Info Service on WTO and Trade Issues (Feb18/14)
Geneva, 12 Feb (Kanaga Raja) - A request for establishment of a panel by India to determine India's compliance with the recommendations and rulings of the Dispute Settlement Body (DSB) in its dispute with the United States over certain Indian measures relating to solar cells and modules was blocked by the US at a meeting of the DSB on 9 February.
This was a first-time request and panel establishment will be automatic when the request comes up again before the DSB.
Meanwhile, the US has sought authorisation to retaliate over alleged Indian non-compliance, and this has gone for arbitration over the value to be authorised.
In its communication to the DSB (dated 23 January 2018), India noted that on 14 October 2016 the Dispute Settlement Body (DSB) adopted the recommendations and rulings of the Appellate Body Report in India - Certain Measures Relating to Solar Cells and Modules (WT/DS456).
The Appellate Body Report (WT/DS456/AB/R dated 16 September 2016) addressed India's appeal on certain issues of law and legal interpretations developed in the Panel Report (WT/DS456/R dated 24 February 2016).
The Panel was established on 23 May 2014 to consider a complaint by the United States against certain domestic content requirements (DCR measures) imposed by India on solar power developers (SPDs) selling electricity to governmental agencies under its Jawaharlal Nehru National Solar Mission (NSM).
The DCR measures at issue, under Phase I (Batch 1), Phase I (Batch 2), and Phase II (Batch 1-A) of India's National Solar Mission, required that certain types of solar cells and modules that are used by the SPDs, are made in India.
According to the Indian communication to the DSB, the Appellate Body upheld the finding of the Panel that the DCR measures were inconsistent with Article 2.1 of the TRIMs Agreement and Article III:4 of the GATT 1994, and were not covered by the derogation under Article III:8(a) of the GATT 1994, based on the reasoning that the procurement of solar cells and modules was not by the government, but by SPDs engaged in the generation of power.
The Appellate Body concluded, in paragraph 6.2 of its Report, that under Article III:8(a) of GATT 1994, the product purchased by way of procurement (i.e., solar power), must necessarily be "like", or "directly competitive" with or "substitutable" for - in other words, in a "competitive relationship" with - the foreign product subject to discrimination (i.e., solar cells and modules).
The Appellate Body also noted the findings of the Panel that the DCR measures are "laws, regulations or requirements governing the procurement" of electricity and that the procurement of electricity is "by governmental agencies".
After the adoption of the Appellate Body Report by the DSB on 14 October 2016, India said that it issued a communication to the DSB dated 08 November 2016, and subsequently at the meeting of the DSB held on 23 November 2016, India announced its intention to implement the DSB's recommendations and rulings in this dispute and stated that it would need a reasonable period of time in which to do so.
On 16 June 2017, India and the United States informed the DSB that they had agreed that the reasonable period of time to implement the DSB's recommendations and rulings would be 14 months. Accordingly, the reasonable period of time (RPT) was set to expire on 14 December 2017.
On 14 December 2017, pursuant to Article 21.6 of the DSU, the delegation of India circulated a status report to the Chairperson of the DSB, in which it stated that India has ceased to impose any measures found inconsistent in the DSB's recommendations and rulings, and has complied with the said recommendations and rulings.
On 20 December 2017, the United States made a request pursuant to Article 22.2 of DSU seeking authorization from the DSB to suspend tariff concessions under the covered agreements.
India said it objected to this request vide its communication dated 03 January 2018 to the Chairperson of the DSB, under Article 22.6 of the DSU.
In its objection, India highlighted that the United States' request was not a valid request under Article 22.2 of the DSU in the absence of initiation of the negotiations on compensation, and its failure to specify either any specific element of non-compliance or the proposed level of suspension of concessions.
According to India, in the event of any disagreement between the parties with respect to "the consistency with a covered agreement of measures taken to comply with the recommendations and rulings", the logical course of action is first to have recourse to Article 21.5 of the DSU.
Since India considers that it has brought itself into full compliance with its WTO obligations and the United States appears to disagree in its communication of 19 December 2017, the issue of compliance must be decided following the procedures of Article 21.5 of the DSU.
In the circumstances of this dispute, therefore, India said it seeks recourse to Article 21.5 of the DSU to resolve the disagreement over compliance.
IMPLEMENTATION ACTIONS UNDERTAKEN BY INDIA
According to the Indian communication, there is no law or regulation in India mandating DCRs for solar cells and modules.
The Panel while analyzing the DCR measures at issue, noted that the NSM is being implemented in several successive "Phases" with each phase being further sub-divided into several "Batches."
The United States had based its panel request on Phase I (Batch 1), Phase I (Batch 2), and Phase II (Batch 1-A) of India's NSM.
As noted by the Panel, the Ministry of New and Renewable Energy of India (MNRE) is the Indian central government ministry responsible for "all matters relating to renewable energy."
The Panel noted that with regard to the three Batches under its consideration, MNRE had issued the Guidelines documents setting forth the terms and conditions governing each of the three Batches.
Under the first two Batches, i.e. Phase I (Batch 1) and Phase I (Batch 2), MNRE selected NTPC Vidyut Vyapar Nigam Limited (NVVN) to act as the agency responsible for implementing the solar power project selection process, including but not limited to issuing the Request for Selection document governing selection of solar power projects.
NVVN served as the government party in the individually executed PPAs. For Phase II (Batch 1), MNRE selected the Solar Energy Corporation of India (SECI) to perform the same functions that NVVN performed in respect of Phase I.
The Panel noted that the scope of the DCR measures varied across batches. The Panel also recorded in its Report that the Guidelines would have no legal impact if no action were taken after the Batch was initiated, i.e. if there were no subsequent bidding/selection processes.
In this connection, India submitted the following:
As recorded in paragraph 7.14 of the Panel Report (DS/456/R, dated 24 February 2016):
(a) In Batches 1 and 2 of Phase I of the NSM, PPAs for 140 MW were entered into under the DCR measures, and PPAs of 330 MW were entered into with imported cells and modules.
(b) In Batch 1A of Phase II of the NSM, PPAs for 375 MW were entered into under the DCR measures.
Of the above, in Batch 1A of Phase II, only PPAs for 355 MW were eventually commissioned under the DCR measures, and there were additional 325 MW which involved imported solar cells and modules.
At the time of the Panel and Appellate Body hearings, there were several other projects, in respect of which Guidelines and Request for Selection documents had been issued using the DCR measures, and which were at various stages of tendering and selection, said India, providing some details of these projects.
(a) On 10.03.2015, MNRE had issued the "Guidelines for Selection of 3000 MW Grid-Connected Solar PV Power Projects under Batch-II for State Specific Bundling Scheme." The implementing agency for these Guidelines was NTPC Ltd. (a Government owned company which is also the parent company of NVVN), and accordingly NTPC Ltd. issued the Request for Selection documents dated 21.05.2015, 03.07.2015, 09.10.2015 and 16.06.2016.
(b) On 04.08.2015 MNRE had issued the "Guidelines for Implementation of Scheme for Setting up of 2000 MW Grid-connected Solar PV Power Projects under Batch-III - State Specific VGF Scheme" pursuant to which SECI issued the Request for Selection documents dated 15.02.2016 and 24.02.2016.
(c) On 14.03.2016, MNRE had issued the "Guidelines for Implementation of Scheme for Setting up of over 5000 MW Grid-connected Solar PV Power Projects under Batch-IV", pursuant to which SECI issued Request for Selection document dated 22.04.2016.
Pursuant to the adoption of the DSB recommendations and rulings, India said it held stakeholder consultations and took steps to ensure swift compliance with the same.
According to India, with regard to the Guidelines and Request for Selection documents, which had been at various stages of tendering and selection at the time of the adoption of the DSB recommendations and rulings, the following PPAs were entered into:
(a) 150 MW in the State of Andhra Pradesh (Kurnool Solar Park), in March 2016;
(b) 100 MW in the State of Rajasthan, in June 2016;
(c) 50 MW in the State of Maharashtra, in July 2016;
(d) 50 MW in the State of Telangana, in July 2016;
(e) 50 MW in the State of Karnataka, in August 2016;
(f) 25 MW in the State of Gujarat, in December 2016;
(g) 100 MW in the State of Karnataka, in December 2016.
India confirmed that after December 2016, there have been no PPAs pursuant to Guidelines and Request for Selection documents requiring DCR measures determined to be inconsistent under the DSB recommendations and rulings.
It said that apart from the aforementioned projects, some projects which were initially envisaged under DCR measures were cancelled by the MNRE on the basis of assessments that these may not be completed within the RPT.
These include projects cumulating to capacity of 300 MW that were to be undertaken by SECI, and 250 MW that was to be undertaken by NTPC Limited.
Thus, India said that it would like to state and affirm that in order to comply with the recommendations and rulings of DSB in this dispute, it has:
(a) taken all appropriate steps to bring its measures into compliance with the DSB recommendations and rulings;
(b) no PPAs under the DCR measures have been entered into after December 2016;
(c) some projects that were initially contemplated with the DCR measures, have been cancelled; and
(d) India no longer enters into any PPAs involving the DCR measures.
This removes the basis for any inconsistency of India's measures, with Article III:4 of the GATT 1994 and Article 2.1 of TRIMs.
Therefore, as of the date of expiry of the RPT on 14 December 2017, India is fully compliant with its WTO obligations, it said.
As specified in India's communication under Article 21.6 of the DSU, India said it is fully compliant with the recommendations and rulings of the DSB.
India requested that a Panel be established pursuant to Article 21.5 of the DSU, with the standard terms of reference as set forth in Article 7.1 of the DSU, to resolve the disagreement between India and the United States as regards India's compliance with the recommendations and rulings of the DSB.
India also requested that the DSB refer the matter to the original Panel, if possible.
As India has complied with the DSB recommendations and rulings in this dispute, prompt findings by the DSB will assist the parties in securing a positive solution to the dispute, it said.
In its statement at the DSB, India said that its request for this special session of the DSB to consider its request for a Panel under Article 21.5 of the DSU has been necessitated by the United States seeking suspension of concessions or other obligations through a request under Article 22.2 of the DSU (WT/DS456/18).
According to India, this action by the United States clearly demonstrates disagreement between India and the United States regarding India's compliance with the DSB recommendations and rulings.
India said that since the matter relating to the United States' request under Article 22.2 has been referred to arbitration under Article 22.6 of the DSU, it is in the interests of both parties to have the issue of compliance resolved urgently by a Panel under Article 21.5 of the DSU.
It said that it is a matter of record that India had filed its compliance status report dated 14 December 2017 (WT/DS456/17) wherein it informed the DSB that it has ceased to impose any measures found inconsistent with the DSB's recommendations and rulings.
The United States subsequently filed its request under Article 22.2 of the DSU.
As India explained in its communication of 3 January 2018 (WT/DS456/19), the United States has not engaged with India on its exact concerns regarding India's compliance.
Issues in this regard were brought before the DSB by India during its meeting dated 12 January 2018.
India considers that in the event of any disagreement between the parties with respect to the "existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings", the logical course of action is to first have recourse to Article 21.5 of the DSU.
India considers that since it has brought itself into full compliance with its WTO obligations and the United States appears to disagree, India's compliance needs to be evaluated by a Panel under Article 21.5 of the DSU.
India noted that in its communication dated 23 January 2018 requesting for the constitution of a Panel under Article 21.5, it has explained the actions taken by it towards ensuring compliance with the recommendations and rulings of the DSB.
India said it is confident that the proceedings under Article 21.5 of the DSU will lay to rest any doubts regarding India's compliance with the recommendations and rulings of the DSB, and will thereby negate the need for any proceedings under Article 22.6 of the DSU in the first place.
India said it therefore requests that a Panel be established pursuant to Article 21.5 of the DSU, to resolve the disagreement between India and the United States on India's compliance with the recommendations and rulings of the DSB.
It also requested that the DSB refer the matter to the original panel, if possible.
In its statement at the DSB, the United States said that at a previous DSB meeting, the United States noted that it was not aware of any basis for India to assert compliance in this dispute.
Its view has not changed upon reading India's panel request, it said.
In its request, India claims that it has complied with the DSB recommendations in this dispute because it "no longer enters into any [Power Purchasing Agreements] involving the DCR measures".
India, however, has not provided any evidence to substantiate this claim, the United States maintained.
Moreover, India's panel request appears to indicate that India will continue to apply the WTO-inconsistent DCR measures contained in Power Purchase Agreements that India entered into before December 2016.
The United States said it does not understand how India can claim compliance while it continues applying these WTO-inconsistent DCR measures.
The United States said it has reserved its rights to move forward under DSU Article 22.6 to obtain authorization to take countermeasures in relation to India's DCR measures.
"However, we remain willing to work with India to find a bilateral resolution to this dispute without further proceedings," it said.
For these reasons, the United States said it is not in a position to agree to the establishment of a panel today.
In an intervention, Canada said it noted that this request for the establishment of a panel by India continues a trend in the WTO's dispute settlement practice.
This trend has seen the responding party request the establishment of a panel and has occurred in DS381, DS430 and DS461.
In addition, Canada noted that the Russian Federation has recently initiated compliance consultations with the European Union in DS475, where it is the responding party.
Each of these examples illustrates the utility and appropriateness of the right of a responding party to initiate compliance proceedings.
Canada said they are also consistent with the Appellate Body's observation in paragraph 353 of the Canada - Continued Suspension dispute (DS321) that the "respondent will be able to identify in its panel request the measure that it has taken to comply and the specific inconsistencies found in the DSB's recommendations and rulings in the original proceedings, and claim before the Article 21.5 panel that it has complied with the DSB's recommendations and rulings by rectifying those inconsistencies."
According to trade officials, the European Union said that suspension of concessions may only happen once there is a multilateral determination on compliance, while Japan referred to an earlier statement that it had made at a meeting of the DSB on 22 May 2017 (in respect of DS430).