Impact of the WTO Panel Ruling on the Solar Mission of India

This post briefly discusses the WTO ruling in a case initiated by the United States against India in relation to domestic content requirements for solar cells and modules under certain specific phases of the Jawaharlal Nehru National Solar Mission (“Mission”) . 

I. WTO Ruling

United States had filed a panel request on 6th February 2013, against the domestic content requirements for solar cells and modules in Phase I (Batches I and II) of the Mission. On 10 February 2014, the United States requested supplementary consultations concerning certain measures of India relating to domestic content requirements under the Phase II (Batch I) of the Mission for solar cells and solar modules.

The main crux of the argument advanced by the United States was that the local content requirements mandated under the Mission applied different conditions to domestic cells and modules than the imported cells and modules to the detriment of the latter. Under the said Phases of the Mission, the Government was to enter into power purchase agreement with selected solar power developer’s contingent on their agreement to use domestically produced solar cells and modules. Therefore, United States argued that this requirement accorded less favorable treatment to the imported cells and modules than to the like modules and cells of Indian origin. Hence, India violated its national treatment obligations.

In its defence, India argued that the:

  1. solar cells and modules of Indian origin are integral part of solar electricity generation, which is procured by the Government (and not used for commercial resale) and therefore, derogation to national treatment obligations under Article III:8(a) is applicable
  2. local content requirement was covered under the exception of Article XX (j) of GATT 1994. India argued that it lacked domestic manufacturing capacity of solar cells and modules, and was dependent on imported cells and modules, which meant that the said products were in ‘general or local short supply’, and therefore the domestic content requirements were justified under Article XX (j) of GATT 1994; and
  3. local content requirement mandating use of doemstically producedcells and modules help in achieving India’s objective of sustainable development and ensuring energy security, and therefore, the said requirements are justified under under Article XX (d) of GATT 1994.

The panel (the report was circulated on February 24, 2016) agreed with the arguments advanced by the United States, and held that the domestic content requirements under the Phase I (Batches I and II) and Phase II (Batch I) of the Mission result in “less favourable treatment” to imported cells and modules within the meaning of Article III:4 of the GATT 1994.

The three-member panel rejected the arguments advanced by India distinguishing Appellate Body report in the case of Canada — Renewable Energy / Feed-In Tariff Programme . In particular the panel held that the product procured by the Government is electricity whereas the product discriminated against for reason of its origin is generation equipment,” i.e., solar cells and modules, and that as seen in case of Canada — Renewable Energy / Feed-In Tariff Programme neither solar cells nor solar modules are in a competitive relationship with electricity. Therefore, the derogation provided under Article III:8(a) is not applicable in the present case.

In so far as the defence under Article XX(d) is concerned, the panel held that it was insufficient that the local content requirement merely ensures the attainment of the objective of sustainable development/ clean energy but it is necessary that the said measures enforce specific sustainable development/ clean energy obligations which are contained in the legal instruments. Therefore, as India had failed to demonstrate that the local content requirements were directly enforcing the said obligations, Article XX(d) was not applicable.

II. Way Forward

The Government of India’s target of achieving 100 gigawatts (GW) of solar power by 2022 shall not be really affected by this ruling. In fact, as a result of this ruling (subject to the ruling of an appeal, if filed) both domestically manufactured solar cells and modules and imported solar cells and modules shall be available at competitive prices, which may help in generation of green energy at affordable and lower costs.

However, the domestic manufacturing capacity of solar cells and modules (even though the percentage of the domestic manufactures covered under the local content requirement is a small percentage of the total domestic manufacturing capacity of India) will be adversely affected as an aftermath of this ruling.

It is plausible that the Government can use the ‘Make in India’ programme to provide other forms of incentives and assistance to the domestic manufacturers to turn India into a manufacturing hub of solar cells and modules.

India may file an appeal against the panel ruling. Therefore, the final impact may need to be assessed again based on the final finding of the Appellate Body in the said dispute.

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