India: WTO Issues Panel Report On India's Domestic Content Requirements For Solar Products

Last Updated: 29 February 2016
Article by Alfred Adebare

On 24 February 2016, the World Trade Organization ("WTO") issued the panel report in the case brought by the United States regarding "India – Certain Measures Relating to Solar Cells and Solar Modules" (WT/DS/456). The panel concluded that the Domestic Content Requirement ("DCR") measures imposed under Phase I (Batch 1), Phase I (Batch 2), and Phase II (Batch 1) of the Jawaharlal Nehru National Solar Mission ("JNNSM"), which are incorporated or otherwise reflected in various documents within each Batch, including the Guidelines (issued by the Ministry of New and Renewable Energy) and Request for Selection documents (issued by the National Thermal Power Corporation Vidyut Vyapar Nigam Limited and the Solar Energy Corporation of India), the model power purchase agreement, and the individually executed power purchase agreements by NTPC or SECI and solar power developers, are –

  1. inconsistent with Article 2.1 of the Agreement on Trade-Related Investment Measures ("TRIMs Agreement")1 and Article III:4. of the General Agreement on Tariffs and Trade 1994 ("GATT 1994")2, and are not covered by the derogation in Article III:8.(a) of the GATT 1994; and
  2. not justified under the general exceptions in Article XX(j)3 or Article XX(d)4 of the GATT 1994.

The crux of the panel's findings:

  • That the DCR measures are trade related investment measures ("TRIMs") covered by paragraph 1(a) of the Illustrative List in the Annex to the TRIMs Agreement5, in as much as they expressly stipulate the origin of specified goods that may be used by solar power developers for bidding eligibility and participation under each of the relevant batches of the JNNSM.

    This is consistent with the view of previous panels that "if the measures are local content requirements, they would necessarily be 'trade-related' because such requirements, by definition, always favour the use of domestic products over imported products, and therefore, affect trade."
  • That the DCR measures are TRIMs that "require the purchase or use by an enterprise of products of domestic origin", as the Guidelines and Request for Selection documents mandate that certain solar power developers participating in the JNNSM use solar cells and/or modules manufactured in India.
  • That the DCR measures "are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage", thereby fulfilling the requirements of paragraph 1(a) of the TRIMs Illustrative List.

    In this regard, the panel noted that the bidding eligibility and potential contractual benefits under the DCR measures qualify as "advantages" within the meaning of paragraph 1(a) of the TRIMs Illustrative List, a fact that India did not contest. For example, once developers are selected based on the technical and financial criteria of the bid process, power purchase agreements are entered into. These criteria, and the advantages resulting from such selection, such as guaranteed long-term tariffs as well as viability gap funding support (in Phase II – Batch I), are available for all developers meeting the applicable requirements. Compliance with the DCR measures is therefore necessary to obtain an advantage within the meaning of paragraph 1(a) of the TRIMs Illustrative List.

    Further, the various contractual obligations and penalties for default by developers, in combination with the requirements established under the relevant Guidelines and Request for Selection documents, sustain the conclusion that the DCR measures are "mandatory or enforceable under domestic law.
  • Accordingly, the DCR measures (being TRIMs by definition) are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994, and thereby also inconsistent with Article 2.1 of the TRIMs Agreement.
  • That the discrimination relating to solar cells and modules under the DCR measures is not covered by the government procurement derogation in Article III:8.(a) of the GATT 1994, which exempts laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale.

    In determining this, the panel found that the scope of the term 'products purchased' in Article III:8.(a) is informed, in the first instance, by the product that is subject to the discrimination, or 'like' products, which can be described as products that are in a competitive relationship. This is the scope of the government procurement derogation. In the instant case, the solar cells and modules (purchased by the developers) and the solar power generated from those cells and modules (purchased by government agencies) are not products in a competitive relationship.

    To this extent, the panel found the DCR measures indistinguishable in any relevant respect from the DCR measures previously examined under the same provision by the Appellate Body in Canada – Renewable Energy/Feed-in Tariff Program6.
  • That India's lack of manufacturing capacity of solar cells and modules does not amount to a situation of local and general short supply of solar cells and modules in India. Solar cells and modules are not "products in general or local short supply" in India within the meaning of Article XX(j) and the DCR measures do not involve the acquisition of "products in general or local short supply" in India, and are therefore not justified under the general exception in Article XX(j) of the GATT 1994.
  • That India failed to meet the threshold requirements that (other than section 3 of the Electricity Act) the instruments that it has identified are "laws or regulations" within the meaning of Article XX(d) of the GATT 1994. As regards section 3 of the Electricity Act, India failed to demonstrate that the DCR measures are measures to secure compliance with the legal obligations in that section. Accordingly, the DCR measures are not justified under Article XX(d) of the GATT 1994.

Recommendations of the panel

To the extent that India's DCR measures are inconsistent with the TRIMs Agreement and the GATT 1994, as aforesaid, the panel report recommended that India bring its DCR measures into conformity with its obligations under the TRIMs Agreement and the GATT 1994. An appeal of the findings of the panel lies to the Appellate Body, which may uphold, modify or reverse the findings and conclusions of the panel.

A quick glance at the background

  • On February 6, 2013, and February 1, 2014, the United States requested for consultations with India concerning certain measures relating to DCR imposed under the JNNSM for solar cells and solar modules. Consultations were held on March 20, 2013 and March 20, 2014, respectively.
  • On April 14, 2014, the United States requested the establishment of a panel.
  • On May 23, 2014, the Dispute Settlement Body ("DSB") established a panel.
  • Meanwhile, several countries including Brazil, Canada, China, Japan, the Republic of Korea and Saudi Arabia, from time to time, notified their interest in participating in the panel proceedings as third parties.
  • The panel held its first substantive meeting with the parties on February 3-4, 2015. A session with the third parties took place on February 4, 2015. The panel held a second substantive meeting with the parties on April 28-29, 2015.
  • On June 9, 2015, the panel issued the descriptive part of its report to the parties. On July 24, 2015, the panel issued its interim report to the parties. Though all panel proceedings remain confidential until the panel report is circulated to WTO members, contents of the interim report were already circulating in the press by August 2015.
  • The panel issued its final report to the parties on August 28, 2015.
  • The panel issued its final report to WTO members on February 24, 2016.

Footnotes

1. Article 2 of the TRIMs Agreement, entitled "National Treatment and Quantitative Restrictions", provides:

1. Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.

2. An illustrative list of TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained in the Annex to this Agreement.

2. Article III of the GATT 1994 is entitled "National Treatment on Internal Taxation and Regulation". Paragraph 4 of Article III provides in relevant part:

"The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use."

3. Article XX(j) establishes a general exception for measures essential to the acquisition or distribution of products in general or local short supply.

4. Article XX(d) establishes a general exception for measures necessary to secure compliance with laws or regulations which are not inconsistent with the GATT 1994.

5. Paragraph 1(a) of the "Illustrative List" in the Annex to the TRIMs Agreement stipulates that:

(1) TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.

6. In that case, the product being procured is electricity, whereas the product discriminated against for reason of its origin is generation equipment. These two products are not in a competitive relationship. Accordingly, the discrimination relating to generation equipment contained in the feed-in tariff programme is not covered by the derogation of Article III:8(a) of the GATT 1994.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alfred Adebare
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions