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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?