Mains Issue #8: India-USA’s WTO Tussle

Weekly Issue for Mains UPSC Civil Services
Anti Defection and Toppling of State Governments

India’s long history of contention with World Trade Organization(WTO) saw another twist with a WTO panel recently ruling against India regarding ‘buy-local’ provision of the National Solar Mission(NSM). What does it mean for India, the developing world and climate change, in a global scenario of increasing trade between nations?

What is India’s history with WTO?

India has been a WTO member since 1 January 1995 and  a member of GATT since 8 July 1948. It provides MFN treatment to all Members and other trading partners. It accepted the Fourth and Fifth Protocols of the GATS. India is a strong advocate of the multilateral trading system and has historically been party to few regional trade agreement.

What have been the major issues of India at WTO?

In the recent times India has been at the centre of issues plaguing the developing country. It has been taking a stand at WTO to protect its vast vulnerable population and its industry.

1) Shrimp Turtle Case – The United States had implemented a ban on shrimp from countries whose fishing fleets did not have special “turtle excluder devices,” to prevent endangered sea turtles from being killed in the shrimping process. India, Malaysia, Thailand, and Pakistan claimed that the law was a disguised restriction on free trade and challenged the measure in the WTO’s dispute resolution process.

The dispute resolution panel deciding the case said that the shrimp ban was not justified under the Article XX exceptions because environmental protection measures could not be used to undermine the overall multilateral trading system.

The appellate body said, that the WTO members agreed that sustainable economic development was a goal of the trading system and should be taken into account as “color, texture, and shading” in interpreting the agreement. The appellate body went on to say that the way the United States implemented its shrimp ban, however, was discriminatory, and ordered the United States to end the ban.

2) Poultry Case – On 6 March 2012, the United States requested consultations with India with respect to the prohibitions imposed by India on the importation of various agricultural products from the United States purportedly because of concerns related to Avian Influenza.

The United States complained that India’s AI measures amounted to an import prohibition that was not based on the relevant international standard (the OIE Terrestrial Code) or on a scientific risk assessment.

In its ruling on October 14, 2014, the WTO panel had said that India’s measures “arbitrarily and unjustifiably discriminate between Members where identical or similar conditions prevail and are applied in a manner which constitutes a disguised restriction on international trade.”

3) Subsidy for public stock keeping – India’s National Food Security Program was under the scanner for violating WTO cap on subsidies. India threatened to not sign the Trade Facilitation Agreement until it could get an agreement on the public stock keeping.

WTO members had agreed not to challenge India and other developing countries for breaching WTO rules on stockpiling until 2017 while talks continued on a permanent solution. Finally, the U.S. clarified that it and others won’t challenge India even beyond 2017 if no solution is reached by then. India ratified the trade facilitation agreement finally.

What is the recent solar ‘buy-local’ case?

India’s National Solar Mission which was launched in 2010 is an ambitious program to promote solar power in India. The mission received fresh impetus in 2015 when the new government raised the target from 20,000 MW to 100,000 MW by 2022.

The total investment in setting up 100 GW will be around Rs. 6,00,000 cr. In the first phase, the Government of India is providing Rs. 15,050 crore as capital subsidy to promote solar capacity addition in the country. This capital subsidy will be provided for Rooftop Solar projects in various cities and towns, for Viability Gap Funding (VGF) based projects to be developed through the Solar Energy Corporation of India (SECI) and for decentralized generation through small solar projects.

The Indian government has agreed to incentivize the production of solar energy within the country. The government under the programme agrees to enter into long-term power purchase agreements with solar power producers, effectively “guaranteeing” the sale of the energy produced and the price that such a solar power producer could obtain. Thereafter, it would sell such energy through distribution utilities to the ultimate consumer. However, a solar power producer, to be eligible to participate under the programme, is required compulsorily to use certain domestically sourced inputs, namely solar cells and modules for certain types of solar projects. In other words, unless a solar power producer satisfies this domestic content requirement, the government will not ‘guarantee’ the purchase of the energy produced.

In 2013, the U.S. brought a complaint before the WTO arguing that the domestic content requirement imposed under India’s national solar programme is in violation of the global trading rules. Specifically, it said, India has violated its “national treatment” obligation by unfavorably discriminating against imported solar cells and modules.

The WTO has a history of supporting anti-climate and anti-environment rulings, with Canada recently losing a similar case on renewable energy and incentives for local firms in Ontario.

The Make in India program aims to provide political and popular support to the Indian economy’s transition to clean energy. The aim is to boost domestic manufacturing, especially since the recent Paris Agreement on global climate change action did nothing to expedite transfer of clean technology from developed to developing countries.

In response to the WTO case, India has offered to alter NSM’s “buy-local” provisions by restricting it to solar equipment for its own use, such as railways and defence, and not for reselling the electricity. This offer plays within WTO rules exception wherein the government can favour domestic products in procurement policies if the procurement is “not with a view to commercial resale”.

What it means for India and the developing world?

After the Paris agreement where nothing concrete was decided regarding transfer of technology to developing and least developed world this decision comes as a blow to their cause. Renewable energy is critical for India which has mentioned it in its ‘Intended Nationally Determined Contributions(INDCs). India’s pledges to install 40 per cent of its total electricity capacity from non-fossil fuel-based energy sources.

But to achieve this ambitious target  India needs to develop local manufacturing capabilities to garner domestic support for its program. Local manufacturing will create jobs, provide public spending in the economy and lead to development of Indigenous technology.

On the flip side domestic buying limitation would result in increased prices for solar equipment buyers at least in the short run. This would result in increased prices for end customer.

The US is now creating regional blocs like Trans Pacific Partnership(TPP) and Trans Atlantic Trade and Investment Partnership(TTIP) as miniature bodies to enforce its rule based trading regime. The developing world is increasingly becoming dissatisfied with WTO and its prolonged negotiation rounds. In such a light there is need to  revive WTO as a forum for rule based trading aligned with sustainable development objectives to avoid confusion.