India and the U.S. have been filing a number of disputes against each other, challenging the other’s domestic content requirement in the renewable energy sector. The last was in September 2016 when India requested consultations with the U.S. under the dispute settlement system regarding alleged domestic content requirements and subsidies provided by eight U.S. states. This request came three days after India lost the case brought by the U.S. India in the present case claims that California, Connecticut, Delaware, Massachusetts, Michigan, Minnesota, Montana and Washington are providing renewable energy subsidies similar to those of the domestic content requirement under the Jawaharlal Nehru National Solar Mission (JNNSM), which, the U.S. claims, violates World Trade Organisation (WTO) law.
India alleges that these states have been granting subsidies to local manufacturers in the renewable energy industry along with the requirement that the products be made domestically. As India lost the case filed by the U.S. at the WTO, critics claim that the present case has been filed by India as a reciprocation. India seems to be charging the U.S. of the same issues in the same field to leverage a settlement in the case that it lost.
The WTO ruling
JNNSM required that 20 gigawatt (GW) of solar power should be generated from domestically produced modules or solar cells. The WTO found that the mandatory domestic content requirement under JNNSM violated the National Treatment provision of Article III:4 of the WTO agreement. The Indian government has significantly reduced the domestic content requirement after the initiation of proceedings at the WTO. At the beginning of the mission, the domestic content requirement in the auctioned contracts was as much as 50% of the total output generating capacity. This value dropped significantly through the auctions and is currently down to 5%. The U.S. is still unsatisfied with the measures undertaken by the government.
Before the final judgment was delivered by the WTO, there was a lot of chatter about the case being settled by the two governments. Assurances were given by high-ranking officials from both nations that a settlement would be reached. The Indian government also offered to restrict the domestic content requirement to government-owned companies, saying that only public sector undertakings would be mandated to use domestically produced modules.
After the WTO ruling was delivered, India asked the U.S. not to implement it. Under WTO law, the complainant can give 15 months to the defendant to implement the ruling. If 15 months were provided, India would be able to complete the JNNSM without having to painstakingly restructure the entire mission. After the 15-month period, the ruling would be applicable.
However, nothing meaningful came from from these negotiations. The Indian government then announced that it had decided to file many cases against the U.S. because eight of the latter’s states had domestic content requirements in the renewable energy sector. Few imagined that India would pursue the dispute and ask the WTO to establish a panel.
The decision to not pursue the formation of a WTO dispute resolution panel came after Indian officials met the transition team of U.S. President Donald Trump and were assured that a settlement would be reached. It was decided that the cases would not be pursued further and that the Trump administration would seriously consider the settlement once in office.
The request for the establishment of a panel came on January 24, 2017. The reasons stated by India include that the eight U.S. states were giving “performance-based incentives” for generating renewable energy. These incentives were contingent on the fact that domestically produced goods were being used and were given to offset the investment cost. India claims that this violates Article III:4 because the measures provide less favourable treatment to imported products than domestically produced goods.
Even though India has requested establishment of the panel, is it still possible that an amicable solution may be found. However, with the new Trump administration and its ‘America First’ policy, there is a good chance that the panel will be established and the case argued before the WTO. This would affect relations between the U.S. and India. Both the cases are in fact the same, so it would be in the best interest of both nations to settle it.
Armin Rosencranz is professor of law at Jindal Global Law School. Aditya Vora is a third-year law student there.