In a
recent move, United States has sought to initiate World Trade Organisation
(“WTO”) dispute
settlement consultations with India concerning ‘domestic content requirement’ (“DCR”) in Phase-II of India’s
national solar mission. This is the second time when US has initiated WTO action
against India’s Jawaharlal Nehru National Solar Mission – the first
action was brought in February 2013 against similar DCR in Phase-I of Jawaharlal
Nehru National Solar Mission (“JNNSM”).
In a
statement
issued by the Office of United States
Trade Representative (“USTR”), it has been contended that DCR under JNNSM is
against the obligations contemplated under General Agreement
on Trade and Tariffs, 1994 (“GATT”), Agreement on Trade Related Investment
Measures (“TRIMs”) and Agreement on Subsidies and Countervailing
Measures (“SCM”). Under WTO dispute
settlement mechanism, consultation is the initial step which a member state can resorts to.
In
this blog post, I have explained what DCR or domestic/local content
requirements are, relevant description of JNNSM and relevant WTO provisions concerning
the present case.
What is ‘Domestic’ or
‘Local’ Content Requirement?
‘Local
Content Requirement’ can
be understood as a regulation that requires a specified fraction of a final good, work or service to be sourced
domestically. Article 7.2 of EU-Singapore
Free Trade Agreement defines the phrase as a requirement for an enterprise
to purchase or use goods of domestic origin. In other words, where a state
imposes an obligation to have ‘local content’ in product or service, producers
(both domestic and international) would mandatorily be required to source
specified quantity of local content.
However,
in
a statement published by USTR, local content requirement or DCR has been
described as the obligation to produce content
locally. It has been described in the following terms:
“ ........require
businesses to produce a certain level of content (materials, parts, etc.)
within the country where the end product will be sold.”
The
above description, as provided by USTR, has been doubted in a blog post. For the purpose of present dispute, DCR should be understood as a
condition which requires developers to use specified quantity of domestically
manufactured content.
Though
the objective of DCR may vary, it is generally accepted that DCR measures seek
to encourage domestic industry and further seek to increase employment. In fields
such as solar energy, initial governmental support is required for the
existence of firms and development of proper infrastructure. Usually, the government
support is also required for the innovation at domestic level. Equally forceful
arguments are available against the usage of measures such as DCR – one of
them being that DCR increases the cost of solar energy.
The
usage of DCR measures vary from country to country depending on factors such as
but not limited to technology, infrastructure, financial stability etc.
