Solar energy subsidy: After attempts for amicable solution fail, India drags US to WTO dispute settlement body

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India has approached the dispute settlement body (DSB) of the World Trade Organization (WTO), accusing the US of offering “trade-distorting” subsidies in the renewable energy sector, as consultations between the two parties for an amicable resolution failed to yield results. In September last year, India moved the WTO, seeking consultations with the US on the “illegal” solar subsidy programmes prevalent in eight states there. However, with the US displaying less-than-desired commitments in addressing its concern, India has now conveyed to the WTO that its panel must adjudicate on the matter, sources told FE.

The move marks a departure from the past (when India’s international trade policy was more defensive than offensive) and reflects the country’s greater willingness to invoke the WTO’s dispute settlement process to expeditiously settle disputes with trading partners. India’s decision is also shaped by growing instances of its trading partners approaching the multilateral dispute resolution framework and achieving the outcome they want.
Ironically, the US had won a ruling against India at the WTO in February last year on, what trade analysts say, far less severe charges that the world’s largest economy now stands accused of.

The US had successfully challenged the domestic content requirement under India’s solar programme, arguing that such a stipulation violated global trading rules by unfavourably discriminating against imported solar cells and modules. The move irked India and prompted it to point at violations of WTO provisions by the US itself in the latter’s own renewable energy sector.

India has complained to the WTO that the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota support their renewable energy sector with massive illegal subsidies and local content requirements (which makes its obligatory to buy domestic goods instead of imports). “These subsidies (provided by the US) are blatantly illegal, as they fly in the face of WTO obligations,” said Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade.

India believes such programmes at the sub-federal level of the US are inconsistent with the WTO provisions–particularly with respect to the obligation under the General Agreement on Tariff and Trade, 1994, the Agreement on Subsidies and Countervailing Measures and/or the Trade-Related Investment Measures agreement. According to the WTO procedures, once a party seeks adjudication by the DSB, the multilateral body has to set up a panel—a formality that is usually opposed by the accused party. However, if the aggrieved party (India, in this case) still insists on the formation of the panel, the accused party (the US) can’t block it. Once the panel is “composed”, proceedings go on for some 6-8 months before a verdict is pronounced.

The latest move by India’s suggests despite political bonhomie in recent years, the world’s largest and the oldest democracies have failed to iron out differences on the trade front and have, in fact, indulged in greater trade battles than ever. The US in 2015 won another ruling against India’s ban on the import of various agriculture products including poultry meat and eggs from the US. For its part, India has also approached the WTO against the US decision, in December 2015, to drastically hike the H-1B and L-1 visa charges, which is estimated to quadruple the Indian information technology industry’s annual visa costs to $400 million. India is also closely monitoring further tightening of visa policies by the Donald Trump administration. The US is India’s second-largest trading partner, with a bilateral goods trade of around $62 billion (in 2015-16).

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