U.S.-China Solar Tensions Rise
Business + Economy

U.S.-China Solar Tensions Rise

The United States on Tuesday dealt a blow to U.S. manufacturers of solar panels and boosted shares in Chinese rivals when it imposed unexpectedly low preliminary punitive duties on imports from China, though the move still drew fire from China industry representatives.

The action adds to trade tensions between the world's two largest economies and threatens cooperation in the burgeoning clean-energy sector, which both say they want to promote.

A Chinese industry group said despite the low duties the decision was unfair and went against international trade laws.

"If the U.S. finally decides on the tariff, U.S. solar energy costs will increase sharply and shrink the energy market," the China Chamber of Commerce for Import and Export of Machinery and Electronic Products said in a statement.

"The decision will harm the long-term interest of the solar industry as a whole."

President Barack Obama, running for re-election in November, has promised to crack down on unfair Chinese trade practices and last week challenged China's export restrictions on critical "rare earth" industrial materials in a case filed with the European Union and Japan at the World Trade Organization.

Energy analysts had expected Chinese imports of solar panels to be hit with preliminary duties of 20 percent to 30 percent, but the rates announced on Tuesday ranged from just 2.90 percent to 4.73 percent.

Tuesday's move is the latest salvo from Washington in its efforts to help the nascent U.S. clean energy industry compete against China's fast-growing companies, the leading suppliers to the global solar market.

Rapid expansion by Chinese companies has created a glut of solar panels that drove prices down sharply last year, pushing some weaker U.S. companies, including Solyndra, into bankruptcy.

Chinese Solar Makers Rally

The move pushed up shares of Chinese solar firms in Hong Kong on Wednesday, with GCL-Poly Energy rising as much as 4.8 percent and Solargiga Energy Holdings up nearly 3 percent, beating a flat broader index and tracking gains in Wall Street peers overnight.

"Punitive tariffs of less than 5 percent would be manageable for Chinese solar makers given that their panels are sold 25 to 30 percent cheaper than U.S.-made panels," said Min Li, head of alternative energy at research firm Yuanta Securities.

Chinese solar panel makers depend on exports for more than 90 percent of their earnings and the U.S. is their second-largest market, after Europe.

The Coalition for American Solar Manufacturing, a U.S. industry group that has complained that massive Chinese subsidies were driving them out of business, tried to put the best face on the news.

It said the U.S. Commerce Department would uncover more subsidies and unfair pricing practices as it continues its probe in the coming months, which would result in higher final duties.

"Today's announcement affirms what U.S. manufacturers have long known: Chinese manufacturers have received unfair and WTO-illegal subsidies," said Steve Ostrenga, chief executive officer of Helios Solar Works in Milwaukee, Wisconsin.

Senator Ron Wyden, an Oregon Democrat who has been a driving force behind the case, also said he expected duties to "significantly swell" as the case proceeds.

China accounts for 114 of the 283 anti-dumping and countervailing duty orders the United States has on foreign goods. The Obama administration has imposed more than 50 anti-dumping and countervailing duty orders since taking office in January 2009, including about 40 against Chinese goods.

The United States imported $2.8 billion worth of solar cells and panels from China in 2011, up sharply from about $1.2 billion just a year earlier, according to industry estimates.

The Commerce Department will announce preliminary anti-dumping duties in May to address a separate set of charges that Chinese producers are selling solar panels in the U.S. market at unfairly low prices.

Chinese Companies Feel 'Vindicated'

Chinese producers and U.S. companies opposed to the duties said the preliminary decision on Tuesday belied charges that China was flooding its solar sector with subsidies.

"We're pleased and in large part feel vindicated," Robert Petrina, managing director of Yingli Green Energy's U.S. business said.

Jigar Shah, president of a coalition of U.S. solar panel sales and installation companies which were opposed to duties, called the ruling an "initial victory for America's solar industry and its 100,000 employees" because it would not significantly raise prices for solar products and hurt demand.

SolarWorld Industries America, the U.S. arm of leading German solar manufacturer SolarWorld AG, has led the U.S. industry coalition seeking import relief.

The Commerce Department set a preliminary duty of 2.90 percent on SunTech Power Holdings, the world's biggest producer of photovoltaic solar panels, and a preliminary duty of 4.73 percent on Trina Solar, another major Chinese producer, industry officials said. All other Chinese solar panel producers and exporters received a duty rate of 3.59 percent.

Importers will have to post bonds or cash deposits based on the preliminary countervailing duty rates while the department continues its investigation.

The "surprisingly low" numbers would likely mean that the major Chinese companies would need to pay between about $5 million to $10 million to cover products shipped, said Timothy Arcuri, an analyst with Citigroup, adding this in itself would have a relatively minimal impact.

(Additional reporting by Leonora Walet and Ran Li)