Global Solar Wars: India Edition

By Tyler Johnson, GEI Policy Extern

Graphic courtesy of Tori Rector under CC BY-SA 2.0

 This post will be the first in a series centered around international trade disputes and the affects these disputes have, if any, on the development of renewable energy around the world. Here, I explore the World Trade Organization (WTO) ruling against India’s “domestic content requirement” provision in its National Solar Mission, an initiative to increase India’s solar capacity to 20 gigawatts (GW) by 2022. A second post will explore the disputes between the U.S. and China currently before the WTO. Finally, a third post will discuss the practical and theoretical impacts these international trade agreements have on democracy and the ability of nations, especially poorer countries, in achieving sustainable economic development while improving their environment and addressing climate change.

India—Certain Measures Relating to Solar Cells and Solar Modules

A WTO panel held last week that a so called “domestic content requirement” in India’s National Solar Mission was inconsistent what Article III Paragraph 4 of the General Agreement on Tariffs and Trade (the GATT) and Article 2.1 of the Agreement on Trade-Related Investment Measures (TRIMs).

India’s National Solar Mission was broken into three separate phases. The United States had issues with the first two phases. India’s National Solar Mission, an ambitious endeavor, seeks [1]to “establish India as a global leader in solar energy” through various implementing phases with an overall objective of reaching 20 GW of solar capacity by 2022.

The National Solar Mission achieves its solar capacity objectives by directing the Government of India to enter into long-term power purchase agreements (PPAs) with solar power developers (SPDs). Each PPA guarantees a rate over a 25 year time period for each SPD. The Indian Government then resells that electricity to downstream distribution utilities which in turn distribute the electricity to end users.

The United States did not object to the Mission’s overall objectives or the general scheme of the plan. However, the plan also required the SPDs, during the first two phases of the plan, to use domestically produced PV cell modules in certain situations.

The United States argued that this domestic purchase requirement violated Article III of  the GATT and Article 2.1 of the TRIMs agreement, thus discriminating against foreign producers.

Article III:4 states:

“The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”

The TRIMs agreement includes an “illustrative list” of TRIMs contrary to Article III:4 and among them include violations “mandatory or enforceable under domestic law” that require “the purchase or use by an enterprise of products of domestic origin or of any domestic source.”

The WTO had previously held that a similar “made in Ontario” provision from Ontario’s Green Policy Act of 2009—demanding a certain amount of labor and manufacturing input to receive the special purchase rates from renewable energy facilities—violated the same GATT and TRIMs provisions.

Consistent with precedent and the plain language of Article III:4 of the GATT and Article 2.1 of TRIMs, the WTO panel determined that the domestic content requirement in the National Solar Mission should be voided and called for India to amend the provisions to fall in compliance.

What does this mean for India’s Solar Mission? Is it fair?

My first reaction to this decision—aided by the media—was extremely negative. Many environmental groups blasted the decision. Articles were misleading, suggesting that the entire Solar Mission was shot down by the WTO. See here. However, the National Solar Mission will still move forward. The WTO panel made clear that the only issue before them was a determination regarding the domestic content requirement. To remedy, India merely has to delete that requirement from its regulation. Ontario did exactly that when the WTO ruled against it and its program moved forward just the same.

So, overall, I don’t think that the decision will affect India’s ability to achieve its 22 GW objective under the National Solar Mission. Indian solar companies will just have to compete on a level playing field with foreign solar manufacturing companies, which some argue benefit consumers.

The fairness of this decision, and others like it, is much more questionable for me. Is it wrong for India to favor its own solar manufacturers over those of developed countries? What does this mean for India’s own economic development? Do these decisions mean that multinational corporations trump democracy and the ability of countries to secure the health and welfare for their people and environments? Who usually wins these disputes, rich or poor countries? I do not currently know the answers to these questions, but I plan to explore them in later blog posts.

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[1] Resolution, Jawaharlal Nehru National Solar Mission, Ministry of New and Renewable Energy (Jan. 11, 2010).