Загрузил Владимир Купцов

EU-UK trade dispute2022wto

EU-UK trade dispute 2022 WTO
Trade Disputes: EU launches landmark WTO complaint against the UK for alleged
discriminatory practices in the award of Offshore Wind Sector subsidies
21 APRIL 2022
HTTPS://DW FGROUP.COM /EN/NEW S-AND-INSIGHTS/INSIGHTS/20 22/4/EU-LAUNCHESLANDMARK-WTO-COMPLAINT-AGAINST-THE-UK
The UK has been hit by a World Trade Organisation complaint submitted by the
European Union, alleging local content requirements within the UK's Contracts
for Difference scheme discriminated against EU goods and suppliers, thereby
falling foul of Article III:4 of the GATT.
The move represents the first formal EU-UK trade dispute following Brexit and the
negotiation of the EU-UK Trade and Cooperation Agreement in December 2020. It also
creates uncertainty around the delivery of the UK's flagship subsidy scheme promoting
renewable energy generation. In this article, we look into the grounds for the complaint,
the EU's strategy in bringing the claim and the possible consequences.
What is the EU's WTO complaint against the UK
about?
The EU complaint [1] challenges the compliance of the Department for Business, Energy
and Industrial Strategy ("BEIS") scheme, Contracts for Difference ("CfD scheme") with
Article III:4 of the General Agreement on Tariffs and Trade 1994 ("GATT"). In particular,
the EU claim alleges that eligibility rules around local content for energy subsidies in the
CfD scheme breach WTO rules.
The CfD scheme is a high profile UK Government policy. In the UK government’s own
words, the CfD scheme is "the main mechanism for supporting low-carbon electricity
generation, more than 80% of which comes from offshore wind farms".
CfDs are a government-driven incentive for private investments in renewable energy
projects, which require a high upfront investment and long-term financial commitment.
The CfD scheme is designed to protect investors from volatility in wholesale electricity
prices and thereby incentivise investment, which contributes to meeting the Net Zero
target. CfDs have a social function, protecting consumers from high electricity prices, as
well as a market function, incentivising competition of different types of renewable energy
projects for the same CfD.
Renewable energy actors in the UK that meet the eligibility requirements can apply for a
CfD. Since December 2021, the eligibility rules have included a local UK content
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requirement. Successful applicants enter into a private law contract with the Low Carbon
Contracts Company (LCCC) [2], a Government-owned company. Under the CfDs, the
developers of winning projects are paid a rate for the electricity they produce over a 15year period. The subsidy is the difference between the ‘strike price’ (a price for electricity
reflecting the cost of investing in the renewable energy project) and the ‘reference
price’ (the average market price for electricity in the GB market).
The EU complaint is about the new UK local content requirement for eligibility for CfD in
renewable energy projects, expected from UK applicants and beneficiaries of the
scheme. Such a local content typically includes the supply of wind turbines (often the
most significant cost input) as well as the installation service from the supplier. The EU
believes this element – localisation of turbines supply in the UK - is discriminatory, placing
EU suppliers of turbines and of related services at a disadvantage, and violating Article
III:4 of the GATT.
Article III.4 of the GATT prohibits governmental measures (laws, regulations and
requirements) that result in treatment of imported goods in a manner that is less
favourable than the treatment of comparable local goods. In its request for consultations,
the EU lists over a dozen of UK laws, regulations, guidance and consultant papers
relating to this point.
What other approaches could the EU have taken?
At this early stage of the WTO process, the EU chose not to complain about the
consistency of the CfD scheme with WTO rules on subsidies in the Agreement on
Subsidies and Countervailing Measures.
This has surprised many observers, but one possible explanation for this apparent
omission is that in 2014 the European Commission approved the Contracts for
Difference scheme as lawful State aid [3]. Although the local content requirement was not
present in the measure at that time, the EU is unlikely to want to call into question its own
approval. Furthermore, EU member states such as France have created similar subsidy
support schemes for wind farms, where local content is a best practice or a voluntary
commitment, as opposed to a legal eligibility requirement [4].
How has the UK responded to the EU's WTO
complaint?
The UK has robustly responded to the EU complaint, stating that the scheme is fully
compliant with WTO rules, and that it will defend the scheme vigorously.
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The challenge has added further tension to the EU-UK relationship. Not only are other
trade disputes likely to follow, but the UK will be carefully reviewing similar subsidy
schemes for green energy projects and wind farms being introduced by EU Member
States. Where such local content requirements are set out in such subsidy schemes then
the UK is likely to consider initiating a WTO complaint for discriminatory practices against
the EU.
Does the EU WTO complaint damage investment in
offshore wind energy?
Both the UK and the EU pursue ambitious climate and green energy transition goals. To
some extent, they compete against each other in reaching those goals. In the EU,
countries like the Netherlands, France, Spain, Denmark and Belgium have invested in
wind farms early on, and the availability for new plots and the issuance of permits for new
projects in those countries has reached bottlenecks [5]. Social and environmental
opposition to building onshore wind farms in the EU has been growing and has further
stifled wind farm growth in the EU.
In contrast the UK, particularly as an island nation, has so far been more successful in
developing offshore wind farm capacity, and there are good growth prospects in the UK
offshore wind sector. With strong market competition among wind turbine manufacturers
generating a price squeeze for turbine manufacturing, local content in wind farm projects
may protect local turbine manufacturing and local turbine prices.
Furthermore, FT reports Renewable UK estimates that just 29 per cent of capital
expenditure on offshore wind projects went into the UK economy, which rises to 48 per
cent over the estimated 30-year life cycle of such projects, including maintenance. The
current UK Government's goal is to increase that level of capital expenditure spent with
UK-based suppliers to between 40 – 50% and 60% of lifetime spend, including
maintenance [6].
How do WTO complaints unfold?
WTO complaints initially follow a diplomatic route, but may move onto a legal footing if
progress is not made. The diplomatic route is meant to try and exhaust all means for a
mutually agreeable solution. The formal period of 60 days provides for the diplomatic
"consultations", however this is not mandatory and can be extended by consent between
the parties.
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The WTO consultations, which begin after the complainant (the EU) and the respondent
(the UK) exchange initial papers, are held in Geneva, but also often involve multiple
rounds of written correspondence. This provides an opportunity for the parties to attempt
to reach compromise.
If the matter proceeds then third parties, (other WTO member countries) will have the
opportunity to join the dispute and support either the EU or the UK in their positions and
written interventions. There is a procedural possibility for third parties to request joining in
earlier, during the initial consultations. However, in order to be allowed to join
consultations, third parties need to demonstrate a substantial interest in the dispute, and
the consulting parties must confirm that a substantial interest exists. This procedural test
acts as a hurdle for third parties to intervene during consultations; therefore, third parties
usually join a dispute during the early panel stages.
Should the two sides not be able to find a common ground within 60 days or any further
reasonable time allowed by them, the EU will proceed to making a formal request for the
establishment of a panel. The panel is the team of arbitrators that will hear the legal WTO
case. That is not the end of the diplomatic process – as the two sides will need to find an
agreement on the choice of three candidate panel members, termed "composition of the
panel", who must be knowledgeable of the subject-matter and as impartial as possible.
Once the panel is composed and approved by both parties, the WTO Dispute Settlement
Body will set the legal panel process in motion. The 9-month period for a panel's work is
often exceeded in practice. During that time, the EU and the UK will exchange two sets of
written submissions. Any third parties who have joined the dispute may also make written
submissions.
In the last stage, the panel will prepare a draft report, which the main parties can
comment upon. Then the panel will publish the final report.
What can be the consequences of a WTO Panel
judgment?
Should a WTO Panel find that the UK has violated Article III:4 of the GATT, the panel
report would recommend the UK to remove such inconsistency from the CfD scheme.
The UK would have a procedural opportunity to appeal the panel report with the Appellate
Body. However, should the UK fail to appeal the report, the panel's ruling would become
final and would be adopted by the Dispute Settlement Body. The UK would then face its
binding effects and have a sovereign choice to make – to follow the panel's
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recommendation and remove the legal local content requirement from the CfD scheme,
or not remove it, and face possible EU retaliation.
The EU has recently strengthened its unilateral instruments for retaliation, and those
could involve, among other, a suspension of the Trade and Cooperation Agreement, and
the preferential tariff treatment of goods and services coming with it.
Should the UK appeal the panel report, the Appellate Body will be called to rehear the
legal aspects of the dispute.
However, at present, the Appellate Body is effectively paralysed since December 2019
due to a lack of quorum of its members and the unwillingness of the United States to
appoint new members until a reform of the body is effected. Consequently, WTO appeals
have been filed "into the void". However, the new EU retaliation tools could in theory be
used against the UK in any event in order to circumvent any problems arising in this
respect.
Most commentators agree that any protracted WTO dispute between the UK and the EU
would worsen an already complicated relationship following the UK's exit from the EU and
the disagreements on the implementation of the Northern Ireland Protocol.
Conclusion
The decision to initiate a WTO dispute is normally preceded by months of informal
exchanges between representatives of each country. Therefore, this is probably not the
first post-Brexit trade dispute, but rather the first to become a formal WTO complaint.
There will always be a political angle in bringing a formal complaint. UK politicians will
portray this as the EU attempting to impinge on the UK's sovereignty following Brexit. The
EU will want to portray this as standing up for the rights of EU suppliers wishing to
participate in the supply of renewable energy equipment. This political position is further
complicated by several EU Member States setting up similar initiatives which contain
conditions designed to encourage local content.
Bringing an action under the WTO dispute settlement route is risky. The ultimate
arbitrator is the panel, whose decisions can be difficult to predict. Both the EU and UK will
therefore be taking stock of their positions and considering whether to look for a
diplomatic compromise rather than proceeding to a published panel report.
The geopolitical angle cannot be ignored either. Part of the purpose of the CfD
programme is to safeguard the UK's energy supply. Reducing reliance on energy
supplied by third parties has become a high profile security matter in light of the war
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between Russia and the Ukraine. We therefore anticipate that one of the UK's arguments
will be that the local content requirement is capable of being justified on this basis.
It remains to be seen whether the EU and UK can reach a compromise on the CfD
eligibility requirements or whether the dispute will proceed to a panel report. Whatever the
final outcome, it will shed more light on the scope of Article III:4 of the GATT in the current
circumstances, and whether its underlying principle of non-discrimination is relevant in the
context of foreign investment security screening, or control over foreign subsidies. These
are serious policy questions, which are not purely legal at a time when both the EU and
UK is calling for reform of the WTO rules in order to make these more effective.
References:
1. The WTO case is formally registered as DS612: United Kingdom — Measures
Relating to the Allocation of Contracts for Difference in Low Carbon Energy
Generation (short title UK — CfD (EU))
2. https://www.lowcarboncontracts.uk/
3. https://ec.europa.eu/commission/presscorner/detail/en/IP_14_866
4. "The [French Government's] sector deal aims to use 50% of local content in
projects by 2035 based on good practice and voluntary commitments. Local
manufacturing naturally develops in markets with significant market demand set
by the Government." See France commits to 40 GW offshore wind by 2050, 31
March 2022, https://windeurope.org/newsroom/news/france-commits-to-40-gwoffshore-wind-by-2050/
5. "The lack of permitted projects is in many countries leading to a situation where
the developers are bidding the lowest possible price into the auctions and it's
very difficult to build turbines at those prices," WindEurope's chief executive Giles
Dickson told Reuters",
see https://www.reuters.com/markets/commodities/european-wind-power-lobbydemands-more-permits-ease-bottlenecks-2022-02-24/
6. FT, Why UK pledge to become ‘Saudi Arabia’ of wind power rings hollow, UK
Business and Economy, 8 January 2022.
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