The WTO’s dispute settlement function has been a trustworthy mechanism for settling disputes between WTO members.
The WTO’s dispute settlement function has been a trustworthy mechanism for settling disputes between WTO members. It has run well, since WTO members have accepted rulings of the multilateral trade body on various disputes and amended domestic policies accordingly. But this may no longer be the case if some WTO members are ‘directing’ changes in domestic policies of other members following WTO decisions. The India-US solar power dispute is a pertinent case.
Last year, India lost to the US at the WTO in a trade dispute where the US challenged India’s decision on local content requirement in its solar power development programme. From an Indian perspective, the local content requirement was justified as it enabled domestic producers of solar power equipment to supply to a ready market thereby assuring their own growth. But from a global trade perspective, as the WTO ruled, the policy violated the ‘national treatment’ character of the multilateral trade framework that refrains discrimination between producers on the basis of their nationalities. Thus, India went wrong in favouring local suppliers over importers. It has accepted the WTO ruling. But it now faces a different challenge.
The US interpretation of the WTO ruling is that India should scrap all earlier tenders under the Solar Power Mission that were awarded with the ‘unfair’ domestic content requirement. It should tender these afresh allowing foreign suppliers to participate in the biddings. But doing so would imply going back on the work that has already begun in the Solar Power Mission, and would significantly set back the progress on the initiative. As it is, the decision to scrap domestic content has meant trouble for several power projects in the pipeline.
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With the implementation of WTO ruling now turning out to be a question of ‘retrospective’ vs. ‘prospective’, the US-India solar power dispute raises issues that other WTO members would be forced to ponder. These arise from the US posturing on other members policies and its scant regard for their economic circumstances and priorities. The issues also pertain to the desperate attempt of the US to snatch markets in industries where it is finding hard to compete.
Among the top ten solar panel manufacturers for 2015, seven are from East Asia, out of which four are from China (Trina Solar, JA Solar, Jinko Solar and Yingli Solar). The US has only two among the top ten (First Solar and Sun Power). Like in most other areas of modern manufacturing, China, Taiwan and Korea have an edge over the US in low-cost solar panel production. The major solar panel producers of the world are looking closely at the Indian market for future business prospects. This is due to India’s ambitious plans for solar energy production as part of its target of meeting a significant chunk of its total energy requirements from renewable non-fossil fuel sources in the medium term. Furthermore, India is leading the global effort in increasing solar power capacities by forming the International Solar Alliance (ISA), which aims to get together countries between the Tropics of Cancer and Capricorn for utilising solar power.
The US problems with India’s solar energy plans are not limited to domestic content requirements. They also relate to the fact that the US is not in the ISA, which would be mobilising substantial global investments from its members for expanding solar power capacity. China already has a huge presence in India’s solar power market with around two-third of India’s imported solar panels coming from China. Chinese companies have also been quick to enter into collaborations with Indian firms in the renewable energy sector. All these developments are not good for the US solar industry, which is as it is not competitive with its East Asian counterparts and is banking on state subsidies. The loss of the lucrative Indian market and less access in the future market growth of the ISA is an imminent prospect for US solar panel manufacturers. It is hardly surprising that the US would want India to do its tendering for the Solar Power Mission afresh so that it can capitalise on the lost opportunities. It wouldn’t refrain from lobbying its strategic influence for getting its way in the matter.
The US under President Trump has made it abundantly clear, in its Trade Policy Agenda, that it would think very seriously about changing domestic policies ordained by WTO rulings. Indeed, it would refrain from changing domestic laws if they were against the US national interests. Nonetheless, it is willing to force other WTO members to change their domestic laws following WTO rulings—India, in this case—in a manner that suits its own interests. What if India too now refuses to change domestic policies if they are against its economic interests? Never mind the WTO!
The author is senior research fellow and research lead (trade and economic policy), Institute of South Asian Studies, National University of Singapore. Email: firstname.lastname@example.org.
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