This is a lovely little example of why trade rules are as they are. The United States filed a complaint against India about the local content rules for solar panels and modules. The WTO has just announced that the U.S. won their case. And thus we come to the basic point about trade itself: What makes us richer is not the exports, nor the limitation of imports; it is the imports themselves that make us richer. Thus this lifting of those local content rules and the opening once again of the Indian market to U.S. producers is something that makes Indians themselves richer. That we have to have rules about this just shows how badly public policy over trade gets captured by the local producer interests. Because in a rational and unbiased polity of course we would have no restrictions upon imports at all. Why would we if imports are the thing which make us richer?
The news itself:
The United States won a ruling against India at the World Trade Organization on Wednesday after challenging the rules on the origin of solar cells and solar modules used in India's national solar power program.
In more detail:
In a setback to India, a World Trade Organisation (WTO) dispute settlement panel has ruled in favour of the US in its challenge to New Delhi's alleged discrimination against US solar exports, according to the US Trade Representative (USTR).
The panel agreed with the US that India's 'localisation' rules discriminated against imported solar cells and modules under India's National Solar Mission, according to an official news release citing USTR Michael Froman.
It's not a setback to India at all, this is to India's benefit.
India, whose solar industry has grown rapidly in the past few years as the government looks to ease reliance on imported fossil fuels and coal, has previously defended its policies.
But in its ruling, the WTO panel rejected India's arguments that the policy was needed to avoid disruption in imports and to ensure compliance with the country's requirements to promote sustainable development.
So, to start at the beginning. The aim and purpose of anyone buying solar panels, solar modules, is so that they can produce solar energy, electricity. Obviously, the people who want to produce electricity are better off the cheaper those panels and modules are. It doesn't matter who makes them or where; the cheaper they are, the better. Why would India have local content rules? Because they know that locally-produced panels and modules are more expensive than foreign-produced ones. That's the only possible reason you could try to insist upon local content rules. Simply because you fear that without such restrictions the local suppliers would go bust as everyone buys the imports.
But look at what that means: Local capitalists are, by law, getting rich at the expense of local consumers. We are deliberately changing the law to make sure that the owners of local panel manufacturers make more money at the expense of all the consumers who buy the electricity. And of course those local capitalists are very, very, interested in making sure that there are those barriers to the cheap imports. While the consumers...well, most of them won't think about it very much and so won't be lobbying the politicians. Thus the basic explanation of why we do end up with import restrictions, simply because of the concentrated interest of those who benefit and the diffuse interest of those who end up losing. That's just how politics works.
And thus what we have written into the WTO rules. Everyone's aware that this is how it works. So, we have trade rules that mean, whatever those local political pressures, there's a system to make sure that they don't win. That, in the end, the consumer interest does win out, however long it might take to run a case through the WTO.
Remember, it is the imports that make us all richer. So a logical system would be one where there are no restrictions upon imports. Politics doesn't quite work that way, which is why we write trade treaties so that logic and the consumer interest can win out over producers and local politics.
