Geneva: India suffered a setback in its efforts to build a robust domestic solar industry on Friday as the appellate body (AB) of the World Trade Organization (WTO) upheld an earlier ruling against its domestic content requirements for manufacturing solar cells and modules.
The earlier panel ruling held that India violated global trade rules such as national treatment provisions under the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO’s Agreement on Trade-Related Investment Measures by imposing mandatory local content requirements on solar power developers, providing a guaranteed rate for 25-year term.
The solar dispute arose from a complaint lodged by the United States against India. Early this year, a dispute settlement panel panel issued a comprehensive ruling in favour of US’ claims against India’s domestic content requirements.
The national treatment obligations required India to treat imported solar cells and modules on par with domestically produced products without any discrimination under Article III:4 of the GATT 1994.
The highest adjudicating body for global trade disputes agreed with the panel that India’s domestic content requirements for solar cells and modules under the Jawaharlal Nehru Solar Mission amounted to trade-related investment measures as they favour domestic products over imported products.
Significantly, the AB disagreed with India’s appeal against the panel ruling that the domestic content requirement) are not covered by the derogation/exemption under the so-called “government procurement carve-out" of GATT Article III:8(a).
This provision enables WTO members to deny national treatment disciplines for the procurement by government agencies for products purchased for government purposes and not with a view to engage in commercial resale.
The US had argued that “the product procured (electricity) is not in a competitive relationship with the product being discriminated against (solar cells and modules), and ….such discrimination is not covered by the derogation of Article III:8 (A)."
India said the panel erred in not considering that solar cells and modules are indistinguishable from solar power generation and therefore, it is not necessary to consider these two products as inputs for solar power generation. India said the panel was wrong to base its findings on an earlier dispute concerning Canada’s feed-in tariff program for renewable energy which did not consider this issues that arose in the US’ dispute.
The AB dismissed India’s arguments saying that the Panel was properly guided by the AB’s report in Canada-Renewable Energy/Canada- Feed-in Tariff Program where the same facts prevailed involving the purchase of electricity and discrimination against generation equipment.
India also maintained that the panel erred in its conclusion that discrimination relating to solar cells and modules under the DCR measures is not covered by the derogation under Article III:8 (a) of the GATT 1994.
New Delhi asked the AB to reverse the panel’s findings as they failed to make an objective assessment of India’s arguments that a) solar cells and modules are indistinguishable from solar power generation and (b) solar cells and modules can be characterized as inputs of generation of solar power.
India took recourse to a GATT article XX(d) to argue that it had “an obligation to take steps to achieve energy security, mitigate climate change, and achieve sustainable development, and that this includes steps to ensure the adequate supply of clean electricity, generated form solar power, at reasonable prices." The AB dismissed this argument.
The highest trade court also disagreed with India’s demand for reversing the panel’s conclusion that DCR measures are not justified under Article XX(j) of the GATT 1994 as lack of manufacturing capacity for solar cells and modules amount to a situation of local and general short supply of such products in India. New Delhi pointed out that the DCR measures are essential for addressing the local and general short supply of solar cells and modules.
At a time when India is forging an ambitious security alliance with the US, including cooperation on solar energy and climate-change issues, the AB’s ruling is a sober reminder/lesson that in global trade based on mercantile trading framework, dollar-cent interests trump over bilateral and climate change considerations.
Significantly, the US pursued aggressively policies that are based on domestic content requirements and subsidies for generation of solar power. Despite being aware of Washington’s DCR policies and subsidy programs for renewable energy sector, India remained silent for the past three years.
Last week, New Delhi finally launched a major trade dispute against the US at the WTO alleging that domestic content requirements and subsidies of eight American states—Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota—for renewable energy violated core provisions of global trade rules.
But India’s delay in raising the dispute against the US’ renewable energy programs in these eight states has denied New Delhi the strategic leverage as availed by WTO members in tit-for-tat trade disputes.
The US and the EU launched civil aircraft subsidy disputes against each other to maximize the strategic advantage which India woefully lost out on by delaying the dispute for three years, an analyst said on condition of anonymity.