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Weekly Update: U.S. takes India to WTO against Domestic Content Requirement

Weekly Update: U.S. takes India to WTO against Domestic Content Requirement

The US on Wednesday filed a complaint with the World Trade Organization (WTO) over the Domestic Content Requirement (DCR) under India’s National Solar Mission (NSM), which it said discriminates against foreign solar products, including the ones made in the US (refer).

  • Phase one of the NSM included a DCR on Crystalline Silicon (c-Si) cells,  however phase two of the NSM is expected to expand the restrictions to include thin-film modules as well
  • US companies supplying thin-film modules to the Indian market risk a significant drop in sales in the event of such restrictions
  • India and the US have 60 days of consultations to resolve the issue and beyond that the US can ask the WTO to hear the matter. India’s DCR may be done away with if module manufacturers are unable to put up a strong defense
In order to promote domestic manufacturing of solar cells and modules, India has been
mandating procurement of c-Si cells and modules from within the country for projects under
the NSM.

Until now, there had been no such restriction on the import and use of thin-film modules. The US, which exports primarily thin film modules, has been the main beneficiary of India’s DCR. Chinese companies offering c-Si modules have suffered and Indian manufacturers have not been able to take advantage of it. First Solar, a US company and the world’s leading manufacturer of thin-film (CdTe) modules, is the most successful supplier in India with a market share of over 20%. Lately, the company has sold around 130 MW out of 340 MW for projects under batch two of phase one of the NSM.

However, phase two of the NSM is expected to expand the DCR restrictions to include thin-film modules as well. This would risk a significant drop in global sales for First Solar, which in 2011 has supplied 8% of its modules to the Indian market.

India has always justified the DCR by arguing that since it is financially incentivizing the use of solar power through subsidies and feed-in-tariffs (FiTs), it has the right to impose conditions. Also, it is the stated goal of the Indian government to create a domestic solar manufacturing industry. However, cases challenging local content rules have received a boost since the WTO ruled against Canada’s domestic requirements for a green energy plan in Ontario province.

As per the WTO process, India can file a response within 10 days of receiving the WTO notice. The government has asked for a consultation meeting with both Indian manufacturers as well as developers on 15th February 2013 to discuss and review India’s stand on the restrictions. According to a statement by Farooq Abdullah, Minister for New and Renewable Energy (MNRE), the onus to put up a strong defense lies with the module manufacturers and if they are unable to do that, India’s domestic requirements may be done away with (refer). India and the US have 60 days of consultations to resolve the issue and beyond that the US can ask the WTO to hear the matter.

Also, India is currently investigating allegations of dumping against US companies (along with suppliers from China, Malaysia and Taiwan). Efforts from these suppliers with regards to submitting data and presenting their case to the Directorate General of Anti-Dumping Allied Duties (DGAD) under India’s Ministry of Commerce are already under way. According to BRIDGE TO INDIA, import restrictions will lead to increases of module prices and hence the cost of power to the Indian taxpayer and power consumer without really benefiting Indian manufacturers in the long term (refer to the January 2013 edition of the India Solar Compass to read the analysis).

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

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