TWN Info Service on WTO and Trade Issues (Jun16/14)
23 June 2016
Third World Network

US for "sustainable procurement policies" by others
Published in SUNS #8264 dated 17 June 2016

Geneva, 16 Jun (D. Ravi Kanth) - Despite an aggressive pursuit of subsidy and local content policies in its own renewable energy programs at the federal and sub-federal levels, the United States has called for implementing "sustainable procurement policies" that are consistent with "international trade obligations" in the World Trade Organization rulebook.

The US proposal on "sustainable procurement policies" has exposed the continued "double-standards" and "hypocrisy" on the part of the world's second largest polluter, according to trade diplomats familiar with the development.

On Monday (13 June), the US submitted a two-page proposal to the WTO's committee on the plurilateral agreement on government procurement.

The proposal has underscored the need for fostering a clean energy economy to accomplish several objectives such as reducing energy-use from direct and indirect activities, conserving and protecting water resources, eliminating waste and pollution, leveraging acquisitions to foster markets for sustainable technologies and environmentally preferable materials and so on.

To achieve these objectives, the US has spelled out four major requirements for members to follow at the WTO so as to ensure that sustainable procurement policies are consistent with international trade obligations.

The requirements include:

(i) Ensuring that imported products are not treated less favourably than like domestic products or imported products from other countries;

(ii) Taking into consideration international standards - and basing national standards upon them if appropriate;

(iii) Developing standards based on performance criteria rather than design criteria when appropriate;

(iv) Ensuring foreign suppliers have access to conformity assessment procedures on the same basis as other domestic and foreign suppliers of like products.

In effect, the US is suggesting that "international standards" and standards-based criteria of international trade obligations shall take precedence over rules that are currently being negotiated as part of the Paris climate change agreement.

The US-advocated sustainable energy policies will require countries to jettison their indigenous renewable energy initiatives and implement a "mercantilist" trade policy framework regardless of the disparities in the levels of development.

The US proposal has come at a time when India has challenged in appeal a WTO panel ruling that overly struck down the domestic content requirements adopted by India for promoting solar cells and solar modules for producing renewable energy.

The panel's ruling put paid to a WTO member's efforts to develop local industries for solar cells and solar modules on account of its international obligations on climate change.

India had justified its local content measures by invoking the United Nations Framework Convention on Climate Change (UNFCCC) under the exceptions provided in GATT Art. XX (d).

Significantly, New Delhi has also cited its solar content requirements by taking 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.

But the panel struck down India's policies for promoting solar energy on the ground that they violated India's national treatment obligations.

It dismissed India's claims on the ground that they violated the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Trade-Related Investment Measures (TRIMs).

Against this backdrop, the US proposal on sustainable procurement policies has almost coincided with the ongoing India-US solar spat at the WTO's Appellate Body.

The AB is yet to give a ruling whether the panel erred in its interpretation of the specific "government procurement carve-out" as argued by India in its complaint.

Prior to the India-US dispute, the WTO's AB had upheld claims raised by the European Union and Japan against Canada over the allegedly trade-distorting incentives and preferential pricing-arrangements offered by two of Canada's provinces using domestic content for renewable power generation.

As for the US proposal on sustainable procurement policies, it is common knowledge that Washington has continued to pursue its own subsidy and local content requirement programs at federal and sub-federal levels.

For example, in a submission made before the committee on subsidies and countervailing measures on 18 April 2013 (G/SCM/Q2/USA/59), India had asked the US many questions on its subsidy programs to promote renewable energy.

India had said that it "is concerned that some of these subsidy schemes have provisions relating to local or domestic content requirements which raises issues of consistency with Article 3.2 read with Article 3.1 (b) of the ASCM. There are issues of consistency with TRIMs Agreement read with relevant provisions of GATT 1994 as well."

The five-page Indian questionnaire on the US' subsidies and local content requirements include "specific renewable energy sector subsidy programs of the four States in the United States, namely the States of Delaware, Minnesota, Massachusetts and Connecticut."

Consider the "Delaware: Solar Renewable Energy Credits" which says that "a Retail Electricity Supplier or a Rural Electric Cooperative shall receive an additional 10% credit toward meeting the RPS for solar or wind energy installations sited in Delaware, provided that a minimum of 50% of the cost of the renewable energy equipment, inclusive of mounting components, relates to Delaware manufactured equipment."

The US was asked to explain about the local content requirement in the Delaware program and clarify "as to how this provision is not in violation of Article 3.2 read with Article 3.1 (b) of the ASCM."

India had also grilled the US on "Minnesota: Xcel Energy - Solar Rewards Program and MN Made PV Rebate Program" which enables customers "to access the Minnesota Bonus PV Solar Rebate Program."

The Minnesota program states that "to qualify for the Minnesota Bonus incentive program, an applicant must: ... Install qualified "Minnesota Bonus" PV modules as defined by state statute."

Similar programs such as "Massachusetts: Commonwealth Solar II Photovoltaic Rebate Program" and "Connecticut: The Residential Solar Investment Program" were also pursued along with various federal initiatives.

The US until now has not provided substantive answers to these queries.

So far, the US renewable energy programs based on subsidies and local content requirements have not been challenged.

Although the Indian energy minister P. Goyal had hinted that New Delhi will take the US to task on its trade- distorting renewable energy programs, India has not raised any dispute against the US.

In his recent visit to the US, the Indian Prime Minister Narendra Modi had entered into an agreement with President Barack Obama on solar energy.

The US has agreed to participate in the global solar initiative launched by India at the Paris meeting last December.

But it is not clear whether such cooperation with the US will be helpful for developing countries which have to harmonize their renewable energy programs according to the rules set by the US, a trade diplomat said.