India-US Solar Panel Dispute: What made WTO Rule against India
India-US Solar Panel Dispute, The WTO ruling is primarily seen as a move that has offset India’s green initiative and impeded the growth of the domestic market, in particular, the manufacturers of solar equipment. The ruling, while arguably rendering a correct position of law, demonstrates the predicament of developing nations in incentivizing domestic manufacturers.
Facts in Brief
India had sought to forge itself as a global leader in terms of solar energy with the Jawaharlal Nehru National Solar Mission, which was seen as the Government’s initiative aimed at promoting ecologically sustainable growth and addressing the nation’s energy security challenge. The program was intended to be carried out in 3 phases spanning over 10 years (2012-2022). Under JNNSM, the Government had undertaken to enter into several long-term power purchase agreements with solar power producers, and the Government would, in turn, sell such energy, through distribution utilities, to the final consumer. The contentious issues in the mission were the implementation of subsidies and certain prerequisites, i.e. domestic content requirements (DCR) in the manufacture of solar panels and modules. The Solar mission offers a subsidy of up to Rs 1 crore per MW to solar developers sourcing components from local manufacturers. It further aimed to provide for 10% of the solar capacity target of 100,000 MW to be built with domestically manufactured solar modules, which consequently reserved a small part of the solar auction for developers employing only domestic content. The US, in 2013, made a complaint before the WTO Dispute Settlement Body (DSB) alleging that the domestic content requirement imposed was in violation of the international trading rules and obligations of the states that were members of the WTO. The argument was mainly aimed at the violation of the “national treatment” obligation of the member states, which India had breached by discriminating between imported solar cells and modules and other solar equipment which used parts from domestic or local manufacturers. CHINA VS INDIA’S SAGACIOUS DIPLOMACY
National Treatment Obligation
The principle of National Treatment is one of the core undertakings in the WTO and can be found as Article III in the General Agreement on Tariffs and Trade (GATT) and Art. 3 of the Trade-Related Intellectual Property Rights (TRIPS). National treatment provisions take various forms, but their basic requirement is that nations treat foreign individuals, enterprises, products, or services no less favourably than they treat their domestic counterparts. The intent behind the principle is the protection of investment by aliens, which in turn is likely to promote investment and encourage industrial and financial enterprise in the host state, thereby, benefitting both states. The application of the principle has oscillated between phases of varying severity and laxity. In the centre of the interpretive cycles is the rudimentary friction between the commitment to unconstrained trade and the exercise of the sovereignty to regulate and legislate towards domestically determined goals.
Exceptions to the Obligation
The GATT lists out certain exceptions to the application of the National Treatment principle, government procurement and domestic subsidy being a few of them. The exception of Domestic Procurement allows member states to discriminate in favour of the domestic products when such measures are “essential to the acquisition or distribution of products in general or local short supply”. India-US Solar Panel Dispute
India’s primary argument was that the measures are undertaken were covered under the exception of Domestic Procurement (Art. XX(j) GATT) on the grounds that it lacks the capacity to manufacture the solar cells and modules and that the risk of any disruption in imports of the said items renders the equipment “products in general or local short supply”. The Panel ruled that the item in question was the solar panel and modules, while the subject of purchase was electricity. Therefore, the DCR was, therefore, not an instance of Government Procurement. India had also sought the defence (under Art. XX(d) GATT) that the DCR was primed to secure India’s compliance with “laws or regulations”, thus, requiring it to take steps to promote sustainable development. However, the Panel was unable to accept that the instruments identified by India constituted “laws or regulations” within the meaning of Article XX(d), or were at all laws or regulations in respect of which the DCR measures sought to “secure compliance”.
Criticisms have mostly characterized the ruling as one impeding a clean energy initiative. However, the mission was not only aimed at providing a cleaner alternative but also targeted creating “favourable conditions for solar manufacturing capability”. It has been argued that the usage of cheaper imported material, against the inefficient and expensive domestically manufactured equipment, will reduce costs. It has also been contended in favour of the decision that such domestic content measure shall adversely affect competition. It is undeniable that India must act within the ambit of its international obligations, but isn’t it equally incumbent upon the government to encourage and boost the domestic manufacturing of such equipment. Admittedly, the competition must be allowed to flourish, however, the interest of domestic manufacturers needs to be equally catered for. In light of the recent developments, Dhruv Sharma, coordinator of the Indian Solar Manufacturers Association was quoted stating that India’s biggest problem was dumping of solar cells and modules by China, which required measures like imposition of anti-dumping duty or the continuation of DCR, because if neither were undertaken, the local industry would be significantly compromised.