Frictions over renewable energy
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E-mail Beijing Review, September 3, 2012
![A worker at Yingli Solar in Hainan Province processes silicon chips on August 22 [Photo/Beijing Review]](http://images.china.cn/attachement/jpg/site1007/20120903/00080282e94111ae60e301.JPG "A worker at Yingli Solar in Hainan Province processes silicon chips on August 22 [Photo/Beijing Review]") |
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A worker at Yingli Solar in Hainan Province processes silicon chips on August 22 [Photo/Beijing Review] |
Disputes between China and the United States over the renewable energy industry are intensifying.
After the U.S. Department of Commerce launched anti-dumping and countervailing measures against Chinese photovoltaic (PV) energy products in May and wind power products in July, the Chinese Ministry of Commerce (MOFCOM) launched a probe into several U.S. renewable energy projects on August 20. The ruling was that six renewable energy projects from the United States have violated World Trade Organization anti-subsidy rules, distorting international trade.
The MOFCOM announcement said that according to the provisions of Foreign Trade Barriers Investigation Rules, the ministry will take relevant measures in accordance with the law, requiring the United States to cancel the investigations that are inconsistent with WTO agreements and give fair treatment to renewable energy products imported from China.
For China, this may be a powerless response. But insiders are worried that disputes between China and the United States over the renewable energy industry may harm the two sides' healthy cooperation in the sector and have a negative impact on the world's new energy development.
A trade war?
On October 19, 2011, six U.S. solar panel manufacturers filed a complaint with the U.S. Department of Commerce and the U.S. International Trade Commission, accusing Chinese solar companies of receiving subsidies from the Chinese Government and selling panels in the U.S. market at prices below their costs. On November 10, 2011, the U.S. Department of Commerce launched anti-dumping and countervailing investigations on Chinese PV companies, marking the beginning of frictions between China and the United States over renewable energy products. Currently, China is the world's largest manufacturer of PV products, with 10 percent of its solar cells exported to the United States and 80 percent to Europe.
In January this year, the United States expanded the trade dispute from solar power to wind power products. The U.S. Department of Commerce and the U.S. International Trade Commission announced on January 19 anti-dumping and countervailing investigations on utility-scale wind tower products imported from China and Viet Nam.
The price of the wind tower accounts for about 20 percent of that of the finished wind turbine. Because the wind tower is mainly made of steel, many steel-producing companies started manufacturing wind towers, which has resulted in excess production capacity for Chinese wind tower manufacturers and low prices of the product. Since last year, wind towers manufactured by China and Viet Nam have occupied one fourth of the U.S. market.
On May 17, the U.S. Department of Commerce imposed preliminary anti-dumping duties ranging from 31.14 percent to 249.96 percent on Chinese solar cell manufacturing companies and backdated the imposition to 90 days prior.
Suntech Power and Trina Solar face tariffs of 31.22 percent and 31.14 percent respectively. Yingli Solar and other companies that responded to the complaint were hit with a duty of 31.18 percent, and other companies that did not respond to the complaint were charged with a duty of 249.96 percent. If the decision remains unchanged, this will be the first time that Chinese companies are charged with such high tariffs as punishment.
On July 27, the U.S. Department of Commerce announced the preliminary results of the anti-dumping and countervailing investigations on Chinese utility-scale wind towers and imposed duties of 30.93 percent and 20.85 percent on Chengxi Shipyard Co. and Titan Wind Energy, respectively. All other Chinese manufacturers could be hit with duties of between 26.25 percent and 72.69 percent.
The U.S. Department of Commerce will set final anti-dumping and countervailing duties on PV products by this October, and the U.S. International Trade Commission is expected to make a final decision on duties imposed on PV products by this November and on wind towers by the end of this year.
China's response
A month after the United States launched the anti-dumping and countervailing investigations against the Chinese PV industry, on November 25, 2011, in accordance with the petition proposed by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products and the New Energy Chamber of Commerce of the All-China Federation of Industry and Commerce, MOFCOM, in line with the provisions specified in the Foreign Trade Law of the People's Republic of China and Investigation Rules of Foreign Trade Barriers, initiated trade barrier investigations of six U.S. support policies and subsidy measures on the renewable energy industry.
MOFCOM invited the U.S. side to comment on the questions of the investigation within 30 days and received the U.S. side's Opinions on the Trade Barrier Investigation Initiated by MOFCOM on November 25, 2011. The U.S. Government asked for a petition letter and relevant documents, while other relevant parties and the public in the United States did not make any comment on MOFCOM's decision. MOFCOM took the U.S. Government's opinions into consideration during the investigation process and handed a petition letter and relevant documents to the U.S. Government.
The final investigation conducted by MOFCOM determined that six investigated projects encouraging renewable energy in Washington, Massachusetts, Ohio, New Jersey and California, have constituted prohibited subsidies stated in Article 3 of the Subsidy and Countervailing Measures Agreement formulated by the WTO, and violated relevant provisions in Article 3 of the WTO Subsidy and Countervailing Measures Agreement and Article 3 of the 1994 General Agreement on Tariffs and Trade.
Take encouraging projects of renewable energy in Washington as an example. The Washington State Government has provided a subsidy of $0.15 per kwh for individuals, companies and local governments using solar power, wind power and anaerobic methane to generate power since July 2005.
MOFCOM found through investigations that the six investigated projects have formed unreasonable restrictions on the Chinese renewable energy industry and weakened Chinese renewable energy products' competitiveness in the U.S. market, reducing the export of Chinese renewable energy products to the United States and creating an effective trade barrier for Chinese renewable energy products' entry into the U.S. market.
MOFCOM decided to launch both anti-dumping and countervailing investigations on imports of solar-grade polysilicon from the United States and an anti-dumping investigation on imports of the same commodity from South Korea on July 23 in response to the petitions of many Chinese solar-grade polysilicon-producing companies. It will also make investigations on the injury to the Chinese solar-grade polysilicon industry and then make adjudication under the state law.
Polysilicon is a raw material used in manufacturing solar products. According to MOFCOM statistics, solar-grade polysilicon products imported by China surged 36 percent year on year to 64,600 tons in 2011, totaling $2.6 billion. Some 60 percent of the imported polysilicon products come from the United States and South Korea. In the first half of this year, the amount of polysilicon products imported from the two countries kept increasing at a high speed. In May, 44 percent of the imported polysilicon products came from the United States and 24 percent from South Korea. China is the main market of such international polysilicon product manufacturing giants as South Korea's OCI Co. and the United States' Hemlock. Polysilicon products imported from the United States and South Korea are sold at a price lower than Chinese products' costs. Hit by the dumping of U.S. and ROK polisilicon products, 80 percent of Chinese polysilicon product manufacturing companies have suspended production since August 2011.
According to MOFCOM, preliminary investigation results will be released by July 2013.
Mounting tensions
Li Chunding, research assistant at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, attributed frequent and intensifying trade frictions between China and the United States to the following reasons:
On the one hand, Chinese investment in the renewable energy sector and the production capacity of the industry are both increasing rapidly. The sector has upgraded its technology, which helps increase both its competitiveness in the international market and its exports significantly. The United States is an important market of Chinese renewable energy products, and it is natural that it takes trade protectionist measures in response to the expansion of Chinese exports.
On the other hand, the burst of financial bubbles during the economic crisis has prompted the U.S. Government to attach greater importance to the real economy and lead the economy back to the track of the real economy. Against such a background, any threat posed by other countries will elicit backlash from the U.S. Government and relevant companies.
More importantly, the renewable energy industry is a very important strategic sector for every country and is recognized as one with huge potential, so it is natural that the United States wants to lead the industry and even have a monopoly over it. For such a strategic industry, Chinese exports are very likely to face trade barriers erected by the United States.
"The renewable energy industry is also the driving engine and the key for China's economic restructuring and industrial upgrading. Therefore, in response to trade frictions started by the United States, we should take all kinds of measures to ease and settle disputes and reduce our losses."
China-U.S. trade frictions previously occurred in middle- and low-end products of manufacturing industries, a direct cause of China's trade surplus. However, China reaps few benefits from such trade surplus, and this kind of products may gradually disappear as a result of upgraded industries. Li said that trade frictions in the new energy industry carry more strategic value than that arising from those in middle- and low-end products.
Because the new energy sector is of strategic importance to its development, the United States is not likely to make a compromise on trade frictions in this sector.
Market anxieties
Trade frictions between China and the United States in the renewable energy industry have expanded from the solar energy industry to the wind power industry and may extend to other renewable energy industries in the future, which has caused anxieties in the markets on both sides of the Pacific.
Anti-dumping and countervailing investigations launched by the United States will harm the development of the Chinese new energy industry. Insiders say that although China exports a small number of wind towers to the United States, and anti-dumping and countervailing investigations have limited effects on the development of the Chinese wind tower industry, the United States may expand the anti-dumping and countervailing investigations to other products.
In the investigations, the United States does not recognize China's market economy status, but compares the price of Chinese exports with that of a surrogate country, which is a market economy country. In most cases, the price of China's exports is lower than that of a surrogate country because China has lower production costs because of its cheap labor and low-priced raw materials. As a consequence, China will be ruled as dumping and the United States imposed high anti-dumping duties. If China imposes high anti-dumping duties using the U.S. calculating method, the trade war in the new energy industry between the two countries will be unavoidable.
China has launched anti-dumping and countervailing investigations on solar-grade polysilicon products against the United States. If China takes punitive measures on U.S. polysilicon products, Hemlock and MEMC, the world's largest polysilicon producers, will both be affected.
In response to the anti-dumping and countervailing measures taken by the United States, MOFCOM spokesman Shen Danyang said that the U.S. restrictions not only harm China-U.S. cooperation in the renewable energy industry, but also harm the interests of the U.S. energy industry. The two countries should make joint efforts to combat global climate change and energy challenges.
The United States attributed the slow development of its new energy industry resulting from its own weak competitiveness to the so-called threat posed by Chinese new energy products and intended to take restrictive measures against China. Chinese companies and the Chinese people express strong dissatisfaction with this, said Shen.
A bright prospect?
In 2013 the International Solar Decathlon will be held in China's Shanxi Province, cosponsored by China's National Energy Administration and the U.S. Department of Energy and undertaken by Peking University. China and the United States develop the new energy technology from the same starting point, recognizing the threat of energy shortage and its impact on economic development.
There is still big room for cooperation between China and the United States in the new energy industry. Currently China is the largest solar power equipment manufacturer, but most of the solar-grade polysilicon it uses now is imported from the United States. Chinese and U.S. companies also cooperate in using wind power, hydroenergy and nuclear energy. Zhejiang Sanmen Nuclear Power Station, which is now under construction, uses third-generation nuclear energy technology of the United States' Westinghouse Co. and has imported other equipment from the United States. Since China and the United States are both major energy consumers, companies of both countries can play big roles in the two large markets.
Because the new energy industry has higher production costs than the fossil fuel industry, it can hardly survive in the market without subsidies and support from the government. The governments in Europe and Japan have both offered subsidies and granted support to their new energy industries. The U.S. Government has given subsidies to many new energy industries, but, influenced by different interest groups, they are distributed unevenly.
In response to some U.S. congressmen's criticisms of China's new energy subsidy policy, Li Chunding thinks that it is crucial for China to be granted market economy status. During the renewable energy trade frictions launched by the United States against China, anti-dumping is a major target, because anti-dumping duties are much higher. The U.S. anti-dumping investigations are unreasonable and unfair for the United States having not granted China market economy status and still adopting the surrogate country approach.
"China should urge the United States to grant it market economy status and abolish the 'surrogate country' approach," Li said.
Li also said that in order to settle trade disputes it is crucial for China to strengthen the competitiveness of its renewable energy industry and accelerate its industrial upgrading. China's new energy products, once becoming competitive, will be sold in many countries, and by then, trade barriers will have little effect on Chinese exports, no matter which country has erected them.
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