James Montgomery, News Editor, RenewableEnergyWorld.com
March 22, 2012 | 15 Comments
New Hampshire, U.S.A. -- As widely expected, the U.S. Department of Commerce (DOC) has ruled in favor of American solar manufacturers, who accused Chinese rivals of benefiting unfairly from their own export subsidies. Unexpectedly, though, are the modest numbers — just 3 to almost 5 percent countervailing duties (CVD). We've read through the decision and asked a handful of industry watchers what the main takeaways should be.
Why Were the Tariffs Lower Than Thought?
Simply put, the Department of Commerce did the math. In its 62-page ruling the DOC lays out in great detail how it determined what the Chinese firms received in subsidies and what could count as unfair, then what extra tariff would be needed to rebalance the equation for U.S. imports. (This was no easy task, as the DOC repeatedly explains that the Chinese government was less than helpful in providing information.) Simple as that.
Similarly, the reason for three levels of tariffs is also based purely on numbers that the DOC had access to regarding Chinese government subsidies. Maxim Group analyst Aaron Chew has a nice graphic showing all the Chinese subsidies that the DOC could identify, and how they impacted specific tariff levels for Suntech and Trina, who were selected in the DOC's investigation as "mandatory respondents" because they were the two largest producers and exporters to the U.S. based on aggregate value. The chart is tough to read at this size, but you can see there are subsidies for official programs ("Golden Sun," "Two Free, Three Half"), benefits in policy lending, tariffs/value-added taxes, land use, etc. ("LTAR" is an acronym for "less than adequate remuneration.")
Trina and Suntech's different exposure to certain Chinese subsidy programs. (Source: Maxim Group, Department of Commerce)
Note in that graphic, the bar for "polysilicon" is the second biggest chunk of Trina's determined subsidization, at 0.72 percent. Chew says this number is in reference to Chinese polysilicon supplier GCL Poly, which he dubs "the Intel of solar" because of its ubiquitous influence on the sector and which, he says, has been questioned for its ties to the government. (See below, "How China Will Respond," for more on GCL's influence in this case and beyond.)
Do the Lower CVD Tariffs Suggest Anything About the Upcoming Antidumping Decision?
Skeptics and conspiracy theorists, we hear you: it's all backroom politics, everything is negotiable, trust no one, etc. But let's assume that the DOC is above-board on this and purely looks at numbers, not like a table-banging House Oversight Committee. Resist the urge to "read-through" into whether these lower-than-expected tariffs pave the way for stiffer antidumping (AD) penalties coming up. These are two related cases, but they're officially two different investigations with different rules and principles.
That said, antidumping penalties that have been applied in other industries tend to be higher than the CVD ones. So the 20 to 30 percent levels that many in the industry were expecting could very well come true for both cases in aggregate.
What's the Takeaway for U.S. Solar Manufacturers?
It would seem clear, based on the DOC's numbers, that Chinese companies aren't as heavily subsidized as many believed, and thus it's not having as much of an impact. That's "a relatively positive outcome" for CASE and its followers who argue this dispute hurts the solar sector overall. On the other hand, it's still an official determination that Chinese solar suppliers are in fact getting unfairly helped by their government, it's hurting U.S. companies to a measurable degree, and government intervention is required — so CASM and members, take heart. And maybe that double-read is the way the preliminary ruling was intended.
"It basically shows they're trying to accommodate everyone, and make everyone happy," suggests Fatima Toor from Lux Research. "Everybody recognizes that it won't be a good idea for the U.S. Department of Commerce to put huge tariffs on modules."
There's another angle to be played out here: precedence. A favorable U.S. ruling in SolarWorld's pocket increases the chances that it'll find sympathy in Europe should it choose to open a case there. "The larger risk is that SolarWorld expands the case to Europe, and/ or Chinese polysilicon retaliates against U.S. and Korean polysilicon companies which have received government incentives," says Jefferies analyst Jesse Pichel.
What's also clear is that the tariff cannot mask the broader concerns for global solar markets: it's a tough business lately, and companies are losing money. Chinese solar stocks that shot up after the DOC ruling was announced, just as quickly fell back to earth within a day as investors realized the bigger picture hasn't changed. "It is premature to call the decision a victory," says Pichel. Ultimately the effect of a duty is the same, large or small: Chinese companies will see their costs rise (and thus pricing all the way down the chain), either by shipping Chinese products directly to the U.S. and suffering the tariff, or outsourcing some production to other nations to get around the tariff.
What Will Chinese Suppliers Do?
Chinese firms also have seen this decision coming. Some allegedly ramped up their exports to the U.S. in late 2011 ahead of such a ruling (hence the pending antidumping claim, with possible separate penalties). And they've also been preparing ways to get around the tariff by sending some production to other countries before exporting to the U.S., a practice called "tolling."
And buried within the DOC decision is a key clarification that might help them do just that. The DOC says it will include imports of solar cells made in China, and modules/panels/laminates produced in China or elsewhere from Chinese-made solar cells — but specifically excludes products coming from China that were made from cells produced anywhere else. Thus, Chinese firms could outsource production of the cells themselves, say to neighboring Taiwan just across the strait, or to other nearby Asian countries such as Malaysia or the Philippines — ship the materials out, have the cells made, and then either ship them back to China to be made into modules, or keep them offshore and have modules made and exported from there.