Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate
From UPSC perspective, the following things are important:
Prelims level: WTO, National solar programme, Safeguard tariffs
Mains level: India’s plan of renewable energy usage and hindrances in achieving the targets
Solar panel dispute at WTO
- India hit back at Washington’s latest legal assault on its solar power policies at the World Trade Organisation (WTO)
- India rejected a U.S. legal claim and started exploring possible new protection of India’s own solar industry
What is India planning to do?
- India told the WTO last week that it was considering the case for imposing temporary emergency tariffs on solar cells, modules and panels, after a petition from the domestic industry
- Safeguard tariffs are permitted by the WTO if there is evidence of serious harm or threat of serious harm, to a country’s production from a sudden, unforeseen surge in imports
- Last month the United States triggered a new round of litigation at the WTO
- It argued that India had failed to abide by a ruling that it had illegally discriminated against foreign suppliers of solar cells and modules
- India said it had changed its rules to conform with the ruling and that a U.S. claim for punitive trade sanctions was groundless
- It said Washington had skipped legal steps, failed to follow the correct WTO procedure, and omitted to mention any specific level of trade sanctions that it proposed to level on India, leaving India “severely prejudiced”
- India would be vindicated if the proper process was followed
Why this dispute?
- India unveiled its national solar programme in 2011, seeking to ease chronic energy shortages in Asia’s third-largest economy without creating pollution
- The United States complained to the WTO in 2013 that U.S. solar exports to India had fallen by 90 percent
- The WTO judges agreed that India had broken the trade rules by requiring solar power developers to use Indian-made cells and modules
Renewable energy disputes rising
- Renewable energy has become an area of severe trade friction
- This is because major economies are competing to dominate a sector that is expected to thrive as reliance on coal and oil dwindles
- Context: India lost a case in WTO pertaining to local content requirements in the Jawaharlal Nehru National Solar Mission for solar cells/modules
- News: There are inter-ministerial differnces over strategy to be adopted by India to drag US to WTO’s Dispute Settlement Body
- The renewable energy policies of several State govt’s in US violates the global trade body’s norms
- How? Many State govts in US had “very significant” domestic content requirements “violating” the US obligations under the WTO agreements
- News: India will appeal against the World Trade Organisation’s (WTO) verdict over its policy relating to solar power equipment
- Context: India had, as part of its National Solar Mission, imposed a stipulation that solar cells and solar modules be locally sourced
- Relevance: U.S. had filed a case against India at the WTO demanding a level-playing field for Indian and foreign solar component manufacturers
- WTO ruled in favour of the U.S.
- From India’s side: India’s capacity to produce solar components and solar cells comprises only a portion of the demand in India
- Indian manufacturers had a complaint against the U.S. counterparts for dumping in India
- In the U.S., nine states had similar programmes to protect their domestic manufacturers
- India’s appeal: Against the WTO’s panel ruling that the country’s power purchase agreements with solar firms were “inconsistent” with international norms
- Context: Rulings of the WTO’s dispute settlement panel can be challenged in the WTO’s appellate body
- Why? The U.S. had filed a complaint before the global trade body alleging discrimination against American firms
- Background: U.S. had dragged India to WTO on this issue in 2014
- Why U.S. alleging? because clause relating to domestic content requirement in the country’s solar power mission were discriminatory in nature and “nullified” the benefits accruing to U.S solar power developers
- WTO ruled against India’s imposition of local content requirements in its solar power programme.
- India will appeal against this ruling in the dispute which was raised by the US.
- WTO members are not supposed to insist on national content requirements and provide “national” treatment under which imports must be treated at par with domestic products.
- India maintains the ruling shall not affect its solar power programme or ‘Make in India’ initiative.
India & US at loggerheads on the Solar Panel dispute
What is the origin of the dispute?
In 2010, India launched its national solar programme, which aims at adding 1,00,000 MW of solar power capacity by 2022.
So, govt. wanted to incentivise the production of solar energy within the country. Therefore, they agreed to enter into long-term power purchase agreements with solar power producers, providing the guarantee for the sale of the energy produced. Thereafter, it would sell such energy through distribution utilities to the ultimate consumer.
Bone of Contention
However, there was a clause that a solar power producer, to be eligible to participate under the programme, is required compulsorily to use certain domestically sourced inputs, namely solar cells and modules for certain types of solar projects. In other words, unless a solar power producer satisfies this domestic content requirement, the govt will not ‘guarantee’ the purchase of the energy produced.
What is India’s argument?
India principally relied on the ‘govt procurement’ justification, which permitted countries to deviate from their national treatment obligation provided that the measure was related to “the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or use in production of goods for commercial sale”.
India also argued that the measure was justified under the general exceptions since it was necessary to secure compliance with its domestic and international law obligations relating to ecologically sustainable development and climate change.
What is US’ argument?
In 2013, the U.S. brought a complaint before the WTO arguing that the domestic content requirement imposed under India’s national solar programme is in violation of the global trading rules.
It said that India has violated its “national treatment” obligation by unfavourably discriminating against imported solar cells and modules. In other words, India was discriminating between solar cells and modules (which were otherwise identical) on the basis of the national ‘origin’ of the cells and modules, a clear violation of its trade commitment.
Us has argued that India can achieve its clean energy goals faster and more cost-effectively by allowing solar technologies to be imported from the US and other producers.
What was the WTO judgment on the issue?
WTO concluded that India had violated its national treatment obligation, by imposing a mandatory domestic content requirement. The panel found India violated global trade rules by imposing local content requirements for solar cells and solar modules.
Agreement’s Violated: India violated 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).
Explanation: The product being subject to the domestic content requirement was solar cells and modules, but the product that was ultimately procured or purchased by the govt was electricity. Therefore, the domestic content requirement was not an instance of “government procurement”.
Room for Negotiation
The verdict was delayed for over 2-3 months, so that India and US can reach an agreement. In this regard, changes were suggested by New Delhi to its solar power programme. India proposed that it would use the domestic content requirement measures for buying solar panels for its own consumption such as by the railways and defence and would not sell the power generated from such subsidized panels for commercial use. However, the US may have rejected India’s offer.
Why is the ruling being criticized?
Various environmentalists have criticized the ruling, as it undermines India’s efforts towards promoting the use of clean energy. It threatens the clean energy economy and undermined actions to tackle the climate crisis.
What is the criticism to India’s stand?
There appears to be no rational basis for how mandatory local content requirements contribute towards promoting the use of clean energy. If the objective is to produce more clean energy, then solar power producers should be free to choose energy-generation equipment on the basis of price and quality, irrespective of whether they are manufactured locally or not.
It is also argued that by mandatorily requiring solar power producers to buy locally, the govt is imposing an additional cost for the production of clean energy, which will be ultimately passed on to the ultimate consumer.
What is alternative in India’s hand?
Though, the WTO decision may impact the ‘Make in India’ campaign. But, the govt. can give preferential treatment to clean energies in the form of tax rebates for solar power producers, tax breaks, ensuring a strong line of long term credit at low rates, collaborating with global leaders to enhance domestic research and development.
The reports indicate that India will prefer an appeal to the appellate body. Simultaneously, India may be exploring the option of filing a counter complaint against the US, as many of its state’s such as Michigan, Texas and California having also reportedly been accused of employing mandatory local content requirements in the renewable energies sector.
Experts argue that govt should work towards building a business and regulatory environment, which is conducive to manufacturing. The need is for systemic changes in the form of simpler, transparent and consistent laws and effective dispute resolution mechanisms.
Published with inputs from Pushpendra