The mystery of India’s new solar tariffs
April 1, India slap tariffs on solar cells and modules. It wouldn’t be newsworthy except that India made these tariffs from whole cloth. It is as bold as protectionism is.
Tariff hikes in India are not uncommon. Over the past eight years, Prime Minister Narendra Modi has increase 3,000 customs duties, hitting 70% of the country’s imports. Tariffs are at the center of Modi’s efforts to make India more economical”self-sufficient.â They also add central budget revenue. But even in this context, the new solar tariffs are striking.
Like many countries, India is keen on renewable energies. Modi hopes to generate half of the country’s electricity from renewables by 2030, mainly wind and solar. More impressively, India wants to achieve net zero emissions by 2070. To achieve these goals, India has provided protectionism to its domestic producers. Anti-dumping duties and safeguards have given these producers much-needed leeway, especially against cheap imports from China. But these temporary tariffs have expired. No one doubted that the government would introduce new tariffs. But not like this.
Here is the mystery.
Solar cells fall under tariff code 85414011 and modules fall under tariff code 85414012. Look at India’s World Trade Organization (WTO) obligations and you will see that both tariffs are tied to zero. In other words, India has no tariffs to raise on solar cells or modules. Quite simply, the Indian tariffs of 25% on cells and 40% on modules are pure fiction.
India calls the tariffs basic tariffs, not trade remedies. There’s no evidence that India had conducted an anti-dumping investigation or a safeguard investigation which could have triggered temporary customs duties. Again, where do India’s solar tariffs come from?
India also has non-tariff barriers on solar. The most famous is Approved list of models and manufacturers favors domestic versus foreign solar. Given these non-tariff barriers, it is not clear that India needs two new tariffs to compensate for its recently expired safeguard.
Conversely, if India intended to defy its WTO obligations, why not exceed 25% and 40%? The answer is that tariffs, in addition to price spikes related to COVID-19, will hurt solar sales. Import duties make solar panels more expensive, but domestic companies find it hard compete without protectionism.
India did not need to make these solar tariffs out of thin air. An anti-dumping duty would have done the trick. India is the world’s most prolific user of anti-dumping duties, and China the world’s top target. Yet another anti-dumping duty would not have been noticed.
But the global economy should take notice. India’s new solar tariffs are a big deal because they are as obvious an infringement as possible. What will other countries deduce from this? That India is rewriting its tariff obligations under the WTO? That everything is fair game in the renewable energy competition? Or just when China is the source of cheap imports?
For all that India intended to signal by doing solar tariffs on all fabric, the decision was half too smart.
Marc L. Busch is the Karl F. Landegger Professor of International Commercial Diplomacy at Georgetown University’s Walsh School of Foreign Service. Follow him on Twitter @marclbusch.