US to take India to WTO over localisation policy in solar power projects

Written by fe Bureau | New Delhi | Updated: Feb 12 2014, 10:18am hrs
THE United States Trade Representative (USTR) late on Monday said it would take India to the World Trade Organisations (WTO) dispute resolution mechanism over the localisation thrust in Indias solar power policies, saying it could put American equipment makers at an unfair disadvantage. The USTR is the American counterpart to Indias commerce minister.

Policymakers here have termed the USTR move to seek dispute resolution for the alleged discrimination against US companies in Indias 750 MW Solar Mission second-phase as yet another display of Washingtons growing disenchantment with Indias fully WTO-compliant trade and investment policies.

Bidding for the Phase II of the mission was launched last year, with as many as 68 Indian and foreign companies competing for 122 projects. Many projects went to US companies.

While commerce minister Anand Sharma said New Delhi will respond to the US move adequately at the WTO, commerce secretary Rajeev Kher hinted at retaliatory moves.

He said: We have clear evidence of 13-odd US states which follow restrictive policies. Kher said India was also investigating possible dumping of solar equipment by companies from the US, China and some other countries.

New Delhi also hinted that Indias response could include filing a counter-application seeking justification from the US on sops given to American firms utilising products sourced locally and employing local workers in renewable energy and water projects.

Sharma also said the Solar Mission involves heavy subsidies and public money should not be used to pay for imports. We are also very clear that India has to create domestic manufacturing capacities. India must have those capacities. Otherwise, we will end up importing for the rest of our lives, the minister said.

The solar row comes close on the heels of the arrest of Indian diplomat Devyani Khobragade in a visa fraud case and Indias retaliatory measures including action against US diplomats and accusing American embassy teachers of visa fraud.

These domestic content requirements (under Indias Solar Mission phase II) discriminate against US exports by requiring solar power developers to use India-manufactured equipment instead of US equipment. These unfair requirements are against WTO rules, and we are standing up today for the rights of American workers and businesses, said USTR Michael Froman. He added: These types of localisation measures not only are an unfair barrier to US exports, but also raise the cost of solar energy, hindering deployment of solar energy around the world, including in India.

In the WTO dispute settlement process, a request for dispute settlement consultations is the initial stage aimed at helping parties arrive at a solution. In case the issue is not resolved within 60 days of the request, the complainant can ask the WTO to set up a dispute settlement panel.

A clutch of US companies including Azure Power and First Solar were among the bidders under Indias Solar Mission. Under the Missions ongoing Phase II, those who ask for the lowest amount as capital grant or viability gap funding win the bid.

In February 2013, the US had challenged the bidding for first phase of Solar Mission, citing enforcement of stringent localisation norms.

India Inc has recently faced the wrath of American regulatory agencies including the US Federal Aviation Administration, which downgraded Indian aviation safety as well as the US Food and Drug Administration imposing disproportionately strong penalties on Indian pharma companies. Questions are also being raised on Indias ability to detect malware in defence equipment procured from the US including advanced systems such as the C-130J Super Hercules aircraft and the C-17.

The US concern over Indias trade and investment policies was reflected in an August 2013 letter by a group of senators to Irving A Williamson, chairman of the US International Trade Commission.

Pointing to the low levels of US exports of goods and services to India and US foreign direct investment in India despite India being an important strategic partner for the US, the senators said in the letter reviewed by FE: India has a complex, non-transparent tariff and fee system and byzantine and over-burdensome Customs procedures. More recently, India has introduced new localisation-forcing measures such as local content and technology transfer requirements in the green technology and information and communication technology sectors. And India has not yet taken action to fully and effectively protect and enforce copyrights, including in the digital environment, and has applied its patent law in a discriminatory manner, particularly against innovative US pharmaceutical companies, so as to advantage its domestic industries.

The senators sought a quantitative analysis, to the extent feasible, of the economic effects of Indias restrictive measures on the US economy as a whole, on the US trade and investment and selected sectors.

USTR has filed a report in the WTO but that is yet to be notified. Earlier also, India had proved that our policy was not wrong. In fact, we have concerns on China and US dumping their products here, said Biswajit Dhar, director general, Research and Information System for Developing Countries on the US accusing India of denying market access to its solar energy industry.

Kher, however, told reporters that the US move was not a surprise to India. The US already had a consultation with us on solar domestic content and now they have come in for a second-phase challenge. We will participate in the consultations (at the WTO), he said and claimed that Indias current solar power policy is WTO-compliant and therefore, New Delhi will defend it at the WTO. Referring to the contracts in phase II of the NSM, Kher said most of them have gone to American companies which participated in the bidding.

Many American and European solar power equipment makers are keen on greater market access in India where there is a huge demand, especially since there is the prospect of a slowdown in the renewable energy industry in their home markets. The focus on solar power is to ensure Indias long-term energy security and simultaneously rein in the expanding carbon footprint of the countrys power sector.

Under Indias Jawharlal Nehru National Solar Mission (JNNSM) programme, which is a part of Indias National Action Plan on Climate Change, the goal is to touch 20,000 MW grid-connected solar power generation capacity by 2022 .

US-based innovator pharmaceutical companies are sore over grant of compulsory licences by India for reasons other than public health emergencies. Indian drug industry, however, contends that the grant of such licences by the state in public interest (a term with wider ambit than public health emergencies) is not uncommon in the world and point out that at least eight of the 12 western European countries and many Asian and South American countries do grant these licences in public interest.

Of the several applications for compulsory licence received by Indias Controller of patents since 2005, a licence was granted to local firms only in respect of Bayers Nexavar while the same sought for Bristol-Myers Squibbs Sprycel was rejected. Big Pharma is, however, concerned that India could soon issue several more such licences that sidestep patents amid reports that some diabetes drug patents are to be first to be affected by compulsory licensing by India.

According to the USTR statement, Indian solar programmes domestic content requirements discriminate against US solar cells and modules by requiring solar power developers participating in Phase II to use Indian-manufactured solar cells and modules instead of US or other imported equipment. The statement added that India has now extended the domestic content requirements to more solar energy products than covered under Phase I of the National Solar Mission.