March 20, 2012
U.S. to Place Tariffs on Solar Panels From China
The Commerce Department said on Tuesday that it would impose tariffs on solar panels imported from China after concluding that the Chinese government provided illegal export subsidies to manufacturers there.
The tariffs were smaller, at 2.9 to 4.73 percent, than some American industry executives had expected. At that size, their effect on the market could be limited. But additional tariffs could be imposed in May, when the Commerce Department is scheduled to decide whether China is “dumping” solar panels into the United States at prices below their actual cost. A finding of dumping would result in additional tariffs that could be far larger than these.
But whatever the size of the penalties, Tuesday’s ruling is likely to further heighten trade tensions with China, and to have implications for renewable energy policy in this country.
Although the ruling is the result of a quasi-judicial review process by civil servants in the Commerce Department, the imposition of tariffs by an arm of the Obama administration also seems certain to enter the partisan fray.
The president’s supporters might point to it as evidence that he continues to play tough with Beijing. But opponents, including the Republican presidential candidate Mitt Romney, who are already criticizing Mr. Obama for what they say is a low level of attention to China trade issues, might call the small penalties insufficient.
The Commerce Department declined to comment Tuesday.
Whatever political spin proponents or critics might want to put on the tariff decision, there is no question that solar panels from China now control about half of the American market, while panels from the United States control less than a third. American imports of Chinese solar panels have soared to $2.65 billion last year from $21.3 million in 2005.
While American manufacturers oppose the imports and filed the trade case against China, users of solar energy have benefited from low-cost Chinese solar panels. An American industry group composed of companies that sell and install solar panels said Tuesday that it was pleased with the relatively small size of the tariffs, having braced for higher ones.
“This is a huge victory for the U.S. solar industry and our 100,000 employees,” said Jigar Shah, president of the Coalition for Affordable Solar Energy. “Given all our expectations, this is really good news.”
Barry Cinnamon, chief executive of Westinghouse Solar, which imports panels from China and adds wiring, racking and other components, said he was relieved by the decision, which will raise the price of his 250-watt system to about $610 from $600.
“If the tariffs were big, 20 percent or 50 percent or 100 percent, it would be really bad for U.S. jobs,” he said. “If it’s a small tariff, it does send a signal to encourage manufacturers to do more manufacturing in the U.S., but it’s not enough to have a huge impact on costs.” And it will not set off a trade war, he predicted.
Globally, low-cost Chinese panels have driven down the cost of solar energy by two-thirds in the last four years, narrowing but not eliminating the wide price gap that used to separate solar power from electricity generated by burning fossil fuels.
But the solar energy boom has had few benefits for the American industry. The plunging prices led to the bankruptcy of three American solar panel manufacturers last August.
One of the failures was Solyndra, which cost the federal government more than $500 million. Solyndra’s collapse has been the subject of an investigation by Congressional Republicans, who contend that the Obama administration should not have lent so much money for an unproved clean energy program.
The Commerce Department decision Tuesday may be the most comprehensive review yet by an American government agency of how China uses subsidies to dominate an industry.
China now has about 700 solar panel manufacturers with a combined annual production capacity of 40 gigawatts of electricity — the electric power equivalent, at peak sunlight hours, to the total output of every electrical generating station in New York State.
Chinese companies have been able to grow so fast, and cut costs so quickly, because they could take large loans from government-owned banks. Although Chinese bankers and solar panel executives now deny that those loans were made at subsidized rates, that was a central issue in the Commerce Department’s antisubsidy review.
The question facing the Commerce Department was whether the Chinese government’s support violated American laws — and international free trade rules — meant to prevent countries from spending government money to help exporters buy market share overseas.
A few Chinese companies have acknowledged receiving substantial government assistance. Executives at Hunan Sunzone Optoelectronics, a solar panel manufacturer in Changsha, in south-central China, said in interviews in 2010 that they had been able to buy valuable land near downtown for a third of the citywide rate for industrial land. And the company said that Chinese bankers had offered large loans at just 6 percent interest — below market rates at the time — with the provincial government paying much of the interest.
China’s huge and growing need for oil imported from volatile countries in the Mideast and Africa has made energy independence one of the country’s highest strategic and economic objectives. Top Chinese officials have talked extensively in recent years about the need to support renewable energy industries. They also have encouraged local and provincial governments to remove regulatory obstacles and have pushed state-owned banks to lend heavily to the sector.
And yet, until very recently, China has not focused on installing solar panels domestically. The factories were primarily geared for export.
Government subsidies are by no means solely a Chinese practice. The United States supported the development of solar energy by offering financial incentives for companies and households to buy solar panels. And many states have put quotas on power companies for the amount of renewable energy they must buy.
But China focused first on developing large-scale manufacturing of solar panels for export, and only in the last year has it started to subsidize the installation of large numbers of panels in China.
The result is that up to 95 percent of China’s output in recent years has been exported, leading critics to suggest that China was capitalizing on other countries’ solar subsidies. Chinese officials have rejected those suggestions and have hinted that they might retaliate with a trade case against American exports of polysilicon, a material used in manufacturing solar panels.
Ben Santarris, a spokesman for SolarWorld, a leader of the manufacturing coalition that filed the antisubsidy case at the Commerce Department, said that the company still hoped that higher tariffs would come this year. The Commerce Department will continue investigating evidence of Chinese subsidies, and later this year will reassess Tuesday’s preliminary ruling.
Some trade experts are already suggesting that the United States and China should look at trade strategies worked out between the United States and Japan in the 1980s to manage Japan’s rapid rise as an exporter. These strategies included so-called voluntary export restraints by Japan, which were actually far from voluntary. They included restraints on Japanese cars in 1981 and government-led research efforts like Sematech, which President Reagan helped establish to assist the American semiconductor industry.
“The future of renewable alternative energy, and in this case solar energy, is too important to be left to be ‘solved’ by litigation,” said Alan Wolff, a trade official in the Nixon, Ford and Carter administrations who was one of the leading trade lawyers during the struggles with Japan in the 1980s. “Beijing and Washington have the means to work out a mutually and globally beneficial way to work out a solution to the solar panel trade case.”
The solar panel industry also faces a serious challenge from the plunging price of natural gas in the United States, where new drilling techniques have brought large increases in the amount of gas on the market. The deployment of those same drilling techniques in foreign markets could bring down the price of gas there as well. That could make solar panels seem costly.
The Commerce Department decision is subject to a ruling by the International Trade Commission that the domestic industry has suffered harm from imports. Such decisions usually favor the domestic industry when there have been bankruptcies or mass layoffs. Besides the three bankruptcies in the American solar industry, all last August, at least four of the biggest survivors have also resorted to sizable layoffs in the last two years.
One of the companies, Evergreen Solar, announced in January of last year that it was moving production from Massachusetts to China because the Chinese government was offering more financial support for manufacturers there. But the move came too late to save the company from declaring bankruptcy.
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