It's official: WTO rules against India's domestic content requirement

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This morning a World Trade Organization (WTO) dispute settlement panel issued a ruling which states that the requirement for domestically produced solar cells and modules in phase 2 of India’s National Solar Mission (NSM) violates international trade agreements.

Specifically, the panel found that the domestic content requirement (DCR) violated the Trade-related Investment Measures (TRIMs) agreement and the 1994 General Agreement on Trade and Tariffs (GATT). The panel’s findings had been leaked last August, however today was the first official declaration by the WTO and the U.S. Trade Representative.

India had introduced requirements that projects awarded under phase 1 of the NSM use domestically produced components, and under pressure from the United States including a complaint before the WTO reduced this to only a portion of the total awarded in Phase 2. However this has not satisfied the United States, which has continued to pursue trade action.

By the end of NSM Phase 2 in March 2017, over 1 GW of projects will be awarded in the “domestic content” tranche. Since last fall, India has continued to negotiate with the United States, including offering to limit the DCR to projects awarded through solicitations for supply of power to government agencies.

This latest ruling is unsurprising given that the WTO ruled against Ontario’s DCR in 2012, and referenced that decision in today’s ruling.

However, as it is still unclear when or how India will comply with this ruling, this should not limit the projects awarded in Phase 2. “This won’t stop those projects,” John Smirnow, trade counsel for the Solar Energy Industries Association (SEIA) told pv magazine. “These decisions are not retroactive.”

Mercom Capital CEO Raj Prabhu says that this will not have too great an impact on India’s PV industry. “It’s not a huge blow,” Prabhu told pv magazine. “There aren’t a lot of DCR projects out there anyway.”

Prabhu describes India’s solar manufacturing industry as small and fragmented. “Indian manufacturers competing head to head with a company like First solar or the Chinese is very difficult,” notes Prabhu. “They can’t fight on price or quality with foreign modules.”

However, GTM Research has rated India as one of the most attractive global locations for PV manufacturing, and SEIA trade counsel John Smirnow notes that Indian companies are having some success attracting manufacturing through joint ventures.

The world’s largest module maker, Trina Solar, has plans to build a massive PV module factory in Andhra Pradesh which will host an annual capacity of 2 GW.