World Trade Organization - General Agreement on Tariffs and Trade - national treatment -general exceptions - renewable energy - international environmental law.

Author:Stewart, David P.


World Trade Organization Appellate Body, September 16, 2016 (adopted October 14, 2016).

In a proceeding that challenged the domestic content requirements (DCRs) of India's solar energy program, the Appellate Body of the World Trade Organization (WTO) upheld the panel determination that the Indian government's measures violated its international obligations. (1) The decision offers new insights into certain exceptions for environmental policies under the multilateral trading system and elaborates on the relevance of other international legal regimes to the compliance issue under WTO law. Further, it has the potential to increase export opportunities of many countries in the Indian renewable energy market.

Under the so-called "Jawaharlal Nehru National Solar Mission" (2010) aimed at boosting the country's grid-connected solar power capacity, the Indian government entered into longterm agreements with solar power developers to purchase "green" electricity at guaranteed rates, subject to the DCRs mandating the use of locally produced solar cells and solar modules (also known as "solar panels"). The United States challenged the Indian program on the grounds that the DCRs favored domestic solar products to the detriment of foreign competitors. In its defense, India invoked certain policy flexibilities under the General Agreement on Tariffs and Trade (GATT). (2) On February 24, 2016, a WTO panel determined that the measures at issue were inconsistent with the national treatment provisions of Article III:4 of the GATT, as well as Article 2.1 of the Agreement on Trade-Related Investment Measures. (3)

In sustaining the panel's decision, the Appellate Body concluded that India had failed to prove how three GATT provisions--Articles III:8(a), XX(j), and XX(d)--could justify its DCRs. The ruling offers new perspectives on these significant provisions and provides food for thought on certain procedural issues of systemic importance.

As to the first provision, GATT Article III:8(a) exempts government procurement (defined as "the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale") from the general national treatment obligation reflected in Article III. On the basis of the Appellate Body's earlier decision in Canada--Renewable Energy/Canada--Feed-in Tariff Program, (4) the panel found that this exemption did not cover the measure at issue since the Indian government was purchasing domestically produced solar power while discriminating against power-generating equipment of foreign origin (paras. 5.4, 5.11). On appeal, India countered that solar cells and modules are not distinguishable from solar power generation, and that the Appellate Body's decision in Canada--Renewable Energy/Canada--Feed-in Tariff Program allowed a more flexible interpretation of Article III:8(a) relating to "inputs and processes of production" used in the products procured by government (paras. 5.13, 5.19).

The Appellate Body disagreed, holding that the foreign product at issue must be "like," "directly competitive" with, or "substitutable" for--that is, in a "competitive relationship" with--the domestic "product purchased" (para. 5.22). The Appellate Body held further that the issue of whether Article III:8(a) extends to discrimination over inputs and production processes of the product purchased could be addressed only after the establishment of a competitive relationship between that product and the product subject to discrimination (para. 5.24). Since India did not present an argument to the panel that solar power and solar cells/modules were in such a relationship, and since it failed to prove, on appeal, why the panel misapplied the decision in Canada--Renewable Energy/Canada--Feed-in Tariff Program, the Appellate Body concluded that the government procurement derogation did not apply to the DCRs (paras. 5.25, 5.40-.41).

Regarding the second and third provisions at issue, Article XX permits some measures that protect certain societal values even though they otherwise violate the GATT. More specifically, paragraph (j) of Article XX allows measures "essential to the acquisition or distribution of products in general or local short supply" as long as they are "consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products" and are "discontinued as soon as the conditions giving rise to them have ceased to exist." Relying on this provision, India claimed that its low capacity to manufacture solar cells and modules pointed to the existence of a "general or local short supply" in the internal market, that the DCRs were aimed at reducing the risk of import dependence in that situation, and that it did not intend for the DCRs to be applied indefinitely (paras. 5.51-.52). In rejecting India's argument, the panel adopted a different approach, concluding that "products in general or local short supply" refers to a situation in which "the quantity of available supply of a product, from all sources, does not meet demand in a relevant geographical area or market" (para. 5.49).

Noting that this was the first case in which it had been called upon to interpret Article XX (j), the Appellate Body first sought to define the appropriate "legal standard," looking in particular to the "analytical framework" of Article XX(d) as a comparable context. Article XX(j) requires an assessment of the relationship between the challenged measure and "the acquisition or distribution" of products on the basis of the measure's design and its essentiality to such acquisition/distribution (paras. 5.58, 5.60). Given the similarity between the words "necessary" (in Article XX(d)) and "essential" (in Article XX(j)), the Appellate Body found that the process of "weighing and balancing" relevant factors required by Article XX(d) would be equally pertinent under Article XX(j). Accordingly, this process...

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