Local content requirement
Also called: LCR · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
A local content requirement (LCR) is a rule that a set share of a product's inputs or value must come from within the country. Governments use LCRs to build home industry, especially in green energy. But when LCRs are tied to goods, they discriminate against imports. The WTO's TRIMS Agreement and GATT Article III (national treatment, which means treating imports no worse than domestic goods) therefore restrict them.
Example
Under the National Solar Mission, India required some solar projects to use Indian-made cells and modules. The US challenged this (US v India, DS456), and the WTO Appellate Body ruled against India in 2016. India's PLI schemes (from 2020) reward extra output instead of local sourcing, so they are designed to fit WTO rules. PLI means Production-Linked Incentive.
Don't confuse with
- Production-linked incentive (PLI): PLI pays for extra output and does not force local sourcing, so it is WTO-compatible. An LCR forces local sourcing and can break WTO rules.
Related concepts
- GATS
- Modes of supply of services
- TRIMS
- Bilateral investment treaty
- Investor-state dispute settlement
- Digital trade
- E-commerce moratorium
- Data localisation