Decision in USA-India WTO Dispute to come out next month

The Chairman of the Panel in ‘India — Certain Measures Relating to Solar Cells and Solar Modules’ has informed the Dispute Settlement Body (‘DSB’) that the final Panel Report is expected to come out next month.

The United States has challenged certain measures of India relating to domestic content requirements under the Jawaharlal Nehru National Solar Mission (“NSM”) for solar cells and solar modules. Brazil; Canada; China; European Union; Japan; Korea, Republic of; Malaysia; Norway; Russian Federation; Turkey; Ecuador; Saudi Arabia, Kingdom of; Chinese Taipei are third parties to the dispute.

The NSM was launched in 2010 with an ambitious target of deploying 20,000 MW of grid connected solar power by 2022. It aimed at reducing the cost of solar power generation in the country through aggresive Research & Development and domestic production of certain critical components. Therefore, the idea was to encourage domestic production of solar panels and modules.

According to the United States, under NSM, the solar power developers are granted certain benefits such as guaranteed long term tariffs for electricity (in the form of power purchase agreements under NSM or with NTPC Vidyut Vyapar Nigam Limited) if they purchased and used solar cells and solar modules of domestic origin.

US-India WTO Dispute
Picture Courtesy: The Diplomat

The United States’ position is that these domestic content requirements are inconsistent with Article III:4 of the GATT 1994 (National Treatment); Article 2.1 of the TRIMs Agreement( National Treatment and Quantitative Restrictions) and Articles 3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the SCM Agreement (Prohibition on Subsidies, Causing of Adverse Effects through Subsidies, Notification of Subsidies).

The Guidelines for Selection of New Grid Connected Solar Power Projects, Batch-II state:

(..) In the case of Solar PV Projects selected in First Batch during FY 2010-11, it was mandatory for Projects based on crystalline silicon technology to use the modules manufactured in India. For Solar PV Projects to be selected in second batch during FY 2011-12, it will be mandatory for all the Projects to use cells and modules manufactured in India. PV Modules made from thin film technologies or concentrator PV cells may be sourced from any country, provided the technical qualification criterion is fully met.

A measure to constitute a subsidy under Article 1.1 of SCM,  must fulfill these two essential ingredients:

 a. There should be a financial contribution or direct transfer of funds or purchase of goods. And

b. A benefit should be conferred.

Srikanth Hariharan argues that this may not be a case of subsidy because

(..) in order to avail the facility of the Bundling scheme, shall sell the electricity to the government  appointed nodal agency at prices determined by the market regulator. So, this is a case where there is an independent market regulator sets the prices at which the government can purchase. Hence, India-Solar Cells may not be a case of subsidy. This is so because though there is a purchase of electricity by the  government, the government is paying a price determined by market regulator.

The real issue, however, is whether this subsidy, if proven to be one, would be a prohibited subsidy or not.

It could be a prohibited subsidy under Articles 3.1(b) and 3.2 of the SCM Agreement because it appears to be provided “contingent … upon the use of domestic over imported goods”. Further, the grant of this subsidy may be causing “serious prejudice” within the meaning of Article 5(c) of the SCM Agreement. The Panel in US — Upland Cotton took the view that a detrimental impact on a complaining Member’s production of, and/or trade in, the product concerned may fall within the concept of “prejudice” in Article 5(c) of SCM Agreement. This conclusion is cemented by a conjoint reading of Article 6.3(a) and (c). According to these articles, “serious prejudice” within the meaning of Article 5(c) is caused if

(a) the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member;

(c) the effect of the subsidy is a significant price undercutting by the subsidized product as compared with the price of a like product of another Member in the same market or significant price suppression, price depression or lost sales in the same market;

 In EC and Certain member States — Large Civil Aircraft, the Appellate Body considered the meaning of the terms “displace” and “impede” and observed that the term displacement connotes that there is a substitution effect between the subsidized product and the like product of the complaining Member. The Appellate Body also observed that the situations where the exports or imports of the like product of the complaining Member would have expanded or materialised had they not been “obstructed” or “hindered” by the subsidized product, would fall in the scope of Article 6.3(a)

An analysis of Article 6.3(c) requires an examination of market statistics. Situations where the prices were either pressed down, prevented or inhibited from rising, or while they did actually increase the degree and magnitude of increase was less than it otherwise would have been, are violative of this article. (Panel in US-Upland Cotton)

In its assessment of whether “price suppression” had taken place, the Panel would consider the following three factors relevant:

(a) the relative magnitude of the United States’ production/exports in power generation;

(b) general price trends; and

(c) the nature of the subsidies at issue, and in particular, whether or not the nature of these subsidies is such as to have discernible price suppressive effects.

Picture Courtesy: Merco Press
Picture Courtesy: Merco Press

I am of the view that the United States Delegation would also have argued “lost sales” in the context of Article 6.3(c). My opinion in this regard is contingent on an examination of actual market statistics.

In EC and Certain Member States — Large Civil Aircraft, the Appellate Body considered the meaning of “lost sales”  and stated:

This would involve a comparison of the sales actually made by the competing firm(s) of the complaining Member with a counterfactual scenario in which the firm(s) of the respondent Member would not have received the challenged subsidies. There would be lost sales where the counterfactual scenario shows that sales won by the subsidized firm(s) of the respondent Member would have been made instead by the competing firm(s) of the complaining Member, thus revealing the effect of the challenged subsidies.

WTO, in the past, has dealt with a similar issue in Canada — Certain Measures Affecting the Renewable Energy Generation Sector. In that case, the Appellate Body upheld the Panel’s conclusion that the Minimum Required Domestic Content Levels prescribed under the feed-in tariff program (the “FIT Program”) were inconsistent with TRIMS Agreement Art. 2.1 and GATT Art. III:4.

If the Panel finds measures of India relating to domestic content requirements under NSM inconsistent with the covered agreements in issue, it will recommend the Dispute Settlement Body to request India to bring its measures into conformity with its obligations under the the GATT, TRIMS and SCM Agreement. As a matter of policy, it makes perfect sense for a country to incentivise domestic production. It remains to be seen if the WTO Panel feels the same.

Advertisements

4 thoughts on “Decision in USA-India WTO Dispute to come out next month

  1. Hey!

    I object to the last line. You are making it seem like it is a good policy and that the Panellists are the bad guys if they hold it to be in violation of the WTO Agreements.

    The job of the panellists is not to comment on whether it is a ‘good’ policy or not. Their job is to check its compliance with the covered agreements. It is your lawmakers duty to draft your supposedly ‘good’ laws in a manner that does not violate the rules of the international trading system (WTO).

    When the Panel Report is submitted the Panel will not be commenting on whether it ‘makes perfect sense or not’, just the compliance with the law…

    Like

  2. I concur. A panel does not comment on the policy but the legality of the policy with respect to the country’s WTO Obligations. A WTO Panel would feel that the policy makes perfect sense only when it is in consonance with the country’s WTO Obligations. I could have articulated it better. Thank You for pointing it out.

    Like

  3. On 23 May 2014, the DSB established a panel.
    Following the agreement of the parties, the panel was composed on 24 September 2014.

    That means it took 4 months for the composition of the Panel!!! As per Article 8(7) of the Dispute Settlement Understanding, a Panel must be composed by agreement of the parties within 20 days of the establishment or within 10 days of requesting the DG for composition of the panel.The delay in this case is unconscionable and goes against the spirit of the WTO DSU.

    ***

    On 24 March 2015, the Chair of the panel informed the DSB that the panel expects to issue its final report to the parties by late August 2015.

    Let us also look at Article 12(9) of the WTO DSU.-
    In no case should the period from the establishment of the panel to the circulation of the report to the Members exceed NINE months.

    Today is 24 Sep 2015. It has been –
    16 months from the establishment of the Panel.
    12 months from the composition of the Panel.
    3 months from the publication of this blogpost.

    YET THE REPORT HAS NOT BEEN CIRCULATED!!

    If the report had come within 6 months of establishment of the panel as has been contemplated within Article 12 of the DSU we might have been at the fag end of the Appellate Proceedings right now… If report finds India’s measures to be not in compliance it means that they have been distorting world trade for so much longer!

    ***
    Dates can be verified here – https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds456_e.htm
    ***
    One of the most admirable things about the WTO which makes it the best international law adjudication forum is its robust Dispute Settlement Mechanism which has strict timelimits. However, the way things are going on in this dispute and other recent disputes, it seems like these governments of large nations like US and India and the WTO panel itself are showing contempt for the procedural rules contained in the WTO DSU and are violating them with impunity.

    If procedural rules and the time limits continue to be ignored like this, I fear that the WTO loses its charm and effectiveness. Every day of delay in issuance of a report means an additional day during which a potentially WTO violative and trade distortive measure remains in force. I hope that the Parties and Panels start taking the time limits more seriously in future to maintain the integrity of the Global Trading Regime (WTO) and its adjudicatory process.

    Like

  4. Hello WTO Lover

    I couldn’t agree more. The delay that recent disputes are going through is unconscionable.

    According to some reports in Indian media, India has lost this case. Read: http://www.livemint.com/Politics/11yE8Bz6bgZZ6LhXXlB8eL/WTO-panel-rules-against-India-in-solar-dispute.html

    According to my limited knowledge, if a party decides to appeal the panel’s findings, the panel report is not made public until the Appellate Body ruling comes out.( Please correct me if I am wrong). This panel report has not been circulated in DSB because India has decided to appeal the Panel’s findings.

    Nevertheless, the delay is unacceptable and I, like you and many others condone it. WTO Dispute Settlement is the most efficient and effective international adjudication forum. Such delays undermine its credibility.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s