The ongoing trade rift between India and the United States over the solar Domestic Content Requirement (DCR) category has been referred to arbitration, but the complexity of the case suggests that negotiations are likely to extend beyond the standard 60-day arbitration period.

An official at the World Trade Organization (WTO) told Mercom, “The time-period for the arbitration fixed under Article 22.6 is very short, and it would not be surprising if the arbitration in this case goes beyond the 60-day period.”

Article 22.6 of the WTO’s Dispute Settlement Understanding states that arbitration must be completed within 60 days from the date of expiry of a reasonable period of time, which was December 14, 2017 in India’s solar case.

The arbitration is set to be carried out either by the original panel or by an arbitrator appointed by the WTO Director-General, the official added.

The move to arbitration comes after India earlier this month strongly disputed US accusations that it had failed to abide by solar policy norms prescribed by the WTO following an earlier dispute over its DCR program. India called the US accusations “groundless.”

“India strongly objects to the suspension of concessions or other obligations under the General Agreement on Tariffs and Trade 1994 proposed by the US,” the country said in a statement.

The WTO’s Dispute Settlement Body (DSB) had initially sought more clarity from India on whether it was objecting to the level of suspensions proposed by the US. The detail is a technicality that is typically needed before a matter can be sent to arbitration. But since the US had not included a proposed level in its request, there was nothing for India to respond to.

The omission fueled the flames of contention between the two countries and prompted several WTO member countries to express support for India.

“Several members expressed concern about the absence of a proposed level of retaliation in the US request and said such a request should include either the proposed amount of retaliation or a description of the proposed formula; failure to do this adversely affects the rights of the responding member. Others said that there was no need for the DSB to consider the US request as India had already objected to it,” the WTO official added.

Quick Recap

In December 2017, the US requested that the 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 US interests by India’s failure to comply.

On January 3, 2018, India submitted a communication in which it objected to the request made by the US.

In its statement, India said it stands severely prejudiced by the vagueness and opaqueness of the US request which contains no indication why the US believes India has not complied with the ruling or the proposed level of suspension the US considers equivalent to the purported harm the Indian measures caused to US trade. India emphasized that if the US had any disagreement with India on compliance, this must first be addressed through compliance panel proceedings under Article 21.5 of the DSU. However, despite repeated requests from India, the US refused to sign a sequencing agreement with India establishing this process, which goes against the standard practice of WTO members acting in good faith.

“However, nowhere in this communication did India state that it objects to the level of suspension proposed by the US, which would automatically trigger arbitration on the amount of retaliation under Article 22.6 of the DSU,” the US noted.

After taking note of the statements made by both the parties, the DSB  referred the dispute between the two countries to arbitration.

“All this adds to more uncertainty about DCR projects in the sector. Hopefully this case is completely resolved and there is clarity and direction from the government on future DCR projects,” said Raj Prabhu, CEO of Mercom Capital Group.

Image credit: WTO