US blows ill wind on protection duty

Updated: 2012-06-28 11:16

By Don Bonker (China Daily)

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The United States is known for its liberal application of antidumping and countervailing duties to protect domestic companies.

While the process is open and transparent and allows all interested parties to defend or promote their interests, there is a thin line between rulings that have merit and those that have been influenced by potent lobbying efforts and pressure from Capitol Hill.

As a newly elected congressman in the mid-1970s, I was approached by wood mill workers in my district, who were seeking my support for a petition that called for limiting the importation of Canadian wood products that were threatening their businesses. They had a valid case and eventually our government imposed a tariff to offset a Canadian province's subsidy that took the form of providing harvestable trees at no cost to its private lumber companies.

Canada eventually relented, replacing the subsidy with market-value pricing of their timber, and our government began preparations to stop the tariff, which is how our trade laws are expected to work. But this is where the political mischief kicked in and I was very much a part of it.

Benefiting from the tariffs, the US lumber companies lobbied for them to continue, pressing senators and congressmen from lumber-producing regions to the point where Senator Max Baucus and I convened a meeting with the secretary of commerce, who reluctantly consented to maintaining the tariffs, however unjustified. They remained for many years and became a volatile issue in the bilateral relationship.

This month, the US government slapped preliminary tariffs on Chinese imports. That may protect domestic producers of renewable energy products, but more likely it will harm America's urgent need to become energy independent.

The first tariff imposed was a 31 percent duty on China-based solar panel makers, such as Suntech Power and Trina Solar, and another round of duties, between 13.74 to 26 percent was applied on wind-turbine towers. The latter was triggered by the Wind Tower Trade Coalition, four American producers of towers, who filed a petition with the Commerce Department and the US International Trade Commission alleging that their Chinese competitors benefited from government subsidies, including grants, preferential tax treatment and cheaper prices for raw materials.

The irony is that the US government itself provides generous subsidies to its renewable energy industry. America is no different than Spain and other countries in providing government support to a relatively new industry that is struggling to be cost-effective, which is why the Obama administration offers financial assistance in the form of subsidies to US companies, including hefty loan guarantees, as evidenced by the Solyndra controversy.

There has been no shortage of federal subsidies enacted by Congress in the past years: the American Renewable Energy Production Tax Credit Extension Act, the Recovery and Investment Act, the Advanced Energy Manufacturing Tax Credit, the PDC (wind production tax credit) and several others.

Yet the US alleges that China is selling its solar cell and wind turbine products in the US at less than market value, and that critical circumstances exist that has prompted the government to act.

It comes down to charges of dumping. Solar panel prices collapsed in 2009, causing producers, including China and the US, to be saddled with an unexpected inventory that everyone wanted to unload, even below cost. Because China is still seen as a "non-market" economy, the US law directed the Department of Commerce to measure dumping based on third-country production costs rather than any actual "predatory pricing" behavior.

The Commerce Department ruling may or may not benefit the US solar manufacturers, as other foreign suppliers, with equally lower prices, will come into play. Some Chinese manufacturers are already planning on setting up factories in Canada.

Ultimately, the question is the potential impact the anti-dumping duties will have on the Obama administration's commitment to renewable energy. At least four US solar companies have filed for bankruptcy in the past year, including Solar Trust of America, which planned to build the world's largest solar facility in California. Given the thin margins that solar and wind power plants are operating on, the Commerce Department's anti-dumping duties could precipitate more bankruptcies in the near future.

Unfortunately, the broader and long-term effects are not considered in making these decisions. The agencies involved have a narrow focus based on the petitioner's request and subsequent investigations, yet their decisions are often influenced by lobbying efforts and pressure from the congressmen representing districts where the companies are located.

The China tariff issue will likely persist beyond the Commerce Department's final determination in October. China has options, including referring the matter to the World Trade Organization or taking reciprocal action by raising tariffs on American polysilicon, a material used in solar manufacturing.

What began as an effort to address an unfair trade issue has all the makings to evolve into a trade war in the renewable energy sector.

The author, a former US congressman and a leading authority on international trade and investment, is an executive director at APCO Worldwide.

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