Out-Law News | 30 Mar 2022 | 1:58 pm | 2 min. read
The EU is seeking consultation with the UK at the World Trade Organization (WTO) as the first step in formal dispute settlement proceedings against the UK, accusing it of breaching core WTO commitments by applying discriminatory evaluation criteria in the context of a support scheme for renewable energy projects.
The EU’s concerns revolve around the operation of the UK’s Contracts for Difference (CfD) scheme, which provides financial support to the development of offshore wind farms and other renewables projects. It said that the UK has introduced eligibility criteria under the scheme which encourage operators bidding for subsidies to favour UK-sourced components over those from other countries. The EU said that this unfairly disadvantages EU businesses and constitutes a breach of WTO rules.
“The criteria used by the UK government in awarding subsidies for offshore wind energy projects favour UK over imported content,” the EU said in a statement. “This violates the WTO’s core tenet that imports must be able to compete on an equal footing with domestic products and harms EU suppliers, including many SMEs, in the green energy sector. Moreover, such practices ultimately increase costs of production and thereby risk slowing down the deployment of green energy.”
The EU has triggered the WTO’s dispute settlement process after raising concerns with the UK “on several occasions, but to no avail”, it said.
Dr. Totis Kotsonis
Partner, Head of Subsidies, Procurement, Trade Agreements and Trade Remedies
The EU had the option of raising its concerns under the comparatively more effective dispute resolution mechanisms for which the UK-EU Trade and Cooperation Agreement (TCA) provides… The fact that it did not probably speaks to a political desire to underplay the dispute
As a first step in the dispute settlement process, the EU has requested bilateral consultations with the UK in a bid to find a resolution. If after 60 days the consultations do not lead to a resolution of the dispute, the EU can ask the WTO to establish a panel to examine its complaint. The panel would then report to WTO members and, if there is no appeal, the panel’s report would be adopted as a ruling. This process could take around a year. However, given that the functioning of the appeals body continues to be deadlocked, if either of the parties decide to appeal the panel’s findings, dispute resolution might remain blocked for a much longer period of time.
It is the first WTO challenge that the EU has raised against the UK.
Dr. Totis Kotsonis of Pinsent Masons, who specialises in trade, EU law and state aid, said: “Over and above the fact that this is the first WTO challenge by the EU against the UK, the case is of particular interest in that the EU had the option of raising its concerns under the comparatively more effective dispute resolution mechanisms for which the UK-EU Trade and Cooperation Agreement (TCA) provides.”
“The fact that it did not probably speaks to a political desire to underplay the dispute at a time when, with the war in Ukraine, there is a much more significant crisis preoccupying the whole of Europe that necessitates EU-UK cooperation, but also in light of the fact that UK-EU trade relations continue to be fraught with difficulties, not least as regards the politically sensitive question of the implementation of the Northern Ireland Protocol under the Withdrawal Agreement. Upping the ante too much in this context would not have served anyone’s interest,” he said.
“The UK is of course ready to defend its position vigorously. At the same time, it is possible that the EU might decide in due course to use additional levers available to it at a WTO level and, in certain circumstances, it would also have the option of initiating the dispute settlement procedures that are available under the TCA. Whether it ultimately does so would depend as much on the outcome of the WTO dispute settlement procedures as, once again, on political considerations,” Kotsonis said.