TWN Info Service on WTO and Trade Issues (Apr16/15)
27 April 2016
Third World Network

Countering climate change vs neo-mercantilist goals
Published in SUNS #8227 dated 22 April 2016

Geneva, 21 Apr (D. Ravi Kanth) - India along with other developing countries appear now to be facing an acid test in global climate change negotiations and at the WTO on how to ensure that their efforts to build robust domestic industries for manufacturing solar cells, solar modules and other products for renewable energy takes precedence over profits-driven trade rules framed by the United States and other developed countries, several negotiators told the SUNS.

On Wednesday (April 20), India took the first step by challenging a WTO panel ruling in favour of the United States that overly dismissed the domestic content requirements adopted by India for promoting solar cells and solar modules industries for producing renewable energy.

In an appeal over the panel ruling, notified to the chair of the Dispute Settlement Body (DSB), Ambassador Xavier Carim of South Africa, on Wednesday, India maintained that the panel had erred in its interpretation of Articles III:8(a), and Articles XX(d) and XX(j), according to negotiators familiar with the development.

The panel's ruling is the first of its kind in which a WTO member's efforts to develop local industries for solar cells and solar modules on account of its international obligations on climate change are struck down on the ground that they violated India's national treatment obligations under the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Trade-Related Investment Measures (TRIMs).

(For details of the panel ruling, see SUNS #8190 dated 29 February 2016.)

An earlier dispute between the EU and Japan against Canada over two of its provinces giving incentives and preferential pricing arrangements in using domestic content for power generation enterprises to sell to the particular provinces, where the panel and Appellate Body (AB) ruled against Canada, that country had not specifically invoked the UN Climate Change treaty and obligations of countries, as India has done for solar cells and solar module production.

(For details of the Appellate Body rulings, see SUNS #7581 dated 8 May 2013.)

During the panel proceedings after the US launched the dispute against India three years ago, New Delhi defended its local content measures by invoking the United Nations Framework Convention on Climate Change (UNFCCC) under the exceptions provided in GATT Art. XX (d).

India justified its solar content requirements by recourse to the so-called "government procurement carve-out" under GATT Article III:8(a).

This provision enables a WTO member to do away with national treatment (treating imports on par with domestically produced like products) obligations.

The US launched the dispute over certain local content requirements imposed by India under the Jawaharlal Nehru Solar Mission (JNSM), established by the Indian government in 2010.

The JNSM, India maintained, is to "establish India as a global leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible."

India said the JNSM is "a major contribution by India to the global effort to meeting challenges of climate change."

Under the JNSM, India entered into long-term power purchase agreements with solar power generating companies for a 25-year term and in return, the companies are required to procure domestically produced solar cells and modules.

India had defended the domestic content requirements by pointing to its international obligations. India invoked the United Nations Framework Convention on Climate Change (UNFCCC) as part of its defence to continue with the domestic content requirements.

India had argued that it had an "obligation to take steps to achieve energy security, mitigate climate change, and achieve sustainable development, and that this includes steps to ensure the adequate supply of clean electricity, generated from solar power, at reasonable prices."

India argued that by producing solar energy, the dependence on oil and coal will be reduced. India maintained that it was "necessary to ensure that there is an adequate reserve of domestic manufacturing capacity for solar cells and modules in case there is a disruption in supply of foreign cells and modules."

But the panel chose to give precedence to the WTO rules over international obligations on climate change.

Indeed, the WTO rules on TRIMs which were framed during the previous Uruguay Round negotiations have clearly crushed attempts to build domestic industries in countries where industrialization lagged behind, according to several legal analysts.

At a time when the world is increasingly facing the alarming effects of climate change, which is already wreaking havoc in country after country, policies for combating climate change are trumped by utter mercantile rules of the WTO, according to analysts.

Against this backdrop, India's challenge before the Appellate Body against the solar panel ruling is a litmus test whether trade rules negotiated by the US, the EU, and other developed countries in the previous Uruguay Round will continue to undermine global efforts to face climate change.

It also remains to be seen whether India will take the second logical step of launching a trade dispute against the United States which provides subsidies worth billions of dollars and implements stringent domestic content requirements in several states for promoting renewable energy, as have been recently hinted by New Delhi.

In a subtle warning on April 19, to head-off India filing disputes, the US Trade Representative spokesperson told PV Tech that "tit-for-tat WTO filings will not help our [the US-India] shared efforts to deepen our bilateral economic ties nor are they a responsible use of WTO resources."

But tit-for-tat trade disputes are at the heart of the mercantile trading regime which operates on the logic that "you lower your barriers in turn for me lowering mine", according to Dani Rodrik, a trade academic at Princeton University.

It is a travesty of justice that the US can claim a right to continue to provide billions of dollars of green subsidies and pursue domestic content requirements to promote its own industries and enterprises, but other WTO members must not pursue the same measures in their efforts to switch to renewable energy industries based on domestic manufacturing facilities, said a developing country negotiator familiar with the dispute.

India's energy minister Piyush Goyal is reported to have said, "I will soon come out with a policy to further encourage manufacturing in India" and "in fact, I am going to file 16 cases of their [the US] violations of WTO rules."

Aside from the disputes, India and other developing countries also face a major challenge in the Paris climate negotiations to ensure unrestricted access to technology-transfer without onerous intellectual property commitments.

Powerful American lobbies already mounted their efforts to ensure that their "effective inter-agency approach" under the leadership of the US State Department to "secure a final UNFCCC (UN Framework Convention on Climate Change) text that does not mention IP (intellectual property) and thus removes uncertainty that could have discouraged investments by the US companies in clean technology."

Under the pretext of safeguarding innovation and "maintaining the ability of US innovators to develop and disseminate solutions to society's great challenges," the US wants to bring about the most burdensome and onerous intellectual property commitments to be shouldered by the developing countries.

The US lobbies have maintained and promoting a lobbying campaign in their country that "significant challenges to IP still remain in the Paris Agreement's implementation and subsequent negotiations - especially those related to the technology development and transfer chapter."

In a nutshell, the solar trade disputes as well as the Paris climate change negotiations will test the resolve of developing countries in securing policy space for pursuing industries aimed at generating clean energy to replace the fossil-fuel-dominated industries, according to negotiators.