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Solar Trade War: Finding PV Peace amidst Clashing Factions

Solar has the potential to reinvent the way the world powers itself. Already a $100 billion industry, solar must be considered a key element in the world's response to climate change and the global need to reduce fossil fuel consumption. Global trade issues, however, threaten the ability of the solar industry to make a major contribution to the most pressing issue of our time. While countries try to fine-tune and engineer fair trade policies, the world grows warmer. We need to find a way through the current crisis and mobilize all stakeholders in the industry — and that includes just about everyone — to help resolve trade conflicts and remove trade barriers that thwart the rapid adoption of renewable energies. If we're serious about solar energy adoption, we need solutions to the world's current trade conflicts.

Where We Are Today

The solar industry has grown by leaps and bounds for over a decade, largely due to supportive public policies adopted for both regional economic development and climate change objectives such as fossil fuel and carbon emissions reduction.  Many countries saw solar energy as a source for “green” jobs and offered tax incentives, favorable loan guarantees, net metering, RECs, and other programs designed to accelerate solar adoption and energize sluggish economies still recovering from the global recession.  Heavily capitalized solar companies emerged on every continent, especially in China, and the global solar market became characterized by unbridled competition, falling prices and disappearing profits.

Last year, after a year-long investigation into anti-dumping and countervailing petitions, the U.S. Department of Commerce imposed combined final tariffs ranging from 34 percent to 47 percent on most solar panels imported from China (and up to 265 percent for certain producers). Anticipating the outcome of the U.S. ruling, a group of European companies filed a petition with the European Commission who accepted the case and initiated an investigation. The case is the largest anti-dumping investigation in Europe’s history.  Results of the investigation are expected later this year. 

Not surprisingly, China’s reaction to U.S. and European Union actions has been swift and severe, claiming the U.S. has violated its World Trade Organization (WTO) obligations and citing the U.S. support of companies like Solyndra and grants to major polysilicon manufacturers as examples of unfair competition. China also filed a WTO complaint late last year charging the EU with illegally subsidizing its solar-components industry in Italy, Greece and Germany.

Trade disputes are not limited to just China, the U.S. and EU.  The first significant solar trade dispute began in 2010 when Japan and the EU filed a WTO case against Canada over the province of Ontario’s feed-in tariff program that included a local content requirement.  The Indian government has also initiated investigations against multiple nations. Last year, a coalition of Indian companies asked the Ministry of Commerce and Industry to impose duties of up to 200 percent on solar products from the U.S., China, Malaysia, and Taiwan.

These trade conflicts stifle investment, innovation and adoption of solar energy on a global scale and distract from the industry’s need for a practical and comprehensive solution to open trade.  The world, as author Thomas Friedman says, is flat.  Interconnected, global supply chains drive down costs and spur innovation, both critical and necessary requirements for the continued growth of solar power.  Equipment and materials providers on one continent need to sell to customers around the world to amortize their R&D and capital investments; cell and module makers need to deploy high-volume production and leverage economies of scale to reach price points necessary to displace fossil fuels.  Trade frictions and barriers can paralyze an entire segment. We all need a solution that supports free and open trade.

Where We Need to Go

While current trade actions will have their own independent adjudication and resolution processes, in the longer term, a comprehensive, global approach to free trade on PV and renewable energy products is needed to sustain a healthy industry focused on replacing fossil fuels. The key model for such an agreement can be found in the World Trade Organization’s Information Technology Agreement (ITA), adopted in 1996 that eliminated all tariffs on information technology products and manufacturing equipment. Today, over 70 countries have signed the agreement representing 97 percent of world trade in information technology products.  At the time of its adoption, semiconductors and information technology had undergone years of similar trade friction as policymakers around the world attempted to encourage the development of new IT industries and promote domestic manufacturing.  The ITA was the culmination of the widespread recognition that free and open trade ultimately benefits companies and consumers in all countries. The ITA helped unleash the Information Age; we need a similar spur for renewable energy.

The ITA is only one of several possible paths forward.  In 2012, at the APEC Economic Leaders’ Meeting in Vladivostok, Russia, officials reached an agreement to reduce tariffs on 54 environmental goods, including PV cells and modules. Representatives from all 21 APEC economies approved the list and committed to reduce applied tariffs on these goods to 5 percent or less by the end of 2015. Details of the non-binding agreement are not worked out yet, and there remain questions on enforcement, but participants in the agreement have demonstrated a consensus can emerge on difficult free trade issues in the renewable energy sector. 

Other trade mechanisms that may yield results include the Trans-Pacific Partnership (TPP) currently being negotiated by 11 Pacific-Rim countries; the Regional Comprehensive Economic Partnership (RCEP), a proposed trade deal among members of the Association of Southeast Asian Nations; and the U.S.-EU trade negotiations, recently highlighted in President Obama’s State of the Union Address.  Unfortunately, these regional approaches do not include all key stakeholders. The TPP leaves out China, India and the EU, the RCEP omits the U.S. and EU, and the EU-U.S. deal omits China, India and others. Even so, successful multilateral agreements may be extended and replicated elsewhere.

The growing list of trade disputes represents just one type of trade barriers that are proliferating and encumbering the deployment of renewable energy.  Other trade and market barriers have arisen in areas related to investment, government procurement, local content requirements, and conflicting standards and certification requirements.  PV solar and other renewable energy industries must begin the long and difficult process of harmonizing standards, reducing unproductive tariffs, providing a process for prompt trade conflict resolution, and other global agreements that allow us to focus accelerating adoption of renewable energy. 

Despite differing regional perspectives, we call on the global industry and supporting organizations to rise to the occasion and works towards an agreement on the universal need and willingness to elevate the trade dialogue beyond litigation. With average annual temperatures growing faster than worst case scenarios, the phrase “united we stand, divided we fall” is an appropriate description of the global solar industry’s current position on global trade.

Join us. Let’s move the industry forward. 

For more information, visit  www.pvgroup.org and download “Global Trade War and Peace: Unified Approaches to a Global Solar Energy Solution.”

Lead image: Peace sign via Shutterstock

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