How WTO's ruling against India will hurt solar industry

The WTO has ruled against India in the solar dispute with the US. It could not have come at a worse time for the solar equipment manufacturers of India. The industry is already suffering from a crash in prices of solar panels in global market, slackening of demand in foreign countries and stiff competition from Chinese imports in domestic market.

Against this backdrop, Indian manufacturers were getting some relief in the form of Jawaharlal Nehru National Solar Mission (JNNSM), which tries to incentivise installation of solar power projects in India, particularly because it has a domestic content requirement.

The solar power developers are expected to procure their project components from domestic manufacturers as far as possible. Unfortunately, India now faces a threat on the domestic content requirement of the JNNSM. The Indian manufacturers are now worried if JNNSM can be continued in its present form.

Ironically, while the WTO is supposed to provide a predictable environment to the business community, the present case has brought huge amount of uncertainty to the Indian solar equipment manufacturers who invested with the hope of benefits from JNNSM. Obviously, the US manufacturers did not make their investment decision keeping the JNNSM in mind.

It may be recalled that India did not have any commitment to engage in carbon mitigation under the Kyoto Protocol. Yet it adopted an ambitious National Action Plan on Climate Change (NAPCC) in 2008 and also unilaterally decided to reduce its emission intensity.

However, it was realised that scarcity of resource is an important issue in India due to other competing development needs in the country. Hence, NAPCC envisaged activities and measures that will have co-benefits, i.e, along with carbon mitigation, they will help achieve other socio-economic objectives.

Accordingly, one of the important objectives of the National Solar Mission is to promote domestic manufacturing, so that it also promotes employment and economic activities in the country. It is of course also true that without a domestic production base it might be difficult to get too far in terms of promoting solar power in India.

Given this, the WTO ruling threatens one of the basic objectives of NAPCC and India’s Intended Nationally Determined Contributions (INDC).

Earlier, in a similar case, the WTO dispute panel did not accept the argument that disputed power purchase rule of the Ontario green energy program in Canada could not be exempted on ground of being in the nature of public procurement, as the activities concerned were of commercial in nature rather than of public action.

Similar reasoning might have been used in the present case. It is unfortunate that WTO sees buying of coal-fired electricity and solar power through the same prism. If the utilities are making commercial decision, then they should rather buy only coal-based power rather than renewable energy as that does not make any "commercial" sense. Hence, buying of solar power by utilities need not be interpreted as commercial activity.

For long, many have argued that though WTO has played an important role in disciplining global trade, it can have adverse implication for the environment. Even the WTO trade and environment agenda in the Doha Round is essentially to promote market access rather than promoting environment objectives.

The WTO has also shown judicial activism in the Canada case by getting into issues like a kind of activity that the public entity is engaged in, and by refusing Canada’s claim on public procurement exemption, while the plurilateral agreement on public procurement at the WTO includes publicly owned commercial entities in its ambit.

It is also an irony that the US has dragged India to WTO on this issue when Indian manufacturers actually do not see much of a threat from US manufacturers but are more worried about the Chinese competition.

The US trade representative said, "The United States strongly supports the rapid deployment of solar energy around the world, including with India."

However, what it means is that India should provide huge subsidies to promote solar energy but US companies should also benefit from such subsidies. A strong support indeed! But such disputes at the WTO would definitely discourage promotion of renewable energy around the world as every country, particularly in the developing world, would expect some co-benefits from such efforts.

The JNNSM has provided immense help for the solar industry in India but it is still an infant industry in the country. Article XVIII of the GATT (General Agreement on Tariffs and Trade) allows developing countries to maintain sufficient flexibility in their tariff structure to be able to grant the tariff protection required for the establishment of a particular industry. But imposing higher import duty might also be detrimental to the objective of JNNSM.

However, the moot point is that GATT recognises the need for protection of infant industry which is the case for solar equipment industry in India. Instead of higher tariff, India chose to have domestic content requirement and thereby brought a fine balance between the twin objectives of JNNSM.

Developing countries have shown remarkable restraint by not challenging the agricultural subsidies of US and EU, even after the expiry (in 2004) of the "peace clause" (Article 13 of the Agriculture Agreement) that protected countries using subsidies being challenged under other WTO agreements like Agreement on Subsidies and Countervailing Duties.

Even some of the measures adopted by the US in the wake of the financial crisis could have been challenged at the WTO. But countries showed restraint as the US went around the world asking for sympathy. But when it comes to its turn, the US does not show any restraint.

But these two WTO cases have raised a larger issue. Probably, a time has come to launch a public campaign in line of TRIPS (Trade-Related Aspects of Intellectual Property Rights) and public health campaign that forced WTO members to amend the rules.

Similarly, WTO rules can be amended to ensure that it does not stand in the way of countries adopting measures to fight climate change, particularly in the developing world who make such brave efforts despite huge resource constraints and several other development challenges, at the same time, to discourage trade measures in the name of fighting climate change.

India, on its part, should fight it out at the WTO till the end. Meanwhile, it can also explore the possibilities of JNNSM providing support to domestic production without inviting such WTO troubles, and it might be possible even if the degree of support might get reduced in such a scenario.

Government of India should also work out a strategy to ensure that its projects that are important for both climate change mitigation and energy security are not derailed due to external pressure.