The Government of India launched the Jawaharlal Nehru National Solar Mission ("JNNSM") in January, 2010. The JNNSM had set the target of deploying 1,00,000 MW (scaled up on July 1, 2015 from 20,000 MW) of grid connected solar power by 2022 and aims at reducing the cost of solar power generation in the country through inter alia (i) long term policy; (ii) large scale deployment goals; (iii) aggressive R&D; and (iv) domestic production of critical raw materials, components and products. JNNSM had stipulated the target under 3 phases (first phase up to 2012-13, second phase from 2013-2017 and third phase from 2017- 2022) for various solar application segments including utility grid solar power.
JNNSM was implemented to promote domestic manufacturing. In view of this, Domestic Content Requirement ("DCR") is imposed by Indian Government on Solar Power Developers ("SPDs"). SPDs are required to procure their project components inter alia solar cells and solar modules from domestic manufacturers. As per media reports available in public domain, National Solar Energy Federation of India ("NSEFI") sent a letter on 24 March 2014 to Ministry of New and Renewal Energy ("MNRE") and Solar Energy Corporation of India, stating that the DCR has made projects economically unviable. NSEFI accused Indian manufacturers of using DCR to raise solar cell prices by a whopping USD 0.06-0.08 per watt, within a few days of the announcement of award and that such price rise is completely unethical1.
The NSEFI letter indicated that domestic manufactures have used the domestic content requirements to extract higher prices on solar cells and modules, and further alleged, "the most distressing and worrying feature is a supposed cartelization by some of the larger domestic cell manufacturers. Taking advantage of the procurement compulsions imposed by the...conditions of domestic content, bidding having been completed and strict time limits having been imposed, the manufacturers have increased cell prices by a whopping 6-8 cents/Wp within few days of award announcement. This has made the module manufacturers increase the price per Wp by close to 15-16% than the initial quotes before bidding. This has made DCR projects economically unviable"2
In or around April 2014, The United States registered a complaint before the World Trade Organization ("WTO") against the DCR measures imposed by Indian Government on SPDs selling electricity to governmental agencies under JNNSM. The United States inter alia contended that "India's domestic content requirements accord less favorable treatment to imported solar cells and modules than to domestic solar cells and modules. Imported products are prevented from competing for a role in the program under the same conditions as domestically-produced cells and modules".
It was also contended by the United States that JNNSM Programme measures, including individually executed contracts for solar power projects, are inconsistent with India's National Treatment Obligations under Article III:4 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article 2.1 of the Agreement on Trade- Related Investment Measures (TRIMs Agreement). On the other hand, India contended that the DCR is not inconsistent with Article III:4 of the GATT 1994 or Article 2.1 of the TRIMs Agreement. India further contended that imported solar cells are treated at par with similar products of Indian origin.
Succinctly, National Treatment Obligation of Article III:4 of the GATT 1994 requires that imported products cannot be discriminated against ("accorded treatment no less than favorable) vis-à-vis like local products in matters of all laws, regulations and requirements "affecting their internal sale, offering for sale, purchase, transportation, distribution or use". Article 2.1 of the TRIMs bars all WTO member states from undertaking any trade related investment measure that is inconsistent with the provisions of Article III or Article XI of GATT 1994.
A Panel was established on 23 May 2014 ("Panel") to consider the aforesaid complaint made by the United States against India regarding DCR measures imposed by India on SPDs. The Panel vide its report (circulated to the members of the WTO on 24 February 2016) found inter alia that the DCR measures are inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994.
In or around April 2016, India appealed before the Appellate Body against the report of the Panel. The Appellate Body vide its report dated 16 September 2016 upheld the findings of the Penal that the DCR measures are inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994 and recommended to the Dispute Settlement Body that India to bring its measures, to be inconsistent with the TRIMs Agreement and the GATT 1994, into conformity with its obligations under such Agreements.
CONCLUSION:
Due to the aforesaid findings of the Appellate Body of WTO, (as per which DCR measures imposed by the Indian Government are not in line with India's obligations under the WTO regulations), Indian Government has to revisit DCR related policies. Further, in absence of DCR requirement, Solar Power Developers will have access to continuous and affordable supply of imported solar cells and modules. Non imposition of DCR, would also address increasing cartel like situations (as indicated by NSEFI) amongst certain big domestic cells manufacturers.
Footnotes
1 http://www.pv-tech.org/news/nsefi_indian_domestic_content_developers_debating_ppa_signing
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
