Getting “even”

04 / 2013, Financial & Legal Affairs | By:  Cheryl Kaften

US-China solar trade case: A year ago, the U.S. Department of Commerce announced its preliminary verdict in an Antidumping and Countervailing Duties trade case against China. Have the antidumping tariffs really leveled the playing field between the USA and China?

According to U.S. Customs and Border Protection the Antidumping and Countervailing Duties on specified Chinese solar PV panels could actually remedy unfair trade from China.

The Department of Commerce headquarters in Washington, D.C.

A study by Pew Research Center stated that U.S.-based companies exported over US$3.7 billion worth of PV goods and services to China in 2011, while Chinese companies exported US$2.8 billion to the USA.

Last year, the United States reproached China for being “generous to a fault” to its domestic solar manufacturers, even as the rest of the industry suffered from declining subsidies, rising inventories and internecine cost competition. But can punitive tariffs really bring prices up to parity and alleviate the pain?

On March 20, it was one year since the U.S. Department of Commerce (DOC) handed down its preliminary verdict in the Antidumping and Countervailing Duties (AD/CVD) trade case that pitted America’s PV solar cell producers against their Chinese competitors. The DOC found the People’s Republic “guilty” of providing illegal subsidies to its manufacturers; and two months later, ruled that China’s solar industry had violated fair trade practices by dumping goods in the United States at below-market prices.

Much has gone down since then. Today, the United States is levying double-digit duties, mainly in the range of between 24 and 36%, on specified PV solar panels coming into the country from China. Theoretically, the punitive tariffs should inflate the cost of China’s goods – and clear out the low-priced inventory that has diminished U.S. revenues, setting off a series of manufacturer bankruptcies and cutbacks.

In reality, however, a loophole in the ruling of the World Trade Organization (WTO) has enabled many of China’s manufacturers to buy cells in Taiwan or Malaysia, produce modules at home – and at the end of the day, successfully evade any U.S. consequences. In fact, if America’s industry needed tariffs for parity, at this point, the manufacturers might have to consider Plan B.

And that’s precisely what some are doing: With the downstream segment of the industry thriving, manufacturers are developing their own PV projects, as the only way to survive and thrive until the upstream market somehow self-corrects.

“Collective” wisdom

According to U.S. Customs and Border Protection (CBP), that may not be necessary. An agency spokesperson informed pv magazine, “Antidumping and countervailing duty enforcement is a priority trade issue for [our agency]; and, in partnership with the United States solar cell industry, [we are] actively enforcing the orders on solar cells from China. The AD/CVD duties that Customs and Borden Protection collects level the playing field for U.S. manufacturers of solar cells and panels to remedy the unfair trade from China.” He estimated, “Since March 2012, when the Commerce Department first required duties for these imports, approximately US$18 million in antidumping (AD) and CVD duties has been collected from Chinese companies. CBP collects the duties from the importers, which are normally received either in cash or by bond. The U.S. Commerce Department allows importers to use a bond to cover the AD/CVD liability for part of this period.” SolarWorld AG also states that it is nothing less than satisfied with the results handed down by the Commerce Department. Since October 2011, the Bonn, Germany-based PV manufacturer and its U.S. subsidiary in Hillsboro, Oregon, have advocated effectively on two continents for a trade remedy against China. The company worked through a coalition called Coalition for Solar Manufacturing (CASM) in the United States and continues to spearhead the organization EU ProSun in the European Union.

Trading places

Commenting on the state of the U.S. industry late in February, Milan Nitzschke, president of EU ProSun and head of Marketing for SolarWorld AG, emphasized that the trade action against China had caused no harm, no foul. “The number of [U.S.] solar installations has increased substantially and consumer prices have remained stable or even decreased, even though Chinese imports have drastically declined,” he said. “It is a win-win situation. Today in the USA, there are no more unfair trade practices, the domestic industry has survived, consumers do not have to pay more, and the solar market is growing.” However, SolarWorld itself is reportedly struggling to stay afloat. An industry analyst told pv magazine in February, “SolarWorld may have gained some optimism on the strength of its restructuring. However, those of us who follow the company have heard that it may shutter its U.S. factory during 2013 because it cannot make a profit. To keep a presence in the U.S. market, it would then either buy from Taiwan, or ship from its factory in Germany.” And SolarWorld is not the only company that has thought about shifting or consolidating production, in order to bolster its bottom line.

Mark Wu, assistant professor at Harvard Law School in Cambridge, Massachusetts, and a recognized expert in international trade and economic law, told pv magazine recently, “It’s too early to ascertain whether the cases will be effective in rebuilding American solar manufacturing. Despite the tariffs against Chinese products, the market still faces large excess capacity, which causes downward pricing pressures, and it’s unclear how many American firms have the financial wherewithal to stomach this brutal cycle. Some U.S. companies have already shifted low-end production capacity to Asia and Mexico, so the answer will turn in part on whether such companies develop innovative high-end products that they find more worthwhile to manufacture at home.” Indeed, according to California-based North American Production Sharing, a firm that specializes in relocating manufacturing operations to Mexico, over the past two years, new investment for the sole purpose of manufacturing in Mexico for exportation to the United States has more than doubled.

As the company’s website pointed out, “While the single largest advantage of manufacturing in Mexico is the significant reduction in direct labor costs, more companies are finding they can also take advantage of a highly educated labor pool for indirect positions, including engineers, designers and various levels of management. This reality is shifting the mind-set of many executives who once viewed Mexico as a place to assemble simple products, but now see it as a possible location for their North American headquarters.”

A comprehensive Plan B

Silicon Valley-based SunPower Corporation, a producer of PV solar cells and modules as well as patented concentrated PV solar tracker technology, has taken several moves to beat the high costs of manufacturing versus the low prices of cells and panels. Its Plans B has been comprehensive – including:

  • moving a portion of production to Mexico;
  • sealing a deal to manufacture and deploy its solar tracker technology in China;
  • developing its own utility-scale solar projects; and
  • selling those projects to the highest bidder, while continuing to control on-site management.

The company’s move to Mexico was announced two months before the U.S. trade complaint was lodged in October 2011. SunPower opted to produce its E18, E19, and E20 solar panels at a 320,000 square foot (29,729 square meter) facility it now owns and operates in Mexicali, Mexico. The company also has factories in Silicon Valley, Malaysia, and Europe.

What’s more, in December 2012, SunPower revealed that it would expand into China through a joint venture with partners Tianjin Zhonghuan Semiconductor (TZS), Inner Mongolia Power Group (IMP) and Hohhot Jinqiao City Development Company (HJCD) for the manufacturing and deployment of the company’s proprietary SunPower C7 Tracker concentrator technology in the Chinese market. Under the terms of the definitive agreement, SunPower said that it would invest US$15 million (€11.5 million), of the total capitalization of the joint venture of US$60 million (€46 million), for a 25% ownership stake. Initial C7 deployment was expected to begin by the end of 2013.

“We expect that this venture will facilitate the development of a low-cost, high-volume C7 supply chain and accelerate our C7 cost reduction road map,” stated Tom Werner, SunPower’s president and CEO.

And over the past four years, SunPower developed and cashed in on the 579 MW Antelope Valley Solar Projects at a 13 square kilometre (3,230 acre) site colocated in Kern and Los Angeles Counties, California.

On January 2, 2013, Warren Buffett – arguably the most successful investor of the 20th century – put down between US$2 billion and US$2.5 billion (€1.5 billion and €1.9 billion) through his MidAmerican Energy Holdings subsidiary to acquire the projects. Together, the projects currently constitute the largest permitted PV solar power development in the world.

Under the terms of the deal, SunPower will install its Oasis Power Plant product at the site. In addition, SunPower will be the engineering, procurement and construction (EPC) contractor and will operate and maintain the facility via a multiyear services agreement. Construction of the solar project is scheduled to begin during 1Q2013, with the plants expected to be complete by year-end 2015.

Since the sale of the Antelope Valley Solar Projects, SunPower has been one of the few solar companies to see its stock rise. Aaron Chew, Vice President and senior alternative energy/solar analyst at the New York City-based Maxim Group, reported to pv magazine, “The purchase by MidAmerica Energy has been a huge factor in this stock’s rally. There is no question that it had a positive effect.”

“The time is right”

Indeed, Ian Diamond, commercial solar project developer at ConEdison Solutions, a division of the regional electric utility based in Valhalla, New York, told pv magazine that the time is right for solar development and construction. “Construction costs are coming down,” Diamond said. “That has the benefit of making solar affordable, bringing it more toward grid parity at the retail level (delivered supply). In several U.S. territories and states, including Puerto Rico and Hawaii, solar energy already is very close to grid parity. It can be installed and used to generate electricity at a levelized cost.” Diamond noted that the parent utility, ConEdison, “has invested hundreds of millions of dollars in the development of solar facilities around the country. That indicates a very strong commitment to the viability of both distributed grid-tied and utility-scale renewable power.” However, for smaller solar companies, including installers – who enjoyed the boom created by the inventory oversupply and low-cost modules – this point in time and the opportunity it offers may be off the mark. They have suffered since the imposition of tariffs on China’s manufacturers, said Gary Mull, former Vice President, Sales and Marketing for Westinghouse Solar, and current President of the Mull Group, based in San Francisco. “The tariffs have hit hardest at the smaller solar companies. In the competitive solar installation market, many local solar installers that were benefiting from declining prices now suffer from decreased margins – resulting in a very challenging competitive environment,” he told pv magazine.

His opinion backs up the scenario that the downstream segment of the U.S. industry – represented by The Coalition for Affordable Solar Energy (CASE) – repeatedly warned was in the offing, should the U.S. impose punitive tariffs.

Prior to the DOC final verdict, CASE cautioned that tariffs could lead to the loss of many solar jobs, stating, “The huge price increase SolarWorld’s petition seeks on some imported solar panels would have a devastating impact on the solar workforce because the new affordability of solar energy, driven in part by competitive prices, has sparked the growth in businesses, investments and jobs.” Mull concurred, asserting, “Rather than initiating trade wars, the PV industry will be best served by shaping a policy that encourages local manufactures to compete. Leadership, not protectionism, will generate more clean energy and green jobs.” Claude Barfield, resident scholar at the Washington, DC-based American Enterprise Institute for Public Policy Research, and a former consultant to the Office of the U.S. Trade Representative, was even more adamant. “This is just another example of the foolish, self-defeating results of national antidumping laws,” he told pv magazine. “President Obama is hell-bent on forcing clean-energy projects on the U.S. taxpayer, and yet the Administration continues to hurt U.S. consumers by denying them the ability to buy lower-priced, higher-quality solar units from China. The point is, what does the United States want – cheaper solar units with much greater utilization; or protection of subsidized, inefficient U.S. producers who can’t hack it in the competitive marketplace?”

Looking on the bright side

Others are a bit more sanguine. Ian Diamond of ConEdison Solutions opined, “Working with the Chinese manufacturers – both before and after the tariffs – nothing really has changed. It’s an international market: no big deal; no big effect. I understand that the Chinese have work-around plans. They’ll look at the letter of the law and then see what they can do to change their manufacturing processes.” On the whole, Diamond explained, Chinese producers as well as all the other manufacturers worldwide are in a very difficult situation. “The reality is that manufacturing modules is relatively easy to do, so there is more capacity than demand. Nobody is immune.” Jesse Pichel, an industry analyst who now runs New York City-based Pichel Cleantech Advisors, commented, “the only winners in this scenario are the cell producers in Taiwan and the end-buyers of solar modules. The Chinese manufacturers are losing major amounts of money and going to Taiwan has only contributed to those losses. They are losing US$50 million to US$100 million (€30.3 million to €76.7 million) a quarter.” Finally, John Smirnow, Vice President of Trade and Competitiveness for the U.S. Solar Energy Industry Association (SEIA), left us with a slightly sunnier point of view on behalf of the industry. “The tariffs did have [the desired] effect of barring Chinese cells from entering the U.S .market. Proper use of the trade laws is vital, so I think that this case was important. And the United States was exercising its right to bring these cases. That’s acceptable. The U.S. market continues to grow at a healthy pace and we expect that to continue into the future.”


According to U.S. Customs and Border Protection the Antidumping and Countervailing Duties on specified Chinese solar PV panels could actually remedy unfair trade from China.

The Department of Commerce headquarters in Washington, D.C.

A study by Pew Research Center stated that U.S.-based companies exported over US$3.7 billion worth of PV goods and services to China in 2011, while Chinese companies exported US$2.8 billion to the USA.

US leads China in solar exports

The United States doesn’t know its own strength when it comes to competition with China, according to a report just released by the Washington, DC-based Pew Research Center. And that holds especially true in the high-profile, ultra-competitive photovoltaics market sector.

The study, “Advantage America: The U.S.-China Clean Energy Technology Trade Relationship,” conducted by the nonpartisan think tank and based on data compiled by Bloomberg New Energy Finance, finds that the U.S. racked up a US$913 million (€702.6 million) surplus in the solar sector during 2011, compared to its Asian rival.

Overall, it says that U.S.-based companies traded over US$3.7 billion (€2.8 billion) worth of photovoltaics goods and services with Chinese interests during the 12 month period, while Chinese companies exported US$2.8 billion (€2.2 billion) to the U.S.

Based on current trade flows, says Pew, reality reflects that China is a low-cost producer; and the U.S., a high-volume consumer of finished products. “But underlying these truths is a trading relationship that is more nuanced, in which the U.S. has key strengths that often go unrecognized,” states the study.

It added, “Misunderstanding of clean energy trade realities is fed by broad-based turmoil in the marketplace resulting from intense international competitive pressures, rapid price declines, and policy uncertainty in U.S. and European markets. High-profile clean energy trade cases involving Chinese exports of photovoltaic cells and modules to the U.S. also amplify confusion about the nature of this trade between the two countries.”

Solar energy product exports are the largest component of U.S.-China clean energy trade for both countries. Combined, firms based in the two nations traded more than US$6.5 billion (€5 billion) worth of solar products and services to each other in 2011.

Specifically, there are seven categories of products in the sector. According to the report, China has a major edge in just two, as follows:

Polysilicon:

The leading U.S. polysilicon firms exported US$684 million (€527 million) worth of polysilicon to China in 2011. China has its own major producers, such as GCL-Poly Energy Holdings; but those firms do not export to the U.S., and instead serve primarily local and other international markets.

Wafers:

The U.S. is also a major wafer exporter, with exports worth US$289 million (€222 million) in 2011. Chinese firms do not export wafers to the U.S.

Photovoltaic cells:

The world’s largest solar manufacturers are located in China, so it is no surprise that it leads in this category. In 2011, Chinese companies exported US$151 million (€116 million) worth of photovoltaic cells to the U.S., while the U.S. exported cells worth just US$14 million (€11 million) to China.

Photovoltaic modules:

Here, too, China leads. Chinese PV module exports to the U.S. constitute the single largest component of clean energy products traded between the two countries. In 2011, Chinese firms exported US$2.65 billion (€2 billion) worth of photovoltaic modules to the U.S. In contrast, U.S. firms exported modules worth just US$12 million (€9 million) to China.

Solar materials (e.g., foam back sheets; plastic encapsulates and specialty metal compounds):

U.S. firms sold over US$500 million (€385 million) worth of solar materials to Chinese interests in 2011. A number of major U.S. chemicals firms have also established large manufacturing capabilities in coastal provinces in China. Chinese firms, however, did not export statistically meaningful amounts of solar materials to the U.S., says the study.

Inverters:

U.S. manufacturers reportedly exported US$9.6 million (€7.4 million) worth of inverters to China in 2011. Meanwhile, none were said to be imported into the U.S. from China.

Capital equipment:

Solar capital equipment, used to make polysilicon and wafers, includes furnaces and wire saws, deposition chambers and coating machines, robotics and “clean rooms”. “Trade in capital equipment used in solar manufacturing processes constitutes a significant component of the U.S.-China trade relationship in the clean energy sector, with all of the trade flowing from the United States,” says the study. In 2011, U.S. firms exported US$2.2 billion (€1.7 billion) worth of equipment to China.

Thus, based on the study, China’s strength in production of photovoltaic modules is well-matched on the U.S. side by leadership in high-tech goods and services. To date, it has been common knowledge that the U.S. and China are leaders in the clean energy sector.

Indeed, it shows that they attracted more than 39% of worldwide clean energy investments in 2011. What’s more, they ranked first and second in terms of annual investment, and were first and second in terms of total installed renewable energy generating capacity as of 2011.

However, the report provides a more balanced – and neutral – viewpoint on the balance of trade between the two major powers than has been seen to date.