Who is the one not playing by the rules - India or the US?

• US complains again to World Trade Organization about India ‘restricting US companies from doing business in India’

• Second phase of National Solar Mission mandates domestic content requirement for 50 per cent of the total capacity – US unhappy with this, says India should open its solar market completely 

• CSE says US is browbeating India to further the interests of American manufacturers 

New Delhi, February 15, 2014: Centre for Science and Environment (CSE) has strongly criticised the recent action by the United States of dragging India to the World Trade Organization (WTO) on a charge that, it says, is baseless at best. On February 11, the US filed a complaint – the second in as many years -- in the WTO against India and the second phase of its National Solar Mission.

The charge was that the Mission was violating trade agreements between the two countries by restricting US companies from doing business in India. The complaint alleged that the domestic content requirement (DCR) mandate put into place by India discriminates against US exports and favours Indian manufacturers of solar panels and cells.

Interestingly, this is the second time the US has gone to WTO with this complaint; in February 2013, it had filed a complaint in the same forum saying India was discriminating against foreign solar companies. US lawmakers had used phrases such as “India isn’t playing by the rules” to support this action.

What the US has picked on
The National Solar Mission’s first phase had mandated the DCR, which meant developers had to buy locally manufactured modules if the project was designed around crystalline silicon technology. This rule was not applicable to projects with thin-film technology. As a result, developers chose the cheaper imported (mainly from the US) thin-film module option -- 50 per cent of solar photo-voltaic projects used thin film in the first batch of the Mission’s phase I. This figure rose to almost 70 per cent in batch II.

In fact, in phase I, the US had used the loopholes in the Mission as well as climate finance to the advantage of its own manufacturers. These manufacturers sold highly subsidised solar panels to India. This, in turn, made Indian solar manufacturing companies uncompetitive. The US, very ingeniously, used the $30 billion climate fund to promote its own solar manufacturing. The US Exim Bank and the Overseas Private Investment Corporation (OPIC) had been offering low-interest loans to Indian solar project developers on the mandatory condition that they buy the equipment, solar panels and cells from US companies. This distorted the market completely in favour of US companies.

CSE had estimated that in 2013, 80 per cent of Indian manufacturing capacity was in a state of forced closure and debt restructuring with no orders coming to it, while American manufacturers were getting orders from Indian solar power developers. The estimation showed that about half of all solar modules installed under the National Solar Mission were manufactured by US companies.

In phase II, conditions of DCR apply to projects worth 375 megawatt (MW) – irrespective of the technology -- which is about 50 per cent of the total capacity offered. Apart from this, there is another category -- ‘open’ -- which is not subjected to any such mandates. The US essentially wants the mandate for DCR to be removed and the entire sector to be declared ‘open’ so that its companies can continue to do business in India unhindered.

The counter-argument 
The phase II DCR mandate fulfils a demand from manufacturers and think-tanks – which makes domestic content requirement also applicable to thin-film technology. The US had been apprehensive that if this happened, it would put a stop to the import of subsidised solar modules from the US. There is also speculation that the reason for the US action could be the competition US manufacturers are facing from Chinese and Japanese producers in India. 

Says Chandra Bhushan, deputy director general, CSE: “The US has been dumping subsidised solar power panels in India. It is browbeating India to further the interests of its own solar companies. It is the US which should be made answerable at the World Trade Organization.”

India’s commerce secretary Rajeev Kher alleges that the US itself is following restrictive policies for its local solar panel manufacturers in 13 of its own states – by running a subsidy programme for local content requirement, primarily in the states of Connecticut, Delaware, Massachusetts and Minnesota.

Also, the fixation of the US government on the 375 MW of DCR category projects is inexplicable. The fact remains that most states in India have come out with their solar policies and are encouraging solar deployment on a large scale. None of the states have a DCR component to these policies, which means the entire country is available as a market for US solar manufacturers.

How will the WTO treat this complaint? The WTO dispute settlement body first holds consultations with the country against which the complaints are made. The idea is to solve the dispute within 60 days of the request. Thereafter, a panel of lawyers is constituted and a trade dispute is registered as a case. In the first time around, the case was not pursued by the US. 


For more on this, please contact Aruna Kumarankandath at k_aruna@cseindia.org.