Info Service on WTO and Trade Issues (Oct16/18)
19 October 2016
Third World Network
DSB adopts rulings in US-India solar dispute
Published in SUNS #8335 dated 18 October 2016
Geneva, 17 Oct (Kanaga Raja) -- The Dispute Settlement Body (DSB)
of the World Trade Organisation (WTO) on 14 October adopted the Appellate
Body (AB) and panel reports in the dispute raised by the United States
against certain domestic content requirements imposed by India on
solar power developers who sell electricity to governmental agencies
under its Jawaharlal Nehru National Solar Mission (NSM).
In a ruling issued on 16 September, AB had upheld an earlier panel
ruling that domestic content requirements (DCR) imposed by India on
solar power developers who sell electricity to government agencies
under the NSM are inconsistent with its obligations under the WTO.
The AB had said having upheld the Panel's finding that India did not
demonstrate that the DCR measures are measures "to secure compliance
with laws or regulations which are not inconsistent with the provisions
of [the GATT 1994]", it did not consider it necessary further
to examine India's claims on appeal pertaining to the Panel's "limited
review and analysis" of whether the DCR measures are "necessary"
within the meaning of Article XX(d).
Nor did the AB consider it necessary to examine India's arguments
as they relate to the requirements of the chapeau of Article XX of
the GATT 1994.
The AB had recommended that the DSB request India to bring its measures,
found to be inconsistent with the TRIMs Agreement and the GATT 1994,
into conformity with its obligations under those Agreements (see SUNS
#8315 dated 20 September for details of the AB ruling).
[India has now filed a dispute against the United States in respect
of similar local content requirements, and preference and subsidy
on that basis, in respect of laws and regulations in eight US states;
and if India pursues the dispute to its logical conclusion, similar
rulings against the US can be expected to follow.]
In its statement at the DSB meeting on 14 October, the US emphasized
that it strongly supports India's effort to promote the generation
and use of solar power in India, and that it looks forward to a continued
partnership with India in the global fight against climate change.
However, the US was of the view that discriminatory policies in the
clean energy sector - such as India's domestic content requirements
- undermine efforts to promote the generation of clean energy by requiring
the use of more expensive and less efficient equipment.
The US drew attention to several key findings in the AB and panel
First, the Panel found - and the Appellate Body affirmed - that India's
domestic content requirements are inconsistent with India's national
treatment obligations under Article III: 4 of the GATT 1994 and Article
2.1 of the TRIMs Agreement.
The Panel and Appellate Body rejected India's argument that its domestic
content requirements can be justified under the government procurement
exemption of Article III: 8(a) of the GATT 1994.
This finding makes clear that Article III: 8(a) does not apply when
a Member purchases one product, but discriminates against another,
wholly different product, the US maintained.
Second, the Panel found, and the Appellate Body upheld, that India
had failed to establish that its domestic content requirements are
justified under Article XX(j) of the GATT 1994, which permits Members
to adopt WTO-inconsistent measures that are "essential to the
acquisition or distribution of products in general or local short
According to the US, the Panel and Appellate Body rejected India's
argument that solar cells and modules are in "short supply"
in India on account of India's lack of domestic manufacturing capacity
for solar cells and modules.
Rather, a product is in "short supply" under Article XX(j)
when the quantity of available supply of a product, from all sources,
does not meet demand in a relevant geographical area or market.
Third, the Panel found, and the Appellate Body upheld, that India
had failed to demonstrate that its DCR measures are justified under
Article XX(d) of the GATT 1994, which permits Members to adopt WTO-inconsistent
measures that are necessary to "secure compliance" with
"laws or regulations" that are not themselves WTO-inconsistent.
The Panel and Appellate Body found that - with the exception of a
single instrument - none of the domestic or international instruments
identified by India constituted "laws or regulations" with
which India must "secure compliance" within the meaning
of Article XX(d).
The Panel and Appellate Body also found that none of the domestic
instruments identified by India set out a legal obligation to promote
The US further said having upheld the Panel's findings under Article
III: 8(a), Article XX(j), and Article XX(d), the Appellate Body properly
did "not consider it necessary" to examine India's claims
under other legal elements under those provisions, as reaching those
issues was not necessary to resolve the dispute.
The US also noted that the report contains a separate opinion. "In
general, we consider it a positive step for the members of a Division
to explore and explain where they have not been able to come to one
view on a particular legal issue," said the US.
"In the case of this particular opinion, however, we do not see
how it relates to an issue raised in this appeal. Accordingly, it
would appear to be another example of obiter dicta, a problem to which
we have drawn the attention of the DSB in the recent past," the
"As we have also expressed in the past, particularly at a time
when workload issues are increasingly affecting the timetable for
the resolution of disputes, including appeals, a focus on those legal
issues necessary to resolve the dispute would enhance the efficient
functioning of the dispute settlement system."
According to trade officials, the European Union said that these were
within the rights of AB members, and that it did not share the concerns
raised by the US over the substance of this separate opinion.
In its statement at the DSB, India noted that the US challenge was
with regard to the domestic content requirements in certain schemes
of the National Solar Mission (Phase I, Batches 1 and 2, and Phase
II, Batch 1) that were undertaken by two government agencies.
India underlined that the dispute involved the scope of policy space
available to WTO Members for undertaking government procurement as
a derogation from the National Treatment Principle of GATT 1994.
The Appellate Body's ruling, confirming the Panel ruling, is that
in order for Article III: 8(a) of the GATT 1994 to apply, the foreign
product discriminated against must necessarily be in a competitive
relationship with the product purchased by way of procurement (paras
5.24 and 5.36, AB report).
In India's view, such a narrow reasoning of Article III: 8(a) would
mean that in order to be able to potentially justify discrimination
against imported solar cells and modules as ‘government procurement'
under Article III: 8(a), a WTO Member would need to necessarily purchase
those solar cells and modules, and not simply the electricity generated
from those products even when those cells and modules are exclusively
used for the electricity generated for supplies to the Government.
India said it is deeply disappointed that the Appellate Body chose
to simply reiterate its reasoning in Canada-Renewable Energy/Feed-in
Tariff dispute, without adequate consideration of the unique nature
and role of solar cells and modules in solar power generation.
It noted that during the Appellate Body proceedings, the Appellate
Body engaged with both the parties and other participants on various
scenarios, ranging from measures mandating use of domestically manufactured
ink in pens that are purchased by the government, to domestically
manufactured paper in notebooks purchased by the government as well
as to domestically manufactured cloth in army uniforms that are purchased
by the government.
However, with the Appellate Body's reiteration of the Panel's ruling,
it appears that there is effectively no room for the government procurement
exception under Article III: 8(a), unless there is purchase by the
government through procurement, of the very product that is discriminated
against despite the uniqueness of the product.
India also noted that neither the Panel nor the Appellate Body delved
beyond this threshold issue of ‘competitive relationship', and did
not decide on the remaining elements of Article III: 8(a), i. e. whether
the procurement was for government purposes and not with a view to
However, India said that it would like to highlight that the Panel
noted that it is undisputed that the government agencies (NVVN and
SECI) administer schemes that are designed to enable the sale of electricity
at reduced cost to downstream intermediaries and final consumers.
India made some general observations on the Panel and Appellate Body
findings in relation to the interpretation of Article XX(j) and Article
XX(d) of the GATT 1994.
Noting that Article XX(j) was interpreted for the very first time
in WTO jurisprudence, India acknowledged that each of the General
Exceptions under Article XX is meant to be used in clear and well-defined
circumstances, and by carefully weighing and balancing the trade restrictiveness
of a measure.
However, India said it is disappointed that the Appellate Body's interpretation
of the standards for applicability of Article XX(j) effectively confines
any meaningful use of this provision only for export restraints, and
not for import restraints.
The Appellate Body acknowledged the distinction pointed out by India
in the text of Article XX(j), as compared to Article XX(i) and Article
XI: 2(a), the text of both which specifically reference export restraints,
but concluded that these textual differences are not sufficient to
conclude the use of the provision for export or import restraints
The failure to specifically address the circumstances in which Article
XX(j) can be used as an effective and legitimate tool of import restraint,
will remain a significant limitation in any possible future use of
the Article XX(j) exception, said India.
India said it is disappointed that like the Panel, the Appellate Body
too did not deem it relevant to give meaning and effect to the terms
"general" and "local" as qualifiers to the term
"short supply" under Article XX(j).
Instead, the Appellate Body concluded that the relevant test for applicability
of Article XX(j) is whether the quantity of "available"
supply from both domestic and international sources in a relevant
geographical market is sufficient to meet the general or local "demand"
in the market.
The Panel's reasoning, as upheld by the Appellate Body, was that an
assessment of whether there is a situation of "products in general
or local short supply" should not focus exclusively on supply
that is "general" or "local", but on availability
of a product to meet the "general" or "local"
demand in a market (paras 5.69 and 5.71, AB report).
According to India, the Appellate Body appears to acknowledge that
lack of domestic production, especially in developing countries, may
increase their vulnerability to supply disruptions, as compared to
developed countries, and that such factors may be relevant in assessing
the availability of a product when assessing whether a product is
in "general or local short supply" (para 5.72).
However, the Appellate Body subsequently recalled the Panel's finding
that such vulnerability needs to be demonstrated through actual disruptions
in the supply of imported cells and modules (para 5.76, AB report).
This effectively means that any policy measure under Article XX(j)
can only be an after-thought, and not one that can prevent the rise
of situations of general or local short supply, India pointed out.
The other general exception invoked by India was Article XX(d).
It said that while prior jurisprudence on Article XX(d) exists, the
Appellate Body enunciated several tests that would be relevant for
a panel to consider.
But the enunciation of these principles, in India's view, is not without
On the one hand, the Appellate Body noted that it does not consider
that the scope of "laws or regulations" is limited to instruments
that are legally enforceable (including, e. g. before a court of law),
or that they need to be accompanied by penalties and sanctions to
be applied in situations of non-compliance (para 5.109, AB report).
However, said India, the Appellate Body also noted in the same paragraph
that a panel should consider the degree to which an instrument containing
the alleged rule is normative in nature, and that therefore it is
relevant "for a panel to examine whether a rule is legally enforceable,
as this may demonstrate the extent to which it sets out a rule of
conduct or course of action that is to be observed within the domestic
legal system of a Member. It also may be relevant for a panel to examine
whether the instrument provides for penalties or sanctions to be applied
in situations of non-compliance."
According to India, the Appellate Body, while laying down the six
criteria for assessing applicability of Article XX(d), specifies in
criteria (iii), the legal enforceability of a rule, for example, before
a court, in effect suggesting that non-binding soft law approaches
may not be sufficient for establishing a defence under Article XX(d)
(para 5.113, AB report).
In the final analysis, the Appellate Body has stated that India's
domestic content requirements (DCR) for solar cells and modules, as
they are designed currently, are not compatible with WTO norms.
But the report has not questioned the relevance of having domestic
manufacturing capacities for achieving India's policy objectives relating
to climate change, energy security and sustainable development.
"India is therefore making a close assessment of the WTO ruling,
and will ensure careful structuring of future measures in order to
achieve our policy objectives in a WTO compatible manner," it
India emphasised to the DSB a fact which it has been consistently
highlighting throughout the dispute proceedings, that India sees the
incentivization of imports of solar cells and modules and development
of domestic manufacturing capacities as two sides of the same coin;
both developments need to occur in parallel.
India said it is committed to achieving this in a manner that respects
rules of international trade.
India said that its continued incentives for import of solar cells
and modules, and the investment incentives for attracting foreign
direct investment in this sector are well-documented, and play a significant
role in India's solar industry.
Having ratified the Paris Climate Change Agreement, India has demonstrated
its manifest commitment for ensuring continued efforts to promote
"We look forward to the cooperation of all WTO Members to ensure
a sustainable way in which to achieve the targets that we all have
India said it is evaluating the reports of the Panel and the Appellate
Body carefully, and it is committed to frame future design of its
solar mission schemes relating to domestic content consistent with
the findings of the Panel and the Appellate Body.
Pursuant to Article 21.3 of the DSU, India said that it would within
the next 30 days, inform the DSB of its intentions with respect to
implementation of the recommendations and rulings that the DSB would
adopt at the present meeting.
In other actions, the item of "European Communities and Certain
Member States - Measures Affecting Trade in Large Civil Aircraft:
Recourse to Article 21.5 of the DSU by the United States" was
taken off the agenda of the DSB meeting on 14 October.
On 13 October, the EU filed an appeal of the compliance panel ruling
in this dispute. On 22 September, the compliance panel had ruled that
the EU and four of its Member States (France, Germany, Spain and the
United Kingdom) had failed to comply with an earlier ruling that had
called for an end to the illegal subsidies provided to the aircraft
manufacturer Airbus (see SUNS #8319 dated 26 September 2016 for details
of the panel ruling). +