems. Although renewable energy is receiving a great deal of attention as an alternative to curb climate change, the SCM Agreement prohibits such support measures across the board.
4. Searching for possible way outs under existing norms and jurisprudence of the SCM Agreement
As discussed in Canada–Renewable Energy/FIT extensively, the electricity market or renewable energy-generated electricity market raises unique and complex issues in terms of a benefit analysis as the definition of ‘market’ entails an assessment of different levels and categories of markets where the products at issue are produced and sold. Other types of ‘green programs’ introduced to cope with the global climate change would arguably raise similar problems because often times two different markets emerge and compete with respect to a particular product at issue: one where conventional production methods are employed and the other where climate-friendly productions methods are applied. Depending upon factual patterns of particular governmental programs, including how the monetary supports are disbursed and how recipients of the programs become ‘better off’ than before, ‘benefit’ within the meaning of Articles 1.1(b) and 14 of the SCM Agreement can be ascertained. With respect to a specificity test under Articles 1.2 and 2, all things being equal, ‘green’ programs such as renewable energy projects are likely to be found specific since recipients are usually designated either de jure or de facto; relatively a small number of industries and companies produce and sell products using climate-friendly technologies. As such, to say the least, it would be unpredictable to assess the outcome of benefit and specificity analyses regarding green programs such as renewable energy projects. With satisfaction of factual and legal elements, these programs may well be found to confer benefit and be specific.
Assuming that no amendments are made to the present WTO Agreements and that the basic framework of the WTO regime discussed above remains unchanged, and that even if an amendment is achieved in a way that non-actionable subsidy provisions are introduced as is currently being discussed, how can government measures taken to develop sustainable energy coexist with the current rules and regulations of the SCM Agreement? This section explores a possible solution under the present framework and jurisprudence of the SCM Agreement.
4.1 Renewable energy as national ‘general infrastructure’ project?
This reality then prompts governments contemplating green programs to explore a possible safe harbor in the SCM Agreement. In the absence of a general exceptions clause in the SCM Agreement and limited scope of non-actionable subsidies even if resurrection is agreed, one plausible alternative seems to exist in the general infrastructure exception of financial contribution under Article 1.1(a)(1)(iii) of the SCM Agreement. This unique exemption in the financial contribution prong of the agreement would arguably render certain green programs such as renewable energy-related projects financial contribution-absent, which would then lead to a virtual carve-out from the SCM Agreement. Properly interpreted and implemented, this provision may provide WTO Members’ governments the necessary policy space to develop and formulate governmental programs to cope with climate change.
General infrastructure under the SCM Agreement
One issue of financial contributions by the government that merits careful consideration in the discussion of renewable energy is the general infrastructure exception of the SCM Agreement. Article 1.1(a)(1)(iii) of the SCM Agreement explicitly excludes the provision of the ‘general infrastructure’ from the definition of the ‘financial contribution by the government’.Footnote 48 While the SCM Agreement does subject WTO Members’ provision of illegitimate subsidies to specific private economic entities within their territories to a rigorous discipline, the agreement is also mindful not to interfere with governments’ inherent authority to pursue otherwise legitimate public objectives within the parameters of the SCM Agreement, as is well summarized by the panel in Canada–Aircraft. Footnote 49 Viewed from this perspective, the explicit exclusion of ‘general infrastructure’ in Article 1.1(a)(1)(iii) of the SCM Agreement in enumerating specific forms of financial contribution by the government is reflective of that consideration so as to ensure certain maneuvering room for the governments of the WTO Members in pursuing these legitimate public objectives.
In fact, general infrastructure projects are undertaken by all Members, both developing and developed, as discussed in the Large Civil Aircraft (LCA) disputes between the United States and the European Communities at the WTO dispute settlement proceedings concerning alleged subsidization for their respective large civil aircraft industries. In US–Large Civil Aircraft dispute,Footnote 50 the EC claimed that the United States has been mobilizing all the governmental apparatus, including the Department of Defense, the National Aeronautics and Space Administration, and the Department of Commerce, to confer various subsidies on the Boeing Company to the amount of $23 billion in aid since 1992 through state tax breaks, military research, etc. In the companion case of EC–Large Civil Aircraft,Footnote 51 the United States in turn argued that Airbus has received more than $15 billion in government loans since 1967, in an effort to overtake Boeing. In both disputes, a general infrastructure exception was mentioned by the two Members.
Although it is difficult to speak in a general manner because every national infrastructure is different, an argument can be made that the construction or maintenance of the nationwide eco-system by a Member should be regarded as a project to establish general infrastructure,Footnote 52 and that it should thus fall under the exception of Article 1.1 of the SCM Agreement. The ordinary meaning of the term ‘general infrastructure’ as interpreted by Article 31 of the 1969 Vienna Convention on the Law of TreatiesFootnote 53 would basically be ‘basic physical and organizational structures needed for the operation of a society or enterprise where such structures are (i) affecting or concerning all or most people or things; or (ii) not specialized or limited’.Footnote 54 Depending upon how the domestic collection and processing systems are established and operated, they may be claimed to constitute general infrastructure.Footnote 55 If the establishment of an eco-system within a state can be characterized as a government project for general infrastructure, this project can be carved out from the application of the SCM Agreement entirely.Footnote 56
In fact, it is noteworthy that in the explanation of the expected outcome of the Agreement on Government Procurement revision in December 2011 the government procurement market is explained in relation to, or in the context of, general infrastructure.Footnote 57 Although this recognition largely reflects the increased access of foreign business entities to the infrastructure construction market, as a result of the prospective revision,Footnote 58 it would also indirectly support the proposition that the overall administration of the government procurement market of a Member, such as distribution channel management, constitutes general infrastructure itself. Administration or operation of projects relating to general infrastructure could arguably fall under one segment of the establishment of the general infrastructure, as long as such administration or operation is specifically related to the establishment of infrastructure.
Article 1.1(a)(1)(iii) of the SCM Agreement underscores the importance of national projects for establishing general infrastructure.Footnote 59 As it is perceived as one of the fundamental obligations of a government, the SCM Agreement excludes this form of government support from the purview of the financial contribution by a government, and thus from the reach of the agreement entirely. The establishment of general infrastructure is particularly essential for developing Members.Footnote 60 Article 1.1(a)(1)(iii) of the SCM Agreement thus provides that:
(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as ‘government’), i.e. where:
(iii) a government provides goods or services other than general infrastructure, or purchases goods; (emphasis added)
This provision thus stipulates that it is only the provision of goods and services ‘other than general infrastructure’ that can be considered to constitute a financial contribution by a government, which is in turn one of the conditions for the existence of a subsidy under the SCM Agreement.Footnote 61
This carve-out does look much more prominent among other provisions of the SCM agreement, since it is the only explicitly mentioned exception in the area of financial contribution by the government. Thus, whether or not a particular government project constitutes the establishment of general infrastructure becomes a critical issue in the examination of governmental programs that reflect a government's effort to address widespread social or national problems. A word of caution, however, deserves attention here. The proposed reliance on the general infrastructure carve-out of the SCM Agreement would be operational only if a challenged green energy programme is juxtaposed to the legal characterization of the programme as a governmental provision of goods or services under Article 1.1(a)(1)(iii) of the agreement. As the Appellate Body in Canada–Renewable Energy/FIT opined, a governmental programme can simultaneously fall under different types of financial contribution under Article 1.1(a)(1). As a consequence, it is possible that a complainant would purport to focus its challenge on the types of financial contribution other than the government's provision of goods or services in order to pre-empt possible ‘defence’ by a respondent based on the general infrastructure exception. This exception's inherent limitation to the invocation of governmental provision of goods or services should be kept in mind in exploring the possibility of its application to green energy programs.
WTO jurisprudence
While this issue was not extensively discussed in Canada–Renewable Energy/FIT, the panel's decision sheds an important light on the relevant analysis. The panel in the dispute stated that:
given the critical importance of electricity to all facets of modern life, we find that the question whether the challenged measures confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement cannot be resolved by applying a benchmark that is derived from the conditions for purchasing electricity in a competitive wholesale electricity market.Footnote 62
While the panel did not mention the term ‘general infrastructure’ specifically, the discussion above arguably implies that a WTO Member's national scheme and/or facilities to generate electricity, an item of ‘critical importance … to all facets of modern life’ of any country, may fall under the definition of ‘general infrastructure’ within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.Footnote 63 While electricity is a good in and of itself, national schemes and facilities generating it through a new and innovative means on a nationwide basis can be regarded as constituting projects that aim to establish national ‘general infrastructure’. In fact, common examples of general infrastructure include expressways, railroads, airports, or harbors.Footnote 64 Arguably, given the nationwide benefit of electricity as a power source to operate the entire national economy, a state's national schemes and/or facilities to generate and manage electricity would be essentially the same as these conventional examples of the general infrastructure. In fact, the common understanding of general infrastructure at present includes not only hardware such as ports and roads, but also software items such as cyber networks and digital facilities.Footnote 65 In light of this understanding, the ‘green infrastructure’ of a country such as national schemes or facilities to generate electricity in a new manner may also constitute a new type of general infrastructure.Footnote 66
The question then boils down to whether national climate change projects or green energy projects can also be classified as general infrastructure within the meaning of Article 1.1(a)(1)(iii). Viewed from the aforementioned perspective on general infrastructure, it can be argued that not all but some projects that aim to establish long-term sustainable green development on a national basis may belong to this category. Also, considering that the green energy projects are far more important than any other governmental programs in maintaining the general economic activities of a state and that they stand to serve the entire domestic constituents of a state, the carve-out for general infrastructure should also apply to some of these eco-friendly projects as well. The way out by invoking general infrastructure under the SCM Agreement would equally apply in the context of this situation.Footnote 67
In this respect, it should be noted that a WTO Member's green energy projects or programs can take various different forms. As a matter of fact, such projects or programs are implemented through a variety of specific measures: examples include R&D support for corporations, government agencies’ own R&D activities, tax reductions and exemptions, provision of grant, provision of governmental goods or services, provision of low-interest rate loans, and establishment of a joint fund. A renewable energy program as raised in Canada–Renewable Energy/FIT is one specific type of the larger scheme of green energy projects or programs. So, in this article, the term ‘green energy projects’ or ‘green energy programs’ is used to refer to a broader concept of a national green drive of a WTO Member, whereas the term ‘renewable energy programs’ is instead used to refer to the specific type of programs as adopted by Canada and other countries where governmental agencies purchase renewable energy sourced electricity at designated prices and/or impose domestic content requirements for the relevant parts.
If the renewable energy programs of Members can be classified as government projects to establish general infrastructure, they can be carved-out from the application of the SCM Agreement entirely. With appropriate preparation to satisfy the attendant requirements under Article 1.1(a)(1)(iii) relating to general infrastructure, subsidy claims and disputes could be effectively averted, at least for genuine and good faith green programs of various governments.Footnote 68
The most critical point here is to obtain strong assurances that renewable energy projects do belong to the category of establishing general infrastructure. A prospective decision by the Ministerial Conference or the General Council may pronounce these green measures as satisfying the conditions of Article 1.1(a)(1)(iii) constituting general infrastructure as long as no particular recipients or group of recipients are identified or targeted by the Member. This decision may free green-minded and willing Members from the legal concerns that they may face in the current regime of the SCM Agreement.Footnote 69
As a matter of fact, a WTO panel and the Appellate Body had an opportunity to discuss the meaning of general infrastructure in LCA disputes. In EC–Large Civil Aircraft, one of the critical issues raised in this dispute was whether the European Union and the Governments of France, Germany, Spain, and the United Kingdom had provided subsidies to Airbus and related companies in the form of building and upgrading infrastructure and, more particularly, whether this infrastructure would be classified as general infrastructure under Article 1.1(a)(1)(iii).Footnote 70
According to the panel in the dispute, evidence on the record indicates that the three facilities of the EU challenged in this regard support the conclusion that they have been constructed for utilization by and the benefit of Airbus.Footnote 71 If that is the case, this is a situation where relevant infrastructure is not accessible by the public at large or where the infrastructure is not for the common good of the public.Footnote 72 Thus, according to the panel, these facilities simply do not fall under the category of general infrastructure within the meaning of Article 1.1(a)(1)(iii). This finding of the panel was undisturbed by the Appellate Body.Footnote 73 In further exploring the meaning of general infrastructure, the panel stated that there is no such categorical concept as ‘infrastructure’, per seFootnote 74 and that consequently the nature of the general infrastructure changes over time. In other words, general infrastructure at one point in time may not be general infrastructure at other junctures.Footnote 75 What is determinative in this inquiry, therefore, is the nature of the infrastructure in question when the challenged subsidy is provided. The panel thus held that:
[s]uch situations would have to be carefully evaluated, based on all the relevant facts in each case, in order to determine whether the provision of the infrastructure in question is general or not, and whether that determination changes over time. Thus, we consider that the proper point of reference in determining whether a provision of goods or services is ‘other than general infrastructure’ is the time when the act of provision that is alleged to constitute a subsidy takes place. That may be at the time the infrastructure in question is created, in the sense of being brought into existence, or a subsequent point in time, when the conditions surrounding the provision of that infrastructure are changed by the government providing it. Moreover, the determination of whether a provision of goods or services is ‘other than general infrastructure’ may involve a time period of limited or indefinite duration.Footnote 76 (emphasis added)
As such, according to the panel, if general infrastructure is established by a government which provides goods and services to the general public, there is no financial contribution by the government and thus no subsidy at all. Once the provision of the general infrastructure is limited to a certain company or group of companies afterwards, however, it instantly loses the status of general infrastructure and constitutes a financial contribution by the government with the possibility of being ultimately found to be a regulated subsidy under the SCM Agreement. A converse situation is also possible; non-general infrastructure in the beginning becomes subsequently general infrastructure and avoids regulation of the SCM Agreement. So, the panel in the dispute denied a concept of general infrastructure per se and underscored the importance of considering the totality of circumstances of the infrastructure program at issue on a case-by-case basis. The panel thus held the following:
7.1039 Thus, we do not consider that there is any form or type of infrastructure which is inherently ‘general’ per se. Rather, the determination whether the provision of the good or service in question is ‘general infrastructure’ or not must be made on a case-by-case basis, taking into account the existence or absence of de jure or de facto limitations on access or use, and any other factors that tend to demonstrate that the infrastructure was or was not provided to or for the use of only a single entity or a limited group of entities. Such factors may relate to the circumstances surrounding the creation of the infrastructure in question, consideration of the type of infrastructure, the conditions and circumstances of the provision of the infrastructure, the recipients or beneficiaries of the infrastructure, and the legal regime applicable to such infrastructure, including the terms and conditions of access to and/or limitations on use of the infrastructure…
7.1041 Our conclusion that the determination whether the provision of the good or service in question is ‘general infrastructure’ or not must be made on a case-by-case basis, based on all the facts and circumstances…In our view, the provision of ‘general infrastructure’ is excluded from the disciplines of the SCM Agreement because the general nature of qualifying infrastructure implies a lack of such distortion.
7.1043 Given our view that there is no infrastructure that is inherently ‘general’ per se – a proposition with which both parties appear to agree – it logically follows for us that it is not possible to determine whether certain infrastructure is ‘general’ or not without assessing whether there exist any de jure or de facto limitations on access to or use of the infrastructure.
In this respect, the Appellate Body also basically upheld this part of the panel's decision. The Appellate Body only disagreed with the characterization of the financial contribution at issue in this particular dispute and modified the panel's finding,Footnote 77 but acknowledged the analytical tool of the panel discussed above.
So, in determining what is ‘general infrastructure’ within the meaning of Article 1.1(a)(1)(iii), both the panel and the Appellate Body were of the view that (i) creation and provision of infrastructure are inseparable, that (ii) the nature and surroundings of the infrastructure should be taken into account, and that (iii) whether there is any limitation on access to or use of the infrastructure is critical. The jurisprudence pronounced by the panel and the Appellate Body is also in line with the notion that general infrastructure is the one that tends to beget further infrastructure – for example, an airport is established and roads are then constructed to connect cities and the airport.Footnote 78
This line of analysis of the panel and the Appellate Body provides an important guideline in characterizing renewable energy development programs as general infrastructure within the ambit of the SCM Agreement. As discussed in EC–Large Civil Aircraft, single-company oriented infrastructure projects, by nature, would not satisfy the requirements of the SCM Agreement.Footnote 79 It is also true that the nature of the infrastructure may change over time as with any other governmental programs. But genuine green energy programs apparently do not just cover a single or several firms but cover the entire spectrum of the national economy. It is impractical to assert that good faith green energy programs are geared toward one company or certain companies. Also, it is unpersuasive to assert that the nature of such green energy programs will change over time, since these programs are introduced to address one of the most urgent problems in the international community on an ongoing basis and the current situation is certainly not expected to change much anytime soon. In addition, the ordinary meaning of the term ‘general infrastructure’ as interpreted according to Article 31 of the 1969 Vienna Convention on the Law of Treaties would basically mean ‘basic physical and organizational structures needed for the operation of a society or enterprise where such structures are (i) affecting or concerning all or most people or things; or (ii) not specialised or limited’.Footnote 80 The ordinary meaning of the term ‘general infrastructure’ thus also supports the view that green programs including renewable energy development programs constitute programs relating to establishing ‘general infrastructure’.
Textual analysis
While the WTO jurisprudence does offer an important guideline regarding interpretation of the key operating terms of Article 1.1(a)(1) of the SCM Agreement, it is largely focused on the ‘generality’ of infrastructure, since previous disputes mainly encountered the question of ‘general infrastructure’.Footnote 81 The question posed was thus in the main about whether infrastructure at issue is sufficiently general.Footnote 82 Few discussions, however, have been presented as to what constitutes infrastructure in the first place. This issue is critical in addressing renewable energy projects because they are, by nature, general as much as they aim to reduce nationwide greenhouse gas emissions. As a matter of fact, the green energy policies of a state cannot be region-specific or sector-specific; instead they are designed to cover the entire territory and all sectors of a given state. Thus, the remaining question is whether these green projects can be considered to be ‘infrastructure’ projects from the beginning. If the answer is in the affirmative, an argument can be made that these projects fall under the category of ‘general infrastructure’ to be able to enjoy the carve-out of Article 1.1(a)(1)(iii) of the SCM Agreement.
Definition of ‘infrastructure’
It is thus critical to look into the definition of ‘infrastructure’ as the term is used in the context of national economic development. The term ‘infrastructure’ is defined in dictionaries as the basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communications systems, water and power lines, and public institutions, including schools, post offices, and prisons.Footnote 83 The entry in the OECD glossary defines infrastructure as ‘the system of public works in a country, state or region, including roads, utility lines and public buildings’.Footnote 84 The African Development Bank in turn defines the term as ‘all the main networks that support economic and social activity’.Footnote 85 Another more mundane definition of infrastructure is ‘services that households and businesses tend to use every day’.Footnote 86 In short, the collective interpretation of these definitions indicated that ‘infrastructure’ means a public system that supports economic activity or functioning of a society. As such, ‘infrastructure’ can cover not only tangible items but also intangible ones since sometimes the latter category does play an important role in guaranteeing the functioning of a society or supporting economic activities.Footnote 87
Such being the case, the term is arguably flexible enough to cover various situations of national economic development or sustainability schemes, depending upon the context of a society or a state at issue.Footnote 88 It is in this context that ‘air purification’ has been presented as an example of national infrastructure development.Footnote 89 Viewed from this perspective, therefore, it is not surprising that ‘green infrastructure’ is now being mentioned to refer to various national projects to address environmental concerns,Footnote 90 which have been steadily expanded to cover a wide range of ‘environmental or sustainability goals’ that states aim to achieve.Footnote 91 Green energy projects and renewable energy programs of many states, to the extent that they are carried out to construct a social system to guarantee long-term development and sustainability of the economy, would arguably fall under this definition of infrastructure. In fact, the introduction and establishment of a low-carbon and climate-resilient economy require injection of significant amount of capital so as to ensure economy-wide transformation.Footnote 92 In essence, it is difficult to find a rationale to exclude this type of national program from the ambit of ‘infrastructure’.
Definition of ‘general infrastructure’
Thus, the term infrastructure includes both hardware and software at national level. National cyber networks or financial transaction networks are examples of ‘software’ infrastructure. According to the panel in EC–Large Civil Aircraft, the determination of ‘general infrastructure’ is ‘a case by case’ analysis, considering various factors such as ‘the type of infrastructure’, ‘the conditions and circumstances … of the infrastructure’, and ‘the recipients or beneficiaries of the infrastructure’.Footnote 93 The focus of the inquiry is whether these factors demonstrate that the infrastructure is provided to a broad range of entities and groups of entities.Footnote 94 Viewed from this perspective, national projects to establish climate change-deterring clean air for the general public within their respective national jurisdiction on a long-term basis would arguably fall under such a software category of general infrastructure.Footnote 95
Scope of ‘provision of services’
It should be noted, however, that the ‘general infrastructure’ carve-out does not apply to all instances of national projects relating to general infrastructure. As the text of the provision itself clarifies, the exception applies only to ‘government provision of goods or services’. More precisely, the provision only covers ‘services’ since national infrastructure provides services, as opposed to tangible goods, to the general public. The question then becomes when a government ‘provides such services’. The term ‘service’ is not defined in the WTO Agreements. The GATS defines the term ‘trade in services’, but does not define ‘service’.Footnote 96 The term ‘service’ is defined broadly in dictionaries; it is defined as ‘the action of helping or doing work for someone’,Footnote 97 ‘an act of help or assistance’,Footnote 98 or ‘labor performed for another’.Footnote 99 So, the national infrastructure projects would fall under the provision of services category.
In this regard, the term ‘provide’ is interpreted as ‘to make (something) available: to supply (something that is wanted or needed)’,Footnote 100 or as ‘to give something to somebody or make it available for them to use’.Footnote 101 The key operating element of the term is therefore ‘availability’. Thus, arguably the term covers not only the direct provision of funding or services but also indirect provision of funding or services insofar as such indirect provision makes the services available to target recipients. In other words, the term certainly covers a situation where a government constructs general infrastructure by itself. Arguably, the term also covers a situation where a government makes an arrangement to have general infrastructure available to target recipients, for instance, through provision of funding, support, services or goods to an entity which in turn provides general infrastructure to the target recipients. As much as the general infrastructure becomes available to the public due to the arrangement of the government, this indirect scheme should also be covered by the ‘general infrastructure’ carve-out.
This interpretation is further supported by yet another provision in the same article, Article 1.1(a)(1)(iv) of the SCM Agreement addressing the issue of entrustment or direction. The provision is premised upon the assumption that all types of governmental support appearing in the previous three provisions of the same article (i.e., Article 1.1(a)(1)(i) to (iii)) can also take place in the form of using intermediaries.Footnote 102 Viewed from this perspective, arguably it is not appropriate, or at least there does not exist any specific reason, to exclude a situation of intermediaries in the context of a sub-paragraph (iii) situation.
In short, the textual analysis of Article 1.1(a)(1)(iii) of the SCM Agreement supports the view that the term ‘general infrastructure’ in the provision covers nationwide green energy projects or programs, such as certain carefully designed national renewable energy programs, and they may find a safe harbor in the ‘general infrastructure’ carve-out of the present agreement. The eligibility to rely on the carve-out depends on whether a particular green project does satisfy the definition of ‘provision’ of national ‘general infrastructure’. Some may, but some may not; if anything, genuine national green projects may be more likely to satisfy the definition.
4.2 Select renewable energy projects constituting ‘general infrastructure’
In this context, an argument can be made that renewable energy programs may well satisfy the general infrastructure definition consistent with the language of Article 1.1(a)(1)(iii) of the SCM Agreement as interpreted by WTO panels and the Appellate Body.Footnote 103 While this issue presents a novel discussion of the SCM Agreement, this approach arguably seems to be supported by the WTO precedents or otherwise consistent with the object and purpose of the SCM Agreement.
At the same time, when addressing issues like this, it is important to keep in mind the basic objective of the SCM Agreement. While the SCM Agreement does subject WTO Members’ provision of illegitimate subsidies to specific private economic entities within their territories to rigorous discipline, the agreement is also mindful not to interfere with governments’ inherent authority to pursue otherwise legitimate public objectives within the parameters of the SCM Agreement, as summarized by the panel in Canada–Aircraft. Footnote 104 In a sense, the explicit exclusion of ‘general infrastructure’ in Article 1.1(a)(1)(iii) of the SCM Agreement in enumerating specific forms of financial contribution by a government is the reflection of that consideration so as to ensure certain maneuvering room for the governments of the WTO Members in pursuing these legitimate public objectives; thus in the context of infrastructure establishment, to the extent that the infrastructure takes the form of ‘general infrastructure’ which benefits the population as a whole, the SCM Agreement simply excludes it from the reach of the agreement.
In addition, regarding the utilization of the general infrastructure exemption, possible abuse of the exemption should also be contemplated.Footnote 105 Some governments might purport to hide behind this shield simply referring to remote connection to the reduction of greenhouse gases and restoration of the condition of the aerial environment. As a matter of fact, a variety of governmental subsidy programs for manufacturers are introduced to facilitate green activities or foster green products. Certainly, these programs will help reduce greenhouse gasses and counter the acceleration of climate change. Nonetheless, they may not necessarily satisfy the requirements of ‘provision of … general infrastructure’ within the meaning of Article 1.1(a)(1)(iii). Any program to satisfy the requirement, therefore, should be something that ‘provi[des] … the general infrastructure’. Mere connection to the infrastructure or indirect facilitation of the establishment of the infrastructure may not satisfy the requirements. By way of example, provision of subsidies to truck manufacturing companies should not be exempted from the SCM Agreement simply because trucks may be used to construct national highways – a typical example of general infrastructure. It should be the construction of the national highways themselves to satisfy the general infrastructure exemption. In fact, the panel in EC–Large Civil Aircraft cautioned that public authorities’ projects in furtherance of public interest in and of themselves were not sufficient to make them the ones for general infrastructure.Footnote 106
This analogy can be equally applied to green programs. A program should be, in and of itself, the one that constructs the general infrastructure, i.e., a program that ‘provi[des] … the general infrastructure’. Governmental programs that a grant or financial support to the manufacturers of equipment or parts that employ green technologies, or to the manufactures to assist them in competing in the new market of green products, may not be deemed to satisfy this requirement. On the other hand, governmental programs that directly reduce greenhouse gases and help establish climate change-deterring, cleaner air environment may arguably be deemed to meet the threshold. Examples would be governmental support for companies’ green activities, such as tax exemption for the installation of emission reducing facilities or equipment in the companies or R&D support (grant provision or technology transfer) for the development of core technologies that reduce the greenhouse gases. These programs are arguably directly related to the establishment of (thus, provision of) the general infrastructure, i.e., greenhouse gas-reduced, general economy-sustaining national aerial environment for the general public within the jurisdiction. Governmental support programs for the generation and distribution of renewable energy sourced electricity may well qualify for the category as well in that they directly aim at creating such an ‘aerial’ general infrastructure. This categorization may help save some of the bona fide green programs that government will adopt. Arguably, these certain green energy projects such as renewable energy programs are addressed and discussed as a long-term economic development and sustainability scheme on a national basis. This understanding would support the finding of general infrastructure at least in certain green energy projects.
In this regard, attention needs to be drawn to the fact that income or price support is another prong that is equivalent to, and independent of, financial contribution under Article 1.1(a)(2). Thus, if a program constitutes income or price support, reliance on the general infrastructure exemption, which is contained in the financial contribution prong, would not be available. So, a green program should not take the form of income or price support.
5. Concluding thoughts: a way forward
Arguably, it is now undeniable that climate change poses the most significant threat to the international community, thus prompting an urgent need for global action to counter this phenomenon. But the required global action generally demands active governmental support or facilitation measures in many different facets. The problem is, however, that these government measures may conflict with various provisions of the WTO Agreements where particular exemptions for green energy projects or programs are rarely found in this respect, except the general exceptions provision in Article XX of the GATT 1994. In particular, to the extent that governmental support is indispensable for the initiation and maintenance of the green energy projects and programs, the SCM Agreement is directly implicated among others. Unfortunately, the SCM Agreement does not include any exception to these green energy projects and programs, even if they are required or mandated by the growing concerns of the global community facing the climate change.
Some of these problems concerning the WTO subsidy norms are structural in nature which could only be addressed by an amendment of the SCM Agreement. However, an amendment of the SCM Agreement so as to include an exception of this nature has not been discussed so far, and a proposed amendment of the agreement in the course of the DDA negotiations does not include an exception to address this particular issue either. As a matter of fact, a proposal has been tabled during the DDA negotiations to re-introduce non-actionable subsidies to the SCM Agreement, but even if the proposal were to be adopted, it would only offer a small, limited relief to the problem at present. Most of the green energy projects and programs remain outside the non-actionable subsidy category. Therefore, any significant change in the dilemmatic situation at present is not expected anytime soon. So, under the circumstances, a solution should be found from within the existing framework, and be preferably derived from an interpretation of the present SCM Agreement based on the jurisprudence of WTO panels and the Appellate Body.
In this respect, the Appellate Body has recently pronounced an important jurisprudence in Canada–Renewable Energy/FIT, and relevant jurisprudence can also be found in other rulings of the Appellate Body and panels where related provisions of the SCM Agreement have been examined. The analysis of this article finds that the collective jurisprudence of the WTO panels and the Appellate Body arguably stands for the proposition that green energy projects such as renewable energy programs constitute a national endeavor to establish ‘general infrastructure’ of a state, and thus are carved out from the financial contributions by the government to the extent that they form governmental provision of goods or services. This interpretation would entail that these ‘green’ programs (at least certain genuine national ‘green’ programs) can stay out of the reach of the SCM Agreement. This jurisprudence of the SCM Agreement may offer Member states some reliable legal bases to help bridge the gap between the SCM Agreement and the growing global demand for green policies, at least for the time being.
Perhaps the last thing either the drafters of the Uruguay Round and the negotiators of the DDA negotiations had in mind was to encounter a situation where the SCM Agreement stood in the way of achieving the most critical and most urgent task currently facing the global community, which is to turn the tide against climate change. At this juncture, any reliable textual basis of the SCM Agreement that may lend support to permitting a government agency to provide assistance for green energy projects merits careful attention of the global community.
