Thursday, May 17, 2012

US-China Solar Panels Decision Expected, Instructive

The US Department of Commerce announced today preliminary anti-dumping duties on Chinese solar panels.  As expected (and predicted), the duties were pretty high: they ranged from 31.14% to almost 250%, but the vast majority of Chinese producers/exporters, including all of the big boys, were assigned duties around 31%.  In response to today's determination, I released the following press statement through my firm which echoes some of the things that I've said previously about the case:
American consumers and Beijing will decry today’s decision, but it’s unlikely to further inflame bilateral trade tensions because high anti-dumping duties were widely expected. Solar panel prices collapsed in 2009, leaving producers around the world, including those in China and the United States, with expensive inventory that often had to be unloaded below cost. Because US law requires Commerce to measure dumping from a ‘non-market economy’ (NME), such as China, based on third-country production costs rather than any actual ‘predatory pricing’ behavior, today’s outcome was all but certain, regardless of the actual intentions of China’s exporters or government. Nevertheless, the decision will likely be used as a rhetorical weapon by US solar panel producers and members of Congress seeking to demonize “unfair” Chinese trade practices, as well as by the Chinese government and other critics of the United States’ current trade remedies policies with respect to imports from NMEs.
In short: today's preliminary decision will evoke a lot of screams from pretty much everyone involved in the dispute, but because the (extremely dubious) NME methodology and 2009-2010 market conditions pretty much guaranteed high dumping margins, the announcement probably won't add to existing tensions between the US and China with respect to trade remedies or bilateral trade in "green" goods like solar panels and wind turbines.  Indeed, given that AD duty rates on NME imports can be much, much higher than 31% (for example, a 2006 GAO study found that NME rates for investigated exporters averaged about 50%), I wouldn't be surprised at all to learn that Beijing and Chinese producers quietly breathed a sigh of relief when hearing today's news.

So, sorry, trade reporters, no "trade wars" will be starting tomorrow.  It'll just be the same old stuff from all parties involved.  Yes, this may include (perhaps) a new Chinese trade remedy investigation of US exports in response to Commerce's determination, but even that move would be neither novel nor unexpected.  Just more of the same - and precisely what you'd expect from two countries with rapidly increasing bilateral trade flows (and a few controversial trade policies).

That's not to say, however, that today's decision isn't instructive.  It actually provides us with several insights, just none of the hysterical "trade war" variety.

First, today's decision should put to rest the notion that the Obama administration is somehow rigging the proceedings to result in very low tariffs on Chinese imports in order to encourage the proliferation and use of "green energy" in the United States.  These duties, if they become final, would very likely put a significant dent in American purchases of Chinese solar panels.  Moreover, it appears that the Commerce Department even took the unusual step of using, at the request of the US solar industry, Thai production costs to determine the level of dumping, instead of Indian costs (which they almost always use in Chinese AD cases).  Considering that petitioners advocated this atypical move, it's all but certain that it increased preliminary duty margins.  That's not something that a soft-pedaling agency acting pursuant to a secret Presidential mandate would do.  Instead, it's quite clear that, as I've repeatedly stated, the agency's actions are on "autopilot" based on existing laws and regulations - laws and regulations that are extremely sympathetic to domestic producers and their unions. [Ed. note: edits above are based on the helpful comment from Andy Schultz below. I totally forgot about this change - my apologies... although this should serve as a helpful reminder that I'm not representing anyone in a Chinese AD/CVD case right now!]

Second, today's decision makes clear that the breathless claims of the Obama administration and domestic petitioners that the elimination of Commerce's ability to impose countervailing duties (CVDs) on NME imports would make US manufacturers and workers vulnerable to a devastating tidal wave of unfair Chinese imports.  As you'll recall, that was these folks' primary argument when begging Congress to pass a law overturning the decision of the Court of Appeals for the Federal Circuit in GPX Int'l Tire Corp. v. United States that Commerce lacked the legal authority to impose CVDs on NME imports.  I and a few others argued at the time that this claim was nonsensical because, among other things, the agency could still impose AD duties on these same imports, and those duties tended to be much higher than the concomitant CVDs.  Although Congress all-too-willingly complied with the administration's desperate request and passed the new (and constitutionally suspect) CVD/NME law, today's decision confirms our reality-based view (for whatever that's worth).  [Note: speaking of the CVD/NME issue, there's not a peep from Commerce about "double counting."]

Third, the Chinese industry's response to today's announcement also underscores the folly of bilateral protectionism due to the reality of "trade diversion."  As noted in the New York Times, if these tariffs are ultimately imposed, the result might not be more US production, but instead a shift in production to other markets:
Isabelle Christensen, the marketing director of JinkoSolar, another Chinese manufacturer, said that the company had already established a factory in Canada and could probably shift production there if necessary.

“We can begin ramping up our manufacturing facility in Canada fairly quickly,” she said, matching what the company produces in China for the American market in a matter of months.
According to an industry-watcher I spoke with today, JinkoSolar is not alone: other producers he interviewed also expressed similar plans.  And, assuming these solar panels are properly marked and produced in Canada or other AD-duty-free jurisdictions, there's nothing that the United States government or the US industry can do about it except launch another AD/CVD investigation.  And, if they do, this silly game of "whack-a-mole" will continue.

That's not to say, of course, that today's decision is harmless, and this brings me to my fourth and final (for now) point about today's decision: US consumers stand to get pummeled if it becomes final - a point made clear by Mark Perry's creative revisions to the aforementioned NYT article (all edits his):
"The United States Commerce Department said Thursday that it has decided to impose tariffs (taxes) of more than 31 percent on Americans who purchase solar panels imported from China, after concluding that Chinese producers had generously“dumped” lowered the prices of solar panels on the American market for to less than it costs to manufacture and ship them,saving Americans millions of dollars.  
The tariffs, which are retroactive to 90 days before the decision, are in addition to anti-subsidy tariffs (taxes) of 2.9 percent to 4.73 percent that the department imposed on American consumers in March. Since Chinese panels make up a large portion of the American market, the combined anti-dumping and anti-subsidy tariffs are likely to mean a substantial increase in the price of solar panels here for American consumers
According to Commerce's fact sheet, these American consumers imported $3.1 billion worth of Chinese solar panels in 2011.  If a 31% "dumping" tax had been added to those imports, American consumers would've paid an extra $1 billion to Uncle Sam for the "right" to buy solar panels from China.  Ouch.

And let's please not forget that most members of Congress applaud the government's tax-collection efforts and, in fact, just passed a law to make sure that they can continue unabated.  Why such votes go unchallenged by the media, most voters and, sadly, even a "free market" think thank or two defies all logic.

Maybe today's solar panels decision will help change that, but I doubt it.

[Concluding note: If you're not worn-out by the analysis above, Cato's Dan Ikenson has more on today's decision, noting the abject insanity of the Obama administration's (and certain Congressmen's) "subsidy and tax/tariff" plan with respect to solar panels and other "green" goods.]


Andy Schutz said...


Just a quick clarifying note. The Department has now moved away from India as the surrogate country in every dumping case so it was not very unexpected here. India is no longer on the list of economically comparable countries (compiled by GNI). They have been off the list for about a year now.

Now its anybody's guess what the surrogate country will be in a given case making these already unpredictable cases even more so. So far, surrogate countries have included the Ukraine, Indonesia and Thailand.

Just when you think Department practice is getting better or you've had some decent court wins (GPX!), they change the rules on you.

Great blog by the way.

- Andy Schutz, GDLSK

Scott Lincicome said...

Yikes. Thanks, Andy. I totally forgot about that change and have revised the post accordingly.

(And thanks for the kind words about the blog!)

Anonymous said...

Great Blog.

What are the high level criteria for choosing a surrogate country? On instinct I'd go with Taiwan in this case because they have a well developed solar industry. I'd rate this specific factor much higher than any macro-socioeconomic considerations.

Anonymous said...

I believe I found the info I was looking for.

The document is from 2007 but the criteria make sense. Thailand shouldn't be used as a Surrogate in this case because they don't have significant production of comparable merchandise.

Following the comparable industry criteria you're left with PI, Vietnam, Malaysia, South Korea, Japan and Taiwan. Logically, you'd have to apply the GNI rules to this short list - but what do I know.

Scott Lincicome said...

Thanks, anon. DOC's AD manual lays it out pretty clearly:

Start on p. 12.

And, trust me, you shouldn't be surprised that these procedures aren't the most logical/reasonable in the world. Logic and reason are, unfortunately, not the point. If they were, the US government would consider importer/consumer interests, and have a lot fewer cases. Alas.

Photomofo said...

Ahh... That's what I was looking for. Thanks for linking to the relevant document.