US wins WTO dispute against India’s solar power rules

• The United States has won a ruling against India at the World Trade Organization after challenging the rules on the origin of solar cells and solar modules used in India’s national solar power programme.
• The United States complained to the WTO in 2013 about the Indian solar programme, which sought to ease chronic energy shortages in Asia’s third-largest economy without creating pollution.
• But a requirement that certain cells and modules be made in India fell afoul of WTO rules on discriminating against imports.
• The United States said its solar exports to India had fallen by 90% from 2011, when India imposed the rules.
• India's Solar Mission offers a subsidy of up to Rs 1 crore per MW to solar developers sourcing components from local manufacturers. It also stipulates that 10% of the solar capacity target of 100,000 MW by 2022 should be built with domestically manufactured solar modules, which has led to a small part of the solar auctions being reserved for developers employing only domestic content.
• 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.
• WTO ruled that India’s domestic content requirement measures “are inconsistent with Article 2.1 of the TRIMS (Trade-Related Investment Measures) and Article III:4 of the GATT (General Agreement on Tariffs and Trade) 1994”.
• However, WTO did not pronounce a verdict on the financial subsidies provided by India for its solar power projects.
• India has already announced that it plans to appeal the ruling. That move could prevent enforcement for months or even years

About Solar mission:

• JNNSM(Jwahar lal Nehru national solar mission) was launched in 2009 with a target for Grid Connected Solar Projects of 20,000 MW by 2022. In the last two to three years, the sector has witnessed rapid development with installed solar capacity increasing rapidly from 18 MW to about 3800 MW during 2010 - 15.
• This mission has changed its targets in 2015 under which target is increased by five times, reaching 1,00,000 MW by 2022. The target will principally comprise of 40 GW Rooftop and 60 GW through Large and Medium Scale Grid Connected Solar Power Projects. With this ambitious target, India will become one of the largest Green Energy producers in the world, surpassing several developed countries.

Analysis:

• On the positive side, this ruling will ultimately be a huge benefit to Indian consumers. They will no longer be deprived the opportunity to purchase better and cheaper panels from foreign manufacturers simply because they do not contain a certain amount of domestic content.
• India's solar manufacturers still largely assemble products with the basic material - such as polysilicon chips - purchased mostly from China. As a result, Indian solar cells and modules end up becoming 8-10% costlier than those from China, Malaysia or Taiwan - from where most solar developers in India source their modules - and are often technologically inferior. Even though the US had complained against India to the WTO, solar imports from the US are fairly low.
• Environmental groups were critical of the preliminary ruling, saying it threatened the clean energy economy and undermined actions to tackle the climate crisis.
• Indian government argued that its policy was necessary in order to protect its domestic solar power industry and ensure compliance with requirements designed to promote sustainable development,.
• It is a blow for domestic solar manufacturers because the DCR(Domestic Content Requirement) was a safety net for them. But DCR could never have been a long-term, sustainable policy. Many fundamental reforms are needed to make local industry competitive in the long run.
• To make 'Make in India' a success, local manufacturers need to be encouraged in a bigger way.
• The root cause of our problems is the dumping of solar cells and modules by China. Either anti-dumping duty should be imposed or DCR should be continued. If neither of these is done, local industry will be seriously damaged. And heavy dependence on imports is highly risky for solar developers too because of the currency fluctuations. Low-cost imports are only a short-term benefit.
   

By: Vishal