India lodges WTO appeal in US solar cells dispute

29 April 2016

ndia has now asked the WTO’s highest court to review certain aspects of an earlier panel’s finding in its dispute with the US over the use of domestic content requirements in the Jawaharlal Nehru National Solar Mission (JNNSM) energy scheme (DS456), filing a notice of appeal on 20 April.

New Delhi launched the JNNSM six years ago, aiming to promote “ecologically sustainable growth while addressing India’s energy security challenge.” The mission is working toward generating 100,000 mega-watts (MW) of grid-connected solar power capacity by 2022.

Under the Mission, the Indian government buys power from solar power developers, at a guaranteed rate for 25 years, and subsequently sells the electricity to downstream distribution utilities which, in turn, resell to consumers.

In the Mission’s initial phases, solar power developers were required to use certain types of Indian-made solar cells and modules. The US complained that this requirement was discriminatory and a WTO panel was established to hear the case in May 2014. (See Bridges Weekly, 28 May 2014[Editor's note, Bridges Weekly is ICTSD's flagship publication for trade news]

In late February, the panel found the JNNSM’s domestic content requirements (DCRs) constituted trade-related investment measures, thus violating the national treatment obligation under the Agreement on Trade-Related Investment Measures (TRIMs) and the General Agreement on Tariffs and Trade (GATT) 1994. (See Bridges Weekly, 3 March 2016)

Moreover, the panel found that the measures could not be exempted by the GATT’s government procurement derogation, nor could they be justified by that agreement’s general exceptions.

The February panel ruling has drawn significant interest in the trade and climate policy communities since its release, particularly amid various separate developments in both fields, including the adoption of a multilateral UN climate accord last December.

The JNNSM is one of India’s various efforts that aims to tackle the challenge of climate change through increasing its capabilities in clean energy, among other objectives. On the global stage, last December at the UN Framework Convention on Climate Change’s (UNFCCC) annual meet in Paris, Indian Prime Minister Narendra Modi launched with French President François Hollande an international solar alliance of over 120 countries, concurrent with New Delhi’s pledge to derive 40 percent of its electricity from renewable sources by 2030.

The US, for its part, has repeatedly stressed that it does not question India’s climate policies or objectives in this dispute. Rather, Washington has specifically taken issue with the inclusion of domestic content requirements in the scheme.

Meanwhile, India’s Power, Coal, and Renewable Energy Minister Piyush Goyal told the NDTV news agency last week that New Delhi’s own analysis has found 16 US states which, he claims, “have similar domestic content requirements when they procure solar panels for their energy needs.”

The issue of whether domestic content requirements are actually effective for scaling up the deployment and use of clean energy has also been questioned by various experts over the years, as governments work to develop and refine policies aimed at boosting their renewable energy capabilities.

Government procurement derogation

GATT Article III:8 (a) says that the national treatment obligation does not apply to measures “governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale.”

In its February ruling, the panel found that the measures at issue are not covered by this derogation, given that the solar cells and modules discriminated against were not in a “competitive relationship” with the electricity bought by the Indian government from the solar power developers.

In its notice of appeal, India claims that the panel was mistaken in not considering its arguments that “solar cells and modules are indistinguishable from solar power generation” and that they qualify as “inputs” for that purpose. India has therefore asked that the Appellate Body reverse such findings.

India has also asked the WTO judges to find that the domestic content requirements in the JNNSM are covered by the GATT’s government procurement derogation, and that such requirements do not violate the national treatment requirements under the TRIMs Agreement and the GATT.

Article XX exceptions

Furthermore, India is challenging the panel’s conclusion that the measures are not justified under the GATT’s general exceptions, specifically Article XX(j) and XX(d). These specific provisions outline justifications that may allow the use of otherwise WTO-inconsistent measures if these are “essential to the acquisition or distribution of products in general or local short supply” or are “necessary to secure compliance with laws or regulations,” respectively.

The panel found that Article XX(j) refers to a situation where the quantity of a product from all sources, domestic and foreign, does not meet the demand in a relevant geographical area or market.

In particular, the panel rejected India’s argument that a lack of domestic manufacturing capacity establishes that a product is in short supply, regardless of whether demand can be met through other sources.

In the notice of appeal, India argued that the panel replaced the country’s justification for domestic content requirements with one lacking basis in New Delhi’s submission, and made its findings using “a piecemeal and selective analysis” of evidence without providing “due process” rights to respond. 

The panel also rejected India’s defence under Article XX(d), finding that the international agreements invoked by the country  do not have “direct effect” or form part of New Delhi’s domestic legal system, and that the domestic legal instruments identified by India are either not legally enforceable rules of conduct or lack sufficient relevance to domestic content requirements in order to fall under the category of “laws or regulations” under Article XX(d).

The panel also said that the DCRs are not “essential” within the meaning of Article XX(j) or “necessary” under XX(d).

India is now appealing these conclusions, asking the Appellate Body to reverse the panel’s findings and find these measures to be justified under these provisions.

Next steps

Under WTO rules, the Appellate Body now has 90 days from the date of appeal to issue its report. The Appellate Body generally reviews questions relating to law or legal interpretation and not the factual findings of the panel ruling.

ICTSD reporting; “India unveils global solar alliance of 120 countries at Paris climate summit,” THE GUARDIAN, 30 November 2015; “India Accuses US Of Double Standards On Solar Trade,” NDTV, 23 April 2016.

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