United Nations Framework Convention on Climate Change has encouraged countries to establish “mandatory renewable energy targets” over the years, keeping sustainable development goal in mind.It acted as a catalyst for many countries to create sustainable renewable energy markets which will harness the economic and environmental potential of their respective states. One of the notable renewable energy sources is solar energy. Every country aspires to harness their solar power capacity to establish hegemon on International front. This competitive spirit has caused conflicts between countries over vital commodities like photovoltaic (PV) cell. It has aroused certain intellectual curiosity amongst people to know more about trade disputes in solar power. It can positively be substantiated by the graph below.
(Image Source: Google trends, 2018. Trade dispute, India, USA and PV cell)
The graph is based on data since the inception of the solar power trade dispute between US and India back to February 2013.  It narrates a weak positive co-relation about the interest in trade disputes between these two economies (India and USA) have generated interest globally. Hence, audience’s demand to know more about this topic is a rationale for supplying my solar power trade dispute insight.
Before moving forward, it is essential to understand the trade dispute plot in World Trade Organization. USA accused India of using locally-sourced PV cells in Jawaharlal Nehru Solar Power Mission for their solar panels installment. It has caused USA’s PV exports to India fell by 90% between 2011-13 as stated in USA’s complaint report. The questions I will try to find answers for are: "How valid is US's free-market argument against India's use of the locally sourced material in solar panels?" and "To what extent Indian government should continue implementing “Make in India” amidst of India-US trade dispute upcoming potential trade sanctions?"
The current global solar PV capacity is 303 GW and USA’s PV capacity is 10.5% greater than India’s PV capacity implying that American PV module’s quality is superior to Indian PV; so a neo-liberalist would deem DCR (Domestic content requirement) unfair because it is discriminatory to prevent superior quality PV cells to be recognized in the Indian market.
The graph describes the efficiency of Solar PV capacities around top 10 countries:
Figure 2: Solar PV Capacity in Top 10 Countries
Source: (Ren21, 2017)
Since the articles mentioned in USA’s complaint pertains to subsidies and breach of national treatment from India, so it leads to a question, i.e., "How valid is US's free-market argument against India's use of locally sourced material for solar panels?” Subsidies reduce PV cell suppliers’ average costs, so it provides the supplier to produce more products at lower prices. Lower prices maximize the consumer’s willingness to pay as well as solve the missing market issue where poor consumers, especially in rural, also benefit from renewable energy. It is also a win-win solution for all the states participating because the surplus can be used to export to other states thereby maintaining the foreign exchange reserves.
However, a subsidy is contentious because the surplus exported is often accused of ‘dumping’ which harms countries trade relations severely that impacts the country’s ‘legitimate’ image in the international political economy. Indian solar PV cell producers are facing financial problems due to steep fall in Chinese PV cell prices and supplying inferior Indian solar PV cell due to lack of investment in infrastructure thereby unable to attract supernormal profits suggests that subsidy isn’t enough for Indian solar PV to be competitive in long-run.
US accuses India of providing subsidies to domestic PV producer, but it also provides subsidies for its domestic PV producer as well; so, the question is why the US is evoking same articles which they themselves are violating? One possible answer is India is a major market for its PV cells because of Prime Minister Narendra Modi’s ambitious target to achieve 100 GW by 2022 where it can avail huge market and earn sales revenue. Similarly, it has also been noted that US’s PV cell firms are in a dire bankruptcy situation where many firms are filing bankruptcy due to a sudden fall in solar PV cell prices and a spike in polysilicon price has caused losses.
One can apply game theory to understand why countries use subsidies as a protectionist trade practice in International trade. The dominant strategy for a country is to implement subsidies to attract more export volumes along with domestic firm’s profits that maximize their aggregate surplus (GDP) in the global political economy. However, it forces suppliers to adopt predatory pricing strategy where firms who want to earn supernormal profits initially will bear the losses, deteriorating the noble intent behind renewable energy. The predatory pricing strategy has forced PV cells firms in both countries to impose tariffs to protect their domestic industries. Thus, it shows that future trade war is detrimental to both economies as trade barrier will restrict the export revenue hence discourages economic growth and spoils political alliances to a great extent. Thus, Indian Government needs to be fiscally conservative and rational as subsidy imposes an opportunity cost for other profitable sectors and implement a more market-based supply-side policy like R&D is preferred in long-run than trade barriers.
“Make in India” is an architect of the modern India where developmentalism is taking precedence over free trade to promote domestic industry more sustainably. Implementing developmentalism strategy is essential for Less Economically Developed Countries to mitigate overspecialization in a commodity in global creatively-destructive markets where innovation rents triumph over complacency and at the same time create new employment opportunities. A supply-side policy like “Make in India” is time-lag regarding results so the economy’s spirit may drain over the years as it may deem itself to be unsuccessful in reaching its target to make India self-reliant.
There have been talks about US implementing trade sanctions on India in retaliation to DCR. The USA is India’s top export destination contributing 16.4% of the export value of $ 42 bn. and have a positive net export value of $ 20.3 bn. It will be an economic loss if USA considers trade sanction because India will lose a valuable market thus lose potential FDI as a result of bad trade relations. The loss of FDI indicates the market confidence in India which influences Ease of Doing Business Index negatively, so it makes India lag behind in “super economy” race.
India may lose its valuable consumer in the US, it will not be affected by adverse trade sanction because it has established its absolute advantage in a pharmaceutical sector where it supplies generic drugs to many economies. US co-incidentally is one of the major importers of Indian generic drugs thus if it implements trade sanction in solar power sector then the current account balance will not drastically drop as India has more reservation options in exports comparatively to other export-oriented countries.
Make in India is a strategy used to boost home-grown Small Medium Size Enterprises (SMEs) who are often overlooked in favor of Transnational Corporations (TNCs) to create peaceful alliances amongst states. SMEs contribute more than 45 % of India’s GDP suggesting how important is it for home-grown businesses to grow which will uplift the rural population from unemployment.
Through this study, it can be concluded that USA and India are direct competitors to each other in solar power race so the trade dispute is intense where a judicious decision needs to be passed as the domestic PV cell market condition in both countries are similar. The USA like India has flouted the same articles in this matter to protect its deteriorating PV cell market.
Hence, it is to a great extent invalid for the USA to dispute with India for providing subsidies and DCR for domestic firms; when the USA itself supports its domestic firms by providing subsidies and DCR on the same grounds considering that every nation has the right first to support and build its own firms for long-term sustainability and growth of the economy. The trade dispute highlighted the downward spiral of subsidies in global market whilst supply-side policies like Make in India should continue to boost entrepreneurial spirit in Small Medium Size Enterprise midst of International trade dispute.
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Image credits: The Times of India
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