Renewable Energy Trade Disputes: U.S.-China Update

As I discussed in a previous blog, renewable energy trade disputes are becoming a particularly contentious issue between many nations. The United States and China are facing off in one of the most publicized of these disagreements. Further action was taken last week as the U.S. Department of Commerce made its second ruling of the year on this issue, placing tariffs on solar photovoltaic (PV) imports from China.

A Suntech Power Holdings employee at a Chinese solar PV manufacturing facility. The Commerce Department ruling placed a 31.22% tariff on Suntech products. (source: China Daily)

The previous Department of Commerce ruling from March 2012 placed countervailing duties on solar PV imports in order to balance what the department determined to be illegal subsidies to solar PV manufacturers from the Chinese government. The initial tariff rates, which were set between 2.9 and 4.73 percent, came in much lower than what was expected by most experts.

The new preliminary ruling comes in response to the second set of claims by the Coalition for American Solar Manufacturing (CASM) that Chinese solar companies have been dumping their products in the U.S. market at below market value. The coalition, led by SolarWorld USA, looks to level the playing field for U.S. solar manufacturers against what they see as artificially cheap imports coming from China.

In a move designed to boost the U.S. solar manufacturing sector, the Department of Commerce acted by enacting a new, significantly higher, additional tariff on Chinese imports. The preliminary tariff rate has been set at between 31 and 250 percent, varying by company. The rate is set through an estimation of the manufacturing cost and a comparison to the sale price in the United States. The final ruling on these tariffs is scheduled for October.

New tariffs may dramatically change the landscape of the $3.1 billion annual flow of Chinese-made solar panels to the American market. The ruling is predicted to increase the price of Chinese solar PV imports to $1.11 per watt, making them 17 percent more expensive than non-Chinese panels. Prior to the ruling, the same panels were roughly 13 percent less expensive than those manufactured outside of China.

As with the previous ruling, opinions within the industry remain divided. The Coalition for Affordable Solar Energy (CASE) feels that the resulting tariff could be harmful to many of the 100,000 employees within the American solar sector. It could potentially threaten the nearly 7 percent growth in solar jobs in the United States seen in 2011.

Studies indicate that the majority of solar employees are not active in manufacturing jobs but rather are in downstream positions such as installation, sales, etc., which rely on low-cost equipment to be competitive. In 2011, only a quarter of American solar jobs were in manufacturing, compared to over half in installation. With Chinese manufactured products holding an over 50 percent share of the U.S. market for solar panels, increasing prices on solar PV imports from China may adversely affect these jobs.

The ruling may have additional unintended impacts on companies linked with manufacturing within the solar development chain. U.S. companies exported upward of $700 million in polysilicon to China in 2011 for use in solar PV manufacturing, a major part of a $2.6 billion polysilicon export industry. An increase in solar PV costs may also lead to a decrease in demand for other devices, including solar electricity inverters that may be manufactured in the United States. Currently, domestic manufacturing is responsible for producing 45 percent of all inverters sold in the country.

China contends that despite rhetoric promoting free trade, the Department of Commerce ruling in fact does the opposite and unfairly infringes on Chinese companies’ access to the U.S. market. China remains steadfast in asserting that Chinese companies have a comparative price advantage gained through advanced research in these technologies, resulting in cost reductions.

Citing an earlier U.S. International Trade Commission ruling placing tariffs on Chinese tires, doubts have been raised as to whether U.S. manufacturers will benefit in the way that is expected, or whether other countries will expand their market share to make up the difference.

This is only a preliminary step as future binding decisions are still to come with respect to both initial rulings made by the U.S. Department of Commerce this year. While it remains unclear what final actions the U.S. (or China in response) will take, the stage has been set for a continued struggle over manufacturing rights in an ever-growing solar PV industry.

Evan Musolino is a Research Associate with the Climate and Energy Program at the Worldwatch Institute.

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