Will PV tariffs level the playing field between the US and China?

13. March 2013 | Top News, Global PV markets, Industry & Suppliers, Investor news, Trade cases | By:  Cheryl Kaften

Last year, the U.S. 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?

US China flags

In reality a loophole in the WTO ruling has enabled many of China’s manufacturers to successfully evade any US consequences.

On March 20, it will be one year since the U.S. Department of Commerce (DOC) handed down its preliminary verdict in the countervailing duty (CVD) trade case that pitted America’s PV 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 U.S. at below-market prices.

Much has gone down since then. Today, the U.S. is levying double-digit duties, mainly in the range between 24 and 36%, on specified PV 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 WTO ruling 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 solar projects, as the only way to survive and thrive until the upstream market somehow self-corrects.

"Collective" wisdom

However, 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 $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."

Commenting on the state of the U.S. industry late in February, Milan Nitzschke, president of 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!"

Trading places

However, SolarWorld, itself, is 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 it finds more worthwhile to manufacture at home."

Indeed, according to Solana, California-based North American Production Sharing, a firm that specializes in relocating U.S. and International manufacturing operations to Mexico, over the past two years, new investment for the sole purpose of manufacturing in Mexico for exportation to the U.S. has more than doubled.

A comprehensive Plan B

Silicon Valley-based SunPower Corporation 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 the highest bidder, while continuing to control on-site management.

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 (C7) concentrator technology in the Chinese market.

The time is right

In a recent interview, Ian Diamond, solar project developer Commercial Solar Projects, 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.

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 CASE (The Coalition for Affordable Solar Energy), 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 policy that encourages local manufactures to compete. Leadership, not protectionism, will generate more clean energy and green jobs."

Others are a bit more sanguine, Jesse Pichel, an industry analyst who now runs New York City-based Pichel Cleantech Advisors, for exmaple, 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."

Meanwhile, John Smirnow, vice president, Trade & Competitiveness, of the U.S. Solar Energy Industry Association, stated, "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."

Read the full article in the April edition of pv magazine and watch out for our new "Trade cases" feature this week, where pv magazine has compiled a list of resources, conducted interviews and reported on the latest trade case developments from across the world.

Edited by Becky Beetz.


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