Canada is set to lose a dispute at the World Trade Organization brought by the EU and Japan over support for renewable energy in Ontario.
Ontario's green scheme aimed to guarantee prices for renewable energy as long as it was generated with Canadian made equipment, which Japan described as protectionism when it brought the case against Canada.
The WTO adjudication panel considering the case has issued an "interim report" that says Canada was breaking WTO rules by requiring firms in the scheme to source up to 60 per cent of their equipment locally.
However, the International Centre for Trade and Sustainable Development, which obtained the leaked interim report, said the ruling was not entirely in favour of the EU and Japan.
While Canada's "local content requirement" was found to be discriminatory and therefore illegal, the WTO panel did not agree with the EU and Japanese claim that the Canadian scheme amounted to illegal subsidies.
Interim reports are confidential and preliminary rulings sent to the parties to the dispute a few weeks before the final report. The parties have a chance to comment, but the final report is normally broadly in line with the interim report.
The WTO is expected to publish the panel's final report on the case by the end of next month. Either side could appeal the panel's findings.
If Canada does lose the case, it may embolden critics of other schemes with local content requirements, several of which have been under scrutiny within the WTO.
The EU, Japan and the United States have questioned Brazil's local content requirements for the telecoms sector, the Indian government's preference for Indian-made electronic goods and India's local content rules for a nationwide solar energy drive.
They have also asked Indonesia to explain local content provisions for the telecoms sector and in mining, oil and gas, and asked for more information about Nigeria's apparent requirement for local content in its oil and gas industry.