The Energy Cooperation Agreement does not affect validity of dispute under DSU
The Arbitration clause as per UNCITRAL AR isn’t binding upon parties, and there exists no obligation on the DSU to refer the matter to arbitration like an ordinary court. The WTO DSU is the ultimate final authority on interpretation of WTO Agreements.
Wingardium has waived its right of arbitrating the dispute
Lack of challenge or objection at the stage of establishment of panel constitutes waiver of right to avail arbitration.
L
EGALP
LEADINGSI.WG/SM/P-1 VIOLATES ART.III OF THE GATT AND ART.2.2 OF TRIMS.
1. The basic principles of Art. III prevent discrimination and domestic protectionism. In establishing a violation of GATT Arts. III and XI, one must simultaneously test its compliance with Art. 2.1 of TRIMS1. Therefore, the impugned measures of Wingardium which require mandatory local content violate Art. III: 4[A] and III: 5[B] of the GATT. Further it is not Government procurement within GATT, Art.III:8(a).[C]
[A]. It violates Art.III:4
2. Products must be like products [1], with requirements affecting their purchase or use [2], and that imported products are accorded less favorable treatment [3] for a violation to be committed.
[1].THE PRODUCTS ARE LIKE
3. The products at issue are C-Si solar cells. Likeness is determined by a holistic consideration2 of certain criteria.3 These are:
(i) The properties, nature and the quality of products
4. The C-Si cells produced in Wingardium are based on a transfer of technology agreement which transferred ‘know-how’ from the CLI under an ECA. Wingardian C-Si cells are therefore
1 Appellate Body Report, Japan- Taxes on Alcoholic Beverages-II WT/DS8/AB/R (Oct. 4, 1996); Appellate Body Report, European Communities – Measures Affecting Asbestos and Products Containing Asbestos, ¶ 117, WT/DS135/AB/R (Mar.12, 2001); Panel Report, European Communities – Regime for the Distribution of Importation, Sale and Bananas-III, ¶ 7.182, WT/DS27/R/ECU (May 22, 1997).
2 Appellate Body Report, European Communities – Measures Affecting Asbestos and Products Containing Asbestos,
¶ 101-103, WT/DS135/AB/R (Mar.12, 2001).
3 Report by the Working Party on Border Tax Adjustments L/3464 (Nov., 20 1970).
based on Leviosan manufacturers’ technology4 and physical characteristics of the cells are identical.
(ii) The end uses of products.
5. The cells produced in Wingardium and Leviosa have similar characteristics due to being based on the same technology and manufacturing process. The two products have similar end uses for WNSM aims to replicate the development of the Solar power sector in Leviosa.5
(iii) Consumer’s perceptions in respect of the products.
6. In the absence of any objective criteria, analysis of customer preferences must be based upon manufacturers of panels, they being the specific customers at hand. Price, efficiency, performance characteristics, and reliability, are hence the relevant factors among others.
[2].THE IMPUGNED MEASURE IS A ‘REQUIREMENT’ WITHIN THE MEANING OF ART.III:4.
7. For a measure to be a requirement under Art. III:4 it must be a requirement[i] affecting the internal sale or offering for sale of products.[ii].
(i) The measure is a ‘requirement’ within the meaning of Art. III:4.
8. ‘Requirement’ is said to exist if the obligations are such that an enterprise is legally bound to carry them out. It includes voluntarily acceptance to obtain an advantage from the government.6 A firm seeking to produce PV Panels using C-Si cells is obligated to ensure that 30% of the cells are manufactured domestically. A producer of solar power seeking to employ C-Si cells must still opt into the requirement to avail of the benefits under the FIT scheme, and is hence a requirement.7
(ii) It ‘affects’ the internal sale of products.
9. ‘Affecting’ has been interpreted to mean governing the conditions of sale, and also adverse effects on the competitive conditions between the products8. It affects internal sale or conditions
4 Annex. II, Fact on Record.
5 ¶ 5, Fact on Record.
6 Panel Report, India – Measures Affecting the Automotive Sector, ¶ 7.191, WT/DS146/R, WT/DS175/R (Dec. 21, 2001).
7 Panel Report, Canada - Administration of the Foreign Investment Review Act, ¶ 5.4, L/5504 – 30S/140 (Feb. 7, 1984).
8 Panel Report, Italian Discrimination Against Imported Agricultural Machinery, ¶ 12, BISD 7S/60 (Oct. 23, 1958).
of sale of the product if it impacts decision of private firms.9 A producer of solar power who has decided to employ C-Si based panels would have to choose 30% of cells from local manufacturers, in disregard of his freedom to choose between imported and domestically produced cells based on capabilities, price and other economic considerations. The requirement hence affects the competitive relationship between imported and domestically produced C-Si cells is affected.
[3].IT ACCORDS LESS FAVORABLE TREATMENT TO IMPORTED PRODUCTS
10. A measure treats imported products less favorably if it affects the competitive relationship between the two products or even if in according formal equality, it results in less favorable treatment. No ‘less favorable treatment’ signifies equality of competitive conditions between imported products and domestic like products.10 It further entails equality of opportunity with regards to internal sale or distribution.11 The measures require every producer employing C-Si cells to ensure that 30% are domestically produced. The competitive relationship is therefore damaged.
11. Further in according products de jure equality, it leads to de facto discrimination against imported products as the imported products must be separately labelled after the production process to comply with the requirements unique to Wingardium, resulting in higher costs. While domestic manufacturers can label the products on the production line itself, incurring no such cost.
[B]. It violates Art. III: 5.
12. Art. III:5 contains two substantive statements. The second sentence is invoked only when the first is inapplicable. A conclusive finding under one provision is independent of an affirmative finding under the other. 12
[1].THE MEASURE REQUIRES THE USE OF A SPECIFIC PROPORTION OF DOMESTIC MATERIALS
9 Panel Report, Italian Discrimination Against Imported Agricultural Machinery, ¶ 12, BISD 7S/60 (Oct. 23, 1958).
10 Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper, ¶ 10.739, WT/DS44/R (Mar.
31, 1998).
11 Panel Report, US-Section 337 of the Tariff Act of 1930 and Amendments thereto, ¶ 5.11.
12 Panel Report, United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, DS44/R (Oct.
4, 1994).
13. A regulation will be said to be in violation of Art. III:5 first sentence, if it is a quantitative regulations[i] requiring the use of a specified proportion of materials sourced from domestic sources[ii].
(i) The regulation is a quantitative regulation
14. Whether the conditions imposed are regulations is determined by their origin.13 The test employed is whether the impugned measures have been created by a body empowered by law to do so.14 Document WG/SM/P-1 of the WMRE lays down the requirement, and compliance with the program is overseen by a government controlled Power Authority as was the case in the Ontario FIT scheme.15 It has been initiated by a body empowered by law to impose such requirements.
Further, the WNSM was amended twice to implement policy changes. Therefore, it can be concluded that the requirements are quantitative regulations within the meaning of Art. III:5.
(ii) Mandating domestic sourcing
15. The WNSM’s mission mandates plants employing C-Si technology to ensure 30% local sourcing. This requirement of mandatory local content is against Art. III:5, GATT.
[2].IT IS AN INTERNAL QUANTITATIVE REGULATION CONTRARY TO THE PRINCIPLES OF ART.III:1.
16. Art. III:5 second sentence applies to any internal quantitative regulation that has the effect of discouraging imported products vis-à-vis domestically produced products, or avoids protection to domestically produced products. To establish a violation of Art. III:5 second sentence, there must be an internal quantitative regulation [i] and it must be against the principles of Art. III:1 [ii].
(i) Quantitative regulation
17. Quantitative restriction means specific limitations on the quantity of goods that can be imported or exported,16 while regulation means actions or procedures implemented by governments with a view to influencing the industry or customers of an industry in a particular manner17. In the absence of a specific interpretation of ‘qualitative regulation’, a quantitative
13 Panel Report, United States- Procurement of a Sonar Mapping System 26S/34 (Apr. 23, 1992).
14 Panel Report, United States- Procurement of a Sonar Mapping System 26S/34 (Apr. 23, 1992).
15 Art. 5, ¶ 6, Fact on Record.
16 DICTIONARY OF TRADE POLICY TERMS,303(4th edn.,2003).
17 DICTIONARY OF TRADE POLICY TERMS,303(4th edn.,2003).
regulation is a rule or procedure implemented by a government which requires a certain proportion of materials to be present or absent in a product on the basis of its place of origin. Wingardian measures fall within the definition of a quantitative regulation under Art. III:5.
(ii) The quantitative regulation is against the principle of Art. III:1.
18. A quantitative regulation is against the principles of Art. III:1, if it discourages imported products or protects domestic products18. The measures requiring local content in all C-Si based projects encourages use of domestic cells over imported ones, leading to effective protection19 of domestic C-Si industries from international competition.
[C]. It is not government procurement within the meaning of Art. III:8(a)
19. The provisions of Art. III do not apply to government procurement for governmental purposes and for commercial resale.
[1].NOT GOVERNMENT PROCUREMENT
20. The GoW purchases the power produced by solar producers through a Power Authority20. To constitute government procurement, the products purchased must be for immediate government consumption in governmental use or for government purposes.21 A product is for government purposes if the payment is made by the government (i) for government use of the product (ii) or where there is government control over the procurement of the product (iii).22
(i) Payment is not made by the government
21. Under the FIT scheme the power produced is purchased by the PAoW, with the GoW paying for electricity produced. But, the product is the solar cells itself, which aren’t purchased with government money. Although purchases of a private contractor have been held to be government procurement, a difference is that in the Sonar mapping case, the contractor was
18 Appellate Body Report, Japan- Taxes on Alcoholic Beverages-II, ¶ 16, WT/DS8/AB/R (Oct. 4, 1996); Panel Report, Italian Discrimination Against Imported Agricultural Machinery, ¶ 11, BISD 7S/60 (Oct. 23, 1958).
19 DICTIONARY OF TRADE POLICY TERMS,303(4th edn.,2003).
20 Art. 5, ¶ 6, Fact on Record.
21 Panel Report, United States- Procurement of a Sonar Mapping System 26S/34 (Apr. 23, 1992).
22 Panel Report, United States- Procurement of a Sonar Mapping System 26S/34 (Apr. 23, 1992).
reimbursed by the Government for its expenses. In the absence of such a clause in the instant case, the purchase of solar cells by power producers cannot be said to be with government money.
(ii) No government benefit from the product.
22. The product purchased by the Government is different from the product targeted by the measures, with both being distinct and incomparable. 23 The GoW purchases electricity, while the product subject to measure is power production equipment. Since Art. III:8(a) must be construed keeping in mind Art. III:1, the application of Art. III:8(a) requires discrimination between two like products one of which is procured by the government. Electricity and electricity generation equipment being different, Art. III:8(a) cannot be applied.
(iii) No government control over the procurement of the ‘product’
23. The government of Wingardium, exercises no control on the ‘product’ (solar cells), ultimately purchased by power producers. The producer can choose between TF or C-Si cells, and domestic or imported C-Si or TF cells. In US-Sonar Mapping, owing to the profound control over the procurement reflected by right to cancel a contract entered into between contractor and a third party, as a government procurement.24 In the absence of any such control with the Government of Wingardium, the measure cannot be said to deal with government procurement.
[2].ASSUMING IT IS GOVERNMENT PROCUREMENT, IT IS FOR COMMERCIAL RESALE
24. Art. III:8(a) is inapplicable to procurement for commercial purpose. The purchase of electricity is for commercial resale and is beyond the scope of Art. III:8(a). Commercial resale means ‘sale at an arm’s length’, where seller seeks to maximize his profits and the buyer seeks to maximize his interests.25 However, short term loss may be in the long term strategy of the seller26. Therefore, the absence of profit motive will not take away from the commercial nature of the
23 Panel Report, Canada – Measures Relating to the Feed-In Tariff Programme, WT/DS412/R, WT/DS426/R (Dec.
19, 2012).
24 Panel Report, United States- Procurement of a Sonar Mapping System 26S/34 (Apr. 23, 1992).
25 Panel Report, Canada – Measures Relating to the Feed-In Tariff Programme, WT/DS412/R, WT/DS426/R (Dec.
19, 2012).
26 Panel Report, Canada – Measures Relating to the Feed-In Tariff Programme, WT/DS412/R, WT/DS426/R (Dec.
19, 2012).
transaction. The transaction is therefore a sale at ‘arms length’ as discussed by the Appellate Body in Canada-FIT,27 and consequently is one undertaken with a commercial purpose, and hence not exempted.
II.THE WINGARDIAN MEASURE IMPLEMENTS AND REQUIRES MARKS OF ORIGIN.
25. A measure implemented by a contracting party requiring producers of a specified product to specify the country of origin would be in violation of Art. IX: 4 of the GATT if it requires their marking in such a way that materially reduce its’ value [A] or unreasonably increases its cost [B]
[A]. The marking requirement materially reduces its value
26. ‘Material’ although not defined under GATT, has been interpreted under the ADA as in part of ‘material injury’, which is exhibited by a decline in sales, profits, market share or return on investment,28 ‘value’ means the monetary worth of something.29 It is submitted that ‘reduction in material value’ means a reduction in the price, revenue or market share of a product due to the application of country of origin requirements to imported products.
27. Material value will be reduced because of the present tumultuous relationship and considerable resentment between the two countries.As a result, the identification of a product as originating in Leviosa will lead to an unfavorable perception of the product and would considerably impact the revenue and market share of the C-Si cells manufactured in Leviosa.30 Further, the purpose behind the Labelling measures implemented by Wingardium is to give consumers all the information that they require to make an informed decision to buy after considering the associated health risks.31 There exists no nexus between information about health
27 Panel Report, Canada – Measures Relating to the Feed-In Tariff Programme, WT/DS412/R, WT/DS426/R (Dec.
19, 2012).
28 DICTIONARY OF TRADE POLICY TERMS 303(4thed. 2003).
29MERRIAM WEBSTER ONLINE DICTIONARY.
30 See J.K Jackson, International Product Positioning, 16(3) JOURNAL OF INTERNATIONAL BUSINESS STUDIES,68 (AUTUMN 1985).
31 Annex. VIII, Fact on Record.
risks and country of origin as both imported and domestic C-Si panels are produced using the same technology.
[B]. Unreasonably increases cost.
28. A labelling or other compulsory identification can have a disparate impact and lead to an increase in the costs in a manner such that the cost is greater for the imported products than like domestic products.32
29. A legal requirement that applied in a (formally) equal manner to both imported and domestic like-products could lead to greater costs for the imported product. This is because the labels can be placed on domestic products during production process itself; but in the case of an imported product an entire additional process had to be undertaken has been accepted by a Panel.33 The cost and effect is greater for imported products, which adversely affects their competitive relationship leading to losses in revenue and market share. Therefore, the Wingardian labelling measure requiring country of origin disclosures violates Art. IX of the GATT.
III.THE IMPUGNED MEASURES DO NOT FALL WITHIN ANY OF THE EXCEPTIONS UNDER ART.XX
OF THE GATT
[A]. The Wingardian labelling requirements are not exempted under Art. XX(b).
30. Art. XX(b) exempts measures which are necessary to protect human, animal or plant life or health. For a measure to claim an exemption under Art. XX(b), the policy in question must fall within the range designed to protect human, animal or plant life or health [1]. The inconsistent measures invoking the exception must be necessary to fulfill the policy objective [2] and the measures must be applied in conformity with the introductory clause of Art. XX [3].
32 Panel Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/R (Nov. 26, 2004).
33 Panel Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/R (Nov. 26, 2004).
[1].The policy sought to be achieved by the impugned measure was not the protection of human health.
31. The structure and working of the scheme demonstrates that discouragement of the use of imported C-Si cells, as evidenced by RFID tagging and packaging requirements, and not protection of human health was the policy objective. The requirements mandate display and disclosure of information which does not add any relevant information to the decision making process of the consumer. Masquerading under safety is the true intention of identifying the country of origin. The policy being pursued was to restrict and decrease the market share of Leviosan C-Si cells, and is exacerbated by the misguided animosity held by citizens of Wingardium against Leviosa and its corporations.34
[2].The measures implemented were not necessary to achieve the policy objectives
32. For a measure to be ‘necessary’, it must contribute to the achievement of the objective [i]
based on scientific data collection and risk assessment [ii] and having considered the reasonably available alternatives.[iii]
(i) It does not contribute to the achievement of the policy objective
33. There must be a relationship between the means adopted and the end sought to be achieved for there to be any contribution35. The measures do not help the proclaimed objective of reducing adverse health impact. The measures may reduce the market share of C-Si cells, but does not protect consumers from adverse health effects caused by exposure to C-Si cells. Therefore, the measures are not apt to contribute to the policy objectives in the given instance36.
(ii) Not based on scientific data collection and risk assessment.
34. The entire public health argument is reliant on a single preliminary (and inconclusive) study by the DoHW, and not on sufficient evidence as required under Art. XX(b)37. The study contradicts quality testing tests carried out by Wingardium authorized test centers and Wingardium
34 ¶ 16, Fact on Record.
35 Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, ¶ 145, WT/DS332/AB/R (Dec.
17, 2007).
36 Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, ¶ 151, WT/DS332/AB/R (Dec.
17, 2007).
37 Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R (Dec. 17, 2007).
law, which certify that the panels meet IEC 61730 and IEC 43070. Further, independent testing by NGO’s show no health risks. Therefore, the preliminary test results based on which the Wingardian measure was undertaken cannot be said to be made on a consideration of scientific data and risk assessment.
(iii) There exist reasonably available alternatives
35. If there exist viable alternatives to the impugned measure, then the same can’t be deemed necessary for the purposes of Art. XX (b). The reasonably available alternative proposed is a measure requiring all retail outlets or points of sale where C-Si panels, whether imported or domestic, can be purchased be mandated to display posters and notice boards, drawing attention to the hazardous health risks of C-Si cells. The Appellate Body has laid down a test under Art.
XX(d)38 which looks at the extent to which the alternative contributes to the realization of the end pursued(a), the difficulty of implementation(b), and trade impact of the alternative measure as compared to the impugned measure(c).
(a) Contributes to the end pursued.
36. The end pursued here is the protection of human health by increasing consumer awareness about the health risks of using C-Si technology, and in this way allowing them to make an informed decision shaving considered the health hazards.
(b) It is not difficult or more difficult to implement
37. The implementation of the above measures is not at any rate more difficult than the implementation of the product labelling measure as all points of sale of such products are known and identifiable. Therefore, it would require equal effort to implement than to ensure that each
37. The implementation of the above measures is not at any rate more difficult than the implementation of the product labelling measure as all points of sale of such products are known and identifiable. Therefore, it would require equal effort to implement than to ensure that each