The back and forth between India and the U.S. regarding the protectionist Domestic Content Requirement (DCR) program continues. A month after the U.S. argued that India did not abide by the solar policy norms prescribed by the World Trade Organization (WTO), India has now rejected that accusation, calling it ‘groundless.’

In December 2017, the U.S. requested that the WTO’s Dispute Settlement Body (DSB) authorize the suspension of concessions or other obligations with India at an annual level based on a formula proportionate to the trade effects caused on U.S. interests by India’s failure to comply.

Countering the U.S. claim, India responded, “Not only does the U.S.’ request fail the requisite pre-conditions of Article 22.2 of the DSU, but it also fails to specify any element of non- compliance and as well as the proposed level of suspension.”

Calling Washington’s claims vague and opaque, New Delhi blasted the accusations made last year, saying the U.S. had not provided any indication as to why it considers India to be out of compliance with the DSB rulings and recommendations, or what level of suspension the U.S. would consider equivalent to the purported level of nullification or impairment.

“India therefore strongly objects to the suspension of concessions or other obligations under the General Agreement on Tariffs and Trade 1994 proposed by the U.S.,” the statement said. India would stand vindicated if proper processes were followed, it added.

However, it is unclear why the U.S. would claim that India was not compliant with the WTO rules without any evidence.

Case History

In 2013, the U.S. requested consultations with India through the WTO regarding India’s DCR program. The DCR program was part of the country’s National Solar Mission and mandated that only domestically manufactured solar cells and modules could be used to build solar projects auctioned under the DCR category. The case was referred to the DSB in 2014 and a final report was issued by the WTO in February 2016.

India appealed the decision in April 2016, but WTO upheld its earlier ruling in October 2016 and agreed with the U.S. that India’s DCR program discriminated against American and other imported solar products, like cells and modules, in breach of international trade rules.

In June 2017, the U.S. and India agreed that a reasonable period to implement the DSB’s recommendations would be 14 months and set December 14, 2017 as the final date to end the DCR program.

In November 2016, the Central Electricity Authority (CEA) requested that utilities ensure that they follow an advisory mandating the use of domestic materials and equipment in government projects. However, utilities in various states were still found to be flouting CEA’s advisory guidelines for domestic competitive bidding.

After the WTO ruling, Indian government officials said DCR projects that were already auctioned or under development would not be affected by the ruling. Later, the ruling was interpreted as saying that it was okay to auction DCR projects and continue on as before despite the WTO’s ruling against the DCR program, as long as the auctions were held before December 14, 2017.

After the announcement of a 200 MW DCR project in August, an official at SECI told Mercom, “wherever The government is investing, it can mandate the DCR category and it will not be in violation of any trade rule.” The SECI official also said, “as you see, most DCR tenders are for CPSUs which are government-funded units and not private parties.”

In India, DCR category projects were implemented to provide a guaranteed market for local solar component manufacturers. To comply with WTO norms, the Indian government is now planning a 12 GW Central Public Sector Unit (CPSU) DCR program, under which locally manufactured components would be utilized to develop projects for captive consumption by CPSUs. This program is expected to comply with WTO norms as the captive projects would not feed power into the grid for sale.  But this notice creates uncertainty for the program until further clarification is issued.

While self-consumption by a government office building would most likely conform with WTO rules, it is unclear how self-consumption by a commercial entity like NTPC will be interpreted. For example, 1 GW of power generation for self-consumption essentially means that an entity like NTPC could potentially sell that 1 GW it would have consumed to the market. This is a grey area that needs to be clarified before any new programs are unveiled to avoid any future issues.