Trading insults: China launches AD probes against USA and South Korea

In a move many say is calculated to exact quid pro quo for America’s protectionist trade actions earlier this year, China’s Ministry of Commerce is looking into whether the United States has been subsidizing exports of polysilicon, so that the vital raw material for photovoltaic solar products can be sold at below-market rates in the People’s Republic.

During the course of a yearlong inquiry, the ministry will examine a tax-exemption program for the "advanced-energy manufacturing industry" promoted by the U.S. federal government and 15 state-government sponsored programs in Michigan, Tennessee, Washington and Idaho, the ministry’s statement on the CVD investigation said.

As expected, the announcement has heightened tensions among industry players on both sides of the Pacific. However, when the Chinese case is considered on its own merits, it may be equally as compelling as the earlier U.S. trade complaint.

Just as the U.S. claim that China’s solar manufacturers were cutting prices could be seen as being largely legitimate, so too may be China’s grievances about the costs being charged by U.S. polysilicon suppliers. And in both cases, other sectors of the domestic industry—downstream in America and upstream in China—are protesting that the imposition of any punitive tariffs will cause collateral damage.

Indeed, both trade actions simply may be indicative of tensions in the solar market as a whole—magnified to the scale of the world’s two largest economies.

Making the case in China

Looking at the larger picture, a glutted supply chain has put relentless pressure on price levels—driving solar companies to overextend themselves and resulting in a slew of high-profile failures and consolidations worldwide.

On July 9, the average spot price of polysilicon dove to a decade low of US$21.92 a kilogram, a 56 percent decline from a year ago, according to Bloomberg New Energy Finance. And, according to China Daily, the first five months of the year saw China import 34,000 tons of polysilicon, worth US$960 million. The United States supplied 41.4 percent of that and South Korea supplied 22.2 percent.

In fact, pricing on polysilicon imports from the United States is now so low that several China-based suppliers— China Silicon Corporation, Dago New Energy Corporation, GCL-Poly Energy Holdings, and LDK Solar——have lodged the complaint to which the trade ministry is responding. Until the recent oversupply, these four domestic companies accounted for more than 50 percent of sales of solar-grade polysilicon in China for four years running. Now, they all are experiencing difficulties.

However, the complaint still is being contested by China’s solar manufacturers, who are benefitting from the low U.S. pricing.

A spokeswoman for the U.S. Trade Representative’s office said the United States was disappointed with the Chinese move and would "vigorously defend its interests" in the case.

"As we have stated with respect to similar actions by China, we are concerned that China appears to have established a practice of using trade remedy investigations to retaliate against legitimate actions taken by its trading partners," USTR spokeswoman Nene Harmon told The Wall Street Journal.

Settling a score

Some form of payback has been expected since China began battling protectionist countervailing duty (CVD) and anti-dumping (AD) complaints from the United States in October 2011. At that time, seven U.S. solar PV manufacturers, led by Solar World Industries America, filed a petition with the U.S. Department of Commerce and the United States International Trade Commission (USITC), alleging that Chinese companies were receiving illegal financial backing from their government and selling solar panels below-cost in the U.S. market.

The U.S. complaints resulted in preliminary dumping margins against China-based Wuxi Suntech and Trina Solar of 31.22 and 31.14 percent, respectively. Fifty-nine other China-based exporters each qualified for a separate tariff rate of 31.18 percent. The remainder of PRC producers— who do business in the United States, but did not participate in the case—received a cumulative preliminary dumping margin of 249.96 percent. A final determination of penalizing tariffs will be made in October.

China’s solar manufacturers, including Suntech Power Holdings, Yingli Green Energy, and Canadian Solar, have termed the tariffs set this year as a threat to their emerging green technology industry, which they say will decelerate growth if costs are raised.

The American manufacturers are now joined under the banner of The Coalition of American Solar Manufacturing (CASM). In response to China’s trade sally, Gordon Brinser, who heads the coalition and is president of SolarWolrd Industries America of Hillsboro, Oregon, came out swinging after China’s July 20 announcement, declaring that not only had China tried to trounce America’s solar manufacturing sector, but now it was trying to "decimate another competitive American industry: the polysilicon industry."

On behalf of CASM, he said, "[This]… proves once and for all that China is intent on unfairly and illegally allowing its manufacturers to dominate the global solar industry. While it was not unexpected, the announcement of retaliatory investigations into U.S. polysilicon production is harmful to the international trade system."

Brinser added, "The Chinese government has been telegraphing this move since last October. It is a common Chinese tactic and an abuse of international trade rules. It represents yet another cynical attempt by the Chinese government to bully the U.S. government by injecting politics into a judicial investigation that is sanctioned under international trade rules, as today’s announcement tacitly confirms. Fortunately, when the Chinese government has attempted such blatant retaliatory actions in the past, those actions have been declared illegal by the World Trade Organization."

In return, Jigar Shah, the president of the Coalition for Affordable Solar Energy, started by U.S. solar installers who object to trade penalties and would prefer a negotiated settlement, said in an email to pv magazine:

"There’s no place in the global solar industry for companies who utilize unilateral trade remedies instead of competitive business strategies. Tariffs at any point in the global solar value chain are counterproductive and make solar energy less competitive against fossil fuels. Looking at the preliminary tariffs set in the United States, it’s clear that the free flow of solar goods is already disrupted: Prices are increasing, jobs are being eliminated, and businesses are adversely impacted at every level of the global solar industry. We urge all countries to avoid unilateral actions that impede trade and resolve conflicts in a bilateral or multilateral context. Specifically, we urge the United States and China to rise above SolarWorld’s selfish action and engage in productive dialogue to prevent this destructive trade war. Lowering, not artificially raising, the cost of solar should be a global goal."

Probable fallout

If within the next year, China opts to adopt punitive tariffs, those who would be worst affected are Hemlock Semiconductor, the world’s largest polysilicon producer, based in Hemlock, Michigan,; and the largest South Korean producer, OCI Corporation, based in Seoul; as well as St. Peters, Missouri-based MEMC Electronic Materials, a supplier of silicon wafers to the semiconductor and solar industries.

The analyst Felix Fok at the research firm JI Asia told Reuters that customers who used the material, such as wafer manufacturers, would struggle if China passed on the import tariffs against polysilicon imports. "China is doing this because some of its companies are basically on their knees," Fok said, referring to more than a year of losses suffered by the sector.

"Lowering, not artificially raising, the cost of solar should be a global goal," the Jigar Shah, added in his email.

China’s investigation of U.S. Industry actions and state and federal government subsidies is scheduled to last a year, with the possibility of an extension to January 20, 2014. The scope of the investigation will cover the 12 months from July 1, 2011 July 2, 2012.