WTO Solar Issue

Group 7
 Introduction
• Jawaharlal Nehru National Solar Mission
• increase the solar energy production
• tackle climate change linked future obligations basis Paris climate change ratification
• Solar panels production in India is lagging both in scale and technology
• Government included provision for domestic procurement of solar components
• Incentive for foreign solar component manufacturers to shift a part of their manufacturing capacity to India to
gain from India's huge requirements
• save foreign capital on imports
• importantly generate some jobs locally.
• According to WTO agreement, every member must give another member the national treatment i.e. goods
imported into country have to be treated similarly as the goods generated locally.
• US claimed that this mandatory domestic provisioning is against US solar components manufacturers.
• The dispute is relevant as India remains a huge market for solar products.
• In 2011 alone, solar industry products worth around USD 119 million were imported by India from the United
States, making India the second largest market for solar products in Asia
Debate is whether to Save Earth or Economy
• The world is finally recognizing the dangers of CO2 pollution and subsequent global warming.
• With volatile oil prices and its effect on environment, governments around the world are investing
in green technology.
• Starting with Paris climate change pact, developed countries have taken the onus to help reduce
carbon emission and help developing nations to adapt green technology.
• While treaties for climate change are being ratified and inherent conflict between nations climate
needs and its competitive trade practices threaten the global trade economy.
• Developed nations with higher R&D money have taken the lead in creating low cost technologies
putting pressure on developing nations to adopt newer technologies rather than create
themselves, basis old trade laws.
• Signed in 1994 by 117 countries GATT (General Agreement on Tariffs and Trade) govern the trade
laws between countries. The major theme of this act covers trade related investment measures
(TRIMs) – which eliminates certain restrictive measures employed by governments such as local
content and foreign exchange balance requirements
• The apparent tussle between renewable energy and trade policy can be gauged from a growing
series of green-energy related trade disputes around world. USA China, EU-Japan or Canada’s FTT.
NSM and its implication:
• The National Solar Mission, launched on the 11th January 2010 sets the ambitious target of deploying 20,000 MW of grid
connected solar power by 2022. Aimed at reducing the cost of solar power generation through (i) long term policy; (ii) large scale
deployment goals; (iii) aggressive R&D; and (iv) domestic production of critical raw materials, components and products, as a
result to achieve grid tariff parity by 2022.
• The mission is twofold, to achieve the carbon emission norms ratified by India under Paris climate change act as well as provide
employment opportunity to the 8.7GW local market, which is about 5% of global solar capacity. The government wants to support
the indigenous green energy market growth to reduce dependence on foreign countries and make the economy stronger.
• Beyond lesser dependency for energy requirement on other countries, ecological security the Solar mission aims at decentralizing
distribution of energy, thereby empowering people at the grassroot level.
• India is a tropical country, with the daily average solar energy incident varies from 4 to 7 kWh/m2 with about 1500–2000 sunshine
hours per year, resulting in an aggregate incident radiation of about 5000 trillion Kwh/yr. This means there is surplus of energy
production and a future leverage on trade.
• As of now India’s local manufacturing capacity is not developed enough to be as cost-competitive as other nations like Germany,
USA, China. The Indian government’s push for solar power and its strategy to invite foreign companies to build the industry locally
is a smart move. With the clause of local sourcing the government wants to ensure local industries gain technological expertise
and economy gets a boost. The government wants to reduce its reliant on global powers and wants to leverage excess energy to
neighbouring countries. This clause helps to create favourable conditions for solar manufacturing capability, particularly solar
thermal for indigenous production and market leadership.
• Though India wants local content, 90% of India’s panels are as of now imported. Indian manufacturers depend on accessories from
China. This situation, has provoked measures to protect and encourage local industry through the domestic content requirement
clause under India’s NSM.
NSM and its implication:
• It mandates that a solar power producer compulsorily source a certain percentage of solar cells and modules from local
manufacturers to be able to benefit from the government guarantee to purchase the energy produced.
• In retaliation to this, USA filed a complain in the WTO stating India’s inconsistency in following with the GATT treaty. On February
24, a panel of the WTO found that India’s domestic content requirements under the JNNSM violates its commitments under the
global trading rules, specifically the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade Related
Investment Measures (TRIMs). “Local content” requirements are banned because they discriminate in favour of domestic firms
and against foreign competitors.
• India defended saying that the measure was exempted from the scrutiny under the WTO agreements because the government
ultimately procured the electricity so produced and thus be treated as government procurement. However, the WTO panel, relying
on earlier cases, held that the product procured was electricity, whereas, the product discriminated against was the inputs used to
produce electricity and hence the exception did not apply.
• India also sought to justify the DCR under the general exceptions provision of the GATT, specifically claiming that the measure was
justified as it was necessary to secure compliance with international environmental laws or regulations, specifically its
commitments under the United Nations Framework Convention on Climate Change (UNFCCC) and because solar panels were in
‘general or local short supply’.
• Both arguments were rejected by the WTO panel, which stated that international environmental obligations imposed no binding
commitments on nations and thus they were not ‘laws or regulations’ that had to be complied with. It also found, and India
acknowledged, that that the cumulative supply of both foreign and domestic cells and modules was sufficient to meet the demand
of power developers.
Contradictions

• America and the European Union themselves have taken anti-dumping

measures against cheaper Chinese solar panels to protect their own
industries. In retaliation, India took the United States to the World Trade
Organisation dispute resolution system. Over the way certain American
states insist that there must be some amount of local content in various
renewable energy projects. The larger contradiction is, however, US
inaction on climate. The “join statement” on the US-India partnership takes
on a one-sided narrative of India’s commitments to decreasing emissions
and transitioning to a green economy. Meanwhile, the US economy
remains a rusty shade of brown. While India gets 13.6 per cent of its
energy from renewables and emits 1.8 tonnes of CO2 per capita, the US
falls behind at 12.5 per cent with six times the emissions at 16.5 tonnes per
capita. By 2022, India aims to have 170 GW of renewable power capacity,
but the US only aims to reach this level in 2025.
Going Forward
• India must discontinue the DCR measures but instead should incentivise production of such products in
manners which are WTO compatible like giving direct subsidies to domestic manufacturers, tax breaks,
ensuring a strong line of long term credit at low rates, collaborating with global leaders to enhance domestic
research and development.
• Additionally, India is claiming anti dumping law against USA and China, and US is losing market share to
lower cost of Chinese products rather than the sourcing law.
• India should try to settle the matter with USA via diplomatic ties as well as file complaint against the unfair
trade practices followed by certain USA cities. Additionally, they should add pressure via UN climate change
committee on developed nations to allow countries like India to achieve their emission norms for
betterment of the global environment.
• Third, to meet the increasing demand for clean energy, India must deeply engage with international partners
and get the best available technology at internationally competitive rates. Collaborative research and
development projects would help in reducing the cost of energy and increasing efficiency in the long run. At
this stage, due to the underdeveloped Indian industry, it would be more efficient, to import the technology,
while taking efforts to enhance domestic capabilities.
• India had suggested a compromise by which the domestic content requirement would not be imposed on
private solar developers or made part of the auctions and would be restricted to public services such as the
railways and defence. But even this failed to cut much ice with the US or the WTO.