India-US spat on solar panels may blow up into a wider dispute

The India-US dispute over local content requirement in the country's solar energy programme is likely to expand into a larger controversy at the World Trade Organisation (WTO) involving several countries that are in the renewable energy business.

The current row with the US over India's requirement of a minimum amount of local content in solar power projects has now been taken up by the World Trade  Organisation.

A meeting of the dispute settlement arm of the global trade body, on 23 May, decided to set up a dispute settlement panel after the US complained for the second time.

India had blocked the first request by the US to set up a dispute settlement panel after negotiations failed between the two countries. But under the current WTO rules, the trade body is obliged to set up the panel if a request is made a second time.

The US argument is that certain provisions mandating use of local inputs under the Jawaharlal Nehru National Solar Mission launched in 2010 discriminates against foreign manufacturers of components and thus violates WTO norms.

India holds that the purchase of power produced under the mission is by a government agency and it falls under the category of government procurement, which is out of the purview of WTO rules.

The commerce ministry, however, has to fight a trade battle to defend India's domestic content requirements under the country's solar power programme.

The development is being keenly watched by other countries with some wanting to participate as observers in the panel hearings.

The EU, Brazil, China, Norway, Canada, Malaysia, Russia, Turkey, Korea and Japan have requested the WTO, India and the US to allow them to be members 'reserving their third party rights' in the dispute as their interests are also linked with the panel's verdict.

This means that these members can submit information and receive documentation without actively participating in the proceedings.

Ironically, the US and a large number of countries, including Argentina, Brazil, Canada, have local content requirements in various programmes and in different forms.

The US is also in the process of imposing additional import duties of between 18-35 per cent on solar panels imported from China, in order to protect the American manufacturers from the dumping.

India's commerce ministry is in the process of consultations with the ministry of new and renewable energy to firm up arguments defending the local sourcing rules for the first hearing of the panel.

While the EU and Japan recently won a case against Canada at the WTO against local sourcing clause in clean energy programmes run in Ontario, China has a direct interest in the Indian market as it is one of the largest exporters of solar panels and cells to the country.

If the US wins its case against India and the country is forced to do away with the local sourcing clause for future projects, China could be a big gainer.