There have been comments made by government officials in the past and speculation by some manufacturers that the period of the safeguard duty levy on solar cell and module imports from China and Malaysia may be extended by a few more years beyond the current 2-year period. However, according to our reporting, this does not look likely, at least in the near-term.
Last year, the Directorate General of Trade Remedies (DGTR) recommended a 25 percent safeguard duty on solar cell imports from China and Malaysia for the first year, followed by a phased-down approach. In the first six months of the second year, a safeguard duty of 20 percent will be payable by exporters to India, and in the latter half of the second year, exporters will pay a safeguard duty of 15 percent. The safeguard duty of 25 percent on solar modules and cells has been in effect since July 30, 2018.
When contacted about this issue, Dhruv Sharma of Indian Solar Manufacturers Association (ISMA) said, “No new petition is going to be filed. We have given up on that idea. Apart from the levy of the safeguard duty, the government has provided Indian manufacturers with non-tariff support in the form of preference in the KUSUM Yojana and CPSU program.”
Certain sections of Indian manufacturers have been supporting the idea that another petition may be filed requesting an extension of the period of the safeguard duty levy. Smaller manufacturers have been unhappy with the current state of the market as they allege that ‘most’ of the benefits of the safeguard duty have gone to large manufacturers.
Some suppliers have commented that the two-year levy period is not likely to have much of an impact, and they would like to see the duty be extended for at least four years. Moreover, these manufacturers also pointed out the fact that the limited geographical implementation of the duty has resulted in imports being redirected from markets like Thailand, Vietnam, and other neighboring countries, which are exempt from the duty.
According to a top executive at one of the prominent Indian manufacturers, “An elongated levy period will be detrimental for developers who are sourcing from other countries as a sustained increase in imports from such countries may land their imports in the ambit of safeguard duty petitions.”
The executive also commented that currently the developers can easily wait out the initial 13-14 months of levy period and procure towards the end, resulting in a 15 percent of safeguard duty. An extended period will ensure that developers do not delay project construction in the hope of waiting out a higher duty period.
A top executive at one of the solar project developers said, “We have won over 200 MW of solar PV projects and have taken the safeguard duty in the costs, but there’s still a lot of time before project execution begins. We haven’t made any payments yet and therefore haven’t incurred any duty levy.”
When contacted, a DGTR official said that the World Tarde Organization (WTO) allows for extending the levy period of safeguard duty if any injury is found.
The DGTR official added, “Yes, the levy period can be extended, but for that, the entire legal recourse needs to be followed. A new petition will have to be filed by the industry stating the reasons and data for such a request. Then, the DGTR will circulate an official statement to the concerned countries, and the firms from these countries will need to share required data for the period mentioned.”
So far, no new petition has been received to extend the levy of safeguard duty imposition or any other alteration in the current safeguard duty, stated the DGTR official.
ISMA’s Dhruv Sharma also said that all the manufacturers operating from SEZs are abiding by the safeguard duty norms and paying the duty on import of cells to make modules.
According to the tender trajectory issued by the Ministry of New and Renewable Energy (MNRE), approximately 30 GW were expected to be tendered in FY 2018-19. The Indian government expects to tender another 30 GW in FY 2019-20.
Two solar programs have been announced to benefit domestic manufacturers directly. First is the plan to implement phase-II of the Central Public Sector Undertaking (CPSU) program to set up 12,000 MW of grid-connected solar PV power projects for self-use or use by government entities. Under this program, the government agencies will get four years: 2019-2020 to 2022-23, to set up 12,000 MW of solar power projects. Domestically manufactured solar cells and modules are initially mandatory under this program. The MNRE may, in the future, include wafers, ingots, and polysilicon manufactured in India to the list.
In March 2019, the central government also approved the launch of the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) program for farmers. This program is aimed at helping farmers install solar pumps and grid-connected solar power projects, which in turn would provide financial and water security to farmers. The centralized procurement of the panels, controllers, and pumps will be done by government agencies like SECI and EESL.
These two initiatives are expected to provide ample market visibility to Indian solar manufacturers, large and small.
To explore the legalities of the safeguard duty extension topic further, Mercom contacted a Geneva-based trade official. The official said, “Article 7 of the WTO’s Safeguards Agreement sets out the rules on the duration of a safeguard measure. It requires that a WTO member apply a safeguard only for such a period of time as may be necessary to prevent or remedy serious injury and to facilitate adjustment of the domestic industry.”
According to the trade official, “The period will not exceed four years but can be extended provided that the competent authorities of the importing member have determined that the safeguard measure continues to be necessary to prevent or remedy serious injury and that there is evidence that the affected industry is adjusting. This determination must be done in conformity with Articles 2-5 of the Safeguards Agreement.”
The trade official added, “The total period of application of a safeguard measure, including the period of application of any provisional measure, the period of initial application, and extension, will not exceed eight years. There have been instances in the past where a WTO member has extended the period of a safeguard beyond four years.”
When asked the possible consequences a host country could face if it were to extend the safeguard levy period, the trade official replied, “In terms of consequences, keep in mind that the safeguards agreement normally requires a member applying a safeguard or extending an existing safeguard to maintain a “substantially equivalent level of concessions” with the affected members by agreeing with the affected members on “adequate means of trade compensation.” (Article 8 of the Safeguards Agreement). If no agreement is reached, the affected member or members may suspend a “substantially equivalent level of concessions” against the member applying the safeguard.”
“Also keep in mind that WTO members are free to challenge any other member’s safeguard through dispute settlement if they feel the safeguard was not applied in accordance with WTO rules. To date, 61 dispute cases have been initiated regarding safeguard measures,” the Geneva-based trade official further said.
Overall, the government and the domestic solar industry have become comfortable with using trade measures to block imports which now range from duty on cells, modules, solar glass, and possible duty on EVA sheets.
“Installations dropped by 20 percent year-over-year in 2018, and about 5 GW of auctions have been canceled citing high tariff since Q1 of 2018. Government agencies have been unwilling to pay for the safeguard duty premium in the auctions. The market will sustain as long as there is a supply of cheaper modules which enables developers to bid low. If not, the market will shrink,” said Raj Prabhu, CEO of Mercom Capital Group.
For the moment, knowing safeguard duty extension is not in the cards removes some of the lingering uncertainties that would have caused further apprehensions in the domestic solar sector. Of course, things can change quickly if the market turns.