The World Trade Organization (WTO) has dropped an initial request by the United States to set up a panel to review the controversial domestic content requirement in India’s national solar programme.

The WTO was forced to refuse the US’ request for the review, made in February, after India rejected the demand.

The WTO’s Dispute Settlement Body decided to drop the request following a meeting on 25 April where it considered the US case.

India and the US have been locked in a trade dispute over the second phase of India’s JNNSM national solar programme, which it claims precludes US companies.

The first phase of the JNNSM ruled that developers must source PV equipment and modules from domestic sources, but excluded thin-film modules, meaning US companies could still export thin-film modules for use as part of the JNNSM.

But under the JNNSM second phase, the government announced half of the 750MW of projects up for grabs would fall under a DCR that this time included thin-film modules.

The move meant US thin-film manufacturer, First Solar – which previously dominated India’s thin-film market – missed out on DCR projects in JNNSM II. However 375MW was still left open, with no DCR, and many state-run solar programmes are unrestricted with opportunities for foreign trade, outside of the JNNSM.

The US request for a consultation back in February 2013 formally initiated the WTO dispute, after India previously launched anti-dumping investigations against solar manufacturers from the US.

Consultations held back in February 2013 did not resolve the dispute.

Under WTO rules, the request this February allows the US and India to discuss resolutions, however after 60 days (mid April), if the resolution talks have failed, the US can then request the dispute to be reviewed by a panel.

According to the WTO, India said it preferred a mutually agreed solution to a special panel to review the US complaint. “India, therefore, was not in a position to agree to the establishment of a panel. In that regard, the DSB deferred the establishment of a panel to examine this matter,” a WTO statement on the meeting said.

However, if the US makes a second request to DSB for a review, India cannot reject it.

India has responded it is “ready to fight” in the event of the US escalating the dispute, one commerce ministry official told The Hindu Business Line, asserting India is not violating any WTO rules.

India has defended the JNNSM by claimging that it is overseen by the Solar Energy Corporation of India, a government body, for government procurement, which does not fall under the WTO regulations for DCR.

India wants more discussions before a settlement is agreed.

The US has claimed the DCR part of the JNNSM is in breach of India’s obligations under the General Agreement of Tariffs and Trade (GATT) 1994, and the Trade-related Investment Measures (TRIMs) Agreement.

The US claims the DCR restrains any benefits gained by the US, directly or indirectly, under the WTO trade agreements.

The US alleges that solar power developers receive advantages in the form of long-term tariffs for using domestic solar cells and modules, whereas India “provides less favourable treatment to imported solar cells and solar modules”, the WTO statement said.