Adding another irritant to India-US ties already strained over the Khobragade affair, the US has challenged India's domestic content requirements in Phase II of India's National Solar Mission (NSM)in the World Trade Organization (WTO).
Calling India's domestic content requirements as "discriminatory", US Trade Representative (USTR), Michael Froman told reporters on Monday that it had sought WTO dispute settlement consultations with India on the issue for the second time in a year.
"These domestic content requirements discriminate against US exports byrequiring solar power developers to use Indian-manufactured equipment instead of US equipment," he said.
"These unfair requirements are against WTO rules, and we are standing up today for the rights of American workers and businesses," Froman said suggesting the US action was also "in support of the rapid global deployment of renewable energy."
"These types of 'localisation' measures not only are an unfair barrier to US exports, but also raise the cost of solar energy, hindering deployment of solar energy around the world, including in India," he said.
Under WTO rules, if the matter is not resolved through consultations within 60 days of the request, the US may ask the WTO to establish a dispute settlement panel, USTR said.
In February 2013 too, the US had requested WTO consultations with India with respect to these domestic content requirements, but these failed to resolve US concerns.
Even as he announced the "trade enforcement action" against India, Froman suggested that it in no way undermined its "strong and growing trade and investment relationship with India" and both sides "remain committed to seeing that it achieves its full potential."
"When President Obama went to India in 2010, he noted that the US-India relationship was one of a strategic partnership - and in fact, a defining partnership of the 21st century," he recalled.
"An important part of any maturing trade relationship is effectively addressing the range of issues on our trade and investment agenda, including in areas where we might disagree," Froman said.
"Today's action addresses a specific issue of concern and in no way detracts from the importance we attach to this relationship," he said.
"As the world knows, the United States is resolute in making sure that any and all of our trading partners play by the rules, and enforcing our rights when they don't," Froman added.
In October 2013, India's cabinet approved measures governing the implementation of Phase II of the NSM.
For solar projects under Phase II, India is again imposing domestic content requirements, under which solar power developers must use Indian-manufactured solar cells and modules instead of US or other imported equipment, USTR said.
Moreover, the Phase II domestic content requirements have been expanded to cover thin film technology, which was exempt from such requirements under Phase I, it said.
As thin film currently comprises the majority of US solar product exports to India, these domestic content requirements are likely to cause even greater harm to US producers than under Phase I, USTR said.
The announcement came ahead of the US International Trade Commission's scheduled hearings Wednesday and Thursday in connection with its investigation on "Trade, Investment, and Industrial Policies in India: Effects on the US Economy."
The USITC is conducting the investigation at the request of the Senate Committee on Finance and the House Committee on Ways and Means.
The Commission will deliver its report to the Committees by Nov 30, 2014.
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