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US concerned over domestic content requirements in India's solar sector

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The United States is using every available forum to protest against the domestic content requirements in India’s that prevent the import of foreign-made solar panels.

A US trade official who asked not to be named told Business Standard that the United States Trade Representative’s office has recently submitted comments to the government of India expressing its concerns about the “trade-restrictive domestic content mandates”.

The comments were submitted at the end of June 2011 in response to a request by India’s Ministry of New and Renewable Energy for input from the public on guidelines that would apply to projects under Phase 1, Batch 2 of the National Solar Mission.

The official said these comments highlighted, among other things, the importance of meeting the objectives of the without recourse to trade-restrictive measures such as domestic content requirements.

The US has repeatedly complained that the domestic content requirements under India’s National Solar Mission hurt manufacturers in the United States as well as American investors developing solar projects in India. “They explicitly shut out foreign products, including high quality US solar equipment, from commercial opportunities in India’s solar market, and interfere with the commercial decisions of solar developers,” the trade official said.

While the longstanding US complaint could be among the various economic and trade issues that will be discussed at the Strategic Dialogue in New Delhi, the issue is also before the Indo-US Trade Policy Forum, the primary bilateral mechanism for addressing trade and investment issues between the two countries.

India has set an ambitious target of generating 20,000 Mw of solar power by 2022. The US is especially keen to grab a major share of this market, given the US President Barack Obama’s aim of doubling US exports by 2015, as well as his promise during the 2008 presidential election campaign to create five million “green collar” or clean energy sector jobs for US workers.

US officials had complained about the local content requirements before as well as during Obama’s visit to India last November. This was reiterated by the US Commerce Secretary Gary Locke during his visit to India earlier this year.

Despite such issues, however, the US and India are encouraged by the robust growth in bilateral trade – a record $48.75 billion last year. During last month’s meeting between Commerce Minister Anand Sharma and US Trade Representative Ron Kirk in Washington, DC, the two countries discussed negotiations on a Bilateral Investment Treaty. Kirk told Sharma the US was interested in re-starting technical level discussions to advance talks on the BIT.

Speaking to Business Standard, a senior US trade official said this would be a “high standard” investment treaty, and would provide investors from both countries significant protections in each other’s markets and facilitate the growth of bilateral FDI flows.

The US Chamber of Commerce has pointed out that the US lags its trade competitors in the race to open foreign markets through BITs, and that while countries like Germany, the UK, France and China each have BITs with over 100 countries, the US has signed BITs with just 40. Moreover, the Obama administration is currently in the process of reviewing its model treaty before it can launch negotiations.

Economics, Trade and Agriculture have been designated one of the five “pillars” of the Indo-US Strategic Dialogue. Even as the US pushes for greater access to India’s fast growing market, the Obama administration is trying to push the UPA government’s buttons on this issue by referring to the coalition’s agenda of “inclusive growth”. As the US trade official put it, “We…welcome the recognition by Indian officials at the Center and in several States that unjustified barriers to trade and investment, in these areas as well as others, do not advance India’s objective of inclusive economic growth.”

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