US Complaint: India – Certain Measures Relating To Solar Cells And Solar Modules

Submitted in partial fulfillment of the requirements for Trade Laws & Institutions IPSG 8525

Middlebury Institute of International Studies

Jeremy Borgia May 14, 2015

Table of Contents

Introduction 1 ............................................................................................................................

Historical Context: Ongoing Indo/US Trade Disputes 2 ..........................................................

Policy Context: DCRs in India’s JNSM Policies 3 ...................................................................

Indian Sovereignty 5 .................................................................................................................

The Role of the WTO Dispute Settlement System 6 ................................................................

WTO Accession 7 .....................................................................................................................

Like Product Analysis 7 ............................................................................................................

Nondiscrimination: The National Treatment Clause 9 .............................................................

Trade-Related Investment Measures: Article XI and TRIMs 12 ................................................

Article XX: The General Exceptions 15 .....................................................................................

Technical Regulations and Product Standards: The SPS and TBT Agreements 18 ...................

Subsidies and Countervailing Duties 22 ....................................................................................

Conclusion/Recommendations 26 ..............................................................................................

Bibliography 28..........................................................................................................................

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Abstract

In this paper, I analyze the current WTO dispute, brought by the United States, that

alleges that certain policies regarding India’s Jawaharlal Nehru Solar Mission (JNSM) violate its

obligations under the General Agreement on Tariffs and Trade (GATT) 1994, Agreement on

Trade-Related Investment Measures (TRIMs), and the Agreement on Subsidies and

Countervailing Measures (SCM). For each alleged violation, I use the format Act of State →

Violation → Unless to determine if India is in fact in violation of its WTO obligations. In

addition, I frame the dispute in the background of the US/Indian trade relationship, providing the

political context that this dispute is taking place in.

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Introduction

In February 2013, the United States Trade Representative initiated a formal WTO

complaint against India by requesting consultations regarding policies relevant to India’s

ambitious Jawaharlal Nehru Solar Mission (JNSM). The project, named for India’s first prime 1

minister, and a part of the broader National Action Plan on Climate Change by the Indian

government, aims to establish India as a global leader in solar energy. The reason for the US 2

complaint was the American claim that “certain measures of India relating to domestic content

requirements” violated Article III:4 of the General Agreement on Tariffs and Trade (GATT)

1994, Article 2.1 of the Agreement on Trade-Related Investment Measures (TRIMs), Articles 3 4

3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the Agreement on Subsidies and Countervailing

Measures (SCM), in addition to a broader claim that “the measures appear to nullify or impair 5

the benefits accruing to the United States directly or indirectly under the cited agreements.” 6

Sixty-eight days after the request for consultations, the US requested the establishment of a

dispute settlement panel. That panel is expected to deliver its final judgement in August of this

year.

In this paper, I will evaluate the disputed policies against the specific language of the

aforementioned agreements in order to determine whether India is in fact violating its

commitment under GATT. I will do so using the following model: Act of State → Violation →

Unless; I will objectively present both the Indian policies in question and India’s obligations

under GATT, followed by an analysis of the allowed exceptions, in order to determine the level

of Indian responsibility in each case. I will present both the American and Indian perspectives,

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including a micro conclusion, for each section, followed by a general conclusion at the end of the

article.

Historical Context: Ongoing Indo/US Trade Disputes

The United States is one of India’s largest trading partners. As an illustration, in 2011 US

exports to India totaled $21.5 billion, and its imports from India totaled $36.15 billion. In 7

addition, the US is India’s largest source of foreign direct investment (FDI), with FDI totaling $9

billion (which accounts for 9% of total FDI to India). In 2005, US President George W. Bush 8

and Indian Prime Minister Manmohan Singh created the Trade Policy Forum. Run by a

representative from each nation, the goal of the program is to increase bilateral trade and

investment. In the four years succeeding this agreement, “US goods exports to India…more 9

than doubled, and the bilateral trade deficit [was] reduced by half.” However, despite these 10

improvements, barriers to increased US/Indo trade remain.

According to a report from the Brookings Institute last year, “Indian barriers to trade and

investment, including lack of intellectual property protection and enforcement, continue to

undermine the potential of the economic relationship.” Last year the US International Trade 11

Commission (USITC), “an independent, quasijudicial Federal agency with broad investigative

responsibilities on matters of trade” that advises both the executive and legislative branches on 12

trade issues, launched an investigation into Indian trade, investment, and industrial policies.

Solar domestic content requirements (DCRs) were one of the many impetuses for this

investigation. In addition to the solar industry, the USITC is investigating unfair Indian trade 13

practices that are allegedly doing harm to the pharmaceutical, agricultural, and aviation

industries. In just the past three years, the US and India have brought each other to the WTO

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dispute settlement process two other times: in March 2012 the US initiated a complaint against

India to challenge an Indian ban on US poultry, and in April of that same year India lodged a

complaint challenging American steel duties. Trade statistics reveal the likely motivation for 14

these cases, and the case which we are discussing in this paper; in 2013 the US trade deficit with

India reached almost $20 billion, an increase of 1.7% from the previous year. 15

Ultimately, then, the US/India solar dispute at the WTO is part of the larger framework of

strained bilateral trade relations. By addressing perceived barriers to trade through the WTO

dispute settlement system, the US likely believes that it can liberalize its trade relations with

India, reduce its trade deficit with India, and open up the Indian market to more American

exports. However, my conclusion—which I will expound upon at the end of this article—is that,

while piece mailing trade improvements through aggressive litigation through the WTO may

provide band-aid like, short-term relief, the US must ultimately seek a bilateral free trade

agreement with India (or an inclusion of India in the TPP) to achieve both long-term and

consistent trade improvement.

Policy Context: DCRs in India’s JNSM Policies

The root of the American complaint against India in this particular case is a set of

domestic content requirements (DCRs) that are included in an Indian project to develop

additional solar electricity. These DCRs apply to solar power developers seeking government

funds or favorable low-interest financing. These policies refer specifically to phase II of the

JNSM project, which seeks to build 10,000 MW of solar power between 2013-2017. According

to the US complaint, “India requires solar power developers…to purchase and use solar cells and

solar modules of domestic origin in order to enter into and maintain certain power purchase

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agreements.” Indian policy stipulates that fifty percent of bids for contracts to build solar power 16

plants will be subject to DCRs. These are government bids, and as such use government funds. 17

Additionally, power developers or their successors receive benefits and advantages contingent on

the purchase and use of Indian produced solar cells and modules, such as long-term electricity

tariffs and favorable low-interest financing. The JNSM policy document obtained from the

Indian government corroborates these claims, stating, “The solar mission, while leveraging other

government policies, looks to provide favorable regulatory and policy conditions to develop

domestic manufacturing of low-cost solar technologies.” It is with these specific policies in 18

mind that I will analyze the following components of India’s WTO obligations.

The first phase of the JNSM, which ended in 2013, also contained DCRs which drew the

ire of the United States, though the formal US complaint was not lodged until phase 1 drew to an

end. The policy in phase 1 required “crystalline silicon (cSi) solar photovoltaic (PV) projects to

use Indian-manufactured modules and concentrating solar power (CSP) projects to use at least 30

percent Indian-manufactured equipment,” but exempted thin film solar PV panels, due to the 19

lack of thin film manufacturing in India. In the second phase, however, India expanded the DCR

to include thin film panels, of which the United States is a major manufacturer. First Solar, a US

firm, is the world’s largest manufacturer; First Solar’s thin film panels made up 20% of India’s

PV market under phase 1, which accounted for 8% of First Solar’s total PV production. The 20

expansion of DCRs in the second phase, then, stands to deal significant damage to the US thin

solar panel market, First Solar in particular, by cutting 8% of First Solar’s thin film panel market.

Still, Shakuntala Makhijani, the Climate & Energy Research Associate and India Project

Manager at the Worldwatch Institute, said that “Without the DCR, it would be extremely difficult

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for India’s nascent solar manufacturing sector to establish itself and grow while faced with

competition from countries with mature solar industries like China and the United States.” 21

Speaking of such regulatory protectionism, Alan O. Sykes stated that, in most cases, it “causes

additional deadweight losses that make it considerable more inefficient than other instruments of

protection such as tariffs, quotas, and subsidies.” Ultimately, however, the question is not 22

whether the DCRs will benefit the Indian solar manufacturing industry; rather, it is whether these

protectionist measures constitute a violation of Indian obligations under its various free trade

agreements.

Indian Sovereignty

In this section, I will discuss the balance between Indian sovereignty and Indian

obligations under international law. Sovereign authority is exclusively the right of the local

government in a political independent territory, such as India. “The sovereignty and equality of

states represent the basic constitutional doctrine of the law of nations, which governs a

community consisting primarily of states having a uniform legal personality.” This sovereignty 23

includes the corollaries: jurisdiction (prima facie exclusive), which constitutes sovereignty over a

territory and its permanent population; a duty of non-intervention from other states within this

area; and the dependence of obligations arising from both customary law and treaties. Within its

borders, the powers of the Indian government are absolute, only limited by its own constitution.

By definition, sovereignty is also exclusive; thus, the Indian government’s power cannot be

contradicted or overridden by another power. The question, then, is why the US can bring a

complaint against India for laws that are its sovereign right to issue. The answer, briefly, is that

the sovereign Indian government willingly entered into the WTO agreements, signing in 1948,

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binding it to not undermine the spirit or intent of the agreement, and ratifying it in 1948, binding

India to its terms. This principle is enumerated in Article 26 of the Vienna Convention on the

Law of Treaties , or Pact Sunt Servanda, which states that “Every treaty in force is binding upon 24

the parties to it and must be performed by them in good faith.” India remains free as the 25

sovereign power of its territory to levy any trade barriers within it deems appropriate; however, it

is subject to the consequences of those barriers, determined by the WTO dispute system that it

agreed to.

The Role of the WTO Dispute Settlement System

In this section I will briefly introduce the WTO dispute settlement system as it is relevant

to this case. The principal goal of the system is to stop violations and encourage multilateral

compliance with GATT rules. Through the use of the system, nations’ GATT obligations 26

become better defined and more clear. There are four major phases of the dispute settlement

process. First, the involved parties must attempt to resolve the issue through consultations;

second, if consultations fail, the complainant may demand the establishment of a panel of experts

sixty days after having requested consultations; third, other parties can appeal to the dispute

through the Appellate Body; finally, if the complainant succeeds, the system monitors either the

implementation of its recommendations or sanctioning of appropriate retaliation. 27

The US initiated the dispute process in February 2013 by requesting consultations with

India regarding the DCRs in their solar policy. The hope for the consultations is that the parties

will be able to resolve the dispute without formal WTO proceedings. Consultations must last for

sixty days; sixty-eight days after requesting consultations, the US requested that a panel be

established, moving the dispute to the next step of the dispute settlement process. The Dispute

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Settlement Body (DSB) “is required to establish a panel unless there is a consensus in the DSB

not to establish a panel. Since the complaining party may prevent the formation of this ‘reverse’

consensus, there is effectively a right to have a panel established.” The panel for this case was 28

composed on 24 September 2014, and is expected to have a ruling by August 2015. It should 29 30

be noted, referring again to the issue of Indian sovereignty, that a ruling in favor of the US would

not force India to change its own laws. Rather, it would offer recommendations, likely

amounting to the removal of DCRs and other trade barriers. “If the recommendations are not

implemented, the prevailing party is entitled to seek compensation from the non-complying

member or request DSB authority to suspend concessions previously made to that member.” 31

Put simply, if the US prevails, India would have the option to maintain its trade barriers, though

the US would be entitled to retaliatory trade barriers.

WTO Accession

India is an original member of the World Trade Organization (WTO), and was a member

of GATT from 1948. Consequently, there is not a particular Indian accession with WTO+ or 32

WTO- provisions. Thus, when examining India’s obligations under the various agreements 33

listed above, there will not be a need to refer to outside agreements that clarify India’s

responsibilities.

Like Product Analysis

Many of the succeeding sections involve a like product analysis. Thus, towards the end of

brevity and efficiency, I will now conduct a like product analysis, to be referred back to when

necessary.

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First, regarding physical characteristics, Indian- and US-made solar panels are the same

in size, color, and composition. Moreover, they are built for the same end-use; in fact, they are

totally interchangeable. According to the USTR, “Both CSPV and thin film modules are used 34

in all three major grid-connected market segments – residential, commercial, and utility – and in

the off-grid market segment.” 35

In terms of distribution channels, there is a difference between CSPV and thin film

modules—two types of solar cells that are produced both in the US and India—but there is not a

difference in distribution stemming from country of origin. Furthermore, though there exist

differences in the manufacturing and production processes between the two types of cells, there

does not exist a difference based on country of origin. 36

The main differences appear in the areas of consumer perception and price. Indian solar

power developers have expressed a desire “to source modules by accessing highly competitive

global market to attain flexible pricing, better quality, predictable delivery and use of latest

technologies.” This suggests that prices from solar cell manufacturers outside India are 37

perceived to be of better quality and lower price. The end-consumer perception, however, is

exactly alike; indeed, electricity generated by Indian-made cells will be exactly the same as

electricity generated by any other cell.

To conclude, solar cells manufactured in India should be considered a like product of

cells manufactured elsewhere and imported into India. They are completely interchangeable in

terms of their end use. The main difference—consumer perception (consumers being solar power

developers)—is in fact an argument for liberalizing solar cell trade into India.

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Nondiscrimination: The National Treatment Clause

Article III of the GATT, otherwise known as the National Treatment principle, stipulates

that a WTO member state cannot apply regulations “so as to afford protection to domestic

production.” Sections 4 and 5 provide clarification, stating, respectively, that 38

4: The products of the territory of any contracting party imported into the

territory of any other contracting party shall be accorded treatment no less

favourable than that accorded to like products of national origin in respect of all

laws, regulations and requirements affecting their internal sale, offering for sale,

purchase, transportation, distribution or use.

5: No contracting party shall establish or maintain any internal quantitative

regulation relating to the mixture, processing or use of products in specified

amounts or proportions which requires, directly or indirectly, that any specified

amount or proportion of any product which is the subject of the regulation must

be supplied from domestic sources. 39

Ultimately, member states cannot apply regulations to domestic manufacturers any differently

than they do to foreign manufacturers. Section 4 specifies further that imported products must be

equally available, while section 5 specifically states that regulations requiring any amount of

domestic sourcing constitutes a violation. The Appellate Body, in a case involving a US

complaint regarding Korean treatment of imported beef, stated that, “Whether or not imported

products are treated ‘less favourably’ than like domestic products should be assessed instead by

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examining whether a measure modifies the conditions of competition in the relevant market to

the detriment of imported products.” Using this litmus test, Indian policy supporting the JNSM40

—particularly the DCRs that are included—violate Article III, by modifying the conditions of

competition in the Indian solar market. The regulations treat foreign-made solar parts differently

than those produced domestically; these policies favor Indian domestic solar module producers

by artificially inflating domestic demand through a suppression of the demand for imported like

products.

However, section III:8 excepts government procurement from national treatment

provisions under certain conditions, stating that, “The provisions of this Article shall not apply to

laws, regulations or requirements governing the procurement by government agencies of

products purchased for governmental purposes and not with a view to commercial resale or with

a view to use in the production of goods for commercial sale.” So, the Indian government is in

violation of GATT III, unless the project is deemed to be “government procurement,” in which

case III:8 allows the exception and India would not be in violation of its obligations.

India has argued that the DCRs in the JNSM policy are indeed permissible under the

provided exceptions for government procurement. According to official sources in the Indian 41

Ministry of Commerce, the “National Solar Mission is a government programme under the

Jawahar Lal Nehru National Solar Mission (JNNSM) of Ministry of New and renewable energy.

Thus the programme does not attract any norms which are applicable for commercial sale and

resale, said officials.” 42

The important factor, then, is whether the Jawaharlal Nehru project should be considered

a “government procurement” project. Although the project has been spearheaded by Indian

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government authorities, the funding, research, development, and construction will be performed

by private developers. Low-interest loans will be made available from the Indian government.

India’s Ministry of New and Renewable Energy (MNRE) stated in its announcement, “The

policy announcement will create the necessary environment to attract industry and project

developers to invest in research, domestic manufacturing and development of solar power

generation and thus create the critical mass for a domestic solar industry.” Essentially, the 43

JNSM is meant to serve as a catalyst for solar power generation, providing the synergistic

environment to promote private development, supplemented by government aid. Furthermore,

the electricity that will be generated will be sold through commercial vendors, in contrast to the

wording in III:8 stating that the exception applies “not with a view to commercial resale or with

a view to use in the production of goods for commercial sale.” It is with this in mind that I have

concluded that the project is not a case of “government procurement,” and is thus in violation of

GATT III:4 and III:5.

As a supplement to my conclusion, there is a notable example from a similar WTO

dispute between Canada and Japan. In the Canada-Certain Measures Affecting the Renewable 44

Energy Generation Sector (Canada-RE) dispute, Japan initiated a complaint against Canada

relating to DCRs. “The Panel found that Canada had not established that it was entitled to rely

upon Article III:8 of the GATT as the procurement of electricity under the FIT Programme was

undertaken ‘with a view to commercial resale.” To extrapolate this case upon our current one, 45

India’s government procurement defense becomes problematic because of the commercial resale

of the electricity generated.

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Trade-Related Investment Measures: Article XI and TRIMs

Among the claimed violations in the US complaint is Article 2.1 of the Trade-Related

Investment Measures (TRIMs) Agreement, which states: “Without prejudice to other rights 46 47

and obligations under GATT [General Agreement on Tariffs and Trade] 1994, no Member shall 48

apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT

1994.” By these terms, TRIMs 2.1 “requires two elements to be shown to establish a violation 49

thereof: first, the existence of a TRIM; second, that TRIM is inconsistent with Article III or

Article XI of GATT.” GATT Article XI, titled “General Elimination of Quantitative 50

Restrictions,” states that

No prohibitions or restrictions other than duties, taxes or other charges, whether

made effective through quotas, import or export licences or other measures, shall

be instituted or maintained by any contracting party on the importation of any

product of the territory of any other contracting party or on the exportation or

sale for export of any product destined for the territory of any other contracting

party. 51

An illustrative list of TRIMs that are inconsistent with the obligation of national treatment

provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general elimination

of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained

in the Annex to TRIMs, and includes an illustrative list of TRIMs that are inconsistent with

GATT XI, stating: “TRIMs that are inconsistent with the obligation of national treatment…

include those which are mandatory or enforceable under domestic law or under administrative

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rulings, or compliance with which is necessary to obtain an advantage.” Later, it elaborates,

specifying that violations include laws requiring “the purchase or use by an enterprise of

products of domestic origin or from any domestic source, whether specified in terms of particular

products, in terms of volume or value of products, or in terms of a proportion of volume or value

of its local production.” 52

Based on above text from both GATT XI and TRIMs 2.1, the JNSM is in violation of

both. The domestic sourcing requirement is an “other measure”—as explicitly listed in GATT XI

—that restricts the importation of solar modules and other input materials into India by

artificially boosting the demand for domestic solar inputs at the cost of imported demand. Put

simply, the DCRs alter what the market would demand in the absence of trade barriers. In a panel

report by the Appellate Body in 1998 regarding a dispute between India and Indonesia regarding

automobiles, the report states, “internal tax advantages or subsidies are only one of many types

of advantages which may be tied to a local content requirement which is a principal focus of the

TRIMs Agreement.” Moreover, by applying trade restrictions inconsistent with GATT XI, 53

India’s JNSM is also in violation of TRIMs 2.1. Requiring local sourcing necessarily limits the

number of items that can be imported. A developer may want to import 100% of its material from

another source, but it is restricted.

Both GATT XI:2 and TRIMs Article 3 enumerate several exceptions. GATT XI states that

its provisions don’t extend to measures “applied to prevent or relieve critical shortages of

foodstuffs or other products essential to the exporting contracting party,” measures “necessary to

the application of standards or regulations for the classification, grading or marketing of

commodities in international trade,” or certain measures on any agricultural or fisheries

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products. Article 3 of TRIMs states that “All exceptions under GATT 1994 shall apply, as 54

appropriate, to the provisions of this Agreement.” This should be kept in mind in the next 55

section, as we discuss the general exceptions enumerated in Article XX of GATT; the Article XX

exceptions apply to TRIMs.

India—though the third largest producer of electricity, accounting for 4.8% of the global

share in electricity generation —still has 300 million of its population (amounting to just under 56

a quarter of its total population) without access to electricity. Furthermore, India is facing

increased pressure from the international community to curb or cap its greenhouse gas

emissions. So, India may be able to argue that it is facing a critical shortage of electricity, from 57

renewable sources in particular, and that such electricity constitutes an essential product.

However, this exception applies to the exporting party—in this case, the U.S.—rather

than the importing party—India. In addition, India cannot argue that the measures will help to

build solar electricity plants faster, because goods from the U.S. may well be cheaper and more

efficient. The exception is provided in order to “prevent or relieve” such shortages, and limiting

the amount of a good that can be imported does not accomplish this; rather, it exacerbates it by

limiting potential suppliers.

Secondly, this is not a case where India could argue that the measures are “necessary to

the application of standards or regulations for the classification, grading or marketing of

commodities in international trade.” The domestic sourcing requirement does not affect the

ultimate product: electricity; the power will be produced either way, the difference will be what

manufacturers will have benefited from the endeavor.

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Thirdly, these measures clearly have no relevance to the exception for “agricultural or

fisheries products.”

Because the domestic sourcing requirements in India’s JNSM do not qualify for any of

these exceptions enumerated in GATT XI:2 and TRIMs 3, they remain in violation of GATT XI

and TRIMs 2.1.

Article XX: The General Exceptions

Article XX of GATT enumerates a number of specific instances in which WTO members

may be exempt from GATT rules. The structure consists of two parts: the introductory clause—

often referred to as the chapeau requirement—and a list of specific measures that fall within the

scope of Article XX. The chapeau requirement “states that a measure adopted for a legitimate

objective must not be applied in a manner that constitutes arbitrary or unjustifiable

discrimination between countries where the same conditions prevail or a disguised restriction on

international trade.” Put simply, in order to utilize an Article XX exception, states must 58

demonstrate that they are not preventing trade from one country when allowing similar trade

from another. In a 1998 report from the Appellate Body, it stated,

We consider that [the chapeau] embodies the recognition on the part of WTO

members of the need to maintain a balance of rights and obligations between the

right of a Member to invoke one or another of the exception of Article XX…and

the substantive rights of the other Members under the GATT 1994, on the other

hand. Exercise by one Member of its right to invoke an exception…if abused or

misused, will, to that extent, erode or render naught the substantive treaty

rights…of other Members. 59

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In this case, because India’s DCRs apply to all foreign manufacturers—not one country’s in

particular—the chapeau requirement is met.

India is pursuing a defense based on section (j) of GATT Article XX. The WTO Appellate

Body has made clear that a party asserting a defense under Article XX bears the burden of

establishing the elements of that defense. Section (j) allows measures

essential to the acquisition or distribution of products in general or local short

supply; Provided that any such measures shall be consistent with the principle

that all contracting parties are entitled to an equitable share of the international

supply of such products, and that any such measures, which are inconsistent with

the other provisions of the Agreement shall be discontinued as soon as the

conditions giving rise to them have ceased to exist. 60

The United States has posited in its written submission that “India Has Not Demonstrated

That It Meets the Prerequisites for Invoking Article XX(j) of the GATT 1994.” More 61

specifically, the US is asserting that India has failed to demonstrate that solar cells and modules

are in “general or local short supply” or that India’s WTO-inconsistent trade barriers are essential

to the acquisition or distribution of those products. Indeed, India acknowledged in its written

submission that there is an “adequate availability” of solar cells and modules on the international

market, but failed to explain why Indian DCRs were nonetheless requisite in order to compensate

for an alleged “general or local short supply.” In other words, India has failed to prove that, if 62

there were a shortage, the disputed trade barriers are a solution to a shortage. Moreover, even if

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India was experiencing a short supply of solar materials, it has not demonstrated that the

domestic content requirements (DCR) are essential to their acquisition. In fact, by placing the

DCRs, it has limited the amount of solar modules and cells that are available for import, thereby

lowering the supply. If India was, in fact, experiencing a short supply, these DCRs would

exacerbate the issue, rather than help it.

In its first written submission, India listed the need to protect solar developers from

supply disruptions as cause for the DCRs, expressing a desire for the DCRs to “ensure domestic

resilience in addressing any supply side disruptions.” Essentially, India posits that a reliance on 63

imported solar cells and modules would endanger the stability and constancy of its solar power

projects, necessitating a certain amount of domestic sourcing to combat any such disruption. In

making this argument, India must demonstrate whether the risk for a supply side disruption is

founded, how such a disruption would affect the project, and how the DCRs solve the problem.

Moreover, should India satisfy these requirements, it will be necessary for India to demonstrate

that the DCRs are the least restrictive solution to the problem. In response to this statement, in its

second written submission, the US quotes an Indian written statement which precedes the

statement made regarding supply side disruptions, in which India states that it seeks to

“minimize dependence on imported cells and modules.” The US posited that this statement

reflects an (unsupported) concern that “imported solar cells and modules are particularly subject

to supply disruptions, and not as an assertion that the DCRs have a blatantly protectionist

objective.” In any event, “minimizing dependence” on imported goods is not an objective 64

protected by Article XX, or a tool to achieve the acquisition or distribution of goods in short

supply.

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Furthermore, India must prove that there are no less restrictive, WTO-consistent

measures that could achieve the same result. In terms of “ensuring domestic resilience,” India

has other options. For example, India could import a surplus in order to supplement supply

during a shock; or, India could seek out long-term contracts with importers. Ultimately, because

India has failed to demonstrate a short supply of solar cells and modules, that the DCRs as part

of the JNSM would alleviate any short supply, and that the DCRs are the least restrictive option,

Article XX:j exception cannot apply, and India remains in violation of GATT Articles III, XI, and

TRIMs 2.1.

India may also choose to pursue exceptions in sections b of GATT Article XX general

exceptions. Section b covers measures “necessary to protect human, animal or plant life or

health.” This is intertwined with the SPS and TBT agreements, which will be discussed in the

next section. Because the majority of the reasoning for a XX:b exception shares the reasoning of

the SPS and TBT agreements, I will refer the reader to those sections, rather than become

repetitive. In summary, India may argue that a combination of the lack of electricity, as well as

the lack of renewable energy, constitutes a health risk. Ultimately, however, India would not be

able to successfully use a XX:b argument, as it would not be able to demonstrate that the DCRs

are necessary to address the health risks posed by both lack of access to electricity and lack of

renewable energy; indeed, DCRs would both slow and drive up the cost of India’s response to

these risks.

Technical Regulations and Product Standards: The SPS and TBT Agreements

India will likely pursue a defense of its DCRs through the WTO Agreement on the

Application of Sanitary and Phytosanitary Measures (SPS Agreement), which was designed to

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protect humans, animals, and plants from diseases, pests, or contaminants. In doing so, India

must prove that there is an issue with adverse effect on human, animal, or plant health; in this

case, India would seek to prove that both the lack of electricity in India and the effects of non-

renewable solar electricity constitute an adverse effect on human health and safety. Certainly,

there is a basis for such an argument. According to a New York Times article published in

February 2014, the Yale Environmental Performance Index ranked India 174th out of 178

countries on air pollution, and according to India’s Central Pollution Control Board, in 2010,

particulate matter in the air of 180 Indian cities was six times higher than World Health

Organization standards. “More people die of asthma in India than anywhere else in the world.

Indoor air pollution, mostly from cooking fires, and outdoor air pollution are the third and fifth

leading causes of death in India.” With this context, India could easily argue that an urgent 65

pursuit of a vibrant renewable energy sector constitutes an issue relating to human health. The

issue, as I will discuss further in the following paragraphs, is whether there is a cogent argument

that the DCRs are trade barriers that will help this situation.

India may also choose to use the Agreement on Technical Barriers to Trade (TBT) in its 66

defense. The TBT agreement allows for trade restrictions for certain “legitimate objectives,”

including “national security requirements; the prevention of deceptive practices; protection of

human health or safety, animal or plant life or health, or the environment.” The Indian 67

domestic content requirements (DCRs) constitutes a TBT. The DCRs are a mandatory technical

regulation that govern the import of a specific product based on technical specifications (the type

of solar part) and quota (the amount allowed to be imported). They apply to solar modules and

associated solar inputs in particular.

!19

This area is perhaps India’s best defense at the WTO. India’s policy measures to promote

solar electricity fall under the auspices of protection of human health, protection of the

environment, and national security. In India, more than 35% of the population—predominantly

in rural areas—live without electricity. Lack of access to electricity leads to a host of conditions 68

that pose significant risk to human health and safety. For instance, many Indians without access

to electricity use traditional fuels, including wood and biomass cakes, for cooking and heating. 69

A report from the World Health Organization claims that between 300,000 and 400,000 people in

India die every year due to indoor air pollution and carbon monoxide poisoning because of

biomass burning. With this in mind, development of sources of electricity able to serve these 70

rural areas is certainly an issue affecting human heath. As India seeks to build its capacity for

electricity, it must do so with environmental protection in mind. India is the third largest emitter 71

of carbon dioxide (after China and the United States), contributing roughly 5% of the world’s

human-sourced CO2 emissions. A prompt expansion of the Indian power supply through 72

renewable solar plants will allow for delivery of electricity to rural communities whose current

lack of access endangers their health and safety; furthermore, expansion through solar electricity

will do so in a way that does not expand India’s carbon footprint. This expansion should occur in

a manner that considers the national security implications of India’s power supply. Relying

wholly on foreign exporters for solar cells and modules, while perhaps initially cheaper, could

place the integrity and security of India’s power supply in foreign hands. While relying entirely

on domestic suppliers is both unrealistic and undesirable, so is relying entirely on foreign

suppliers. This rationale could potentially warrant the DCRs for a limited time as India

establishes a stronger domestic industry.

!20

However, the US will have a strong rebuttal to these claims. The office of the USTR

asserts that India’s protectionist domestic sourcing requirements in the policy of the JNSM

constitutes a WTO-inconsistent trade barrier that is not protected by the TBT agreement. The

Indian argument can provide cogent reasoning asserting that the issue of India’s power supply—

particularly the lack of available electricity to rural communities—is an issue of human health

and security. While the US surely agrees that providing clean electricity to these areas is an

urgent need, the unequal treatment of domestic suppliers of solar parts vs. international suppliers

is ultimately unwarranted, and constitutes a wanton display of protectionism. Specifically, the

US would dispute the notion that, in the interest of Indian national security, it is requisite for the

trade barriers to be implemented. Certainly India is entitled to ensuring a reliable flow of source

materials to ensure alacrity in its development of solar power development. However, India has

failed to demonstrate that its DCRs are the least restrictive means to accomplish this goal, and so

violates 2.2 of the TBT, which states “technical regulations shall not be more trade-restrictive

than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would

create.” Furthermore, under the DCRs, domestic suppliers are treated more favorably than 73

foreign suppliers, violating 2.1, which states “Members shall ensure that in respect of technical

regulations, products imported from the territory of any Member shall be accorded treatment no

less favourable than that accorded to like products of national origin and to like products

originating in any other country.” In terms of “ensuring domestic resilience,” as India has 74

claimed to be pursuing in its written submission, India has other options. Specifically, India 75

could import a surplus in order to supplement supply during a shock; or, India could seek out

long-term contracts with importers.

!21

In the end, I argue that the Indian JNSM domestic content requirements constitute a

violation of GATT Articles I, III, and XI, and that they are not permissible under the TBT

agreement due to incompatibility with articles 2.1 and 2.2 of that agreement.

Subsidies and Countervailing Duties

In its complaint, the United States has claimed that the Indian DCRs violate Articles

3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the Agreement on Subsidies and Countervailing

Measures (SCM). Before doing a more general analysis of whether the Indian policies in

question constitute subsidies, I will first address each of the specific articles that the USTR cited

in its complaint.

Article 3.1(b) prohibits “subsidies contingent, whether solely or as one of several other

conditions, upon the use of domestic over imported goods.” Indian policy supporting phase 2 of 76

the JNSM clearly violates this article by providing subsidies—through low-interest loans and

competitive electricity tariffs—to solar power developers who adhere to the strict domestic

content requirements.

Article 3.2 is more broad, stating that governments must not grant subsidies that involve a

direct transfer of funds, tax credits, the government providing goods or services besides general

infrastructure, or the government making payments through a funding mechanism. Indian 77

JNSM policy introducing DCRs as a precondition to winning government bids violates the

directive that governments not grant a direct transfer of government funds. Furthermore, the

competitive electricity tariffs for solar developers may constitute a funding mechanism, whereby

the government is facilitating further payments to these developers.

!22

Article 5(c) states that members should not cause through subsidies “serious prejudice to

the interests of another Member.” Articles 6.3(a) and (c) define serious prejudice, respectively, as

“the effect of the subsidy is to displace or impede the imports of a like product of another

Member into the market of the subsidizing Member;” and “the effect of the subsidy is a

significant price undercutting by the subsidized product as compared with the price of a like

product of another Member in the same market or significant price suppression, price depression

or lost sales in the same market.” As previously noted, during phase 1 of the JNSM, a US 78

company called First Solar provided 20% of the solar panels. This provides a useful case study

by which to demonstrate India’s violation of 5(c). Upon imposition of DCRs in phase 2 of the

JNSM, India effectively impeded the imports of those US solar panels, displacing a large

proportion of First Solar’s market. These then caused the lost sales, which are referred to in

section (c).

Article 25 of the Agreement on Subsidies and Countervailing Measures requires that

members give proper notification to other members before introducing subsidies. Although the

data is not currently available, that the USTR included this on the complaint suggests that India

failed to meet its obligation in this regard.

In order to determine the applicability of the Agreement on Subsidies and Countervailing

Measures, we must first determine whether the Indian DCRs constitute a subsidy. According to a

recent news article,

India’s solar programme, launched in 2010, appears to discriminate against US

solar equipment by requiring solar energy producers to use Indian-manufactured

!23

solar cells and modules and by offering subsidies to those developers for using

domestic equipment instead of imports, the US trade office said last February. 79

So, Indian developers who use domestic inputs are given preferential treatment that confers a

benefit; this qualifies as a subsidy. This claim is corroborated by a JNSM policy document from

the Government of India, whose Ministry of New and Renewable Energy enumerates the

Domestic Content Requirement (DCR) as applying to projects that receive government funds,

“375 [megawatts (MW)] with stipulation of Domestic Content Requirement (DCR) in respect of

Solar PV Cells and Modules to be used in the projects.” The documents goes on to further 80

explain that 375 additional MW of projects are available “without any DCR restriction.” This

policy constitutes a financial contribution by directing a disproportionate amount of government

funds towards Indian domestic solar manufacturers by requiring that half of the developers (the

first 375) adhere to DCRs. This confers a benefit on the recipient domestic industry, as it creates

an artificially high demand for Indian produced solar parts. This is supported by statements from

Indian developers; power project developers prefer “to source modules by accessing highly

competitive global market to attain flexible pricing, better quality, predictable delivery and use of

latest technologies.” This, in turn, constitutes an advantageous position; but for these DCRs, 81

power developers would base their sourcing decisions on globally available prices, which would

likely favor imports.

In regards to the type of subsidy offered, The Indian government’s JNSM policy of DCRs

for much of the solar goods are a prohibited subsidy, as they are a content requirement. Article 3

of the Subsidies Agreement reads:

!24

The following subsidies, within the meaning of Article 1, shall be prohibited: …

subsidies contingent, whether solely or as one of several other conditions, upon

the use of domestic over imported goods…If the measure in question is found to

be a prohibited subsidy, the panel shall recommend that the subsidizing Member

withdraw the subsidy without delay. 82

Although specific data is not currently available to answer the question of whether the

Indian DCR subsidy causes material injury, it is not necessary for the US to prove material

injury. This is because the subsidy is a prohibited one. However, to strengthen the US argument

by proving material injury, it would need the following information to determine whether the

subsidies caused material injury: the average revenue for both Indian and US solar manufacturers

(in order to determine whether the loss of potential revenue constitutes “material injury” for US

producers); the winning bids for both the 375 MW sections (with and without DCRs) in order to

approximate how much money each industry would have received without the DCRs (to use the

MWs without DCRs as a sample, assuming that the same price/revenue would hold for the other

375 MW if not for the DCRs).

Solar modules produces in the US are totally interchangeable with modules produced in

India, as proven by the fact that half of the 750 MW are being funded without DCRs. These

goods are identical physically, in terms of end-use, and manufacturing process. The statements

referenced above from power developers suggest that there is a producer perception that

imported solar modules are better quality than Indian produced modules. Because consumers

will be purchasing the electricity, rather than the modules themselves, there is no difference in

!25

consumer perception (as they will be purchasing electricity either way). Moreover, those

statements suggest that imported modules are more competitively priced than Indian produced

modules.

(The US has not yet instituted any countervailing measures, and it is thus premature to

discuss amounts.)

Conclusion/Recommendations

We have now reviewed the agreements and sections that the United States Trade

Representative has listed in its complaint to the WTO against India. I have also delved into

sections that, although they were not specifically mentioned in the agreement, were pertinent to

the topic of the US/India solar dispute. In reviewing these topics, I objectively presented the

Indian act of state that precipitated the complaint, the language of the agreement or section in

question, whether or not the Indian act of state constituted a violation of that particular section,

and whether the exceptions enumerated in the text of the agreements applied to India.

Ultimately, after this exercise, it is my conclusion that India is indeed in violation of its

WTO agreements, including GATT Articles III and XI, TRIMs, and various sections of the

Agreement on Subsidies and Countervailing Measures. Moving forward, I believe that the panel

will recommend that India remove the domestic content requirements from the policy

surrounding the JNSM in order to bring itself back into full compliance. If this is indeed the case,

India will be forced to choose between compliance—in conjunction with avoidance of retaliatory

measures from the United States—and protecting its nascent domestic solar manufacturing

industry.

!26

It is because of this likely choice that many environmental groups in the United States

have petitioned the American government to cancel its complaint. Some have claimed that a US

victory in this matter could spark a north-south divide in terms of climate justice.

The US government is strongly defending its action before the WTO by stating

that it supports the deployment of clean energy technologies all across the world,

including India. However, if a country’s clean energy initiatives adversely affect

the US manufacturers and workers, whereby there is a rise in the cost of clean

energy, it would result in the undermining of the shared vision with regard to

promotion of use of renewable energy. 83

Conversely, a ruling in favor of India, these groups argue, could “serve as a great encouragement

to emerging economies such as India which wish to reduce the dependence on fossil fuels and

increase the use of renewable energy, and at the same time create a sustainable industry.” 84

This conflict gestures towards a larger and growing dissonance that is growing between

trade and environmental concerns. While in this paper I have concluded that the United States

ultimately holds the high ground when it comes to the WTO agreements, it may very well be that

it could lose the moral high ground by preventing the growth of Indian industry that could

greatly benefit its environmental needs. Certainly, this conflict between competing interests and

commitments could fill the pages of yet another article. But for now, let us remember that

international agreements must be a means towards the end of mutual prosperity, rather than being

an end in themselves.

!27

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____________________________________

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!32

http://www.census.gov/foreign-trade/balance/c5330.html#20077

http://www.state.gov/r/pa/ei/bgn/3454.htm8

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against-india/

See #1920

See #1921

Jackson, pg. 70222

Jackson, pg. 20123

1155 U.N.T.S. 33124

Jackson, pg. 19725

Jackson, pg. 27226

Jackson. pg. 28627

Jackson, pg. 28728

https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds456_e.htm29

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soon_124523.html

!33

Jackson, pg. 29331

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india_e.htm

WTO+ and WTO- refers to components of WTO accession agreements, where a member is bound by 33

the GATT plus specific obligations, or is bound by the GATT except for listed obligations, usually for a transitionary period

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solar-projects/article5254566.ece

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See #35 pg. 836

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res_e/booksp_e/analytic_index_e/gatt1994_02_e.htm

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issue-113031300284_1.html

http://www.mnre.gov.in/file-manager/UserFiles/mission_document_JNNSM.pdf43

Precedent does not exist in the WTO system. Thus, this example is not meant to present precedence 44

that can be considered in the WTO panel proceedings. Rather, the example is meant to illustrate how a similar WTO issue was handled.

http://ovalobserver.org/switching-off-sun-india-us-solar-cells-dispute/45

1868 U.N.T.S. 18646

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1867 U.N.T.S. 18748

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english/res_e/booksp_e/analytic_index_e/trims_01_e.htm#article2

Jackson pg. 123450

World Trade Organization, General Agreement on Tariffs and Trade 1994, 51

See #4952

Jackson pg. 123553

See #5054

!34

See #4955

British Petroleum, Statistical Review of World Energy 201456

International Business Times, US Solar Companies SunEdison Inc And First Solar Inc Give Critical 57

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http://www.academia.edu/7744640/The_Chapeau_of_Article_XX_GATT_UPDATED_VERSION_58

Jackson, pg. 66559

World Trade Organization, Marrakesh Agreement, https://www.wto.org/english/docs_e/legal_e/60

gatt47_02_e.htm#articleXX

U.S. Trade Representative, India — Certain measures Relating to Solar Cells and Solar Modules, 61

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India’s First Written Submission, para. 233., https://ustr.gov/sites/default/files/files/Issue_Areas/62

Enforcement/WTO/Pending/US.Sub2.Fin.Public.pdf

India’s First Written Submission, para. 209.63

See #4264

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1868 U.N.T.S. 12066

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legal_e/17-tbt_e.htm

International Energy Agency, Statistics, http://www.iea.org/statistics/statisticssearch/report/?68

year=2010&country=INDIA&product=Indicators

World Academy of Science, Energy and Sustainable Development-An Indian Perspective, http://www.waset.org/69

journals/waset/v54/v54-24.pdf

World Health Organization, Indoor smoke from solid fuels, http://www.who.int/quantifying_ehimpacts/70

publications/en/Indoorsmoke.pdf?ua=1

Environmental protection is clearly tied to the issue of human health and security. Air pollution caused by coal 71

and thermal power plants, which account for the majority of India’s current power supply, has been shown to cause a litany of health problems in India’s population.

International Energy Agency, CO2 Emissions from Fuel Combustion Highlights, 2014, https://www.iea.org/72

publications/freepublications/publication/co2-emissions-from-fuel-combustion-highlights-2014.html

See #6873

See #6974

India’s First Written Submission, para. 233., https://ustr.gov/sites/default/files/files/Issue_Areas/Enforcement/75

WTO/Pending/US.Sub2.Fin.Public.pdf

https://www.wto.org/english/docs_e/legal_e/24-scm.pdf76

See #7777

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See #7778

Indian Express, Solar subsidies: US to turn the heat on India at WTO, http://indianexpress.com/article/business/79

business-others/us-likely-to-drag-india-to-wto-on-solar-subsidies/

Indian Ministry of New and Renewable Energy, No. 29/5(1)/2012-13/JNNSM, http://mnre.gov.in/file-manager/80

UserFiles/VGF_750MW_scheme_for-grid-solar-pv-power-projects.pdf

Kevin Roebuck, Solar PPA: High-impact Strategies - What You Need to Know: Definitions, Adoptions, 81Impact, Benefits, Maturity, Vendors, pg. 87

https://www.wto.org/english/docs_e/legal_e/24-scm.pdf82

http://ovalobserver.org/switching-off-sun-india-us-solar-cells-dispute/83

See 8384

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