With countries laying out stringent preconditions for clean energy subsidies, technology-led trade issues are emerging as possible new areas of conflict.
The fight among the World Trade Organisation (WTO) members over clean technologies and energy subsides has been in the news for the past few months, which clearly indicates that the next area of focus for countries would be technology-led trade in the coming years.
A couple of months ago, the US voiced its intention to seek the dispute settlement route against Beijing over alleged green technology subsidies, export restrictions on raw materials and other measures that China claims are necessary to put the country on a cleaner growth path.
Japan, on the other hand, has recently initiated a WTO complaint against one of Canada’s province’s green energy subsidies, alleging that they discriminate against foreign suppliers. At issue are stringent local content requirements of Ontario’s Feed-in Tariff Programme, which allows the province to subsidise electricity operators that use renewable energy if up to 60 per cent of the inputs are manufactured in the province. Only those foreign companies that set up shop in Ontario and produce electricity and equipment there are eligible for the subsidy.
Some multinational companies have already set up shop in Ontario to meet this requirement. According to news reports, the South Korean conglomerate Samsung Group agreed in January 2010 to build four huge wind and solar power clusters in the province with a combined generating capacity of 2,500 Mw by 2016 — this is expected to create 16,000 local jobs. In its complaint, Tokyo states that Ontario’s local content requirements breach the General Agreement on Tariffs and Trade (GATT) principle of national treatment, the WTO’s Agreement on Subsidies and Countervailing Measures and the Agreement on Trade-related Investment Measures.
In the US’ case, the salvo was fired by the United States Trade Representative in October when Ron Kirk announced that his office had initiated an “investigation under Section 301 of the 1974 Trade Act with respect to acts, policies and practices of the government of China affecting trade and investment in green technologies”.
This had followed a complaint by the United Steelworkers in September, alleging that China’s “illegal activities” included an array of restrictions ranging from limiting access to critical materials, performance requirements for investors, discrimination against foreign firms and goods, prohibited export and domestic content subsidies, and trade-distorting domestic subsidies.
At the core of these complaints has been China’s export restrictions on rare earths that are used as a critical input in hi-tech products. China has over 31 per cent of the world’s deposits of rare earth and supplies more than 90 per cent of the world’s demand for this product. China, however, has maintained that the US complaint does not take into account the growing concern across China to be environmental friendly.
It is clear that, according to the existing agreements, not providing national treatment to foreign suppliers or providing subsidies that are prohibited under the WTO agreement can be questioned at the dispute settlement. Even so, it remains to be seen how countries can challenge another member’s decision to stop exporting any product, like rare earth in the case of China.
Both these trade duels – Japan vs Canada and US vs China – point to the premise that countries will now focus on sectors that would provide employment opportunities and bring high investments into the country. This assumes importance with countries now focused on international trade to stimulate economic growth.
There is no doubt that in the coming years countries would also focus on taking control of raw materials across the globe to sustain industry in the domestic market. These disputes should help WTO, which is still struggling to conclude the Doha Round, to identify new areas for discussions and negotiations in a changed trade order in the subsequent rounds of negotiations.
Given the complexity of emerging global trade, it will be important for countries to ensure that WTO or any other multilateral body that will negotiate obligations for member countries is well equipped to deal with the new challenges in world trade.
But first, there is a need to conclude the Doha Round, which, according to the WTO director general, is nearing the “endgame”. In a recent address to the Trade Negotiations Committee, Pascal Lamy said that an intensive work programme has been lined up for the coming months and the Round would be concluded by 2011 since the heads of state at the G20 and APEC summits recognised that the next year provided a “critical, albeit narrow” window of opportunity.
The author is Principal Adviser APJ-SLG Law Offices
