Friday, January 13, 2012

Shining Bright? Not the solar industry

The issue of "protectionism" in manufacturing of renewable energy products, especially solar panels has become a contentious issue of late. Countries, including U.S., China and India) have accused each other of protecting domestic industry over foreign products thus bringing the dispute to the WTO. It has also been recently reported here, here and here.

Employees inspect and sort solar panels into different quality categories at an LDK Solar company workshop in Hefei, Anhui province, China in this November 10, 2011 file photo.         REUTERS/Stringer/Files

Down to Earth carried an extensive piece on protectionism in the solar panel industry.
"The world is witnessing an increase in trade disputes in the renewable energy sector. Countries are trying to strengthen their renewable energy base by preferring indigenous products over imports. This is an obvious dampener for countries with good renewable energy equipment manufacturing capabilities and advanced technology. They argue that such policy measures hinder free trade. Their complaints at the World Trade Organization (WTO) are piling up. India is the latest to be in the spotlight."
The United States has alleged illegal dumping by China on solar panel imports into the U.S. This prompted similar steps from China against U.S, imports as reported here.

"Cheap solar panel imports from China have substantially hurt US manufacturers, the US International Trade Commission (ITC) preliminarily found on 2 December. Following this early assessment, six ITC members unanimously decided to continue investigating the alleged subsidisation and dumping of imports of crystalline silicon photovoltaic (CSPV) cells and modules from China. 
The assessment and vote follows the ITC’s decision on 9 November to react to a petition to curb unfair imports submitted by SolarWorld Industries America Inc. and the Coalition for American Solar Manufacturing (CASM).
Washington’s decision to continue proceedings comes only days after Beijing confirmed that it was conducting its own investigation on Washington’s renewable energy support. Beijing’s probe will cover wind energy, solar, and hydro technology products. The investigation is expected to end by 25 May 2012."
The U.S. has alleged that Chinese manufacturers receive huge subsidies from the State which helps them to sell their products cheaply and thus affect domestic producers in the U.S. The Chinese Commerce Ministry reacted with caution,
"China-based PV (photovoltaic) industries express their strong opposition to the petition for the investigations ... and that any trade restrictive measures that may be imposed will unavoidably cause serious impairment to the sustainable development of the green industries as well as consumers' interests in both China and the U.S."
The Chinese Development Bank has reportedly extended more than $34 billion in credit lines to Chinese solar companies. It has also been interestingly argued that subsidies to the renewable energy industry is practiced around the world by many countries and China is no exception.

Gulzar has recently contextualised the solar energy subsidy debate int he context of the Jawaharlal Nehru National Solar Mission (JNNSM) in India. The U.S has alleged that India's mandating of domestically produced solar products is violative of its WTO obligations. The JNNSM has a domestic component feature.
" Domestic content -
One of the important objectives of the National Solar Mission is to promote domestic manufacturing. In view of this, the developers are expected to procure their project components from domestic manufacturers, as far as possible. However, in the case of Solar PV Projects to be selected in first batch during FY 2010-11, it will be mandatory for Projects based on crystalline silicon technology to use the modules manufactured in India. For Solar PV Projects to be selected in second batch during FY 2011-12, it will be mandatory for all the Projects to use cells and modules manufactured in India" 

It is clear that the solar industry around the world is heavily subsidised by the State through various means. This has resulted in the products being available at an economical price. The issues in the context of the WTO are the following: Whether the subsidies offered by various countries to their domestic manufacturers is violative of WTO obligations? Related to this issue is the question of anti-dumping and countervailing measures that can be imposed to protect local industry against cheap subsidised imports. Most of the cases referred to above refer to the anti-dumping measures against cheap imports.Anti-dumping measures can be imposed after a thorough investigation and a finding that the cheap imports have caused injury local domestic industry.

There are different dimensions to the dispute:

1. Anti-dumping measures can be undertaken, irrespective of whether subsidies are being given by the country, wherein the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so.If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Hence in the case of solar panels a member country can allege that China is "dumping" their products in their market which has caused an injury to their local industry. This is covered by the Agreement on Anti-dumping in the WTO Agreements.

2. Another aspect of the dispute is the issue of facilitating local, domestic industry by offering subsidies as well as mandating local content requirements in projects. The Agreement on Subsidies and Countervailing measures  essentially outlines what are "prohibited subsidies" and what are "actionable subsidies" under the WTO.

Article 3 of this Agreement states

 "3.1        Except as provided in the Agreement on Agriculture, the following subsidies, within the meaning of Article 1, shall be prohibited:
(a)        subsidies contingent, in law or in fact(4), whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex I(5);

(b)        subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.
3.2        A Member shall neither grant nor maintain subsidies referred to in paragraph 1."
Hence, where a subsidy is given to a project on the condition that domestic goods should be used over imported goods it is a prohibited subsidy. This is a prohibited subsidy. Does the JNNSM support fall under this category?

3. "Specific" subsidies are also "actionable" under the Agreement. As per Article 5 , action can be initiated against specific subsidies if it can be proven that they caused, inter alia, injury to the domestic industry. Though the Chinese subsidies may not fall under prohibited subsidies, can a case be made out that they are actionable subsidies since it caused injury to the domestic U.S.industry? This would require marshalling of evidence to that effect.

4. Does the requirement of domestic content violate the "national treatment" principle enshrined in the GATT Agreement?

While Japan and EU have initiated WTO Dispute Settlement procedures against Canada in regard to solar energy products, it is surprising that China has not been under the scanner here. It is clear that one would have to strategically and creatively craft one's renewable energy policy keeping in mind its implications on the various obligations under the WTO. This would require not only an understanding of how the renewable energy sector is across the world but also a thorough knowledge of the interpretation of the WTO Agreements.

No comments: