India Walking a Tightrope on National Solar Mission Phase II amidst US Opposition

With the United States filing a complaint against India’s domestic content requirement (LCR) in the Jawaharlal Nehru National Solar Mission (JNSSM) with the Dispute Settlement Body of WTO in the backdrop of Ontario verdict and ministry for New & Renewable Energy (MNRE) in India insisting LCR clause is judicious, the ministry of Commerce and Industry has decided to vet the JNSSM draft of Phase II beforehand to ensure it conforms to all WTO norms.

Ind WTO USTuesday, August 13, 2013: The Ministry of Commerce and Industry is caught between the objective of promoting domestic manufacturing and objections by the US over India’s solar energy projects. US had criticised the first phase of the Jawaharlal Nehru National Solar Mission (JNNSM) as the government had insisted on high local content for the projects, which US had pointed out, is against WTO norms. Making efforts to avoid any criticism at World Trade Organisation (WTO) regarding India’s solar energy projects, ministry of Commerce is taking precautions to avoid any such oppositions for the solar projects under JNNSM phase II.

The Ministry of Commerce and Industry now wants the Ministry for New and Renewable Energy (MNRE) to share the draft policy of phase II to see if it is compatible with WTO norms.“The first time, the MNRE did not share its first phase draft with us. But now we have insisted that the draft be shown to us before finalisation as we have to face the music at the WTO,” a senior official of Ministry of Commerce has reportedly said.

JNNSM phase I had tried to promote use of solar energy and build local capacities as it made it compulsory for all investors to use solar modules manufactured in India and source 30 per cent of the inputs locally.

MNRE will soon invite bids for 750 MW of grid-connected solar photovoltaic projects under phase II. The government has already raised the local content requirement to 75 per cent of the proposed 750 MW solar projects.

The Background:Ontario Case

Two months after Canada lost a case at the World Trade Organisation, the US in February 2013 approached the WTO to challenge the local-content requirements in India’s solar power programme.
On 6 February 2013, the US sought formal consultations with India at the WTO over local-content requirements and subsidy for the manufacturing of solar panels under the Jawaharlal Nehru National Solar Mission.

On 19 December 2012, a WTO panel backed complaints from Japan and the European Union that the local-content requirements of Ontario’s feed-in-tariff (FIT) programme for the renewable energy sector violate WTO rules because it requires participating firms to source up to 60% of their equipment locally.
In 2009, the FIT programme was launched in Ontario province of Canada with the purpose of creating clean energy industries and jobs, developing renewable energy technology and improving air quality by phasing out coal-fired power generation by 2014.

At the insistence of the EU and Japan, the WTO dispute panel was formed to resolve the disputes concerning the local-content requirements of the FIT programme. In its ruling, the panel concluded that the LCRs imposed by Canada violate the WTO rules as the FIT programme discriminates against foreign suppliers of equipment and components for renewable energy facilities. The panel found that Canada has breached its obligations [under Article 2.1 of the WTO Agreement on Trade-Related Investment Measures (TRIMs) and Article III: 4 of the General Agreement on Tariffs and Trade (GATT) 1994] and recommended that ‘Canada bring its measures into conformity with its obligations under the TRIMs Agreement and the GATT 1994′.

At the WTO, a number of developing countries (from Brazil to Nigeria to Indonesia) are currently facing wrath over the imposition of local-content requirements in energy, telecom and infrastructure sectors on the grounds that such measures violate global trade rules.

LCR in India’s Solar Mission

2The Jawaharlal Nehru National Solar Mission (JNNSM) was launched by the India in 2010 as an important component of the National Action Plan on Climate Change, with a target of target of achieving an installed solar power generation capacity of 20,000 megawatts (MW) by the year 2022 in three phases.

The US has been a vocal critic of the LCR (Local-content requirements) clauses in the JNNSM. However, the LCR norms are only applicable to PV modules based on the crystalline technology while close to 60% of projects supported under Phase I of the JNNSM have opted for imported thin film solar panels – mostly made in the US. The US move is essentially aimed at annulling the draft guidelines on Phase II of the JNNSM (released in December 2012) which make it mandatory for all supported projects to buy locally-made solar equipment.

The LCR clauses were incorporated by India to protect the domestic solar industry against imports from China and the US since both these countries offer cheaper loans to Indian projects to buy their equipment.
Apart from the US, Japan and the EU have also expressed their opposition to the LCR clause in the JNNSM, phase II.

The US government claims that the JNNSM discriminates against American solar equipment suppliers in two major ways: by requiring solar energy producers to use locally-made equipment; and by offering subsidies to producers who use domestic equipment. According to the US government, the local-content and subsidy clauses in the JNNSM violate key agreements of the WTO.

In its earlier bilateral negotiations with the US, India maintained that the local-content clause in the JNNSM is primarily aimed at promoting domestic manufacturing and is fully consistent with India’s existing obligations under the WTO agreements. According to the Indian government, since the JNNSM is essentially procurement of solar power by the government through a state-owned entity, there is no violation of WTO obligations. It has argued that India is not a signatory to the Government Procurement Agreement of the WTO and therefore exempted from the procurement procedures of this agreement.

The government has also stated that the local-content requirement clause is only limited to projects awarded under the JNNSM while a number of upcoming solar power projects in various states do not contain such clauses.

However, the last has not been heard on this given the complexities, technicalities and large scale lobbying involved in such matters at WTO.

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