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SCM Agreement Revisited: Climate Change, Renewable Energy, and the SCM Agreement

  • JAEMIN LEE (a1)
Abstract

Climate change poses a grave threat to the international community, thus prompting global action on all fronts. Various ‘green energy programs’ are being adopted by many governments. To the extent that governmental support is indispensable for the initiation and maintenance of these green energy programs, the SCM Agreement is directly implicated in this regard. Unfortunately, the agreement does not include any exceptions to these programs, even if the exceptions are undertaken due to the growing concerns of the global community. Under such circumstances, a practical solution should be found from within the existing framework, and be derived from an interpretation of the present SCM Agreement based on current jurisprudence. The collective jurisprudence of the WTO arguably stands for the proposition that certain renewable energy programs constitute ‘general infrastructure’ projects of a state, and thus are excluded from the financial contributions by the government under Article 1.1(a)(1)(iii) of the SCM Agreement.

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*Email:jaemin@snu.ac.kr.
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1 For example, U.S. President Barack Obama mentioned in his 2015 State of the Union address that climate change is the most important feature of the national agenda of the United States at the moment and will be addressed as a new type of ‘national security’ issues in the future.

2 World Trade Organization, Panel Report, Canada – Certain Measures Affecting the Renewable Energy Generation Sector/Canada – Measures Relating to the Feed-In Tariff Program, WT/DS412/R,WT/DS426/R, adopted 24 May 2013 (Canada–Renewable Energy/FIT (Panel)), at para. 7.65.

3 See ibid.

4 See Articles 4, 6, 7, 11, 17 of the DSU.

5 See Articles 5, 6, 15 of the SCM Agreement.

6 See Article 1.1(a)(1) of the SCM Agreement.

7 See, generally, Jonathan Sanford, Currency Manipulation: The IMF and WTO, Congressional Research Service (26 January 2010).

8 See Article 1.1(a)(1)(i) of the SCM Agreement.

9 See World Trade Organization, Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 19 January 2004 (US–Softwood Lumber IV (AB)), at para. 52, n. 35, quoting United States – Measures Treating Exports Restraints as Subsidies, Panel Report, WT/DS194/R, adopted 29 June 2001, at para. 8.65.

10 See the SCM Agreement, Article 1.1(a)(1). The Appellate Body has interpreted the financial contribution by the government under this provision in quite a broad manner.

11 See supra note 9, at paras. 7.119–7.121.

12 In the case of the United States, see the EPA webpage, http://www.epa.gov/statelocalclimate/state/topics/renewable.html#a03 (accessed 18 March 2016). In the case of Japan, see the METI webpage, http://www.meti.go.jp/english/policy/energy_environment/renewable/index.html (accessed 18 March 2016).

13 See the Climate Action Plan of the United States pronounced by President Obama in June 2013, http://www.whitehouse.gov/energy/climate-change (accessed 18 March 2016).

14 See ibid.

15 See Article 1.1(a)(1)(i) of the SCM Agreement.

16 See Articles 1.2, 2 of the SCM Agreement.

17 See World Trade Organization, Appellate Body Report, Canada – Certain Measures Affecting the Renewable Energy Generation Sector/Canada – Measures Relating to the Feed-In Tariff Program, WT/DS412/AB/R, WT/DS426/AB/R, adopted 6 May 2013 (Canada–Renewable Energy/FIT (AB)), at paras. 5.220–5.223.

18 Canada–Renewable Energy/FIT (AB), at para. 5.110; Canada–Renewable Energy/FIT (Panel), at paras. 7.222 and 7.243.

19 Ibid.

20 Canada–Renewable Energy/FIT (AB), at para. 5.111; Canada–Renewable Energy/FIT (Panel), at paras. 7.239

21 Canada–Renewable Energy/FIT (AB), at para. 5.113; Canada–Renewable Energy/FIT (Panel), at para. 7.242.

22 Canada–Renewable Energy/FIT (AB), at para. 5.128.

23 See Canada–Renewable Energy/FIT (Panel), at 7.243; Canada–Renewable Energy/FIT (AB), at para. 5.128.

24 See Shadikhodjaev, Sherzod, ‘International Decisions: First WTO Judicial Review of Climate Change Subsidy Issues’, American Journal of International Law, 107 (2013), at 871 .

25 Ibid., at 871, footnote 30.

26 Canada–Renewable Energy/FIT (Panel), at paras. 7.250–7.252, 7.255.

27 Ibid., at para. 7.328.

28 Canada–Renewable Energy/FIT (AB), at para. 5.169.

29 Ibid., at para. 5.219.

30 Ibid., at para. 5.246.

31 Shadikhodjaev, supra note 24, at 874.

32 Ibid., at 874.

33 Ibid.

34 Ibid., at 876–877.

35 See Pal, Rajib, ‘Has the Appellate Body's Decision in Canada – Renewable Energy /Canada – Feed-in Tariff Program Opened the Door for Production Subsidies?’, Journal of International Economic Law, 17 (2014), at 129 .

36 Ibid., at 132.

37 Ibid., at 133.

38 See Aaron Cosbey and Petros C. Mavroidis, ‘A Turquoise Mess: Green Subsidies, Blue Industrial Policy and Renewable Energy: The Case for Redrafting the Subsidies Agreement of the WTO’, Journal of International Economic Law, 17 (2014), at 26.

39 Ibid., at 27–28.

40 See Charnovitz, Steve and Fisher, Carolyn, ‘ Canada–Renewable Energy: Implications for WTO Law on Green and Not-So-Green Subsidies’, World Trade Review, 14(2) (2015), at 204205 .

41 Ibid., at 206.

42 Rubini, Luca, ‘“The Wide and the Narrow Gate”: Benchmarking in the SCM Agreement after the Canada–Renewable Energy/FIT Ruling’, World Trade Review, 14(2) (2015), at 220 .

43 Canada–Renewable Energy/FIT (Panel), at para. 3.4.

44 Part IV and Article 31 of the SCM Agreement.

45 See Negotiating Group on Rules, Draft Consolidated Chair's Texts of AD and SCM Agreements, TN/RL/W/213, 30 November 2007, at Part IV of the SCM Agreement.

46 See ibid.

47 The nature of the R&D programs administered by the US federal government and state governments of the United States is well documented in recent subsidy disputes between the European Union and the United States. See World Trade Organization, Panel Report, United States–Measures Affecting Trade in Large Civil Aircraft, WT/DS353/R, adopted 31 March 2011 (US–Large Civil Aircraft (Panel)), at paras. 7.940–7.1257.

48 World Trade Organization, Panel Report, United States – Preliminary Determination with Respect to Certain Softwood Lumber from Canada, WT/DS236/R, adopted 14 April 1999, at para. 7.26 (‘[W]e find further confirmation of this broad meaning in the fact that the drafters of the Agreement considered it necessary to explicitly exclude ‘general infrastructure’ [in drafting] Article 1.1(a)(1)(iii) of the SCM Agreement’.)

49 See Canada–Aircraft (AB), at para. 9.119.

50 World Trade Organization, United States – Measures Affecting Trade in Large Civil Aircraft, DS353/DS317.

51 World Trade Organization, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, DS316/DS347.

52 See, e.g., Agreement on Agriculture, Annex 2, paragraph 2, subparagraph (g). Environmental programs are discussed as a type of national infrastructure program.

53 The interpretation of the WTO covered agreement is governed by Articles 31 to 33 of the VCLT. Article 3(2) of the DSU provides that the DSB is to ‘clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’. Isabelle Damme, Treaty Interpretation by the WTO Appellate Body, Oxford: Oxford University Press, 2009, at 22. See also World Trade Organization, Appellate Body Reports, China – Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R, adopted 15 December 2008, at para. 171; World Trade Organization, Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (second complaint), WT/DS353/AB/R, adopted 12 March 2012 (US–Large Civil Aircraft (AB)), at para. 586; Canada–Renewable Energy/FIT (AB), at para. 5.120.

54 The Concise Oxford English Dictionary defines ‘general’ as ‘affecting or concerning all or most people or things; not specialised or limited’. See Catherine Soanes and Angus Stevenson (eds.), Concise Oxford English Dictionary, 11th edn, Oxford University Press, 2004, at 592. ‘Infrastructure’, in turn, is defined as ‘the basic physical and organizational structures (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise’. See ibid., at 730.

55 In EC–Large Civil Aircraft, when exploring the meaning of the ‘general infrastructure’, the panel highlighted the importance of managing the program in question over time for it to be eligible for general infrastructure. For instance, it pointed out that general infrastructure at one point in time may not be general infrastructure at other times. See World Trade Organization, Panel Report, European Communities – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 18 May 2011 (EC–Large Civil Aircraft (Panel)), at para. 7.1044.

56 See Article 1.1(a)(1)(iii) of the SCM Agreement.

57 WTO, Historic Deal Reached on Government Procurement, 2011 News Items, http://www.wto.org/english/news_e/news11_e/gpro_15dec11_e.htm (accessed 18 March 2016).

58 See ibid.

59 General infrastructure is the only explicit carve-out for financial contribution by the government under Article 1.1(a)(1).

60 See BBC Monitoring South Asia, ‘Nepal pitches for foreign investment in energy, connectivity’, London, 29 January 2015; Accord Fintech, ‘Gov't to take special measures to boost public spending for infrastructure development: Finance Minister’, Mumbai, 20 January 2015; Asia News Monitor, ‘Thailand: Government Accelerating Infrastructure Development in Special Economic Zones’, Bangkok, 27 January 2015. Establishment of infrastructure is particularly essential because the absence or lack of it generally leads to the inability to take advantage of the benefit of trade agreements in the first place. See Douglas Brooks, Benno Ferrarini, and Eugenia Go, ‘Bilateral Trade and Food Security’, ADB Economics Working Paper Series No. 367, September 2013, at 20.

61 See Canada–Renewable Energy/FIT (Panel), at para. 7.26.

62 Ibid., at para. 7.313.

63 See ibid., at paras. 2.1, 7.6, 7.9–68.

64 See USDOC, Antidumping Duties; Countervailing Duties, Final Rule, 62 Fed. Reg. 27296 (USDOC, 19 May 1997); Douglas Brooks, Benno Ferrarini, and Eugenia Go, ‘Bilateral Trade and Food Security’, ADB Economics Working Paper Series No. 367, September 2013, at 19.

65 According to the UK Government, key infrastructure sectors include transportation, energy, communication/digital, water, and intellectual capitals, etc. An inference can be made that national software such as electricity generating and distribution system and cyber networks can also constitute general infrastructure. See The UK Government, Infrastructure Policy (SN/EP/6594), 9 December 2014, at 5; One example of such software infrastructure is said to be GIS (Geographic Information System), http://education.nationalgeographic.com/education/encyclopedia/geographic-information-system-gis/?ar_a=1 (accessed 18 March 2016).

66 As for the use of the term ‘green infrastructure’, see the EPA (Environmental Protection Agency), http://water.epa.gov/infrastructure/greeninfrastructure/ (accessed 18 March 2016); An EU-wide strategy on Green Infrastructure: Enhancing Europe's Natural Capital, http://ec.europa.eu/environment/nature/ecosystems/index_en.htm (accessed 18 March 2016).

67 See WTO, World Trade Report 2006, at 196, http://www.wto.org/english/res_e/publications_e/wtr06_e.htm (accessed 18 March 2016).

68 See Luca Rubini, The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective, Oxford University Press, 2009, at 244–245.

69 See Article 1.1(a)(1)(iii) of the SCM Agreement.

70 See ibid.

71 See EC–Large Civil Aircraft (Panel), at paras. 7.1084, 7.1097, 7.1121, 7.1134, 7.1179, 7.1190, and 7.1191; World Trade Organization, Appellate Body Report, European Communities and Certain Member States–Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 18 May 2011, at para. 966.

72 See ibid., at para. 970.

73 Ibid.

74 See EC–Large Civil Aircraft (Panel), at paras. 7.1036–7.1044.

75 See ibid.

76 Ibid., at para. 7.1044.

77 In this dispute, the Appellate Body only held in this particular dispute that what was created by EC and what was provided to Airbus are not exactly the same. As the panel viewed the two as identical, to that extent the Appellate Body modified the panel finding.

78 Mansori, Kashif, ‘The Geographic Effects of Trade Liberalization with Increasing Returns in Transportation’, Journal of Regional Science, 43 (2003), at 249268, 251.

79 Thus, the provision of infrastructure to a specific recipient, which, by reference to its technical requirements and use, is only suitable to the needs of that recipient, would fall outside the scope of ‘general infrastructure’, thus constituting financial contribution by a government as provided for in Article 1.1(a)(1)(iii) of the SCM Agreement.

80 See supra note 54.

81 See panel and Appellate Body discussions in EC–Large Civil Aircraft, US–Large Civil Aircraft regarding general infrastructure such as EC–Large Civil Aircraft (Panel), at paras. 1039, 1041, 1043.

82 See ibid.

83 The American Heritage Dictionary of the English Language, 4th edn, Boston, MA: Houghton Mifflin Company, 2000 (Definition 2), cited by John Moteff and Paul Parfomak, Critical Infrastructure and Key Assets: Definition and Identification, Resource, Science and Industry Division (1 October 2004), at 1, http://fas.org/sgp/crs/RL32631.pdf (accessed 18 March 2016) (emphasis added).

84 OECD, Glossary of Statistical Terms, https://stats.oecd.org/glossary/detail.asp?ID=4511 (accessed 18 March 2016) (emphasis added).

85 Africa Infrastructure Knowledge Program Handbook on Infrastructure Statistics, at 1, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/AfDB%20Infrastructure_web.pdf (accessed 18 March 2016) (emphasis added).

86 George Peterson and Elisa Muzzini, Decentralizing Basic Infrastructure Services, at 209, http://www.maxwell.syr.edu/uploadedFiles/exed/sites/pgppm/Program_Readings/11-09,%20Duncombe_Decentralizing%20Basic%20Infrastructure%20Services.pdf (accessed 18 March 2016).

87 Tsehaie Woldai, ‘Geospatial Data Infrastructure: The Problem of Developing Metadata for Geoinformation in Africa’, in Richard Groot and John McLaughlin (eds.), Geospatial Data Infrastructure: Concepts, Cases and Good Practice, Oxford University Press, 2000, at 3, http://www.researchgate.net/publication/2555191_Geospatial_Data_Infrastructure (accessed 18 March 2016).

88 John Moteff and Paul Parfomak, Critical Infrastructure and Key Assets: Definition and Identification, Resource, Science and Industry Division (1 October 2004), at 2, http://fas.org/sgp/crs/RL32631.pdf (accessed 18 March 2016); Gianpiero Torrisi, Public Infrastructure: Definition, Classification and Measurement Issues, at 6, http://mpra.ub.uni-muenchen.de/25850/1/MPRA_paper_25850.pdf (accessed 18 March 2016).

89 Walter Buhr, What is Infrastructure?, at 6–8, http://www.wiwi.uni-siegen.de/vwl/research/diskussionsbeitraege/pdf/107-03.pdf (accessed 18 March 2016).

90 Green Infrastructure to Combat Climate Change–A Framework for Action in Cheshire, Cumbria, Greater Manchester, Lancashire, and Merseyside (March 2011), Prepared by Community Forests Northwest for the Northwest Climate Change Partnership, at 11, http://www.greeninfrastructurenw.co.uk/resources/framework_for_web.pdf (accessed 18 March 2016).

91 Josh Foster, Asheley Lowe, and Steve Winkelman, The Value of Green Infrastructure for Urban Climate Adaptation, The Center for Clean Air Policy (February 2011), at 3, http://ccap.org/assets/The-Value-of-Green-Infrastructure-for-Urban-Climate-Adaptation_CCAP-Feb-2011.pdf (accessed 18 March 2016).

92 Institutional Investors and Green Infrastructure Investments: Selected Case Studies (October 2013), at 14, http://en.g20russia.ru/load/783687560 (accessed 18 March 2016); Enabling Investment in Sustainable Energy Infrastructure, at 1, http://www.oecd.org/dac/POST-2015%20sustainable%20energy.pdf (accessed 18 March 2016).

93 EC–Large Civil Aircraft (Panel), at para. 7.1039.

94 Ibid., at para. 7.1039.

95 It is noteworthy that UNCTAD and OECD reports regard national projects for the promotion of sustainable energy as one type of basic infrastructure. See United Nations Conference on Trade and Development, Promoting Investment for Development: Best Practices in Strengthening Investment in Basic Infrastructure in Developing Countries – a Summary of UNCTAD's Research on FDI in Infrastructure, TD/B/C.II/12, 11 February 2011, at 3; OECD, Enabling Investment in Sustainable Energy Infrastructure, OECD Post-2015 Reflections Series, Element 4, Paper 2.

96 See the GATS, Article I, para. 2.

97 Oxford English Dictionary, http://www.oxforddictionaries.com/definition/english/service (accessed 18 March 2016).

98 Collins English Dictionary, http://www.collinsdictionary.com/dictionary/english/service (accessed 18 March 2016).

99 Webster English Dictionary, http://www.webster-dictionary.org/definition/Service (accessed 18 March 2016).

100 Merriam-Webster Online Dictionary, http://www.merriam-webster.com/dictionary/provide (accessed 18 March 2016).

101 Oxford Advanced Learner's Dictionary, http://www.oxforddictionaries.com/definition/learner/provide (accessed 18 March 2016).

102 See Article 1.1(a)(1)(iv) of the SCM Agreement.

103 Governments underscore the anti-global warming projects as national infrastructure establishment programs or something similar to such programs. In the case of the United States, see FACT SHEET: President Obama's Climate Action Plan (25 June 2013), http://www.whitehouse.gov/the-press-office/2013/06/25/fact-sheet-president-obama-s-climate-action-plan (accessed 18 March 2016). As for China, see China's Policies and Actions for Addressing Climate Change, The National Development and Reform Commission of The People's Republic of China (2013), http://en.ndrc.gov.cn/newsrelease/201311/P020131108611533042884.pdf (accessed 18 March 2016). As for Korea, see Management by Objectives System, http://eng.me.go.kr/eng/web/index.do?menuId=109&findDepth=1 (accessed 18 March 2016).

104 See Canada–Aircraft (AB), at para. 9.119.

105 Preventing circumvention is an important objective of the SCM Agreement, which should be taken into account when interpreting the SCM Agreement. See US–Softwood Lumber IV (AB), at para. 64.

106 See EC–Large Civil Aircraft (Panel), at para. 7.1038.

The draft form of this manuscript was presented at the Symposium on International Trade Law and Policy Relating to Natural Resources, Energy and Environment: Perspective on Sustainable Development held in Tokyo on 2–3 March 2015.

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