India and US in WTO face-off over solar power ruling compliance

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India has made it clear that it can comply with the WTO ruling only prospectively for the sake of natural justice and the tenders already awarded. (Reuters)

Stark differences have cropped up in talks between India and the US on compliance with a World Trade Organisation (WTO) ruling last year that went against India for favouring local manufacturers in its solar power programme on a petition filed at the multilateral body by the world’s largest economy. Sources told FE that the US wants India to scrap all the tenders awarded under the latter’s national solar
mission and float them afresh so that more foreign players can participate.

However, India has made it clear that it can comply with the WTO ruling only prospectively for the sake of natural justice and the tenders already awarded (before its appeal against the ruling was rejected by the WTO in September last year) can’t be scrapped now. India has stressed that it has already complied with the ruling and stopped issuing solar tenders with domestic content requirement (DCR). According to an official estimate, about 500 MW of solar projects (with DCR stipulation), which were in the pipeline, have been affected by the WTO ruling.

However, there will be no changes in the terms and conditions for solar projects with about 3,000 MW of generation capacity for which tenders were awarded earlier and power purchase agreement with states signed, official sources said.
In a bid to promote local manufacturing, the government had earlier mandated that a certain portion of capacity addition would be reserved for domestically sourced modules under the national solar mission. The companies that use such modules are eligible for participating in the tariff-based bidding process.

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India has now decided to promote its industry through measures that are compatible with or insulated from the purview of the WTO regulations. A senior official from the ministry of new and renewable energy said if the government becomes the owner of a project, instead of the developer, it is free to choose the equipment from domestic manufacturers. So the proposed schemes to set up 1,000 MW and 300 MW solar power projects by central public sector units and defence establishments, respectively, would be using domestically manufactured equipment.

Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, said: “At this juncture, there are different ways by which India can comply and the US isn’t within its right to insist that compliance should be done in one particular manner.”
“After India has completed the compliance process, the US can seek (the setting up of) a compliance panel (at the WTO), if it so desires, to examine whether India has complied with the ruling or not,” he added.

Initially, as much as 50% of a solar project was earmarked for bidding under the DCR mechanism. Gradually, with the increase in volume of the schemes, the share of the DCR-mandated solar installations came down to 10-15% of the overall project size.

Pitching for government support for the domestic industry despite the WTO ruling, Gyanesh Chaudhary, chief executive of Vikram Solar, said: “To improve the solar scene, India has to compete with countries like China, the US and Japan that have their own highly efficient and battle tested supply chain backed by government support (financial and otherwise). So, despite Indian module manufacturing capability improving, claiming a significant portion in global solar market is still only a plan.” He said imported modules are still 8-10% cheaper than domestic modules.

In 2013, the US filed a complaint before the WTO, arguing that the domestic content requirement imposed under India’s solar programme violates global trading rules by unfavourably discriminating against imported solar cells and modules. In February 2016, a WTO panel ruled that by imposing the domestic content requirement India had violated its national treatment obligation. In September 2016, India lost an appeal at the WTO against the February ruling. US solar exports to India have fallen by more than 90% since India had brought in the DCR rules, the US had claimed.

The US move prompted India to point at violations of some of the WTO provisions by the US in the latter’s own renewable energy sector. Accordingly, India in September filed a complaint against the US at the WTO, arguing the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota support their renewables sector with illegal subsidies and domestic content requirements. India has now asked a WTO panel to adjudicate on the matter after consultations with the US failed to resolve the matter amicably.

Analysts have said the attraction of India being a lucrative market for global solar power players is at the heart of the trade disputes between the two countries. India aims to sharply raise its solar power capacity to 100 GW by 2022 from just over 10 GW now.

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