Trade Group Offers Plan For US-China Solar Spat

Solar group offers solution for US-China trade spat

Following a landmark compromise in July that averted a China-EU trade war over solar panels, a major US trade group is offering its own proposal to end a similar spat between the US and China. While I’m no expert on this matter, I do think this latest plan from the US Solar Energy Industries Association (SEIA) looks quite interesting and promising, both for its content and also because the group has engaged many of the parties involved in both the US and China. Not surprisingly, at least one major voice has already spoken out against the plan, with SolarWorld expressing skepticism about the proposal.

I can somewhat understand SolarWorld’s concerns, since it is one of the big western players to suffer major fallout in the current downturn for this promising sector that will be critical to the world’s future energy security. But that said, the current US anti-dumping tariffs against Chinese solar firms don’t seem like a good long-term solution to the problem, which centers on unfair state support for Chinese companies like Trina (NYSE: TSL) and Yingli (NYSE: YGE) that supply up to 80 percent of the world’s solar panels.

So let’s take a look at this new plan from the SEIA, which looks quite different from the compromise earlier this year that averted a similar crisis between China and the European Union. (previous post) The EU compromise was relatively straightforward, with Chinese firms agreeing to voluntarily raise their prices to offset the government support they receive through policies like cheap loans and tax incentives. That solution may work for the short term, but it’s not very flexible for longer term price fluctuations as new technologies enter the market and government policies change.

By comparison, the SEIA plan looks a bit more flexible and therefore better suited to the industry’s longer-term development. (SEIA announcement) At the center of its proposal, the SEIA suggests making the Chinese manufacturers set up a fund that could help to compensate US rivals for some of their losses due to unequal state support. It also offers protective mechanisms to ensure against a flood of Chinese-made solar panels entering the US market.

In exchange for those and other conditions, the US would drop its anti-dumping tariffs against Chinese solar cells. China would also agree to end its threatened plan to impose retaliatory anti-dumping tariffs against US-made polysilicon, the main ingredient used in making solar panels. The SEIA said it forged the plan in consultation with many of the parties involved, including government and industry players in both the US and China.

In response to the plan, SolarWorld, which also represents a coalition of industry players, voices skepticism due to China’s history of “predatory market and trade practices”. (company statement) In SolarWorld’s defense, I do understand why it might be skeptical of any settlement, since China’s policy-oriented solar build-up has been the main reason for the industry’s current woes. But that said, keeping the US anti-dumping tariffs in place hardly seems like a good long-term solution for this important sector.

So what’s likely to happen next? The EU-China settlement has already shown that both sides wanted to avert a trade war, and I think this latest plan shows that US companies also realize that trade wars in general won’t help the industry in the long term. Accordingly, I expect we’ll see this plan become the basis for new negotiations between Beijing and Washington, which could ultimately result in a final settlement in the next year. That would see the US phase out its punitive tariffs, allowing the industry can get back to the important business of developing the products and technologies to ensure the world’s long-term energy security.

Bottom line: A new plan by a US solar group will form the basis for settlement of a US-China solar panel trade dispute, which could come in the next year.

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