WTO is right in the so­lar panel dis­pute

The Pak Banker - - OPIN­ION - Jay San­klecha

IN a sig­nif­i­cant rul­ing last week, a World Trade Or­gan­i­sa­tion ( WTO) panel found that the do­mes­tic con­tent re­quire­ment im­posed un­der In­dia's na­tional so­lar pro­gramme is in­con­sis­tent with its treaty obli­ga­tions un­der the global trad­ing regime. The rul­ing has been de­scribed as yet an­other in­stance of ar­chaic trade rules trump­ing im­por­tant cli­mate im­per­a­tives. How­ever, this crit­i­cism is not en­tirely jus­ti­fied.

In­dia's na­tional so­lar pro­gramme, which was launched in 2010, aims to "es­tab­lish In­dia as a global leader in so­lar en­ergy, by cre­at­ing the pol­icy con­di­tions for its dif­fu­sion across the coun­try as quickly as pos­si­ble". To in­cen­tivise the pro­duc­tion of so­lar en­ergy within the coun­try, the gov­ern­ment un­der the pro­gramme agrees to en­ter into long-term power pur­chase agree­ments with so­lar power pro­duc­ers, ef­fec­tively "guar­an­tee­ing" the sale of the en­ergy pro­duced and the price that such a so­lar power pro­ducer could ob­tain. There­after, it would sell such en­ergy through dis­tri­bu­tion util­i­ties to the ul­ti­mate con­sumer. How­ever, a so­lar power pro­ducer, to be el­i­gi­ble to par­tic­i­pate un­der the pro­gramme, is re­quired com­pul­so­rily to use cer­tain do­mes­ti­cally sourced in­puts, namely so­lar cells and mod­ules for cer­tain types of so­lar projects. In other words, un­less a so­lar power pro­ducer sat­is­fies this do­mes­tic con­tent re­quire­ment, the gov­ern­ment will not ' guar­an­tee' the pur­chase of the en­ergy pro­duced.

In 2013, the U.S. brought a com­plaint be­fore the WTO ar­gu­ing that the do­mes­tic con­tent re­quire­ment im­posed un­der In­dia's na­tion- al so­lar pro­gramme is in vi­o­la­tion of the global trad­ing rules. Specif­i­cally, it said, In­dia has vi­o­lated its "na­tional treat­ment" obli­ga­tion by un­favourably dis­crim­i­nat­ing against im­ported so­lar cells and mod­ules. In other words, In­dia was dis­crim­i­nat­ing be­tween so­lar cells and mod­ules which were oth­er­wise iden­ti­cal on the ba­sis of the na­tional 'ori­gin' of the cells and mod­ules, a clear vi­o­la­tion of its trade com­mit­ment. In­dia prin­ci­pally re­lied on the ' gov­ern­ment pro­cure­ment' jus­ti­fi­ca­tion, which per­mit­ted coun­tries to dero­gate from their na­tional treat­ment obli­ga­tion pro­vided that the mea­sure was re­lated to "the pro­cure­ment by gov­ern­men­tal agen­cies of prod­ucts pur­chased for gov­ern­men­tal pur­poses and not with a view to com­mer­cial re­sale or use in pro­duc­tion of goods for com­mer­cial sale". In­dia also ar­gued that the mea­sure was jus­ti­fied un­der the gen­eral ex­cep­tions since it was nec­es­sary to se­cure com­pli­ance with its do­mes­tic and in­ter­na­tional law obli­ga­tions re­lat­ing to eco­log­i­cally sus­tain­able de­vel­op­ment and cli­mate change.

The panel, in its 140-page re­port, ex­am­ined in de­tail the sub­mis­sion of the par­ties and rightly con­cluded that In­dia, by im­pos­ing a manda­tory do­mes­tic con­tent re­quire­ment, had vi­o­lated its na­tional treat­ment obli­ga­tion. In so far as the gov­ern­ment pro­cure­ment dero­ga­tion was con­cerned, the panel found that the prod­uct be­ing sub­ject to the do­mes­tic con­tent re­quire­ment was so­lar cells and mod­ules, but the prod­uct that was ul­ti­mately pro­cured or pur­chased by the gov­ern­ment was elec­tric­ity. The do­mes­tic con­tent re­quire­ment was there­fore not an in­stance of "gov­ern­ment pro­cure­ment". Fi­nally, the panel found that since In­dia failed to point out any spe­cific obli­ga­tion hav­ing "di­rect ef­fect in In­dia" or "form­ing part of its do­mes­tic le­gal sys­tem", which "ob­li­gated" In­dia to im­pose the par­tic­u­lar do­mes­tic con­tent re­quire­ment, the gen­eral ex­cep­tion was not avail­able to the In­dian gov­ern­ment in the in­stant case.

The rul­ing, how­ever, has come un­der in­tense crit­i­cism, par­tic­u­larly from en­vi­ron­men­tal­ists, as un­der­min­ing In­dia's ef­forts to­wards pro­mot­ing the use of clean en­ergy. How­ever, there ap­pears to be no ra­tio­nal ba­sis for how manda­tory lo­cal con­tent re­quire­ments con­trib­ute to­wards pro­mot­ing the use of clean en­ergy. If the ob­jec­tive is to pro­duce more clean en­ergy, then so­lar power pro­duc­ers should be free to choose en­ergy-gen­er­a­tion equip­ment on the ba­sis of price and qual­ity, ir­re­spec­tive of whether they are man­u­fac­tured lo­cally or not. In fact, by manda­to­rily re­quir­ing so­lar power pro­duc­ers to buy lo­cally, the gov­ern­ment is im­pos­ing an ad­di­tional cost, usu­ally passed on to the ul­ti­mate con­sumer, for the pro­duc­tion of clean en­ergy. The de­ci­sion may there­fore stand to ben­e­fit the in­ter­est of the ul­ti­mate con­sumer. It is en­tirely pos­si­ble to give pref­er­en­tial treat­ment to clean en­er­gies (in the form of tax re­bates for so­lar power pro­duc­ers and so on) with­out re­quir­ing manda­tory lo­cal con­tent. Per­haps, what is even more in­struc­tive is the fact that In­dia dur­ing its sub­mis­sions be­fore the WTO did not in­voke the gen­eral ex­cep­tions un­der ar­ti­cle XX(b) or (g) of the Gen­eral Agree­ment on Tar­iffs and Trade typ­i­cally re­lied upon in trade dis­putes by par­ties seek­ing to pro­tect their do­mes­tic reg­u­la­tions on 'en­vi­ron­men­tal' or 'health' grounds. In­dia there­fore did not it­self be­lieve that the lo­cal con­tent re­quire­ment un­der the pro­gramme was im­posed for the 'con­ser­va­tion' of 'clean air'.

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