Though wounds from the Khobragade affair have scarcely begun to heal, the India-US relationship again witnessed a spike in tension this week as the US Trade Representative (USTR), Michael Froman, announced that Washington was initiating consultations with New Delhi over a World Trade Organisation dispute pertaining to India’s National Solar Mission (NSM).
Addressing media in Washington Mr. Froman said, “These domestic content requirements [in Phase II of the NSM] discriminate against US exports by requiring solar power developers to use Indian-manufactured equipment instead of US equipment,” and that the US had on Monday morning informed Indian officials in New Delhi, Geneva and Washington that it was challenging this requirement.
He added that such “unfair” requirements militated against WTO rules and the Obama administration was “standing up today for the rights of American workers and businesses,” and in particular disputing India’s proposed rules under both Article II:4 of the General Agreement on Tariffs and trade (GATT) and Article 2 of the Agreement on Trade-Related Investment Measures (TRIM).
The USTR characterised the request for WTO consultations as a “serious” step, underscoring the fact that under WTO rules if the matter was not resolved through such consultations within 60 days of the request, the US may ask the WTO to establish a dispute settlement panel.
Mr. Froman also focused on the question of costs linked to this clean energy source, arguing, “These types of ‘localisation’ measures not only are an unfair barrier to US exports but also raise the cost of solar energy, hindering deployment of energy around the world, including in India.”
According to attorneys for the USTR, close to 10,000 American jobs may be at stake in the solar industry sector if India carries through with the local content and US exports, which stood at nearly $119 million before these criteria kicked in, have “fallen off precipitously since then.”
The USTR’s action received enthusiastic support within the US solar manufacturing industry with Rhone Resch, President and CEO of the Solar Energy Industries Association (SEIA), describing it as “justified and necessary.”
Mr. Resch added, “Over the past three years, the US government has provided India every opportunity to remove restrictive and unfair marketplace requirements. In the absence of any meaningful effort by India to find common ground, it’s now time for the WTO to finally resolve these long-festering issues.”
The attorneys particularly drew attention to the vast size of India’s solar energy market, which under the NSM is estimated to increase 20-fold over the coming decade. India was thus a “very important… [and] the second largest market for US solar exporters, [which was the reason behind] “the substantial concern,” at the local content rules.
The latest objections raised by the USTR follow from a previous round of dispute consultations initiated in Washington in February 2013 regarding to Phase I of the NSM.
There appeared to be a clear feeling that matters had taken a turn for the worse for US exporters because although Phase I also imposed local content requirements for modules for solar power developers using crystalline silicone technology, New Delhi excluded thin film technology from the domestic content requirement.
The USTR office said in a statement, that despite the US going beyond the WTO consultations to engage India in the bilateral for such as the India-US Trade Policy Forum, India-U.S. Energy Dialogue, and various WTO committees, “The formal consultations failed to resolve US concerns.”
Yet the US signalled its hope that the dispute would not be interpreted as move towards a trade war or a commentary on the broader economic relationship, and Mr. Froman said, “An important part of any maturing trade relationship is effectively addressing the range of issues on our trade and investment agenda, including areas where we may disagree. Today’s action addresses a specific issue of concern and in no way detracts from the importance we attach to this relationship.”
On the broader course of bilateral ties, the USTR attorneys firmly ruled out any link to the arrest of Devyani Khobragade, India’s former Deputy Consul General in New York, on December 12, following which New Delhi hit back with retaliatory measures against US diplomats there and the relationship went into a tailspin.
They said, “These cases take some time to develop, and… we began in WTO terms, to address this issue a year ago [when] we challenged Phase I [of the NSM].”