Ontario has apparently lost a key trade challenge to its green energy policies that force companies to buy equipment from local manufacturers, according to reports out of Europe.

A reputable international trade newsletter said Monday the World Trade Organization has issued a preliminary report that agrees with Japan and the European Union, in their complaint about Ontario's support for its renewable energy industry.

If the preliminary report stands, Ontario might have to dismantle parts of its controversial "feed-in-tariff" program that pays high prices to producers of wind and solar power, as long as they buy a certain proportion of their equipment in the province. The program was set up to try to encourage the development of a green-energy manufacturing sector in the province.

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The International Centre for Trade and Sustainable Development, based in Geneva, said it had spoken to sources who had seen a copy of a confidential interim WTO report, which was circulated to the parties in the case in September. A final ruling is expected in November, but the WTO seldom changes its decision from its preliminary reports.

According to the ICTSD, the WTO says the local content rules break non-discrimination rules in the General Agreement on Tariffs and Trade. However, the WTO rejected the Japanese and EU argument that the local content rules amount to illegal subsidies.

Japan initially filed its complaint with the WTO two years ago, saying that Ontario's green-energy plan unfairly pressures producers of clean energy to buy hardware from manufacturers in the province. The EU joined in the complaint in 2011, saying European exports of wind and solar equipment to Canada would be higher if not for the local content rules.

Complaints at the WTO are lodged against countries rather than provinces, so the filings were against Canada, rather than Ontario.

A spokesman for the Ontario energy ministry said in an e-mail that the department does not comment on confidential reports, and that the province still believes its program is consistent with Canada's WTO obligations. "Should the panel disagree, we are ready to pursue all options with the federal government, including an appeal of the decision."

Stuart Trew, who works as a trade campaigner for the Council of Canadians, said the ruling, if it stands, will be "a terrible loss, not just for Canada, but also for countries globally who are looking for ways to make their economies more dynamic."

Mr. Trew said Ontario will likely put pressure on the federal government to appeal the final decision, if it goes against them. Ontario might also be given the option to amend the problematic portions of its energy policy to bring them on side. "It is going to be a long process," he said.