WTO Appellate Body Rules Against India's Domestic Content Requirements For Solar Products

Author:Mr Duane Layton and Matthew McConkey
Profession:Mayer Brown
 
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On September 16, 2016, the WTO's Appellate Body released its report in India - Certain Measures Relating to Solar Cells and Solar Modules. The dispute concerned a complaint by the United States against certain domestic content requirements ("DCRs") imposed by India on solar power developers ("SPDs") selling electricity to governmental authorities. The DCR measures required that certain types of solar cells and modules used by SPDs be made in India.

This appeal stemmed from a February 24, 2016, WTO panel decision that struck down the DCRs. India appealed the panel's findings to the Appellate Body but, as detailed below, was unsuccessful. The WTO's Appellate Body continued to find India's DCRs to be WTO inconsistent.

In defense of the DCRs, India made the argument that they were permitted by the derogation under Article III:8(a) of the GATT 1994 (which basically permits DCRs if the items purchased are to be used by a government itself). The panel disagreed. In its examination of the issue, the Appellate Body considered that, to be allowed under Article III:8(a), the product purchased by way of procurement must necessarily be "like," "directly competitive" with or "substitutable" for (i.e., in a "competitive relationship" with) the foreign product subject to discrimination. Although a consideration of inputs and processes of production may inform the question of whether the product purchased was in a competitive relationship with the product being discriminated against, it did not displace the competitive relationship standard. The question of whether the defense of Article III:8(a) may also extend to discrimination relating to inputs and processes of production used in respect of products purchased arises only after the product purchased has been found to be in a competitive relationship with the product subject to discrimination.

Thus, the Appellate Body upheld the panel's finding that the DCR measures were not covered by the derogation under Article III:8(a) of the GATT 1994 and that, therefore, the DCR measures were inconsistent with Article 2.1 of the Agreement on Trade-Related Investment Measures ("TRIMs Agreement") and Article III:4 of the GATT 1994.

In defense of its DCRs, India also made the argument that they were permitted under Article XX(j) of the GATT 1994 (which basically permits DCRs if the items are in "short supply"). Again, the panel disagreed. In its examination of the issue, the Appellate Body stated that in assessing...

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