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Dumping Solar: CASM’s Case Against Chinese Manufacturers & Subsidies, Pt. II

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Trade tensions with China continue to escalate, and the renewable energy sector is a focal point. On Jan. 20, the Commerce Dept. announced that it’s opening an investigation into claims made by the US-based Wind Tower Trade Coalition, a group of four manufacturers, that Chinese utility-scale wind tower manufacturers operating in both China and Vietnam are benefiting from illegal Chinese government subsidies and dumping their products in the US to the harm of US industry and businesses.

The Commerce Dept.’s findings could result in the levying of countervailing duties on Chinese silicon solar PV imports, marking the second international trade investigation of Chinese government subsidy programs and the dumping of Chinese products in US markets launched by US international trade authorities in the past few months.

On Dec. 20, 2011, the US International Trade Commission (ITC) issued a preliminary ruling in favor of anti-dumping and countervailing duty petitions against Chinese silicon solar photovoltaic (PV) cell and panel manufacturers and the Chinese government that was filed by the Coalition for Solar Manufacturing (CASM), a US trade group lead by SolarWorld Industries America. By CASM’s calculations, Chinese dumping and subsidies have caused some $1 billion in damage to US silicon solar PV manufactures, damage that would be redressed by the imposition of countervailing duties on Chinese imports.

Based on an interview with the lead attorney for SolarWorld in the CASM case, Wiley, Rein’s Tim Brightbill, Part I of this series established the background and foundation for exploring and better understanding the issues associated with CASM’s trade dispute and its filing of anti-dumping and countervailing trade petitions.

This issue begs the question, “Just what is legal and what is illegal when it comes government subsidies and selling prices within the sphere of international trade and manufacturing?” That’s the main topic here in Parts II and III of this series.

Subsidies, Schmubsidies — Every Government Subsidizes

The US market for solar energy continues to exhibit remarkable growth, especially when considered in light of the persistent economic and political headwinds of recent years. A record 449 megawatts (MW) of new solar electric power capacity was installed in the US in this year’s third quarter (3Q). More solar electric power capacity came online in 3Q 2011 than in all of 2009, and year-over-year growth is expected is expected to be higher yet in Q4, according to a mid-December of 2011 report from GTM Research and the Solar Energy Industries Association (SEIA).

Subsidies have been vital to the growth and development of renewable energy markets and industry in countries worldwide, including here in the US. They also continue to benefit well-established businesses and sectors of the economy, such as oil, gas, coal, and agriculture. And, though they’re a persistent bugaboo for renewable energy industry participants and political proponents, they are not illegal in the eyes of international trade law, necessarily.

Opponents, detractors and skeptics of renewable energy continue to publicly hammer away on the issue, asserting that the need for subsidies shows that renewable energy is impractical and uneconomic. As has been pointed out in numerous studies, articles and blog posts (including here on Clean Technica), this conveniently ignores the fact that the US energy industry is highly regulated in the first place, and that oil, gas, nuclear, and coal industry subsidies are many times the size of those that have been granted across the entire renewable energy sector.

Still, if the US — as well as Germany, the UK, Spain, Italy, Japan, and a growing number of other governments around the world — are employing subsidies to stimulate development and adoption of renewable energy, why should China be penalized for it? Finding the answer requires delving into the obscure realm of international trade laws and agreements.

The answer turns on two aspects of subsidy programs: their nature and their magnitude. A third, to do with political economy, might also be considered significant: Who owns, or effectively controls, the factors of production — land, labor, resources — within a given system of government?

International Trade and Subsidies: What’s Legal, What’s Illegal?

Every organized system has rules governing what behaviors are considered acceptable and unacceptable. As commercial trade and industry have become increasingly globalized, multinational institutions have sprung up to establish rules governing what’s fair and what’s unfair, what’s legal and illegal, along with some means of enforcing compliance. Preeminent among them is the World Trade Organization, or WTO.

As the lead lawyer for SolarWorld Industries America in CASM’s international trade petitions against China, Wiley, Rein’s Tim Brightbill explained that WTO agreements are akin to international treaties. Individual governments that sign on to WTO treaties agree to enact domestic laws in compliance with them. When private sector businesses find evidence that these laws are being broken, they have legal recourse to domestic institutions — the International Trade Commission and Commerce Dept. here in the US — to enforce them and remedy the situation.

Subsidies, per se, aren’t illegal in the eyes of the WTO, member nations have agreed, but not all subsidies are created equal. Moreover, some types of subsidies are expressly illegal.

Government subsidies that result in damages to markets, industry, and businesses in other WTO member countries are illegal. This is a key point in understanding what distinguishes fair and unfair trade practices under international trade law. The nature of US solar energy subsidies as compared to China’s offer an excellent illustration.

Carry on to Part III

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