The big story last week was the ruling of the World Trade Organisation against a particular aspect of India’s solar energy roll-out programme, called Domestic Content Requirement, or DCR. The ruling itself is of limited impact, but the whole issue around it is instructive.
What is DCR?
According to the rule, for specified solar projects, the project developer should buy India-made cells and panels. (Solar cells, typically made of silicon, are strung together to form panels, or modules. Arrays of panels form a solar power plant, and a cluster of solar power plants is known as a ‘solar farm’.)
Now, the US got pretty worked up about India’s DCR rule. “How can you reserve a part of your market for your own companies?” it asked, indignantly, adding, “Should it not be an open market, where the best guy wins?” With this grouse, the US went to court — the WTO — and won.
Let’s forget about the solar industry for a moment. The whole episode, in general, offers a number of interesting lessons.
One: Why Indian arguments failed
India had two main arguments.
One, that the DCR rule should be looked at as ‘Government procurement’. Here, ‘Government procurement’ is a legal jargon in global trade, which means that if a government wants to buy something, say, steel bars for a new building it plans to construct, it is free to demand that the raw material be locally sourced. It will not be deemed a violation of WTO rules in such a case.
Under the Jawaharlal Nehru National Solar Mission programme, the solar power that various companies generate will be sold to a government company — either NTPC Vidyut Vyapar Ltd, or the Solar Energy Corporation of India. The Government has said that as solar power will be bought by government-owned companies, it should be seen as ‘government procurement’, thus giving the Centre the right to insist that locally made solar cells and modules be used in the projects.
Now, that is specious. There is a clear distinction between the government buying something for its own use, and a government-owned commercial entity buying the same for commercial purposes. How the Central Government hoped to get away with the lie is astonishing. The WTO threw the argument out of the window.
The Centre’s second argument was more practical.
It said: “Look here, the DCR applies to a very small part of the whole solar programme. The country’s ambition is to have 100,000 MW of solar power by 2022. The buy-local rule is not likely to cover even 10 per cent of it. So, guys, isn’t there a huge market up for grabs? Is it wrong if we reserve a small sliver of it for our manufacturing industry to survive on, until it matures to a level where it can face competition?”
Sound and practical argument though it seemed, it was not legally acceptable. It followed the same route as the first argument: out the window.
Two: How petty can the US get
The National Solar Mission is being rolled out in three phases. In the first phase, the DCR rule didn’t matter because it covered only the modules, and not the cells. The second phase has been divided into two batches, and the second batch further into three tranches. The first batch covered 750 MW of capacity, of which half, or 375 MW, was covered by the DCR rule. But if you look the applicability of the rule across the two phases, the capacity put under DCR is miniscule — something like 500 MW of the 5,000 MW announced.
Three: Failure of diplomacy
Just look at the backdrop — the India-US bilateral relationship; the huge nuclear deal arrived at after tortuous negotiations; the India-US Energy Dialogue; the India-US Partnership to Advance Clean Energy; President Obama’s pledge to support India’s renewable energy programmes… and so forth.
And yet, against this backdrop, Indian diplomacy has been unable to get the US to agree to the low-impact DCR rule. The WTO battle had to be fought diplomatically, for legally, it was bound to fail. It seems that neither has India’s Commerce Ministry realised this, nor is the External Affairs Ministry up to the task.
Jai Hind!
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