Possible trade dispute looms
U.S. ruling on China solar cells could be omen
HONG KONG — Strained trade relations between the world’s largest economies will be further tested this year as the U.S. weighs anti-dumping duties on a range of Chinese products.
The U.S. government will decide whether China-made solar cells, high-pressure steel cylinders, galvanized steel wires and steel wheels from China are dumped, or sold below cost, in the U.S.
If so, it could impose tariffs that impair Chinese companies’ ability to sell those products in the U.S. China’s Ministry of Commerce, meanwhile, has launched its own investigation of American solar cell makers, and is also probing such U.S. industries as photographic paper. The agency could decide to impose duties as early as this year.
The U.S. rulings on China-made solar cells will be politically sensitive because of the dollars involved — the U.S. imported $1.5 billion worth of solar cells from China in 2010 — and the fierce competition between the two nations to develop renewable energy sources.
Last year’s high-profile collapse of California solar-panel company Solyndra, which received $535 million in government loan guarantees, highlighted the industry’s problems.
U.S. Energy Secretary Steven Chu testified at a November congressional hearing that falling solar cell prices and aggressive competition from Chinese companies had taken a toll on the financial health of Solyndra and other American companies.
In September, the Department of Energy said that only about 6% of the solar cells and modules sold around the world were made in the U.S., compared with more than 40% in 1995. In the last six years, China’s global market share has ballooned to 54% from 6%. The average price of solar modules has plummeted more than 40% to $1.25 per watt in the past two years.
Yet, if the U.S. government imposes tariffs on Chinese solar cell makers, the fear is that a tit-for-tat trade spat that gained traction in 2009 when President Obama slapped steep duties on Chinese tires could turn into an all-out trade war. That could hamper trade and hurt manufacturers in both countries. In the past decade, trade between the U.S. and China has nearly quadrupled, reaching $456.8 billion in 2010. The U.S. is China’s top exporting destination.
“There has been tension be- tween China and the U.S. for more than a decade, but this (solar panel) case is definitely an escalation of the tension, and might open the door to a trade war,” says Li Lei, a Beijing attorney at Sidley Austin who represents Chinese solar panel makers.
It’s likely that the U.S. will impose tariffs on Chinese solar cell makers this year even though those companies are fighting hard to prevent that from happening, says Li, who used to work at China’s Ministry of Commerce overseeing intergovernmental trade disputes.
The U.S. Department of Commerce has postponed until February a preliminary ruling on whether Chinese government subsidies have helped the country’s manufacturers unload cheap solar cells in the U.S. But the U.S. International Trade Commission, a quasi-judicial agency, has determined there’s a “reasonable indication” that American solar cell manufacturers are being hurt.
The Department of Commerce is considering the tariffs because of complaints by SolarWorld Industries America, a Hillsboro, Ore., maker of solar panels for homes and businesses. The agency’s investigation is opposed by the Washington, D.c.-based Coalition for Affordable Solar Energy. The coalition of solar power-generating companies argues that restricting the import of Chinese products into the U.S. could drive up the price of solar electricity.
For U.S. businesses, China’s subsidy of its solar cell industry is just one on a growing list of concerns. Calman Cohen, president of the Emergency Committee for American Trade, which represents companies including Citigroup and Caterpillar, says U.S. companies are worried that China is “shifting from the enthusiastic embrace of trade liberalization to a reluctant stance” 10 years after joining the World Trade Organization.
Cohen points out that China has yet to honor commitments it made when it joined the WTO, such as blocking the use of illegal software in the country. China has also set export quotas on bauxite, magnesium and other raw materials used by the steel and chemical industries.
The U.S. has challenged China’s policies — including the export quotas on raw materials and a duty of as much as 105.4% on American chicken products — saying they violate WTO rules.
China has responded with its own measures. In December, for instance, China imposed duties on imports of some U.S. cars. The move is expected to have only a limited impact on U.S. automakers’ financial health, but is widely seen as a warning to the American government.
“It’s a signal to say that China will fight back on certain points to persuade the U.S. to stand down,” says Sheng Ye, Ipsos’ head of auto research in Shanghai. “In China, normally, we don’t do things very directly.”