Geneva/New Delhi: A World Trade Organization (WTO) panel has ruled against India in a dispute raised by the US over the country’s solar power programme, requiring the government to offer a level playing field to both foreign and domestic manufacturers of solar panels.

India is likely to appeal against the dispute settlement panel’s ruling, which could give it a two-year breather to implement the programme.

The commerce ministry received the ruling last week, a ministry official said on condition of anonymity.

“We will appeal against the judgement at WTO’s highest court, the appellate body, which could give us two years’ reprieve. There can also be a bilateral arrangement with the US since it is an important trading partner," the official said.

The US raised the dispute over the Indian government’s imposition of local content requirements for solar cells and solar modules. The government has offered financial support of up to 1 crore per megawatt (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.

On Wednesday, Indian government officials maintained that the WTO reverse would not have an impact on the ambitious solar power programme, which is aimed at adding 100,000MW of solar power by 2022. Only a small portion of the orders are to be channelled through the subsidy route, they said.

“Of the total 100,000MW planned, 40,000MW is rooftop with the balance being land-based projects," an official said on condition of anonymity. “Local content requirement is only for those projects wherein the government provides a subsidy. This is 5,000MW each for rooftop and land-based projects."

This is the second case that India has lost to the US at the WTO. In June, the WTO’s appellate body upheld an earlier ruling against an Indian ban on poultry meat and eggs supplied by American producers. The ban had been imposed to prevent an outbreak of avian influenza.

In a confidential report issued to the US and India last week, a three-member dispute settlement panel headed by the former New Zealand envoy, ambassador David Walker, pronounced that New Delhi violated global trade rules by imposing local content requirements for solar cells and solar modules under the Jawaharlal Nehru National Solar Mission (JNNSM).

The panel also struck down the Indian government’s incentive policies, especially subsidies provided for domestic solar companies for manufacturing solar cells and solar modules.

Make in India

The WTO panel’s ruling comes in the backdrop of Prime Minister Narendra Modi’s Make in India programme, aimed at attracting foreign investment and turning India into a manufacturing hub. India needs as much as $200 billion to meet its green energy target to install 100 gigawatts (GW) of solar power and 60,000MW of wind power by 2022.

The Make In India programme will not be affected by the ruling, said Sambitosh Mohapatra, who oversees the power and utilities practice at consulting firm PricewaterhouseCoopers.

“As our economy gets back on the rails, existing demography and our sectoral plans get developed and integrated, the opportunities India provides in the short, medium and long term across every sector are too huge to be missed by manufacturers," Mohapatra said.

He noted that the government has extended the modified special incentive package scheme (MSIPS) by five years, offering additional benefits for investment-heavy projects in the country and opened up more electronic manufacturing verticals to investors.

“The incentives are available for 10 years from the date of application. All big solar manufacturing companies are keen to evaluate this and are developing plans to enter India," Mohapatra added.

To boost its Make In India and Digital India programmes, the government in July extended capital subsidy to 15 new electronic products, including consumer electronics items. MSIPS, which was first approved in July 2012, provides capital subsidy of 20% to units engaged in electronics manufacturing within special economic zones (SEZs) and 25% outside SEZs.

WTO dispute

In May last year, the WTO set up a dispute settlement panel to examine a complaint by the US against India’s domestic content requirements under the country’s solar power programme.

The US is especially keen on taking a slice of this market, given US President Barack Obama’s aim of doubling US exports by 2015.

India blocked the first request by the US to set up a dispute settlement panel after negotiations failed between the two countries. But under WTO rules, the trade body was obliged to set up the panel after the US made a request for the second time.

The panel’s preliminary confidential report has to be vetted by the two parties for finalizing the final report in about two months. But preliminary reports are unlikely to undergo any changes, said legal analysts familiar with WTO reports.

The US charged India with violating provisions in what are called the trade-related investment measures (TRIMS) by imposing local content requirements that discriminate against foreign products. The US claimed that the Indian government’s measures to impose national content provisions and deny “national" treatment have impaired benefits accruing to American companies.

The panel apparently upheld Washington’s core complaints against the Indian measures on the ground that they are inconsistent with provisions in WTO’s rulebook.

Washington, too, has resorted to similar measures, specifying local content requirements and offering a range of subsidies for promoting its renewable energy sector at the federal, state, regional and local levels.

India spoke repeatedly against the US at WTO’s committee on subsidies and countervailing measures, stating that American subsidy schemes relating to local or domestic content requirements for its solar companies are inconsistent with its global trade obligations.

New Delhi has provided a five-page questionnaire listing US programmes such as solar energy credits that are contingent upon compliance with domestic content requirements.

But the Indian government, for some inexplicable reason, refrained from raising a trade dispute against the US on its WTO-inconsistent programmes in the renewable energy sector despite collecting evidence about the US’ subsidy regime and the country’s local content provisions.

On Monday, President Obama announced new measures to promote solar energy including bolstering a federal programme to help people switch to using rooftop solar panels to generate their electricity.

The ruling in the solar dispute between the US and India goes against the spirit of an agreement signed early this year. In the agreement, the two sides agreed to promote clean energy and expand solar energy initiatives.

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