What is Solar Safeguard Duty?

The government has imposed a special safeguard duty on solar cells import from China and Malaysia at the request of the Ministry of New and Renewable Energy. Purpose of the duty is to safeguard domestic manufactures from the onslaught of the cheap imports from these countries. China is the source for 90% of India’s solar equipment imports. Interestingly, India meets nearly 85% of the solar equipments from imports.

The safeguard duty on Solar Panel from the two countries will be for two years and initially, the duty is set at 25% for the first year. The rate of the duty would reduce to 20% in the next six months, and then to 15% for the final six.

What is safeguard duty?

A safeguard duty or technically, product safeguard duty is a tariff or tax imposed by a country on the import of a specific commodity on the ground that the import is creating injuries to the local manufactures. Low pricing or cheap imports is an important reason for imposing safeguard duty.

According to the WTO, “A WTO member may restrict imports of a product temporarily (take “safeguard” actions) if its domestic industry is injured or threatened with injury caused by a surge in imports.” The WTO insists that the injury has to be serious.

The WTO clause on safeguards instructs that there should be ‘injury’ or ‘threat’ from imports. Hence, the government that is imposing safeguard measure should sufficiently explain the injury or threat.

There is time limit for the imposition of the safeguard measure.  A safeguard measure should not last more than four years. But i this can be extended up to eight years, if the competent national authorities certify it with the support of evidence from the domestic industry. Safeguard measures imposed for more than a year must be progressively liberalized.

Significance of Solar Safeguard Duty

Main purpose of the safeguard duty is to protect domestic producers from the subsidy ridden cheap imports from countries that have excess production capacity in major solar equipments including solar cells and solar panels. The Director General of Trade Remedies observed that “Imposition of safeguard duty in this case would be in public interest because it will prevent complete erosion of manufacturing base of solar industry in the country.”

Already India lost a case at the WTO for local manufacturing condition adopted under the National Solar Mission. Hence, the government can’t instruct local sourcing of solar equipments under the NSM. Though the case was filed by the US, the real beneficiary is China as it is the main source of solar equipments including panels and cells. Hence, the safeguard duty will help the government to handle cheap imports from China. Several local manufactures were complaining about cheap imports from China. In this context, the safeguard duty will help the domestic firms to earn a share in solar energy equipment manufacturing.

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