China Complains To WTO Against The US Solar Protectionism

China’s Ministry of Commerce (MOFCOM) in its brief statement released on Thursday has stated that it believes that six alternative energy projects running in five U.S. states have broken international trade laws and World Trade Organization’s (WTO) policies

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Last week, the United States Department of Commerce (DOC) imposed import tariffs from 31% to 250% on Chinese solar panel manufacturers, accusing Beijing of dumping the solar cells in its country. Consequently, their price may increase, which can decrease the demand. The decision came as a big surprise for the global solar industry in general, and Chinese PV manufacturers in particular. Analysts had predicted that the U.S. move will instigate a trade war, which is always bad news for the end consumers.

Beijing has now responded by accusing Washington of illegally supporting its industry while Chinese solar companies have decided to combine their efforts to fight the custom duties. 

It all started in October when seven solar firms, including SolarWorld A.G. (ETR:SWV), filed a complaint with the U.S. International Trade Commission and Commerce accusing the Chinese solar cell manufacturers of improper trade practices. The U.S. immediately started investigating into the matter, which eventually led to trade barriers. This compelled China to start its own investigation into the U.S. in November. According to China’s mission to WTO headquarters in Geneva, the U.S. investigation process was inconsistent with “WTO rules and rulings in many aspects.”

China’s Ministry of Commerce (MOFCOM) in its brief statement released on Thursday has stated that it believes that six alternative energy projects running in five U.S. states have broken international trade laws and World Trade Organization’s (WTO) policies. The allegation is a result of almost seven months of investigations carried out by Beijing, which are still in their preliminary stages.

According to the statement, certain solar and wind energy projects operating in California, Massachusetts, New Jersey, Ohio and Washington have violated the WTO’s rules and policies. China has now officially filed a complaint with the WTO, as it believes that some forms of the U.S. government’s support to its local manufacturers, such as the import tariffs, comprises “prohibited subsidies” that directly affect $7.3B worth of 22 Chinese products, including solar panels.

What is interesting about the complaint is that it follows a holistic approach. It challenges all of Washington’s trade protectionism practices and its definition of subsidies and dumping. The complaint includes a list of a variety of Chinese products such as thermal paper, steel sinks, citric acid and wind towers, rather than just solar panels. In its statement, the MOFCOM has expressed that "China firmly opposes the abuse of trade remedy measures and trade protectionism."

On the other hand, the Chief executives of four major Chinese PV manufacturers, who make up one of the primary suppliers to U.S., have formed the ‘Solar Energy Promotion Alliance’ (SEPA) to fight the import tariffs. This was announced officially in a news conference held in Shanghai, China, on Thursday organized by China's Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME). The message for Washington was loud and clear: the Chinese PV manufacturers have rejected the U.S. DOC’s logic behind the massive tariff increase. The four founding members of SEPA are Suntech Power Holdings (STP), Canadian Solar (CSIQ), Trina Solar (TSL) and Yingli Green Energy Holding (YGE). More members are expected to join the organization in the coming months.

If the U.S. import subsidies were meant to support the local solar industry, which has witnessed four bankruptcies in the past year, then it has missed its target by miles. The U.S. actions could have initiated a trade war between the two biggest economies of the world. The U.S. and other western economies are going through a period of financial recovery. Their focus is on cutting down expenses and creating more jobs.  Under such circumstances, according to WTO chief Pascal Lamy, the wrong thing to do is to erect more trade barriers, which can provide short-term relief at the cost of long-term damage.

As mentioned earlier, China has now filed a formal complaint with the WTO. This will be China’s seventh complaint against the U.S., while U.S. has filed thirteen complaints against China, half of the total number of complaints submitted against China by all the 155 WTO members. What follows now is a process of negotiation; officials from both sides will discuss the matter for up to two months to resolve the dispute amicably. If the discussions fail then China can request the WTO judges to intervene. The judges, upon investigation, will give their rulings within six months. If the result is in China’s favor then the U.S. might be asked to remove the trade barriers, compensate China for the loss of business, or both.

The current Chinese complaint is very much similar to another complaint filed by China against the U.S. anti-dumping measures in 2008. The case lingered on until last year, in 2011, when the WTO’s judges’ panel ruled in favor of China, stating that “the United States acts unlawfully in the methods by which it calculates and imposes countervailing duties on imports from China.”

Li Chenggang, director of MOFCOM’s department of treaty and law, expresses regret that not only did the U.S. fail to implement the WTO’s earlier ruling, but it “repeated its wrongful practices.” Therefore, China was forced to go to WTO. The ball is now in America’s court. The complaint also entails a formal discussion request to the U.S. from China, which must be answered within ten days. This means that the U.S. will have until the first week of June to reply to China’s request, after which the negotiations are required to start within a month.

Li is, however, hopeful for the future as he believes that the current dispute is within the confines of the WTO framework and it is not going to have any major impact on the two countries’ bilateral trade. In fact, he stated, “It is normal to see trade frictions as bilateral trade expands.”