A China-U.S. Solar Trade War?

published: 2011-11-08 9:29 | editor: | category: Analysis

On October 19, 2011, a trade complaint was filed alleging unfair import trade practices of PVs from China. The complaint may contribute to escalating trade war after the U.S. Senate recently passed a bill aimed at possibly imposing duties on China for not revaluing its currency.

Bonn, Germany-based SolarWorld, and 6 U.S. PV makers, filed the petition simultaneously with the U.S. International Trade Commission and the U.S .Department of Commerce accusing China of dumping solar panels in the United States for less than it costs to manufacture and ship them. The U.S. solar companies - which the petition defines as “the domestic industry producing crystalline silicon photovoltaic cells and modules” - want the U.S. government to slap $1 billion worth duties on PV imports from China. SolarWorld, who’s American operations based in Oregon has 1,100 U.S. employees but announced in September they were closing their factory in California, is probing whether to file a similar complaint in Europe.

The China-U.S. Solar Trade Deficit

When PV maker Solyndra, which received a $535 million U.S. Energy Department loan guarantees, filed for bankruptcy in September 2011 it had cited cheap Chinese solar products as one reason for their demise. China produced 55 percent of the world’s PVs in 2010, according to Bloomberg New Energy Finance.

The trade complaint, which targets crystalline PV imports but excludes thin-film products, alleges that the PVs China shipped to the U.S. are subsidized with billions of dollars of discounted loans, land, electricity, water and raw materials, as well as tax breaks from Chinese State Banks and the Chinese government. Solar World and the other U.S. solar companies contend that because of these subsidies, Chinese PVs are priced less than it cost to actually manufacture and ship them in order to grab U.S. market share, and this is killing American jobs. In the first seven months of 2011, China shipped $1.4 billion of PVs to the U.S. compared to the $1.2 billion for all of 2010, according to U.S. International Trade Commission data. Over all, there were 100,237 U.S. solar jobs as of August 2011, according to the Solar Foundation’s National Solar Jobs Census 2011.

"China's predatory and illegal aggression is crippling the U.S. industry," the newly formed Coalition for American Solar Manufacturing said in an October 19, 2011, written statement. “The U.S. solar industry and workers can compete with any solar producers in the world. They should not, however, be forced to compete against the massive shipments of illegally dumped and subsidized imports supported by the entire Chinese government,” noted the Coalition, which is made up of 7 companies that manufacture solar cells and modules with plants in nearly every region in the United States.

The Coalition offered evidence of these alleged illegal trade practices in their several-hundred-page, four-volume document to support the petition. They include allegations that China failed to disclose the subsidies to the World Trade Organization as required.

The Chinese Ministry of Commerce Ministry cited an August 2011 report from the U.S. Solar Energy Industries Association that said the value of American solar cell equipment and raw material exports to China far surpassed its imports from China by $1.9 billion. But those U.S. exports were made up of primarily raw polysilicon and manufacturing equipment, rather than finished solar panels.

China’s Ministry of Commerce Responds

China's policies meet World Trade Organization rules, according to China’s Ministry of Commerce which posted a statement on their website on October 21, 2011,regarding the antidumping and countervailing petitions:

"If the U.S. government files a case, adopts duties and sends an inappropriate protectionist signal, it would cast a shadow over world economic recovery," an unnamed official wrote. "The Chinese government hopes the United States will scrupulously abide by its promise to oppose trade protectionism, avoid adopting protectionist measures on Chinese solar cell products, jointly protect a free, open and fair international trade environment, and adopt more rational means of handling trade frictions."

China’s Solar Industry Responds

Jiangsu-based Suntech Power, the world's largest producer of PV panels, issued the following statement on October 20, 2011, regarding Solarworld's petition:

"We're currently reviewing the petition filed with the US International Trade Commission and the US Department of Commerce. Anyone can file one of these actions; having filed an action is in no way a validation from the US government as to the merits of the action. Companies listed in the petition are not subject to a single blanket judgment, and each individual company, including Suntech, will respond in accordance with ITC & DOC guidelines. As a global company listed on the NYSE, we are confident in our position and well-prepared to substantiate our strict adherence to fair international trade practices. Until the issue is resolved, we will continue to work with our customers and partners to ensure business as usual."

Baoding-based Yingli Green Energy Holding Company issued the following statement on October 21, 2011:

"We and our counsel are reviewing the petitions, which have just been filed. We would like to remind everyone that such petitions obviously present only the views of one side, and only a partial view of a very complicated story.  As a NYSE-listed public company with global presence, we have been holding ourselves to the highest standard of fair international trade practices.  We are confident in our position and we intend to mount a vigorous defense.  We are committed to the U.S. market for the long run, since we have faith in our products and technology and believe that we are well positioned to continue to compete effectively in the U.S. market."

On October 24, 2011, Changzhou-based Trina Solar, among the Chinese suppliers identified as an exporter of solar products to the United States, issued this statement:

“Trina Solarbelieves the allegations made by the U.S. petitioners will eventually prove to be unfounded and that Trina Solar's transactions with its United States customers were made in accordance with international trade practices.  The company has, and will continue to, adhere to prudent and recognized United States industry practices and standards.  Trina Solar is confident that these facts will be affirmed within the proceedings. As before, Trina Solar remains dedicated to bringing the sustainable benefits of clean and innovative solar energy products and services to residential, commercial and utility scale customers throughout the United States and worldwide.”

U.S. Solar Politics

The demand for PV projects in the United States had briefly exploded as a result of falling module prices, more efficient technology, as well as government funding incentives. In 2009,the American Recovery and Reinvestment Act included more than $70 billion in direct spending and tax credits for clean energy, and in 2010 the installation costs of large-scale solar projects fell more than 20 percent.  But recent issues surrounding the recent bankruptcy of Solyndra, the U.S. economy and national debt has put into question the future of government support of solar development.

This U.S.-China solar trade controversy also comes at what is a sensitive time for continued relations between the two countries. There are already U.S. economic concerns over market access to China’s markets, as well as issues with intellectual property rights and the value of China's currency.

Conclusion

The U.S. solar companies' complaint is one of the largest against China in the United States, but not the first. U.S. wind-energy industry charges against China prompted the Obama administration to file a case with the World Trade Organization in December 2010. Other recent industry filings against China include a March 2011 case involving galvanized steel wire and a late May 2011 case that resulted in tariffs of about 33 percent levied against certain types of imported aluminum products from China.

But the current solar complaint against China has drawn some skepticism from within the solar industry itself. While U.S. and European solar executives have privately complained about China's impact on the solar industry, most agree it is a global business and penalizing one nation - especially China - would not help companies struggling to survive.

This is compounded by the fact that, because the U.S. solar market is expected to grow faster than the European market, many Chinese companies have set up shop in the U.S., including the opening of a solar panel assembly factory last year in Arizona by Suntech. In fact, Suntech’s American unit - Suntech Power – is a member of the influential U.S. Solar Energy Industries Association. The Association is not expected to take a side over the trade fight against China because it’s membership includes American subsidiaries of several other Chinese solar manufacturers, as well as American companies that sell raw materials and factory equipment to China. Two other prominent U.S. solar companies, First Solar and SunPower, have also stayed out of the fight.

In fact, the reluctance of the six U.S. PV manufacturers that have joined the Coalition’s petition but aren’t willing to publicize their names gives a good indication as to just how sensitive this potential solar trade war with China is.

It also reflects the relationship that the U.S. and China have developed in the solar industry: Some U.S. companies fear the Chinese government will retaliate against any business that challenges its policies, while other solar companies are aware that China has emerged as a significant source of venture capital for startups.

In light of the current U.S. political climate and with the solar industry currently employing roughly 100,000 Americans, it seems unlikely that a solar trade war with China now would be viewed as anything other than counterproductive.

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