Having imposed preliminary countervailing duties– to counter Chinese government subsides proscribed by the World Trade Organization (WTO)– as well as anti-dumping duties– to counter Chinese dumping of solar panels in the US–the Commerce Dept. yesterday announced it had uncovered additional evidence of instances of illegal subsidies benefiting manufacturers of Chinese silicon solar photovoltaic (PV) cells and panels.
As a result, Commerce is hiking countervailing duty rates on imports of Wuxi Suntech solar cells and panels 3.44 percent and those of Trina Solar 5.81 percent. Countervailing duty rates on U.S. imports of silicon PV cells and panels from all other Chinese silicon PV manufacturers also will increase, as it’s based on a weighted average of the duties imposed on imports from Suntech and Trina, according to a Coalition of American Solar Manufacturing (CASM) press release.
What’s in a subsidy? Does it matter?
Those who haven’t been following the WTO case closely– which was initiated by the CASM– or looking beyond the superficial have been critical of Commerce’s rulings, noting that the U.S. government is subsidizing solar PV as well. True, but U.S. subsidies differ fundamentally from those of China. I’ll get back to this in a moment.
U.S. solar PV installers and project developers, who have been benefiting from the extraordinarily cheap Chinese imports, have also been critical of Commerce imposing duties. So have U.S. polysilicon producers and solar PV cell equipment manufacturers, who have been benefiting from strong demand for their products from Chinese PV manufacturers.
It’s clear that the latter two groups’ are arguing against imposing duties on imports of Chinese silicon PV based on their own financial self-interest, which is to be expected. That’s not to say their point-of-view is in national interest, however.
The issue of U.S. subsidies for solar power are another matter, one that gets to glaring violations of mutually agreed-upon WTO rules by the Chinese government and primarily state-controlled businesses that have been going on for decades now. The WTO rules, to which China is a party, are meant to establish free, open markets and level-playing fields for businesses across economic sectors operating in all WTO member countries. As it is, they’ve failed miserably.
What makes one subsidy legal and another illegal? To use solar PV as a case in point, subsidies that stimulate demand for solar power without conferring an unfair advantage to domestic producers or that specifically target exports are okay by WTO rules. China’s solar subsidies, on the other hand, are specifically designed to give Chinese manufacturers an edge over rivals in other WTO countries. They also specifically target exports, and hence are predatory in nature in that they harm competitors in other WTO member countries.
Supporting evidence, profound effects
There’s been a plethora of strikingly relevant circumstantial evidence supporting CASM’s illegal subsidy petition in recent years. One is just how fast and large China’s production of silicon solar PV cells and modules has grown– in well under ten years, Chinese silicon solar PV manufacturers have come to dominate the global market. Then there’s the rather astounding percentage of Chinese silicon solar PV cells and modules that are exported: around 95 percent. And then there’s the extraordinarily rapid and precipitous decline in worldwide prices of silicon solar PV panels that have taken place in recent years: 40%-50% in just the past year alone.
Investigating CASM’s case, Commerce Dept. staff has found much more than circumstantial evidence, enough, in fact, in support of CASM’s illegal subsidies and dumping claims to impose preliminary duties in both instances. In its latest announcement, Commerce found that the Chinese government illegally supplied electricity to Chinese solar PV manufacturers at a discounted rate. Further adding to the new countervailing duty rates, evidence of numerous illegal grants was also found.
“Import duties imposed under U.S. and world trade laws are not calculated to punish importers for illegal trade practices,” commented Gordon Brinser, president of SolarWorld Industries America Inc., CASM’s lead petitioner and the largest U.S. manufacturer for more than 35 years.
“Instead, they are meant as a remedy to offset the unfair advantage that those illegal practices provide. Commerce’s preliminary determinations of import duty margins are steps in the right direction, but they do not yet reflect all of China’s improper and unfair practices. In that light, we appreciate and applaud both today’s announcement and the difficult work that investigators have yet to do.”
Commerce’s investigation of CASM’s petitions is ongoing. Final determinations on countervailing duty and anti-dumping duties is expected October 9. “These investigators have now invested eight months, pored over hundreds of thousands of pages in submissions from both sides, and begun traveling to various sites in China and the United States,” Brinser stated.
“All of their efforts will be worthwhile if they succeed in restoring fair, legal and sustainable solar-industry competition, enabling U.S. domestic producers and their work forces to resume growth. It’s regrettable that the government of China launched a trade war in early 2009. But with several more months of diligent care, we believe these investigators can end it.”
Beggar thy neighbor trade policies
The significance of unfair trade practices in an increasingly global economy should not be underestimated. The effects are profound and far-reaching, if not noticeable or striking in the short-term.
Not adhering to or not being willing or able to enforce rules on free trade and open markets distorts prices and the capital allocation process. It means either growth or decline in investment, jobs, production, income and wealth in the relevant economic sectors and beyond. Left unchecked, the institution, or tacit promotion, of illegal, unfair trade policies and practices leads to the build-up of massive imbalances in trade and capital flows of the kind that are now very much in evidence. Though by no means the sole causal factors, they are nonetheless primary contributors to the recurring cycles of boom-and-bust that we’ve been experiencing in recent decades.
For decades China has been pursuing a 20th/21st century form of mercantilism that essentially beggars the manufacturing sectors of other WTO member countries. With ‘nods and winks’ from leading WTO government and multinational business leaders keen to gain entry into potentially vast Chinese markets, this worked out well enough despite consistent filing of unfair trade cases by businesses spanning a wide variety of economic sectors. Up until recently, that is.
International trade and capital imbalances have grown to the point where they’re unsustainable. Governments, businesses and individuals in the US and Europe, along with a host of other countries, cannot continue to run up huge debts and rely on cheap, illegally subsidized imports of Chinese manufactured goods. And the Chinese need to do much more in the way of spreading the wealth and investing in their own domestic consumer markets. Both sides need to do more in the way of reversing disturbing trends in income and wealth distribution.