Understanding the Pentagon's ban on Chinese solar products
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The continuous efforts of the Obama administration to promote the US solar industry have resulted in the anticipation of a robust solar technology market for 2011. However, the US government seems not willing to share its market opportunities with everyone. The Ike Skelton National Defense Authorization Act for Fiscal Year 2011 specifically instructs the US Department of Defense (DOD) to apply the protectionist "Buy America Act" to procuring foreign "photovoltaic devices". Some people believe that by including this measure, the Defense Act is targeting China. This is a very reasonable assumption.
According to the Defense Act, there are two exceptions to the DOD's ban on purchasing foreign solar products: members of the WTO Government Procurement Agreement (GPA) and foreign suppliers offering products no more than 6 percent below the prices of goods from US suppliers. Since China has not yet joined GPA and is likely to face anti-dumping and countervailing investigations when it exports products below normal price, China is in fact excluded from the DOD's procurement list.
As an experienced player in the international trade regime, the U.S. knows how to maximize its policy leverage. American firms believe that they are disadvantaged in the solar market because Chinese government subsidizes its solar industry. Therefore, the Defense Act wins the good feelings of the US solar industry by squeezing foreign competitors out of the DOD procurement. The Act also puts pressure on China to join the WTO GPA. In addition, the Act indirectly addresses national security concerns as more and more Chinese investment enters the US defense industry. By ignoring China's opposition and adopting the Act, the U.S. is delivering a message to China to play according to its rules.
China, however, is not the root of the US solar industry's unsatisfactory market performance. The U.S. and China actually have distinct competitive advantages in solar industry. Since China's industrial structure mainly supports export-oriented sectors, Chinese companies can more easily achieve large scale solar panel production compared to US companies. Also, China's top-down policy making process allows its solar industry to obtain financial and political support faster than the US system. In contrast, the US is specialized in developing advanced solar technologies and applications, which take a relatively long time to roll out.
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