Ruling says “domestic content” clause in India’s Solar Mission violates trade law, prompting warnings “outrageous” decision will undermine clean energy development
The World Trade Organisation (WTO) yesterday dealt a blow to India’s ambitious National Solar Mission, sparking warnings from green groups that the trade watchdog is undermining the Paris Agreement’s efforts to mobilise investment in clean energy.
The US had brought a complaint against the Indian government-funded mission, which aims to rapidly boost solar capacity across the subcontinent, arguing a “domestic content” clause requiring part of the solar panels to be produced in India was in violation of international trade rules.
The Solar Mission was the centrepiece of India’s INDC national climate action plan submission under the Paris Agreement. But the WTO rejected India’s argument the programme helps the country to meet its climate commitments, and said domestic policies that violate WTO rules cannot be justified on the basis they fulfil international climate commitments such as those set out under the Paris deal.
The ruling was welcomed by the US government, which is keen to deliver greater trade liberalisation for fast-expanding clean tech markets.
“This is an important outcome, not just as it applies to this case, but for the message it sends to other countries considering discriminatory ‘localisation’ policies,” said Mike Froman, US Trade Representative (USTR) in a statement. “Discriminatory policies in the clean energy space in fact undermine our efforts to promote clean energy by requiring the use of more expensive and less efficient equipment, raising the cost of generating clean energy and making it more difficult for clean energy sources to be competitive.”
The Indian government may now have to adjust some of the policies underpinning its Solar Mission to comply with WTO trade rules or risk sanctions. However, India is considering an appeal against the ruling through the WTO’s appellate body, according to a NDTV report.
Green groups blasted the decision saying it sets a worrying precedent where trade law trumps the Paris climate accord and accusing the US of hypocrisy given many US states have adopted their own local content rules.
Bill Waren, a trade analyst at Friends of the Earth, said the campaign group was dismayed that climate policy was effectively being made by an international trade tribunal. “The government of India reasonably provided some preferences for local producers of solar energy in order to convert from a carbon economy to a green economy,” he said. “The WTO decision, finding India’s solar energy programme in violation of international trade law, is an outrage.”
Sam Cossar-Gilbert, an economic justice coordinator at Friends of the Earth International, added that the move formed part of a wider trend that sees trade agreements undermine climate change policies, arguing that it highlights the dangers of upcoming trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP).
“Current trade rules limit governments’ capacity to support local renewable energy, undermine clean technology transfer and empower fossil fuel companies to attack climate protection in secret courts,” he said. “In the last three months alone, Ecuador was ordered to pay $1bn for cancelling a petrol contract under a Bilateral Investment Treaty, and now India has been found guilty by the WTO for building solar panels and supporting local jobs. Trade policy cannot continue to be a hindrance: governments must be free to implement sound climate policy.”
However, free trade advocates, including some of those currently working to introduce new rules to remove trade tariffs for clean technologies, argue local sourcing requirements can push up the cost of clean technologies and undermine R&D investments in developing new low carbon technologies.