On Feb. 24th 2016, the United States won a ruling against India at the World Trade Organization after challenging the rules on the origin of solar cells and solar modules used in India’s national solar power program. In a statement, the U.S. Trade Representative’s office called the ruling a significant victory that would hasten the spread of solar energy across the world and support clean-energy jobs in the United States.
Back in 2014, the United States launched a WTO case against India’s ambitious solar program. The United States claimed that the “buy-local” rules of the first phases of the program, which say that power companies must use solar components made in India in order to benefit from the government-subsidized program, discriminate against U.S. solar exports, which had fallen by 90 percent from 2011, when India imposed the rules.
To understand the importance of this case, firstly we have to understand the progress the Indian government has made in deploying solar energy. In the five years since India launched its National Solar Mission, the country has grown its solar capacity from nearly nothing to commissioning nearly 5,000 megawatts, as a result of government subsidies and long-term contracts. This solar expansion has been timely, as the troubled Indian coal industry has been unable to expand to meet power demand. The program aims to reduce the cost of solar energy and achieve 100,000 megawatts of solar power capacity by 2022 – more than the current solar capacity of the world’s top five solar-producing countries combined.
The National Solar Mission also imposed the Domestic Content Requirement (DCR), which required solar power producers to use India contents, mainly solar cells and modules for certain types of solar projects. The following table summarizes the factual aspects of the DCR measures at issue in this dispute.
The United States claimed that the “buy-local” rules of the first phases of the program, which say that power companies must use solar components made in India in order to benefit from the government-subsidized program, discriminate against U.S. solar exports. In its ruling, the WTO agreed that India’s buy-local rules “accord less favorable treatment” to imported solar components, even while acknowledging that “imported cells and modules currently have a dominant share of the market for solar cells and modules in India.” India has indicated that it may alter its solar program to try to persuade the U.S. to drop the case. It is unclear whether the U.S. will accept the proposed changes, and what impact they may have on India’s solar expansion plans.
India, on the other hand, argues that US has “buy-local” rules inside the country. Bringing this case is a perverse move for the United States. Nearly half of U.S. states have renewable energy programs that, like India’s solar program, include “buy-local” rules that create local, green jobs and bring new solar entrepreneurs to the economy. The U.S. government should drop this case to avoid undermining jobs and climate protections not just in India, but also at home.
Every country should have the right to set its own clean energy future. “Buy local” rules — a standard policy tool to foster, nurture, and grow new industries — can help push us toward the goal of 100 percent clean energy that our planet needs by cultivating domestic renewable energy firms that promote strong climate policies. “Buy local” policies can also benefit workers and bring in new constituencies to advocate for increased clean energy production. And by bringing more renewable energy goods producers like India to the global market, “buy-local” policies can encourage greater competition and innovation, reducing the cost of renewable energy over time. However, in the meantime, the Indian government is imposing an additional cost, usually passed on to the ultimate consumer as the locally-produced panels and modules are more expensive than foreign-produced ones. The Indian-based solar companies are protected from competition abroad, getting rich at the expense of local consumers.
The panel ruling, however, is not final and reports indicate that India will prefer an appeal. Simultaneously, India may be exploring the option of filing a counter complaint against the U.S., with several states in the U.S. such as Michigan, Texas and California having also reportedly been accused of employing mandatory local content requirements in the renewable energies sector. Let’s wait and see.