Chinese to benefit from US-India showdown over solar panels at WTO

Column: Rather than litigating, the United States should collaborate with domestic partners in international markets.

By Krishnakumar S.

In the recent verdict on solar panels, the WTO Appellate Authority ruled that India’s domestic content requirements discriminated against US solar cells and modules by requiring solar power developers to use Indian-manufactured cells and modules. It concurred with the US contention that the principle of national treatment has been violated.

This is the second enforcement case which has been won by the United States in recent years against India, the first being the one against a ban on poultry imports from United States in the context of the avian flu.

Hailing the verdict, Michael Froman, the US Trade Representative, claimed that the verdict against India has come to the rescue of the producers and workers in the renewable energy sector in United States. It has come at such an opportune moment when President Obama has inked the Trade Facilitation and Trade Enforcement Act of 2015, he remarked.

With an unusual sense of self-aggrandizement, he said that ever since the beginning of the Obama presidency in 2009, there has been 23 cases of enforcement that  have been filed by United States at the WTO, 14 of which were against China and three against India. All of the judgments to date have been in favor of the United States.

Indeed the number of cases filed is a record of sorts for any country. The United States seems to be in its aggressive best, not just in clinching deals towards trade liberalization and stitching up mega-regional free trade agreements (FTAs), but going to the tilt, to get them enforced. Are these responses reflective of the growing disillusionment of a waning power?

The context of the case goes like this: The Jawaharlal Nehru National Solar Mission was set up by the previous United Democratic Front government in India, with a defined target. In the backdrop of the commitments towards reduction in carbon emissions as part of UNFCC, the target was increased to 100 GW by the current government.

In 2013, along with the “Make in India” strategy of the government, certain concessions relating to purchase of power for 25 years was extended to firms that would meet some obligations under local content requirements.

While filing file the case against India at WTO, the United States argued that this local content requirements was solely responsible for the steady decline of imports of solar panels from the US by around 90 percent.

Nothing could be farther from truth. It was during this very phase that India was being inundated with solar panels from China. Indeed India became the second largest importer of solar panels and photo-voltaic cells from China.

A cursory glance through the IHS list of the top ten solar companies in the world in 2015 would reveal that East Asia has emerged as the major solar manufacturing hub of the world, with many Chinese firms like Trina Solar, Jinko Solar and Yingli Green Energy figuring in the list. Six of the largest firms in the business of solar energy are headquartered in China or Taiwan. Only two from US make it to the list.

The competitiveness that the United States used to boast of in the market for solar panels and photo-voltaic cells is fast vanishing. Many of these Chinese firms have made innovations in the field of renewable energy and have patents to their credit. Innovation, along with low cost of labor, has catapulted Chinese firms to a state of invincibility in the global market of photo-voltaic cells.

No wonder that there have been cases lodged against Chinese firms, both by the US and the European Union, alleging anti-competitive practices. The European Union has brought a restrictive trade legislation forcing the Chinese manufacturers to import solar panels only at a Minimum Import Price, failing which it would subject them to anti-dumping or countervailing duties.

Indeed, ŧhe Ministry of Commerce in China has been deftly protesting this move. Arguing that it would be losing its market share in EU, Jinko Solar has now refused to import to European Union at this price, and would be subjected to the countervailing duties. The world is refusing to take cognizance of the competitive advantage harnessed through economies of scale by these Chinese firms, over these years.

Rather than cry wolf, given the changing dynamics of the market for renewable energy, it would be best if the United States tries to go in for collaborative exploration of these markets with domestic partners. It should not resort to legal moves against nations such as India and China, which is a cost-effective producer. Bridges of co-operation ought to be  built in the renewable energy space.

In India, in its initial move, the Japanese multinational Soft Bank, under Masayoshi Son, has allied with Bharti Enterprises and Foxconn Intl to land a 350 MW solar project in Andhra Pradesh, out-bidding even some Chinese energy majors. Their bid was for 4.62 INRs per unit. Soft Bank is exploring options of investing up to $20 billion toward setting up production facilities in India to tap at least 20 percent of the projected solar power target of the Government of India. It is impossible to achieve the projected solar energy targets in India of 100 GW by 2022, unless investment to the tune of $100 billion is forthcoming, for which  enhanced international credit and  direct investment is required.

In a tit-for- tat, India too has lodged a complaint against the policies of local content requirements pursued by US states such as Montana, Washington, Delaware, California, Massachusetts, Connecticut, Minnesota and Michigan. Now the WTO body will rule in the Indian case against the US.

All said, it would be the Chinese players who will be having the last laugh, getting a verdict that is, in all likelihood, would favor them in a litigation paid for by Indian taxpayers.

It is indeed paradoxical that the protagonists of “Made in America” are going all out on the proponents of “Make in India” to such an extent, that law and legalities apart, the shrinking policy space in the developing world is becoming an increasing matter of concern, even when it is trying to address the planetary issues like reduction of carbon emissions.

(Krishnakumar S. teaches economics at Sri Venkateswara College, University of Delhi. He is a columnist for The American Bazaar.)

More from Krishnakumar S.:

With Brexit, is it going to be a season of referendums in Europe? (June 24, 2016)

Raghuram Rajan’s exit provides more fodder to the volatile financial markets (June 20, 2016)

Will writings based on Gods and Goddesses continue in India? (October 21, 2015)

Yanis Varoufakis is Keynes of our generation (July 7, 2015)

Will Modi’s plan to channelize gold holdings from temples to banking system succeed? (May 8, 2015)

All eyes on Yellen, as global markets brace for reversal in US monetary policy (March 21, 2015)

Asian Infrastructure Investment Bank – Are the Bretton Wood twins being dislodged? (March 17, 2015)

Are the political duopolists in New Delhi colluding? (December 19, 2012)

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