By Stuart Weinberg DOW JONES NEWSWIRES
TORONTO (Dow Jones)–In a meeting this week, Japanese trade officials asked Ontario government officials to “get rid of the local-content requirement” contained in Ontario’s feed-in-tariff program.
Toshihiko Fujii, director of trade rules and dispute settlement for Japan’s Ministry of Economy, Trade and Industry, said Ontario didn’t agree to the request but the two sides will continue the discussion.
Fujii said he made it clear that Japan “cannot rule out the possibility” of a legal challenge of Ontario’s domestic-content requirements at the World Trade Organization in Geneva.
Officials from Ontario’s Ministry of Energy and Infrastructure weren’t immediately available to comment.
Ontario’s feed-in-tariff, or FIT, program provides generous long-term contracts to developers of green-energy projects. To date, the province has made 694 FIT-contract offers that will create 20,000 direct and indirect green jobs, according to a release issued last week by the Ontario Power Authority, which oversees the FIT program.
However, the program has raised the ire of some foreign companies and governments who contend Ontario is shutting them out. That’s because, to be eligible for a FIT contract, developers must procure a fixed percentage of goods and services in Ontario. For instance, 50% of goods and services used in a large solar project must originate in Ontario. That rises to 60% in 2011.
The aim of the domestic-content requirements is to entice clean-tech manufacturers to Ontario, thereby keeping jobs in the province. Some clean-tech companies, such as Sustainable Energy Technologies Ltd. (STG.V) and Canadian Solar Inc. (CSIQ), have announced plans to set up manufacturing facilities in Ontario. However, another company, SunPower Corp. (SPWRA), closed its Ontario office earlier this year.
On Wednesday, a consortium of clean-tech-manufacturing companies is scheduled to meet with Ontario’s Minister of Energy and Infrastructure, Brad Duguid, to discuss their concerns about the domestic-content requirements, according to a person familiar with the situation.
Japan’s Fujii said Ontario’s goal of creating jobs is understandable but “in our view, this is not necessarily consistent with Canada’s obligations as a contracting party of the GATT (General Agreement on Tariffs and Trade) and other WTO-related agreements,” he said.
Under GATT, any contracting party, which includes local governments, is prohibited from introducing laws or regulations that provide less-favorable treatment to imports, Fujii said.
Fujii also said that, by instituting domestic-content requirements, Ontario is limiting access to the best technology on the market. As well, if Ontario retains the domestic-content requirements, it could be setting a dangerous precedent, he said. “FIT programs are being explored by many government entities all over the world,” he said. “So far, (Ontario) is the only (jurisdiction) who added a local-content requirement to (a FIT program.) But (if) other local governments or national governments copy the local content requirement idea of Ontario…, that impact will be devastating.”
A legal challenge at the WTO has several stages that could take years to play out. If the challenge is successful and Canada doesn’t bring Ontario into compliance with the WTO ruling, Japan would be able to seek authority to retaliate with protectionist trade measures of its own.
-By Stuart Weinberg, Dow Jones Newswires; 416-306-2026;