India’s solar plan flouts global trade rules: WTO

Domestic content restrictions on the production of solar cells and modules as part of the National Solar Mission was deemed a violation of global trade rules


The US said its solar exports to India had fallen by 90% from 2011, when India imposed the domestic content requirement (DCR) measures. Photo: Bloomberg
The US said its solar exports to India had fallen by 90% from 2011, when India imposed the domestic content requirement (DCR) measures. Photo: Bloomberg

Geneva: World Trade Organization (WTO) dispute settlement panel has struck a blow to India’s solar power programme, ruling that New Delhi violated global trade rules by imposing domestic content restrictions on the production of solar cells and modules as part of its National Solar Mission.

The ruling comes three years after the US launched a dispute against India at the WTO, complaining that its domestic content requirement (DCR) measures violated core norms of trade-related investment provisions, national treatment provisions for treating imported products on a par with domestically manufactured products, and financial subsidy rules.

The three-member panel, chaired by former New Zealand trade envoy David Walker, said India’s domestic content requirement measures “are inconsistent with Article 2.1 of the TRIMS (Trade-Related Investment Measures) and Article III:4 of the GATT (General Agreement on Tariffs and Trade) 1994”.

The DCR measures are not “justified” under the general exceptions in Article XX (j) or Article XX(d) of the GATT 1994, the panel ruled in its 140-page report.

The panel, however, did not pronounce a verdict on the financial subsidies provided by India for its solar power projects.

Its final report, which was delayed by more than two months, was issued on Wednesday after India and the US were unable to reach an agreement on the changes suggested by New Delhi to its solar power programme, according to a person familiar with the dispute.

India proposed that it would use the domestic content requirement measures for buying solar panels for its own consumption such as by the railways and defence and would not sell the power generated from such subsidized panels for commercial use.

A commerce ministry official, speaking on condition of anonymity, said the US may have rejected India’s offer because of a difference in perception and expectations.

“We have the option of going for an appeal against the ruling at WTO. It is too early. We will take a final call on the matter in due course of time,” he added.

The office of the United States Trade Representative (USTR) said in a statement that the US has consistently made the case that India can achieve its clean energy goals faster and more cost-effectively by allowing solar technologies to be imported from the US and other producers.

“This is an important outcome, not just as it applies to this case, but for the message it sends to other countries considering discriminatory ‘localisation’ policies,” USTR Michael Froman said.

Under the previous United Progressive Alliance government, India embarked on an ambitious solar power programme as part of the National Solar Mission, aimed at adding 100,000 megawatts (MW) of solar power capacity by 2022. However, the local content requirement is only for 5,000 MW each of rooftop and land-based projects where the government provides a subsidy.

The government has offered financial support of up to Rs.1 crore per MW to the implementing agency for setting up large solar capacities by placing orders with domestic manufacturers.

WTO members are not supposed to insist on national content requirements that discriminate against foreign products. Governments are also required to provide “national” treatment, under which imports must be treated on a par with domestically manufactured products.

In a confidential report issued to the US and India in August last year, a three-member dispute settlement panel headed by Walker, pronounced that New Delhi violated global trade rules by imposing local content requirements for solar cells and solar modules under the National Solar Mission, Mint reported on 27 August 2015.

Significantly, the final ruling comes at a time when there is growing international pressure for promoting green industries to address climate change. It will hinder India’s solar power programme and will hold consequences for other countries planning to embark on renewable energy programmes, according to global environmental groups such as the Sierra Club.

Environmental groups were critical of the preliminary ruling, saying it threatened the clean energy economy and undermined actions to tackle the climate crisis.

“Today, we have more evidence of how free trade rules threaten the clean energy economy and undermine action to tackle the climate crisis,” said Ilana Solomon, director of Sierra Club’s Responsible Trade Programme, on the preliminary ruling when it was issued in August last year.

India’s national solar programme, said Solomon, “has driven dramatic growth of India’s solar capacity that will help reduce its reliance on dirty coal and spur the development of new clear energy jobs”.

“The US should be applauding India’s efforts to scale up solar energy, not turning to the WTO to strike the programme down,” she had maintained.

Global environmental pressure groups led by Sierra Club and others have repeatedly called on WTO to exit the business of hampering climate action in countries around the globe.

The final ruling comes soon after the Paris climate agreement, where developing countries were promised technological and financial assistance for promoting renewable energy programmes.

At Paris, Prime Minister Narendra Modi launched the ambitious International Solar Alliance, with the aim of switching “sunshine nations” in tropical areas to solar energy.

The government has also scaled up its renewable energy target from 30 gigawatts (GW) by 2016-17 to 175GW by 2021-22, which could result in the abatement of 326.22 million tonnes of carbon dioxide equivalent per year. Of this 175GW, solar power will account for 100GW.

Asit Ranjan Mishra contributed to this story.

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