Consultations opened with New Delhi over WTO dispute on solar mission

Though wounds from the Khobragade affair have scarcely begun to heal, the India-U.S. relationship again witnessed a spike in tension this week, as U.S. Trade Representative Michael Froman has announced that Washington is initiating consultations with New Delhi over a World Trade Organisation dispute pertaining to India’s National Solar Mission (NSM).

Addressing journalists here on Monday, he said: “These domestic content requirements [in NSM Phase II] discriminate against U.S. exports by requiring solar power developers to use Indian-manufactured equipment instead of U.S. equipment,” and the U.S. on Monday morning informed Indian officials in New Delhi, Geneva and Washington that it was challenging this requirement.

He said 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).

Mr. Froman characterised the request for WTO consultations as a “serious” step, underscoring that under WTO rules if the matter was not resolved through such consultations within 60 days of the request, the U.S. might ask the WTO to establish a dispute settlement panel.

He also focussed on the question of costs linked to this clean energy source, arguing: “These types of ‘localisation’ measures not only are an unfair barrier to U.S. 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 U.S. exports, which stood at nearly $119 million before these criteria kicked in, have “fallen off precipitously since then.”

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 in the coming decade. India was thus a “very important… [and] the second largest market for U.S. solar exporters, [which was the reason behind] “the substantial concern,” at the local content rules.

The latest objections by the USTR follow from a previous round of dispute consultations initiated here in February 2013 regarding Phase I of the NSM.

On the broader course of bilateral ties, the USTR attorneys ruled out any link to the arrest on December 12 of Devyani Khobragade, India’s former Deputy Consul-General in New York, following which New Delhi took retaliatory measures against U.S. diplomats. The relationship went into a tailspin.