The Solar Trade Dispute between India and the U.S.

rtr30pztOn 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.

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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.



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4 Responses to The Solar Trade Dispute between India and the U.S.

  1. yingqihuo says:

    It’s understandable that the US won this case because India’s “buy-local” program is at its core an act of protectionism. India wants to protect its local energy industry by directly imposing a “buy-local” and use local components rule, it is even more unsubtle than helping its growth with subsidies. Protectionism ultimately hurts consumers because India’s local solar products are more expensive than foreign imports or else the local industry would not need protection. Hurt by the higher prices, consumers would turn to cheaper alternatives, which are in general more harmful to the environment. The gains would only go to the local solar manufactures who would be charging a premium relative to the world price.

    Nowadays when the environment comes into play, trade conflicts become more complicated. In this case, India has a point in trying to develop its own country’s clean energy industry to promote a more environmental friendly economy and we can hardly argue against any government to want control over their energy sources. But India’s choice of method ended up hurting the consumers who are trying to choose a cleaner alternative for less pollution.

  2. Chloe Zheng says:

    Recently, the WTO panel agreed with the U.S. that India’s “localization” measures discriminate against U.S. manufacturers and are against WTO rules. Both the U.S. and India are strong supporters of the multilateral, rules-based trading system, so this is a big event that makes other countries considering discriminatory “localization” policies.

    The U.S. is committed to strengthening the clean energy sector and the millions of jobs it supports in America and all over the world. Trade enforcement is critical for ensuring that world-class U.S. clean energy goods and services can compete on an equal footing around the world. The U.S. strongly supports the rapid deployment of solar energy around the world, but discriminatory policies in the clean energy space undermine its efforts to promote clean energy due to the requirement of using more expensive and less efficient equipment. This would raise the cost of clean energy, making it harder to be more competitive.

  3. Spencer Isen says:

    As a member of the WTO, I would have ruled in favor of the United States in this trade dispute due to the protectionist policies of the “buy local” campaign. As you states correctly, the first phase of the buy local rules would create an unequal playing field for the US companies competing in Indian solar markets.

    I will be interested to see if any countries, like China, bring similar cases against the United States now that president has been set and the US has its own set of ‘buy-local’ policies. While this ruling may prove to be beneficial to the United States in the short run, I would not be surprised to see the US continue to lose in the solar energy market to China.

  4. eddieli01 says:

    In the blog, the author argued that “Buy Local” policy would benefit the green energy development around the world. As we all know, free trade benefit all parties involved. By specialization, both country could get relatively cheaper goods and services as well as increasing national wealth. If the goal of India was to get clean energy around the country, the best way to accomplish that is to trade with the US to get cheaper, high quality solar panels. So the actual goal of Indian government is to expand its own green energy sector to make money and create jobs domestically. So “Buy Local ” policy become protectionism and would finally hurt welfare for both parties because the policy not make the world run efficiently.

    And as for innovation and competition, I don’t actually think “Buy Local ” policy can help India achieve these goals. Try to imagine a situation where there are no outside competitors and you don’t need to worry about your company’s sales because government already guarantee that all users of solar penal must buy their penal from you firm. Do you actually think a seller’s market would encourage competition and innovation? No, It will in adverse decrease competition for domestic firms and undermine their motivation to improve to compete with more mature firm around the world.

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