Solar_Trade_Policy_Presentation

SOLAR INDUSTRY: TRADE POLICY

Team: Jacob Henderson, Mark Chesney, Jake Schurmeler, Shannon Morrison

Background: Facts of Tariff

¨  Solar World petition (November 2011) ¤  Alleged that many PRC or PRC-based manufacturers of CSPV

components were taking advantage of preferential loans, raw material discounts, tax incentives and currency manipulation1 to dump products into the US market.

¨  ITC findings ¤  ITC rulings “the domestic industry” has been “materially injured.” ¤  Solar World claimed material injuries through:

n  Decreased market share, decreased shipments, decreased sales and decrease prices, decreased employment, decreased profits, lost in sales and revenue, and increase imports.

¨  ITA ruling ¤  Judgment in favor of petitioner rendered in December 2012 ¤  Anti-dumping and Countervailing Duties

¨  Tariffs ¤  Dumping Margins for China 165.04%

Background: Scope of the Protection

¨  Crystalline Silicon Photovoltaic Cell ¨  Modules, Laminates and Panels consisting of

crystalline silicon photovoltaic cells ¨  Includes PV cells manufactured in China,

regardless if exported directly from China or via another country.

Process for Determination of Tariff

Less than Fair

Value?

U.S. Price: “Constructed Export Price”

based on price quotes, sales, delivery terms adjusted for discounts, shipping, credit

expense, domestic brokerage, etc.

Normal Value: based on a surrogate market-

economy country (India) because China is a non-

market economy

Theories for Protection

¨  Infant industries ¨  Improve terms of trade ¨  Market Failure (from

positive production externalities)

¨  Bargaining Tool ¨  Market Distortion from

China’s subsidies and dumping practices

Anti-dumping Tariff Theory

China Subsidizes their Solar Manufactures to Dump into U.S. markets at lower prices.

Drives U.S. firms out of the market.

China Supply with Subsidy

US Supply

Demand US

Ys Y1 C1 Cs |-------------Ms-----------|

ATC

Anti-dumping Tariff Theory

If China’s Solar Manufactures manage to gains market power, they may be able to increase prices in the future.

China Supply with Subsidy US Supply

Demand US

China Supply After

Ys Cs C2

|-------------M2--|

Empirical Evidence for Protection

¨  Solar was listed as one of China’s “Strategic Emerging Industries (SEIs, 战略性新兴产业)” in 2009. Then-Premier Wen Jiabao said during a November 2009 speech at the Chinese Academy of Sciences:

¨  Then-President Hu Jintao on SEIs in May of 2009:

“the scientific selection of the Strategic Emerging Industries is vital. If we choose correctly, we can leap forward with development…”

“…a necessary requirement for taking the initiative in international competition.”

Chinese Government Subsidies: Rationale for worries about market saturation

Secondary source: GWU report

According to a paper by GWU, Chinese production of PV cells increased from 1 GW in 2008 to 20 GW in 2011, and at that time comprised 50% of the global market. Several reasons Chinese manufacturers were able to accomplish this worried US producers, including

•  Easy credit at low interest rates

provided by state-owned banks

•  Tax incentives

•  Artificially low input prices, including land and raw materials

•  Guaranteed price mechanisms •  Feed-in-tariffs (FiTs)

Empirical Evidence for Protection

Average selling price, Chinese vs. non-Chinese companies

Empirical Evidence for Protection

Renewable Energy Law of 2006:

Empirical Evidence for Protection

Chinese companies less efficient, yet able to obtain tremendous market share

Secondary source: GWU Report

2010

Theory for Free Trade

China Import Supply US Supply

Demand US

Ys Cs |----------------Ms---------------|

Theory for Free Trade

Green Triangles represent deadweight losses

China Import Supply US Supply

Demand US

China supply with Tariff

Yft Yt Ct Cft |----Ms-|

Theory for Free Trade

Additional purple triangle represents losses of positive consumption externalities

China Import Supply US Supply

Demand US

China supply with Tariff SMB

Yft Yt Ct Cft |--------Ms-|

Theory for Free Trade

Optimal Policy would not be implemented through the trade channel, but rather by directly subsidizing US solar producers to attain the desired domestic production

China Import Supply US Supply

Demand US

China supply with Tariff SMB

Yft Ysubsidy Csubsidy |--------Ms-|

Anti-Tariff Argument: Free Trade

¨ China’s Production Scale ¤ preferred access to capital (indirect government

subsidies) ¤ anticipated PV price equalization from US and Chinese

manufacturers

Source: National Renewable Energy Laboratory http://www.nrel.gov/news/press/2013/2295.html

Empirical Evidence for Free Trade

¨  Chinese Increasing Returns to Scale ¤ historical advantage in

low-cost manufacturing n production base largely

based in China n access to global

network of manufactures

Source: NREL

Solar Cell Production, 2000-2010 (MW)

Chart Source: Congressional Research Services, 2012 Report

Empirical Evidence for Free Trade

Source: Bloomberg, New Energy Finance

Empirical Evidence for Free Trade

¨  Reduced Import Volume ¤  Can be attributed to the threat of a tariff

¨  Increases from 2010 to 2012 ¤  Volume: only +17% ¤  Value: +40%

Empirical Evidence for Free Trade

¨  Relatively Weak US Demand ¤  Overshadowed by Europe ¤  US unable to influence world price

through a tariff

Secondary Source: GWU Report 2010

Empirical Evidence for Free Trade

¨  Major Growth Outside of Manufacturing ¤  manufacturing jobs flat as

total employment increased ¤  < 1% of the 11.7 million

domestic

¨  Tariff may not help protect solar industry ¤  Unlikelihood of future jobs

Chart Source: Congressional Research Services, 2012 Report

US Solar Industry Employment, 2006-2012

Summary of Recent Developments

¨  Solar World’s instituted another petition in order to close the apparent loophole of the previous anti-dumping and countervailing duties imposed on the PRC.

¨  The key new provision is that any wafers, cells or modules produced in a customs territory of the PRC, or where any of the above are partially produced in the PRC before being finished in another country.

¨  The new petition seeks to rectify the offshoring of component production to Taiwan or other countries using Chinese made products.

THE DEBATE

¨  Tariff protection ¤ China Gov’t ability to

change the playing field

¤ Depending on a production inefficiency may later hurt our supply chain for solar projects

¨  Free Trade ¤ Changing the free-

market, avoid correcting one distortion with another.

¤ Estimates and construction of costs for China are based on India

Questions?