Solar safeguard duty: The most sought-after

Nowadays, safeguard duty is considered to be the most highlighted topic for the Indian solar industry. Recently, the Directorate General of Trade Remedies (DGTR) had recommended a 25 per cent safeguard duty on solar cell and PV module imports from China and Malaysia for the first year, followed by a phased down approach for a second year. In the first six months of the second year, a safeguard duty of 20 per cent will be payable by exporters to India and in the latter half of the second year, exporters will pay a safeguard duty of 15 per cent. Different exponents have different opinions and without interfering with those, let us understand what solar safeguard duty is all about.

As per DG Safeguard, “A safeguard is a form of temporary relief. They are used when imports of a particular product, as a result of tariff concessions or other WTO obligations undertaken by the importing country, increase unexpectedly to a point that they cause or threaten to cause serious injury to domestic producers of ‘like or directly competitive products’ “.

Safeguards give domestic producers a period of grace to become more competitive in relation to imports. If this happens, the government of the importing country may suspend the concession or obligation, but will be expected to provide compensation by offering some other concession. Otherwise, the affected WTO member(s) can retaliate by withdrawing equivalent concessions. Industries or companies often request safeguard action by their governments. Safeguards usually take the form of increased duties to higher than bound rate or standard rates or quantitative restrictions on imports. Here, it is to be noted that under Section 8B of Customs Tariff Act 1975, Central Government has been given power to impose safeguard duty.

Now, let us try to understand the history and purpose of safeguard duty. The origin of this trade remedy lie in Article XIX of GATT, 1994 (and its pre-WTO version). This provision allows a WTO member to restrict temporarily imports of a product, which is known as ‘safeguards’ action, if its domestic industry is affected by a surge in imports.

Before the Uruguay Round, Safeguards were rarely used. Some governments preferred to protect their domestic industries by persuading exporting countries to restrain exports ’voluntarily’ or to agree to other means of sharing markets. ‘Grey area measures’ of this kind, circumventing the GATT were negotiated bilaterally for a wide range of products including motor vehicles, steel and semi-conductors. These measures were not subject to multilateral discipline through the GATT and their legality was doubtful. Some safeguard actions actually taken under Article XIX were left in place indefinitely, providing a permanent level of protection. The agreement on safeguards sets out the rules for application of safeguard measures and requirements for safeguard investigations by national authorities. It requires the existing ‘grey area measures’ to be phased out and to be brought in conformity into the agreement by the end of December, 1998. The agreement emphasizes transparency and avoidance of arbitrariness through laying down rules. The goal of the agreement is to encourage structural adjustment on the part of the industries adversely affected by increased imports, thereby enhancing competition in international markets. It also aims to cure the problems caused by ‘grey area measures’, permanent safeguard actions, voluntary export restraints and orderly marketing arrangement and prohibits the future use of ‘grey area measures’ for the purpose of trading multilateral control.

Key finding of the DGTR
Firstly, there has been a significant increase in imports of the product under consideration (PUC), in absolute terms as well as in relation to the total Indian domestic production over the entire period of investigation (POI). Secondly, the domestic industry has suffered serious injury, considering the overall performance on the basis of listed economic parameters such as market share and profitability, which have sharply declined over the injury period 2014-2015 to 2017-2018 (annualized), whereas market share of imports has increased during the same period. This has caused significant overall impairment to the domestic industry. The rise in imports and coinciding serious injury caused to the domestic industry during the injury period, establishes causality. The most important findings that invariably attracts the domestic industry is that it has been able to demonstrate that the developments in the market due surge in imports of the PUC were unforeseen in the context of Article XIX of General Agreement on Tariffs and Trade (GATT). It was the third observation. Last but not the least, the findings were the imposition of safeguard duty. In this case, it would be in the public interest because it will prevent complete erosion of manufacturing base of solar industry in the country which is upcoming and holds promise for a stronger manufacturing base future; at the same time, it is also in the public interest to prevent undue escalation of solar power cost, tariff to the final customer and that the attainment of the target of 100 GW of solar power deployment by 2022 is not derailed. The consideration of two competing interests requires a balanced view. From the analysis of post POI data, it has been observed that the position of domestic industry further deteriorated on account of continued low price of import of PUC which continued causing price injury to the domestic industry, thereby, establishing the threat of injury as well.

Whether it has positive or negative impact, everyone has his/her own perspective of viewing the safeguard duty. As an Indian manufacturer, Sova Solar is determined to do business on Indian soil and also expect the Indian government and MNRE to come up with policies and decisions that would be beneficial for the Indian manufactures.