India's local content requirements violate global trade rules, finds WTO

The World Trade Organization (WTO) has ruled this week that India must offer a level playing field to both domestic and foreign manufacturers of solar panels following a dispute raised by the U.S. over the country’s solar power program, say reports in India.

An unnamed official, speaking on the condition of anonymity, told business newspaper Mint that the ruling was received by India’s commerce ministry last week. The report was issued in confidence to U.S. and Indian authorities following a three-member dispute settlement panel headed up by David Walker, New Zealand ambassador and former envoy to the country.

The anonymous official confirmed that the government will appeal the ruling – an appeal that, if successful, could give India a two-year window in which to implement the program.

"We will appeal against the judgment at WTO’s highest court, the appellate body, which could give us two years’ reprieve,” said the official. “There can also be a bilateral arrangement with the U.S. since it is an important trading partner."

The U.S. has opposed India’s recently introduced local content requirements for solar modules and solar cells. India’s government offers up to Rs. 1 crore per MW for solar projects that place orders with domestic suppliers.

However, as a member of the WTO, India is not authorized to insist on using domestic suppliers to the detriment of foreign competitors, and government’s operating within WTO guidelines must also treat imports the same as domestically manufactured products.

The anonymous official told MINT that the WTO ruling would not serve to slow India’s National Solar Mission (JNNSM), confirming that the goal remains to install 100 GW of solar PV capacity nationwide by 2022. Of this figure, only a small portion would fall under local content requirement guidelines.

"Local content requirement is only for those projects wherein the government provides a subsidy," said the official. "This is 5 GW each for rooftop and ground-mount projects."

A two-pronged approach

Part of Prime Minister Narendra Modi’s approach towards growing India’s solar industry is rooted in attracting foreign investment into the sector – a strategy that has enjoyed a series of encouraging successes so far in 2015.

This strategy is termed the Make in India program, and aims to turn India into a manufacturing hub using foreign investment to create a suite of home-grown, locally based facilities. According to consulting firm PricewaterhouseCoopers (PwC), this program is unlikely to be affected by the WTO ruling.

"As India’s economy gets back on the rails, existing demography and sectoral plans get developed and integrated, the opportunities India provides in the short, medium and long term across every sector are too huge to be missed by manufacturers," said PwC power and utilities spokesperson Sambitosh Mohapatra.

"Incentives under the modified special incentive package scheme (MSIPS) are available for 10 years from the date of the application. All big solar manufacturing companies are keen to evaluate this and are developing plans to enter India."

The U.S. first challenged India’s local content requirement ruling in 2013, with U.S. trade representative Ron Kirk stating at the time that the law "appears to discriminate" against U.S. PV cell and module manufacturers.

In February last year, then-Prime Minister Manmohan Singh instructed his officials to block all attempts by the WTO to examine India’s trade practices – a move that made relations between the two nations rather frosty. That relationship has thawed somewhat since Modi’s election, but the nations locked horns regularly over the course of 2014 regarding this matter. WTO rules dictate that the trade body was obliged to pursue the matter a second time following the U.S.’s request for another investigation.

India’s solar market is highly sought after in the U.S., and with Obama eager to double U.S. exports in 2015, India is an obvious destination for U.S. solar companies to target. SunEdison has already begun investing heavily in the Indian solar market, and more U.S. firms are set to follow suit.