Saturday, April 14, 2012

China and renewable energy subsidies - A U.S. Report

The issue of subsidisation of the renewable energy sector has prompted the U.S to initiate action against Chinese solar panel manufacturers. Further, the growth of market share of Chinese environmental goods in the world markets has caused alarm in U.S. political circles. This is attributed to the policies that China follows to encourage its local industry.

Huffington Post carried this piece highlighting a 2012 U.S.Senate Report titled "Losing the Environmental Goods Economy to China" by Sen. Ron Wyden which explains in great detail the growth of the Chinese industry over the years and pushes for investigation as to whether Chinese domestic policies are in conformity with WTO rules. Making the assertion that an aggressive Chinese domestic policy supporting the environmental industry is responsible for the surge of Chinese exports it states:
In recent years, the Chinese Government has undertaken an aggressive strategy to capitalize on the growing market for environmental goods by making China a leading producer of environmental goods. Plans issued by the Chinese Government have detailed this strategy. For example, a 2007 report released by China’s National Development and Reform Commission (NDRC) outlined efforts to “speed up the development and deployment of hydropower, wind power, solar energy, and biomass energy; . . . {and} increase market competitiveness” by directing local authorities to “allocate the necessary funds to support renewable energy development.”
“Losing the Environmental Goods Economy to China” finds that China’s strategy has been working for China. In just the last five years, China rose from playing a minor role in the global market for environmental goods to become the dominant actor in the world’s biggest and fastest growing markets. Exports of environmental goods from the U.S. and other similarly-positioned countries are not growing at a rate commensurate with the technology their industries hold, the productivity of their workforce and the overall growth in global demand, because they appear crowded-out by China’s exports. China has neither a technological advantage nor any clear comparative advantage in terms of the production of environmental goods, yet China’s environmental goods exports are experiencing a rate of growth far afield of its competitors, which are losing to China.
Endorsing the view that Chinese policy needs to be analysed in the context of the WTO Agreements and international trade rules, the report concludes:

China’s rapid and punctuated growth appears to be the outcome of aggressive industrial policies employed by Chinese authorities to become one of the world’s leading producers and exporters of environmental goods, a stated goal in China’s two most recent Five Year Plans. Programs that distort trade by providing unfair advantage to Chinese exporters of environmental goods not only harm American producers but also those in other major environmental goods producing countries like E.U. member states and Japan. These Chinese programs need to be further identified and investigated to determine their consistency with WTO rules. WTO violations in this sector, and any other, must be aggressively challenged by the U.S. and its trading partners bilaterally and in multilateral forums.
The complaints filed by U.S. producers of solar and wind energy products represent a test as to whether international trade rules can be respected and whether U.S. trade laws provide a sufficient remedy to illegal dumping and subsidization by China.
Insufficient political appetite in Washington, D.C. to more fully challenge China’s tactics, and weak enforcement of international trade rules, undermine America’s environmental goods industry, and many others. As a result, the U.S. domestic policy environment will also remain critical to the success or failure of an American environmental goods industry. Policy makers in Congress would be wise to develop and implement policies that reflect a lasting, bipartisan consensus that establishes a pro-growth environment that enables the development of the American environmental goods industry."
Several issues come to my mind:

1. Are Chinese domestic policies supporting the environmental sector consistent with the Agreements on SCM, TRIMS and GATT?
2. While this report calls for the importance of trade rules and why they matter are all the policies of the developed world in relation to solar and wind energy consistent with WTO rules?
3. Trade rules should matter not only when one's exports are adversely affected but also when one's domestic industry is being supported. Claiming that another country should play by trade rules while one flouts it is not acceptable. 
4. Would a legalistic,WTO rule based approach hurt the battle against climate change wherein the proliferation and use of cleaner technology is always welcomed. Is there a balance?
5. The Report itself does not dwell into the specificities of Chinese policies and their inconsistencies with WTO rules. This is required since any challenge at the multilateral fora is a heady mix of complex facts, even more complex rules and sound jurisprudence.

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