[Ayushi Kushwaha is pursuing LL.M. (Corporate) from WBNUJS Kolkata.]
The 2016 finding of the Appellate Body in the India Solar Cell case[1] is more than just what we make of it. While one may study it from the perspective of India’s interesting interpretation of Article III:8(b) of the GATT 1994, one may find out that the findings will have a major impact on the long-desired aim of reconciling environmentalism and free transnational trade.
The India Solar Cell case, as the name suggests, is about solar cells and modules. India imposed the Domestic Content Requirements (DCRs) on Solar Power Developers (SPDs), employing solar cells and modules, under its ambitious National Solar Mission launched in 2010. These DCRs were implemented in three phases, with the first phase restricting the stipulation to c-Si technology-based solar cells and modules but eventually extending the same to other technology-based cells and modules, namely thin-film and concentrator cells. The United States challenged these measures on the ground that they are Trade-related Investment Measures (TRIMs) which are found to be violative of Article III:4 of the GATT 1994 under Article 2.1 and the Annex of the TRIMs Agreement. However, India argued that there was no such violation and, in any case, its measures fell within the purview of the exception under Article III:8(a) of the GATT 1994 which essentially exempts such laws, regulations and requirements which govern product procurement for governmental purposes carried out by governmental agencies for non-commercial sale or use.[2]
Both the Panel and the Appellate Body thwarted India’s attempt to stretch out the interpretation of ‘procurement’ beyond ‘direct acquisition’ of goods, as India had argued that solar cells and modules perform only the ‘fundamental’ function of generating electricity from solar energy, and since it purchased electricity produced from these cells and modules, it was ‘effectively’ procuring cells and modules.
The outcome is clear - the DCR measures violated TRIMs, and the products purchased - electricity produced from solar cells and modules - were distinct from solar cells and modules in question; Article III:8(a) was, therefore, inapplicable.
Aside from the legal background of the case, the contextual reference of the tussle between India and the US must be emphasized. In essence, it is all climate change. The 2015 Paris Agreement was historic in many ways because it tried to bring all countries on board to fight the dangers of climatic change; however, the operation of this agreement is only possible through phased and regulated reduction in the reliance on fossil fuels which are major contributors to global warming. Unfortunately, the available data shows that fossil fuel consumption does not seem to dwindle any time soon.
REN21, an international network working on renewable energy, released the Renewables 2016 Global Status Report that highlighted the staggering increase in the consumption of fossil fuels in 2015. While the overall global consumption had reduced by 1 per cent, the consumption of natural gas and petroleum reached newer heights with the net increase in global fossil fuel consumption equivalent to approximately 127 million metric tons of petroleum.
Moreover, the louder the protests get against complete replacement of fossil fuels from energy sector, the farther we go from ground realities. It is due to the undeniable fact that fossil fuel generation and utilization of technologies and infrastructure are well-developed and attract high investments as against renewable energy and related technologies where capital costs are high and investments are less. Also, the transition period will entail more than just a ‘mechanical’ replacement of non-renewable with renewable sources of energy.
To meet a country’s energy security needs, there is a need to bring in investments, pool in huge capital, and very importantly, employ advanced technologies which, presently, only the most developed nations possess. It is these developed nations which are in a position to generate qualitative energy out of renewable energy sources. Hence, these nations aim to use these technologies not only for their own transition process but also for commercial purposes.
On the other side of the picture, we have developing countries which have Herculean energy security demands due to burgeoning population, poor administrative infrastructure, and, of course, underdeveloped technologies and related infrastructure. Naturally, they end up relying on developed countries and their technologies. In the course of time, however, the emphasis is made to strengthen local manufacturing units, and that is when many countries tend to employ DCRs.
On assessing the background of the dispute, it is evident that environmentalists will be sympathetic towards India, as the decision, in many ways, hurts the operation of the National Solar Mission. However, what many of these environmentalists miss out on is the fact that the dispute resolution bodies did not intend to thwart India’s attempt to strengthen its effort in developing ecological and sustainable modes of meeting energy demands and combating climate change. They were opposed to the protectionist methods employed and heralded as the only way these challenges could be faced.
In this case, India argued that DCRs were aimed at strengthening local manufacturing capacities and meeting its energy security demands. However, and as is generally known, India lacks the requisite potential to generate qualitative clean energy. That is, it is one thing to produce energy and another thing to produce qualitative energy. Instead of relying on DCRs which are understood to distort trade and undermine qualitative production, India could have resorted to other trade-friendly methods which are equally or/and more effective than DCRs such as tax rebates, flexible corporate infrastructure to incentivise energy development companies to set up businesses in India, or transfer of technology agreements.
The whole fight against climate change is challenging and will inevitably require countries to gradually switch to renewable sources of energy. However, in the course of this fight, international trade cannot be allowed to be unnecessarily impeded under the guise of environmental protection. A balanced approach towards environmental protection is feasible only when we are open to looking at better and qualitative alternatives, which India surely failed to see. Its mission is notable, but its modus operandi needs a major overhaul.
[1] India – Certain Measures Relating To Solar Cells And Solar Modules—Report of the Appellate Body (16 September 2016) WT/DS456/AB/R.
[2] The General Agreement on Tariffs and Trade (14 April 1994) Art. III:8(a)<http://docsonline.wto.org/>.