Govt should exempt solar units under SEZ from safeguard duty

In 1995, India became a member of the World Trade Organization (WTO) incurring obligations to provide market access to goods from other countries. The initial phase of trade liberalisation led to a sudden increase of imports in countries which lacked competitive manufacturing facilities. However, gradually many countries developed indigenous manufacturing capacities and global trade achieved partial equilibrium.

Having said that, it is an economic reality that exports of goods into the markets of some countries cause "injury" to the domestic producers of importing countries. The WTO framework provides for various remedies such as anti-dumping and safeguard measures to tackle such situations.

In 2005, India created Special Economic Zones (SEZs) to facilitate manufacturing in India at competitive prices. SEZs were provided benefits such as single window clearance and tax holidays. SEZ units are considered to be outside Indian customs territories and goods manufactured in these units, if sold in India (DTA), attract import duties including anti-dumping and safeguard duty, as applicable on goods imported into India from other countries. While imposition of safeguard duty provides protection to domestic producers, it results in a counterproductive outcome for units located in SEZs and catering to domestic demands, as the domestic removals from such units are charged to safeguard duty.

The purpose of imposing safeguard duty is to protect domestic producers from competition offered by imported goods and to provide them time to become competitive. The Indian solar industry is witnessing a peculiar situation. Today, India has 3.1 GW of installed capacity of Solar cells out of which 2 GW, i.e. more than 60% is situated in SEZs and out of 8.3 GW of solar module manufacturing facilities, 3.8 GW are situated in SEZs. Thus a substantial production capacity is situated in SEZs which caters to and is contributing to the ambitious plan of the government to attain a target of 100 GW of solar power by 2022. Imposing safeguard duties, which would also apply to manufacturers based in SEZ units, would thus be counter-productive and will lead to increase in cost of power without any gain to the domestic manufacturing industry. This goes against the theme and sentiment of Make in India Policy and is in contradiction of achieving the energy security.

The government can handle this situation by either specifically exempting SEZ units from payment of safeguard duty, as suggested by the DG (safeguards) in the preliminary findings, "The remedy to this could be a duty exemption to the extent of the Safeguard measure when the PUC is cleared by a SEZ unit into the domestic market…". Alternatively, the government can apply a Tariff Rate Quota (TRQ) regime, under which a certain quantity is exempted from payment of safeguard duty on importation and imports over and above this quota are charged to safeguard duty. A substantial part of this quota would need to be allocated to the SEZ units in India to take care of the peculiar Indian situation.

This would not only provide protection to the domestic producers in the SEZs but also outside it and would also help the government to attain the target of 100 GW of solar power by 2022.

The writer is ex DG - Safeguards, Government of India