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Trade: Countering climate change vs neo-mercantilist goals

Apr 22 2016

Geneva, Apr (D. Ravi Kanth) -SUNS- India along with other developing countries
appear now to be facing an acid test in global climate change negotiations and at
the WTO on how to ensure that their efforts to build robust domestic industries
for manufacturing solar cells, solar modules and other products for renewable
energy takes precedence over profits-driven trade rules framed by the United
States and other developed countries, several negotiators told the SUNS.

On Wednesday (April 20), India took the first step by challenging a WTO panel
ruling in favour of the United States that overly dismissed the domestic content
requirements adopted by India for promoting solar cells and solar modules
industries for producing renewable energy.

In an appeal over the panel ruling, notified to the chair of the Dispute Settlement
Body (DSB), Ambassador Xavier Carim of South Africa, on Wednesday, India
maintained that the panel had erred in its interpretation of Articles III:8(a), and
Articles XX(d) and XX(j), according to negotiators familiar with the
development.

The panel’s ruling is the first of its kind in which a WTO member’s efforts to
develop local industries for solar cells and solar modules on account of its
international obligations on climate change are struck down on the ground that
they violated India’s national treatment obligations under the General Agreement
on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Trade-Related
Investment Measures (TRIMs).

(For details of the panel ruling, see SUNS #8190 dated 29 February 2016.)

An earlier dispute between the EU and Japan against Canada over two of its
provinces giving incentives and preferential pricing arrangements in using
domestic content for power generation enterprises to sell to the particular
provinces, where the panel and Appellate Body (AB) ruled against Canada, that
country had not specifically invoked the UN Climate Change treaty and
obligations of countries, as India has done for solar cells and solar module
production.

(For details of the Appellate Body rulings, see SUNS #7581 dated 8 May 2013.)

During the panel proceedings after the US launched the dispute against India three
years ago, New Delhi defended its local content measures by invoking the United
Nations Framework Convention on Climate Change (UNFCCC) under the
exceptions provided in GATT Art. XX (d).

India justified its solar content requirements by recourse to the so-called
“government procurement carve-out” under GATT Article III:8(a).

This provision enables a WTO member to do away with national treatment
(treating imports on par with domestically produced like products) obligations.

The US launched the dispute over certain local content requirements imposed by
India under the Jawaharlal Nehru Solar Mission (JNSM), established by the
Indian government in 2010.

The JNSM, India maintained, is to “establish India as a global leader in solar
energy, by creating the policy conditions for its diffusion across the country as
quickly as possible.”

India said the JNSM is “a major contribution by India to the global effort to
meeting challenges of climate change.”

Under the JNSM, India entered into long-term power purchase agreements with
solar power generating companies for a 25-year term and in return, the companies
are required to procure domestically produced solar cells and modules.

India had defended the domestic content requirements by pointing to its
international obligations. India invoked the United Nations Framework
Convention on Climate Change (UNFCCC) as part of its defence to continue with
the domestic content requirements.

India had argued that it had an “obligation to take steps to achieve energy security,
mitigate climate change, and achieve sustainable development, and that this
includes steps to ensure the adequate supply of clean electricity, generated from
solar power, at reasonable prices.”

India argued that by producing solar energy, the dependence on oil and coal will
be reduced. India maintained that it was “necessary to ensure that there is an
adequate reserve of domestic manufacturing capacity for solar cells and modules
in case there is a disruption in supply of foreign cells and modules.”

But the panel chose to give precedence to the WTO rules over international
obligations on climate change.

Indeed, the WTO rules on TRIMs which were framed during the previous
Uruguay Round negotiations have clearly crushed attempts to build domestic
industries in countries where industrialization lagged behind, according to several
legal analysts.

At a time when the world is increasingly facing the alarming effects of climate
change, which is already wreaking havoc in country after country, policies for
combating climate change are trumped by utter mercantile rules of the WTO,
according to analysts.

Against this backdrop, India’s challenge before the Appellate Body against the
solar panel ruling is a litmus test whether trade rules negotiated by the US, the
EU, and other developed countries in the previous Uruguay Round will continue
to undermine global efforts to face climate change.

It also remains to be seen whether India will take the second logical step of
launching a trade dispute against the United States which provides subsidies
worth billions of dollars and implements stringent domestic content requirements
in several states for promoting renewable energy, as have been recently hinted by
New Delhi.

In a subtle warning on April 19, to head-off India filing disputes, the US Trade
Representative spokesperson told PV Tech that “tit-for-tat WTO filings will not
help our [the US-India] shared efforts to deepen our bilateral economic ties nor
are they a responsible use of WTO resources.”

But tit-for-tat trade disputes are at the heart of the mercantile trading regime
which operates on the logic that “you lower your barriers in turn for me lowering
mine”, according to Dani Rodrik, a trade academic at Princeton University.

It is a travesty of justice that the US can claim a right to continue to provide
billions of dollars of green subsidies and pursue domestic content requirements to
promote its own industries and enterprises, but other WTO members must not
pursue the same measures in their efforts to switch to renewable energy industries
based on domestic manufacturing facilities, said a developing country negotiator
familiar with the dispute.

India’s energy minister Piyush Goyal is reported to have said, “I will soon come
out with a policy to further encourage manufacturing in India” and “in fact, I am
going to file 16 cases of their [the US] violations of WTO rules.”

Aside from the disputes, India and other developing countries also face a major
challenge in the Paris climate negotiations to ensure unrestricted access to
technology-transfer without onerous intellectual property commitments.

Powerful American lobbies already mounted their efforts to ensure that their
“effective inter-agency approach” under the leadership of the US State
Department to “secure a final UNFCCC (UN Framework Convention on Climate
Change) text that does not mention IP (intellectual property) and thus removes
uncertainty that could have discouraged investments by the US companies in
clean technology.”

Under the pretext of safeguarding innovation and “maintaining the ability of US
innovators to develop and disseminate solutions to society’s great challenges,” the
US wants to bring about the most burdensome and onerous intellectual property
commitments to be shouldered by the developing countries.

The US lobbies have maintained and promoting a lobbying campaign in their
country that “significant challenges to IP still remain in the Paris Agreement’s
implementation and subsequent negotiations – especially those related to the
technology development and transfer chapter.”

In a nutshell, the solar trade disputes as well as the Paris climate change
negotiations will test the resolve of developing countries in securing policy space
for pursuing industries aimed at generating clean energy to replace the
fossil-fuel-dominated industries, according to negotiators.

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