WTO: Trade Trumps a Sustainable World

In a stunning verdict, the WTO ruled against India’s solar program that has a domestic content clause. This puts at danger India’s 100,000 MW -- or 100 Giga Watt (GW) – solar program, a critical component of its pledge in Paris on Climate Change. If India has to meet its Paris commitments, WTO has ruled that it must now allow India’s tax payers money to also profit the US companies. According to WTO and the US, trade must trump a sustainable future for the world.

While the US had hauled India to the WTO for supporting local content, half the states in the US have similar provisions in their renewable programs.

In a case filed by the United States against India, the World Trade Organisation (WTO) has ruled that the domestic content requirement (DCR) in India’s Jawaharlal Nehru National Solar Mission (JNNSM), violate trade rules. This means that India cannot be protect its local equipment manufacturer. It will be forced to use the solar modules dumped on it by the US companies, which in turn have been subsidized by the US. Given that a large number of the states in the US also have subsidy programs for solar energy with local content guidelines, this case exposes the double standards of both, the US and the WTO.

Forbes calls this ‘a lovely little example of why trade rules are as they are’. While the intended meaning is very different, the statement nevertheless captures the essence of WTO of trade rules: protect the rich at the cost of the poor. Except this time, WTO has also dealt a blow for global warming.

Before going into the details of the WTO judgment, it is necessary to understand the global context within which solar energy deployment is planned in India. The global climate consensus has travelled a considerable distance from the Kyoto Protocol in 1997 to the Paris Agreement in 2015. At Kyoto, the world (without the US), had agreed to a climate deal that required mitigation action -- meaning reduction of carbon emissions -- only by the developed nations. The Kyoto protocols acknowledged both the responsibility of the rich nations in causing climate change as well a higher capability to mitigate it. Almost two decades later, the agreement signed at the 21st Conference of Parties -- COP 21 -- in Paris, absolves the developed countries of all historical responsibility, calling upon even the poorest countries to contribute to climate change mitigation.

After Paris, the shift in Climate Change mitigation is that while the rich nations may have caused the problem, all the countries have to solve it together. The Paris Agreement includes the United States and indeed, the cost of this inclusion has been severe, especially for the less-developed countries. They have to now contribute to climate change mitigation in one form or the other without any guarantee of a commensurate financial support from the developed countries. Fast growing economies such as India, face an even greater pressure to reduce emissions.

It is presumably under this pressure that India has announced ambitious renewable energy targets – 175 GW by 2022 of which the largest component of 100 GW is to come from solar energy projects. The ambitious plan of installing 100 GW of solar power by 2022, revised upward from an initial target of 20 GW, reflects the growing optimism about solar power in India and its ability to provide energy services at costs that are significantly lower than what was earlier thought possible. However, despite the promise of reducing energy costs, there is still a gap between the unit cost of power produced from solar panels and that produced from other sources of energy, as well the cost that Indian consumers can currently afford to pay. The cost of solar powered electricity is still about two to three times higher than fossil fuel based electricity generation. If the burden of this higher costs are not to be carried out by the Indian consumers alone, the diffusion of solar technologies in the existing energy system requires government support.

The Government of India has sought to address this through providing higher feed-in tariffs for solar power and viability gap funding for solar projects. The obligation of adding solar power plants therefore increases the burden on government expenditure that has to cater to multiple developmental demands. Nevertheless, the JNNSM is a necessary component of India’s contribution to climate change mitigation and therefore India, like other less-developed countries, has to find ways to make the best of a bad situation. The domestic content requirement of the JNNSM is an attempt to do just this.

The DCR is basically meant to encourage the local manufacture of solar equipment, by mandating that a certain amount of installed solar capacity in each phase of the JNNSM is built using modules and cells manufactured within the country. So less-developed countries with high levels of unemployment and low access to modern energy services, through such measures, can provide opportunities to domestic entrepreneurs and boost employment even while contributing to global sustainability.

While the above policy seems like a perfectly logical way to achieve both goals -- of sustainability and development -- the US Government and WTO say otherwise. According to the judgment, any support and encouragement to local manufacturers violates trade rules. So India will have to let its domestic manufactures compete “freely” with foreign manufacturers who may or may not be subsidized and protected in their respective countries. The result may be that most of India’s future solar energy plants will use modules and cells manufactured by foreign companies. So, not only does India reduce emissions through installing 100 GW of solar energy, it also has to pay the developed countries for this “favour”.

This also brings out India’s weak positions in the recent WTO Ministerial. Apart from failures such as in agriculture, the other key failure is now apparent. India should have taken up a position that any commitments such as domestic content should be kept out of Trade Disputes in WTO. Meeting Paris commitments should trump trade rules. This would have rallied all the developing countries behind it. But for the current government, who are seeking to cosy up to the US on all fora, this was not on the cards.

India now needs to go back to Climate Change negotiations and WTO with proposals that saving the world is far more important than so-called trade rules that are heavily skewed in favour of the rich countries.

There has been a tendency among environmentalists, both in India and abroad, to suggest that domestic climate action in India need not depend on climate action or the lack of it in developed countries. The Government has been exhorted to pursue an aggressive green agenda as it would have other collateral benefits. The WTO judgment flies in the face of this understanding and serves as an important reminder of what it means to achieve sustainable development under neoliberalism. The problem is not just global warming, but global warming in the era of neoliberalism. Fighting neoliberalism therefore is a prerequisite to finding an equitable solution to global warming.

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