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On 6 February 2013 and 10 February 2014, the United States requested consultations with India pursuant to Articles 1 and 4 of the DSU, Article XXII of the GATT, and Article 8 of the TRIMs. The claims were pertaining to certain domestic content requirements (“DCR”) for solar panels imposed on entities selling electricity to the Indian government agencies under the Jawaharlal Nehru National Solar Mission (“National Solar Mission” or “NSM”).
A mandatory DCR was imposed on solar power developers (“SPD”) participating in Phase I (Batch 1), Phase I (Batch 2), and Phase II (Batch 1) of the NSM. For each batch, the applicable DCR was initially set forth in the guidelines document and reproduced in the request for selection document. The applicable DCR was then reaffirmed in the model PPA and all of the individually executed PPAs in each batch, and further implemented through specific mechanism which the SPDs had to submit after execution to the PPAs showing measures to meet the applicable DCR.
CONTENTION OF UNITED STATES
The United States had put forth the following arguments against the compulsory DCR imposed by India:
- The DCR incorporated in individually executed PPAs and certain other documents, are inconsistent with India's obligations under Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement.
- Pursuant to Article 19.1 of the DSU, that the WTO Panel should recommend India to bring its measures at parity with its WTO obligations.
COUNTER ARGUMENTS OF INDIA
India had put forth the following arguments in favour of the compulsory DCR
- DCR at issue is not inconsistent with Article III:4 of the GATT 1994 or Article 2.1 of the TRIMs Agreement.
- DCR in dispute does not grant less favorable treatment to imported solar panels in comparison to panels of Indian origin.
- Even if any inconsistency is found to exists, the same is justified under Articles XX(j) and/or XX(d) of GATT 1994.
- WTO Panel found that DCR would necessarily be trade-related' because it will always favour the use of domestic products over imported products, and therefore affect trade. In the present case, the DCR measures expressly stipulated the origin of specified goods that may be used by SPDs for bidding eligibility and participation under each of the relevant batches of the NSM. Accordingly the DCR measures were traderelated and constitutes "TRIMs" within the meaning of Article 1 of the TRIMs Agreement.
- WTO Panel found that compliance with the DCR measures "is necessary to obtain an advantage" within the meaning of paragraph 1(a) of the TRIMs Illustrative List. Further, in view of the various contractual obligations and penalties for default by SPDs, the Panel concluded that the DCR measures were also "mandatory or enforceable under domestic law”.
- The Panel having found that the DCR measures are TRIMs that (i) "require the purchase or use by an enterprise of products of domestic origin", and (ii) that "are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage", held the DCR measures to be "inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994" and thereby also inconsistent with Article 2.1 of the TRIMs Agreement.
This judgment is considered to be a blow for domestic solar manufacturers because the DCR was a safety net for them even though DCR may not be a long-term, sustainable policy. India's solar manufacturers still largely assemble products with the basic material such as polysilicon chips procured mostly from China. As a result, Indian solar cells and modules end up becoming 8-10% costlier than those from China, Malaysia or Taiwan, from where most solar developers in India source their modules and are often technologically inferior.
The possible answer to this issue could be making Indian solar industry more competitive. According to sources, the Central Government is working on a policy for boosting large-scale solar equipment production facilities for making it more competitive. A policy of this nature is expected to give quantum lead in domestic production of solar equipment.
Further, sensing fears of domestic manufacturers due to this judgment, the government is planning to go for an appeal in the WTO s Appellate body. The government is also stated to have been mooting various measures to protect domestic manufacturers and one of that could be a subsidy.
The issue has become a grey matter and there is not much options but to see how government balances out WTO on one hand and domestic solar manufacturers on the other.
http://www.dnaindia.com/money/report-govt-s-policy-soon-for-large-scale-solar-manufacturing-piyush-goyal-2185844 Accessed on March 11, 2016.
http://economictimes.indiatimes.com/news/economy/policy/solar-mission-india-to-appeal-against-wto-ruling/articleshow/51147890.cms Accessed on March 11, 2016.
INDIA – CERTAIN MEASURES RELATING TO SOLAR CELLS AND SOLAR MODULES Report Of The Panel 24 February 2016 WT/DS456/R
 Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).
 General Agreement on Tariffs and Trade 1994 (GATT 1994).
 Agreement on Trade-Related Investment Measures (TRIMs Agreement).
 Power Purchase Agreement