By Krista Hughes and Frank Jack Daniel
WASHINGTON/NEW DELHI (Reuters) - The United States on Monday said it would take India to the World Trade Organization to gain a bigger foothold for U.S. manufacturers in its fast-growing solar products market, adding another irritant to an already strained relationship.
The Obama administration said it was filing its second case at the WTO over the domestic content requirements in India's massive solar program, which aims to ease chronic energy shortages in Asia's third-largest economy.
U.S. Trade Representative Michael Froman said making Indian solar developers use locally made equipment discriminated against U.S. producers and could hinder the spread of solar power.
"Domestic content requirements detract from successful cooperation on clean energy and actually impede India's deployment of solar energy by raising its cost," Froman said.
It is the second time in a year that Washington has sought a consultation at the WTO - the first stage in a dispute process that can lead to sanctions - over India's Jawaharlal Nehru National Solar Mission.
The ongoing trade spat between the two allies follows the recent arrest and strip search of a female Indian diplomat in New York in connection with visa fraud charges.
The arrest sparked fury in India, prompted retaliatory measures against U.S. diplomats there and plunged U.S.-India relations to their lowest point since India tested a nuclear device in 1998.
The USTR issued its first challenge to India's solar program last February when it formally requested consultations over its first stage. The program aims to double India's renewable energy capacity by 2017.
U.S. officials had hoped a second phase of the program would address Washington's concerns, but now fear the harm to American producers would likely be even greater because the rules were expanded in October to cover so-called thin film technology that comprises the majority of U.S. solar product exports to India.
India hit back at the initial U.S. accusations in April, asking Washington to justify its own incentives offered to U.S. companies that use local labor and products in renewable energy and water projects. The Indian embassy in Washington was not immediately available for comment on the latest trade action.
India has argued its solar policies are legal under WTO government procurement rules that permit countries to exempt projects from non-discrimination obligations.
YEARS IN THE MAKING
Froman said the action did not undermine the value that the United States placed on its relationship with India, saying: "Today's action addresses a specific issue of concern and in no way detracts from the importance we attach to this relationship." Attorneys for the USTR said later such cases took months to prepare.
U.S. solar trade groups cheered the move and said the United States had been patient in its discussions with India.
"The U.S. government spent two years talking with India trying to encourage them to move away from the local content requirement before initiating the first action roughly a year ago," said John Smirnow, vice president of trade and competitiveness for the Solar Energy Industries Association.
"We are almost three years in the making of the U.S. trying to get India to move back from this local content requirement."
U.S. environmental groups have urged the Obama administration to back off any WTO action, arguing that building up India's solar power industry will help it cut high greenhouse gas emissions.
But the administration has come under growing pressure from lawmakers and business groups to take a tougher stance on perceived Indian protectionist measures and intellectual property rights abuses by Indian drug companies.
India is widely perceived in Washington as a serial trade offender, with U.S. companies unhappy about imports of everything from shrimp to steel pipes they say threaten jobs.
The U.S. International Trade Commission is scheduled to hold a hearing into complaints of trade barriers erected by India on Wednesday and Thursday.
There are 14 past or current World Trade Organization cases between India and the United States, whose bilateral trade in goods measured $63.7 billion last year, not including the latest case.
(Writing by Krista Hughes and Ross Colvin; Additional reporting by Nichola Groom in Los Angeles and Manoj Kumar in New Delhi; Editing by Meredith Mazzilli)