US Closes Solar Tariff Loophole

Doug Young

In a move that should surprise no one, the US has announced it will levy new punitive tariffs on China-made solar panels to close a loophole from an earlier ruling. This move won’t help anyone and could seriously stifle the industry’s development just as it starts to emerge from a prolonged downturn. It also looks worrisome from a broader perspective for Chinese panel makers, since signs are emerging that their products could also be shunned in Japan and India, 2 of the world’s other promising emerging markets for solar power plant construction.

I’ll return to the Japan and India angle shortly, but let’s start with the latest news that comes in the form of a new ruling by the US International Trade Commission (ITC). (English article) A panel recommended earlier this year that the ITC should levy anti-dumping tariffs against Chinese solar panels that were made with cells produced outside the country in places like Taiwan. Such cells are the main component used to make finished solar panels.

The ITC had ruled in 2012 that Chinese solar panels received unfair government support through policies like cheap loans from state-run banks and export rebates, and imposed anti-dumping tariffs against the products. But the Chinese manufacturers used a loophole to skirt the punitive tariffs, which didn’t apply to panels that were made using solar cells manufactured in other countries. Now the ITC is moving to formally close that loophole with this latest ruling.

Under the new preliminary ruling, the US Commerce Department has recommended preliminary duties of up to 35.21 percent on Chinese-made panels that had avoided the punitive tariffs through the loophole. Some duties are a bit lower, with one report pointing out that panels from Trina Solar (NYSE: TSL) will be subject to punitive tariffs of 18.56 percent. Actual amounts could differ slightly, but I do expect the tariffs will get finalized later this year and deal a new blow to the Chinese panel makers.

We’ll probably see a flood of disappointed statements from the Chinese panel makers soon, and Germany’s SolarWorld (SRWRF), which has initiated most of the complaints, was quick to issue its own praise for the latest decision. (company announcement) There’s still time for the 2 sides to negotiate a settlement before the tariffs are finalized, which is what happened with a similar complaint in Europe last year. But based on the recent climate of hostilities between the US and China, I doubt we’ll see such conciliatory actions take place.

This latest US move, while quite expected, is casting yet another shadow over solar panel makers just as it appeared the sector’s woes from a recent supply glut were in the past. India announced late last month it would levy anti-dumping tariffs against Chinese and US solar panels, in what looks like a highly protectionist move to promote its small homegrown industry. (previous post)

Meantime, I’m hearing that Japanese banks are making similarly protectionist noises by refusing to finance any new solar power projects in Japan unless they use panels made by local companies. That’s certainly not a positive sign, since Japan is quickly emerging as one of the world’s biggest hot spots for new solar plant production as the country seeks to diversify from its previous heavy reliance on nuclear power.

At the end of the day, all of these protectionist measure will slow development of the global solar sector. US and European companies should enjoy relatively free access to each others’ markets, and Chinese and Japanese companies will inevitably dominate solar power building in their respective home markets. But lack of competition means prices will probably remain artificially high in many of those markets, making construction of new plants less commercially attractive than it would be under a more competitive environment.

Bottom line: The latest US anti-dumping ruling against Chinese solar panels is the latest sign of a rapidly emerging protectionist mentality in the sector, which will keep prices artificially high and stifle development.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.